<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1996
REGISTRATION NO. 333-06609
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- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4
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
Federal Income Tax Consequences
10. Interests of Named Experts and
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>
[MAP TO COME]
<PAGE>
<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 AUGUST 12, 1996
PROSPECTUS
- - ----------
[LOGO OF SPRINT(R) APPEARS HERE]
$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"). While Sprint Spectrum
and FinCo are jointly and severally liable for the obligations under the Notes,
FinCo, a wholly-owned subsidiary of Sprint Spectrum, has only nominal assets,
does not conduct any operations and was formed solely to act as a co-issuer of
the Notes. The Senior Notes and the Senior Discount Notes are non-recourse to
Sprint Spectrum Holding Company, L.P. ("Holdings"), the partners of Holdings
and the parents of such partners. The Senior Discount Notes will be issued at a
discount to their aggregate principal amount at maturity and will generate
gross proceeds to the Issuers of approximately $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)
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Senior Note........ % % % %
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Total.................. $ $ $ $
- - ----------------------------------------------------------------------------------
Per Senior Discount
Note.................. % % % %
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Total.................. $ $ $ $
</TABLE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, in the case of the Senior Notes, and accrued
original issue discount, if any, in the case of Senior Discount Notes, in
each case from , 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, of Sprint Spectrum,
Holdings or a Special Purpose Corporation (as defined) in any such case,
resulting in gross proceeds of at least $100 million; provided that at least
65% of the originally issued principal amount of Senior Notes and 65% of the
originally issued principal amount at maturity of Senior Discount Notes would
remain outstanding immediately after giving effect to such redemption.
Holdings is the general partner of, and owns a greater than 99% general
partnership interest in, Sprint Spectrum.
The Notes will be senior unsecured joint and several obligations of the
Issuers ranking pari passu in right and priority of payment with all existing
and future indebtedness of the Issuers that is not by its terms subordinated
in right and priority to the Notes. A substantial portion of the assets of
Sprint Spectrum on a consolidated basis will be owned by Sprint Spectrum's
subsidiaries and, accordingly, claims of holders of the Notes will be
effectively subordinated to claims of creditors (including trade creditors) of
such subsidiaries. Sprint Spectrum and its subsidiaries are expected to incur
substantial additional indebtedness following the Offering, including up to
$3.1 billion under vendor credit facilities and $2.0 billion under a bank
credit facility.
In the event of a Change of Control (as defined) the Issuers will be
obligated to make an offer to purchase all outstanding Notes at a purchase
price equal to (i) 101% of the principal amount thereof, in the case of the
Senior Notes, plus accrued and unpaid interest, if any, thereon to the date of
purchase and (ii) (a) 101% of the Accreted Value thereof, in the case of the
Senior Discount Notes, if purchased on or before , 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." The Issuers do not intend to list the Notes on
any national securities exchange or include the Notes for quotation through an
inter-dealer quotation system.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used in this Prospectus, unless the context
otherwise requires, the term "Holdings" refers to Sprint Spectrum Holding
Company, L.P., and the term "Company" refers to Sprint Spectrum L.P. ("Sprint
Spectrum") and its direct and indirect subsidiaries, including Sprint Spectrum
Finance Corporation ("FinCo"), WirelessCo, L.P. ("WirelessCo"), Sprint Spectrum
Realty Company, L.P. ("RealtyCo") and Sprint Spectrum Equipment Company, L.P.
("EquipmentCo"). Sprint Spectrum and FinCo are collectively referred to as the
"Issuers." See "The Company" and "Business--General." Prior to July 1, 1996,
substantially all wireless operations of the Company and Holdings have been
conducted at Holdings and all assets, with the exception of the interest in
American PCS, L.P. ("APC") and the PCS (as defined under "--The Company")
licenses which are held by WirelessCo, have been held at Holdings. Holdings and
the Company are reorganizing (the "Reorganization") operations so that the
assets used in the Company's PCS business are owned by subsidiaries of Sprint
Spectrum and the investment in APC will be transferred to Holdings. Effective
July 1, 1996, Holdings' assets used in the Company's PCS business were
transferred to subsidiaries of Sprint Spectrum; the transfer of the interest in
APC is expected to occur after the Offering. Unless otherwise indicated, all
information in this Prospectus assumes that all elements of the Reorganization
have occurred; however, references to "Reorganized Sprint Spectrum" assume only
that the July 1, 1996 transactions have occurred. Certain of the statements
contained in this summary and elsewhere in this Prospectus, including
information with respect to the Company's expected PCS operations and buildout,
its strategy for its PCS business and related financings are forward-looking
statements. See "Risk Factors" for a discussion of important factors that could
affect such matters. The term population equivalents ("Pops") means the
Donnelley Marketing Service estimate of the December 31, 1995 population of a
geographic area. A glossary of additional terms appearing herein has been
included in this Prospectus. See "Glossary of Selected Terms."
THE COMPANY
Sprint Spectrum intends to become a leading provider of wireless
communications products and services in the United States. The Company is the
largest broadband wireless personal communications services ("PCS") company in
the United States in terms of total licensed Pops, with licenses (including
those to be contributed to the Company and those owned by licensees that have
affiliated or have agreed to affiliate with the Company) to provide service in
33 major trading areas ("MTAs") covering 190.9 million Pops (73% of the total
United States population), including eight of the nation's ten largest MTAs.
The Company intends to initiate the commercial launch of its service in the
fourth quarter of 1996 with service in all MTAs by the end of the first quarter
of 1997. Pop coverage at the end of the first quarter of 1997 is expected to
reach approximately 60% in the aggregate across all of the Company's markets.
The timing of launch in individual markets will be determined by various
factors, principally zoning and microwave relocation factors, equipment
delivery schedules and local market and competitive considerations. The Company
intends to continue to expand its coverage in its PCS markets to reach
approximately 70% of the Pops in its existing license areas in the aggregate by
the end of 1997. Thereafter, the Company will evaluate further coverage
expansion on a market-by-market basis, eventually targeting coverage of 80% of
the Pops in its existing license areas in the aggregate, thereby substantially
completing its planned network buildout of its existing license areas.
The general partner of Sprint Spectrum is Holdings, a limited partnership
formed by Sprint Enterprises, L.P., which has a 40% partnership interest in
Holdings, TCI Telephony Services, Inc. (as successor in interest to TCI Network
Services), which has a 30% partnership interest in Holdings, and Comcast
Telephony Services and Cox Telephony Partnership, each of which has a 15%
partnership interest in Holdings (collectively, the "Partners"). Each Partner
is both a general partner holding 99% of its interest as a general partner and
a limited partner holding 1% of its interest as a limited partner. Holdings has
a greater than 99% general partnership interest in the Company. The Partners
are subsidiaries of, respectively, Sprint Corporation ("Sprint"), Tele-
Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") and Cox
Communications, Inc. ("Cox" and, together with Sprint, TCI and Comcast, the
"Parents").
3
<PAGE>
The Company is at an early stage of development, has not commenced commercial
PCS operations and has no revenues from operations. The Company will require
significant funds for development, construction, testing and deployment of its
PCS network before commencement of commercial operations. The Partners have
agreed to contribute up to an aggregate of $4.2 billion of equity to Holdings
to the extent required by the annual budgets of Holdings through fiscal 1999 as
approved by the Partners. As of March 31, 1996, approximately $2.4 billion had
been contributed to Holdings, of which $2.2 billion had been contributed to the
Company and the remaining $0.2 billion had been contributed or advanced to APC.
The Company currently intends to obtain up to $1.4 billion of additional equity
following March 31, 1996 (of which up to $1.0 billion as of March 31, 1996 is
committed to be provided to the Company by the Parents to the extent required
by the Company to fund any projected cash shortfall), resulting in $3.6 billion
in aggregate invested equity capital in the Company. See "Description of Vendor
Contracts and Financing--Capital Contribution Agreement." There can be no
assurance that any additional capital will be obtained in the form of equity
from the Partners or otherwise. See "--Network Buildout and Financing Plan."
The Company was the successful bidder for 29 PCS licenses in the Federal
Communications Commission's ("FCC") A Block and B Block PCS auction which
concluded in March 1995. The Company's 29 wholly-owned markets cover 150.3
million Pops and include, among others, the New York, San Francisco, Detroit,
Dallas/Fort Worth and Boston/Providence MTAs. Additionally, Cox has agreed to
contribute to the Company, upon FCC approval which is pending, a PCS license
for the Omaha MTA that it purchased in the broadband PCS auction in March 1995.
In order to increase its Pop coverage, the Company has affiliated and expects
to continue to affiliate with other PCS providers, including those in which
Holdings or affiliates of its Partners have an interest. Pursuant to
affiliation agreements, each affiliated PCS service provider will be included
in the Company's national network and will use the Sprint(R) (a registered
trademark of Sprint Communications Company, L.P.) brand name. Each affiliated
PCS provider will sell and market Sprint wireless products and services in its
respective territory (and earn the revenues from such sales) and is expected to
pay to the Company an affiliation fee (which may take the form of up-front
and/or ongoing fees), agree to adhere to certain network technical standards
and agree to provide certain wireless communication products offered by the
Company. The Company may perform various services for the benefit of the
affiliates, including, but not limited to, advertising, inventory management,
sales and market support and customer service. Holdings owns a 49% limited
partnership interest in APC, which owns a PCS license for, and operates a
broadband PCS system in, the Washington D.C./Baltimore MTA. APC has affiliated
with Sprint Spectrum and is marketing its products and services under the
Sprint brand name. APC launched its PCS service in November 1995 and is the
nation's first commercially operational PCS system. As of May 15, 1996, APC had
approximately 80,000 subscribers. See "Business--General" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Holdings also expects to acquire a 49% limited partnership interest in Cox
California PCS, L.P. ("Cox-California"), a partnership that will be formed to
hold a PCS license for the Los Angeles-San Diego MTA covering 21.5 million
Pops. Cox, which currently owns this license, has agreed to contribute the
license to Cox-California and will manage and control Cox-California. The
Company expects to sign an affiliation agreement with Cox-California by the end
of the third quarter of 1996. At the same time, the Company also expects to
affiliate with, and provide various services to, PhillieCo, L.P. ("PhillieCo"),
a limited partnership organized by and among subsidiaries of Sprint, TCI and
Cox, that owns a PCS license for the Philadelphia MTA. In addition, as part of
an overall strategy to increase the Company's Pop coverage, either or both of
Holdings and the Company may elect to bid on, or affiliate with or invest in
other entities who are bidding on, PCS licenses to be awarded in the FCC
auction of PCS licenses for the D, E and F Blocks.
4
<PAGE>
The table below presents the owned and affiliated Pops after giving effect to
such affiliation arrangements:
<TABLE>
<CAPTION>
1995 AVERAGE LICENSE
POPULATION PURCHASE PRICE
OWNED/AFFILIATED # OF MTAS IN MTA(S) PER 1990 POP(1)
---------------- --------- ------------- ---------------
(MILLIONS)
<S> <C> <C> <C>
Owned.................................... 29 150.3 $14.54
Omaha (to be contributed by Cox)(2)...... 1 1.7 $ 3.06
Affiliated:
APC (Baltimore/Washington)(3).......... 1 8.3 $13.16
Cox-California (Los Angeles/San Die-
go)(4)................................ 1 21.5 $13.16
PhillieCo (Philadelphia)(5)............ 1 9.1 $ 9.52
--- -----
Total................................ 33 190.9
=== =====
</TABLE>
- - --------
(1) Cost to winning bidder in FCC auction(s) or in connection with the award of
Pioneer's Preference license (as defined under "Business--Regulation").
(2) Contribution will be credited towards capital contributions required of Cox
under the Holdings Partnership Agreement (as defined under "The Partnership
Agreements") to the same extent as if Cox had made a cash contribution in
an amount equal to the sum of (i) $995,564, together with interest at the
annual rate of 13.4% computed from November 17, 1994 through the date the
Omaha license is contributed, plus (ii) $4,062,400, together with interest
at the annual rate of 13.4% computed from June 30, 1995 through the date
the Omaha license is contributed.
(3) Holdings owns a 49% limited partnership interest in APC, which has signed
an affiliation agreement with the Company.
(4) Holdings intends to acquire a 49% limited partnership interest in, and the
Company expects to sign an affiliation agreement with, Cox-California.
(5) Owned by subsidiaries of Sprint, TCI and Cox. The Company expects to sign a
services and affiliation agreement with PhillieCo.
5
<PAGE>
STRATEGY
The Company intends to achieve its objective of becoming a leading provider
of wireless communications products and services in the United States by
employing strategies for network construction, service offering, branding and
marketing which utilize the Company's competitive advantages. These competitive
advantages are expected to include:
. State-of-the-art technology. The Company is implementing a state-of-the-
art PCS network using Code Division Multiple Access ("CDMA") digital
technology which, the Company believes, provides benefits relative to
current analog systems. The Company believes that its digital technology
will increase system capacity by approximately 7 to 10 times, offer
better call quality and clarity and provide a wider variety of advanced
features and applications.
. National network. Sprint Spectrum intends to offer wireless service on a
national basis with a single technology (CDMA) operating on a uniform
spectrum (1.9 GHz), thereby providing consistent functionality and high
quality service. The Company currently owns (including the Omaha license
to be contributed to the Company), or expects to have affiliate
relationships with PCS providers who own, PCS licenses covering 190.9
million Pops and intends to pursue additional coverage on a market-by-
market basis through license acquisitions and affiliation or resale
agreements with other CDMA-based PCS providers. Together the Company and
other PCS licensees that have announced their intentions to implement
CDMA technology, have licenses covering territories representing
approximately 89% of the United States population. The Company expects to
gain cost advantages in purchasing power, operations and marketing
because of the national scope and operating scale of its network. The
Company believes it will have the flexibility to utilize pricing and
promotional programs on a national basis to provide incentives for
customer subscription and increased usage.
. National brand. The Company will market and promote its wireless products
and services under the Sprint brand which is one of the most widely
recognized and respected brands in the telecommunications market. The
Company expects that the use of the Sprint brand will build consumer
confidence and accelerate consumer acceptance of the Company's products
and services.
. Strong Parent sponsorship. The Company intends to capitalize on the
communications expertise of the Parents, including local exchange carrier
services, cable television services and long distance telephone services.
In addition, the size and breadth of the customer base of each Parent
provides a key advantage for the Company's distribution and marketing
efforts. Subject to certain exceptions, the Parents and the Company
intend to cross-market the Company's wireless services with the long
distance, local telephone and cable-based entertainment services of the
Parents in order to accelerate subscriber growth and increase retention
rates while improving overall customer satisfaction. Sprint has a
combined customer base of 14 million long distance and local telephone
subscribers and TCI, Comcast and Cox (collectively, the "Cable Parents")
have 20 million cable television customers. See "Business--Relationship
with Partners and Parents."
6
<PAGE>
NETWORK BUILDOUT AND FINANCING PLAN
The Company intends to initiate the commercial launch of its service in the
fourth quarter of 1996 with service in all MTAs by the end of the first quarter
of 1997. Pop coverage at the end of the first quarter of 1997 is expected to
reach approximately 60% in the aggregate across all of the Company's markets.
The timing of launch in individual markets will be determined by various
factors, principally zoning and microwave relocation factors, equipment
delivery schedules and local market and competitive considerations. The Company
intends to continue to expand its coverage in its PCS markets to reach
approximately 70% of the Pops in its existing license areas in the aggregate by
the end of 1997. Thereafter, the Company will evaluate further coverage
expansion on a market-by-market basis, eventually targeting coverage of 80% of
the Pops in its existing license areas in the aggregate, thereby substantially
completing its planned network buildout of its existing license areas.
The Company is developing a network infrastructure, including network
management systems, to support a range of wireless services, including voice,
data, messaging, paging and facsimile. A planning and engineering team,
comprised of approximately 1,500 engineering and operations employees and
thousands of independent contractors, consultants, agents and other third
parties, is designing and constructing the Company's network based on national
and regional marketing product requirements to meet the Company's targets for
consistency, uniformity and reliability.
The Company has selected Lucent Technologies Inc. ("Lucent") and Northern
Telecom Inc. ("Nortel" and, together with Lucent, the "Vendors"), two of the
leading telecommunications equipment manufacturers, to construct the Company's
wireless network. The Vendors were selected because of their extensive
experience in wireless technology and their willingness to deliver against
specifications developed by the Company. The Company has entered into
procurement and services contracts (the "Procurement Contracts") with each of
Lucent and Nortel pursuant to which the Vendors will bear a significant portion
of the responsibility for the construction of the Company's network. To
mitigate against a substantial portion of the risks of completion delay and
performance of the network and to ensure the Company has received competitive
terms and conditions, the Procurement Contracts include, among other things,
deferred payment schedules, liquidated damages provisions, extended warranty
periods and "most favored customer" status.
The buildout of the Company's PCS network and the marketing and distribution
of the Company's PCS products and services will require substantial capital.
The Company currently estimates that its capital requirements (capital
expenditures, the cost of its existing licenses, working capital, debt service
requirements and anticipated operating losses) for the period from inception
through the end of 1998 (assuming substantial completion of the Company's
network buildout to cover 80% of the Pops in its current license areas in the
aggregate by the end of 1998), will total approximately $7.9 billion (of which
approximately $2.2 billion had been expended as of March 31, 1996). The Company
will also require substantial additional capital for new license acquisitions
or investments in entities making license acquisitions (if any) and, after
1998, for coverage expansion, volume-driven network capacity and other capital
expenditures for existing and new license areas (if any), working capital, debt
service requirements and anticipated further operating losses. The Company will
have certain commitments that must be funded in any event, including lease
obligations for cell and switch sites, minimum purchase obligations under the
Procurement Contracts and amortization under the Secured Financing (as defined
in the second succeeding paragraph). Actual amounts of the funds required may
vary materially from these estimates and additional funds would be required in
the event of significant departures from the current business plan, new license
acquisitions, unforeseen delays, cost overruns, unanticipated expenses,
regulatory changes, engineering design changes and other technological risks.
The Company currently has no sources of revenue to meet its capital
requirements. The Partners have agreed to contribute up to an aggregate of $4.2
billion of equity to Holdings, to the extent required by the annual budgets of
Holdings through fiscal 1999 as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company currently intends to obtain up
to $1.4 billion of additional equity following March 31, 1996, resulting in
$3.6 billion in aggregate invested equity capital in the Company, although
there can be no assurance that any additional capital will be obtained in the
form of equity from the Parents or otherwise. The Parents have committed to
make available to the Company or cause Holdings to make available to the
Company up to $1.0 billion of such additional equity, to the extent required by
the Company to fund any projected cash shortfall, under a Capital Contribution
Agreement among Sprint Spectrum and the Parents that provides for $1.0 billion
in aggregate equity commitments (less, subject to
7
<PAGE>
certain exceptions, amounts of cash equity contributed to Sprint Spectrum after
December 31, 1995). At March 31, 1996, approximately $1.0 billion was available
under the Capital Contribution Agreement. The Company's business plan and the
financial covenants and other terms of the Secured Financing will require such
additional equity financing prior to the end of 1998, absent a new financing
source. The $1.0 billion portion of the $4.2 billion not invested in the
Company that may be available to Holdings from the Partners may be used by
Holdings to fund Holdings' other affiliate commitments, to make other wireless
investments and/or to make new license acquisitions. The Partners are not
obligated to make capital contributions to Holdings in excess of amounts
contributed through December 31, 1995 and amounts covered under the Capital
Contribution Agreement for the benefit of the Company, except to the extent
required by the annual budgets of Holdings. There can be no assurance that
these funds will be made available by the Parents. See "Risk Factors--
Substantial Capital Requirements and Liquidity; Highly Leveraged Capital
Structure." See also "Description of Vendor Contracts and Financing--Capital
Contribution Agreement" and "The Partnership Agreements--Holdings Partnership
Agreement--Capital Contributions" for a discussion of the equity capital
commitments to Holdings and Sprint Spectrum.
Sprint Spectrum has obtained commitment letters for up to an aggregate of
$5.1 billion of senior secured loans from certain third-parties. Sprint
Spectrum has obtained a commitment letter from Nortel in which Nortel has
committed to provide up to $1.3 billion in senior secured loans (the "Nortel
Financing") to finance purchases of Nortel's PCS equipment and related
services. Sprint Spectrum has also obtained a commitment letter from Lucent to
provide up to $1.8 billion in senior secured loans (the "Lucent Financing" and,
together with the Nortel Financing, the "Vendor Financing") to finance
purchases of Lucent's PCS equipment and related services. Under the Procurement
Contracts, the Company is required to purchase minimum amounts of equipment and
services from each Vendor. Sprint Spectrum has also obtained a commitment
letter from Chase Securities Inc. and The Chase Manhattan Bank ("Chase") in
which Chase has committed to provide a $2.0 billion fully underwritten senior
secured credit facility (the "Bank Credit Facility" and, together with the
Vendor Financing, the "Secured Financing") to finance working capital, capital
expenditures, operating losses and other partnership purposes. There can be no
assurance that the conditions to the commitments under the Vendor Financing or
the Bank Credit Facility will be met. See "Description of Vendor Contracts and
Financing."
The following table describes the estimated sources and uses of capital by
the Company since inception and through 1998, assuming the Company covers
approximately 80% of the Pops in its current license areas in the aggregate,
thereby substantially completing the planned buildout of its PCS network. See
"Business--Network Buildout." This table is based on certain assumptions as to
the terms and covenant requirements of the Secured Financing and as to how the
Company will elect to use available amounts under those facilities. See "Use of
Proceeds" and "Description of Vendor Contracts and Financing."
<TABLE>
<CAPTION>
SOURCES:
-------- (IN BILLIONS)
<S> <C>
Equity Contributions Received(1)............................... $2.2
Vendor Financing(2)............................................ 2.6
Bank Credit Facility(3)........................................ 1.1
Net Proceeds to the Company from the Offering.................. 0.6
Unfunded Equity and Future Capital Required(4)................. 1.4
----
Total Sources................................................ $7.9
====
USES:
Existing PCS Licenses.......................................... $2.1
PCS Network Buildout........................................... 3.8
Cash Debt Service Requirements(5).............................. 0.2
Operating Losses and Working Capital........................... 1.8
----
Total Uses................................................... $7.9
====
</TABLE>
- - --------
(1) As of March 31, 1996.
(2) Sprint Spectrum has obtained commitments from Nortel for an aggregate $1.3
billion secured credit facility and from Lucent for an aggregate $1.8
billion secured credit facility. Of this aggregate amount of $3.1 billion
of Vendor Financing, the Company expects to have borrowed approximately
$2.6 billion prior to December 31, 1998, based upon availability
thereunder.
(3) Sprint Spectrum has obtained a commitment from Chase to provide a $2.0
billion fully underwritten secured credit facility, of which $1.1 billion
is expected to have been drawn prior to December 31, 1998, based upon
availability thereunder.
(4) Of such amount, approximately $1.0 billion of additional financing is
expected to be obtained in the form of equity from Holdings. The Parents
have committed to provide, or cause Holdings to provide, $1.0 billion of
financing subsequent to December 31, 1995, of which approximately $1.0
billion was available at March 31, 1996. See "Description of Vendor
Contracts--Capital Contribution Agreement." The Partners are not obligated
to fund to Sprint Spectrum amounts in excess of those contemplated by the
Capital Contribution Agreement. The Company's business plan assumes that
additional required capital will be obtained in the form of equity (from
the Partners or other sources), but a portion of it may be obtained through
other means including the following: debt offerings, bank financing and
vendor financing. There can be no assurance that these sources will be
available when needed or on terms acceptable to the Company.
(5) Includes interest expense and assumes certain interest rates.
8
<PAGE>
THE OFFERING
Securities Offered.......... $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. Based on the advice of Simpson
Thacher & Bartlett, management believes that pur-
suant to New York law, which will be the gov-
erning law provided for in each of the indentures
under which the Notes will be issued (the "Inden-
tures"), creditors may contractually agree to
waive any rights granted to them pursuant to
state law. Section 11.9 of each of the Indentures
expressly provides that no Partner will have any
liability for any obligations under the Notes and
that a holder of Notes waives such liability by
purchasing the Notes.
Maturity Date............... , 2006.
Ranking..................... The Notes will rank pari passu in right of
payment and priority with all other existing and
future indebtedness of the Issuers that is not by
its terms subordinated in right of payment and
priority to the Notes and will rank senior in
right of payment to all indebtedness of the
Issuers that is expressly subordinated to the
Notes. A substantial portion of the assets of
Sprint Spectrum on a consolidated basis will be
owned by Sprint Spectrum's subsidiaries, and
accordingly, claims of holders of the Notes will
be effectively subordinated to claims of
creditors (including trade creditors) of such
subsidiaries, the amount of which are expected to
be substantial. The obligations under the Vendor
Financing and the Bank Credit Facility will rank
pari passu in right of payment and priority with
the Notes. Borrowings of up to $5.1 billion in
the aggregate under the Secured Financing will be
unconditionally guaranteed by subsidiaries of
Sprint Spectrum. Accordingly, the claims of
holders of the Notes will be structurally
subordinated to the claims of creditors under the
Secured Financing. See "Risk Factors--Structural
Subordination of the Notes to Subsidiary
Indebtedness; Asset Encumbrances."
Interest Rate and Payment
Dates: The Senior
Notes.................
Cash interest on the Senior Notes will accrue at
a rate of % per annum and will be payable
semi-annually in arrears on each and
, commencing , 1997.
9
<PAGE>
The Senior Discount Notes.. 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.
Original Issue Discount..... For federal income tax purposes, the Senior Dis-
count Notes will be treated as having been issued
with "original issue discount" equal to the dif-
ference between the issue price of the Senior
Discount Notes and the sum of all cash payments
(whether denominated as principal or interest) to
be made thereon. Each holder of a Senior Discount
Note must include as gross income for federal in-
come tax purposes a portion of such original is-
sue discount for each day during each taxable
year in which a Senior Discount Note is held even
though no cash interest payments will be received
prior to , 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 under "Description of the Notes--Certain
Definitions") of Common Equity Interests (as de-
fined under "Description of the Notes--Certain
Definitions") of Sprint Spectrum, Holdings or a
Special Purpose Corporation (as defined under
"Description of the Notes--Optional Redemption"),
in either case, 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 ef-
fect to such redemption.
Change of Control........... In the event of a Change of Control (as defined
under "Description of the Notes--Certain Defini-
tions"), the Issuers will be obligated to make an
offer to purchase all outstanding Notes at a pur-
chase price equal to (i) 101% of the principal
amount thereof, in the case of the Senior Notes,
plus accrued and unpaid interest, if any, thereon
to the purchase date and (ii)(a) 101% of the Ac-
creted Value thereof on the Change of Control
Payment Date, in the case of the Senior Discount
Notes, if the Change of Control Payment Date is
on or before , 2001, and (b) 101% of the
principal amount at maturity of the Senior Dis-
count Notes, plus accrued and unpaid interest, if
any, thereon to the purchase date, if the Change
of Control
10
<PAGE>
Payment Date is after , 2001. See "Descrip-
tion of the Notes--Certain Covenants--Change of
Control" for a discussion of such covenant and
potential consequences attendant to the existence
of such covenant.
Asset Sale Offer............ The Issuers will, under certain circumstances, be
obligated to make an offer to purchase Notes with
the proceeds of certain asset sales at a purchase
price equal to (i) 100% of the principal amount
of the Senior Notes, plus accrued and unpaid in-
terest, if any, thereon to the purchase date and
(ii)(a) 100% of the Accreted Value of the Senior
Discount Notes on the purchase date, if such date
is on or before , 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. See "Description of the Notes--Cer-
tain Covenants--Disposition of Proceeds of Asset
Sales."
Certain Covenants........... The Indentures will contain certain restrictive
covenants, including (i) limitations on addi-
tional indebtedness, (ii) limitations on re-
stricted payments, (iii) limitations on liens,
(iv) limitations on dividends and other payment
restrictions affecting Restricted Subsidiaries
(as defined under "Description of the Notes--Cer-
tain Definitions"), (v) limitations on equity in-
terests of Restricted Subsidiaries, (vi) limita-
tions on transactions with equity holders and af-
filiates, (vii) limitations on issuances of cer-
tain guarantees by Restricted Subsidiaries,
(viii) limitations on activities of the Issuers
and the Restricted Subsidiaries, (ix) limitations
on the disposition of proceeds of asset sales and
(x) limitations on designations of Unrestricted
Subsidiaries (as defined under "Description of
the Notes--Certain Definitions"). In addition,
the Indentures will limit the ability of the Is-
suers to consolidate, merge or sell all or sub-
stantially all of their assets. These covenants
are subject to important exceptions and qualifi-
cations. See "Description of the Notes--Certain
Covenants."
Use of Proceeds............. The net proceeds to Sprint Spectrum from the sale
of the Notes offered hereby will be approximately
$631 million, after deducting estimated dis-
counts, commissions and offering expenses. The
Company intends to use the net proceeds from the
Offering to fund capital expenditures, including
the buildout of a nationwide PCS network, to fund
working capital as required, to fund operating
losses and for other partnership purposes. In ad-
dition, a portion of the net proceeds may be used
for new PCS license acquisitions or investments
in entities owning PCS licenses. See "Use of Pro-
ceeds."
RISK FACTORS
Prospective investors should carefully consider, in addition to the other
information in this Prospectus, the information set forth under the heading
"Risk Factors" beginning on page 13 before purchasing the Notes offered hereby.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data for the
transfer of the operations of Holdings to Sprint Spectrum ("Reorganized Sprint
Spectrum") as of the dates and for the periods indicated. The consolidated
financial data for the period from October 24, 1994 to December 31, 1994 and
for the year ended December 31, 1995 were derived from the audited consolidated
financial statements of Reorganized Sprint Spectrum. The consolidated financial
data for the quarters ended March 31, 1995 and March 31, 1996, respectively,
and for the cumulative period from October 24, 1994 to March 31, 1996 were
derived from the unaudited financial statements of Reorganized Sprint Spectrum.
Due to the development stage nature of Reorganized Sprint Spectrum, period-to-
period comparisons of financial data are not indicative of results for
subsequent periods or the full year and should not be relied upon as an
indication of the future performance of Reorganized Sprint Spectrum. The
following data should be read in conjunction with "Pro Forma Condensed
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Reorganized Sprint Spectrum's
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
The Reorganized Sprint Spectrum consolidated financial information reflects
the transfer of the operations of Holdings to Sprint Spectrum that took place
on July 1, 1996. To assist prospective investors, the pro forma and as adjusted
data set forth below reflect the financial information of Reorganized Sprint
Spectrum as adjusted to give effect to (1) the transfer of APC to Holdings on a
pro forma basis as if it had occurred at the beginning of the periods presented
or as of the date presented and (2) the transfer of APC to Holdings and the
Offering as if they had occurred on March 31, 1996.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE
FOR THE MONTHS ENDED CUMULATIVE
PERIOD FROM MARCH 31, PERIOD FROM PRO FORMA
OCTOBER 24, ----------------- OCTOBER 24, -------------------------
1994 1994 FOR THE
(DATE OF FOR THE (DATE OF FOR THE THREE MONTHS
INCEPTION) TO YEAR ENDED INCEPTION) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1994 1995 1995 1996 1996 1995 1996
------------- ------------ ------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(IN THOUSANDS):
Operating expenses:
General and
administrative........ $ 1,371 $ 37,460 $ 1,273 $ 19,862 $ 58,693 $ 37,460 $ 19,862
Professional and legal
fees.................. 1,923 26,849 2,335 10,862 39,634 26,849 10,862
Depreciation........... 38 211 47 254 503 211 254
------- --------- ------- -------- --------- -------- --------
Total operating
expenses.............. 3,332 64,520 3,655 30,978 98,830 64,520 30,978
Other income (expense):
Interest income........ 24 260 275 (358) (74) 260 (358)
Other income........... -- 38 -- 143 181 38 143
Equity in loss of
unconsolidated
partnership........... -- (46,206) (3,409) (36,232) (82,438) -- --
------- --------- ------- -------- --------- -------- --------
Total other income
(expense)............. 24 (45,908) (3,134) (36,447) (82,331) 298 (215)
------- --------- ------- -------- --------- -------- --------
Net loss................ $(3,308) $(110,428) $(6,789) $(67,425) $(181,161) $(64,222) $(31,193)
======= ========= ======= ======== ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
---------- ---------- ----------
BALANCE
SHEET DATA
(IN
THOUSANDS):
<S> <C> <C> <C>
Assets:
Current assets............ $ 4,974 $ 4,974 $ 635,974(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 76,129
Other assets.............. -- -- 19,000(1)
---------- ---------- ----------
Total assets.............. $2,338,666 $2,205,697 $2,855,697
========== ========== ==========
Liabilities and partners'
capital:
Current liabilities....... $ 96,870 $ 96,870 $ 96,870
Deferred compensation..... 4,247 4,247 4,247
Note payable to
affiliate................ 5,000 5,000 5,000
Long-term debt............ -- -- 650,000(2)
Limited partner interest
in consolidated
subsidiary............... 5,000 5,000 5,000
Partners' capital......... 2,227,549 2,094,580 2,094,580
---------- ---------- ----------
Total liabilities and
partners' capital........ $2,338,666 $2,205,697 $2,855,697
========== ========== ==========
</TABLE>
- - -------
(1) Reflects estimated net proceeds of $631 million and debt issuance costs of
$19 million from the Offering.
(2) 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 actively searching for a Senior Marketing
Executive. See "Business--General" and "Management."
OPERATING LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
As of March 31, 1996, after giving effect to the Reorganization, the Company
had incurred cumulative net losses of approximately $98.7 million since its
inception. The Company expects to continue to incur significant operating
losses and to generate significant negative cash flow from operating
activities during the next several years while it develops and constructs its
PCS network and builds its customer base. If and when the Company has
successfully completed its network buildout and started to provide products
and services to customers, the Company's operating profitability will depend
upon many factors, including, among others, its ability to market its products
and services successfully, achieve its projected market penetration, manage
customer turnover rates effectively and price its products and services
competitively. There can be no assurance that the Company will achieve or
sustain operating profitability or positive cash flow from operating
activities in the future. If the Company does not achieve and maintain
operating profitability and positive cash flow from operating activities on a
timely basis, it may not be able to meet its debt service requirements,
including its obligations with respect to the Notes.
SUBSTANTIAL CAPITAL REQUIREMENTS AND LIQUIDITY; HIGHLY LEVERAGED CAPITAL
STRUCTURE
The buildout of the Company's PCS network and the marketing and distribution
of the Company's PCS products and services will require substantial capital.
The Company currently estimates that its capital requirements (capital
expenditures, the cost of its existing licenses, working capital, debt service
requirements and anticipated operating losses) for the period from inception
through the end of 1998 (assuming substantial completion of the Company's
network buildout to cover 80% of the Pops in its current license areas in the
aggregate by the end of 1998), will total approximately $7.9 billion (of which
approximately $2.2 billion had been expended as of March 31, 1996). The
Company will also require substantial additional capital for new license
acquisitions or investments in entities making new license acquisitions (if
any) and, after 1998, for coverage expansion, volume-driven network capacity
and other capital expenditures for existing and new license areas (if any),
working capital, debt service requirements and anticipated further operating
losses. Due to its highly leveraged capital structure, there can be no
assurance that the Company will be able to arrange additional financing to
fund capital requirements until the Company achieves positive operating cash
flow or that such financing will be on terms acceptable to the Company.
Following the receipt of additional financing, there can be no assurance that
the Company will be able to generate sufficient funds to meet fixed charges or
other obligations. The Company will have certain commitments that must be
funded in any event, including lease obligations for cell and switch sites,
minimum purchase obligations under the Procurement Contracts and amortization
under the Secured Financing. Actual amounts of the funds required may vary
materially from these
13
<PAGE>
estimates and additional funds would be required in the event of significant
departures from the current business plan, new license acquisitions,
unforeseen delays, cost overruns, unanticipated expenses, regulatory changes,
engineering design changes and other technological risks. The Company may
participate in the FCC auction of the PCS licenses of the D, E and F Blocks.
See "Use of Proceeds."
The Company currently has no sources of revenue to meet its capital
requirements. Sprint Spectrum has obtained commitments from Nortel for $1.3
billion and from Lucent for $1.8 billion of senior secured loans to finance
purchases of PCS equipment and related services and costs. Under the
Procurement Contracts, the Company is required to purchase minimum amounts of
equipment and services from each Vendor. The Nortel Financing requires, as a
condition to funding, the commitment of additional financing from third-
parties, including the Offering, the Bank Credit Facility or other debt
financing and equity financing. The Vendor Financing will contain certain
conditions which must be satisfied in order for the Company to access funds.
Sprint Spectrum has also received a commitment from Chase to provide a fully
underwritten $2.0 billion Bank Credit Facility to finance working capital,
capital expenditures, operating losses and other partnership purposes. The
Bank Credit Facility will also include certain conditions to borrowing
availability. These commitments are subject to, among other things, the
execution and delivery of definitive documentation. The Offering is not
contingent upon the execution and delivery of such documentation. There can be
no assurance that the conditions to the Vendor Financing or the Bank Credit
Facility will be satisfied. The inability of the Company to access such funds
may have a material adverse effect on the Company, and there can be no
assurance that the Company will be able to obtain replacement funds from
alternative sources. See "Description of Vendor Contracts and Financing--
Vendor Financing" and "--Bank Credit Facility."
The Partners have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings to the extent required by the annual budgets of Holdings
through fiscal 1999 as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company currently intends to obtain
up to $1.4 billion of additional equity following March 31, 1996, resulting in
$3.6 billion in aggregate invested equity capital in the Company, although
there can be no assurance that any additional capital will be obtained in the
form of equity from the Parents or otherwise. The Parents have committed to
make available to the Company or cause Holdings to make available to the
Company up to $1.0 billion of such additional equity, to the extent required
by the Company to fund any projected cash shortfall, under a Capital
Contribution Agreement among Sprint Spectrum and the Parents that provides for
$1.0 billion in aggregate equity commitments (less, subject to certain
exceptions, amounts of cash equity contributed to Sprint Spectrum after
December 31, 1995). At March 31, 1996, approximately $1.0 billion was
available under the Capital Contribution Agreement. The Company's business
plan and the financial covenants and other terms of the Secured Financing will
require such additional equity financing prior to the end of 1998, absent a
new financing source. The $1.0 billion portion of the $4.2 billion not
invested in the Company that may be available to Holdings from the Partners
may be used by Holdings to fund Holdings' other affiliate commitments, to make
other wireless investments and/or to make new license acquisitions. Amounts
budgeted by the Company, as approved by the Partners in future years, will
determine the extent to which the commitments beyond the Capital Contribution
Agreement will actually be utilized. See "--Substantial Capital Requirements
and Liquidity; Highly Leveraged Capital Structure." See "Description of Vendor
Contracts and Financing--Capital Contribution Agreement" and "The Partnership
Agreements--Holdings' Partnership Agreement--Capital Contributions" for a
discussion of the equity capital commitments to Holdings.
Sources of funding for the Company's further financing requirements may
include additional vendor financing, public offerings or private placements of
equity and/or debt securities, commercial bank loans and/or capital
contributions from Holdings or the Partners. There can be no assurance that
the Secured Financing, the funds committed by the Parents or any other
additional financing will be available to the Company or, if available, that
such financing can be obtained on a timely basis and on terms acceptable to
the Company and within limitations contained in the Indentures, the agreements
governing the Vendor Financing, the Bank Credit Facility and any new financing
arrangements. Failure to obtain any such financing could result in the delay
or
14
<PAGE>
abandonment of the Company's development and expansion plans or the failure to
meet regulatory requirements. It also could impair the Company's ability to
meet its debt service requirements (including its obligations with respect to
the Notes) and could have a material adverse effect on its business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
NETWORK BUILDOUT AND SYSTEM IMPLEMENTATION RISKS
In order for the Company to complete its PCS network and provide its
wireless communications products and services to customers on a nationwide
basis it must successfully (i) relocate microwave paths that may affect the
Company's operations, (ii) lease, acquire or otherwise attain rights to a
sufficient number of cell and switch sites, (iii) complete the radio frequency
("RF") design, including cell site design, frequency planning and network
optimization, for each of the Company's markets, (iv) complete the fixed
network design, which encompasses engineering network switching systems, radio
systems, interconnecting facilities and systems and operating support systems,
(v) establish sufficiently broad population and geographic coverage across the
continental United States and (vi) develop and implement sophisticated
information systems. There can be no assurance that these events will occur on
a timely basis or on the cost basis assumed by the Company or at all.
Implementation of the network involves various risks and contingencies, many
of which are not within the control of the Company and all of which could have
a material adverse effect on the implementation of the Company's system should
there be delays or other problems.
Relocation of microwave paths. For a period of up to five years after the
grant of a PCS license (subject to extension), a PCS licensee will be required
to share spectrum with existing microwave licensees that operate certain
microwave paths within its license area, but PCS licensees may not interfere
with existing licensees. See "Business--Network Buildout--Microwave
Relocation." The Company believes it must relocate a total of 1,400 microwave
paths, of which approximately 600 need to be relocated to launch commercial
service. As of July 19, 1996, 405 relocation agreements were under
negotiation, 639 agreements had been reached and 136 paths had been relocated.
The Company expects to have the 600 microwave paths required for launch in all
MTAs relocated during the fourth quarter of 1996 and the first quarter of
1997. The remaining 800 microwave paths will be relocated as business
requirements for service coverage expansion dictate and as FCC negotiation
periods expire. In places where relocation is necessary to permit operation of
the Company's PCS system, any delay in the relocation of such licensees may
affect adversely the Company's ability to commence commercial operations,
which could have a material adverse effect on the Company. The Company's
estimated capital requirements of $7.9 billion for its existing license areas
through 1998 include $0.5 billion allocated to the cost of relocating certain
microwave paths. There can be no assurance that the relocation of incumbent
microwave operators can be achieved for the amounts currently estimated and
actual amounts of funds required may vary materially from these estimates.
The FCC has adopted a transition plan to facilitate the relocation of
existing microwave operators to other spectrum blocks. This transition plan
allows non-public safety entities to operate in the PCS spectrum for a two-
year voluntary negotiation period and an additional one-year mandatory
negotiation period. For public safety entities dedicating a majority of their
system communications for police, fire or emergency medical services
operations, the voluntary negotiation period is three years, with a two-year
mandatory negotiation period. The exact number of microwave paths that are
operated by public safety entities cannot be ascertained, but the Company
estimates that of the 1,400 total microwave paths that need to be relocated
and of the 600 paths required for launch, approximately 420 and 112,
respectively, are operated by public safety entities. Parties unable to reach
agreement within these time periods may refer the matter to the FCC for
resolution, but the existing microwave user is permitted to continue its
operations until final FCC resolution. The voluntary negotiation period began
with the grant of licenses to the Company in March 1995. See "Business--
Regulation--FCC Relocation Requirements." There can be no assurance that the
Company will be successful in reaching timely agreements with the existing
microwave licensees or that any such agreements will be on terms favorable to
the Company. Further, depending on the terms of such agreements, the Company's
ability to operate its PCS systems profitably may be adversely affected.
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Site acquisition. The successful implementation of the Company's PCS system
will be dependent, to a significant degree, upon the Company's ability to
lease or acquire cell sites for the location of its base station equipment.
The cell site selection process will require the lease or acquisition of
approximately 5,700 sites in 31 MTAs prior to commencement of commercial
operations of the Company's PCS network, many of which are likely to require
the Company to obtain zoning variances or other local governmental or third-
party approvals or permits. As of July 19, 1996, the Company had signed leases
or options for 3,281 sites of which 913 were pending zoning and 1,308 were
zoned or ready for construction. There are currently 255 sites under
construction. The Company expects to complete the acquisition and construction
of all 5,700 cell sites during the second half of 1996 and the first quarter
of 1997. The inability of the Company to lease, acquire or otherwise attain
rights to the requisite number of cell sites or to obtain the requisite zoning
and other local approvals in a timely and cost-effective manner could have a
material adverse effect on the Company. As the Company expands the geographic
coverage of the system, it expects that the site acquisition process will
continue, subject to site availability and the continued need to receive
zoning and other local approvals.
Radio frequency design implementation. There can be no assurance that the
Company and the Vendors will be able to implement the RF designs as scheduled
to meet the proposed service launch date or that changes to the RF design
resulting from site location, microwave interference or construction
difficulties will not have a negative impact on the ability of the Company to
operate the network successfully. Failure to implement RF designs could delay
such proposed launch and could delay completion of the initial buildout. Any
such significant delay could have a material adverse effect on the Company.
Network design and equipment. The Procurement Contracts require the Vendors
to provide the network infrastructure equipment and to assume much of the
responsibility for the design, engineering and construction of the network.
The Vendors, in turn, have subcontracted certain design, engineering and
construction responsibilities to major engineering and construction companies.
Any failure of the Vendors to manage the construction of the network or to
meet the Company's schedule will have an adverse impact on the ability of the
Company to commence commercial operations or to complete the initial buildout
of the network in a timely fashion. Problems in equipment availability and
performance and construction could delay the Company's launch of commercial
operations and initial network buildout or result in increased costs, which in
turn, could have a material adverse effect on the Company.
Lack of complete nationwide footprint. In order for the Company's
subscribers to use their handsets in areas outside the Company's network,
another CDMA-based PCS provider must operate in such area or the subscriber
must have a dual-mode, dual-band handset which would allow access to analog
cellular or other digital systems and, in either case, the Company must have
arrangements with such other PCS or cellular providers permitting the
Company's subscribers to access their respective services. The Company
currently does not have a license or any affiliation agreement enabling it to
provide coverage for 27% of the Pops in the United States, including those in
the following major cities and surrounding regions: Atlanta, Charlotte,
Chicago, Cincinnati, Cleveland, Columbus, El Paso, Houston, Jacksonville,
Knoxville, Memphis, Richmond and Tampa. Although there can be no assurance
that CDMA-based PCS providers will operate in these areas, the Company may
enter into affiliation agreements or contracts permitting subscribers to
utilize the services of any CDMA-based PCS providers in each of these areas.
The failure to obtain coverage for such areas may significantly impair the
Company's ability to provide nationwide service to its customers, which may
discourage potential customers from subscribing or encourage existing
customers to cancel their subscriptions. The ability of the Company's
subscribers to use other providers' PCS services will be limited by certain
technological constraints as well as the current lack of availability of dual-
mode, dual-band handsets which would permit the Company's subscribers to
utilize the services of non-CDMA-based PCS providers. See "--Technology Risks;
Availability of Handsets."
Information systems. The successful implementation and launch of the
Company's PCS system is dependent on the Company's ability to develop and
implement an integrated customer care, network management and billing system.
The majority of the systems work (including integration of hardware and
software) will be performed by the vendors using their platforms, some of
which are currently in development, some of which
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have not been tested in a commercial environment and most of which have not
been tested together to ensure that they work as an integrated whole.
Integration requires that numerous and diverse hardware and software platforms
work together through interfaces that have not yet been tested together. The
billing system that will be a key component of the system operations is in
testing and is not currently used in commercial production by any wireless
provider. The Company expects to complete an information system sufficient to
enable it to launch commercial service by the fourth quarter of 1996. Any
failure to develop an integrated information systems solution on schedule will
have an adverse effect on the ability of the Company to commence PCS
commercial operations in the fourth quarter of 1996.
Other factors. The Company's success in the implementation and operation of
its system is subject to other factors beyond the Company's control. These
factors include, without limitation, changes in general and local economic
conditions, availability of equipment necessary to operate the PCS system,
changes in communications service rates charged by others, fluctuations in the
supply and demand for PCS and the commercial viability of PCS systems as a
result of competition with wireline and wireless operators in the same
geographic area, demographic changes that might affect negatively the
potential market for PCS, changes in federal and state regulation of PCS
systems (including the enactment of new statutes and the promulgation of
changes in the interpretation or enforcement of existing or new rules and
regulations) and advancements in technology that have the potential of
rendering obsolete the technology and equipment that the Company is using to
construct its PCS system. There can be no assurance that the occurrence of one
or more of these factors will not have a material adverse effect on the
Company's financial condition and results of operations.
TECHNOLOGY RISKS; AVAILABILITY OF HANDSETS
To date, CDMA technology has only recently been deployed in the United
States or internationally. Although the Company has selected CDMA technology
because the Company believes it will offer several advantages over other
technologies, CDMA may not provide the advantages expected by the Company. See
"Business--CDMA Technology."
CDMA is incompatible with other PCS technologies such as TDMA or GSM.
Although the Company believes that CDMA will become the dominant PCS
technology in North America, there can be no assurance that this will be the
case. See "Business--CDMA Technology." In order for the Company's subscribers
to use non-dual-mode handsets in other PCS markets (and vice versa), at least
one PCS licensee in the other market must deploy CDMA (as opposed to the other
competing PCS technologies) and such licensee must agree to allow subscribers
to utilize its network. There can be no assurance that the Company will be
able to reach satisfactory agreements with such licensees. While several major
PCS providers have publicly announced that they intend to deploy CDMA-based
PCS systems, there can be no assurance that such providers will do so.
The Company's network will not be compatible with existing analog cellular
networks. The Company's network operates at a different frequency and uses a
different technology than analog cellular systems. If the Company desires to
make roaming available, it would be required to provide dual-mode, dual-band
handsets, which are not currently available. Additionally, for the Company's
subscribers to access another provider's cellular system, that provider must
agree to allow the Company's subscribers to roam on its network. There can be
no assurance that such dual-mode, dual-band handsets will be available or
that, should the Company determine that it desires roaming agreements with
other providers, such agreements can be obtained on terms acceptable to the
Company.
Currently there are expected to be limited suppliers of CDMA handsets.
Although Sprint Spectrum has entered into an agreement with one such supplier
to purchase quantities of handsets it believes are sufficient to satisfy the
anticipated demand when commercial operations commence, there can be no
assurance that the supplier will be able to manufacture and deliver the number
of handsets ordered or that such supply will in fact be sufficient to meet
initial demand. Sprint Spectrum is currently negotiating with other suppliers
for the delivery of additional CDMA handsets commencing in the second quarter
of 1997. There can be no assurance, however,
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that terms satisfactory to Sprint Spectrum will be reached with these
suppliers or that these suppliers will commence production or, if they do
commence production, that they will be able to deliver quality handsets in
sufficient quantities in a timely manner.
While the Company believes that dual-mode, dual-band handsets that allow a
user to access both PCS systems and cellular networks will be commercially
available in the first half of 1997 (although sufficient quantities may not be
commercially available until the third quarter of 1997), there can be no
assurance that such handsets can be manufactured successfully or that the
Company's subscribers can obtain such handsets at competitive prices. In
addition, such dual-mode, dual-band handsets are expected to be more expensive
than single-mode handsets. Although the Company has been working closely with
its suppliers to develop high-quality dual-mode, dual-band handsets, such
handsets may fail to operate as expected. The lack of interoperability or the
comparatively higher cost of such handsets may impede the Company's ability to
attract current cellular subscribers or potential new wireless communications
subscribers.
AFFILIATE TRANSACTIONS; CONFLICTS OF INTEREST
The Company currently engages and intends to continue to engage in
transactions with Holdings and the Parents, including those transactions
described below. The Company has entered into and expects to enter into
affiliation agreements with other affiliates of Holdings, such as APC, Cox-
California and PhillieCo. Subject to certain conditions, the Company expects
to enter into sales agency agreements with the Parents for co-marketing of the
Company's wireless products and services, Sprint's long distance and local
telephone services and the Cable Parents' cable-based entertainment services.
The Parents and certain of their affiliates will be non-exclusive sales agents
for the Company's wireless services. The Company, in turn, will be a non-
exclusive sales agent for those services Sprint and the Cable Parents make
available to the Company. In addition, Sprint currently serves as the
Company's agent for selling paging services and will market these services
through direct mail, direct sales, employee programs, advertising and
promotions. While the Company will endeavor to negotiate all transactions with
the Parents and their affiliates on an arm's-length basis, there can be no
assurance that all such transactions will be on terms no less favorable to the
Company than could reasonably be obtained in a comparable arm's length
transaction with a non-affiliate or that significant conflicts of interest
between the Company and Holdings or any of the Parents will not develop. See
"The Partnership Agreements--Holdings Partnership Agreement" and "Certain
Relationships and Related Transactions."
DEADLOCK EVENT
The Holdings Partnership Agreement provides that Holdings will be dissolved
upon the failure of the General Partners (as defined under "The Partnership
Agreements--Holdings Partnership Agreement") of Holdings to resolve a
"Deadlock Event," which is deemed to occur if the Partnership Board (as
defined under "The Partnership Agreements--Holdings Partnership Agreement")
(i) fails to approve a proposed annual budget or business plan for two
consecutive fiscal years or (ii) if the position of chief executive officer
remains vacant for sixty days after a candidate has been proposed by at least
two Partners having an aggregate of at least 33% of the voting Percentage
Interest (as defined under "The Partnership Agreements--Holdings Partnership
Agreement"). Upon the occurrence of a Deadlock Event, the General Partners
will first try for a period of 20 days to use their good faith efforts to
resolve the Deadlock Event. If the General Partners are unable to resolve the
matter, such matter will be referred to the chief executive officers of the
Parents. In the event the chief executive officers fail to reach a resolution,
the matter will be referred to a mediation service. If the mediator and the
General Partners fail to resolve the Deadlock Event, Holdings will be
liquidated unless the Partnership Board, by a majority vote of 75%, determines
not to dissolve or the buy-sell arrangements contained in the Holdings
Partnership Agreement are employed. There can be no assurance that a Deadlock
Event will not occur or if such event does occur that resolution procedures
will be successful or that the Deadlock Event will not have a material adverse
effect on the ability of Sprint Spectrum's management to operate the Company's
PCS business in the ordinary course. See "The Partnership Agreements--Holdings
Partnership Agreement."
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ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS; REFINANCING RISKS
The Company expects to incur, and the Indentures will permit the Company to
incur, substantial indebtedness in addition to the Notes, including
indebtedness under the $2.0 billion Bank Credit Facility and the $3.1 billion
Vendor Financing. See "--Substantial Capital Requirements and Liquidity;
Highly Leveraged Capital Structure."
The Secured Financing and the respective credit agreements relating thereto
will contain, and any additional financing agreements may contain, certain
restrictive covenants. The restrictions contained in the Indentures and those
expected to be contained in the Secured Financing will affect, and in some
cases will limit or prohibit significantly, among other things, the ability of
the Company to incur additional indebtedness (beyond specified amounts), make
prepayments of certain indebtedness, pay dividends, make investments, engage
in transactions with equityholders and affiliates, issue equity of
subsidiaries, create liens, sell assets and engage in mergers and
consolidations. If the Company fails to comply with the restrictive covenants
in the Indentures, the Company's obligation to repay the Notes may be
accelerated. However, the limitations set forth in the Indentures will be
subject to a number of important qualifications and exceptions. In particular,
while the Indentures will restrict the Company's ability to incur additional
indebtedness by requiring compliance with certain financial ratios, they will
permit the Company and its subsidiaries to incur substantial additional
indebtedness. See "Description of the Notes." In addition to the restrictive
covenants described above, the Secured Financing will require the Company to
maintain certain financial ratios and other operating performance tests. The
failure of the Company to maintain such ratios or comply with such tests would
constitute events of default under the Secured Financing notwithstanding the
ability of the Company to meet its debt service obligations. An event of
default under the Secured Financing would allow the lenders thereunder to
accelerate the maturity of the indebtedness thereunder. In such event, a
significant portion of the Company's other indebtedness (including the Notes)
may be declared immediately due and payable. See "Description of Vendor
Contracts and Financing."
The Company's ability to meet its debt obligations will be dependent upon
the Company's successful completion of its planned PCS network and the
Company's future performance, which is subject to numerous factors, many of
which are beyond the Company's control. See "--Network Buildout and System
Implementation Risks." There can be no assurance that the Company can complete
construction of its wireless network or that, if completed, the Company will
generate sufficient cash flow from operating activities to meet its debt
service, capital expenditure and working capital requirements. Substantially
all of the indebtedness under the Secured Financing is likely to mature prior
to the maturity of the Notes. The Company expects that such indebtedness and
the Notes may need to be refinanced at their maturity. The Company's ability
to refinance such indebtedness will depend on, among other things, its
financial condition at the time, the restrictions in the instruments governing
its indebtedness and other factors, including market conditions, beyond the
control of the Company. In addition, in the event the completion of its
wireless network is delayed or the Company does not generate sufficient cash
flow from operating activities to meet its debt service requirements, the
Company may need to seek additional financing not currently contemplated.
There can be no assurance that any such financing or refinancing could be
obtained on terms that are acceptable to the Company, if at all. In the
absence of such financing or refinancing, the Company could be forced to
dispose of assets in order to cover any shortfall in the payments due on its
indebtedness and such disposition may occur under circumstances that might not
be favorable to realizing the highest price for such assets.
STRUCTURAL SUBORDINATION OF THE NOTES TO SUBSIDIARY INDEBTEDNESS; ASSET
ENCUMBRANCES
The Notes will not be obligations of any of the subsidiaries of Sprint
Spectrum (other than FinCo). A substantial portion of the assets of Sprint
Spectrum will be owned by Sprint Spectrum's subsidiaries which have
unconditionally guaranteed the Secured Financing and, accordingly, claims of
holders of Notes will be structurally subordinated to the claims of such
subsidiaries' creditors, including lenders and trade creditors, of such
subsidiaries. The Indentures will permit Sprint Spectrum and its subsidiaries
to incur substantial indebtedness, including indebtedness expected to be
incurred under the Secured Financing. See "Description of the Notes--Certain
Covenants."
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The Notes will not be secured by any of the Company's assets. The
obligations of the Company and its principal subsidiaries under the Secured
Financing will be secured by substantially all of the assets of Sprint
Spectrum including the partnership interests it holds in WirelessCo, RealtyCo
and EquipmentCo. If the Company becomes insolvent or is liquidated, or if
payment under the Secured Financing is accelerated, the lenders under the
Secured Financing would be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to the terms of the Secured
Financing. Accordingly, any claims of such lenders with respect to such assets
will be prior to any claim of the holders of the Notes with respect to such
assets. There can be no assurance that the Company's assets could be sold
quickly enough, or for sufficient amounts, to enable the Company to meet its
obligations (including its obligations with respect to the Notes). See
"Description of Vendor Contracts and Financing."
LIMITED PCS OPERATING HISTORY IN THE UNITED STATES; SIGNIFICANT CHANGE IN
WIRELESS INDUSTRY
PCS systems have no significant operating history in the United States and
there can be no assurance that operation of these systems will become
profitable. In addition, the extent of potential demand for PCS in the
Company's markets cannot be estimated with any degree of certainty. The
inability of the Company to establish PCS service or to obtain appropriate
equipment for its PCS system could have a material adverse effect on the
Company's financial condition and results of operations. The wireless
telecommunications industry is experiencing significant technological change,
as evidenced by the increasing pace of digital upgrades in existing analog
wireless systems, evolving industry standards, ongoing improvements in the
capacity and quality of digital technology, shorter development cycles for new
products and enhancements and changes in end-user requirements and
preferences. There is also uncertainty as to the extent of customer demand as
well as the extent to which airtime and monthly access rates may continue to
decline. As a result, the future prospects of the industry and the Company and
the success of PCS and other competitive services remain uncertain.
COMPETITION
There is substantial competition in the wireless telecommunications
industry. In addition, the Company expects competition in the wireless
telecommunications business to intensify as a result of the entrance of new
competitors and the development of new technologies, products and services.
Each of the markets in which the Company competes will be served by other two-
way wireless service providers, including cellular and PCS operators and
resellers. Many of these competitors have been operating for a number of
years, currently serve a substantial subscriber base and have significantly
greater financial and technical resources than those available to the Company.
Certain of the Company's competitors are operating, or planning to operate,
through joint ventures and affiliation arrangements, wireless
telecommunications systems that encompass most of the United States. Principal
PCS competitors in the Company's markets include American Portable Telecom,
Inc., AT&T Wireless Services, Inc., Omnipoint Corporation, Pacific Bell Mobile
Systems, Inc., PCS PrimeCo L.P. and Western Wireless Corporation.
The Company also expects that existing cellular providers, some of which
have an infrastructure in place and have been operational for a number of
years, will upgrade their systems and provide expanded and digital services to
compete with the Company's PCS system. Principal cellular providers in the
Company's markets include AirTouch Communications, Inc., BellSouth Mobility,
Inc., Ameritech Mobile Communications, Inc., Bell Atlantic NYNEX Mobile,
Southwestern Bell Mobile Systems, AT&T Wireless Services, Inc., GTE Mobilnet,
Inc. and 360(degrees) Communications Company.
The Company anticipates that market prices for two-way wireless services
generally will decline in the future based upon increased competition. The
Company intends to compete to attract and retain customers principally on the
basis of services and features and packages thereof, its emphasis on customer
care, the size and location of its service areas and pricing. The Company's
ability to compete successfully will also depend, in part, on its ability to
anticipate and respond to various competitive factors affecting the industry,
including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors all of which could adversely affect the Company's
operating margins.
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Handsets used for CDMA-based PCS systems will not be compatible with
cellular systems and vice versa. The Company expects dual-mode, dual-band
handsets to be commercially available in the first half of 1997 (although
sufficient quantities may not be commercially available until the third
quarter of 1997). Once such handsets are available, if the Company decides to
offer roaming services and is able to negotiate satisfactory roaming
agreements, subscribers will be able to roam by using the existing cellular
wireless system in other markets. Until then, this lack of interoperability
may impede the Company's ability to attract current cellular subscribers or
potential new wireless communication subscribers that desire the ability to
access different service providers in the same and other markets.
Initially the cost to the Company of PCS handsets may not be competitive
with the cost to cellular operators of analog cellular handsets. While the
Company believes that its PCS handsets will be competitively priced as
compared to digital cellular handsets of comparable size, weight and features,
cellular operators may subsidize the sale of digital handset units at prices
below those with which the Company can compete.
The Company's ability to compete successfully in the wireless communications
market will be dependent upon, among other things, its ability to complete the
buildout of its wireless network and offer its products and services to
customers on a timely basis. There can be no assurance that the Company will
be able to compete successfully in this environment or that new technologies
and products that are more commercially effective than the Company's
technologies and products will not be developed.
COMPETITION WITH THE PARTNERS
Pursuant to the terms of the Holdings Partnership Agreement, each of the
Partners or its respective affiliates may, subject to compliance with FCC and
other applicable regulatory restrictions, engage in activities which compete
directly or indirectly with the activities of Holdings or its affiliates. Each
Partner or its affiliates may (i) continue to engage in certain of the
business activities in which they engaged prior to the formation of Holdings,
(ii) maintain voting equity interests of 5% or less in persons that are not
affiliates of Holdings and are engaged in wireless communications services
utilizing radio spectrum for cellular, PCS, ESMR (as defined in "Business--
Competition"), paging, mobile communications and any other voice or data
wireless services (collectively, the "Wireless Business"), subject to certain
limitations, (iii) provide on a non-exclusive basis certain services
incidental to the Wireless Business to persons that are not affiliates of
Holdings, (iv) pursue new business opportunities related to the Wireless
Business after having informed Holdings of any such opportunity and providing
Holdings or its affiliates an adequate right of first refusal with respect to
pursuit of such opportunity and (v) engage, upon unanimous consent of the
Partnership Board, in activities which may compete with or adversely affect
the business interests or activities of Holdings or its affiliates.
The Holdings Partnership Agreement permits Comcast (and its controlled
affiliates) to continue to own cellular licenses and operate a cellular
telephone system which provides service in and around the Philadelphia area,
parts of New Jersey and parts of Delaware (the "Comcast Service Area").
Comcast is permitted to expand its service into certain cellular license areas
in New Jersey. The Holdings Partnership Agreement also provides that Comcast
(and its controlled affiliates) may acquire an interest in a license for up to
10 MHz of PCS spectrum in any of the Basic Trading Areas ("BTAs") located
within the Philadelphia MTA and the Allentown, Pennsylvania BTA.
The Company's intended affiliate in the Philadelphia area, PhillieCo, is
expected to be in competition with Comcast's cellular service, and with any
PCS service offered under a PCS license acquired by Comcast, in certain
markets in the Comcast Service Area. Due to Comcast's general knowledge of the
Company's strategies, PhillieCo and the Company may be at a disadvantage
compared to Comcast.
CONFLICTS OF INTEREST WITH COMCAST
Pursuant to the Holdings Partnership Agreement, Comcast has retained the
right to continue to offer cellular telephone service in the Comcast Service
Area. The Company expects to affiliate with PhillieCo and, under such an
affiliation agreement, will compete directly with Comcast in this area. The
Company, under the affiliation
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agreement, will provide various services to PhillieCo including management,
operations, engineering, marketing and advertising and back office support.
While representatives of Comcast are excluded from any discussions concerning
PhillieCo at the Company or Holdings, there can be no assurance that Comcast
will not benefit from its general knowledge of the Company's plans and
strategies which could provide Comcast with a competitive advantage over the
Company in the Comcast Service Area. Currently, the Company has not adopted
any other procedures for managing conflicts with Comcast and does not foresee
the need to adopt any additional procedures in the future.
GOVERNMENT REGULATION
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the FCC and, depending on the jurisdiction, state and local
regulatory agencies. In addition, the FCC, in conjunction with the Federal
Aviation Administration (the "FAA"), regulates tower marking and lighting.
There can be no assurance that either the FCC, the FAA or those state agencies
having jurisdiction over the Company's business will not adopt regulations or
take other actions that would adversely affect the business of the Company.
FCC licenses to provide PCS services are subject to renewal and revocation.
The Company's PCS licenses will expire in 2005. There may be competition for
the licenses held by the Company upon their expiration and there can be no
assurance that the Company's licenses will be renewed. FCC rules require all
PCS licensees to meet certain requirements including, without limitation,
coverage of 33% of Pops in each MTA within the first five years and 67% within
the first 10 years of the award of a license. There can be no assurance that
the Company will be able to obtain the requisite coverage in each MTA. Failure
to comply with these requirements could cause revocation or forfeiture of the
Company's PCS licenses or the imposition of fines on the Company by the FCC.
See "Business--Regulation."
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Certain interest groups have requested that the FCC investigate claims that
wireless communications technology poses health concerns and causes
interference with hearing aids and other medical devices. The Center for the
Study of Electromagnetic Compatibility at the University of Oklahoma, which
was founded in 1994 with funds from the wireless industry, is studying this
issue and has released results from the first phase of its study which focused
on worst case (operation at full-power) interaction and which indicated that
the three wireless technologies tested, including CDMA, caused interference in
some instances, but not all, with hearing aids. In addition, the Personal
Communications Industry Association (the "PCIA") announced in July 1995 that
it was undertaking an industry-wide study to gather information on possible
PCS interference with medical devices for all PCS protocols. There can be no
assurance that the findings of such studies will not have an adverse effect on
the Company's financial condition and results of operations or that such
findings will not lead to additional governmental regulations that will have
an adverse effect on the Company's financial condition and results of
operations.
Preliminary results from researchers working under the guidance of the
Wireless Technology Research LLC ("WTR") indicate that digital wireless
telephones cause interference to some users of cardiac pacemakers. The
researchers have recommended that patients dependent on pacemakers avoid using
digital telephones and that nondependent users keep such telephones away from
implanted devices. Permanent recommendations from the WTR are expected in July
or August of 1996. There can be no assurance that such recommendations will
not lead to governmental regulation or that such recommendations will not have
a material adverse effect on the Company.
Media reports have suggested that certain RF emissions from portable
cellular telephones might be linked to cancer. Concerns over RF emissions may
have the effect of discouraging the use of cellular telephones and other
wireless communications services, including PCS, which could have an adverse
effect upon the Company's financial condition and results of operations. The
FCC has a rulemaking proceeding pending to update the guidelines and methods
it uses for evaluating RF emissions from radio equipment, including cellular
telephones.
22
<PAGE>
Although PCS handsets operate at lower power than cellular handsets and are
therefore likely to comply with the new proposed standards, the same concerns
about RF emissions could be present with PCS handsets.
REPURCHASE OF THE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control (as defined under "Description of the Notes--
Certain Definitions"), the Company must offer to purchase the (i) Senior Notes
then outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of purchase and (ii)
Senior Discount Notes then outstanding at a purchase price equal to 101% of
the Accreted Value if the Change of Control Payment Date (as defined under
"Description of the Notes--Certain Definitions") is on or before , 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."
The Change of Control purchase feature of the Notes may in certain
circumstances discourage or make more difficult a sale or takeover of the
Company. In addition, a "change of control" or the loss of the Company's right
to use the Sprint trademark under the trademark license agreement will
constitute an event of default under the Bank Credit Facility and the Vendor
Financing, permitting the lenders thereunder to accelerate their secured
claims against Sprint Spectrum and its subsidiaries. There can be no assurance
that Sprint Spectrum will have sufficient funds available at the time of any
Change of Control, or following satisfaction of such prior claims, to effect a
Change of Control Offer (as defined under "Description of the Notes--Certain
Definitions").
ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF SENIOR DISCOUNT NOTES
The Senior Discount Notes will be issued at a substantial discount from
their principal amount at maturity. Although cash interest will not accrue on
the Senior Discount Notes prior to , 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 national securities exchange or
quoted through an inter-dealer quotation system. Although each Underwriter has
advised the Company that it presently intends to make a market in the Notes,
it is not obligated to do so and any such market-making may be discontinued at
any time without notice. Accordingly, there can be no assurance as to the
prices or liquidity of, or trading markets for, the Notes. The liquidity of
any market for the Notes will depend upon the number of holders of such Notes,
the interest of securities dealers in making a market in the Notes and other
factors. The absence of an active market for the Notes offered hereby could
adversely affect their market price and liquidity. The liquidity of, and
trading markets for, the Notes may also be negatively affected by general
declines in the market for noninvestment grade debt independent of the
financial performance of, or prospects for, the Company.
23
<PAGE>
THE REORGANIZATION
Prior to July 1, 1996, substantially all wireless operations of the Company
and Holdings were conducted at Holdings and all assets, with the exception of
the interest in APC and the PCS licenses which are held by WirelessCo, were
held at Holdings. As of July 1, 1996, Holdings assigned these assets and
agreements related to the wireless operations to which it was a party to
Sprint Spectrum, and Sprint Spectrum, in turn, assigned such assets and
agreements to its subsidiaries. Specifically, the network infrastructure
equipment and Holdings' rights under the Procurement Contracts were ultimately
assigned to EquipmentCo, and all property leases, including, without
limitation, leases on cell sites, switch sites and administrative office space
were ultimately assigned to RealtyCo. In addition, effective as of July 1,
1996, Sprint Spectrum entered into (i) an equipment lease with EquipmentCo,
pursuant to which Sprint Spectrum leases the infrastructure equipment used in
the PCS network from EquipmentCo, and (ii) a property use agreement, pursuant
to which Sprint Spectrum has the right to use the properties on which RealtyCo
holds leases. No amounts were paid for the transfer of the assets or agreement
rights.
Sprint Spectrum's subsidiary, WirelessCo, owns a 49% interest in APC. Sprint
Spectrum intends to cause WirelessCo to transfer its investment in APC to
Sprint Spectrum, which, in turn, will transfer such interest to Holdings. In
connection with that transfer, WirelessCo's rights and duties with respect to
certain call and put options pertaining to the 51% interest in APC held by
American Personal Communications, Inc. ("APC, Inc."), the managing partner of
APC, and WirelessCo's obligations to make capital contributions will
ultimately also be assigned to Holdings. Such transfer, which is subject to
the consent of APC, Inc. (which is not expected to be unreasonably withheld),
is expected to occur following the Offering. The transfer of the assets and
agreements referred to in the preceding paragraph and the transfer of the
Company's investment in APC to Holdings are collectively referred to as the
"Reorganization." The Offering is not contingent on the completion of the
Reorganization.
THE COMPANY
Sprint Spectrum (formerly known as MajorCoSub, L.P.) was formed on March 28,
1995 as a Delaware limited partnership. Sprint Spectrum was formed as part of
the reorganization of the operations of an existing partnership, WirelessCo,
which was formed on October 24, 1994 in anticipation of the FCC's A Block and
B Block auctions. In March 1995, the partners of WirelessCo transferred their
interests in WirelessCo to Holdings. WirelessCo subsequently was awarded 29
PCS licenses in the FCC auction. Sprint Spectrum currently has three limited
partnership subsidiaries: WirelessCo which owns all of the Company's PCS
licenses; RealtyCo which will own the cell site leases and other real
property; and EquipmentCo which will own the vendor-provided network
infrastructure equipment. See "Prospectus Summary--the Company" and
"Business." FinCo, a Delaware corporation and wholly-owned subsidiary of
Sprint Spectrum, was incorporated in Delaware on May 20, 1996 solely for the
purpose of acting as a co-obligor of the Notes. FinCo has only nominal assets,
does not conduct any operations and will receive none of the proceeds of the
Offering. Accordingly, investors in the Notes should look only to the cash
flow and assets of Sprint Spectrum for payment of the Notes. Holdings
(formerly known as MajorCo, L.P.) is the general partner of, and owns a
greater than 99% general partnership interest in, Sprint Spectrum. Holdings
was organized as a Delaware limited partnership on March 28, 1995 and its
primary business activity consists of its ownership of Sprint Spectrum and
other limited partnership interests in wireless affiliates, including APC and
Cox-California. MinorCo, L.P. ("MinorCo"), a Delaware limited partnership,
owns a less than 1% limited partnership interest in Sprint Spectrum. Sprint
Spectrum and FinCo will be the sole obligors of the Notes.
24
<PAGE>
The following is a chart of the ownership structure of Holdings and the
Company:
[CHART APPEARS HERE]
["FLOWCHART" CHART SHOWING OWNERSHIP STRUCTURE OF HOLDINGS AND THE COMPANY]
The principal executive offices of each registrant are located at 4717 Grand
Avenue, Fifth Floor, Kansas City, Missouri 64112, and each registrant's
telephone number is (816) 559-1000.
THE PARENTS
Sprint Corporation. Sprint, through its subsidiaries and affiliates,
provides domestic and international long distance and local exchange
telecommunications services as well as the wholesale distribution of
telecommunications products and the publishing and marketing of white and
yellow page telephone directories. Sprint's long distance division is the
nation's third largest long distance telephone company, operating a nationwide
all-digital long distance communications network utilizing state-of-the-art
fiber optic and electronic technology. The long distance division provides
domestic and international long distance voice, video and data communications
services to approximately 8.0 million customers. The local division is
comprised of local exchange carriers ("LECs") that service approximately 6.8
million access lines in 19 states. In addition to providing local exchange
services, the division provides intraLATA toll service and access by other
carriers to Sprint's local exchange facilities. Because FCC regulations
prohibit a single provider from holding both cellular and PCS licenses for the
same territory, in March 1996 Sprint divested its cellular unit (now known as
360(degrees) Communications Company) via a spin-off to shareholders.
Tele-Communications, Inc. TCI is principally engaged in the construction,
acquisition, ownership and operation of cable television systems and the
provision of satellite-delivered video entertainment, information
25
<PAGE>
and home shopping programming services to various video distribution media,
principally cable television systems. TCI also has investments in cable and
telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies. TCI is one of the largest cable television
operators in the United States in terms of the number of basic subscribers,
with consolidated systems serving approximately 13.0 million subscribers at
March 31, 1996. Through Liberty Media Corporation, TCI is involved in (i) the
production, acquisition and distribution of branded entertainment, educational
and informational programming and software, (ii) electronic retailing, direct
marketing, advertising sales related programming services, infomercials and
transaction processing and (iii) domestic programming businesses, including,
among others, Turner Broadcasting System, The Discovery Channel, Home Shopping
Network, Inc. and QVC, Inc.
Comcast Corporation. Comcast and its subsidiaries are principally engaged in
the development, management and operation of cable and cellular telephone
communications systems and the production and distribution of cable
programming. Comcast has approximately 3.5 million cable television
subscribers in the United States. In the United Kingdom, Comcast is
constructing a cable telecommunications network that will pass approximately
229,000 homes and holds investments in cable television and telecommunications
companies that have the potential to serve an additional 1.2 million homes.
Comcast also provides cellular telephone communications services in markets
with a population of over 7.9 million, including the area in and around
Philadelphia and parts of Delaware and New Jersey.
Cox Communications, Inc. Cox is a fully integrated, diversified media and
broadband communications company with operations and investments in four
related areas: (i) United States cable televisions systems (3.3 million
wholly-owned and affiliated subscribers); (ii) international cable television
systems; (iii) programming; and (iv) telecommunications and technology. Cox
has invested significantly in cable systems in the United Kingdom and in
Denmark. Cox also holds substantial investments in several cable television
networks, including The Discovery Channel, The Learning Channel, E!
Entertainment, UK Gold and Viewer's Choice. Cox has numerous investments in
the telecommunications and technology industries, including businesses
involved in residential and business telephony, on-screen programming guides,
computer software and interactive services.
26
<PAGE>
USE OF PROCEEDS
The net proceeds to Sprint Spectrum from the sale of the Notes offered
hereby are estimated to be approximately $631 million, after deducting
estimated discounts, commissions and offering expenses. FinCo will not receive
any proceeds from the Offering. The Company intends to use the net proceeds
from the Offering to fund capital expenditures, including the buildout of a
nationwide PCS network, to fund working capital as required, to fund operating
losses and for other partnership purposes. The specific uses of the net
proceeds cannot be determined at this date since the Company will expend the
net proceeds as funds are required. In addition, as part of an overall
strategy to increase the Company's Pop coverage, either or both of Holdings
and the Company may elect to bid on, or affiliate with or invest in other
entities who are bidding on, PCS licenses to be awarded in the FCC auction of
PCS licenses for the D, E and F Blocks. To the extent that the Company
directly acquires new PCS licenses or invests in an entity that acquires new
licenses, the Company may finance such acquisition or investment and any
related capital expenditures, working capital and other funding requirements
with a portion of the net proceeds of the Offering or through additional debt
and/or equity financing. See "Prospectus Summary--Network Buildout and
Financing Plan" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
CAPITALIZATION
The following tables set forth as of March 31, 1996 the actual
capitalization of Reorganized Sprint Spectrum and the capitalization of
Reorganized Sprint Spectrum on a pro forma basis to reflect the transfer of
APC to Holdings and as adjusted for the Offering. This information should be
read in conjunction with the consolidated financial statements of Reorganized
Sprint Spectrum and notes thereto appearing elsewhere in this Prospectus. It
is expected that Reorganized Sprint Spectrum will incur substantial additional
indebtedness following the Offering, including up to $5.1 billion in aggregate
principal amount under the Secured Financing.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
PRO FORMA
ACTUAL AND AS ADJUSTED
---------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................ $ 3,119 $ 634,119 (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 (3)
Limited partner interest in consolidated subsidi-
ary............................................. 5,000 5,000
Partners' capital and accumulated deficit:
Partners' capital.............................. 2,408,710 2,193,303
Deficit accumulated during the development
stage......................................... (181,161) (98,723)
---------- ----------
Total partners' capital...................... 2,227,549 2,094,580
---------- ----------
Total capitalization....................... $2,237,549 $2,754,580
========== ==========
</TABLE>
- - --------
(1) Reflects estimated net proceeds of $631 million from the Offering.
(2) Reflects gross proceeds from the issuance of the Senior Discount Notes.
(3) Reflects gross proceeds of $650 million from the Offering before
underwriting discounts and commissions and expenses.
27
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents selected consolidated financial data for
Reorganized Sprint Spectrum as of the dates and for the periods indicated. The
consolidated financial data for the period from October 24, 1994 to December
31, 1994 and for the year ended December 31, 1995 were derived from the
audited consolidated financial statements of Reorganized Sprint Spectrum. The
consolidated financial data for the quarters ended March 31, 1995 and March
31, 1996, respectively, and for the cumulative period from October 24, 1994 to
March 31, 1996 were derived from the unaudited financial statements of
Reorganized Sprint Spectrum. Due to the development stage nature of
Reorganized Sprint Spectrum, period-to-period comparisons of financial data
are not indicative of results for subsequent periods or the full year and
should not be relied upon as an indication of the future performance of
Reorganized Sprint Spectrum. The following data should be read in conjunction
with "Pro Forma Condensed Financial Statements," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Reorganized
Sprint Spectrum's consolidated financial statements and the notes thereto
included elsewhere in this Prospectus.
The Reorganized Sprint Spectrum consolidated financial information reflects
the transfer of the operations of Holdings to Sprint Spectrum that took place
on July 1, 1996. To assist prospective investors, the pro forma and as
adjusted data set forth below reflect the financial information of Reorganized
Sprint Spectrum as adjusted to give effect to (1) the transfer of APC to
Holdings on a pro forma basis as if it had occurred at the beginning of the
periods presented or as of the date presented and (2) the transfer of APC to
Holdings and the Offering as if they had occurred on March 31, 1996.
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE THREE CUMULATIVE
PERIOD FROM MONTHS ENDED PERIOD FROM
OCTOBER 24, MARCH 31, OCTOBER 24, PRO FORMA
1994 ----------------- 1994 --------------------------
(DATE OF FOR THE (DATE OF FOR THE FOR THE THREE
INCEPTION) TO YEAR ENDED INCEPTION) TO YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1994 1995 1995 1996 1996 1995 1996
------------- ------------ ------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(IN THOUSANDS):
Operating expenses:
General and
administrative........ $ 1,371 $ 37,460 $ 1,273 $ 19,862 $ 58,693 $ 37,460 $ 19,862
Professional and legal
fees.................. 1,923 26,849 2,335 10,862 39,634 26,849 10,862
Depreciation........... 38 211 47 254 503 211 254
------- --------- ------- -------- ---------- ---------- ----------
Total operating
expenses.............. 3,332 64,520 3,655 30,978 98,830 64,520 30,978
Other income (expense):
Interest income........ 24 260 275 (358) (74) 260 (358)
Other income........... -- 38 -- 143 181 38 143
Equity in loss of
unconsolidated
partnership........... -- (46,206) (3,409) (36,232) (82,438) -- --
------- --------- ------- -------- ---------- ---------- ----------
Total other income
(expense)............. 24 (45,908) (3,134) (36,447) (82,331) 298 (215)
------- --------- ------- -------- ---------- ---------- ----------
Net loss................ $(3,308) $(110,428) $(6,789) $(67,425) $(181,161) $(64,222) $(31,193)
======= ========= ======= ======== ========== ========== ==========
RATIO OF EARNINGS TO
FIXED CHARGES(1) -- -- -- -- -- -- --
<CAPTION>
AT MARCH 31, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------ -------------
BALANCE SHEET DATA (IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Current assets...................................................... $ 4,974 $ 4,974 $ 635,974 (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 76,129
Other assets........................................................ -- -- 19,000 (2)
---------- ---------- ----------
Total assets........................................................ $2,338,666 $2,205,697 $2,855,697
========== ========== ==========
Liabilities and partners' capital:
Current liabilities................................................. $ 96,870 $ 96,870 $ 96,870
Deferred compensation............................................... 4,247 4,247 4,247
Note payable to affiliate........................................... 5,000 5,000 5,000
Long-term debt...................................................... -- -- 650,000 (3)
Limited partner interest in consolidated subsidiary................. 5,000 5,000 5,000
Partners' capital................................................... 2,227,549 2,094,580 2,094,580
---------- ---------- ----------
Total liabilities and partners' capital............................. $2,338,666 $2,205,697 $2,855,697
========== ========== ==========
</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,
$64,222,000 and $67,530,000 for the period October 24, 1994 to December 31,
1994, the year ended December 31, 1995 and for the cumulative period from
October 24, 1994 to December 31, 1995, respectively. Fixed charges consist
of interest expense on all indebtedness (including amortization of deferred
debt issuance (costs) and the portion of rental expense that is
representative of the interest factor. The Company had no fixed charges as
defined for any of the periods indicated.
(2) Reflects estimated net proceeds of $631 million and debt issuance costs of
$19 million from the Offering.
(3) Reflects gross proceeds of $650 million from the Offering before
underwriting discounts and commissions and expenses.
28
<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma condensed financial statements set forth below are
based upon the financial statements of Reorganized Sprint Spectrum appearing
elsewhere in this Prospectus and have been prepared assuming that the transfer
of APC to Holdings occurred on December 31, 1994, December 31, 1995 and March
31, 1996 for pro forma condensed balance sheet purposes, October 24, 1994
(date of inception) for pro forma condensed statement of operations purposes
for the year ended December 31, 1994, January 1, 1995 for pro forma condensed
statement of operations purposes for the year ended December 31, 1995, and
January 1, 1996 for pro forma condensed statement of operations purposes for
the three months ended March 31, 1996. THE UNAUDITED PRO FORMA BALANCE SHEETS
AT DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996, PRESENTED BELOW DO NOT
PURPORT TO REPRESENT WHAT THE COMPANY'S FINANCIAL POSITION ACTUALLY WOULD HAVE
BEEN HAD THE REORGANIZATION OCCURRED ON THE DATE INDICATED OR TO PROJECT THE
COMPANY'S FINANCIAL POSITION FOR ANY FUTURE DATE. THE UNAUDITED PRO FORMA
CONDENSED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM OCTOBER 24, 1994 (DATE
OF INCEPTION) TO DECEMBER 31, 1994, THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE MONTHS ENDED MARCH 31, 1996, SET FORTH BELOW, DO NOT PURPORT TO
REPRESENT WHAT THE COMPANY'S OPERATIONS ACTUALLY WOULD HAVE BEEN HAD THE
REORGANIZATION OCCURRED ON THE DATE INDICATED OR TO PROJECT THE COMPANY'S
OPERATING RESULTS FOR ANY FUTURE PERIOD. The unaudited pro forma adjustments
are based upon available information and certain assumptions that the Company
believes are reasonable. The unaudited pro forma condensed financial
statements should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements of Reorganized Sprint Spectrum and the notes thereto appearing
elsewhere in this Prospectus.
29
<PAGE>
PRO FORMA CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 AT DECEMBER 31, 1995
----------------------------------- ---------------------------------------
REORGANIZED REORGANIZED
SPRINT SPRINT
SPECTRUM L.P. ADJUSTMENTS PRO FORMA SPECTRUM L.P. ADJUSTMENTS PRO FORMA
------------- ----------- --------- ------------- ----------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets... $ 5,024 $ -- $ 5,024 $ 1,651 $ -- $ 1,651
Investment in PCS
licenses........ 118,438 -- 118,438 2,124,594 -- 2,124,594
Investment in
unconsolidated
partnership..... -- -- -- 85,546 (85,546)(1) --
Note receivable-
unconsolidated
partnership..... -- -- -- 655 (655)(1) --
Property, plant
and equipment
(net)........... 413 -- 413 31,897 -- 31,897
-------- ----- -------- ---------- -------- ----------
Total assets.... $123,875 $ -- $123,875 $2,244,343 $(86,201) $2,158,142
======== ===== ======== ========== ======== ==========
LIABILITIES AND
PARTNERS'
CAPITAL:
Current $ --
liabilities..... $ 3,745 $ 3,745 $ 49,417 $ -- $ 49,417
Deferred
compensation.... -- -- -- 1,856 -- 1,856
Note payable to -- 5,000
affiliate....... -- -- -- 5,000
Limited partner
interest in
consolidated
subsidiary...... -- -- -- 5,000 -- 5,000
Partners'
capital......... 120,130 -- 120,130 2,183,070 (86,201)(1) 2,096,869
-------- ----- -------- ---------- -------- ----------
Total
liabilities and
partners'
capital........ $123,875 $ -- $123,875 $2,244,343 $(86,201) $2,158,142
======== ===== ======== ========== ======== ==========
<CAPTION>
AT MARCH 31, 1996
----------------------------------------
REORGANIZED
SPRINT
SPECTRUM L.P. ADJUSTMENTS PRO FORMA
------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Current assets... $ 4,974 $ -- $ 4,974
Investment in PCS
licenses........ 2,124,594 -- 2,124,594
Investment in
unconsolidated
partnership..... 49,314 (49,314)(1) --
Note receivable-
unconsolidated
partnership..... 83,655 (83,655)(1) --
Property, plant
and equipment
(net)........... 76,129 -- 76,129
------------- -------------- -----------
Total assets.... $2,338,666 $(132,969) $2,205,697
============= ============== ===========
LIABILITIES AND
PARTNERS'
CAPITAL:
Current
liabilities..... $ 96,870 $ -- $ 96,870
Deferred --
compensation.... 4,247 4,247
Note payable to
affiliate....... 5,000 -- 5,000
Limited partner
interest in
consolidated
subsidiary...... 5,000 -- 5,000
Partners'
capital......... 2,227,549 (132,969)(1) 2,094,580
------------- -------------- -----------
Total
liabilities and
partners'
capital........ $2,338,666 $(132,969) $2,205,697
============= ============== ===========
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE PERIOD FROM OCTOBER 24,
1994
(DATE OF INCEPTION) TO DECEMBER 31, FOR THE YEAR ENDED
1994 DECEMBER 31, 1995
----------------------------------- ---------------------------------------
REORGANIZED REORGANIZED
SPRINT SPRINT
SPECTRUM L.P. ADJUSTMENTS PRO FORMA SPECTRUM L.P. ADJUSTMENTS PRO FORMA
------------- ----------- --------- ------------- ----------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING EX-
PENSES:
General and ad-
ministrative.... $ 1,371 $ -- $ 1,371 $ 37,460 $ -- $ 37,460
Professional and
legal fees...... 1,923 -- 1,923 26,849 -- 26,849
Depreciation..... 38 -- 38 211 -- 211
-------- ----- -------- ---------- -------- ----------
Total operating
expenses....... 3,332 -- 3,332 64,520 -- 64,520
OTHER INCOME (EX-
PENSE):
Interest income.. 24 -- 24 260 -- 260
Other income..... -- -- -- 38 -- 38
Equity in loss of
unconsolidated
partnership..... -- -- -- (46,206) 46,206(1) --
-------- ----- -------- ---------- -------- ----------
Total other
income
(expense)...... 24 -- 24 (45,908) 46,206 298
-------- ----- -------- ---------- -------- ----------
Net loss.......... $ (3,308) $ -- $ (3,308) $ (110,428) $ 46,206 $ (64,222)
======== ===== ======== ========== ======== ==========
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996
----------------------------------------
REORGANIZED
SPRINT
SPECTRUM L.P. ADJUSTMENTS PRO FORMA
------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING EX-
PENSES:
General and ad-
ministrative.... $ 19,862 $ -- $ 19,862
Professional and
legal fees...... 10,862 -- 10,862
Depreciation..... 254 -- 254
------------- -------------- -----------
Total operating
expenses....... 30,978 -- 30,978
OTHER INCOME (EX-
PENSE):
Interest income.. (358) -- (358)
Other income..... 143 -- 143
Equity in loss of
unconsolidated
partnership..... (36,232) 36,232(1) --
------------- -------------- -----------
Total other
income
(expense)...... (36,447) 36,232 (215)
------------- -------------- -----------
Net loss.......... $ (67,425) $ 36,232 $ (31,193)
============= ============== ===========
</TABLE>
- - -------
(1) Reflects the transfer of WirelessCo's investment in APC to Holdings,
resulting from the Reorganization.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Reorganized Sprint Spectrum's consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus. The Company's consolidated
financial information has not been separately included for the periods
presented because it would not reflect the financial condition of the Company
following the transfer of all of Holdings' assets used in the Company's PCS
business and the planned distribution of the Company's interest in APC to
Holdings. The Reorganized Sprint Spectrum financial information that is
presented reflects the transfer of the operations of Holdings to the Company
which took place on July 1, 1996. To assist prospective investors, pro forma
and as adjusted information reflecting the Reorganization and the Offering
have been set forth in "Selected Historical and Pro Forma Financial Data" and
"Pro Forma Condensed Financial Statements" and the discussion below is
presented on a pro forma basis as though the Reorganization had occurred.
GENERAL
The Company is a development stage enterprise formed for the purpose of
establishing a nationwide PCS wireless telecommunications network. The Company
acquired 29 PCS licenses in the FCC's A Block and B Block PCS auction which
concluded in March 1995. The Company also has an affiliation agreement with
APC and expects to have affiliation agreements with Cox-California and
PhillieCo. In addition, Cox has agreed to contribute to the Company, upon FCC
approval, which is pending, a PCS license for the Omaha MTA. The Company has
four subsidiaries: WirelessCo, RealtyCo, EquipmentCo and FinCo.
To date, the Company has incurred expenditures in conjunction with PCS
license acquisitions, initial design and construction of the PCS network,
engineering, marketing, administrative and other start up related expenses.
The Company has not yet commenced commercial operations and, as a result, has
not yet generated operating revenue or earnings. The Company intends to
initiate the commercial launch of its service in the fourth quarter of 1996
with service in all MTAs by the end of the first quarter of 1997. Pop coverage
at the end of the first quarter of 1997 is expected to reach approximately 60%
in the aggregate across all of the Company's markets. The timing of launch in
individual markets will be determined by various factors, principally zoning
and microwave relocation factors, equipment delivery schedules and local
market and competitive considerations. The Company intends to continue to
expand its coverage in its PCS markets to reach approximately 70% of the Pops
in its existing license areas in the aggregate by the end of 1997. Thereafter,
the Company will evaluate further coverage expansion on a market-by-market
basis, eventually targeting coverage of 80% of the Pops in its existing
license areas in the aggregate, thereby substantially completing its planned
network buildout of its existing license areas. The extent to which the
Company is able to generate operating revenue and earnings is dependent on a
number of business factors, including securing financing to complete network
construction and fund initial operations and operating losses, successfully
deploying the PCS network and attaining profitable levels of market demand for
the Company's products and services.
LIQUIDITY AND CAPITAL RESOURCES
The buildout of the Company's PCS network and the marketing and distribution
of the Company's PCS products and services will require substantial capital.
The Company currently estimates that its capital requirements (capital
expenditures, the cost of its existing licenses, working capital, debt service
requirements and anticipated operating losses) for the period from inception
through the end of 1998 (assuming substantial completion of the Company's
network buildout to cover 80% of the Pops in its current license areas in the
aggregate by the end of 1998) will total approximately $7.9 billion (of which
approximately $2.2 billion had been expended as of March 31, 1996). The
Company will also require substantial additional capital for new license
acquisitions or investments in entities making license acquisitions (if any)
and, after 1998, for coverage expansion and volume-driven network capacity and
other capital expenditures for existing and new license areas (if any),
working capital, debt service requirements and anticipated further operating
losses. Costs associated with the network buildout include switches, base
stations, towers, antennae, radio frequency engineering, cell site
construction and microwave relocation. Management estimates that capital
expenditures associated with the
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buildout will total approximately $3.8 billion from inception through 1998,
including $3.0 billion in 1996. Under the Procurement Contracts, the Company
is required to purchase minimum amounts of equipment and services from each
Vendor. Actual amounts of the funds required may vary materially from these
estimates and additional funds would be required in the event of significant
departures from the current business plan, new license acquisitions,
unforeseen delays, cost overruns, unanticipated expenses, regulatory expenses,
engineering design changes and other technological risks.
The Company currently has no sources of revenue to meet its capital
requirements and has relied upon capital contributions and advances from
Holdings. Holdings also requires capital for its affiliate investments and
other partnership purposes. The Partners have agreed to contribute up to an
aggregate of $4.2 billion of equity to Holdings to the extent required by the
annual budgets of Holdings through fiscal 1999 as approved by the Partners. As
of March 31, 1996, approximately $2.4 billion had been contributed to
Holdings, of which $2.2 billion had been contributed to the Company and the
remaining $0.2 billion had been contributed or advanced to APC. The Company
currently intends to obtain up to $1.4 billion of additional equity following
March 31, 1996, resulting in $3.6 billion in aggregate invested equity capital
in the Company, although there can be no assurance that any additional capital
will be obtained in the form of equity from the Parents or otherwise. The
Parents have committed to make available to the Company or cause Holdings to
make available to the Company up to $1.0 billion of such additional equity, to
the extent required by the Company to fund any projected cash shortfall, under
a Capital Contribution Agreement among Sprint Spectrum and the Parents that
provides for $1.0 billion in aggregate equity commitments (less, subject to
certain exceptions, amounts of cash equity contributed to Sprint Spectrum
after December 31, 1995). The Company's business plan and the financial
covenants and other terms of the Secured Financing will require such
additional equity financing prior to the end of 1998, absent a new financing
source. The $1.0 billion portion of the $4.2 billion not invested in the
Company that may be available to Holdings from the Partners may be used by
Holdings to fund Holdings' other affiliate commitments, to make other wireless
investments and/or to make new license acquisitions. Amounts budgeted by the
Partners in future years will determine the extent to which the commitments
will actually be utilized. See "Risk Factors--Substantial Capital Requirements
and Liquidity; Highly Leveraged Capital Structure." See also "Description of
Vendor Contracts and Financing--Capital Contribution Agreement" and "The
Partnership Agreements--Holdings Partnership Agreement--Capital Contributions"
for a discussion of the equity capital commitments to Holdings and Sprint
Spectrum.
The Company has obtained commitments from Nortel for $1.3 billion and from
Lucent for $1.8 billion of senior secured loans to finance purchases of PCS
equipment and related services and costs. The Nortel Financing requires, as a
condition to funding, the commitment of additional financing from third-
parties, including the Offering, the Bank Credit Facility or other debt
financing and equity financing. The Company will use the proceeds of the
Vendor Financing to fund the purchase of the equipment and software
manufactured by the vendors as well as substantially all of the construction
and ancillary equipment (e.g., towers, antennae, cable) required to construct
the Company's PCS network. These facilities would serve as the primary
financing mechanism for the buildout of the network. See "Risk Factors--
Substantial Capital Requirements and Liquidity; Highly Leveraged Capital
Structure." The Company has received a commitment from Chase to provide a
fully underwritten $2.0 billion Bank Credit Facility to finance working
capital, capital expenditures, operating losses and other partnership
purposes. The Company will have amortization obligations under the Secured
Financing and minimum purchase obligations under the Procurement Contracts.
These commitments are subject to numerous conditions, including the execution
and delivery of definitive documentation for the Secured Financing. See
"Description of Vendor Contracts and Financing--Vendor Financing" and "--Bank
Credit Facility."
Sources of funding for the Company's further financing requirements may
include additional vendor financing, public offerings or private placements of
equity and/or debt securities, commercial bank loans and/or capital
contributions from Holdings or the Partners. There can be no assurance that
the Secured Financing or any additional financing will be available to the
Company or, if available, that such financing can be obtained on a timely
basis and on terms acceptable to the Company and within limitations contained
in the Indentures, the agreements governing the Secured Financing and any new
financing arrangements. Failure to obtain any such
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<PAGE>
financing could result in the delay or abandonment of the Company's
development and expansion plans and expenditures or the failure to meet
regulatory requirements. It also could impair the Company's ability to meet
its debt service requirements (including its obligations with respect to the
Notes) and could have a material adverse effect on its business.
The net cash used by Reorganized Sprint Spectrum in 1994 totaled $118.4
million which consisted primarily of deposits placed with the FCC in advance
of the auction for the PCS licenses. For the year ended December 31, 1995,
Reorganized Sprint Spectrum had a net cash usage of $2.2 billion. Cash used in
operations was $17 million which consisted of the operating loss of $110.4
million (which includes the equity in the loss at APC) and is offset, in part,
by increased payables and other accruals. Cash used in investing activities
totaled $2.2 billion, consisting of a $2.0 billion purchase of PCS licenses
from the FCC and a $131.8 million investment in APC. For the quarter ended
March 31, 1996, total cash usage was $109.9 million. Cash used in operations
consisted of operating losses of $67.4 million offset, in part, by equity in
the loss of APC. Cash used in investing activities totaled $127.5 million and
was primarily for an advance to APC and to fund capital expenditures. Since
Reorganized Sprint Spectrum's inception, all of the cash used in operations
and for investing activities has been provided by the Partners in the form of
cash equity contributions which totalled $2.4 billion at March 31, 1996.
As part of an overall strategy to increase the Company's Pop coverage,
either or both of Holdings and the Company may elect to bid on, or affiliate
with or invest in other entities who are bidding on, PCS licenses to be
awarded in the FCC auction of the PCS licenses of the D, E and F Blocks. The
Company derives revenue from its ownership of PCS licenses and its offering of
PCS service. The Company benefits to a lesser extent financially through its
affiliation arrangements with subsidiaries of Holdings or other entities
because direct revenues are booked by the affiliate, while the affiliation fee
compensates the Company for services rendered to the affiliate. Such
arrangements, however, provide excellent business opportunities for the
Company by allowing it to expand its coverage area. To the extent that
Holdings acquires new PCS licenses or invests in an entity that acquires new
PCS licenses, it is expected that an affiliation arrangement with the Company
will be entered into with respect to such Pop coverage. To the extent that the
Company directly acquires new PCS licenses or invests in an entity that
acquires new licenses, the Company may finance such acquisition or investment
and any related capital expenditures, working capital and other funding
requirements with a portion of the net proceeds of the Offering or through
additional debt and/or equity financing. There can be no assurance that the
Company or Holdings will pursue such an expansion strategy.
Prior to the transfer of APC to Holdings, WirelessCo will have certain
obligations in respect of APC. During the initial five year build-out period
ending December 1999, American Personal Communications, Inc. ("APC, Inc."),
the 51% owner of APC, and WirelessCo are obligated as follows: (a) APC, Inc.
is obligated to make capital contributions in an amount equal to the aggregate
principal and interest payments to the FCC for APC's PCS license, provided
APC, Inc. has sufficient cash flow or can obtain financing from a third party;
(b) if APC, Inc. is unable to meet such obligation, WirelessCo is required to
contribute the shortfall; (c) WirelessCo is required to contribute to APC cash
necessary for operations up to an amount of approximately $98 million; and (d)
WirelessCo is obligated to fund the cash requirements of APC in excess of that
described in (a), (b), and (c) above, in the form of either loans or
additional capital up to an aggregate of $275 million. As of December 31,
1995, $98 million of equity had been contributed and $654,982 of partner
advances had been extended to APC. An additional $83 million of partner
advances was extended to APC during the quarter ended March 31, 1996.
Outstanding partner advances are non-recourse to the partners, bear interest
at an agreed-upon rate and will be payable at such time as APC has sufficient
funds to permit repayment. In addition, prior to the transfer of APC to
Holdings, WirelessCo will be subject to a put option pursuant to which,
annually during the initial five-year period and at various times thereafter,
APC, Inc. may require WirelessCo to purchase all or a portion of APC, Inc.'s
interest in APC (equal to 100% of its interest in the aggregate). Under
certain circumstances, APC, Inc. has the right and is obligated to exercise
its put rights to the extent necessary to fund its additional capital
contribution obligations. The Company has been informed by officials of APC
that, although there is limited financial information available subsequent to
March 31, 1996, (a) APC continued to experience net losses, (b) APC incurred
additional debt and advances from related parties and (c) APC's partners'
capital has been reduced by the continued net losses referred to above.
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<PAGE>
RESULTS OF OPERATIONS
From the Date of Inception to December 31, 1994.
General and administrative costs associated with salary, benefits and
expenses of administrative personnel were $1.4 million. Professional and legal
fees associated with market research and consulting, contractor and legal cost
incurred in conjunction with participation in the PCS auction totaled $1.9
million. There was nominal depreciation expense in 1994. Reorganized Sprint
Spectrum had a loss for the period from October 24, 1994 (date of inception)
to December 31, 1994 of $3.3 million.
For the Year Ended December 31, 1995.
Reorganized Sprint Spectrum incurred $37.5 million of general and
administrative costs associated with the start-up of operations. At year end,
Holdings had 739 full-time employees, all of whom are working on behalf of the
Company. Professional and legal costs associated with WirelessCo's
participation in the PCS auction totaled $26.8 million. Reorganized Sprint
Spectrum incurred a loss of $46.2 million as its share of APC's losses
associated with commencement of operations. There was nominal depreciation and
no amortization recorded in 1995. The Company will commence amortization of
its PCS license investment upon launch of commercial operations and will
amortize such investment over a period of 40 years. Reorganized Sprint
Spectrum had a loss of $110.4 million for the year ended December 31, 1995.
For the Quarter Ended March 31, 1996.
Reorganized Sprint Spectrum incurred a loss of $36.2 million as its share of
APC's losses associated with customer acquisition and operations. There was no
amortization of licenses during the period as PCS service had not been
launched commercially. Reorganized Sprint Spectrum had a loss of $67.4 million
for the quarter ended March 31, 1996.
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BUSINESS
GENERAL
Sprint Spectrum intends to become a leading provider of wireless
communications products and services in the United States. The Company is the
largest broadband wireless PCS company in the United States in terms of total
licensed Pops, with licenses (including those owned by licensees that have
affiliated or have agreed to affiliate with the Company) to provide service in
33 MTAs covering 190.9 million Pops (73% of the total United States
population), including eight of the nation's ten largest MTAs. The Company
intends to initiate the commercial launch of its service in the fourth quarter
of 1996 with service in all MTAs by the end of the first quarter of 1997. Pop
coverage at the end of the first quarter of 1997 is expected to reach
approximately 60% in the aggregate across all of the Company's markets. The
timing of launch in individual markets will be determined by various factors,
principally zoning and microwave relocation factors, equipment delivery
schedules and local market and competitive considerations. The Company intends
to continue to expand its coverage in its PCS markets to reach approximately
70% of the Pops in its existing license areas in the aggregate by the end of
1997. Thereafter, the Company will evaluate further coverage expansion on a
market-by-market basis, eventually targeting coverage of 80% of the Pops in
its existing license areas in the aggregate, thereby substantially completing
its planned network buildout of its existing license areas.
The general partner of Sprint Spectrum is Holdings, a limited partnership
formed by Sprint Enterprises, L.P., which has a 40% partnership interest in
Holdings, TCI Telephony Services, Inc. which has a 30% partnership interest in
Holdings, and Comcast Telephony Services and Cox Telephony Partnership, each
of which has a 15% partnership interest in Holdings. Each Partner is both a
general partner holding 99% of its interest as a general partner and a limited
partner holding 1% of its interest as a limited partner. Holdings has a
greater than 99% general partnership interest in the Company. The Partners are
subsidiaries of, respectively, Sprint, TCI, Comcast and Cox.
The Company is at an early stage of development, has not commenced
commercial PCS operations and has no revenues from operations. The Company
will require significant funds for development, construction, testing and
deployment of its PCS network before commencement of commercial operations.
The Partners have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings to the extent required by the annual budgets of Holdings
through fiscal 1999 as approved by the Partners. As of March 31, 1996,
approximately $2.4 billion had been contributed to Holdings, of which $2.2
billion had been contributed to the Company and the remaining $0.2 billion had
been contributed or advanced to APC. The Company currently intends to obtain
up to $1.4 billion of additional equity following March 31, 1996, resulting in
$3.6 billion in aggregate invested equity capital in the Company, although
there can be no assurance that any additional capital will be obtained in the
form of equity from the Parents or otherwise. The Parents have committed to
make available or cause Holdings to make available to the Company up to $1.0
billion of such additional equity, to the extent required by the Company to
fund any projected cash shortfall, under a Capital Contribution Agreement
among Sprint Spectrum and the Parents that provides for $1.0 billion in
aggregate equity commitments (less, subject to certain exceptions, amounts of
cash equity contributed to Sprint Spectrum after December 31, 1995). At March
31, 1996, approximately $1.0 billion was available under the Capital
Contribution Agreement. The Company's business plan and the financial
covenants and other terms of the Secured Financing will require such
additional equity financing prior to the end of 1998, absent a new financing
source. The $1.0 billion portion of the $4.2 billion not invested in the
Company that may be available to Holdings from the Partners may be used by
Holdings to fund the Company's capital needs and Holdings' other affiliate
commitments or to make other wireless investments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "The Partnership Agreements--Holdings
Partnership Agreement--Capital Contributions."
The Company believes that rapid growth in consumer and business demands for
wireless services, technological advances, increased customer expectations for
quality and convenience of use and deregulation are reshaping the
telecommunications market. In order to compete in this changing environment,
accelerate subscriber growth and increase customer retention, the Company
intends to offer customers integrated telecommunications packages and national
service offerings. The Parents and the Company expect to package
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the Company's wireless services with other of the Parents' communications
products and services, including the local and long distance
telecommunications services and the cable-based entertainment services of
Sprint and the Cable Parents. The Company and the Parents will market PCS
wireless products and services nationally under the Sprint brand name through
diverse distribution channels including those of the Parents.
The Company believes it will be able to differentiate itself in the wireless
marketplace through the implementation of a state-of-the-art digital network,
featuring CDMA technology. The Company selected CDMA technology because the
Company believes it offers increased system capacity, better quality of
transmission and lower infrastructure and ongoing support costs. The Company's
CDMA technology will enable it to offer, when the necessary equipment is
available, high-speed data transmission to and from portable computers,
advanced paging services, facsimile services and Internet access.
Broadband PCS systems differ from traditional analog cellular telephone
service principally in that PCS systems operate at a higher frequency band
(1850-1990 MHz radio spectrum), have more spectrum allotted and have different
license areas. PCS is expected to be the first all-digital wireless service
and will be able to provide enhanced integrated services not currently offered
by traditional analog cellular providers, including integrated voicemail and
short messaging.
The Company believes that these enhanced features and services, in
conjunction with increased competition within the industry, will contribute to
the acceleration of growth in the wireless telecommunications market. The
number of cellular telephone subscribers nationwide has grown from
approximately 680,000 in 1986 to an estimated 34 million as of December 31,
1995. PCIA estimates that the number of cellular and PCS wireless services
subscribers will be over 104 million by the year 2005 and that PCS
subscriptions will account for approximately 40 million of such subscriptions.
The Company was the successful bidder for 29 PCS licenses in the FCC's A
Block and B Block PCS auction which concluded in March 1995. The Company's 29
wholly-owned markets cover 150.3 million Pops and include, among others, the
New York, San Francisco, Detroit, Dallas/Fort Worth and Boston/Providence
MTAs. Additionally, Cox has agreed to contribute to the Company, upon FCC
approval which is pending, a PCS license for the Omaha MTA that it purchased
in the broadband PCS auction in March 1995.
In order to increase its Pop coverage, the Company has affiliated and
expects to continue to affiliate with other PCS providers, including those in
which Holdings or affiliates of its Partners have an interest. Pursuant to
affiliation agreements, each affiliated PCS service provider will be included
in the Company's national network and will use the Sprint brand name. In
return for this right, the affiliated PCS provider agrees to offer among its
products at least certain products designated by Sprint Spectrum, agrees to
adhere to certain technical standards for the affiliated PCS provider's
network and agrees to share in certain costs such as advertising that benefit
both the affiliated PCS provider and Sprint Spectrum. The affiliated PCS
provider pays a fee for the services and reimburses Sprint Spectrum for
certain direct costs attributable to the affiliate. The affiliation agreements
between Sprint Spectrum and other PCS providers are not presently subject to
regulation by the FCC. Holdings owns a 49% limited partnership interest in
APC, which owns a PCS license for, and operates a broadband PCS system in, the
Washington D.C./Baltimore MTA. APC has affiliated with Sprint Spectrum and is
marketing its products and services under the Sprint brand name. APC launched
its PCS service in November 1995 and is the nation's first commercially
operational PCS system. As of May 15, 1996, APC had approximately 80,000
subscribers. See "--Early PCS Industry Experience." Holdings also expects to
acquire a 49% limited partnership interest in Cox-California, a partnership
that will be formed to hold a PCS license for the Los Angeles/San Diego MTA
covering 21.5 million Pops. Cox, which currently owns this license, will
contribute the license to Cox-California and will manage and control Cox-
California. The Company expects to sign an affiliation agreement with Cox-
California by the end of the third quarter of 1996. At the same time, the
Company also expects to affiliate with, and provide various services to
PhillieCo, a limited partnership organized by and among subsidiaries of
Sprint, TCI and Cox that owns a PCS license for the Philadelphia MTA.
Including affiliates, the Company has licenses and affiliate relationships
in 33 MTAs covering nearly 191 million Pops (73% of the United States
population.) There are 18 MTAs currently not served by the Company's licenses
and affiliations. The Company continues to explore a number of possibilities
to expand Pop coverage. Opportunities exist for affiliations with or
investments in other PCS providers (including other affiliates of
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Holdings) operating in territories not covered by the Company's licenses. The
Company may participate, directly or through others, in the FCC auction of PCS
licenses for the D, E and F Blocks. See "--Regulation--PCS Licensing."
Likewise, the ability to exchange capacity or enter into resale agreements
with other providers or enter into roaming arrangements with other providers'
systems are options under consideration. Finally, the Company is also
considering entering into the 10 MHz auctions as a viable method of expanding
coverage. There can be no assurance, however, that the Company will be
successful in expanding its Pop coverage beyond that currently covered by
existing licenses and existing and expected affiliation agreements.
The table below presents the owned and affiliated Pops after giving effect
to such affiliation agreements:
<TABLE>
<CAPTION>
1995 AVERAGE LICENSE
POPULATION PURCHASE PRICE
OWNED/AFFILIATED # OF MTAS IN MTA(S) PER 1990 POP(1)
---------------- --------- ---------- ---------------
(MILLION)
<S> <C> <C> <C>
Owned....................................... 29 150.3 $14.54
Omaha (to be contributed by Cox)(2)......... 1 1.7 $ 3.06
Affiliated:
APC (Baltimore/Washington)(3)............. 1 8.3 $13.16
Cox-California (Los Angeles/San
Diego)(4)................................ 1 21.5 $13.16
PhillieCo (Philadelphia)(5)............... 1 9.1 $ 9.52
--- -----
Total................................... 33 190.9
=== =====
</TABLE>
- - --------
(1) Cost to winning bidder in FCC auction(s) or in connection with the award
of Pioneer's Preference license.
(2) Contribution will be credited towards capital contributions required of
Cox under the Holdings Partnership Agreement to the same extent as if Cox
had made a cash contribution in an amount equal to the sum of (i)
$995,564, together with interest at the annual rate of 13.4% computed from
November 17, 1994 through the date the Omaha license is contributed, plus
(ii) $4,062,400, together with interest at the annual rate of 13.4%
computed from June 30, 1995 through the date the Omaha license is
contributed.
(3) Holdings owns a 49% limited partnership interest in APC, which has signed
an affiliation agreement with the Company.
(4) Holdings intends to acquire a 49% limited partnership interest in, and the
Company expects to sign an affiliation agreement with, Cox-California.
(5) Owned by subsidiaries of Sprint, TCI and Cox. The Company expects to sign
a services and affiliation agreement with PhillieCo.
STRATEGY
The Company intends to achieve its objective of becoming a leading provider
of wireless communications products and services in the United States by
employing strategies for its network construction, service offering, branding
and marketing which utilize the Company's competitive advantages. These
competitive advantages are expected to include:
. State-of-the-art technology. The Company is implementing a state-of-the-
art PCS network using CDMA digital technology which, the Company
believes, provides benefits relative to current analog systems. The
Company believes that its digital technology will increase capacity in
the system by approximately 7 to 10 times, offer better call quality and
clarity and a wider variety of advanced features and applications.
. National network. Sprint Spectrum intends to offer wireless service on a
national basis with a single technology (CDMA) operating on a uniform
spectrum (1.9 GHz), thereby providing consistent functionality and high
quality service. The Company currently owns (including the Omaha license
to be contributed to the Company), or expects to have affiliation
relationships with PCS providers who own, PCS licenses covering 190.9
million Pops and intends to pursue additional coverage on a market-by-
market basis through license acquisitions and affiliation or resale
agreements with other CDMA-based PCS providers. Together, the Company and
other PCS licensees that have announced their intentions to implement
CDMA technology have licenses covering territories representing
approximately 89% of the United States population. The Company expects to
gain cost advantages in purchasing power, operations and marketing
because of the national scope and operating scale of its network. The
Company believes it
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will have the flexibility to utilize pricing and promotional programs on a
national basis to provide incentives for customer subscription and
increased usage.
. National brand. The Company will market and promote its wireless products
and services under the Sprint brand, which is one of the most widely
recognized and respected brands in the telecommunications market. The
Company expects that the use of the Sprint brand will build consumer
confidence and accelerate consumer acceptance of the Company's products
and services.
. Strong Parent sponsorship. The Company intends to capitalize on the
communications expertise of the Parents, including local exchange carrier
services, cable television services and long distance telephone services.
In addition, the size and breadth of the customer base of each Parent
provide a key advantage for the Company's distribution and marketing
efforts. Subject to certain exceptions, the Parents and the Company
intend to cross-market the Company's wireless services with the long
distance, local telephone and cable-based entertainment services of the
Parents in order to accelerate subscriber growth and increase retention
rates while improving overall customer satisfaction. Sprint has a
combined customer base of 14 million long distance and local telephone
subscribers and collectively the Cable Parents have 20 million cable
television customers. See "--Relationship with Partners and Parents."
MARKETING AND DISTRIBUTION
The Company's current marketing strategy is to differentiate itself through
its state-of-the-art network, use of the established and respected Sprint
brand name, customer-care systems, diverse distribution channels and sales and
packaging arrangements with the Parents. The Company will build on Sprint's
strong national identity, using regional and local marketing to tailor
programs to the demands of individual markets. Additionally, the Company
believes that its all-digital network will provide customers with consistency
of service and features on a national basis, improving customer satisfaction.
The Company has formed segmentation and distribution strategies targeted at
both consumer and business markets.
Consumer Market
Customer segmentation. The Company plans to use both mass-marketing and
specific customer segment marketing to focus its efforts on consumers who have
significant work or personal telecommunication demands. Mass-marketing efforts
are expected to emphasize the quality of Sprint Spectrum's network in
comparison to traditional cellular service and will be supported by the Sprint
brand. For each targeted segment, the Company expects to create a number of
specific marketing programs including a service package, tiered pricing plans,
promotional strategies and distinctive distribution channels. An important
aspect of specific customer segment marketing is the ability, subject to
certain exceptions, to integrate the Company's wireless services with the
Parents' long distance and local telephone services and cable-based
entertainment services.
Distribution. The Company intends to use multiple methods of distribution in
each of its markets; and will continue to review and implement new
distribution channels in the future as it determines the most effective
combination of options. The Company believes that multiple distribution
channels in each of its markets will enable it to provide effective and
extensive marketing of products and services and to minimize its reliance on
any single distribution source. Traditional distribution sources such as
dealers and direct sales representatives may be important factors in achieving
the Company's objectives but alternatives, such as Company retail stores, may
also be an important part of the Company's distribution system.
Direct channels. The Company intends to build its direct distribution
channel over time. The core of this strategy is the introduction, currently
scheduled for the fourth quarter of 1996, of Sprint Spectrum Retail Stores
("Stores"). Based on APC's experience with its flagship stores, the Company
believes that the Stores will increase Sprint Spectrum's market presence
and build awareness for its services. In addition, the Stores should also
satisfy customer preferences to deal directly with the provider. Finally,
the Stores will ensure a venue where the Company can have complete control
of its image and selling message while providing the
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Company an opportunity to display the full array of its products and
services. The Company expects to complement its Stores with other direct
channels such as its direct sales force and telemarketing.
Indirect and third-party channels. The Company believes its products and
services have significant mass market potential and believes that it will
have key advantages in using traditional retail distribution channels. The
Company believes that the following capabilities and features, which it
will introduce over time, will make it attractive to national and regional
retailers: (i) a national offering, which allows retailers to use one
service provider; (ii) single technology and frequency range, which
simplifies handset options and reduces accounting and inventory management
requirements; (iii) over-the-air activation, which simplifies training,
selling and marketing efforts; (iv) optional pre-paid billing, which
expands the potential customer base; (v) elimination of long-term customer
service contracts, which may increase the number of potential customers and
decrease customer dissatisfaction; (vi) providing for an equipment sales
margin versus selling commissions, which enables retailers to realize
profits at the time of sale; and (vii) the Sprint brand name.
Cross-selling and Parent channels. Subject to certain exceptions, the
Parents and the Company intend to cross-market the Company's wireless
services with the long distance, local telephone and cable-based
entertainment services of the Parents in order to increase customer
acquisition and retention. Sprint has a combined customer base of 14
million long distance and local telephone subscribers and collectively the
Cable Parents have 20 million cable television customers. See "The
Partnership Agreements." By using the Cable Parents' regular contacts with
their customers, including bill inserts and customer service contacts, the
Company intends to build market share of its wireless services efficiently.
The Company also expects to be able to build on Sprint's distribution
capabilities, through Sprint's long distance and local telephone divisions.
Business Market
Customer segmentation. The Company plans to initially target small to
medium-sized business customers with a locally-oriented wireless offering.
This segment includes satellite offices of larger organizations that purchase
wireless services on a decentralized basis. The Company expects to highlight
its all-digital network which it believes offers customers superior quality,
increased security and improved functionality as compared to traditional
analog cellular service. Customers in this segment are likely to have locally-
oriented communications needs and will be suitable targets for the Company's
initial product offering as the wireless network is being constructed and
prior to its nationwide deployment. The Company plans to offer flexible
billing options that address cross-product opportunities such as long distance
services.
The Company also intends to approach large business customers with its
initial product offering. Many large business customers are regional or
national in scope and require consistent pricing, service functionality and
account support on a regional or national basis. In marketing its service to
this segment, the Company intends to emphasize the following competitive
advantages: (i) ability to offer nationwide wireless services contracts, (ii)
consistent quality derived from Sprint Spectrum's all-digital network, (iii)
feature consistency across the Company's national network, (iv) volume
purchase capabilities and (v) packaging of Sprint long distance and other
Parent services.
Distribution. The Company intends to emphasize the Parents' business-to-
business selling resources in order to develop a comprehensive distribution
capability quickly. The Parents may provide access to their salesforces which
are comprised of over 2,000 salespeople nationwide focused on the business
market. The Company expects to augment existing Parent channels with direct
channels to expand its presence. The Company's direct channels likely will
include the Stores to target very small businesses, account executives to
target small, medium and large businesses and national account managers to
target national accounts. As of May 31, 1996, Holdings had a distribution and
marketing staff of approximately 85 employees working on behalf of the
Company.
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PRODUCTS AND SERVICES
With its all-digital national wireless network, the Company plans to
introduce a wide array of services and features that are designed to enhance
utility, provide consumers greater capabilities in call management and
increase usage for both outgoing and incoming calls.
Outgoing Calls
Features that encourage customers to make outgoing calls include: improved
call quality, advanced handsets, national consistency and customer-driven
local calling areas.
Improved call quality. The quality of the digital network continues to
approach that of wireline systems, which is expected to encourage increased
consumer usage.
Advanced handsets. The advanced, menu-driven handsets are designed to be
more user friendly and will be equipped for a variety of enhanced features and
applications.
National consistency. The consistency of product features across the
Company's network is expected to simplify use and ensure that handset
functions are similar in all markets.
Customer-driven local calling areas. The provision of customer-driven local
calling areas is designed for customers who frequently travel between multiple
regions.
Incoming Calls
Features that encourage customers to receive calls include: caller ID,
message management, including voicemail and integrated paging and improved
battery technology.
Caller ID. The Company's system is designed to enable the display of the
telephone number of the incoming caller on the customer's handset, allowing
the customer to decide to answer or decline the call or forward it to
voicemail.
Message management. Features like voicemail with call screening will allow
customers to listen while callers leave messages. The introduction of
integrated paging, expected by the end of 1997, will allow the handset to
signal receipt of an incoming message and provide text messaging via the
handset.
Improved Battery Technology. With advances in battery technology, longer
lasting batteries will enable customers to leave their handsets on while not
in use, which will promote the receipt of incoming calls.
The Company believes that the market for wireless communications will shift
over time from today's traditional voice mobility applications which
supplement customers' wireline service to an environment in which wireless
begins to expand into the wireline market, both as a primary communications
device and as a means of providing advanced functionality. The Company intends
to develop products, services and features which will serve to increase
network utilization above historical cellular usage while simultaneously
containing costs.
EARLY PCS INDUSTRY EXPERIENCE
On November 15, 1995, APC launched the first commercial PCS operation in the
United States with the initiation of service in the Washington/Baltimore MTA.
Holdings owns a 49% limited partnership interest in APC, which currently
provides service coverage to an area containing approximately 5.9 million
Pops, or approximately 71% of the Pops in the MTA. APC currently provides
service to the metropolitan areas of Washington and Baltimore and the
connecting highways and roads to Annapolis and the Eastern Shore. APC plans to
continue to expand the range of its geographic and population coverage.
APC's service is marketed under the Sprint brand name and is positioned in
the market as having excellent call clarity, privacy and feature integration.
In its market, APC is providing unique product offerings which
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include: (i) no requirement for long-term service contracts, which encourages
customers to try the service; (ii) no charge for the first minute of inbound
calls, which encourages customers to give out their PCS number and increases
overall minutes of use; (iii) over-the-air-activation, which, due to its
simplicity, encourages customers to acquire the service; (iv) off-the-shelf
retail distribution; and (v) 24-hour-a-day customer service. Under the current
APC marketing plan, customers are required to pay, on average, more to buy PCS
handsets than for cellular handsets utilized by traditional analog cellular
systems; however, monthly and per minute service charges are lower than those
of incumbent cellular providers. APC is also combining the Sprint trademark
with significant level of consumer advertising and tie-ins with Sprint long
distance telephone services.
While APC's operations are still in a preliminary stage, initial results
have been encouraging. As of May 15, 1996, APC had more than 80,000
subscribers. Customers appear willing to pay more for handsets in exchange for
higher quality service, lower airtime rates and no long-term service
contracts. In addition, customers are using the PCS service for more minutes
each month than traditional cellular services and usage patterns differ from
those of traditional analog cellular users. In particular, customers use their
PCS service throughout the day, rather than primarily at commuting hours.
Sprint Spectrum is also monitoring the incumbent cellular providers' response
which, to date, has been primarily focused on APC's geographic coverage.
Sprint Spectrum recognizes that there are limitations to translating APC's
experience to the Company's nationwide markets. First, APC currently has only
two competitors whereas Sprint Spectrum may compete with four or five wireless
competitors in each MTA. Second, while APC intends to add a CDMA protocol, it
is initially deploying GSM technology which is more mature than CDMA will be
at launch. Third, the quality of existing cellular service in the
Washington/Baltimore MTA is inconsistent. In addition, the limited period of
APC's operations is also not necessarily a reliable indicator of future
demand, revenue or the rate at which customers may return handsets or
deactivate their service ("churn").
CDMA TECHNOLOGY
Wireless digital signal transmission is accomplished through the use of
various frequency management technologies, or "protocols." The FCC has not
mandated a universal digital protocol for PCS systems. Currently, various
vendors have proposed three principal competing, incompatible protocols for
use in PCS systems: CDMA, GSM and TDMA (IS-136).
The GSM protocol is an updated, up-banded version of the TDMA-based protocol
now in use in Europe. TDMA (IS-136) is an up-banded version of the TDMA-based
digital cellular protocol now used by cellular operators in the United States.
CDMA is a first-generation technology that is just beginning to be
commercially deployed in the United States. See "Risk Factors--Technology
Risks; Availability of Handsets." The Company believes that the CDMA protocol
will be the most widely adopted PCS protocol in the United States. See "--The
Wireless Telecommunications Industry."
The Company has selected CDMA technology rather than the other technologies
because it believes it will have increased subscriber capacity, higher quality
of transmission and lower infrastructure and ongoing support costs. The
Company believes that CDMA provides the following benefits:
Performance: Because of its allocation of voice channels, CDMA offers better
voice quality when compared to analog and other digital standards. Recently
completed tests indicate that CDMA systems' voice quality is almost as clear
as the typical home (wireline) telephone. CDMA systems are expected to have
more powerful error correction, less susceptibility to fading, reduced
interference and "soft" hand-offs resulting in fewer dropped calls. In a
"soft" hand-off, the mobile customer's handset establishes a connection with a
new cell before disconnecting with the current cell. As a result, fewer calls
are dropped compared to analog or TDMA/GSM networks that use a "hard" hand-off
(i.e., disconnecting the call from the current cell before connecting it in
the new cell).
Cost effectiveness: Cells using CDMA are expected to achieve a greater
radius of coverage and require fewer cells for a given geographical coverage
than newer TDMA/GSM systems for PCS. Fewer cells should
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result in significant reductions in overall capital requirements, lower
ongoing maintenance and operating costs, fewer cell sites to be acquired and
greater flexibility in network design.
Functionality: CDMA offers Sprint Spectrum the capability to customize its
service offerings, enabling customers to select advanced features such as
simultaneous voice and data transmission and, eventually, high speed data
applications.
Security: CDMA technology is inherently more secure than analog technologies
because CDMA works by "digitizing" each call, which is then coded and
transmitted using spread spectrum across a 1.25 MHz channel. This constantly
changing coding scheme enhances security and privacy by decreasing the
opportunity for nonusers to break into the system.
Capacity: CDMA technology allows a greater number of calls by using the
entire frequency spectrum in each cell. The Company believes that CDMA has the
capability to increase subscriber capacity to as much as 7 to 10 times that of
a typical analog system. Additionally, CDMA technology has the ability to
tolerate greater amounts of interference than other digital protocols, which
will permit the system to temporarily increase call capacity in a particular
cell thereby reducing call blocking. The Company plans to offer advanced
features such as wireless data, paging and voice messaging while maintaining
the marketing flexibility to offer high volume packages without straining
system capacity.
Recent CDMA networks that have been completed or are in late stage
development include:
. Hong Kong: Hutchison Telecommunications Ltd. launched the world's first
commercial CDMA digital wireless network in Hong Kong on October 1, 1995
with 1,000 users. The company began active marketing of its CDMA service
in January 1996. By the beginning of July 1996, the company had more than
40,000 CDMA subscribers.
. South Korea: On January 1, 1996, Korea Mobile Telecommunications Corp.
launched CDMA commercial service in an area west of Seoul with 36 CDMA
cell sites. The company launched CDMA service in Seoul in April 1996.
Shinsegi Telecommunications Inc. launched CDMA commercial service in the
Seoul and Taejon regions of South Korea on April 1, 1996 with 149 cell
sites.
. United States: In the United States, PCS service providers that have
indicated their intention of introducing commercial CDMA service include,
Ameritech Corporation (1997 or later), Centennial Cellular Corp. (second
half of 1996), GTE Mobilnet, Inc. (first quarter of 1997) and PCS PrimeCo
L.P. (fourth quarter of 1996). These companies together with Sprint
Spectrum comprise 225.6 million Pops or 89.3% of the United States
population. In addition, several of the successful bidders in the C Block
auctions have announced their intention to adopt CDMA. Winning bidders in
the D, E and F Block auctions, which have yet to occur, may also select
CDMA. See "--Regulation--PCS Licensing."
In addition to these PCS networks, traditional cellular providers may use
CDMA-based systems as a digital overlay to their existing analog systems in
order to improve and expand the range of services they provide. In mid-May,
AirTouch Communications, Inc. ("AirTouch") became the first cellular provider
to deploy a CDMA-based digital overlay. AirTouch's CDMA-based service is
currently only available to selected high-usage customers in Los Angeles.
EQUIPMENT VENDORS
Sprint Spectrum has selected Lucent and Nortel, two of the leading
telecommunications equipment manufacturers, to construct the wireless network
because of their extensive experience in wireless technology and their
willingness to guarantee delivery against specifications developed by the
Company. In addition, the Company has obtained from Nortel and Lucent
financing to fund the purchase of their respective equipment and the
construction of their assigned portions of the network. To mitigate against a
substantial portion of the risks of completion delay and performance of the
network and to ensure the Company has received competitive terms and
conditions, the Procurement Contracts include, among other things, deferred
payment schedules, liquidated
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damages provisions, extended warranty periods and "most favored customer"
status. See "Description of Vendor Contracts and Financing--Vendor Contracts."
Sprint Spectrum has entered into a three-year purchase and supply agreement
for CDMA handsets with Qualcomm Personal Electronics, which is a partnership
formed by QUALCOMM Incorporated ("Qualcomm") and Sony Electronics Inc. See
"Description of Vendor Contracts and Financing--Vendor Contracts--Handset
Agreement". Pursuant to the agreement, Qualcomm will manufacture CDMA handsets
for the Company. In addition, Qualcomm will provide training for the Company's
sales personnel and will work with the Company to develop new products for the
Company's PCS network. The Company also expects to source handsets from other
vendors in mid-1997 and is currently negotiating purchase and supply
agreements on a preliminary basis with such other vendors.
NETWORK BUILDOUT
The buildout of the Company's network involves systems design, acquisition
of cell sites, equipment procurement, relocation of existing microwave users,
interconnection with other communications providers, construction of cell
sites, installation of switches, and implementation of advanced management
information and billing systems. A planning and engineering team, comprised of
approximately 1,500 engineering and operations employees and thousands of
independent contractors and consultants, is designing and constructing the
Sprint Spectrum network based on the regional marketing and product
requirements to meet the Company's targets for consistency, uniformity and
reliability.
Rollout methodology. The Company's principal objective is to maximize
population coverage levels within targeted demographic segments and geographic
areas. Sprint Spectrum intends to offer commercial service in the fourth
quarter of 1996 and expand market coverage to reach approximately 70% of the
Pops in its existing license areas in the aggregate by the end of 1997.
Thereafter, the Company will evaluate further coverage expansion on a market-
by-market basis, eventually targeting coverage of 80% of the Pops in its
existing license areas in the aggregate, thereby substantially completing its
planned network buildout. In developing its PCS network Sprint Spectrum will
consider, among other things, population and traffic density, FCC coverage
requirements and the ability to cluster groups of markets.
RF design. The Vendors have completed and the Company has approved the RF
design for coverage of 60% of the Pops in the Company's license areas in the
aggregate. This process includes cell site design, frequency planning and
network optimization for each of Sprint Spectrum's markets. RF engineering
also allocates voice channels and assigns frequencies to cell sites taking
into consideration both PCS and microwave interference issues.
Property acquisition. The Company employs 32 MTA directors initially to
manage the buildout process and subsequently to have responsibility for
operating the network. Property acquisition managers are located within each
MTA and are responsible for identifying and obtaining the required property
for buildout of the PCS network.
The Company has hired property acquisition firms for each MTA to assist with
acquisition, zoning, permitting and appropriate surveying. The Company will
attempt to minimize property acquisition activity through utilization of the
Parents' assets and cable infrastructure, where possible. The cell site
selection process will require the lease or acquisition of approximately 5,700
sites in 31 MTAs prior to commencement of commercial operations of the
Company's PCS network, many of which are likely to require the Company to
obtain zoning variances or other local governmental or third-party approvals
or permits. As of July 19, 1996, the Company had signed leases or options for
3,281 sites, of which 913 were pending zoning and 1,308 were zoned or ready
for construction. There are currently 255 sites under construction.
Construction and installation. The equipment Vendors are overseeing the
deployment of the PCS network and are subcontracting the construction to
Bechtel National, Inc., Black & Veatch and MFS Communications
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Company, Inc. These firms will act as general construction contractors and
employ local construction firms to build the cell sites.
Microwave relocation. To become operational, Sprint Spectrum must relocate
existing 2GHz commercial microwave service users within its MTAs in order to
clear its spectrum. The Company has contracted with national vendors to assist
in microwave relocation process. Recently, the FCC adopted a microwave
relocation cost-sharing plan that limits permissible relocation costs and
outlines new procedures for the sharing of relocation costs where the
relocation of private microwave facilities benefits multiple broadband PCS
licensees. However, the FCC did not shorten the period for mandatory
negotiations between broadband PCS licensees and affected private microwave
licensees. See "--Regulation."
Approximately 1,400 co-channel and adjacent-channel microwave paths which
may affect Sprint Spectrum's rollout need to be relocated by the Company, of
which approximately 600 are required for the service launch. As of July 19,
1996, 405 relocation agreements were under negotiation, 639 agreements had
been reached and 136 paths had been relocated. The Company has entered into
various cost-sharing arrangements that provide for sharing among affected PCS
license holders of expenses associated with microwave relocation. See "Risk
Factors--Network Buildout and System Implementation Risks."
Interconnection. Sprint Spectrum's network will connect to the Public
Switched Telephone Network. Such interconnection is required to facilitate
originating and terminating traffic between the Company's facilities and both
the incumbent local exchange and long distance carriers. The Company is
negotiating, or intends to negotiate, interconnection agreements with
telephone companies operating or providing service in the areas where the
Company is deploying its PCS network. The Company intends to use Sprint as its
interexchange carrier and the agreement for such service is covered under the
Holdings Partnership Agreement.
Roaming. Wireless service providers are able to offer service to subscribers
from other systems who are traveling in or through their service area.
Customers typically pay higher rates while "roaming" outside of their home
market. Roaming is made possible in today's analog cellular environment by
virtue of common frequency and signaling technology. PCS and analog cellular
systems operate on different frequencies and with different signaling
technologies.
Within its own network, the Company plans to offer "traveling" plans for
subscribers who use the Company's network outside of their home markets.
Features and services will operate identically across all of the Company's
markets. As a result, travelers will be encouraged to access the network
anytime and anywhere.
In areas where CDMA-based PCS service is not available, the Company may
offer a roaming option on the traditional analog cellular system via dual-
mode, dual-band handsets capable of transmitting over either cellular and PCS
frequencies. Access to cellular coverage is dependent on availability of dual-
mode, dual-band handsets which the Company believes will become available in
the first half of 1997. The Company has not entered into any such agreements
with any cellular providers nor can there be any assurance that the Company
will enter into any agreements. Cellular roaming may not be a service option
the Company chooses to offer.
Based upon public announcements by other PCS licensees and cellular service
providers, the Company estimates that CDMA technology will be employed by both
cellular and PCS service providers whose networks cover approximately 95% of
the United States population. While there can be no assurance that CDMA
technology will be deployed to the extent and within the time frames proposed
by the various service providers, it is the Company's belief that CDMA will be
the most widely used wireless digital protocol in the United States.
Information technology. The Company will require advanced and sophisticated
management information systems to handle customer care, billing, network
management and financial and administrative services. The Company has system
development plans directed at launch programs and long-term integrated system
solutions. The plans are focused on three primary areas: (i) customer care,
including billing systems and customer service and support systems, (ii)
network management, including service activation, traffic and usage
monitoring, trouble
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management and operational support systems and (iii) business systems
including financial, purchasing, human resources and other administrative
systems.
The Company has retained a number of consultants and contractors to evaluate
and implement management information systems to provide billing and customer
care. Trials of the billing and service software are expected to begin in the
second half of 1996 in anticipation of the fourth quarter of 1996 launch of
the Company's PCS services. The long-term vision for the Company's billing
system is to integrate all products and services of the Company and,
potentially, those of the Parents. Although the Company intends to offer
customized billing and may offer a variety of billing services, features and
delivery systems, these advanced features will not be available at launch.
There can be no assurance that the billing services and customer care services
currently planned for launch will be developed on a timely basis. Any delay in
the development of such features could cause the Company to alter its initial
pricing and promotional structures.
The Company, through its equipment vendors, plans to introduce sophisticated
network management and operations support systems which will facilitate
network fault detection, correction and management, performance and usage
monitoring and security. System capabilities are being developed which will
allow over-the-air activation of the handset and provision of services. The
Company has chosen to use Cincinnati Bell Information Systems' Precedent 2000,
which is a third-generation, UNIX based customer care and billing system.
Information systems to support general business applications such as
accounting, payroll, accounts payable, and human resources are being obtained
or developed in time for the Company's initial launch. A number of financial
systems have been installed and are being tested.
RELATIONSHIP WITH PARTNERS AND PARENTS
The Company's relationship with the Partners and the Parents is an important
aspect of its strategy for achieving its objective of becoming a leading
provider of wireless communications products and services in the United
States. In order to capitalize on the rapid growth in business and consumer
demand for a single provider of telecommunications services, the Company
intends to use its own marketing efforts, the marketing services of the
Partners' affiliates, existing distribution channels and customer
relationships. The Company intends to capitalize on the communications
expertise of each Parent including local exchange carrier services, cable
services and long distance services. Subject to certain exceptions, the
Partners and the Parents have agreed to cooperate with the Company to cross-
market the Company's wireless services with the long distance, local telephone
and cable-based entertainment services of the Parents in order to accelerate
subscriber growth and increase retention rates while improving overall
customer satisfaction. The Company will promote its wireless services using
the Sprint brand among Sprint's 14 million long distance and local telephone
customers and the Cable Parents' 20 million cable television customers. See
"--Trademarks."
The Holdings Partnership Agreement governs the basic relationships between
the Partners and the Company and provides a structure for subsequent
agreements with the Partners and their affiliates, including the Parents. See
"The Partnership Agreements--Holdings Partnership Agreement." The Company
recently entered into an agreement with Sprint to sell the Company's paging
services. Sprint will serve as the Company's agent for selling traditional
paging services and will market these services through direct mail, direct
sales, employee programs, advertising and promotions. The foregoing agreement
will not affect the Company's ability to offer paging services as part of its
integrated wireless service package, once it is able to do so. With the
exception of this agreement, an agreement regarding use of the Sprint
trademark (described below) and certain immaterial leases, the Company has not
yet entered into any additional agreements with the Partners or the Parents.
Pursuant to the Holdings Partnership Agreement, each Partner, except Comcast
in certain areas, has agreed to provide certain services to the Company in
connection with the operation of the network, which services include antenna
siting and installation, signal transmission between cell sites and switching
locations and provision of primary power, standby power and maintenance. The
pricing and details relating to the provision of such services will be
negotiated at the local level and are not governed by the Holdings Partnership
Agreement. Comcast is not required to provide such services within the Comcast
Service Area because it owns cellular licenses for such areas. See "The
Partnership Agreements--Holdings Partnership Agreement."
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Subject to certain conditions, the Company expects to enter into sales
agency agreements with the Partners for the co-marketing of wireless services,
local and long distance telephone services and the cable-based entertainment
services by Sprint and the Cable Parents. Sprint and the Cable Parents and
their respective subsidiaries (except for Comcast and its subsidiaries in the
Comcast Service Area) will be non-exclusive sales agents for the Company's
wireless services. The Company, in turn, will be a non-exclusive sales agent
for those services Sprint and the Cable Parents make available to the Company.
The Company has not entered into any such sales agency agreements with the
Parents.
THE WIRELESS TELECOMMUNICATIONS INDUSTRY
Overview. Wireless telecommunications networks use a variety of radio
frequencies to transmit voice and data in place of, or in addition to,
standard landline telephone networks. Wireless telecommunications technologies
include one-way radio applications, such as paging services, and two-way radio
applications, such as cellular telephone and specialized mobile radio ("SMR")
networks. Each application operates in a distinct radio frequency block.
Since its initial introduction in 1983, commercial cellular telephone
service has grown dramatically and now dominates the wireless
telecommunications market. Annual service revenues for the cellular telephone
industry set a record of over $19 billion during 1995 (an increase from
approximately $482 million in 1985). The number of cellular telephone
subscribers nationwide has grown from approximately 680,000 in 1986 to an
estimated 34 million at December 31, 1995. The number of cellular telephone
subscribers has grown at a compounded annual rate of 46.7% over the last three
years. PCIA estimates that the number of cellular and PCS wireless service
subscriptions will be over 104 million by the year 2005 and that PCS
subscriptions will account for approximately 40 million of such subscriptions.
Most cellular services currently transmit voice and data signals over
analog-based systems, which use one continuous electronic signal that varies
in amplitude or frequency over a single radio channel. Digital systems, on the
other hand, convert voice or data signals into a stream of digits that is
compressed before transmission, enabling a single radio channel to carry
multiple simultaneous signal transmissions. This enhanced capacity, along with
enhancements in digital protocols, allows digital-based wireless technologies
to offer new and enhanced services, such as greater call privacy, and more
robust data transmission features, such as "mobile office" applications
(including facsimile, electronic mail and connecting notebook computers with
computer/data networks).
While digital technology generally reduces the effect of transmission
interference relative to analog technology, capacity limitations in the 8 Kb
cellular digital handsets now deployed by most digital wireless operators also
cause a perceptible decline in voice quality. This gap in voice quality has
proven to be a significant barrier to cellular operators seeking to switch
their customers from analog to digital service. Enhanced 13 Kb digital
handsets are now being developed by vendors for both PCS and digital cellular
systems and are expected to be available by mid-1997. These new handsets are
expected to offer digital transmission quality comparable to, if not better
than, current analog cellular handsets.
PCS is expected to be the first all-digital wireless service and will be
able to provide enhanced integrated services not currently offered by
traditional analog cellular providers, a wider range of service options,
including integrated voicemail, enhanced custom-calling and short-messaging.
The Company expects to offer, when the necessary equipment is available, high-
speed data transmissions to and from computers, advanced paging services,
facsimile services and internet access service.
The Company believes that these enhanced features and increased services
will contribute to the acceleration of growth in the wireless
telecommunications market and that PCS providers will be the first direct
wireless competitors to cellular providers and the first to offer mass market
all-digital mobile networks.
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The Company believes that the initial experience of service providers in
international markets where PCS has already been introduced provides support
for the forecasted rapid growth of PCS in the United States. For example, the
launch of PCS networks in the U.K. and Japan has initially increased
competition, stimulated demand and increased penetration rates in the entire
wireless market. In less than two years, the U.K.'s two PCS operators have
gained over 600,000 subscribers, representing approximately 15.5% market share
of the total wireless market and 40% of new wireless subscribers over the same
period. In Japan, the two new PCS licensees activated 87,000 new subscribers
in their first month of operations. The rate of new PCS subscriber activations
is now over one million per year.
PCS licenses differ from existing cellular and SMR licenses in three basic
ways: frequency assignment, amount of spectrum and geographic license areas.
PCS networks will operate in a higher-frequency band (1850-1990 MHz) compared
to the cellular and SMR frequency (800-900 MHz). PCS will also be comprised of
either 10 MHz of spectrum or 30 MHz of spectrum versus 25 MHz of spectrum for
cellular networks. As a result of the improved capacity of the infrastructure
and large allocation of spectrum, PCS will have more capacity for new wireless
services such as data and video transmission. Finally, the geographic areas
for PCS licenses are divided differently than for cellular licenses. PCS is
segmented among 51 MTAs or 493 BTAs as opposed to cellular's 306 metropolitan
statistical areas ("MSAs") and 428 rural service areas ("RSAs"). An MTA
license generally covers a much larger geographic area than a BTA, MSA or RSA
license. SMR service areas are defined by the United States Department of
Commerce Bureau of Economic Analysis Economic Areas ("EAs"). There are 175 EAs
covering the continental United States and its possessions. EAs are smaller
than MTAs, but are larger than BTAs, MSAs and RSAs.
Operation of wireless systems. Two-way wireless service areas are divided
into multiple regions called "cells," each of which contains a base station
consisting of a transmitter, a receiver and signaling equipment. The cells are
typically configured on a grid in a honeycomb-like pattern, although terrain
factors (including natural and man-made obstructions) and signal coverage
patterns may result in irregularly shaped cells and overlaps or gaps in
coverage. Cellular system cells generally have a radius ranging from two miles
to 25 miles. PCS system cells are expected to have a radius ranging from one-
quarter mile to 12 miles, depending on the PCS technology being used and the
terrain. The base station in each cell is connected by microwave, fiber optic
cable or telephone wires to a switching office, which uses computers to
control the operation of the wireless telephone system for its entire service
area. The switching office controls the transfer of calls from cell to cell as
a subscriber's handset travels, manages call delivery to handsets, allocates
calls among the cells within the system and connects calls to the local
landline telephone system or to a long distance telephone carrier. Wireless
service providers have entered into interconnection agreements with various
local exchange carriers and interexchange carriers, thereby integrating the
wireless telephone system with landline telecommunications systems. Once two-
way wireless systems are fully interconnected with landline telephone networks
and long distance networks, subscribers can receive and originate both local
and long distance calls from their wireless telephones.
The signal strength of a transmission between handset and a base station
declines as the handset moves away from the base station, the switching office
and the base stations monitor the signal strength of calls in progress. When
the signal strength of a call declines to a predetermined level, the switching
office may "hand off" the call to another base station that can establish a
stronger signal with the handset. If a handset leaves the service area of the
wireless service provider, the call is disconnected unless an appropriate
technical interface is established to hand off the call to an adjacent system.
Operators of wireless systems frequently agree to provide service to
subscribers from other compatible systems who are temporarily located in or
traveling through the service area. Such subscribers are called "roamers."
Agreements among system operators allocate revenues received from roamers.
With automatic roaming, wireless subscribers are preregistered in certain
systems outside their service area and receive service automatically while
they are roaming, without having to notify the switching office. Other roaming
features permit calls to a subscriber to "follow" the subscriber into
different systems, so that the subscriber will continue to receive calls in a
different system just as if the subscriber were within his or her service
area.
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While PCS and cellular networks utilize similar technologies and hardware,
they operate on different frequencies and use different signaling protocols.
As a result, it generally will not be possible for users of one type of
network to roam on a different type of network outside of their service area,
or to hand off calls from one type of network to another. Digital signal
transmission is accomplished through the use of frequency management
technologies, or protocols. These protocols manage the radio channel either by
dividing it into distinct time slots (TDMA) or by assigning specific coding
instructions to each packet of digitized data that comprises a signal (CDMA).
While the FCC has mandated that licensed cellular networks in the United
States must utilize compatible analog signaling protocols, the FCC has not
mandated a universal digital signaling protocol. Currently, three principal
competing, incompatible signaling protocols have been proposed by various
vendors for use in PCS networks: GSM, CDMA and TDMA. Because these protocols
are incompatible, a subscriber of a network that relies on GSM technology, for
example, will be unable to use his or her handset when traveling in an area
served only by CDMA or TDMA-based wireless operators, unless he carries a
dual-mode, dual-band handset that permits the subscriber to use the cellular
network in that area. Currently, such dual-mode, dual-band handsets are not
commercially available. For this reason, the success of each protocol will
depend both on its ability to offer enhanced wireless service and on the
extent to which its users will be able to use their handsets when roaming
outside their service area.
Wireless subscribers generally are charged separately for monthly access,
air time, long distance calls and custom calling features (although custom
calling features may be included in monthly access charges in certain pricing
plans). Wireless system operators pay fees to local exchange companies for
access to their networks and toll charges based on standard or negotiated
rates. When wireless operators provide service to roamers from other systems,
they generally charge roamer air time usage rates, which usually are higher
than standard air time usage rates for their own subscribers, and additionally
may charge daily access fees. Special, discounted rate roaming arrangements,
often between neighboring operators who wish to stimulate usage in their
respective territories, provide for reduced roaming fees and no daily access
fees.
COMPETITION
General. The wireless telecommunications industry is experiencing
significant technological change, as evidenced by the increasing pace of
improvements in the capacity and quality of digital technology, shorter cycles
for new products and enhancements and changes in consumer preferences and
expectations. Accordingly, the Company expects competition in the wireless
telecommunications business to be dynamic and intense as a result of the
entrance of new competitors and the development of new technologies, products
and services.
Each of the markets in which the Company competes will be served by other
two-way wireless service providers, including cellular and PCS operators and
resellers. Many of these competitors have been operating for a number of
years, currently serve a substantial subscriber base and have significantly
greater financial and technical resources than those available to the Company.
Certain of the Company's competitors are operating, or planning to operate,
through joint ventures and affiliation arrangements, wireless
telecommunications systems that encompass most of the United States.
The Company also will face competition from other current or developing
technologies, such as paging, Enhanced Specialized Mobile Radio ("ESMR") and
satellite networks. In addition, as a result of advances in digital
technology, ESMR operators have begun to design and deploy digital mobile
networks that increase the channel capacity of ESMR systems to a level that
may be competitive with that of cellular systems. A limited number of ESMR
operators have recently begun offering short messaging, data services and
interconnected voice telephony services on a limited basis. Several ESMR
licensees have recently merged into one company and plan to build and operate
digital mobile networks in most major United States markets.
In addition, several entities have received and several others are seeking
FCC authorization to construct and operate global satellite networks to
provide domestic and international mobile communications services from
geostationary and low earth orbit ("LEO") satellites. While geostationary
orbiting satellites are subject to transmission delays inherent in high earth
orbit satellite communications, a mobile satellite system could reduce
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transmission delays with LEO satellites and could augment or replace
communications with segments of land-based wireless systems. Based on current
technologies, however, satellite transmission services are not expected to be
competitively priced relative to the Company's product offering in its
markets. Sprint has an interest in a satellite-based mobile telecommunications
business entity.
Continuing technological advances in telecommunications and FCC policies
that encourage the development of new spectrum-based technologies make it
impossible to predict the extent of future competition. The FCC has adopted
rules that provide preferences, including discounted licenses, to companies
that develop new spectrum-based communications technologies without bidding in
FCC-sanctioned auctions. Such a preference may encourage the development of
new technologies that compete with cellular and PCS service. In addition, the
Omnibus Budget Reconciliation Act of 1993 (the "Budget Act") requires, among
other things, the allocation to commercial use of a portion of 200 MHz of the
spectrum currently reserved for government use. It is possible that some
portion of the spectrum that is reallocated will be used to create new land-
mobile services or to expand existing land-mobile services.
The Company expects to compete with other communications technologies that
now exist, such as conventional mobile telephone service, ESMR systems and
paging services and with cellular and PCS resellers. In the future, cellular
service and PCS will also compete more directly with traditional landline
telephone service providers and with cable operators who expand into the
offering of traditional communications services over their cable systems. In
addition, the Company may face competition from technologies that may be
introduced in the future.
The Company anticipates that market prices for two-way wireless services
generally will decline in the future based upon increased competition. The
Company will compete to attract and retain customers principally on the bases
of services and features, its customer service, the size and location of its
service areas and pricing. The Company's ability to compete successfully will
also depend, in part, on its ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, demographic trends, economic
conditions and discount pricing strategies by competitors, which could
adversely affect the Company's operating margins.
The Company's PCS business will directly compete with several other PCS
providers in each of its PCS markets, including AT&T Wireless Services, Inc.,
BellSouth Telecommunications, Inc., Omnipoint Corporation, Pacific Bell Mobile
Services, Inc., PCS PrimeCo L.P. and Western Wireless Corporation. The Company
also expects that existing analog wireless service providers in the PCS
markets, some of which have been operational for a number of years and have
significantly greater financial and technical resources than those available
to the Company, will upgrade their systems to provide comparable services in
competition with its PCS system. These cellular competitors include AirTouch,
AT&T Wireless Services, Inc., BellSouth Mobility, Inc., Ameritech Mobile
Communications, Inc., Bell Atlantic NYNEX Mobile, Southwestern Bell Mobile
Systems, GTE Mobilnet, Inc. and U.S. Cellular Corp.
Handsets used for CDMA-based PCS systems will not be automatically
compatible with cellular systems, and vice versa. The Company expects dual-
mode, dual-band telephones to be commercially available in the first half of
1997 (although sufficient quantities may not be commercially available until
the third quarter of 1997). Once such handsets are available, if the Company
decides to offer roaming services, subscribers may be able to roam by using
the existing cellular wireless system in other markets. Until then, this lack
of interoperability may impede the Company's ability to attract current
cellular subscribers or potential new wireless communication subscribers that
desire the ability to access different service providers in the same market.
Initially, the cost to the Company of PCS handsets may not be competitive
with the cost to analog operators of analog cellular handsets. While the
Company believes that its PCS handsets will be competitively priced as
compared to digital cellular handsets of comparable size, weight and features,
cellular operators may subsidize the sale of digital handset units at prices
below those with which the Company can compete through the Company's handset
subsidies.
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REGULATION
The FCC regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States under the Communications Act of 1934, as amended by the
Telecommunications Act of 1996 (the "Communications Act"). Pursuant to the
Communications Act, the FCC has promulgated a series of rules, regulations and
policies to (i) grant or deny licenses for PCS frequencies, (ii) grant or deny
PCS license renewals, (iii) rule on assignments and/or transfers of control of
PCS licenses, (iv) govern the interconnection of PCS networks with other
wireless and wireline carriers, (v) impose fines and forfeitures for
violations of any of the FCC's rules and (vi) regulate the technical standards
of PCS networks.
PCS licensing. The FCC established service areas for PCS throughout the
United States and its possessions and territories based upon the Rand McNally
market definition of 51 MTAs and 493 smaller BTAs. At least two BTAs are
contained within each MTA.
The FCC has allocated 120 MHz of radio spectrum in the 1850 to 1990 MHz
band, divided into six separate spectrum blocks, for licensed broadband PCS
services. The A and B Blocks are 30 MHz each and are allocated to the 51 MTAs.
The FCC sponsored auctions for the A and B Blocks that ended in March 1995,
and the FCC granted the A and B Block licenses in June 1995. Aggregate bids in
the A and B Block auction totalled $7.72 billion representing an average price
of $15.29 per Pop. WirelessCo was granted licenses in 29 of 51 MTAs.
PhillieCo, which will become affiliated with Sprint Spectrum, was granted a
license for one MTA. The remaining blocks, C (30 MHz), D (10 MHz), E (10 MHz),
and F (10 MHz), are allocated to the 493 BTAs. The C Block auctions ended on
May 6, 1996. The Company did not participate in the C Block auctions as these
licenses were available only to small businesses and other designated
entities. As part of an overall strategy to increase the Company's Pop
coverage, either or both of Holdings and the Company may elect to bid on, or
affiliate with or invest in other entities who are bidding on, PCS licenses to
be awarded in the FCC auction of the licenses for the D, E and F Blocks. To
the extent that Holdings acquires new PCS licenses or invests in an entity
that acquires new licenses, it is expected that an affiliation arrangement
with the Company will be entered into with respect to such Pop coverage. These
auctions are scheduled to begin in late August 1996. There can be no assurance
that the Company or Holdings will pursue such an expansion strategy.
Eventually, a PCS license will be awarded for each block in every MTA or BTA
for a total of more than 2,000 licenses. The licenses in each block
collectively cover the United States and its territories. Therefore, any one
location may have up to six PCS service providers who own a license to serve
that location, in addition to the two incumbent cellular license holders. It
is expected that some or all of the PCS license holders who offer services
will be in competition with the Company.
The FCC recently revised its rules regarding spectrum aggregation limits
that may affect PCS licensees. The FCC now prohibits a single entity from
having a combined attributable interest (20% or greater interest in any
license) in broadband PCS, cellular and SMR licenses totalling more than 45
MHz in any geographic area.
In compliance with FCC restrictions on common ownership of cellular and
broadband PCS interests in overlapping market areas, Sprint, with prior FCC
approval, in March 1996 undertook a tax-free spin-off of its cellular
interests to Sprint's shareholders. Sprint's former cellular interests are now
held by 360(degrees) Communications Company. Subsequent to the spin-off,
360(degrees) Communications Company operates as an independent entity.
Pioneer's preference program. Holdings has a non-controlling equity interest
in APC, one of three recipients of an FCC broadband PCS Pioneer's Preference
license ("Pioneer's Preference") which effectively reduces the cost of a
license by awarding it outside of the auction process. Holdings also expects
to have a non-controlling interest in Cox-California, which will hold a
broadband PCS Pioneer's Preference license awarded to Cox. Following several
parties' unsuccessful legal challenges in the United States Court of Appeals
for the District of Columbia Circuit to the FCC's awards of Pioneer's
Preferences, the FCC in March 1996 ruled that the Pioneer's Preference
licensees must begin making installment payments on their licenses. The FCC
has
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determined that Cox and APC, who were not required to participate in the PCS
auctions, nonetheless must pay, respectively, approximately $252 million, plus
interest, for the Los Angeles-San Diego MTA and approximately $102 million,
plus interest, for the Washington-Baltimore MTA over a five-year period. The
Company is not obligated to make any payments to the FCC with respect to the
Pioneer's Preference licenses held by APC or Cox-California.
Transfers and assignments of PCS licenses. Pursuant to the Communications
Act, the FCC must give prior approval to the assignment or transfer of control
of a PCS license. In addition, the FCC has established transfer disclosure
requirements that require licensees that assign or transfer control of a PCS
license within the first three years to file associated contracts for sale,
option agreements, management agreements or other documents disclosing the
total consideration that the applicant would receive in return for the
transfer or assignment of the license. Non-controlling interests in an entity
that holds a PCS license or PCS networks generally may be bought or sold
without prior FCC approval.
Foreign ownership restrictions. The Communications Act restricts foreign
investment in and ownership of certain FCC radio licensees, including PCS
licensees. Non-United States citizens or their representatives, foreign
governments or their representatives, or corporations organized under the laws
of a foreign country may not own more than 20% of a common carrier PCS
licensee directly or more than 25% of the parent of a common carrier PCS
licensee. If it would serve the public interest, the FCC has the authority to
permit the parent of the licensee to exceed the 25% limit. However, the FCC
lacks the authority to permit a licensee itself to exceed the 20% limit on
foreign ownership.
If an entity fails to comply with the foreign ownership requirements, the
FCC may order the entity to divest alien ownership to bring the entity into
compliance with the Communications Act. Other potential sanctions include
fines, a denial of renewal or revocation of the license. The Company has no
knowledge of any present foreign ownership in violation of the Communications
Act.
The Telecommunications Act of 1996 ("1996 Act") eliminates the existing
restrictions on the number of alien officers and directors of FCC licensee
companies and companies controlling FCC licensees.
Conditions on PCS licenses. All PCS licenses are granted for 10-year terms
conditioned upon timely compliance with the FCC's buildout requirements.
Pursuant to the FCC's buildout requirements, all 30 MHz broadband PCS
licensees must construct facilities that offer coverage to one-third of the
population of their service area(s) within five years of their initial license
grant(s) and to two-thirds of the population within 10 years. Licensees that
fail to meet the buildout requirements may be subject to license forfeiture.
The FCC intends to conduct random audits to ensure that licensees are in
compliance with the FCC's holding period and attribution rules. Rule
violations could result in license revocations, forfeitures or fines.
PCS license renewal. PCS licensees can renew their licenses for an
additional 10 years. PCS renewal applications are not subject to auctions.
However, under the FCC's rules, third parties may oppose renewal applications
and/or file competing applications. If one or more competing applications are
filed, a renewal application will be subject to a comparative renewal hearing.
The FCC's rules afford PCS renewal applicants involved in comparative renewal
hearings with a "renewal expectancy." The renewal expectancy is the most
important comparative factor in a comparative renewal hearing and is
applicable if the PCS renewal applicant has: (i) provided "substantial"
service during its license term; and (ii) substantially complied with all
applicable FCC rules and policies as well as the Communications Act. The FCC's
rules define "substantial" service as service that is sound, favorable and
substantially above the level of mediocre service that might minimally warrant
renewal.
FCC relocation requirements. The spectrum allocated by the FCC for PCS
services is now occupied by existing microwave facilities. PCS licensees must
relocate such incumbent microwave facilities operating on the same frequencies
to avoid interference problems. The FCC's rules require the PCS licensee to
provide the
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microwave licensee with comparable facilities at the PCS licensee's own
expense and to ensure the facilities are "equal to or superior to existing
facilities." In order to encourage parties to negotiate relocation agreements,
the FCC's rules require, for existing licensees other than public safety
agencies, a two-year voluntary negotiation period followed by a one-year
mandatory negotiation period if voluntary negotiations fail. Separate
negotiation periods are applicable to public safety agencies, which are
entities dedicating a majority of their communications systems for police,
fire or emergency medical services operations involving safety of life and
property. The FCC's rules require public safety agencies to undertake a three-
year voluntary negotiation period followed by a two-year mandatory negotiation
period, if necessary. If an agreement is not reached, the incumbent microwave
licensee may be involuntarily relocated provided that the PCS licensee pays
for comparable facilities. The FCC recently revised its microwave relocation
rules to clarify permissible relocation costs that must be assumed by PCS
licensees during the mandatory period and to implement new procedures for the
sharing of relocation costs where the relocation of private microwave
facilities benefits multiple broadband PCS licensees.
Under the 1996 Act both the FCC and state public utility commissions
("PUCs") regulate the terms of interconnection between broadband PCS networks
and the networks of local exchange carriers. The FCC recently issued new
interconnection rules that generally require symmetrical reciprocal rates for
the transport and termination of local telecommunications traffic between a
PCS network and a local exchange carrier's network, i.e. the PCS provider and
local exchange carrier pay each other the same rate for transporting and
terminating local traffic that originates on the other's network. Under the
new rules, interconnection agreements negotiated between PCS providers and
local exchange carriers will be subject to state PUC approval. Local exchange
carrier rates for transport and termination of local traffic can be set on the
basis of (1) forward looking economic costs; (2) interim default proxies until
cost studies can be completed, e.g. no less than 0.2 ($0.002) not more than
0.4 ($0.004) cents a minute for termination of local telecommunications calls;
or (3) bill-and-keep arrangements that allow the two carriers to terminate
each other's calls without charge. Bill-and-keep arrangements require that
local traffic is roughly balanced between the two networks and that the PCS
carrier has not shown that its costs exceed those of the local exchange
carrier's rates for transport and termination of local calls. Interconnection
agreements negotiated between PCS providers and local exchange carriers are
subject to state PUC approval.
The 1996 Act contains specific provisions regarding the interconnection
obligations of telecommunications carriers. The FCC has initiated a rulemaking
to determine, among other things, the extent to which certain provisions of
the 1996 Act apply to PCS/LEC interconnection agreements. If these provisions
are applied to PCS, state public utility commissions will be required to
approve interconnection agreements between PCS providers and LECs.
Other FCC requirements. In June 1996, the FCC adopted rules that prohibit
broadband PCS providers from unreasonably restricting or disallowing resale of
their services or unreasonably discriminating against resellers. Resale
obligations will automatically expire five years after the FCC has concluded
its initial round of licensing of currently allocated broadband PCS spectrum.
The FCC is expected to conclude its initial licensing round by early 1997. The
FCC is considering whether wireless providers should be required to offer
unbundled communications capacity to resellers who intend to operate their own
switching facilities.
The FCC recently extended an existing rule to require broadband PCS and
other Commercial Mobile Radio Service ("CMRS") providers to provide "manual"
roaming service that allows customers of one wireless provider to obtain
service while roaming in another wireless provider's service area. Such
customers must first establish a service relationship with the host system,
by, for example, supplying a valid credit card number to the host system. In
addition, the FCC is considering whether broadband PCS and other CMRS
providers should be required also to offer "automatic" roaming agreements on a
nondiscriminatory basis that would allow customers to roam by simply turning
on their handsets in a host market.
The FCC recently adopted rules permitting broadband PCS networks and other
CMRS providers to provide wireless local loop and other fixed services that
would directly compete with the wireline services of LECs. In June 1996, the
FCC adopted rules requiring broadband PCS and other CMRS providers to
implement enhanced emergency 911 capabilities within 18 months after the
effective date of the FCC's rules.
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The Company may use common carrier point-to-point microwave and traditional
landline facilities to connect cell sites and to link them to their respective
main switching offices. The FCC will license separately these microwave
facilities and regulates the technical parameters and service requirements of
these facilities.
Other federal regulations. Wireless systems must comply with certain FCC and
FAA regulations regarding the siting, lighting and construction of transmitter
towers and antennaes. In addition, certain FCC environmental regulations may
cause wireless networks to become subject to regulation under the National
Environmental Policy Act.
Recent events: The Telecommunications Act of 1996. On February 8, 1996,
Congress enacted the 1996 Act. The 1996 Act is supposed to create a
procompetitive, deregulatory national policy to accelerate competitive
development of telecommunications offerings, expand the availability of
telecommunications services to all segments of the public and streamline
regulation of the telecommunications industry by removing regulatory burdens.
The FCC, state public utilities commissions and a federal-state joint board
are charged with implementing the 1996 Act. On February 12, 1996, the FCC
released its tentative schedule for implementation of the 1996 Act's mandates,
many of which will be implemented within six to 18 months. Some specific
provisions of the 1996 Act are expected to affect PCS service providers.
Expanded interconnection obligations. Under the 1996 Act, all
telecommunications carriers, likely including broadband PCS providers, must
interconnect with other carriers. The 1996 Act also imposes a detailed list of
"interconnect" obligations upon LECs including resale, number portability,
dialing parity, access to rights-of-way and reciprocal compensation.
Review of universal service requirements. Although the 1996 Act contemplates
that wireless providers will "make an equitable and non-discriminatory
contribution" to support the cost of providing universal service, the FCC is
authorized to exempt carriers if their contribution would be de minimis.
Public utility "telecommunications" services. The 1996 Act modifies the
Public Utilities Holding Company Act of 1935 to permit public utilities
subject to that act to engage in the provision of telecommunications and
information services.
BOC entry into in-region interLATA services. Before engaging in in-region
interLATA services, the 1996 Act requires Bell Operating Companies ("BOCs") to
provide access and interconnection to one or more unaffiliated competing
providers of telephone exchange service. BOCs must offer the following
interconnection services on a non-discriminatory basis: interconnection and
unbundled access; access to poles, ducts, conduits and rights-of-way owned or
controlled by BOCs; unbundled local loops; unbundled local transport;
unbundled local switching; access to emergency 911, directory assistance,
operator call completion and white pages; access to telephone numbers,
databases and signaling for call routing and completion; number portability;
local dialing parity; reciprocal compensation; and resale.
The 1996 Act permits BOCs immediately to provide "incidental" interLATA
services including the provision of CMRS. The FCC intends to open a proceeding
to assess under what conditions BOCs that provide CMRS, including PCS, can
provide long distance services over their CMRS networks.
BOC commercial mobile joint marketing. Under the 1996 Act, BOCs and any
other company may jointly market and sell commercial mobile services,
including cellular and PCS, together with telephone exchange service, exchange
access, intraLATA telecommunications service, interLATA telecommunications
service and information services. A BOC, however, may not jointly market
telephone exchange service and any long distance service until certain
conditions have been met.
Wireless facilities siting. Under the 1996 Act, states and localities cannot
regulate the placement of wireless facilities so as to "prohibit" the
provision of wireless services or to "discriminate" among providers of such
services. In addition, so long as a wireless system complies with the FCC's
rules, the 1996 Act prohibits states and localities from using environmental
effects as a basis to regulate the placement, construction or operation of
wireless facilities.
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Equal access. Under the 1996 Act, wireless providers are not required to
provide equal access to common carriers for toll services. However, the FCC is
authorized to require unblocked access to toll carriers subject to certain
conditions.
Deregulation. The 1996 Act requires the FCC to forebear from applying any
statutory or regulatory provision if it is not necessary to keep
telecommunications rates and terms reasonable or to protect customers.
Correspondingly, a state may not apply a statutory or regulatory provision
that the FCC decides not to apply. In addition, the FCC must review its
telecommunications regulations every two years to determine if any can be
eliminated or modified as no longer in the public interest as a result of
increased competition.
Elimination of alien officer/director restrictions. The 1996 Act eliminates
the existing restrictions on the number of alien officers and directors of FCC
licensee companies and companies controlling FCC licensees.
FACILITIES AND EMPLOYEES
As of March 31, 1996, the Company occupied approximately 47,000 square feet
of leased headquarters space in Kansas City, Missouri. The Company is planning
to relocate its headquarters to new leased space of approximately 156,000
square feet in Kansas City this summer. The Company believes that this new
facility should serve its needs adequately for the foreseeable future. The
Company currently has leased 33 MTA offices (approximately 486,000 square feet
in aggregate) and expects that additional facilities will be needed eventually
to house customer service and network monitoring personnel. Management
believes that the Company will be able to lease office space as needed on
acceptable terms. The Company is also leasing space for base station towers
and switch sites as it constructs its nationwide network. As of July 19, 1996,
the Company had leased or purchased 39 switch sites and had entered into
leases or options for a total of 3,281 cell sites. The Company anticipates
leasing, acquiring or otherwise obtaining up to a total of approximately 5,700
such sites in preparation for initial commercial launch.
At July 19, 1996, the Company employed approximately 1,850 personnel, all of
whom are working on behalf of the Company. None of the Company's employees is
represented by a labor union. Management believes that the Company's employee
relations are good. The Company and Holdings are engaging independent
contractors to perform a variety of functions, including construction and
maintenance of the Company's network, research, advertising, accounting and
data processing.
TRADEMARKS
The Company does not currently own any trademarks or patents, though it
expects to apply for and develop trademarks, service marks and patents in the
ordinary course of business. Sprint is a registered trademark of Sprint
Communications Company, L.P. ("Sprint Communications") and is licensed to
Holdings on a royalty-free basis pursuant to a trademark license agreement
between Sprint Communications and Holdings. Sprint Communications may
terminate this agreement (i) upon the dissolution and winding up of the
Company, (ii) upon the bankruptcy of the Company, (iii) upon the failure of
the Company to perform in accordance with the material terms of the agreement
or for a breach of its representations and warranties or (iv) if the Company
challenges Sprint's rights to the Sprint trademark and the associated logo.
The Company may terminate the agreement (i) if Sprint Communications abandons
or fails to support its trademark and associated logo, (ii) upon the
bankruptcy of Sprint Communications, (iii) if Sprint conflicts with the
Company's rights to use the trademark and associated logo or (iv) if Sprint
Communications breaches its covenant to license the trademark and associated
logo to additional licensees in accordance with the terms of the agreement.
Subject to certain conditions, each of the Company and Sprint Communications
may terminate the agreement if a controlled affiliate of Sprint ceases to own
any equity interest in Holdings. Within thirty days of termination, or, in
certain circumstances on a specified termination date, the Company's rights to
use the trademark and associated logo will cease.
Pursuant to certain of its third party supplier contracts, Sprint Spectrum
has certain rights to use third party supplier trademarks in connection with
the buildout, marketing and operation of its network.
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LEGAL PROCEEDINGS
On March 14, 1996, the Company filed a lawsuit against the City of Medina,
Washington in the United States District Court for the Western District of
Washington. The Medina City Council passed a resolution on February 13, 1996
creating a six-month moratorium (which may be extended) on approval of permits
for wireless communication facilities in the City of Medina. The Company is
seeking injunctive and declaratory relief against this resolution under the
1996 Act. The Court denied the Company's motion for preliminary injunctive
relief in May 1996. Although the ultimate outcome of this litigation is
uncertain, the Company is confident that adjudication of this matter will not
delay the introduction of service in the Seattle, Washington MTA. While the
Company does not believe that the outcome of this litigation will,
individually, have a material adverse effect on the Company, there can be no
assurance that similar actions taken by other government authorities in other
locations will not, in the aggregate, have a material adverse effect on the
Company. See "--Regulation."
The Company is involved in various legal proceedings incidental to the
conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the
outcome of such proceedings, individually and in the aggregate, will not have
a material adverse effect on the Company's financial condition or results of
operations.
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MANAGEMENT
EXECUTIVE OFFICERS OF THE ISSUERS AND HOLDINGS PARTNERSHIP BOARD
REPRESENTATIVES
The executive officers of the Issuers and their respective positions with
Sprint Spectrum and FinCo are set forth below. In addition, the
representatives of the Partnership Board of Holdings are set forth below.
Sprint Spectrum does not have a partnership board but is managed by Holdings
in its capacity as general partner. The Board of Directors of FinCo is
comprised of Ronald T. LeMay, Robert M. Neumeister, Jr. and Joseph M.
Gensheimer. The ages of the individuals set forth below are as of June 1,
1996.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Ronald T. LeMay................ 50 Chief Executive Officer and President of
Sprint Spectrum; President of FinCo;
Chairman of the Partnership Board of
Holdings (/1/)
Andrew Sukawaty................ 41 Chief Executive Officer and President of
Sprint Spectrum; President of FinCo (/2/)
Arthur A. Kurtze............... 51 Chief Technology Officer of Sprint Spectrum
Bernard A. Bianchino........... 47 Chief Business Development Officer of
Sprint Spectrum
Robert M. Neumeister, Jr....... 46 Chief Financial Officer of Sprint Spectrum;
Vice President and Treasurer of FinCo
F. Edward Mattix............... 43 Chief Public Relations Officer of Sprint
Spectrum
Joseph M. Gensheimer........... 44 General Counsel and Secretary of Sprint
Spectrum; Secretary of FinCo
William T. Esrey............... 56 Holdings Partnership Board Representative
Gary D. Forsee................. 46 Holdings Partnership Board Representative
Gerald W. Gaines............... 40 Holdings Partnership Board Representative
Arthur B. Krause............... 54 Holdings Partnership Board Representative
James O. Robbins............... 53 Holdings Partnership Board Representative
Lawrence S. Smith.............. 48 Holdings Partnership Board Representative
</TABLE>
- - --------
(1) Mr. LeMay has returned to Sprint as President and Chief Operating Officer,
although he is continuing to serve as Chief Executive Officer and
President of the Company and President of FinCo until September 2, 1996,
at which time he will be succeeded by Mr. Sukawaty.
(2) Mr. Sukawaty will begin serving as Chief Executive Officer and President
of the Company and President of FinCo effective September 2, 1996.
RONALD T. LEMAY, CHIEF EXECUTIVE OFFICER AND PRESIDENT
Ronald T. LeMay is President and Chief Operating Officer of Sprint and will
continue to serve as President and Chief Executive Officer of Sprint Spectrum
until September 2, 1996. Mr. LeMay began his telephony career with
Southwestern Bell Telephone Company in 1972. In 1983, Mr. LeMay was appointed
Regional Vice President of External Affairs for AT&T Communications in Kansas
City and in February 1985, he was named Vice President and Comptroller for
AT&T Communications where he served until July 1985 when he joined United
Telephone System, Inc. (a Sprint company) as Vice President and General
Counsel. In 1986, Mr. LeMay became Senior Vice President of Operations for the
United Telephone System. He became Executive Vice President of Corporate
Affairs for Sprint in 1987 and Executive Vice President of Staff for the Long
Distance Division in November 1988. In October of 1989, Mr. LeMay was
appointed President and Chief Operating Officer for the Long Distance
Division, a position he held until assuming responsibility for the Company in
March 1995. Mr. LeMay is the Vice Chairman of the Board of Directors of Sprint
and a director of the Mercantile Bank of Kansas City and Yellow Corporation.
56
<PAGE>
ANDREW SUKAWATY, CHIEF EXECUTIVE OFFICER-ELECT AND PRESIDENT-ELECT
Andrew Sukawaty was appointed Chief Executive Officer and President of
Sprint Spectrum effective September 2, 1996. Prior to joining the Company, Mr.
Sukawaty was Chief Executive Officer of NTL, the British diversified broadcast
transmission and communications company, since 1994. From 1989 to 1994, he was
Chief Operating Officer of Mercury One-2-One, the British company which
started the world's first PCS service in the U.K. in 1993. Prior to joining
Mercury One-2-One, Mr. Sukawaty held numerous positions for US WEST, Inc.,
including: Chief Operating Officer of US WEST Paging, President of Coastel, a
cellular communications company, and Vice President and branch manager for US
WEST Cellular. He also held marketing positions with AT&T and Northwestern
Bell Telephone Company.
ARTHUR A. KURTZE, CHIEF TECHNOLOGY OFFICER
Arthur A. Kurtze was appointed Chief Technology Officer of the Company in
June 1995. Prior to joining the Company, Mr. Kurtze was Senior Vice
President--Operations for Sprint's Local Telecommunications Division. Prior to
joining Sprint in March 1993, Mr. Kurtze was Executive Vice President in
charge of strategic planning and corporate development for Centel Corp.
Mr. Kurtze joined Centel in 1972 and served in various positions there,
including Vice President of Centel Communications Co., Vice President--Staff
of Centel Business Systems, Vice President--Market Planning for Centel Corp.,
Group Vice President of Centel Cable Television Co. and Senior Vice
President--Planning and Technology.
BERNARD A. BIANCHINO, CHIEF BUSINESS DEVELOPMENT OFFICER
Bernard A. Bianchino was appointed Chief Business Development Officer of the
Company in September 1995. Most recently, Mr. Bianchino was Executive Vice
President, General Counsel and External Affairs for Qwest Communications
Corporation. He served as Vice President--Law, General Business for Sprint
from 1992 to 1994 and as General Attorney; Vice President and Associate
General Counsel for US Sprint Communications Company from 1986 to 1992. From
1978 to 1986, Mr. Bianchino was counsel to a number of affiliates of Exxon
Corporation in its Enterprises Group, including Reliance Comm/Tec (now RELTEC)
and Exxon Office Systems. Prior to joining Exxon, he was an attorney with the
United States Department of Energy.
ROBERT M. NEUMEISTER, JR., CHIEF FINANCIAL OFFICER
Robert M. Neumeister, Jr. was named Chief Financial Officer of the Company
in September 1995. Prior to joining the Company, Mr. Neumeister served in
various capacities at Northern Telecom Ltd., which he joined in 1978. In June
1991, Mr. Neumeister was named Vice President of Finance and Information
Services for Northern Telecom--Canada. He continued with Northern Telecom as
Senior Vice President and Chief Financial Officer of Motorola Nortel
Communications Co., Vice President of Finance--Americas, Vice President--
Broadband Networks, Customer Network Solutions and Vice President of Finance.
F. EDWARD MATTIX, CHIEF PUBLIC RELATIONS OFFICER
F. Edward Mattix was named Chief Public Relations Officer of the Company in
April 1996. Prior to joining the Company, he was Vice President--Public
Relations for U S WEST Communications, Inc. Mr. Mattix served in various
management level positions relating to public relations or governmental
affairs since joining U S WEST, Inc. in 1976.
JOSEPH M. GENSHEIMER, GENERAL COUNSEL AND SECRETARY
Joseph M. Gensheimer was named General Counsel of the Company in October
1995. Mr. Gensheimer is responsible for all legal and regulatory functions.
Prior to joining the Company, he was Senior Counsel for IBM's mainframe and
supercomputer divisions. Prior to joining IBM in 1988, he was General Counsel
and Secretary of RealCom Communications Corporation, a telecommunications
services provider. From 1982 to 1984, Mr. Gensheimer was Senior Attorney and
Assistant Secretary for GTE Corporation. Prior to joining GTE, he was an
associate at Morgan, Lewis & Bockius and an attorney for the United States
Department of Justice.
57
<PAGE>
WILLIAM T. ESREY, REPRESENTATIVE
William T. Esrey was appointed as a representative of the Partnership Board
in March 1995. He has been the Chairman of Sprint since 1990 and its Chief
Executive Officer since 1985. Mr. Esrey is also a director of Sprint,
Equitable Life Assurance Society of America, General Mills, Inc., PanEnergy
Corporation and Everen Capital Corporation. Mr. Esrey currently serves on the
compensation committee of each of PanEnergy Corporation and Everen Capital
Corporation.
GARY D. FORSEE, REPRESENTATIVE
Gary D. Forsee was appointed as a representative of the Partnership Board in
March 1995. He has been the President--Long Distance Division of Sprint since
March 1995. Prior to such appointment, Mr. Forsee served for more than five
years in other capacities at Sprint, including President--Government Systems
Division, President--Business Services Group and Chief of Staff--Long Distance
Division.
GERALD W. GAINES, REPRESENTATIVE
Gerald W. Gaines was appointed as a representative of the Partnership Board
in March 1995. He has been the President of TCI Telephony Services, Inc. and
Senior Vice President of TCI Communications, Inc. since 1994. Prior to joining
TCI Communications, Mr. Gaines founded GCG, Inc. a management services firm
advising the telecommunications industry. From 1986 to 1991, Mr. Gaines served
as a senior-level executive of U S WEST, Inc. as President and Chief Executive
Officer for U S WEST Service Link. Mr. Gaines is a director of Teleport
Communications Group Inc.
ARTHUR B. KRAUSE, REPRESENTATIVE
Arthur B. Krause was appointed as a representative of the Partnership Board
in March 1995. He is the Executive Vice President and Chief Financial Officer
of Sprint, positions which he has held since 1988. Prior to such appointment,
Mr. Krause served in other management capacities at Sprint, including
President of United Telephone-Eastern Group.
JAMES O. ROBBINS, REPRESENTATIVE
James O. Robbins was appointed as a representative of the Partnership Board
in March 1995. He has served as President of Cox since September 1985, and as
Chief Executive Officer since May 1994. Mr. Robbins joined Cox in September
1983 and has served as Vice President, Cox Cable New York City and as Senior
Vice President, Operations of Cox. Prior to joining Cox, Mr. Robbins held
management and executive positions with Viacom Communications, Inc. and
Continental Cablevision. Mr. Robbins is a director of Telewest Plc, Teleport
Communications Group Inc. and Cox.
LAWRENCE S. SMITH, REPRESENTATIVE
Lawrence S. Smith was appointed as a representative of the Partnership Board
in March 1995. He has been Executive Vice President of Comcast since December
1995. Prior to that time, Mr. Smith served as Senior Vice President of Comcast
for more than five years. Mr. Smith is the Principal Accounting Officer of
Comcast. Mr. Smith is a Director of Comcast UK Cable Partners Limited.
COMMITTEES OF THE PARTNERSHIP BOARD; COMPENSATION; COMMITTEE INTERLOCKS
There are no standing committees of the Partnership Board. Representatives
receive no compensation for serving on the Partnership Board. There are no
compensation committee interlocks between Holdings and any affiliated entity.
58
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation of Executive Officers. The following table sets forth
certain information regarding the compensation of the Company's Chief
Executive Officer and the four most highly compensated executive officers
other than the Chief Executive Officer whose total salary and bonus exceeded
$100,000 during the year ended December 31, 1995 (the "Named Executives"). In
each case, Sprint paid each Named Executive and Holdings reimbursed Sprint for
such costs. The amounts set forth below are for only that portion of 1995 that
the Named Executives were employed by Holdings. See "--Executive Officers of
the Issuers and Holdings Partnership Board Representatives" for the month
during which each Named Executive commenced employment with Holdings.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------- --------------------------------
SECURITIES
UNDERLYING LTIP
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS/SARS(#)(1) PAYOUTS($)(1)
--------------------------- -------- -------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Ronald T. LeMay......... $408,333 $313,250 $ -- 132,017 $398,676
Chief Executive Officer
Arthur A. Kurtze........ 171,320 107,500 -- 11,000 69,890
Chief Technology
Officer
Bernard Bianchino....... 58,741 68,300 17,718(2) -- --
Chief Business
Development Officer
Robert M. Neumeister, 79,023 35,950 34,822(3) -- --
Jr. ...................
Chief Financial Officer
Joseph M. Gensheimer.... 78,161 31,150 233,381(4) -- --
General Counsel
</TABLE>
- - --------
(1) Messrs. LeMay and Kurtze were employed by Sprint Corporation immediately
prior to their employment by Holdings, and as former employees, they
participated in certain long-term incentive plans at Sprint Corporation not
available to the other executives listed in this table. The Company
reimbursed Sprint Corporation for a portion of the amounts shown.
(2) Of the $17,718 shown as other compensation, $16,684 represents relocation
expenses paid on behalf of Mr. Bianchino.
(3) Of the $34,822 shown as other compensation, $31,818 represents relocation
expenses paid on behalf of Mr. Neumeister.
(4) Of the $233,381 shown as other compensation, $83,287 represents relocation
expenses paid on behalf of Mr. Gensheimer and $150,000 represents foregone
incentive compensation from his former employer.
OPTION GRANTS
The following table summarizes options granted during 1995 to Messrs. LeMay
and Kurtze, both of whom were employed by Sprint Corporation immediately prior
to their employment by the Company, under Sprint Corporation's stock option
plans. The amounts shown as potential realizable values on these options are
based on arbitrarily assumed annualized rates of appreciation in the price of
Sprint Corporation common stock of five percent and ten percent over the term
of the options, as set forth in the Commission's rules.
59
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTIONS EMPLOYEES OR BASE PRICE EXPIRATION -------------------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 0% 5% 10%
---- ----------- -------------- ------------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald T. LeMay......... 75,000(2) 2.4% $29.6250 2/17/05 0 $ 1,397,325 $ 3,541,097
50,000(3) 1.6% 28.6875 3/15/05 0 902,071 2,286,024
7,017(4) 0.2% 37.4375 3/9/03 0 113,575 267,318
Arthur A. Kurtze........ 11,000(2) 0.3% 29.6250 2/17/05 0 204,941 519,361
</TABLE>
- - --------
(1) The dollar amounts in these columns are the result of calculations at the
five percent and ten percent rates set by the Commission and are not
intended to forecast future appreciation of Sprint Corporation common stock.
(2) Twenty-five percent of this option became exercisable on February 17,
1996, and an additional 25% will become exercisable on February 17 of each
of the three successive years. Each option has a reload feature.
(3) Options granted under the Sprint Corporation Management Incentive Stock
Option Plan (MISOP).
(4) Reload options. A reload option is an option granted when an optionee
exercises a stock option and makes payment of the purchase price using
shares of previously owned Sprint Corporation common stock. A reload option
grant is for the number of shares utilized in payment of the purchase price
and tax withholding, if any. The option price for a reload option is equal
to the market price of Sprint Corporation common stock on the date the
reload option is granted. A reload option becomes exercisable one year from
the date the original option was exercised.
LONG-TERM COMPENSATION PLAN
The Company intends to adopt a long-term compensation plan for the benefit
of specified employees.
SHORT-TERM INCENTIVE PLAN SUMMARY
The Partnership Board has adopted a Short-Term Incentive Compensation Plan
(the "Plan"). The Plan is administered by the Partnership Board, which is
authorized to interpret Plan provisions, determine membership, approve
incentive targets and payouts and otherwise manage the Plan. The Plan has no
specified termination date and may be amended or terminated without
constraint.
The Partnership Board selects eligible employees to participate in the Plan.
Eligibility is limited to employees within exempt salary bands. Participation
in the Plan precludes participation in any other short-term compensation
plans.
Payouts are granted based on pre-set targeted opportunities. Performance
periods are one year long and incentive targets ("Incentive Targets") are
approved by the Partnership Board for each performance period. An Incentive
Target is established for each position based on the Company's overall
compensation strategy. Incentive Targets contain unit objective, Company
objective, and personal components, which are approved by the Chief Executive
Officer, the Partnership Board and the Chief Officer of the relevant operating
unit, respectively. Maximum earnings for the Company objective and unit
objective components are determined by the Board for each performance period.
Participants may earn a maximum of 120% of the incentive opportunity allocated
to the personal objective component. However, a minimum level of performance
may be required to generate a payout for the personal objective component.
Payouts for employees selected to participate in the Plan after the start of
a performance period are prorated as are certain payouts for Plan participants
whose employment with the Company terminates prior to the end of a performance
period. Payouts for Plan participants who change positions during a
performance period will be prorated according to the opportunities applicable
to the positions which were held. Notwithstanding the above, employees may not
begin participation in the Plan within two calendar months prior to the
completion of a performance period.
60
<PAGE>
The 1996 Incentive Targets are based on, among other things, the following
factors (i) markets launched by November 1, 1996, (ii) markets that are
launched or are positioned to launch during the period from November 1, 1996
through February 15, 1997, (iii) population covered by the markets launched
and (iv) expense control.
Participation in the Plan is terminated upon the transfer to a
nonparticipating position in the Company, employment by a Partner, death,
disability or separation from the Company for lack of work. Terminated
participants are eligible for a prorated payment based upon the time served
under the Plan. If a participant is terminated for any but the aforementioned
reasons, that participant's Plan payment is deemed forfeited. Participants who
complete a performance period will be eligible to receive a Plan payment
regardless of the reason for termination.
SAVINGS AND RETIREMENT PLAN
The Company maintains a savings and retirement program (the "Savings Plan")
for certain of its employees, which is qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). Most permanent full-
time, and certain part-time, employees are eligible to become participants in
the plan. Participants make contributions to a basic before tax account and a
supplemental before tax account. The maximum contribution for any participant
for any year is 16% of such participant's compensation--up to six percent of
which may be contributed to the basic tax account--subject to maximum amounts
set by federal taxation law and certain additional limitations for Highly
Compensated Individuals (as defined in the Savings Plan). For each eligible
employee who elects to participate in the Savings Plan and makes a
contribution to the basic before tax account, the Company makes a matching
contribution equal to 50% of the amount of the basic before tax contribution
of each participant up to 6% of such employee's contribution. In addition, the
Company makes contributions to the Plan for each participant based on
compensation, attained age and number of completed years of the vesting
period, as well as certain additional qualified contributions for the accounts
of participants who are not Highly Compensated Employees. Contributions to the
Savings Plan are paid into a trust fund that is held in trust by the trustee
under the trust established pursuant to the Saving Plan. Contributions to the
Savings Plan are invested, at the participant's direction, in several
designated investment funds. Distributions from the Savings Plan generally
will be made only upon retirement or other termination of employment, unless
deferred by the participant.
PROFIT SHARING PLAN (RETIREMENT COMPONENT)
Employees become eligible to participate in the Profit Sharing Plan after
completing 12 consecutive months of service. The Company's profit sharing
contribution will be based on eligible compensation (as defined by the plan).
A combination of age and years of service will determine the amount
contributed, which will range from two to ten percent of eligible
compensation. It will be deposited into individual accounts of the Company
sponsored 401(k) plan. Such accounts will be established for employees who do
not participate in the 401(k) plan. For employees that do participate in the
401(k) plan, the contribution will be subject to the applicable 401(k)
investment percentage criteria. The contribution vests after completion of
five years of service; once vested the plan is considered portable.
EMPLOYMENT AGREEMENTS
Holdings has entered into an employment agreement with Andrew Sukawaty
effective September 2, 1996. The agreement provides for an annual base salary
of $425,000.
Sprint Spectrum may terminate Mr. Sukawaty's employment for any reason at
any time, provided, however, that if termination is other than for cause,
total disability or the voluntary resignation of Mr. Sukawaty, Sprint Spectrum
will be required to pay special compensation which includes, among other
things, (i) bi-weekly compensation for a period of 18 months (the "Severance
Period"), (ii) subject to certain conditions, a bonus under any short-term
incentive plan maintained during the Severance Period, (iii) a prorated award
under any long-term incentive plan in which Mr. Sukawaty participates, (iv)
life, medical and retirement benefits throughout the Severance Period and (v)
outplacement counseling.
61
<PAGE>
Pursuant to the terms of his employment agreement, Mr. Sukawaty has agreed
that for 18 months following termination of employment for any reason he will
not accept any position where, within any 90-day period, he dedicates his time
and efforts principally to the Wireless Business anywhere in the United
States.
Holdings has also entered into an employment agreement with Joseph M.
Gensheimer. In connection with the Reorganization, Holdings assigned such
employment agreement to Sprint Spectrum. The agreement provides for an annual
base salary of $300,000, as well as a short-term incentive opportunity of
$125,000 per annum. In addition, under the long-term incentive plan, which the
Company intends to adopt, Mr. Gensheimer will be entitled to an annualized
long-term target opportunity of $200,000. Mr. Gensheimer received a payment of
$150,000 in 1995 and, subject to continued employment with the Company, will
receive an additional $150,000 from Sprint Spectrum on the first anniversary
of employment with Sprint Spectrum for foregone stock options and 1995
incentive compensation related to his previous employer.
Sprint Spectrum may terminate Mr. Gensheimer's employment for any reason at
any time, provided, however, that if termination is other than for cause,
total disability or the voluntary resignation of Mr. Gensheimer, Sprint
Spectrum will be required to pay special compensation which includes, among
other things, (i) bi-weekly compensation for a period of 18 months (the
"Severance Period"), (ii) subject to certain conditions, a bonus under any
short-term incentive plan maintained during the Severance Period, (iii) a
prorated award under any long-term incentive plan in which Mr. Gensheimer
participates, (iv) life, medical and retirement benefits throughout the
Severance Period and (v) outplacement counseling.
Pursuant to the terms of his employment agreement, Mr. Gensheimer has agreed
that for 18 months following termination of employment for any reason he will
not accept any position where, within any 90-day period, he dedicates his time
and efforts principally to the Wireless Business anywhere in the United
States.
Sprint Spectrum expects to enter into employment agreements, on terms
substantially similar to those contained in Mr. Gensheimer's agreement, with
Messrs. Kurtze, Bianchino and Neumeister.
62
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The general partner of Sprint Spectrum is Holdings, which has a greater than
99% general partnership interest in Sprint Spectrum. There are four general
partners of Holdings, Sprint Enterprises, L.P., which has a 40% partnership
interest, TCI Telephony Services, Inc. which has a 30% partnership interest,
and Comcast Telephony Services and Cox Telephony Partnership, each of which
has a 15% partnership interest. Each of the Partners is a subsidiary of
Sprint, TCI, Cox or Comcast, as the case may be. See "Principal Security
Holders." Sprint is a leading provider of domestic and international long
distance and local exchange telecommunications services. In March 1996, Sprint
divested its cellular unit in a spin-off to its shareholders due to
overlapping cellular and PCS territories which is prohibited by the FCC. TCI
is one of the largest cable television operators in the United States in terms
of numbers of basic subscribers served, with consolidated systems serving
approximately 13.0 million basic subscribers as of March 31, 1996. Comcast is
engaged in the development, management and operation of cable and cellular
telephone communications systems and the production and distribution of cable
programming and has approximately 3.5 million subscribers in the United
States. Comcast also provides cellular telephone communications services in
markets with an aggregate population of over 7.9 million, including the
Comcast Service Area. Cox is a fully integrated, diversified media and
broadband communications company with operations and investments in U.S. cable
televisions systems (3.3 million wholly-owned and affiliated subscribers),
international cable television systems, programming and telecommunications and
technology.
The Company and Holdings expect to have extensive relationships with the
Partners and their affiliates, including the Parents, but the nature and terms
of such relationships have not yet been determined. The Holdings Partnership
Agreement sets forth guidelines for business dealings between the Company
and/or Holdings and the Partners and their affiliates, including the Parents.
The Holdings Partnership Agreement permits Holdings and its subsidiaries,
including the Company, to enter into transactions with the Partners and their
affiliates in the normal course of their respective businesses; provided,
however, that (i) any contract, agreement, relationship or transaction between
Holdings or any of its subsidiaries and any person in which any of the
Partners or their affiliates has a direct or indirect material interest must
be approved (after full disclosure by the interested Partner(s) of all
material facts relating to such matter) by the Partnership Board, with the
Partnership Board representatives of the interested Partner(s) abstaining from
deliberations and voting and (ii) the Partnership Board has determined that
the price and terms of such transaction are fair to Holdings and its
subsidiaries, including the Company, and that the price and terms of such
transaction are no less favorable than comparable transactions involving non-
affiliates. Subject to certain conditions, including, without limitation,
unanimous approval of appropriate procedures, the Partnership Board may elect
from time to time to provide rights of first opportunity to various Partners
or their affiliates. In addition, the Holdings Partnership Agreement contains
other provisions relating to transactions between Holdings and its
subsidiaries, including the Company, on the one hand, and the Partners and
their affiliates, on the other hand. No procedures have been adopted by the
Company to determine the fairness of related party transactions and no
determination has been made by the Company as to whether such procedures will
be adopted. The Company believes that it will be able to determine the
fairness of related party transactions on a case-by-case basis through
consultation with its independent advisors, market surveys and other third
party means of verification.
Holdings reimburses Sprint for certain accounting, data processing, and
other related services, and for certain cash payments made by Sprint on behalf
of Holdings and the Company. The costs of such services are allocated based on
direct usage. The aggregate amount of such expenses was approximately
$2,646,000 for 1995. No reimbursement was made through December 31, 1994.
PhillieCo and a Cox affiliate were formed by certain Partners, individually
and collectively, for the purposes of providing PCS wireless services in
Philadelphia and Los Angeles-San Diego, respectively. Holdings, having made
certain cash payments on behalf of PhillieCo and Cox's affiliate, will receive
reimbursements for direct costs incurred plus an amount for management
services provided to PhillieCo and Cox's affiliate. The aggregate amount of
such services provided as of December 31, 1995 was $183,225 and $156,528, due
from PhillieCo and Cox's affiliate, respectively.
63
<PAGE>
On June 21, 1996, the Company entered into an agreement with Cox-California
pursuant to which the Company is obligated to sell to Cox-California a fixed
percentage of the CDMA PCS subscriber equipment purchased by the Company from
QUALCOMM Personal Electronics. Although Cox-California is not a party to the
Purchase and Supply Agreement among the Company, QUALCOMM Personal Electronics
and the various other parties thereto, the Company has agreed to sell the CDMA
PCS subscriber equipment to Cox-California at cost.
Subject to certain exceptions, the Holdings Partnership Agreement restricts
any Partner and its controlled affiliates from bidding on, acquiring or,
directly or indirectly, owning, managing, operating, joining, controlling or
financing, or participating in the management, operation, control or financing
of, or being connected as a principal, agent, representative, consultant,
beneficial owner of an interest in any person or entity, or otherwise with, or
use or permit its name to be used in connection with, any business that
engages in the bidding for or acquisition of any Wireless Business license or
engages in any Wireless Business or provides, offers, promotes or brands
services that are within Holdings' core business. Unless approved by a
unanimous vote of the Partners and subject to certain provisions, (i) as a
result of Comcast's ownership of a PCS license for the Philadelphia MTA,
Holdings and its subsidiaries (including the Company) are prohibited from
engaging in any of the activities listed in the preceding sentence, including
bidding for or acquiring any PCS license, in Philadelphia and (ii) no Partner
or controlling affiliate may bid in a PCS auction for any Wireless Business
license, and at no time may any Partner bid for or acquire a Wireless Business
if such bid or acquisition would violate or cause the Partnership or other
Partners to violate any rules of the FCC.
The Holdings Partnership Agreement provides that the marketing channels of
the Company will include each of the Partners and certain of their affiliates.
Each of the Partners will be non-exclusive sales agents for the Company's
services, and the Company will be a non-exclusive sales agent for those
services Sprint and the Cable Parents make available to the Company. No agency
agreements formalizing the specific terms of these arrangements between the
Company and the Partners have been signed. Any commissions payable as a result
of the sales agency relationships between and among the Company and the
Partners are required to be no less favorable to the agent than those for
comparable agency arrangements with third parties irrespective of volume.
Subject to certain exceptions, the Company's services will be offered,
promoted and packaged solely under the Sprint trademark and the logo used in
connection therewith. Nothing in the Holdings Partnership Agreement, however,
precludes or prohibits the Partners and their affiliates from marketing,
selling or distributing their own products and services.
The Holdings Partnership Agreement provides that each Partner and its
controlled affiliates and Holdings, as a whole will cause their respective
agents to keep secret and maintain in confidence all confidential and
proprietary information and data of Holdings, the Partners and such
affiliates. Subject to such confidentiality restrictions, Holdings, and its
subsidiaries will grant each Partner and its controlled affiliates access to
technical information of Holdings and its subsidiaries.
Pursuant to the Holdings Partnership Agreement, each Partner has agreed to
provide certain services to the Company in connection with the operation of
the network, including antenna sites and/or strand mounting of RF and
transmission equipment, transmission facilities between cell sites and
designated switching locations and provision of primary power, standby power
and maintenance. The provisions of any such services by Comcast within the
Comcast Service Area is not required. See "The Partnership Agreements" and
"Business--Relationship with Partners and Parents."
64
<PAGE>
PRINCIPAL SECURITY HOLDERS
The following table sets forth, as of the date of this prospectus, the
ownership of the Issuers, Holdings and MinorCo, L.P. For a more detailed
discussion of certain ownership interests, see "Business" and "Certain
Relationships and Related Transactions."
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
OF BENEFICIAL OWNER TYPE OF INTEREST INTEREST
------------------- ---------------- ----------
<S> <C> <C>
Sprint Spectrum Holding Company, L.P.
Sprint Enterprises, L.P.(1)................ Partnership(2) 40%
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
TCI Telephony Services, Inc.(3)............ Partnership(2) 30%
5619 DTC Parkway
Englewood, Colorado 80111
Comcast Telephony Services(4).............. Partnership(2) 15%
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Cox Telephony Partnership(5)............... Partnership(2) 15%
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Sprint Spectrum L.P.
Sprint Spectrum Holding Company, L.P.(6)... General Partnership 99%
4717 Grand Avenue--Fifth Floor
Kansas City, Missouri 64112
MinorCo, L.P.(6)........................... Limited Partnership 1%
4717 Grand Avenue--Fifth Floor
Kansas City, Missouri 64112
MinorCo, L.P.
Sprint Enterprises, L.P.(1)................ Partnership(2) 40%
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
TCI Telephony Services, Inc.(3)............ Partnership(2) 30%
5619 DTC Parkway
Englewood, Colorado 80111
Comcast Telephony Services(4).............. Partnership(2) 15%
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Cox Telephony Partnership(5)............... Partnership(2) 15%
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Sprint Spectrum Finance Corporation
Sprint Spectrum L.P........................ Common Stock 100%
4717 Grand Avenue--Fifth Floor
Kansas City, Missouri 64112
</TABLE>
- - --------
(1) An indirect wholly-owned subsidiary of Sprint Corporation. The general
partner of Sprint Enterprises, L.P. is US Telecom, Inc., a subsidiary of
Sprint Corporation. The limited partner of Sprint Enterprises, L.P. is
UCOM, Inc., a subsidiary of Sprint Corporation.
(2) Each Partner is both a general partner and a limited partner and holds 99%
of its partnership interest as a general partner and 1% as a limited
partner.
(3) A subsidiary of Tele-Communications, Inc. Interest was originally held by
TCI Network Services and subsequently transferred to TCI Telephony
Services, Inc.
(4) Comcast Telephony Services is a general partnership. The general partners
are COM Telephony Services, Inc. and Comcast Telephony Services, Inc.
(5) Cox Telephony Partnership is a general partnership. The general partners
are Cox Communications Wireless, Inc. and Cox Telephony Partners, Inc.
(6) As of June 30, 1996, Holdings, the sole general partner of Sprint
Spectrum, owned a greater than 99.75% partnership interest in Sprint
Spectrum, and MinorCo, the sole limited partner, owned a partnership
interest equal to less than 0.25%. The interests held by each of Holdings
and MinorCo fluctuate based on the amount of equity contributed by
Holdings to Sprint Spectrum because MinorCo's limited partnership interest
is equal to the ratio of $5.0 million (its investment in Sprint Spectrum)
to the total contributed equity in Sprint Spectrum.
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THE PARTNERSHIP AGREEMENTS
The following sets forth a summary of certain provisions of the Amended and
Restated Agreement of Limited Partnership of Holdings (the "Holdings
Partnership Agreement") and the Agreement of Limited Partnership of Sprint
Spectrum (the "Sprint Spectrum Partnership Agreement" and together with the
Holdings Partnership Agreement, the "Partnership Agreements"). The Partnership
Agreements are included as exhibits to the Registration Statement of which
this Prospectus constitutes a part. The following discussion is qualified in
its entirety by reference to the Partnership Agreements.
SPRINT SPECTRUM PARTNERSHIP AGREEMENT
Sprint Spectrum was formed as a limited partnership pursuant to the
provisions of the Delaware Revised Uniform Limited Partnership Act, as amended
(the "Partnership Act"). A certificate of limited partnership of Sprint
Spectrum was filed with the Secretary of State of the State of Delaware on
March 28, 1995. Sprint Spectrum will continue until its dissolution and
winding up in accordance with the terms of the Sprint Spectrum Partnership
Agreement. See "--Dissolution and Winding Up." The general partner (the
"General Partner") of Sprint Spectrum is Holdings, which holds a greater than
99% general partnership interest. The remaining limited partnership interest
is owned by MinorCo (the "Limited Partner"). See "Business--General".
The purposes of Sprint Spectrum are (i) to engage, through one or more
subsidiaries, in the Wireless Business and to provide certain services related
thereto; (ii) to act as the general partner for WirelessCo; (iii) to make
capital contributions to, and receive distributions from, WirelessCo; and (iv)
to perform such activities in furtherance of the foregoing as may be
determined to be necessary from time to time by the General Partner. The
General Partner appoints the senior management of Sprint Spectrum.
The General Partner will conduct the business and affairs of Sprint
Spectrum, and all powers of Sprint Spectrum, except those specifically
reserved to the Limited Partner by the Partnership Act, have been granted to
and vested in the General Partner.
Limitation on Liability and Indemnification. The Sprint Spectrum Partnership
Agreement provides that any partner or former partner, or any affiliate
thereof, any partner, shareholder, director, officer, employee or agent of any
of the foregoing, or any officer or employee of Sprint Spectrum will not be
liable in damages for any act or failure to act in such person's capacity as a
partner or otherwise on behalf of Sprint Spectrum or any of its subsidiaries
unless such act or omission constituted bad faith, gross negligence, fraud or
willful misconduct of such person or a violation of the Sprint Spectrum
Partnership Agreement or any agreement between such person and Sprint Spectrum
or any of its subsidiaries. In addition, each partner or former partner, or
each affiliate thereof, each partner, shareholder, director, officer, employee
or agent or any of any of the foregoing, and each officer and employee of
Sprint Spectrum will be indemnified and held harmless by Sprint Spectrum from
and against any liability for damages and expenses, including reasonable
attorney's fees and disbursements and amounts paid in settlement, resulting
from any threatened, pending or completed action, suit or proceeding relating
to or arising out of such person's acts or omissions in such person's capacity
as a partner or otherwise involving such person's activities on behalf of
Sprint Spectrum or any of its subsidiaries, except to the extent that such
damages or expenses result from bad faith, gross negligence, fraud or willful
misconduct of such person or a violation of the Sprint Spectrum Partnership
Agreement or any agreement between such person and Sprint Spectrum or any of
its subsidiaries.
Dissolution and Winding Up. Sprint Spectrum will dissolve and commence
winding up and liquidation upon the first to occur of (i) the sale of all or
substantially all of its property; (ii) the sale of WirelessCo or all or
substantially all of its property and the distribution of the net proceeds
therefrom to Sprint Spectrum; (iii) the written consent of all of the partners
to dissolve, wind up and liquidate Sprint Spectrum; or (iv) subject to certain
conditions, the withdrawal of a general partner, the assignment by a general
partner of its entire partnership interest or any other event that causes a
general partner to cease to be a general partner under the Partnership
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Act. Upon the occurrence of any such event, the General Partner shall be
responsible for overseeing the dissolution and winding up of Sprint Spectrum.
HOLDINGS PARTNERSHIP AGREEMENT
Holdings was formed as a limited partnership by Sprint Enterprises, L.P.,
TCI Telephony Services, Inc., Comcast Telephony Services and Cox Telephony
Partnership (TCI Telephony Services, Inc., Comcast Telephony Services and Cox
Telephony Partnership are herein collectively referred to as the "Cable
Partners") pursuant to the provisions of the Partnership Act. Each Partner is
both a general partner (in such capacity a "General Partner") holding 99% of
its interest as a general partner and a limited partner (in such capacity, a
"Limited Partner") holding 1% of its interest as a limited partner.
A certificate of limited partnership of Holdings was filed with the
Secretary of State of the State of Delaware on March 28, 1995. Holdings will
continue until its winding up and liquidation in accordance with the terms of
the Holdings Partnership Agreement. See "--Dissolution and Winding Up."
The purposes of Holdings, as set forth in the Holdings Partnership
Agreement, are (i) to engage in the Wireless Business and to provide certain
services related thereto, either directly or through one or more subsidiaries,
and (ii) to perform any activities in the furtherance of such Wireless
Business and the provision of such related services as may be approved from
time to time by the Partnership Board.
Capital Contributions. Each of the Partners has made an initial capital
contribution ("Initial Capital Contribution") of both cash and property that
total $ 2.4 billion in the aggregate for all four Partners. The initial
percentage interest (the "Percentage Interest") of each of Sprint Enterprises,
L.P., TCI Telephony Services, Inc., Comcast Telephony Services and Cox
Telephony Partnership is 40%, 30%, 15% and 15%, respectively. Each Partner is
required, subject to the limitations described below, to make additional
capital contributions ("Additional Capital Contributions") in cash and, in the
case of Cox, the Omaha MTA PCS license and an undivided fractional interest in
the PCS license for the Los Angeles-San Diego MTA that ultimately will be held
by Cox-California (the "Licenses"), in an amount up to its initial Percentage
Interest times an amount equal to $4.2 billion (including the amount of the
Initial Capital Contributions) plus the agreed upon value of the Licenses
(together, the "Total Mandatory Contributions").
The Partnership Board and, under certain circumstances, the Chief Executive
Officer, may request that the Partners make Additional Capital Contributions
of cash to fund the needs of Holdings for the ensuing six months or for such
shorter period as may be determined by the Partnership Board and as such needs
are reflected in the applicable annual budget. Such contributions, in the
aggregate, may not exceed the cumulative amount of Additional Capital
Contributions contemplated in the annual budget for the fiscal year, unless
otherwise approved by the Partnership Board. In addition, if such fiscal year
falls within the initial two-year period (January 1, 1996 to December 31,
1997), such Additional Capital Contribution shall not exceed (i) with respect
to the first fiscal year in the initial two-year period, the product of 150%
times the planned capital amount for such fiscal year as set forth in the
annual budget ($1,131 million for fiscal 1996), and (ii) with respect to the
second fiscal year in the initial two-year period, the product of 150% times
the planned capital amount for such fiscal year ($767 million for fiscal 1997)
(less any portion of such planned capital amount for which Additional Capital
Contributions were requested in the first fiscal year in the initial two-year
period) plus any portion of the planned capital amount for the first fiscal
year in the initial two-year period for which Additional Capital Contributions
were not requested, in each case unless otherwise approved by a unanimous vote
of the Partnership Board. The amount so requested from each Partner by the
Partnership Board or the Chief Executive Officer, as the case may be, shall be
equal to such Partner's pro rata share of such Additional Capital Contribution
based upon its initial Percentage Interest.
No Partner may decline a request to make an Additional Capital Contribution
at any time prior to December 31, 1999, except to the extent such Additional
Capital Contribution, when added to the aggregate amount of such Partner's
capital contributions prior to the time of such Additional Capital
Contribution, exceeds such Partner's share of the Total Mandatory
Contribution. After the earlier of (i) December 31, 1999 or (ii) such time as
the
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aggregate amount of Initial Capital Contributions and Additional Capital
Contributions made or requested to be made by the Partners first equals or
exceeds the Total Mandatory Contributions (the "Cut-Off Time"), such Partner
may decline a request for an Additional Capital Contribution during any fiscal
year provided that none of such Partner's Representatives (as defined below)
voted in favor of the fiscal year's budget calling for the Additional Capital
Contributions and none of such Representatives voted in favor of requesting
such Additional Capital Contributions. In the event of a shortfall due to a
partner declining (a "Declining Partner") to make such an Additional Capital
Contribution, however, the Chief Executive Officer will request that each
Partner that made its respective Additional Capital Contribution in full make
Additional Capital Contributions in an aggregate amount equal to the amount
not contributed by the Declining Partner. Each Partner that is willing to fund
the shortfall may do so up to 100% of such shortfall and if the amount
committed by all Partners agreeing to fund the shortfall exceeds 100%, except
as otherwise provided in the following sentence, each such Partner will be
entitled to contribute that amount equal to the percentage of the shortfall
equal to the ratio that such Partner's Percentage Interest bears to the
aggregate Percentage Interests of all Partners. If the Declining Partner is a
Cable Partner, and no Cable Partner's Percentage Interest is equal to or
greater than Sprint's Percentage Interest, the shortfall first shall be
allocated among the Cable Partners that committed to fund the shortfall as if
Sprint had not so committed, until such time as at least one Cable Partner's
Percentage Interest is equal to Sprint's Percentage Interest, after which such
shortfall shall be allocated pro rata among all Partners that committed to
fund such shortfall in accordance with their respective Percentage Interests.
If any Partner declines a request for an Additional Capital Contribution
relating to the first $800 million of Additional Capital Contributions
requested after the Cut-Off Time (a "Second Tranche Call") and the Partnership
Board determines that the Partners' aggregate adjusted net equity in Holdings
is less than the aggregate amount of capital contributions previously made by
the Partners, the Partnership Board may elect to convert such Second Tranche
Call to a "Premium Call," pursuant to which the Partners, including the
Declining Partner, will be given another opportunity to make the Additional
Capital Contributions requested pursuant to such Second Tranche Call. If any
Partner then declines to make its Additional Capital Contribution, all amounts
contributed by the other Partners pursuant to such Second Tranche Call shall
be treated as "Premium Dollars," meaning that, for purposes of adjusting the
contributing Partners' Percentage Interests, each such dollar will be valued
on the basis of adjusted net equity divided by the sum of all previously made
Initial Capital Contributions and Additional Capital Contributions, thereby
increasing the dilutive impact on the Declining Partner's Percentage Interest.
In the event that any Partner fails to make all or any portion of an
Additional Capital Contribution (other than an Additional Capital Contribution
that such Partner is entitled to decline to make under the circumstances
described above), a penalty will accrue with respect to such unpaid amount at
the applicable floating rate from and including the date of the requested
Additional Capital Contribution until such unpaid amount and the penalty
imposed thereon are paid or until the period during which such Partner may
cure its failure to make such unpaid amount, and the penalty imposed thereon,
has expired. In the event such Partner fails to make the requested Additional
Capital Contribution and to pay the related penalty within ten days after the
date such Additional Capital Contribution was due, the Chief Executive Officer
will request that each Partner that made its respective Additional Capital
Contribution in full make loans to Holdings in an aggregate amount equal to
the amount of the Additional Capital Contribution that such delinquent Partner
failed to make. The amount of the loan that each such Partner shall be
entitled to make will be determined in the same manner as described above with
respect to the Additional Capital Contributions that the Partners are entitled
to make with respect to a shortfall caused by a Declining Partner. Any such
delinquent Partner may cure its default within 90 days from the date of the
above-referenced loans by transferring to an account of Holdings the amount of
the unpaid amount and the unpaid penalty. The failure of such delinquent
Partner to cure such default would result in such Partner becoming a
"Defaulting Partner" and would constitute an Adverse Act (as defined under--
"Management"), which would permit the Partnership Board to elect (i) to
commence procedures to allow the other Partners to purchase such Defaulting
Partner's interest in Holdings at a discount or (ii) to cause Holdings to seek
to obtain specific performance of such Defaulting Partner's obligations or to
sue for money damages.
Each Partner also may contribute from time to time such additional cash or
property as the Partnership Board approves.
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The Percentage Interests of the Partners will be adjusted from time to time
to reflect the failure of any Partner to make an Additional Capital
Contribution. Percentage Interests will be adjusted as follows: (i) with
respect to Additional Capital Contributions requested prior to the time that
the aggregate amount of Initial Capital Contributions and Additional Capital
Contributions made or requested to be made exceeds the Total Mandatory
Contributions, Percentage Interests will be adjusted on a pro rata basis to
give effect to the aggregate Initial Capital Contribution and Additional
Capital Contributions made by each Partner, (ii) with respect to an Additional
Capital Contribution that is converted to a Premium Call, Percentage Interests
shall be adjusted based upon the Premium Dollars procedures described above,
and (iii) with respect to an Additional Capital Contribution requested after
the time that the aggregate amount of Initial Capital Contributions and
Additional Capital Contributions made or requested to be made exceeds $5
billion, Percentage Interests will be adjusted on a pro rata basis to give
effect to each Partner's adjusted net equity in its interest in Holdings
(taking into account the Additional Capital Contribution made by such Partner
with respect to the requested Additional Capital Contribution to which such
adjustment of Percentage Interests relates).
Management. The General Partners of Holdings conduct the business and
affairs of Holdings and have all the powers of Holdings except for those
specifically reserved to all of the general and limited partners by the
Partnership Act or the Holdings Partnership Agreement. The General Partners
conduct such business and exercise such powers through their representatives
on the Partnership Board (the "Representatives"). The Partnership Board
currently has six voting Representatives, three of whom are designated by
Sprint and one of whom is designated by each of the Cable Partners. The Chief
Executive Officer is a non-voting member of the Partnership Board. In the
event that the Percentage Interests change, the Holdings Partnership Agreement
provides for different allocations of Representatives among the Partners and,
in certain situations, a change in the size of the Partnership Board,
provided, however, that Sprint will be entitled to designate two
Representatives as long as its Percentage Interest is at least 20%.
If any Partner becomes an "Adverse Partner" through, among other things,
becoming a Defaulting Partner, disposition of its Partnership Interest other
than in accordance with the Holdings Partnership Agreement, default or a
material breach of a material covenant (each, an "Adverse Act"), such Partner
shall forfeit the right to designate a member of the Partnership Board, and
any existing Representatives of such Partner shall cease to be members of the
Partnership Board.
The Representative or Representatives designated by each General Partner
have voting power equal to the voting Percentage Interest of the Partner
appointing him or them. If a General Partner designates more than one
Representative such Representatives are required to vote the entire voting
power held by such General Partner as a single unit. Except for Partners that
are controlled affiliates of the same parent, none of the Partners may enter
into any agreements with any other Partner (or its controlled affiliates)
regarding the voting of their respective Representatives on the Partnership
Board.
Each Representative holds his or her office at the pleasure of the General
Partner that designated such Representative. Any General Partner may at any
time, and from time to time, remove any or all of its Representatives and
appoint substitute Representatives. Representatives are not entitled to
compensation from Holdings for serving in such capacity and the costs incurred
by each Representative are borne by the Partner designating such
Representative.
Except as set forth below, all actions required or permitted to be taken by
the Partnership Board must be approved by the affirmative vote of
Representatives having voting power of 75% or more of the Percentage Interests
entitled to vote on such action (other than those required to abstain pursuant
to the terms of the Holdings Partnership Agreement). The decision to convert a
Second Tranche Call to a Premium Call and certain related matters requires a
simple majority vote of more than 50% of the voting Percentage Interest of all
Partners whose Representatives are not required to abstain. The unanimous vote
of the Partnership Board is required for specified matters including, but not
limited to, admission of new Partners or equity holders, actions that would
result in voluntary bankruptcy or the dissolution of Holdings or any
subsidiary, approval of transactions which would subject Holdings to certain
restrictions relating to FCC regulatory oversight, actions relating to the
incurrence of
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indebtedness that is recourse to the Partners, certain acquisitions and
dispositions of assets and the approval of a request for withdrawal by a
General Partner.
The unanimous consent of all of the Partners (other than those required to
abstain pursuant to the terms of the Holdings Partnership Agreement) is
required for any amendment to, or material deviation from, the Initial
Business Plan (as defined in the Holdings Partnership Agreement) during the
fiscal year ending December 31, 1996, engagement by Holdings in businesses
outside those specified in the Holdings Partnership Agreement or the
conducting of business by Holdings or its subsidiaries in the Philadelphia
MTA, the loan or advancement by Holdings or any subsidiary of funds to, or the
guarantee of any obligations of, a Partner or any affiliate thereof, the
making of any non-pro rata cash or in-kind distributions to a Partner other
than in accordance with the terms of the Holdings Partnership Agreement, the
approval of, amendment, modification or supplement to, procedures relating to
the winding up of the affairs of Holdings and, subject to certain exceptions,
the incurrence of any debt for loans made by a Partner or affiliate thereof
and any amendment, modification or supplement to the Holdings Partnership
Agreement. If any such action is not so approved solely due to the failure of
one or more Partners who is not entitled to representation on the Partnership
Board to consent, the Holdings Partnership Agreement provides means by which
the consenting Partners may purchase all of such non-consenting Partner's
interest.
The Partnership Board is responsible for appointing the senior management of
Holdings and its subsidiaries and for establishing policies and guidelines for
the hiring of employees by Holdings and its subsidiaries. The Partnership
Board may delegate authority to officers, employees, agents and
representatives as it deems appropriate and each Representative may authorize
by proxy another person to vote for such Representative at a Partnership Board
meeting. The Partnership Board has delegated to the Chief Executive Officer
the responsibility for appointing the senior management of Holdings and its
subsidiaries.
The Chief Executive Officer shall submit annually to the Partnership Board,
within 90 days of the start of a fiscal year, both a proposed budget for the
upcoming fiscal year and a proposed business plan covering such fiscal year
and the succeeding four fiscal years. The day-to-day business and operations
of the Partnership and its subsidiaries shall be conducted in accordance with
the approved business plan and annual budget then in effect and the policies,
strategies and standards established by the Partnership Board.
Liability of Partners, Representatives and Partnership Employees. The
Holdings Partnership Agreement provides that no Partner or former Partner,
Representative or former Representative, no Affiliate (as defined in the
Holdings Partnership Agreement) of any thereof, no partner, shareholder,
director, officer, employee or agent of any of the foregoing, nor any officer
or employee of Holdings, will be liable in damages for any act or failure to
act in such person's capacity as a Partner or Representative or otherwise on
behalf of Holdings or any of its subsidiaries unless such act or omission
constituted bad faith, gross negligence, fraud or willful misconduct of such
person or a violation by such person of the Holdings Partnership Agreement or
an agreement between such person and Holdings or a subsidiary thereof. Subject
to certain conditions, each Partner, former Partner, Representative and former
Representative, each Affiliate of any thereof, each partner, shareholder,
director, officer, employee and agent of any of the foregoing, and each
officer and employee of Holdings, will be indemnified and held harmless by
Holdings, from and against any liability for damages and expenses, including
reasonable attorneys' fees and disbursements and amounts paid in settlement,
resulting from any threatened, pending or completed action, suit or proceeding
relating to or arising out of such person's acts or omissions in such person's
capacity as a Partner or Representative or otherwise involving such person's
activities on behalf of the partnership or any of its subsidiaries, except to
the extent that such damages or expenses result from the bad faith, gross
negligence, fraud or willful misconduct of such person or a violation by such
person of the Holdings Partnership Agreement or an agreement between such
person and Holdings or any of its subsidiaries. Any indemnity by Holdings will
be provided out of, and to the extent of partnership property only.
Conversion to Corporate Form. The Holdings Partnership Agreement provides
that in the event the Partnership Board determines that it is desirable for
the business of Holdings to be conducted in a corporate
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form, the Partnership Board shall incorporate Holdings in the state of
Delaware. In the event of such a conversion, Holdings and MinorCo shall be
consolidated, and the Partners will receive, in exchange for their respective
Holdings and MinorCo interests, shares of capital stock of such corporation in
the same relative economic interests--defined in terms of net equity--as such
Partners hold in Holdings. Upon conversion to corporate form, the corporate
successor shall grant to each of the Partners certain rights to require such
successor to register under the Securities Act the shares of capital stock
received by the Partners in exchange for their interests in Holdings. After
August 1, 2003, the Partners have certain rights either to cause Holdings to
convert to corporate form or to have their Partnership Interests purchased by
the other Partners.
Competition with Partners. Subject to certain exceptions, the Holdings
Partnership Agreement restricts any Partner and its controlled affiliates from
bidding on, acquiring or, directly or indirectly, owning, managing, operating,
joining, controlling or financing, or participating in the management,
operation, control or financing of, or being connected as a principal, agent,
representative, consultant, beneficial owner of an interest in any person or
entity, or otherwise with, or use or permit its name to be used in connection
with, any business that engages in the bidding for or acquisition of any
Wireless Business license or engages in any Wireless Business or provides,
offers, promotes or brands services that are within Holdings' core business.
Unless approved by a unanimous vote of the Partners and subject to certain
provisions, (i) within the Philadelphia MTA Holdings is prohibited from
engaging in any of the activities listed in the preceding sentence, including
bidding for or acquiring any PCS licenses and (ii) no Partner or its
controlled affiliate shall bid in a PCS auction for any Wireless Business
license, and at no time may any Partner bid for or acquire a Wireless Business
if such bid or acquisition would violate or cause the Partnership or other
Partners to violate any rules of the FCC.
The Holdings Partnership Agreement permits Holdings and its subsidiaries to
enter into transactions with the Partners and their affiliates in the normal
course of their respective businesses provided, however, that the Partnership
Board has determined that the price and terms of such transaction are fair to
Holdings and its subsidiaries and that the price and terms of such transaction
are no less favorable than comparable transactions involving non-affiliates.
Subject to certain conditions, including without limitation, unanimous
approval of appropriate procedures, the Partnership Board may elect from time
to time to provide rights of first opportunity to various Partners or their
affiliates. In addition, any transaction between Holdings and its subsidiaries
on the one hand and the Partners and their affiliates (including the Parents)
on the other hand shall be approved by the Partnership Board by the requisite
affirmative vote of the Representatives of the disinterested Partners.
Business Relationship with Partners. The Holdings Partnership Agreement
provides that the marketing channels of the Company will include each of the
Partners and certain of their affiliates. Each of the Partners will be non-
exclusive sales agents for the Company's services and the Company will be a
non-exclusive sales agent for those services Sprint and the Cable Parents make
available to the Company. As of the date of this Prospectus, no agency
agreements formalizing the specific terms of these arrangements between the
Company and the Partners have been signed. Any commissions payable as a result
of the sales agency relationships between and among the Company and the
Partners are required to be no less favorable to the agent than those for
comparable agency arrangements with third parties. The Company's services will
be offered, promoted and packaged solely under the Sprint trademark and the
logo used in connection therewith. Nothing in the Holdings Partnership
Agreement, however, precludes or prohibits the Partners and their affiliates
from marketing, selling or distributing their own products and services.
The Holdings Partnership Agreement provides that each Partner and its
controlled affiliates and Holdings, as a whole shall cause their respective
agents to keep secret and maintain in confidence all confidential and
proprietary information and data of Holdings, the Partners and such
affiliates. Subject to such confidentiality restrictions, Holdings and its
subsidiaries shall grant each Partner and its controlled affiliates access to
technical information of Holdings and its subsidiaries.
Pursuant to the Holdings Partnership Agreement, each Partner has agreed to
provide certain services to the Company in connection with the operation of
the network, including antenna sites and/or strand mounting of RF
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and transmission equipment, transmission facilities between cell sites and
designated switching locations and provision of primary power, standby power
and maintenance. The provisions of any such services by Comcast within the
Comcast Service Area is not required.
The Partnership Agreement also provides that the Partners and the Company
will coordinate, to the extent permitted by law and as is commercially
reasonably, their respective buying efforts from third party vendors.
Dispositions of Interests. Subject to certain restrictions, a Partner may at
any time transfer all or a portion of its interest (i) to any controlled
affiliate of such Partner, (ii) in connection with certain permitted
transactions involving such Partner, (iii) to the administrator or trustee of
such Partner to whom such interest is transferred in an involuntary
bankruptcy, (iv) pursuant to and in compliance with certain sections of the
Holdings Partnership Agreement, including sections relating to Adverse Acts,
rights of first refusal, tag-along rights, offer and registration rights and
rights of first offer and buy-sell arrangements and (v) with the prior written
consent of the other Partners.
After March 1, 2000, a Partner may transfer all or any portion of its
partnership interest to a person that is not a controlled affiliate of such
Partner (a "Purchaser") provided that such Partner first offers to sell such
partnership interest or portion thereof to the other Partners and provided
that such transfer would not result in the occurrence of an Adverse Act. If
such Purchaser after such transfer would own more than 55% of the Percentage
Interests, then the transfer will not be permitted unless such Purchaser
offers to purchase the entire interest of any other Partner wishing to sell
its interest.
Termination of Status as General Partner. A General Partner will cease to be
a General Partner upon (i) the permitted transfer of such Partner's entire
interest as a Partner, (ii) the unanimous vote of the Partnership Board
approving a request by such General Partner to withdraw, (iii) any Adverse Act
with respect to such Partner, (iv) such Partner's failure to satisfy an 8%
minimum ownership requirement or (v) in the case of Comcast only, the
occurrence of specified events that cause Comcast to become solely a limited
partner.
Dissolution and Winding Up. Holdings will be dissolved upon the earliest to
occur of (i) the sale of all or substantially all of the property of Holdings,
(ii) a unanimous vote of the Partnership Board to dissolve, wind up, and
liquidate Holdings in accordance with the terms of the Holdings Partnership
Agreement, (iii) the failure of the General Partners to resolve a "Deadlock
Event," which is deemed to occur if the Partnership Board fails to approve a
proposed annual budget or business plan for two consecutive fiscal years or if
the position of Chief Executive Officer remains vacant for 60 days after a
candidate has been proposed by at least two Partners with an aggregate of at
least 33% of the voting Percentage Interests and (iv) the withdrawal of a
General Partner, the assignment by a General Partner of its entire interest or
any other event that causes a General Partner to cease to be a general partner
under the Partnership Act; provided, that upon the occurrence of the events
set forth in clause (iv) above, Holdings will not be dissolved or required to
be wound up if (x) at the time of such event there is at least one remaining
General Partner, or (y) if there is not at least one remaining General
Partner, within 90 days after such event all remaining Partners agree in
writing to continue the business of Holdings and to the appointment, effective
as of the date of such event, of one or more additional General Partners.
Upon the occurrence of the events described in clauses (ii), (iii) and (iv)
above, and subject to the satisfaction of certain conditions, the Holdings
Partnership Agreement provides for buy/sell arrangements pursuant to which a
General Partner or a group of General Partners may purchase all of the
partnership interests thereby preventing the winding up and liquidation. In
the event such procedures fail to cause the sale of such partnership interests
in accordance with the buy/sell provisions, the Partnership Board shall be
responsible for overseeing the dissolution and winding up of Holdings, shall
cause the Holdings's property to be liquidated and shall apply and distribute
the proceeds therefrom in accordance with the terms of the Holdings
Partnership Agreement.
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DESCRIPTION OF VENDOR CONTRACTS AND FINANCING
VENDOR CONTRACTS
In connection with the construction of its PCS network and the preparation
for launch of commercial service, the Company has entered into numerous
contracts with various of its vendors. Copies of the Procurement Contracts
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. The following summary of certain provisions of the
Procurement Contracts does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
Procurement Contracts.
Procurement Contracts
In connection with the network buildout, Holdings has entered into
Procurement Contracts with each of Nortel and Lucent, pursuant to which each
of Nortel and Lucent will provide certain of the fundamental infrastructure
products and services required for the establishment of the Company's PCS
network. The Procurement Contracts are non-recourse to the Parents and the
Partners or any intermediary partnership and have been assigned to the Company
in connection with the Reorganization. The Vendors may select and retain
subcontractors for performance of their obligations provided that such
subcontractors meet the standards and requirements as set forth in the
Procurement Contracts.
The initial term of each of the Procurement Contracts is 10 years subject to
extension by annual renewals. The Procurement Contracts generally require
payment for construction on a current basis and, for equipment and software on
every PCS system, 15-25% on delivery, 58-65% upon substantial completion and
18-20% on final acceptance, in each case with payment due within 30-45 days
from invoice. The amount of such contract price will be reduced by all amounts
saved as a result of certain engineering changes suggested by the Company that
are incorporated into the specifications by the Vendors; provided that the
Vendors reasonably believe that such changes would not make it impossible or
impracticable for the Vendors to comply with their obligations under the
Procurement Contracts. If at any time a Vendor is in material breach of the
Procurement Contract with respect to any PCS system, the Company shall have no
obligation to make any payment for work done in addition to those amounts
previously paid until and unless such breach is cured or waived by the
Company.
The minimum purchase commitments for the initial term are $0.8 billion and
$1.0 billion for Lucent and Nortel, respectively, which include, but are not
limited to, all CDMA equipment required for the establishment and installation
of the Network.
The Procurement Contracts provide for warranties of generally one to three
years from the final acceptance of equipment, services and PCS systems
provided by the applicable Vendor and warranty damages for the breach thereof.
Each Vendor has agreed to provide substantial training at no extra cost and
"most favored customer" status is generally applicable to all terms including
pricing, availability and payment terms. Payment for a majority of the
infrastructure costs is delayed until the Vendors achieve substantial
completion and deliver a functional system within their allocated MTAs. These
substantially turnkey arrangements as well as the liquidated damages discussed
below place the impetus for timely, high-quality network completion on the
Vendors and reduce the Company's exposure to buildout delays and technology
concerns.
The Procurement Contracts provide for significant liquidated damages for
interim project milestone delays and PCS system completion delays. Liquidated
damages are triggered by non-performance, inadequate performance or late
performance of the Vendor's obligations. Damages are calculated as a specified
percentage of the contract value and are subject to certain caps. Damages may
be offset against amounts owed by the Company to such Vendor and the Vendors
have defined cure periods to reach the appropriate milestone or system
completion date to avoid damages being assessed.
The Procurement Contracts contain various termination provisions. Once the
Company has purchased the minimum amount of Vendor products and services that
it had committed to purchase, it may terminate the contracts at its sole
option at any time, without cause. the Company may terminate the Procurement
Contracts for cause, without penalty, if the Vendor defaults. Vendor defaults
include, but are not limited to, (i) events of bankruptcy or otherwise seeking
relief from creditors, (ii) violations of applicable laws or permits, (iii)
failure to
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keep PCS systems free of liens and encumbrances, (iv) failure to meet
construction and/or payment requirements, (v) material breaches of the
contract, (vi) failure to comply with the contract's change of control
provision or (vii) persistent material failure to correct defects and
deficiencies in a timely manner. The Vendor may cure any event of default
except bankruptcy within a defined cure period.
Upon the Company's termination of the Procurement Contract, the Vendor is
due only undisputed amounts due and payable. If the termination results from a
Vendor event of default, the Vendor must pay to the Company the costs of
completing the project above the contract price, notwithstanding any
liquidated damages owed by Vendor to the Company.
The Vendors may terminate the Procurement Contracts upon the Company's
default. The events of default applicable to the Company are (i) events of
bankruptcy or otherwise seeking relief from creditors, (ii) the Company's
failure to make undisputed payments that are more than 60 days overdue to the
Vendor after an appropriate period of notice, (iii) failure of the Company's
to meet its initial commitments within five years of January 31, 1996, where
such failure is not due to site acquisition difficulties, microwave
relocations, force majeure events or the Vendor's acts or omissions or (iv)
the Company's materially breaches the contract and the breach does not involve
site acquisition, microwave relocation and/or network interconnection.
The Procurement Contracts also include special termination provisions
implicated by a failure of buildout financing or changes in law. The Company
may terminate the Procurement Contracts if acceptable financing with the
Vendors for the initial phase of the national buildout has not been finalized
within 180 days of January 31, 1996. Nortel may terminate the agreement at any
time within the same 180 day period if Nortel reasonably believes that
financing for the national buildout will not be finalized within that 180 day
period. The Company may also terminate the contract, in whole or in part, if
there is a change in applicable law or the interpretation thereof, or there is
a decision by a judicial or administrative body, such that the Company
reasonably believes that operating a PCS system would be illegal or onerous.
Before terminating a Procurement Contract subject to this provision, the
Company must use its best efforts to ameliorate the effects of such a change.
Handset Agreement
Sprint Spectrum has entered into a three-year purchase and supply agreement
for CDMA handsets with Qualcomm Personal Electronics, which is a partnership
formed by Qualcomm and Sony Electronics Inc. (the "Handset Agreement"). A copy
of the Handset Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the Handset Agreement does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of the Handset Agreement. Under the Handset Agreement, Sprint
Spectrum is entitled to resell the handsets through its own retail outlets as
well as other retail and direct sales distribution channels. In addition,
under the Handset Agreement, Sprint Spectrum receives most favored customer
status. Sprint Spectrum is obligated to make certain purchases during each
year of the contract, provided that Sprint Spectrum may buy-down its
commitments if it should choose to do so. Subject to certain conditions, the
vendor will warrant the handsets for two years from delivery to the Company
and for one or two years (at Sprint Spectrum's option) after the purchase of
the handset by a consumer. In addition, the vendor will provide sales training
for the marketing and sales personnel of the Company. The Agreement obligates
Qualcomm to meet specified product delivery intervals or be subject to certain
penalties.
VENDOR FINANCING
The Company has obtained financing commitments from Nortel for $1.3 billion
and from Lucent for $1.8 billion of multiple drawdown term loan facilities.
Such commitments are subject to certain conditions, as described below. Copies
of the commitment letters for such Vendor Financing have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the commitment letters does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the commitment letters. The proceeds of
such facilities will be used to finance the purchase price of goods and
services provided by the Vendors under the Procurement Contracts. The Vendor
Financing will be non-recourse to the Parents and the Partners.
Borrowings under the Vendor Financing will be secured by a perfected first
priority lien (the "Shared Lien") on (i) all of the partnership interests in
WirelessCo, RealtyCo and EquipmentCo, (ii) intangible property assets on which
a lien can be perfected by certain Uniform Commercial Code and/or federal
filings and (iii) any
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real property having a value greater than $15.0 million. The
Shared Lien will secure equally and ratably the Bank Credit Facility, the
Vendor Financing, other indebtedness of Sprint Spectrum for borrowed money and
interest rate swaps, indebtedness of Sprint Spectrum not to exceed a
designated basket at any time outstanding and any refinancing of the foregoing
(collectively, the "Secured Debt"). See "--Bank Credit Facility." The Secured
Debt will be unconditionally guaranteed by WirelessCo, RealtyCo and
EquipmentCo on a joint and several, pari passu basis.
Loans made under the Vendor Financing will amortize quarterly over a five-
year period commencing on the date which is 39 months after the end of the
one-year period during which such loans were made. Under the Vendor Financing,
subject to certain conditions, the Company will be required to make mandatory
prepayments of 100% of the net cash proceeds of any sale or disposition of
subsidiaries or any sale of material assets that are not reinvested in the
Company's wireless telecommunications business.
The Company will be able to elect that all or a portion of the borrowings
under the Vendor Financing bear interest at a rate per annum equal to either
(i) the ABR plus an applicable margin or (ii) the Eurodollar rate (LIBOR) plus
an applicable margin. The ABR is the higher of (x) the rate of interest
publicly announced by a commercial bank to be determined as its prime rate in
effect at its principal office in New York City and (y) the federal funds
effective rate plus 0.5%.
The Nortel Financing will require, as a condition to funding, the commitment
of additional financing from third-parties, including the Offering, the Bank
Credit Facility or other debt financing, and equity financing. The first phase
of the Nortel Financing ($800 million) will become available when aggregate
financing commitments of $4.075 billion (including the first phase) have been
obtained. Subject to definitive documentation and closing of the Bank Credit
Facility and the Vendor Financing and completion of the Offering, the Company
will have satisfied the aforementioned financing commitments. The second phase
of the Nortel Financing ($500 million) will become available when all
commitments required under the first phase have been substantially drawn, an
additional $2.3 billion (including the second phase) in financing commitments
(in addition to the $4.075 billion required for the first phase) will have
been obtained and the Company's network covers 80 million aggregate Pops.
There can be no assurance that the conditions to the first or second phases
will be satisfied.
Pursuant to the Lucent Financing, the Company's access to $0.8 billion of
additional funds during the second phase of the facility is conditioned upon
(i) Sprint Spectrum maintaining at least a B rating on the Notes from Standard
& Poor's Corporation through the end of 1996 and (ii) the Issuers issuing at
least $500 million aggregate gross proceeds of Notes. The maximum availability
under such financing is $1.0 billion in 1996, $1.5 billion in 1997 and $1.8
billion in 1998. There can be no assurance that the conditions to the
commitments will be satisfied.
The Vendor Financing will contain a number of significant covenants that,
among other things, limit the ability of the Company to incur additional
indebtedness (beyond specified amounts), create liens and other encumbrances,
make guarantee obligations, make certain payments and investments, sell or
otherwise dispose of assets, make capital expenditures, make distributions to
partners and repurchases of equity, make acquisitions, investments, loans and
advances, merge or consolidate with another entity or engage in any business
other than the telecommunications business and related businesses as well as
restrictions on the ability of WirelessCo, RealtyCo and EquipmentCo to incur
liabilities or engage in non-designated activities. In addition, the Vendor
Financing is expected to require the maintenance of certain specified
financial and operating covenants, including, without limitation, ratios of
total debt to total capitalization, total debt to EBITDA, EBITDA to interest
expense and capital expenditure limitations.
The Vendor Financing will contain representations, warranties, covenants,
conditions and events of default customary for such senior credit facilities
of similar size and nature. In addition, the Vendor Financing will contain
change of control provisions regarding Sprint's ownership of a direct or
indirect interest in the Company. The loss of the Company's right to use the
Sprint trademark under the trademark license agreement will constitute an
event of default under the Vendor Financing. Other than the events of default
expected to be included under the Vendor Financing relating to termination of
the Company's right to use the Sprint trademark and the termination,
revocation or non-renewal by the FCC of any license, the Company does not
expect that the events of default under the Vendor Financing will differ
materially from the events of default under the Indentures. In addition,
although the particular provisions of the Vendor Financing are being
negotiated, it is expected that a change of control will include Sprint
ceasing to beneficially own at least 25% of the Company.
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BANK CREDIT FACILITY
Sprint Spectrum has received a commitment from Chase to provide a fully
underwritten senior credit facility in the amount of $2.0 billion. The
commitment is subject to numerous conditions, including the execution and
delivery of definitive documentation. A copy of the commitment letter for the
Bank Credit Facility has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the commitment letter does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of the commitment letter. The proceeds of the loans under the Bank
Credit Facility will be used to finance capital expenditures, operating
losses, the working capital needs of the Company and for partnership purposes.
Borrowings under the Bank Credit Facility will be unconditionally guaranteed
by WirelessCo, RealtyCo and EquipmentCo. In addition, borrowings under the
Bank Credit Facility will be secured by the Shared Lien. See "--Vendor
Financing." The Bank Credit Facility will be non-recourse to, and will not be
guaranteed by, the Parents or the Partners.
Outstanding amounts under the Bank Credit Facility will reduce quarterly
commencing five years and three months following the closing date and ending
nine years after the closing date. Under the Bank Credit Facility, subject to
certain conditions, the Company will be required to make mandatory prepayments
of 100% of the net cash proceeds of any sale or disposition of subsidiaries or
any material assets that are not reinvested in the Wireless Business. In
addition, beginning in the fiscal year ended 2000, Sprint Spectrum will be
required to apply a portion of excess cash flow to ratably reduce commitments
and loans under the Bank Credit Facility and prepay loans under the Vendor
Financing.
The Company will be able to elect that all or a portion of the borrowings
under the Bank Credit Facility bear interest at a rate per annum equal to (i)
the ABR plus an applicable margin or (ii) the Eurodollar Rate (LIBOR) plus an
applicable margin. The ABR is the higher of (x) the rate of interest publicly
announced by the administrative agent as its prime rate in effect at its
principal office in New York City and (y) the federal funds effective rate
from time to time plus 0.5%.
In connection with the Bank Credit Facility, Sprint Spectrum will pay a
commitment fee on the average daily unused and available amounts under the
Bank Credit Facility which fee will be determined based on specified tests and
payable quarterly in arrears.
The Bank Credit Facility will contain a number of significant covenants
that, among other things, limit the ability of Sprint Spectrum to incur
additional indebtedness, create liens and other encumbrances, make guarantee
obligations, make certain payments and investments, sell or otherwise dispose
of assets, make capital expenditures, make distributions to partners and
repurchases of equity, make acquisitions, investments, loans and advances,
merge or consolidate with another entity or engage in any business other than
the telecommunications business and related businesses as well as restrictions
on the ability of WirelessCo, RealtyCo and EquipmentCo to incur liabilities or
engage in non-designated activities. In addition, the Bank Credit Facility is
expected to require the maintenance of certain specified financial and
operating covenants, including, without limitation, capital expenditure
limitations and ratios of total debt to total capitalization, total debt to
EBITDA and EBITDA to interest expense.
The Bank Credit Facility will contain representations, warranties,
covenants, conditions and events of default customary for senior credit
facilities of similar size and nature, including, without limitation, the
delivery and execution of definitive documentation relating thereto. The loss
of the Company's right to use the Sprint trademark under the trademark license
agreement will constitute an event of default under the Bank Credit Facility.
Other than the events of default expected to be included under the Bank Credit
Facility relating to termination of the Company's right to use the Sprint
trademark, breach of a representation or warranty and the termination,
revocation or non-renewal by the FCC of any license, the Company does not
expect that the events of default under the Bank Credit Facility will differ
materially from the events of default under the Indentures. In addition,
although the particular provisions of the Bank Credit Facility are being
negotiated, it is expected that a change of control will include the Parents
ceasing to beneficially own 50% of the Company.
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CAPITAL CONTRIBUTION AGREEMENT
Pursuant to the terms of the commitment letters for the Bank Credit Facility
and the Vendor Financing, the Parents must enter into a capital contribution
agreement with Sprint Spectrum, the terms of which are satisfactory to and
have been approved by each of the lenders and the Vendors (the "Required
Capital Contribution Agreement"). The Company has entered into a capital
contribution agreement with the Parents, but, as such agreement had not been
approved by either the lenders or the Vendors, there can be no assurance that
such capital contribution agreement will qualify as the Required Capital
Contribution Agreement.
The Capital Contribution Agreement, as amended, provides that, upon proper
notification from the Company regarding the extent to which the expected cash
expenditures of the Company and its subsidiaries during the three months
following the date of such notification exceed the funds available, or
expected to become available, during such three month period to the Company
and its subsidiaries (the "Cash Shortfall"), each of the Parents shall
contribute to the Company that percentage of the Cash Shortfall which is equal
to such Parent's percentage ownership interest in the Company (the "Percentage
Interest"). The calculation of the Cash Shortfall is required to be made at
least on a quarterly basis. In no event shall any Parent's contribution exceed
such Parent's Percentage Interest of (i) the sum of (A) $1.0 billion, (B) the
value of an undivided fractional interest in the Cox-California license and
(C) the value of the Omaha license less (ii) the sum of (A) the amount of any
cash equity contributions not otherwise required to be made that are made
under the Capital Contribution Agreement by such Parent, directly or
indirectly through its affiliates, to the Company subsequent to December 31,
1995 (other than cash equity contributions which are the proceeds of any
indebtedness incurred by an affiliate of the Company in respect of which the
Company is entitled to fund through the making of permitted distributions
("Specified Affiliate Debt") or which are used to fund the acquisition of any
entity which does not become a Restricted Subsidiary (as defined in the
Capital Contribution Agreement) upon such acquisition or which are used to
fund cash equity investments by the Company or its Subsidiaries (as defined in
the Capital Contribution Agreement) in any Unrestricted Subsidiary (as defined
in the Capital Contribution Agreement)), (B) such Parent's Percentage Interest
of the amount of aggregate cash proceeds of equity capital (other than equity
capital which is the proceeds of Specified Affiliate Debt) obtained by the
Company from sources other than the Parents or any of the respective
subsidiaries subsequent to December 31, 1995 and (C) in the case of Cox, the
sum of the value of both an undivided fractional interest in the Cox-
California license and the Omaha license.
Based upon the foregoing calculation, at March 31, 1996, approximately $1.0
billion of the commitments under the Capital Contribution Agreement was
available to fund any future Cash Shortfalls.
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DESCRIPTION OF THE NOTES
The Senior Notes will be issued under an Indenture (the "Senior Notes
Indenture") to be dated as of , 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
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principal amount at maturity, as the case may be, thereof to be redeemed. A
new Senior Note or Senior Discount Note, as the case may be, in a principal
amount or principal amount at maturity, as the case may be, equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Issuers have deposited with the applicable paying
agent for the Notes funds in satisfaction of the applicable redemption price
pursuant to the applicable Indenture.
CERTAIN COVENANTS
Set forth below are certain covenants that will be contained in the
Indentures.
Limitation on Additional Indebtedness. The Indentures will provide that
Sprint Spectrum will not, and will not permit any Restricted Subsidiary to,
create, incur, assume, issue, guarantee or in any other manner become directly
or indirectly liable, contingently or otherwise, for or with respect to (in
any such case, to "incur") any Indebtedness (including any Acquired
Indebtedness); provided that the Issuers and the Restricted Subsidiaries may
incur Indebtedness (including Acquired Indebtedness) if after giving pro forma
effect to such incurrence (including the application or use of the net
proceeds therefrom to repay Indebtedness or make any Restricted Payment),
either (a) the ratio of (x) Total Consolidated Indebtedness to (y) Annualized
Pro Forma Consolidated Operating Cash Flow would be less than (A) 7.0 to 1.0,
if the Indebtedness is to be incurred prior to July 1, 2002, or (B) 6.0 to
1.0, if the Indebtedness is to be incurred on or after July 1, 2002, or (b) in
the case of any incurrence of Indebtedness prior to July 1, 2002 only, Total
Consolidated Indebtedness would be equal to or less than 70% of Total Invested
Capital.
Notwithstanding the foregoing, the Issuers and, to the extent specified, the
Restricted Subsidiaries will be permitted to incur each and all of the
following (each of which shall be given independent effect):
(a) Indebtedness under the Notes, any Subsidiary Guarantee and the
Indentures;
(b) Indebtedness of the Issuers and the Restricted Subsidiaries
outstanding from time to time pursuant to any of the Vendor Credit
Facilities;
(c) Indebtedness of the Issuers and the Restricted Subsidiaries
outstanding from time to time pursuant to the Bank Credit Facility in an
aggregate principal amount at any one time outstanding not to exceed $2.0
billion;
(d) Indebtedness of an Issuer or a Restricted Subsidiary owed to and held
by an Issuer or another Restricted Subsidiary so long as any such
Indebtedness owing by an Issuer is unsecured and subordinated in right of
payment to the Notes, except that (x) any direct or indirect transfer of
such Indebtedness by an Issuer or a Restricted Subsidiary (other than to an
Issuer or a Restricted Subsidiary), as the case may be, or (y) any direct
or indirect sale, transfer or other disposition by an Issuer or a
Restricted Subsidiary of Equity Interests of a Restricted Subsidiary that
is owed Indebtedness of an Issuer or a Restricted Subsidiary such that it
ceases to be a Restricted Subsidiary shall, in each such event, be an
incurrence of Indebtedness by the Issuer or such Restricted Subsidiary, as
the case may be, subject to the other provisions of this covenant;
(e) Interest Rate Protection Obligations of an Issuer or a Restricted
Subsidiary relating to Indebtedness of an Issuer or a Restricted Subsidiary
otherwise permitted under the Indentures that are entered into for the
purpose of protecting against fluctuations in interest rates in respect of
such Indebtedness and not for speculative purposes;
(f) Indebtedness of an Issuer or a Restricted Subsidiary under Currency
Agreements; provided that (x) such Currency Agreements relate to
Indebtedness otherwise permitted under the Indentures or the purchase price
of goods purchased or sold by an Issuer or a Restricted Subsidiary in the
ordinary course of its business and (y) such Currency Agreements do not
increase the Indebtedness or other obligations of an Issuer or a Restricted
Subsidiary outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(g) Indebtedness of an Issuer or a Restricted Subsidiary represented by
letters of credit for the account of an Issuer or a Restricted Subsidiary
in order to provide security for workers' compensation claims,
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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 Sprint Spectrum
or such Restricted Subsidiary than those that could reasonably be obtained in
a comparable arm's-length transaction with a person that is not such a holder
or Affiliate. Each Affiliate Transaction involving aggregate payments or
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other Fair Market Value in excess of $15.0 million shall be approved by (i) if
Sprint Spectrum is a Wholly-Owned Subsidiary of Holdings, either (a) if the
current provisions of Section 8.6 ("Interested Party Transactions") of the
Holdings Partnership Agreement are in effect, members of the Holdings'
Partnership Board exercising votes representing at least a majority (or such
other percentage vote as required by the Holdings Partnership Agreement) of
votes entitled to be exercised by members of such Board selected by the
Partners not having any financial interest in any such Affiliate Transaction,
or (b) if the current provisions of Section 8.6 ("Interested Party
Transactions") of the Holdings Partnership Agreement are not in effect, a
majority of the Disinterested Directors of Holdings, in each case, as
evidenced by a Resolution of the Board of Holdings and (ii) if Sprint Spectrum
is not a Wholly-Owned Subsidiary of Holdings, a majority of the Disinterested
Directors of Sprint Spectrum as evidenced by a Resolution of Sprint Spectrum.
In the event Sprint Spectrum obtains a written opinion from an Independent
Financial Advisor stating that the terms of an Affiliate Transaction are fair
to Sprint Spectrum or a Restricted Subsidiary, as the case may be, from a
financial point of view, it will conclusively meet the requirements of the
first sentence of this paragraph and there shall be no need to comply with the
second sentence of this paragraph.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions between or among Sprint Spectrum and/or
any of the Restricted Subsidiaries, (ii) any dividend or distribution
permitted by the covenant described under "--Limitation on Restricted
Payments," (iii) directors' fees, indemnification and similar arrangements,
officers' indemnification, employee stock option or employee benefit plans and
employee salaries and bonuses paid or created in the ordinary course of
business, (iv) any Affiliate Transaction pursuant to the Services Agreements
or any other agreement in effect on the Issue Date, as the same shall be
amended from time to time; provided that any material amendment shall be
required to comply with the provisions of the preceding paragraph of this
covenant, (v) transactions involving the marketing of products and services of
Sprint Spectrum or any Restricted Subsidiary jointly with products and
services of an Affiliate of Sprint Spectrum or a beneficial holder of 5% or
more of any class of Equity Interests of Sprint Spectrum (such holder or
Affiliate being a "Related Party"); provided all payments made by Sprint
Spectrum or any Restricted Subsidiary to the Related Party are made to
reimburse the Related Party for its share of any expenses incurred by the
Related Party on behalf of Sprint Spectrum or any Restricted Subsidiary, (vi)
transactions involving the leasing or sharing or other use by Sprint Spectrum
or any Restricted Subsidiary of communications network facilities (including,
without limitation, cable or fiber lines, equipment or transmission capacity)
of a Related Party on terms that are no less favorable (when taken as a whole)
to Sprint Spectrum or such Restricted Subsidiary, as applicable, than those
available from such Related Party to unaffiliated third parties, (vii)
transactions involving the provision of telecommunication services by a
Related Party in the ordinary course of 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
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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 Control Offer shall be
given to holders of Notes not less than 30 days nor more than 60 days before
the Change of Control Payment Date. The Change of Control Offer is required to
remain open for at least 20 business days or such longer period as may be
required by law and until the close of business on the Change of Control
Payment Date. The Issuers' obligations may be satisfied if a third party makes
the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements applicable to a Change of Control Offer made
by the Issuers and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
If a Change of Control occurs which also constitutes a default under the
Secured Financing, the lenders under the Secured Financing would be entitled
to exercise the remedies available to a secured lender under applicable law
and pursuant to the terms of the Secured Financing. Accordingly, any claims of
such lenders with respect to the assets of Sprint Spectrum will be prior to
any claim of the holders of the Notes with respect to such assets.
If a Change of Control Offer is made, there can be no assurance that the
Issuers will have available funds sufficient to pay for all of the Notes that
might be delivered by holders of Notes seeking to accept the Change of Control
Offer.
If the Issuers make a Change of Control Offer, the Issuers will comply with
all applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed.
Disposition of Proceeds of Asset Sales. The Indentures will provide that
Sprint Spectrum will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless (i) Sprint Spectrum or such Restricted Subsidiary,
as the case may be, receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the assets sold or otherwise disposed
of and (ii) at least 80% of such consideration consists of cash or Cash
Equivalents; provided that the amount of any liabilities of the Company or
such Restricted Subsidiary that are assumed (and from which Sprint Spectrum or
such Restricted Subsidiary is unconditionally released) in connection with
such Asset Sale by the transferee or purchaser of such assets or on behalf of
such transferee or purchaser by a third party shall be deemed to be cash for
purposes of this clause (ii); provided, further, that up to $25.0 million of
consideration in the aggregate that is not in the form of cash or Cash
Equivalents may be received in excess of the amount permitted by the foregoing
provisions during the term of the Notes. Sprint Spectrum or the applicable
Restricted Subsidiary, as the case may be, may (i) apply such Net Cash
Proceeds within 365 days of receipt thereof to repay an amount of Indebtedness
(other than Subordinated Indebtedness) of an Issuer or any Subsidiary
Guarantor of Sprint Spectrum or any Subsidiary Guarantor in an amount not
exceeding the Other Senior Debt Pro Rata Share and elect to permanently reduce
the amount of the commitments thereunder by the amount of the Indebtedness so
repaid, (ii) apply such Net Cash Proceeds within 365 days of the receipt
thereof to repay Indebtedness (other than Subordinated Indebtedness) of any
Restricted Subsidiary (other than a Subsidiary Guarantor) and elect to
permanently reduce the amount of the commitments thereunder by the amount of
the Indebtedness so repaid or (iii) apply such Net Cash Proceeds within 365
days of receipt thereof to an investment in properties and assets that will be
used in a Permitted Business (or in Equity Interests of any person that will
become a Restricted Subsidiary as a result of such investment to the extent
such person's operations consist of Permitted Businesses) of Sprint Spectrum
or any Restricted Subsidiary ("Replacement Assets"). Net Cash Proceeds from
any Asset Sale that are neither used as set forth in clause (ii) of the
preceding sentence nor invested in Replacement Assets within such 365-day
period shall constitute "Excess Proceeds." Any Excess Proceeds not used as set
forth in clause (i) of the second preceding sentence within such 365-day
period shall constitute "Offer Excess Proceeds" subject to disposition as set
forth below.
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When the aggregate amount of Offer Excess Proceeds equals or exceeds $20.0
million, the Issuers shall make an offer to purchase Notes (an "Asset Sale
Offer"), on a business day that is not more than 60 days after the day that
the Offer Excess Proceeds equals or exceeds $20.0 million, from all holders of
Notes, at a price in cash equal to (i) 100% of the principal amount of Senior
Notes, plus accrued and unpaid interest, if any, to the purchase date and (ii)
(a) 100% of the Accreted Value on the purchase date in the case of the Senior
Discount Notes, if such purchase date is on or before , 2001, and (b) 100%
of the principal amount at maturity of the Senior Discount Notes, plus accrued
and unpaid interest, if any, thereon to the purchase date, if such date is
after , 2001. Each Asset Sale Offer shall remain open for a period of 20
business days or such longer period as may be required by law. To the extent
that the aggregate purchase price for the Notes tendered pursuant to an Asset
Sale Offer is less than the Offer Excess Proceeds available for such offer,
Sprint Spectrum and the Restricted Subsidiaries may use such deficiency for
general partnership or corporate purposes, as the case may be, including to
repay other Indebtedness. It is agreed that, notwithstanding anything herein
to the contrary, if holders of other Debt Securities (other than Subordinated
Indebtedness) of the Issuers or any Subsidiary Guarantor are entitled to have
a similar offer to purchase their Debt Securities made to them, such other
offer shall be conducted and consummated simultaneously with the Asset Sale
Offer for the applicable Notes. If the aggregate Accreted Value and/or
principal amount of the Notes and other Debt Securities (other than
Subordinated Indebtedness) validly tendered pursuant to an Asset Sale Offer or
contractually required offer to purchase under the Indentures or any
instrument or agreement governing Debt Securities (other than Subordinated
Indebtedness) exceeds the Offer Excess Proceeds, the Senior Notes, Senior
Discount Notes and such Debt Securities to be purchased will be selected on a
pro rata basis among the holders of Notes and such Debt Securities (based upon
the principal amount of Senior Notes, Accreted Value of Senior Discount Notes
and the principal amount and/or accreted value of such other Debt Securities
tendered by each holder). Upon completion of such Asset Sale Offer, the amount
of Excess Proceeds shall be reset to zero.
Notwithstanding the two immediately preceding paragraphs, Sprint Spectrum
and the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale consists of cash, Cash Equivalents and/or
Permitted Assets and (ii) such consideration at the time of such Asset Sale is
at least equal to the Fair Market Value of the assets sold or otherwise
disposed of; provided that (x) any Net Cash Proceeds received by Sprint
Spectrum or any of the Restricted Subsidiaries in connection with any such
Asset Sale shall be subject to the provisions of the two immediately preceding
paragraphs and (y) if any of the assets disposed of are assets otherwise
required to be held by WirelessCo, RealtyCo or EquipmentCo under the covenant
described under""--Limitation on Ownership of Equity Interests of Restricted
Subsidiaries," the Permitted Assets received shall be held by, or promptly
transferred to, WirelessCo, RealtyCo or EquipmentCo.
If the Issuers are required to make an Asset Sale Offer, the Issuers will
comply with all applicable tender offer laws and regulations, including, to
the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
and any other applicable Federal or state securities laws and regulations and
any applicable requirements of any securities exchange on which the Notes are
listed.
Amendments to Capital Contribution Agreement. The Indentures will provide
that Sprint Spectrum will not amend, modify or waive, or refrain from
enforcing, any provision of the Capital Contribution Agreement dated as of
July 15, 1996 among Sprint Corporation, Tele-Communications, Inc., Comcast
Corporation, Cox Communications, Inc. and Sprint Spectrum in any manner
adverse to Sprint Spectrum or the holders of the Notes in any material
respect.
Reports. So long as any of the Notes are outstanding, Sprint Spectrum will
file with the Commission the annual reports, quarterly reports and other
documents that Sprint Spectrum would have been required to file with the
Commission pursuant to Sections 13(a) and 15(d) of the Exchange Act whether or
not Sprint Spectrum is then obligated to file reports pursuant to such
Sections, and Sprint Spectrum will promptly provide to all registered holders
of the Notes and file, within 30 days of filing with the Commission, with each
Trustee copies of such reports and documents.
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Limitation on Designations of Unrestricted Subsidiaries. The Indentures will
provide that Sprint Spectrum may designate any Subsidiary of Sprint Spectrum
(other than FinCo, WirelessCo, RealtyCo and EquipmentCo) as an "Unrestricted
Subsidiary" under the Indentures (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(ii) Sprint Spectrum would be permitted under the Indentures to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of the aggregate amount of its Investments in such Subsidiary
on such date; and
(iii) except in the case of a Subsidiary in which an Investment is being
made pursuant to and as permitted by the third paragraph of the covenant
"Limitation on Restricted Payments," Sprint Spectrum would be permitted to
incur $1.00 of additional Indebtedness pursuant to clause (a) of the
proviso to the first paragraph of the covenant described under "--
Limitation on Additional Indebtedness" at the time of Designation (assuming
the effectiveness of such Designation).
In the event of any such Designation, Sprint Spectrum shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to the
covenant described under "--Limitation on Restricted Payments" for all
purposes of the Indentures in the Designation Amount. The Indentures will
further provide that Sprint Spectrum shall not, and shall not permit any
Restricted Subsidiary to, at any time (x) provide direct or indirect credit
support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary
(including of any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the
extent permitted under the covenant described under "--Limitation on
Restricted Payments."
Notwithstanding anything herein to the contrary, APC shall not, at any time,
be considered a Restricted Subsidiary absent a Revocation in compliance with
the following paragraph.
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
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Subsidiaries, taken as a whole, to any other person or persons, unless at the
time of and after giving effect thereto (i) either (a) if the transaction or
series of transactions is a merger or consolidation, Sprint Spectrum shall be
the surviving person of such merger or consolidation, or (b) the person formed
by any such consolidation or into which Sprint Spectrum or such Restricted
Subsidiary is merged or to which the properties and assets of Sprint Spectrum
and/or any Restricted Subsidiary, as the case may be, are transferred (any
such surviving person or transferee person being a "Surviving Entity") shall
be a partnership or corporation organized and existing under the laws of the
United States of America, any state thereof or the District of Columbia and
shall expressly assume by a supplemental indenture executed and delivered to
each of the Trustees, in form reasonably satisfactory to the Trustees, all the
obligations of Sprint Spectrum under the Notes and the Indentures, and, in
each case, the Indentures shall remain in full force and effect; (ii)
immediately before and immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), no Default shall
have occurred and be continuing; and (iii) immediately after giving effect to
such transaction or series of transactions on a pro forma basis (including,
without limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
Sprint Spectrum or the Surviving Entity, as the case may be, could incur $1.00
of additional Indebtedness pursuant to the proviso to the first paragraph of
the covenant described under "--Certain Covenants--Limitation on Additional
Indebtedness"; provided that in the event of a conversion of Sprint Spectrum
from partnership to corporate form in a transaction the primary purpose of
which is to effect such conversion and in which no additional Indebtedness is
incurred or anticipated to be incurred by Sprint Spectrum, the Surviving
Entity or any Restricted Subsidiary, the Surviving Entity shall not be
required to be able to incur such $1.00 of additional Indebtedness.
In connection with any consolidation, merger, transfer, lease, assignment or
other disposition contemplated hereby, Sprint Spectrum shall deliver, or cause
to be delivered, to the Trustees, in form and substance reasonably
satisfactory to the Trustees, an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, transfer, lease,
assignment or other disposition and the supplemental indentures in respect
thereof comply with the requirements under the Indentures.
The Indentures will provide that for all purposes of the Indentures and the
Notes (including the provisions of this covenant and the covenants described
under "--Certain Covenants--Limitation on Additional Indebtedness," "--Certain
Covenants--Limitation on Restricted Payments" and "--Certain Covenants--
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.
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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 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
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declaration, such amount shall become due and payable immediately. If an Event
of Default specified in clause (ix) with respect to an Issuer occurs, then
such amount will ipso facto become and be immediately due and payable without
any declaration or other act on the part of the applicable Trustee or any
holder of Notes.
After a declaration of acceleration, the holders of a majority in aggregate
principal amount of outstanding Senior Notes or the holders of a majority in
aggregate principal amount at maturity of outstanding Senior Discount Notes,
as the case may be, may, by notice to the applicable Trustee, rescind such
declaration of acceleration if all existing Events of Default under the
applicable Indenture, other than nonpayment of the principal of or Accreted
Value of, and accrued and unpaid interest, if any, on, the applicable Notes
that has become due solely as a result of such acceleration, have been cured
or waived and if the rescission of acceleration would not conflict with any
judgment or decree. The holders of a majority in principal amount of the
outstanding Senior Notes or the holders of a majority in aggregate principal
amount at maturity of the outstanding Senior Discount Notes, as the case may
be, also have the right to waive past defaults under the applicable Indenture,
except a default in the payment of the principal of or Accreted Value of, or
any interest on, any outstanding applicable Note, or in respect of a covenant
or a provision that cannot be modified or amended without the consent of all
holders of the applicable Notes.
No holder of any of the Notes has any right to institute any proceeding with
respect to the applicable Indenture or any remedy thereunder, unless the
holders of at least 25% in principal amount of the outstanding Senior Notes or
the holders of at least 25% in principal amount at maturity of the outstanding
Senior Discount Notes, as the case may be, have made written request, and
offered reasonable indemnity, to the applicable Trustee to institute such
proceeding, and the applicable Trustee has failed to institute such proceeding
within 30 days after receipt of such notice and such Trustee has not within
such 30-day period received directions inconsistent with such written request
by holders of a majority in principal amount of the outstanding Senior Notes
or the holders of a majority in aggregate principal amount at maturity of the
outstanding Senior Discount Notes, as the case may be. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the enforcement
of the payment of the principal or Accreted Value of, or any accrued and
unpaid interest on, such Note on or after the respective due dates expressed
in such Note.
During the existence of an Event of Default under the applicable Indenture,
the applicable Trustee is required to exercise such rights and powers vested
in it under such Indenture and use the same degree of care and skill in its
exercise thereof as a prudent person would exercise under the circumstances in
the conduct of 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.
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DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURES
The Issuers may, at their option and at any time, terminate the obligations
of the Issuers and any Subsidiary Guarantor with respect to the applicable
outstanding Notes and Subsidiary Guarantees ("defeasance"). Such defeasance
means that the Issuers shall be deemed to have paid and discharged the entire
Indebtedness represented by the applicable outstanding Notes, except for (a)
the rights of holders of such outstanding Notes to receive payment in respect
of the principal of, premium, if any, and interest on such Notes when such
payments are due, (b) the Issuers' obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes and maintain an office or agency for payments in respect
of the Notes, (c) the rights, powers, trusts, duties and immunities of the
applicable Trustee, and (d) the defeasance provisions of the applicable
Indenture. In addition, the Issuers may, at their option and at any time,
elect to terminate the obligations of the Issuers and any Subsidiary
Guarantors with respect to certain covenants that are set forth in the
applicable Indenture ("covenant defeasance"), some of which are described
under "--Certain Covenants" above and any subsequent failure to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the applicable Notes.
In order to exercise either defeasance or covenant defeasance, (a) the
Issuers must irrevocably deposit with the applicable Trustee, in trust, for
the benefit of the holders of the applicable Notes, cash in United States
dollars, United States government obligations, or a combination thereof, in
such amounts as will be sufficient to pay the principal of, premium, if any,
and interest on the applicable outstanding Notes to redemption or maturity
(except lost, stolen or destroyed Notes which have been replaced or paid); (b)
the Issuers shall have delivered to the applicable Trustee an opinion of
counsel to the effect that the holders of the applicable outstanding Notes
will not recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance or covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or covenant defeasance
had not occurred (in the case of defeasance, such opinion must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
Federal income tax laws); (c) no Default under the applicable Indenture shall
have occurred and be continuing on the date of such deposit; (d) such
defeasance or covenant defeasance shall not cause the applicable Trustee to
have a conflicting interest with respect to any securities of the Issuers; (e)
such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any agreement or instrument to
which the Issuers or any of their Subsidiaries is a party or by which it is
bound; (f) the Issuers shall have delivered to the applicable Trustee an
opinion of counsel to the effect that after the 91st day following their
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally or to the rights of any creditor of the Issuers 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
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Issuers have delivered irrevocable instructions to the applicable Trustee to
apply the deposited money toward the payment of such Notes at maturity or
redemption, as the case may be. In addition, the Issuers must deliver to the
applicable Trustee an officers' certificate and an opinion of counsel stating
that all conditions precedent to satisfaction and discharge have been complied
with.
AMENDMENT AND WAIVERS
From time to time the Issuers and any Subsidiary Guarantor, when authorized
by Resolutions of their respective Boards, and the applicable Trustee, without
the consent of the holders of the Notes, may amend, waive or supplement the
Indentures, the Notes and any Subsidiary Guarantee for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies, maintaining the qualification of an Indenture under the Trust
Indenture Act or making any change that does not adversely affect the rights
of any holder of Notes. Other amendments and modifications of the Indentures,
the Notes and any Subsidiary Guarantee may be made by the Issuers, any
Subsidiary Guarantor and the applicable Trustee with the consent of the
holders of not less than a majority of the aggregate principal amount of the
outstanding Senior Notes or holders of not less than a majority of the
aggregate principal amount at maturity of the outstanding Senior Discount
Notes, as the case may be; provided that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby, (i) reduce the principal amount of or Accreted Value of, extend the
fixed maturity of, or alter the redemption provisions of, the Notes, (ii)
change the currency in which any Notes or any premium or the accrued interest
thereon is payable, (iii) reduce the percentage in principal amount of
outstanding Notes which must consent to an amendment, supplement or waiver or
consent to take any action under the Indentures, the Notes or any Subsidiary
Guarantees, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to the Notes or any Subsidiary Guarantee, as the
case may be, (v) waive a default in payment with respect to the Notes, (vi)
reduce the rate or extend the time for payment of interest on the Notes or
amend the rate of accretion on the Senior Discount Notes or amend the
definition of Accreted Value, (vii) alter the obligation to purchase the Notes
in accordance with the Indentures following the occurrence of an Asset Sale or
a Change of Control or waive any default in the performance thereof, or (viii)
adversely affect the ranking of the Notes or any Subsidiary Guarantee or (ix)
release any Subsidiary Guarantee other than in accordance with the Indentures.
REGARDING THE TRUSTEES
The Bank of New York will serve as the Senior Notes Trustee and the Senior
Discount Notes Trustee. The Indentures provide that, except during the
continuance of an Event of Default under the applicable Indenture, the 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:
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(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.
"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
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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.
"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
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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."
"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.
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"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 and amortization of capitalized debt issuance costs for such period,
all determined on a consolidated basis in accordance with GAAP; and (e) any
other non-cash charges that were deducted in computing Consolidated Net Income
(excluding any non-cash charge which requires an accrual or reserve for cash
charges for any future period) of Sprint Spectrum and the Restricted
Subsidiaries for such period in accordance with GAAP and (ii) decreased by any
non-cash gains that were included in computing Consolidated Net Income.
"covenant defeasance" has the meaning set forth under "--Defeasance or
Covenant Defeasance of Indentures."
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
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"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 "--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).
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"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arms'-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the applicable Indenture, Fair Market Value shall be determined by the
Board of Sprint Spectrum acting in good faith.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable on the Issue
Date.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), directly or indirectly, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation (other than an agreement to make a capital
contribution that otherwise is permitted by the covenant described under "--
Certain Covenants--Limitation on Restricted Payments"), including, without
limiting the foregoing, the payment of amounts drawn down under letters of
credit.
"Holdings" means Sprint Spectrum Holding Company, L.P., a Delaware limited
partnership.
"Holdings Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of Holdings dated as of January 31, 1996.
"incur" has the meaning set forth under "--Certain Covenants--Limitation on
Additional Indebtedness."
"Indebtedness" means, with respect to any person, without duplication, (i)
any liability, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such person or only to a portion thereof), whether as a cash advance, bill,
overdraft or money market facility loan, or (b) evidenced by a note, debenture
or similar instrument or letters of credit (including a purchase money
obligation) or by any book-entry mechanism or (c) for the payment of money
relating to a Capitalized Lease Obligation or other obligation relating to the
deferred purchase price of property or (d) in respect of any Interest Rate
Protection Obligation or any Currency Agreement; (ii) any liability of others
of the kind described in the preceding clause (i) which the person has
guaranteed or which is otherwise its legal liability; (iii) any obligation
secured by a Lien to which the property or assets of such person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such person's legal liability; and (iv) the greater of the
maximum repurchase or redemption price or liquidation preference of any
Disqualified Equity Interests of such person or, with respect to any
Restricted Subsidiary of such person, of any Equity Interests (other than
Common Equity Interests) of such Restricted Subsidiary. In no event shall
"Indebtedness" include trade payables incurred in the ordinary course of
business. For purposes of the covenant described under "--Certain Covenants--
Limitation on Additional Indebtedness" and for purposes of "--Events of
Default," in determining the principal amount of any Indebtedness (l) to be
incurred by Sprint Spectrum or a Restricted Subsidiary or which is outstanding
at any date, (x) the principal amount of any Indebtedness which provides that
an amount less than the principal amount thereof shall be due upon any
declaration of acceleration thereof shall be the accreted value thereof at the
date of determination and (y) effect shall be given to the impact of any
Currency Agreements with respect to such Indebtedness and (2) outstanding at
any time under any Currency Agreement of Sprint Spectrum or any Restricted
Subsidiary, the principal amount shall be the net payment obligation under
such Currency Agreement at such time.
"Independent Financial Advisor" means an investment banking firm of national
standing in the United States which, in the good faith judgment of the Board
of Sprint Spectrum, is independent with respect to Sprint Spectrum and its
Affiliates and qualified to perform the task for which it is to be engaged.
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"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.
"Other Senior Debt Pro Rata Share" means the amount of the applicable Excess
Proceeds obtained by multiplying the amount of such Excess Proceeds by a
fraction, (i) the numerator of which is the aggregate accreted value and/or
principal amount, as the case may be, of all Indebtedness (other than (x) the
applicable Notes and (y) Subordinated Indebtedness) of an Issuer and any
Subsidiary Guarantor outstanding at the time of the applicable Asset Sale with
respect to which an Issuer or a Subsidiary Guarantor, as the case may be, is
required to use Excess Proceeds to repay or make an offer to purchase or repay
and (ii) the denominator of which is the sum of (a) the aggregate principal
amount of all Senior Notes outstanding at the time of the applicable Asset
Sale, (b) the aggregate Accreted Value of all Senior Discount Notes
outstanding at the time of the applicable Asset Sale and (c) the aggregate
principal amount or the aggregate accreted value, as the case may
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be, of all other Indebtedness (other than Subordinated Indebtedness) of an
Issuer or a Subsidiary Guarantor outstanding at the time of the applicable
Asset Sale Offer with respect to which an Issuer or a Subsidiary Guarantor, as
the case may be, is required to use the applicable Excess Proceeds to offer to
repay or make an offer to purchase or repay.
"Pari Passu Debt Securities" means any Debt Securities (and any guarantee of
any Debt Security) which would not constitute Subordinated Indebtedness.
"Partners" means, collectively, Sprint Enterprises, L.P., TCI Telephony
Services, Inc. Comcast Telephony Services and Cox Telephony Partnership, to
the extent they are Partners in Holdings, and any permitted transferee of such
Partner's interest pursuant to the Holdings Partnership Agreement.
"Permitted Assets" means property or assets that will be used in a Permitted
Business referred to in clause (i) of the definition of "Permitted Business"
(or Equity Interests of any person that will become a Restricted Subsidiary as
a result of the applicable Asset Sale to the extent such person's operations
consist of such a Permitted Business).
"Permitted Business" means (i) the delivery or distribution of
telecommunications, voice, data or video services, (ii) any business or
activity reasonably related thereto, including, without limitation, any
business conducted by Sprint Spectrum or any Restricted Subsidiary on the
Issue Date and the acquisition, holding or exploitation of any license
relating to the delivery of the services described in clause (i) of this
definition or(iii) any other business or activity in which Sprint Spectrum and
the Restricted Subsidiaries are expressly contemplated to be engaged in
pursuant to the provisions of the Holdings Partnership Agreement as in effect
on the Issue Date.
"Permitted Holder" means (i) each of Sprint Corporation, Tele-
Communications, Inc., Comcast Corporation and Cox Communications, Inc. and the
respective successors (by merger, consolidation, transfer or otherwise) to all
or substantially all of the respective businesses and assets of any of the
foregoing, (ii) any transferee of the assets resulting from a Permitted
Transaction and (iii) each person controlled by one or more persons identified
in clause (i) or (ii) of this definition.
"Permitted Investments" means any of the following: (i) Investments in any
Restricted Subsidiary (including any person that pursuant to such Investment
becomes a Restricted Subsidiary) and any person that is merged or consolidated
with or into, or transfers or conveys all or substantially all of its assets
to, Sprint Spectrum or any Restricted Subsidiary at the time such Investment
is made; (ii) Investments in Cash Equivalents;(iii) Investments in Currency
Agreements and Interest Rate Protection Obligations permitted by the covenant
described under "--Certain Covenants--Limitation on Additional Indebtedness";
(iv) loans or advances to officers or employees of Sprint Spectrum and the
Restricted Subsidiaries in the ordinary course of business for 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
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transaction in a series of related transactions, owns, directly and indirectly
through its Controlled Affiliates, all or a Substantial Portion of the cable
television system assets (in the case of a Cable Partner) or long distance
telecommunications business assets (in the case of Sprint) owned by the Parent
of such Partner, directly and indirectly through its Controlled Affiliates,
immediately prior to the commencement of such transaction or series of
transactions. As used herein, "Substantial Portion" means (x) in the case of a
Cable Partner, cable television systems serving 75% or more of the aggregate
number of basic subscribers served by cable television systems in the United
States of America (including its territories and possessions other than Puerto
Rico) owned by the Parent of such Cable Partner, directly and indirectly
through its Controlled Affiliates, and (y) in the case of Sprint, long
distance telecommunications business assets serving 75% or more of the
aggregate number of customers served by the long distance telecommunications
business in the United States of America (including its territories and
possessions other than Puerto Rico) owned by the Parent of Sprint, directly
and indirectly through its Controlled Affiliates. All capitalized terms used
in this definition shall have the meanings ascribed to them in the Holdings
Partnership Agreement as in effect on the Issue Date.
"Public Equity Offering" means an underwritten public offering of Common
Equity Interests made on a primary basis by Sprint Spectrum, Holdings or a
Special Purpose Corporation pursuant to a registration statement filed with,
and declared effective by, the Commission in accordance with the Securities
Act; provided that Holdings or the Special Purpose Corporation, as the case
may be, will be required to contribute as equity to, or purchase Common Equity
Interests in, Sprint Spectrum with proceeds from the Initial Public Offering
of not less than the greater of (x) $100.0 million or (y) the amount required
to effect any redemption pursuant to the second paragraphs under "--Optional
Redemption--Optional Redemption of Senior Notes" and "--Optional Redemption of
Senior Discount Notes."
"RealtyCo" means Sprint Spectrum Realty Company, L.P., a Delaware limited
partnership.
"Refinancing Indebtedness" means (i) Indebtedness of Sprint Spectrum to the
extent the proceeds thereof are used solely to refinance (whether by
amendment, renewal, extension or refunding) Indebtedness of Sprint Spectrum or
any of the Restricted Subsidiaries and (ii) Indebtedness of any Restricted
Subsidiary to the extent the proceeds thereof are used solely to refinance
(whether by amendment, renewal, extension or refunding) Indebtedness of such
Restricted Subsidiary, in each such event, incurred under the first paragraph
of the covenant described under "--Certain Covenants--Limitation on Additional
Indebtedness" or clause (a) of the second paragraph of such covenant; provided
that (a) the principal amount of Refinancing Indebtedness incurred pursuant to
this definition (or, if such Refinancing Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the accreted value of
such Indebtedness) shall not exceed the principal amount or accreted value, as
the case may be, of the Indebtedness refinanced, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of such Indebtedness or the amount of any premium reasonably
determined by the Board 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.
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"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or distribution on Equity Interests of Sprint Spectrum
or any Restricted Subsidiary or any payment made to the direct or indirect
holders (in their capacities as such), including any Special Purpose
Corporation, of Equity Interests of Sprint Spectrum or any Restricted
Subsidiary (other than dividends or distributions (a) payable solely in Equity
Interests (other than Disqualified Equity Interests) of Sprint Spectrum or in
options, warrants or other rights to purchase Equity Interests (other than
Disqualified Equity Interests) of Sprint Spectrum, (b) paid to Sprint Spectrum
or a Wholly-Owned Restricted Subsidiary or (c) paid in respect of Equity
Interests of a Restricted Subsidiary to persons other than Sprint Spectrum or
Wholly-Owned Restricted Subsidiaries on not more favorable than a pro rata
basis with dividends or distributions then being paid in respect of Equity
Interests held by Sprint Spectrum or a Wholly-Owned Restricted Subsidiary);
(ii) the purchase, redemption or other acquisition or retirement for value of
any Equity Interests of Sprint Spectrum or a Restricted Subsidiary (other than
any such Equity Interests owned by Sprint Spectrum or a Wholly-Owned
Restricted Subsidiary); (iii) the making of any principal payment on, or the
purchase, redemption, defeasance or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Subordinated Indebtedness of an Issuer or any Subsidiary
Guarantor (other than any such Subordinated Indebtedness owned by Sprint
Spectrum or a Restricted Subsidiary); or (iv) the making of any Investment
(other than a Permitted Investment) in any person (other than an Investment by
a Restricted Subsidiary in Sprint Spectrum or an Investment by Sprint Spectrum
or a Restricted Subsidiary in either (x) a Restricted Subsidiary or (y) a
person that becomes a Restricted Subsidiary as a result of such Investment).
"Restricted Subsidiary" means any Subsidiary of Sprint Spectrum that has not
been designated by the Board of the Company, by a Resolution delivered to the
applicable Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain Covenants--Limitation
on Designations of Unrestricted Subsidiaries." Any such Designation may be
revoked by a Resolution of Sprint Spectrum delivered to the applicable
Trustee, subject to the provisions of such covenant.
"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Corporation.
"Securities Act" means the Securities Act of 1933, as amended.
"Subordinated Debt Securities" means any Debt Securities (and any guarantee
of any Debt Security) that would constitute Subordinated Indebtedness.
"Subordinated Indebtedness" of any person means any Indebtedness of such
person that is expressly subordinated in right of payment to any other
Indebtedness of such person.
"Subsidiary" means, with respect to any person, (i) any corporation of which
the outstanding Equity Interests having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, by such person, or (ii) any other person of which at
least a majority in value of Equity Interests or Voting Equity Interests are
at the time, directly or indirectly, owned by such person.
"Subsidiary Guarantee" has the meaning set forth under "--Certain
Covenants--Limitation on Issuance of Certain Guarantees by, and Debt
Securities of, Restricted Subsidiaries."
"Subsidiary Guarantor" means a Restricted Subsidiary that issues a
Subsidiary Guarantee pursuant to the covenant described under "--Certain
Covenants--Limitation on Issuance of Certain Guarantees by, and Debt
Securities of, Restricted Subsidiaries."
"Surviving Entity" has the meaning set forth under "--Consolidation, Merger,
Sale of Assets, Etc."
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal the aggregate principal amount of all Indebtedness of Sprint
Spectrum and the Restricted Subsidiaries outstanding as of the date of
determination.
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"Total Invested Capital" means, at any time of determination, the sum of,
without duplication, (i) the total amount of equity contributed to Sprint
Spectrum as of the Issue Date (as set forth on the March 31, 1996 consolidated
balance sheet of Sprint Spectrum), plus (ii) the aggregate net cash proceeds
received by Sprint Spectrum from capital contributions or the issuance or sale
of Equity Interests (other than Disqualified Equity Interests but including
Equity Interests issued upon the conversion of convertible Indebtedness or
from the exercise of options, warrants or rights to purchase Equity Interests
(other than Disqualified Equity Interests)) subsequent to the Issue Date,
other than to a Restricted Subsidiary, plus (iii) the aggregate net cash
proceeds received by Sprint Spectrum or any Restricted Subsidiary from the
sale, disposition or repayment of any Investment made after the Issue Date and
constituting a Restricted Payment in an amount equal to the lesser of (a) the
return of capital with respect to such Investment and (b) the initial amount
of such Investment, in either case, less the cost of the disposition of such
Investment, plus (iv) an amount equal to the consolidated net Investment on
the date of Revocation made by Sprint Spectrum and/or any of the Restricted
Subsidiaries in any Subsidiary that has been designated as an Unrestricted
Subsidiary after the Issue Date upon its redesignation as a Restricted
Subsidiary in accordance with the covenant described under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries," plus (v)
Total Consolidated Indebtedness minus (vi) the aggregate amount of all
Restricted Payments (including any Designation Amount, but other than a
Restricted Payment of the type referred to in clause (iii)(b) of the third
paragraph of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments") declared or made from and after the Issue Date.
"Unrestricted Subsidiary" means any Subsidiary of Sprint Spectrum (other
than FinCo, WirelessCo, RealtyCo and EquipmentCo) designated after the Issue
Date as such pursuant to and in compliance with the covenant described under
"--Certain Covenants--Limitation on Designations of Unrestricted
Subsidiaries." Any such designation may be revoked by a Resolution of Sprint
Spectrum delivered to the applicable Trustee, subject to the provisions of
such covenant.
"Vendor Credit Facilities" means, collectively, (i) the Lucent Credit
Facility; (ii) the Nortel Credit Facility; and (iii) any other credit facility
entered into with any vendor or supplier (or any financial institution acting
on behalf of such a vendor or supplier); provided that, in the case of each of
clauses (i), (ii) and (iii), the Indebtedness thereunder is incurred solely
for the purpose of financing the cost (including the cost of design,
development, site acquisition, construction, integration, handset manufacture
or acquisition or microwave relocation) of wireless telecommunications
networks or systems or for which Sprint Spectrum or any Restricted Subsidiary
has obtained the applicable licenses or authorizations to utilize the radio
frequencies necessary for the operation of such systems or networks.
"Voting Equity Interests" means, with respect to any person, Equity
Interests of any class or kind ordinarily having the power to vote for the
election of directors, managers or other voting members of the governing body
of such person.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Equity Interests is owned by Sprint Spectrum or
another Wholly-Owned Restricted Subsidiary. For purposes of this definition,
(i) any directors' qualifying shares or investments by foreign nationals
mandated by applicable law and (ii) Equity Interests of a person not to exceed
1% of the total voting power of all outstanding Equity Interests of such
person and representing a right to receive not greater than 1% of the profits
of such partnership shall be disregarded in determining the ownership of a
Restricted Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any person, any other
person 100% of whose outstanding Equity Interests are owned by such person or
another Wholly-Owned Restricted Subsidiary of such person. For purposes of
this definition, (i) any directors' qualifying shares or investments by
foreign nationals mandated by applicable law and (ii) Equity Interests of a
person not to exceed 1% of the total voting power of all outstanding Equity
Interests of such person and representing a right to receive not greater than
1% of the profits of such partnership shall be disregarded in determining the
ownership of a Subsidiary.
"WirelessCo" means WirelessCo, L.P., a Delaware limited partnership.
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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 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.
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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 is the opinion of Simpson Thacher & Bartlett ("Tax Counsel")
regarding the material United States federal income tax consequences of the
purchase, ownership and disposition of Notes as of the date hereof. It does
not purport to be a complete analysis or listing of all potential tax
considerations that may be relevant and is generally limited to those persons
who are original purchasers of Notes and who hold Notes as capital assets
("Holders"). Moreover, it does not include special rules that may apply to
certain Holders (including insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, foreign persons and persons in
special situations such as those who hold Notes as part of a straddle, hedge
or conversion transaction). In addition, the following does not consider the
effect of any applicable foreign, state, local or other tax laws or estate or
gift tax considerations.
The following is based upon currently existing provisions of the Code,
existing and proposed Treasury regulations promulgated thereunder and current
administrative rulings and court decisions. All of the foregoing are subject
to change and any such change could affect the continuing validity of this
discussion. The Company has not sought and will not seek any rulings from the
IRS with respect to the positions of the Company set forth below and there can
be no assurance that the IRS will not take positions concerning the tax
consequences of the purchase, ownership or disposition of Notes which are
different from those set forth herein.
THE FOLLOWING DOES NOT SET FORTH ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF SUCH HOLDER'S PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
OWNERSHIP AND DISPOSITION OF NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
STATED INTEREST ON SENIOR NOTES
A Holder of a Senior Note will be required for federal income tax purposes
to report stated interest on the Senior Notes as ordinary income in accordance
with the Holder's method of accounting for tax purposes.
STATED INTEREST ON SENIOR DISCOUNT NOTES
Stated interest on Senior Discount Notes is discussed below in "Amount of
Original Issue Discount on Senior Discount Notes" and "Taxation of Original
Issue Discount on Senior Discount Notes."
AMOUNT OF ORIGINAL ISSUE DISCOUNT ON SENIOR DISCOUNT NOTES
The Senior Discount Notes will be issued with original issue discount for
federal income tax purposes. The amount of original issue discount ("OID") on
a Senior Discount Note is the excess of its "stated redemption price at
maturity" (the sum of all payments to be made on the Senior Discount Note,
whether denominated as interest or principal) over its "issue price." The
"issue price" of each Senior Discount Note will be the initial 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
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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 will be treated as ordinary income provided
that the Holder has not elected to include market discount in income
currently. "Market discount" with respect to a Note is the excess of (1) the
adjusted issue price of the Note over (2) such Holder's tax basis in the Note
immediately after its acquisition. However, if such excess is less than .25
percent of the stated redemption price at maturity multiplied by the number of
complete years to maturity (after the Holder acquired the Note), then the
market discount shall be considered to be zero. The amount of market discount
treated as having accrued will be determined either on a straight-line basis,
or, if the Holder so elects, on a constant interest method. Upon any
subsequent disposition (including a gift or payment at maturity) of such Note
(other than in connection with certain nonrecognition transactions), the
lesser of any gain on such disposition (or appreciation, in the case of a
gift) or the portion of the market discount that accrued while the Note was
held by such Holder will be treated as ordinary interest income. In lieu of
including accrued market discount in income at the time of disposition, a
Holder may elect to include market discount in income currently. Unless a
Holder makes such an election, such Holder will be required to defer a portion
of any interest expense that may otherwise be deductible on any indebtedness
incurred or maintained to purchase or carry such Note until the Holder
disposes of the Note provided such interest expense exceeds the amount of
interest (including OID) includible in gross income with respect to such Note.
ACQUISITION PREMIUM
If a Holder's purchase price for a Note exceeds the adjusted issue price at
the time of acquisition but is equal to or less than the sum of all amounts
payable on the Note after its purchase by the Holder, the excess (referred to
as "acquisition premium") is offset ratably against the amount of OID
otherwise includable in such Holder's taxable income.
BOND PREMIUM
A Senior Note is purchased with bond premium if its adjusted basis,
immediately after its purchase by the Holder, exceeds its face amount. A
Senior Discount Note is purchased with bond premium if its adjusted basis,
immediately after its purchase by the Holder exceeds the sum of all amounts
payable on the Senior Discount Note after its purchase by the Holder. A Holder
who purchases a Note with bond premium is not required to include any OID in
gross income and may elect to amortize such premium, using a constant yield-
to-maturity method, over the remaining term of the Note or the period to an
earlier call date, if it results in a smaller
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allowance. Such bond premium generally is deemed to be an offset to interest
otherwise includable in income in respect of a Note. Any election to amortize
bond premium applies to all debt instruments (other than debt instruments the
interest on which is excludable from gross income) held by the Holder at the
beginning of the first taxable year to which the election applies or
thereafter acquired by the Holder, and is irrevocable without the consent of
the IRS. Amortizable bond premium on a Note held by a Holder that does not
make such an election will decrease the gain or increase the loss otherwise
recognized on disposition of the Note. See "--Election to Treat All Interest
as OID."
ELECTION TO TREAT ALL INTEREST AS OID
Holders may elect to treat all interest on any Note as OID and calculate the
amount includable in gross income under the constant yield method described
above. For the purposes of this election, interest includes stated interest,
acquisition discount, OID, de minimis OID, market discount, de minimis market
discount and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. The election is to be made for the taxable year in which
the United States Holder acquired the Note, and may not be revoked without the
consent of the Internal Revenue Service (the "IRS"). HOLDERS MAY WANT TO
CONSULT WITH THEIR OWN TAX ADVISORS ABOUT WHETHER TO MAKE SUCH AN ELECTION IN
LIGHT OF THEIR OWN PARTICULAR SITUATIONS. TAX COUNSEL CANNOT OPINE AS TO
WHETHER A PARTICULAR HOLDER SHOULD MAKE SUCH AN ELECTION.
SALE, EXCHANGE, REDEMPTION OR RETIREMENT
A Holder will recognize gain or loss upon the sale, exchange, redemption or
retirement of a Note measured by the difference between (a) the amount of cash
and fair market value of property received (except, with respect to a Senior
Note, to the extent attributable to the payment of accrued interest) in
exchange therefor and (b) the Holder's adjusted tax basis in such Note. Any
amount attributable to accrued interest on a Senior Note would be treated as
ordinary interest income rather than an amount received in exchange for the
Note if such amount has not previously been included in income.
A Holder's initial tax basis in a Note will equal the price paid by such
Holder for such Note. The Holder's adjusted tax basis in a Senior Discount
Note will be such Holder's initial tax basis increased from time to time by
the portion of OID included in gross income to the date of disposition and
decreased from time to time by amortized premium or any payments received on
such Senior Discount Note. A Holder's tax basis in a Note would also be
increased by any market discount the Holder elected to include in income
currently.
Any gain or loss on the sale, exchange, redemption or retirement 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.
BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax if
(a) the payee fails to furnish a taxpayer identification number ("TIN") to the
payor in the manner required or otherwise qualify for an exemption, (b) the
IRS notifies the payor that the TIN furnished by the payee is incorrect, (c)
the payee has failed to report properly the receipt of "reportable payments"
and the IRS has notified the payor that withholding is required or (d) there
has been a failure of the payee to certify under penalties of perjury that a
payee is not subject to withholding under Section 3406 of the Code. As a
result, if any one of the events discussed above occurs, the Company, its
paying agent or other withholding agent will be required to withhold a tax
equal to 31% of any "reportable payment" made in connection with the Notes. A
"reportable payment" includes, among other things, interest actually paid,
original issue discount and amounts paid through brokers in retirement of
Notes. Any amounts withheld from a payment to a Holder under the backup
withholding rules will be allowed as a refund or credit against such Holder's
federal income tax, provided that the required information is furnished to the
IRS. Certain Holders (including, among others, corporations and certain tax
exempt organizations) generally are not subject to the backup withholding and
information reporting requirements.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Issuers and each of the underwriters named
below (collectively, the "Underwriters"), the Issuers have agreed to sell to
the Underwriters, and each of the Underwriters has severally agreed to
purchase from the Issuers, the entire principal amount of the Senior Notes and
principal amount at maturity of the Senior Discount Notes set forth opposite
its name below. The Underwriters are committed to purchase all of the Senior
Notes and the Senior Discount Notes if any are purchased.
The Purchase Agreement provides that the obligations of the Underwriters to
pay for and accept delivery of the Senior Notes and the Senior Discount Notes
are subject to the approval of certain legal matters by counsel and to various
other conditions.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT AT
PRINCIPAL MATURITY OF
AMOUNT OF SENIOR
SENIOR DISCOUNT
UNDERWRITERS NOTES NOTES
------------ --------- -----------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................. $ $
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
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of Lehman and Merrill Lynch. Merrill Lynch Trust Company, an affiliate of
Merrill Lynch, is the trustee under a retirement plan of the Company for which
it has received customary fees. Chase Securities Inc. is an affiliate of
Chase, which has provided a commitment for the Bank Credit Facility for which
it expects to receive customary fees. In addition, each of the Underwriters
has provided, and may continue in the future to provide, investment and/or
commercial banking and other services to the Parents and their respective
affiliates.
LEGAL MATTERS
Certain legal matters relating to the Offering will be passed upon for the
Issuers by their counsel Simpson Thacher & Bartlett, New York, New York (a
partnership which includes professional corporations) and by their regulatory
counsel, Morrison & Foerster, Washington D.C. Certain legal matters with
respect to the Notes offered hereby will be passed upon for the Underwriters
by their counsel Cahill Gordon & Reindel (a partnership which includes a
professional corporation), New York, New York.
EXPERTS
The financial statements as of December 31, 1994 and 1995, for the period
October 24, 1994 to December 31, 1994, for the year ended December 31, 1995
and for the cumulative period from October 24, 1994 to December 31, 1995
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the Registration Statement
(which reports express an unqualified opinion and include an explanatory
paragraph referring to the development stage of Reorganized Sprint Spectrum
L.P. and subsidiary, Sprint Spectrum Finance Corporation and Sprint Spectrum
Holding Company, L.P. and subsidiaries), and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of American PCS, L.P. as of December 31, 1994 and
1995 and March 31, 1996, and for the years ended December 31, 1994 and 1995
and for the three months ended March 31, 1996, included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Issuers have filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Notes offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Certain items are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Notes offered hereby, reference is made to the Registration
Statement and to the exhibits and schedules filed as part thereof. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the principal office
of the Commission in Washington, D.C. and copies may be obtained from the
Public Reference Section at the Commission's principal office, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the Web Site
(http://www.sec.gov.) maintained by the Commission; and at the Commission's
regional offices at Seven World Trade Center, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the
fees prescribed by the Commission.
110
<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.
111
<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.
112
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and at March 31,
1996..................................................................... F-3
Consolidated Statements of Operations for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-4
Consolidated Statements of Changes in Partners' Capital for the period
from October 24, 1994 to December 31, 1994, the year ended December 31,
1995, the cumulative period from October 24, 1994 to December 31, 1995,
the three months ended March 31, 1995 and 1996, and the cumulative period
from October 24, 1994 to March 31, 1996 ................................. F-5
Consolidated Statements of Cash Flows for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
Independent Auditors' Report.............................................. F-16
Consolidated Balance Sheets at December 31, 1994 and 1995 and at March 31,
1996..................................................................... F-17
Consolidated Statements of Operations for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-18
Consolidated 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-19
Consolidated Statements of Cash Flows for the period from October 24, 1994
to December 31, 1994, the year ended December 31, 1995, the cumulative
period from October 24, 1994 to December 31, 1995, the three months ended
March 31, 1995 and 1996, and the cumulative period from October 24, 1994
to March 31, 1996........................................................ F-20
Notes to Consolidated Financial Statements................................ F-21
SPRINT SPECTRUM FINANCE CORPORATION
Independent Auditors' Report.............................................. F-29
Opening Balance Sheet at May 21, 1996..................................... F-30
Note to Balance Sheet..................................................... F-31
AMERICAN PCS, L.P.
Report of Independent Accountants......................................... F-32
Balance Sheets at December 31, 1994 and 1995 and at March 31, 1996........ F-33
Statements of Loss for the year ended December 31, 1994 and 1995 and for
the three months ended March 31, 1995 and 1996 .......................... F-34
Statements of Cash Flows for the year ended December 31, 1994 and 1995 and
for
the three months ended March 31, 1995 and 1996........................... F-35
Statements of Changes in Partners' Capital as of December 31, 1994 and
1995 and
as of March 31, 1996..................................................... F-36
Notes to Financial Statements............................................. F-37
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Reorganized
Sprint Spectrum L.P. and subsidiary (the "Partnership"), a development stage
enterprise, as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in partners' capital and cash flows for the
year ended December 31, 1995, for the period from October 24, 1994 (date of
inception) to December 31, 1994, and for the cumulative period from October
24, 1994 (date of inception) to December 31, 1995. These consolidated
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Reorganized Sprint
Spectrum L.P. and subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for the year ended December 31, 1995,
for the period from October 24, 1994 (date of inception) to December 31, 1994,
and for the cumulative period from October 24, 1994 (date of inception) to
December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, Reorganized
Sprint Spectrum L.P. and subsidiary financial statements have been restated to
retroactively reflect certain transactions between entities under common
control in a manner similar to a pooling of interest.
As discussed in Note 2 to the consolidated financial statements, Reorganized
Sprint Spectrum L.P. and its subsidiary are in the development stage as of
December 31, 1995.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
July 8, 1996
F-2
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS (IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 5,014 $ 1,123 $ 3,119
Receivables from affiliates................ -- 340 1,629
Prepaid expenses and other assets.......... 10 188 226
-------- ---------- ----------
Total current assets..................... 5,024 1,651 4,974
INVESTMENT IN PCS LICENSES................... 118,438 2,124,594 2,124,594
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP..... -- 85,546 49,314
NOTE RECEIVABLE--UNCONSOLIDATED PARTNERSHIP.. -- 655 83,655
PROPERTY, PLANT AND EQUIPMENT, Net........... 413 31,897 76,129
-------- ---------- ----------
TOTAL ASSETS................................. $123,875 $2,244,343 $2,338,666
======== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable........................... $ 3,745 $ 47,503 $ 86,698
Accrued expenses........................... -- 1,700 9,878
Accrued interest--affiliate................ -- 214 294
-------- ---------- ----------
Total current liabilities................ 3,745 49,417 96,870
DEFERRED COMPENSATION........................ -- 1,856 4,247
NOTE PAYABLE--AFFILIATE...................... -- 5,000 5,000
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY.................................. -- 5,000 5,000
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital.......................... 123,438 2,296,806 2,408,710
Deficit accumulated during the development
stage..................................... (3,308) (113,736) (181,161)
-------- ---------- ----------
Total partners' capital.................. 120,130 2,183,070 2,227,549
-------- ---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL...... $123,875 $2,244,343 $2,338,666
======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS (IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- --------- --------- -------------------
(UNAUDITED) (UNAUDITED)
------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
General and
administrative......... $ 1,371 $ 37,460 $ 38,831 $ 1,273 $ 19,862 $ 58,693
Professional and legal
fees................... 1,923 26,849 28,772 2,335 10,862 39,634
Depreciation............ 38 211 249 47 254 503
------- --------- --------- -------- --------- ---------
Total operating
expenses............. 3,332 64,520 67,852 3,655 30,978 98,830
------- --------- --------- -------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income......... 24 260 284 275 (358) (74)
Other income............ -- 38 38 -- 143 181
Equity in loss of
unconsolidated
partnership............ -- (46,206) (46,206) (3,409) (36,232) (82,438)
------- --------- --------- -------- --------- ---------
Total other income
(expense)............ 24 (45,908) (45,884) (3,134) (36,447) (82,331)
------- --------- --------- -------- --------- ---------
NET LOSS................ $(3,308) $(110,428) $(113,736) $ (6,789) $ (67,425) $(181,161)
======= ========= ========= ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, -------------------- TO DECEMBER 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- -------- ---------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL:
Balance at beginning of
period................. $ -- $ 123,438 $ -- $123,438 $2,296,806 $ --
Contributions of
capital................ 123,438 2,173,368 2,296,806 390,999 111,904 2,408,710
Receivable for capital
contributions.......... -- -- -- (3,462) -- --
-------- ---------- ---------- -------- ---------- ----------
Balance at end of
period................. 123,438 2,296,806 2,296,806 510,975 2,408,710 2,408,710
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE:
Balance at beginning of
period................. -- (3,308) -- (3,308) (113,736) --
Net loss................ (3,308) (110,428) (113,736) (6,789) (67,425) (181,161)
-------- ---------- ---------- -------- ---------- ----------
Balance at end of
period................. (3,308) (113,736) (113,736) (10,097) (181,161) (181,161)
-------- ---------- ---------- -------- ---------- ----------
TOTAL PARTNERS'
CAPITAL................ $120,130 $2,183,070 $2,183,070 $500,878 $2,227,549 $2,227,549
======== ========== ========== ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, -------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- --------- --------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING
ACTIVITIES:
Net loss.............. $ (3,308) $ (110,428) $ (113,736) $ (6,789) $ (67,425) $ (181,161)
Adjustments to recon-
cile net loss to net
cash provided (used)
by operating
activities:
Equity in loss of un-
consolidated
partnership.......... -- 46,206 46,206 3,409 36,232 82,438
Depreciation.......... 38 211 249 47 254 503
Loss on sale of equip-
ment................. -- 31 31 -- -- 31
Changes in assets and
liabilities:
Receivables from af-
filiates prepaid
expenses and other
assets.............. (10) (518) (528) (343) (1,327) (1,855)
Accounts payable..... 3,745 43,758 47,503 (14) 39,195 86,698
Accrued expenses..... -- 1,914 1,914 301 8,258 10,172
Deferred compensa-
tion................ -- 1,856 1,856 -- 2,391 4,247
-------- ---------- ---------- --------- --------- ----------
Net cash provided
(used) by
operating activi-
ties............... 465 (16,970) (16,505) (3,389) 17,578 1,073
CASH FLOWS FROM INVEST-
ING
ACTIVITIES:
Capital expenditures.. (451) (31,763) (32,214) (190) (44,486) (76,700)
Proceeds on sale of
equipment............ -- 37 37 -- -- 37
Purchase of PCS li-
censes............... (118,438) (2,006,156) (2,124,594) (318,092) -- (2,124,594)
Investment in uncon-
solidated
partnership.......... -- (131,752) (131,752) (47,946) -- (131,752)
Loan to unconsolidated
partnership.......... -- (655) (655) -- (83,000) (83,655)
-------- ---------- ---------- --------- --------- ----------
Net cash used by in-
vesting
activities......... (118,889) (2,170,289) (2,289,178) (366,228) (127,486) (2,416,664)
CASH FLOWS FROM FINANC-
ING
ACTIVITIES:
Limited partner inter-
est in consolidated
subsidiary........... -- 5,000 5,000 -- -- 5,000
Borrowings from affil-
iates................ -- 5,000 5,000 -- -- 5,000
Partner capital con-
tributions........... 123,438 2,173,368 2,296,806 387,537 111,904 2,408,710
-------- ---------- ---------- --------- --------- ----------
Net cash provided by
financing
activities........... 123,438 2,183,368 2,306,806 387,537 111,904 2,418,710
-------- ---------- ---------- --------- --------- ----------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVA-
LENTS................. 5,014 (3,891) 1,123 17,920 1,996 3,119
CASH AND CASH EQUIVA-
LENTS,
Beginning of period... -- 5,014 -- 5,014 1,123 --
-------- ---------- ---------- --------- --------- ----------
CASH AND CASH EQUIVA-
LENTS, End of period.. $ 5,014 $ 1,123 $ 1,123 $ 22,934 $ 3,119 $ 3,119
======== ========== ========== ========= ========= ==========
</TABLE>
F-6
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION--REORGANIZED SPRINT SPECTRUM L.P.
Prior to July 1, 1996, substantially all wireless operations of Sprint
Spectrum L.P. and subsidiary and Sprint Spectrum Holding Company, L.P. and
subsidiaries ("Holdings") were conducted at Holdings and substantially all
operating assets and liabilities, with the exception of the interest in an
unconsolidated subsidiary (see Note 5) and the ownership interest in PCS
licenses, were held at Holdings. As of July 1, 1996, Holdings transferred
these net assets and assigned agreements related to the wireless operations to
which it was a party to Sprint Spectrum L.P. (the "Reorganization").
For purposes of these financial statements, these transactions have been
treated as transactions between entities under common control and accounted
for in a manner similar to a pooling of interest.
Accordingly, Sprint Spectrum L.P.'s historical financial statements have
been restated to reflect those operations of Holdings that were transferred on
July 1, 1996 on a pooled basis. Information with respect to the financial
position and results of operations of the separate operations pooled herein is
as follows (in 000's):
<TABLE>
<CAPTION>
SPRINT
SPECTRUM L.P. HOLDINGS COMBINED
------------- ---------- ----------
<S> <C> <C> <C>
TOTAL ASSETS
December 31, 1994...................... $ 123,875 $ 123,875 $ 123,875
December 31, 1995...................... 2,211,918 2,244,343 2,244,343
March 31, 1996 (unaudited)............. 2,258,861 2,338,666 2,338,666
PARTNERS' CAPITAL & ACCUMULATED DEFICIT
December 31, 1994...................... $ 120,130 $ 120,130 $ 120,130
December 31, 1995...................... 2,201,704 2,178,069 2,183,070
March 31, 1996 (unaudited)............. 2,248,405 2,224,298 2,227,549
NET LOSS
December 31, 1994...................... $ (3,308) $ (3,308) $ (3,308)
December 31, 1995...................... (49,531) (110,429) (110,428)
March 31, 1996 (unaudited)............. (36,299) (67,425) (67,425)
</TABLE>
The Partnership, as used in these financial statements, refers to Sprint
Spectrum L.P. and subsidiary inclusive of those operations of Holdings
combined therewith.
The financial information as of March 31, 1996 and for the three month
periods ended March 31, 1995 and 1996 is unaudited. The Partnership believes
such information includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the consolidated financial position,
results of operations and cash flows.
2.ORGANIZATION
Sprint Spectrum L.P. is a limited partnership formed in Delaware on March
28, 1995, by Sprint Spectrum Holding Company, L.P. ("Holdings") and MinorCo,
L.P. (collectively, the "Partners") which were formed by Sprint Enterprises,
L.P. ("Sprint"), TCI Telephony Services, Inc. ("TCI"), Cox Telephony
Partnership ("Cox") and Comcast Telephony Services ("Comcast"). The
Partnership was formed pursuant to a reorganization of the operations of an
existing partnership, WirelessCo, L.P. In March 1995, the partners of
WirelessCo, L.P. transferred their interest in WirelessCo, L.P. to Holdings.
The Partnership and certain other affiliated partnerships are doing business
as Sprint Spectrum.
F-7
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Partnership is consolidated with its subsidiary, WirelessCo, L.P. These
entities are development stage enterprises. The partners of Sprint Spectrum
L.P. have the following ownership interests as of December 31, 1995:
<TABLE>
<S> <C>
Sprint Spectrum Holding Company, L.P. (general partner)............... 99%
MinorCo, L.P. (limited partner)....................................... 1%
</TABLE>
On February 29, 1996, the Partnership's name was changed from MajorCo Sub,
L.P. to Sprint Spectrum L.P.
On May 15, 1996, Sprint Spectrum Equipment Company, L.P. ("EquipmentCo") and
Sprint Spectrum Realty Company, L.P. ("RealtyCo") were organized as
subsidiaries of Sprint Spectrum L.P. and MinorCo, L.P. for the purpose of
holding PCS network-related asssets. On May 20, 1996, an additional subsidiary
of Sprint Spectrum L.P., Sprint Spectrum Finance Corporation, was also formed
to be a co-obligor of certain proposed debt financing.
Venture Formation and Structure--A Joint Venture Formation Agreement ( the
"Formation Agreement"), dated as of October 24, 1994, and subsequently amended
as of March 28, 1995, and January 31, 1996, was entered into by Sprint
Corporation, Tele-Communications, Inc., Cox Communications, Inc., and Comcast
Corporation (collectively, the "Parents"), pursuant to which the parties
agreed to form certain entities to (i) provide national wireless
telecommunications services, including acquisition and development of personal
communications service ("PCS") licenses, (ii) develop a PCS wireless system in
the Los Angeles-San Diego Major Trading Area ("MTA") , and (iii) take certain
other actions.
On October 24, 1994, WirelessCo, L.P. was formed and on March 28, 1995,
additional partnerships were formed consisting of Holdings, MinorCo, L.P.,
NewTelco, L.P., and Sprint Spectrum L.P. As of December 31, 1995, Holdings
held ownership interests in NewTelco, L.P. and Sprint Spectrum L.P. (which
holds a 99% general partner interest in WirelessCo, L.P.). MinorCo, L.P. held
the remaining ownership interests in NewTelco, L.P., Sprint Spectrum L.P. and
WirelessCo, L.P. at December 31, 1995. An additional partnership, Cox-
California PCS, L.P., is proposed to be formed by Holdings and another entity
affiliated with Cox Communications, Inc. for the purpose of holding and
developing a PCS system using the LA-San Diego Pioneer's Preference License.
The Partners have agreed to contribute up to an aggregate of $4.2 billion of
equity to Holdings to the extent required by the annual budget of Holdings, as
approved by the Partners. As of March 31, 1996, approximately $2.4 billion had
been contributed to Holdings, of which approximately $2.2 billion had been
contributed to Sprint Spectrum L.P. and its subsidiary and the remaining $0.2
billion had been contributed or advanced to an unconsolidated partnership
investee (see Note 5).
Partnership Agreement--The Amended and Restated Agreement of Limited
Partnership of MajorCo Sub, L.P., (the "MajorCo Sub Agreement"), dated as of
March 28, 1995, among Holdings and MinorCo, L.P. provides that the purpose of
the Partnership is to engage in wireless communications services. The MajorCo
Sub Agreement provides for the governance and administration of partnership
business, allocation of profits and losses (including provisions for special
and curative allocations), tax allocations, transactions with partners,
disposition of partnership interests and other matters.
The MajorCo Sub Agreement provides for capital to be contributed by the
Partners, pursuant to circumstances defined in the MajorCo Sub Agreement,
equal to Holdings' interest in WirelessCo, L.P. and cash in the amount of
$5,000,000 for MinorCo, L.P.'s interest.
The MajorCo Sub Agreement generally provides for the allocation of profits
and losses first to the general partner (Holdings) and secondly to the limited
partner (MinorCo, L.P.), after giving effect to special allocations.
F-8
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
After special allocations, profits are allocated first to the general partner
to the extent of cumulative net losses previously allocated. Secondly, the
limited partner is allocated profits to the extent of cumulative net losses
previously allocated and then up to the cumulative Preferred Return, as
defined. The general partner is allocated all remaining profits. Losses are
allocated, after considering special allocations, to the general partner until
its capital account is zero and secondly to the limited partner to the extent
of its capital account balance. Any remaining losses are allocated to the
general partner.
The financial statements have been prepared from the date of inception,
October 24, 1994, for WirelessCo, L.P., and March 28, 1995, for other
consolidated subsidiaries, through December 31, 1995 and restated to include
certain operations of Holdings as discussed in Note 1 above. The assets,
liabilities, results of operations and cash flows of entities in which the
Partnership has a controlling interest have been consolidated.
The limited partnership interest of MinorCo, L.P. in WirelessCo, L.P. is
reflected as a minority interest. Pursuant to the Amended and Restated
Agreement of Limited Partnership of WirelessCo, L.P. ("WirelessCo Agreement"),
MinorCo, L.P. has not been allocated any losses incurred by WirelessCo, L.P.
The WirelessCo Agreement stipulates that all losses are to be allocated to
Sprint Spectrum L.P., the general partner, until the general partner's capital
account is depleted. All significant intercompany accounts and transactions
have been eliminated.
Parent Undertaking--In addition to the MajorCo Sub Agreement, each Parent
has entered into an agreement which provides for certain undertakings by each
Parent in favor of other Partners and which addresses certain obligations of
the Parent pertaining to items including provision of services,
confidentiality, foreign ownership, purchasing, restrictions on disposition
and certain other matters.
Development Stage Enterprises--The Partnership and its subsidiary are
development stage enterprises. The success of their development is dependent
on a number of business factors, including securing financing to complete
network construction and fund initial operations, successfully deploying the
PCS network and attaining profitable levels of market demand for Partnership
products and services. The Partnership and its subsidiaries have not yet
generated operating revenues.
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents--The Partnership considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Construction work in progress represents costs incurred to design and
construct the PCS network. Repair and maintenance costs are charged to expense
as incurred. When telecommunications plant is retired, or otherwise disposed
of, its book value, net of salvage, is charged to accumulated depreciation.
Property, plant and equipment are depreciated using the straight-line method
based on estimated useful lives of the assets. Depreciable lives range from 3
to 20 years.
Investment in PCS Licenses and Other Intangibles--During 1994 and 1995, the
Federal Communications Commission ("FCC") auctioned PCS licenses in specific
geographic service areas. The FCC grants licenses for terms of up to ten
years, and generally grants renewals if the licensee has complied with its
license obligations. The Partnership believes it has and will continue to meet
all requirements necessary to secure renewal of its PCS licenses. The
Partnership has also incurred costs associated with microwave relocation in
the construction of the
F-9
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PCS network. Amortization of PCS licenses and microwave relocation costs will
commence as each service area becomes operational, over estimated useful lives
of 40 years. No amortization expense was recorded in 1995, or in the period
from October 24, 1994 (date of inception) to December 31, 1994. No interest
has been incurred or capitalized pertaining to the acquisition of the PCS
licenses.
The ongoing value and remaining useful life of intangible assets are subject
to periodic evaluation. The Partnership currently expects the carrying amounts
to be fully recoverable. Impairments of intangibles and long-lived assets are
assessed based on an undiscounted cash flow methodology.
Income Taxes--The Partnership has not provided for federal or state income
taxes since such taxes are the responsibility of the individual Partners.
Financial Instruments--All of the Partnership's financial instruments,
including cash and cash equivalents, receivables from affiliates and accounts
payable are short-term in nature. Accordingly, the balance sheet amounts
approximate the fair value of the Partnership's financial instruments.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
1994 1995
-------- -----------
<S> <C> <C>
Office furniture and fixtures.................... $450,910 $ 2,901,633
Telecommunications plant--construction work in
progress........................................ -- 29,200,467
-------- -----------
450,910 32,102,100
Less accumulated depreciation.................... (37,716) (204,721)
-------- -----------
$413,194 $31,897,379
======== ===========
</TABLE>
5. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
On January 9, 1995, WirelessCo, L.P., acquired a 49% limited partnership
interest in American PCS, L.P. ("APC"). American Personal Communications, Inc.
("APC, Inc.") is the general partner. The investment in APC is accounted for
under the equity method. Summarized financial information of APC as of and for
the year ended December 31, 1995, is as follows:
<TABLE>
<S> <C>
Total assets................................................. $237,325,784
Total liabilities............................................ 171,179,908
Total revenues............................................... 5,153,469
Net loss..................................................... 51,551,446
</TABLE>
F-10
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the status and results of WirelessCo, L.P.'s
investment in APC as of December 31, 1995:
<TABLE>
<S> <C>
Beginning investment......................................... $23,442,000
Payment for call option...................................... 10,000,000
Capital contributions........................................ 98,330,068
Equity in losses............................................. (46,206,097)
-----------
Ending investment............................................ $85,545,971
===========
</TABLE>
The unamortized excess of WirelessCo, L.P.'s investment over its equity in
the underlying net assets of APC at the date of acquisition was $10,139,459.
The excess investment amount is amortized on a straight line basis over an
estimated useful life of 40 years. Amortization included in equity in loss of
unconsolidated partnership was $239,727 for the year ended December 31, 1995.
WirelessCo, L.P. receives an affiliation fee of 3% of gross revenues from
APC for APC's affiliation with the Sprint Spectrum business.
The call option in APC acquired on January 9, 1995, provides WirelessCo,
L.P. with the right to purchase an additional interest in APC from APC, Inc.
in annual increments beginning five years after the initial PCS network build-
out is completed. The first increment, an additional 20% of the APC, Inc.
ownership interest, can be acquired in each of the fifth through seventh years
with the remaining interest available for purchase in the eighth through tenth
year. APC, Inc. also has the right to put a portion of its ownership interest
to WirelessCo, L.P. on an annual basis in an amount representing the greater
of (i) one-fifth of APC, Inc.'s initial percentage interest of 51% in APC or
(ii) the portion of APC, Inc.'s interest equal to APC, Inc.'s obligation for
annual FCC payments to be made by APC, beginning after the completion of the
initial PCS network build-out, through the fifth anniversary date. The
exercise price of the call and put options are based on the Fair Value, as
defined, of APC at the date of exercise.
During the initial five year build-out period, which began in December 1994,
APC, Inc. and WirelessCo, L.P. are obligated as follows: (a) APC, Inc. is
obligated to make capital contributions in an amount equal to the aggregate
principal and interest payments to the FCC, provided APC, Inc. has sufficient
cash flows or can obtain financing from a third party; (b) if APC, Inc. is
unable to meet such obligation, WirelessCo, L.P. is required to contribute the
shortfall, upon ten days prior notice; (c) WirelessCo, L.P. is required to
contribute equity to APC necessary for operations up to an amount of
approximately $98 million; and (d) WirelessCo, L.P. is obligated to fund the
cash requirements of APC in excess of that described in (a), (b), and (c)
above, in the form of either loans or additional capital up to a total of $275
million (including the amount in (c) above). Contributions in excess of $275
million, however, require approval of WirelessCo, L.P. and may be made in the
form of additional equity or loans. Under certain circumstances, APC, Inc. has
the right and is obligated to exercise its put right to the extent necessary
to fund additional capital contributions. As of December 31, 1995, $98 million
of equity had been contributed and $654,982 of partner advances had been
extended. Outstanding partner advances will be non-recourse and bear interest
at an agreed upon rate and will be payable at such time when APC has
sufficient funds to permit repayment. Subsequent to December 31, 1995, and
through March 31, 1996, $83 million of additional advances were extended to
APC.
The partnership agreement between WirelessCo, L.P. and APC, Inc. specifies
that losses are allocated based on capital contributions and certain other
factors. Under the equity method, WirelessCo, L.P. has recognized the majority
of the partnership losses to date in its financial statements based on its
capital contributions and commitments to provide initial funding. Loss
allocations in the future may vary depending on additional capital
contributions of APC, Inc.
F-11
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6.EMPLOYEE BENEFITS
The Partnership maintains short-term and long-term incentive plans. All
exempt employees are eligible for the short-term incentive plan commencing at
date of hire. Short-term incentive compensation is based on incentive targets
established for each position based on the Partnership's overall compensation
strategy. Targets contain both an objective Partnership component and a
personal objective component.
Employees meeting certain eligibility requirements are considered
participants in the long-term incentive plan. Long-term incentive compensation
is based upon individual performance, the achievement of certain partnership
goals and the management of departmental costs.
Employees performing services for the Partnership were employed by Sprint
Corporation through December 31, 1995. Amounts paid to Sprint Corporation
relating to pension expense and employer contributions to the Sprint
Corporation 401(k) plan for these employees approximated $323,000 in 1995. No
payments were made through December 31, 1994.
Savings and Retirement Plan--Effective January, 1996, the Partnership
established a savings and retirement program (the "Savings Plan") for certain
employees, which is intended to qualify under Section 401(k) of the Internal
Revenue Code. Most permanent full-time, and certain part-time, employees are
eligible to become participants in the plan. Participants make contributions
to a basic before tax account and supplemental before tax account. The maximum
contribution for any participant for any year is 16% of such participant's
compensation. For each eligible employee who elects to participate in the
Savings Plan and makes a contribution to the basic before tax account, the
Partnership makes a matching contribution. The matching contributions equal
50% of the amount of the basic before tax contribution of each participant up
to 6% of such employee's contribution. Contributions to the Savings Plan are
invested, at the participants discretion, in several designated investment
funds. Distributions from the Savings Plan generally will be made only upon
retirement or other termination of employment, unless deferred by the
participant.
Profit Sharing (Retirement) Plan--Effective January, 1996, the Partnership
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts
of the Partnership's 401(k) plan. Vesting occurs once a participant completes
five years of service.
7. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
Operating Leases--Minimum rental commitments as of December 31, 1995, for
all noncancelable operating leases, consisting principally of leases for
office space and cell and switch sites, are as follows:
<TABLE>
<S> <C>
1996........................................................... $1,642,415
1997........................................................... 1,315,215
1998........................................................... 1,318,578
1999........................................................... 1,335,398
2000........................................................... 1,231,998
Thereafter..................................................... 40,370
----------
$6,883,974
==========
</TABLE>
F-12
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequent to December 31, 1995, and through March 31, 1996, the Partnership
entered into several significant operating leases with minimum rental
commitments over the lives of the leases of approximately $58 million.
Gross rental expense aggregated $687,486 and $104,573 for the year ended
December 31, 1995 and for the period from October 24, 1994 (date of inception)
to December 31, 1994, respectively, and is included in general and
administrative expense in the consolidated statements of operations. Certain
leases contain renewal options that may be exercised from time to time and are
excluded from the above amounts.
Procurement Contracts--On January 31, 1996, the Partnership entered into
procurement and services contracts (the "Procurement Contracts") with AT&T
Corp. (subsequently assigned to Lucent Technologies, Inc., "Lucent") and
Northern Telecom, Inc. ("Nortel" and together with Lucent, the "Vendors") for
the engineering and construction of a PCS network. Each contract provides for
an initial term of ten years with renewals for additional one-year periods.
The Vendors must achieve substantial completion of the PCS network within an
established time frame and in accordance with criteria specified in the
Procurement Contracts. Pricing for the initial equipment, software and
engineering services has been established in the Procurement Contracts. The
Procurement Contracts provide for payment terms based on delivery dates,
substantial completion dates, and final acceptance dates. In the event of
delay in the completion of the PCS network, the Procurement Contracts provide
for certain amounts to be paid to the Partnership by the Vendors. The minimum
commitments for the initial term are $0.8 billion and $1.0 billion from Lucent
and Nortel, respectively, which include, but are not limited to, all equipment
required for the establishment and installation of the PCS network.
Purchase Commitments--The Partnership has also entered into agreements to
acquire various cell and switch sites. Commitments to site acquisition vendors
are approximately $152 million and commitments for construction contracts and
purchases of equipment, handsets and other services are approximately $469
million. Such agreements have been executed by, or assigned to, Sprint
Spectrum L.P. or its subsidiaries on or before July 1, 1996.
Vendor Financing--The Partnership has obtained financing commitments from
Nortel dated June 11, 1996 for $1.3 billion and from Lucent dated June 21,
1996 for $1.8 billion of multiple drawdown term loan facilities (the "Vendor
Financing"). The proceeds of such facilities would be used to finance the
purchase of goods and services provided by the Vendors under the Procurement
Contracts. The Vendor Financing would be non-recourse to, and will not be
guaranteed by, the Parents and the Partners.
Borrowings under the Vendor Financing would be collateralized by a first
priority lien (the "Shared Lien") on (i) all of the partnership interests in
WirelessCo, L.P., RealtyCo and EquipmentCo, (ii) certain intangible property
assets and (iii) any real property having a value greater than $15 million.
The Shared Lien would serve as collateral for the Vendor Financing and certain
other financing from banks or other parties, not to exceed a specified level.
Such financing would be unconditionally guaranteed by WirelessCo, L.P.,
RealtyCo and EquipmentCo.
Loans under the Vendor Financing would amortize quarterly over the five year
period commencing on the date that is 39 months after the end of the one-year
period during which such loans were made.
Under the Vendor Financing, subject to certain conditions, the Partnership
would be required to make mandatory prepayments of 100% of the net cash
proceeds of any sale or disposition of subsidiaries or any sale of material
assets that are not reinvested in the wireless telecommunications businesses.
F-13
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Partnership would be able to elect that all or any portion of the
borrowings under the Vendor Financing bear interest at a rate per annum equal
to either (i) the ABR plus an applicable margin or (ii) the Eurodollar rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by a commercial bank to be determined as its prime
rate in effect at its principal office in New York City and (y) the federal
funds effective rate plus 0.5%.
The Nortel portion of the Vendor Financing requires, as a condition to
funding, the commitment of certain additional financing from third-parties.
Bank Credit Facility--The Partnership has received a commitment from
Chemical Bank to provide a fully underwritten senior credit facility, (the
"Bank Credit Facility") in the amount of $2.0 billion. The proceeds of the
loans under the Bank Credit Facility would be used to finance capital
expenditures, operating losses, the working capital needs of Sprint Spectrum
L.P. and for partnership purposes.
Borrowings under the Bank Credit Facility would be unconditionally
guaranteed by WirelessCo L.P., RealtyCo and EquipmentCo. In addition,
borrowings under the Bank Credit Facility would be collateralized by the
Shared Lien. The Bank Credit Facility would be non-recourse to, and would not
be guaranteed by, the Parents or the Partners.
The Bank Credit Facility is expected to automatically reduce quarterly
commencing five years and three months following the closing date of such
facility and ending nine years after the closing date. Subject to certain
conditions, the Partnership would be required to make mandatory prepayments or
apply a portion of its excess cash flow to ratably reduce commitments under
the Bank Credit Facility and prepay loans under the Vendor Financing.
The Partnership would be able to elect that all or a portion of the
borrowings under the Bank Credit Facility bear interest at a rate per annum
equal to (i) the ABR plus an applicable margin or (ii) the Eurodollar Rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by the administrative agent as its prime rate in
effect at its principal office in New York City and (y) the federal funds
effective rate from time to time plus 0.5%.
The Bank Credit Facility and the Vendor Financing would contain a number of
financial operating covenants that, among other things, limit the ability of
the Partnership to incur additional indebtedness, create liens and other
encumbrances, make guarantee obligations, make distributions to partners and
repurchases of equity, make acquisitions, investments, loans and advances,
merge or consolidate with another entity or engage in any business other than
the telecommunications business and related businesses as well as restrictions
on the ability of WirelessCo, RealtyCo, and EquipmentCo to incur liabilities
or engage in non-designated activities.
8. RELATED PARTY TRANSACTIONS
The Partnership reimburses Sprint Corporation for certain accounting, data
processing, and other related services, and for certain cash payments made by
Sprint Corporation on behalf of the Partnership. The Partnership is allocated
the costs of such services based on direct usage. Allocated expenses of
approximately $2,646,000 are included in general and administrative expense in
the consolidated statement of operations for 1995. No reimbursement was made
through December 31, 1994.
F-14
<PAGE>
REORGANIZED SPRINT SPECTRUM L.P. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PhillieCo, L.P. and a Cox affiliate were formed by certain Partners,
individually and collectively, for the purposes of providing PCS wireless
services in their respective geographic areas. The Partnership, having made
certain cash payments on behalf of PhillieCo, L.P. and Cox's affiliate, will
receive reimbursements for direct costs incurred plus an amount for management
services provided to PhillieCo, L.P. and Cox's affiliate. Included in
receivables from affiliates are receivables for services provided as of
December 31, 1995, of $183,225 and $156,528 due from PhillieCo, L.P. and,
Cox's affiliate, respectively.
Sprint acts as agent for the Partnership in sales of paging services,
purchased for resale by the Partnership from a third-party provider.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum Holding Company, L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Sprint
Spectrum Holding Company, L.P. (formerly known as MajorCo, L.P.) and
subsidiaries (the "Partnership"), a development stage enterprise, as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, changes in partners' capital and cash flows for the year ended
December 31, 1995, for the period from October 24, 1994 (date of inception) to
December 31, 1994, and for the cumulative period from October 24, 1994 (date
of inception) to December 31, 1995. These consolidated financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Sprint Spectrum
Holding Company, L.P. and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the year ended December
31, 1995, for the period from October 24, 1994 (date of inception) to December
31, 1994, and for the cumulative period from October 24, 1994 (date of
inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, Sprint
Spectrum Holding Company, L.P. and its subsidiaries are in the development
stage as of December 31, 1995.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 29, 1996
(July 8, 1996 as to Note 6)
F-16
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- ---------- -----------
(UNADUITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................. $ 5,014 $ 1,123 $ 3,119
Receivables from affiliates............... -- 340 1,629
Prepaid expenses and other assets......... 10 188 226
-------- ---------- ----------
Total current assets.................... 5,024 1,651 4,974
INVESTMENT IN PCS LICENSES.................. 118,438 2,124,594 2,124,594
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP.... -- 85,546 49,314
NOTE RECEIVABLE--UNCONSOLIDATED
PARTNERSHIP................................ -- 655 83,655
PROPERTY, PLANT AND EQUIPMENT, Net.......... 413 31,897 76,129
-------- ---------- ----------
TOTAL ASSETS............................ $123,875 $2,244,343 $2,338,666
======== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.......................... $ 3,745 $ 49,548 $ 87,006
Accrued expenses.......................... -- 1,700 9,878
-------- ---------- ----------
Total current liabilities............... 3,745 51,248 96,884
DEFERRED COMPENSATION....................... -- 1,856 4,247
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY................................. -- 13,170 13,237
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital......................... 123,438 2,291,806 2,405,460
Deficit accumulated during the development
stage.................................... (3,308) (113,737) (181,162)
-------- ---------- ----------
Total partners' capital................. 120,130 2,178,069 2,224,298
-------- ---------- ----------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL................................ $123,875 $2,244,343 $2,338,666
======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM THREE MONTHS PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ----------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- ------- -------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
General and
administrative......... $ 1,371 $ 37,460 $ 38,831 $ 1,273 $ 19,862 $ 58,693
Professional and legal
fees................... 1,923 28,880 30,803 2,335 10,862 41,665
Depreciation............ 38 211 249 47 254 503
------- --------- --------- ------- -------- ---------
Total operating
expenses............. 3,332 66,551 69,883 3,655 30,978 100,861
------- --------- --------- ------- -------- ---------
OTHER INCOME (EXPENSE):
Interest income......... 24 460 484 275 (291) 193
Other income............ -- 38 38 -- 143 181
Equity in loss of
unconsolidated
partnership............ -- (46,206) (46,206) (3,409) (36,232) (82,438)
Limited partner interest
in net (income) loss of
consolidated
subsidiary............. -- 1,830 1,830 -- (67) 1,763
------- --------- --------- ------- -------- ---------
Total other income
(expense)............ 24 (43,878) (43,854) (3,134) (36,447) (80,301)
------- --------- --------- ------- -------- ---------
NET LOSS................ $(3,308) $(110,429) $(113,737) $(6,789) $(67,425) $(181,162)
======= ========= ========= ======= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(IN 000'S)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PERIOD FROM PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
(DATE OF INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, --------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
------------------- ------------ ------------------- -------- ----------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL:
Balance at beginning of
period................. $ -- $ 123,438 $ -- $123,438 $ 2,291,806 $ --
Contributions of
capital................ 123,438 2,168,368 2,291,806 390,999 113,654 2,405,460
Receivable for capital
contributions.......... -- -- -- (3,462) -- --
-------- ----------- ---------- -------- ----------- ----------
Balance at end of
period................. 123,438 2,291,806 2,291,806 510,975 2,405,460 2,405,460
DEFICIT ACCUMULATED
DURING THE DEVELOPMENT
STAGE:
Balance at beginning of
period................. -- (3,308) -- (3,308) (113,737) --
Net loss................ (3,308) (110,429) (113,737) (6,789) (67,425) (181,162)
-------- ----------- ---------- -------- ----------- ----------
Balance at end of
period................. (3,308) (113,737) (113,737) (10,097) (181,162) (181,162)
-------- ----------- ---------- -------- ----------- ----------
TOTAL PARTNERS'
CAPITAL................ $120,130 $ 2,178,069 $2,178,069 $500,878 $ 2,224,298 $2,224,298
======== =========== ========== ======== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE CUMULATIVE
OCTOBER 24, 1994 PERIOD FROM PERIOD FROM
(DATE OF OCTOBER 24, 1994 THREE MONTHS ENDED OCTOBER 24, 1994
INCEPTION) YEAR ENDED (DATE OF INCEPTION) MARCH 31, (DATE OF INCEPTION)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ------------------- TO MARCH 31,
1994 1995 1995 1995 1996 1996
---------------- ------------ ------------------- --------- -------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (3,308) $ (110,429) $ (113,737) $ (6,789) $(67,425) $ (181,162)
Adjustments to
reconcile net loss to
net cash provided
(used) by operating
activities:
Equity in loss of
unconsolidated
partnership.......... -- 46,206 46,206 3,409 36,232 82,438
Limited partner
interest in net
income (loss) of
consolidated
subsidiary........... -- (1,830) (1,830) -- 67 (1,763)
Depreciation.......... 38 211 249 47 254 503
Loss on sale of
equipment............ -- 31 31 -- -- 31
Changes in assets and
liabilities:
Receivables from
affiliates, prepaid
expenses and other
assets.............. (10) (518) (528) (343) (1,327) (1,855)
Accounts payable..... 3,745 45,803 49,548 (14) 37,458 87,006
Accrued expenses..... -- 1,700 1,700 301 8,178 9,878
Deferred
compensation........ -- 1,856 1,856 -- 2,391 4,247
--------- ----------- ----------- --------- -------- -----------
Net cash provided
(used) by operating
activities......... 465 (16,970) (16,505) (3,389) 15,828 (677)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures... (451) (31,763) (32,214) (190) (44,486) (76,700)
Proceeds on sale of
equipment............. -- 37 37 -- -- 37
Purchase of PCS
licenses.............. (118,438) (2,006,156) (2,124,594) (318,092) -- (2,124,594)
Investment in
unconsolidated
partnership........... -- (131,752) (131,752) (47,946) -- (131,752)
Loan to unconsolidated
partnership........... -- (655) (655) -- (83,000) (83,655)
--------- ----------- ----------- --------- -------- -----------
Net cash used in
investing
activities......... (118,889) (2,170,289) (2,289,178) (366,228) (127,486) (2,416,664)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Limited partner
interest in
consolidated
subsidiary............ -- 15,000 15,000 5,000 -- 15,000
Partner capital
contributions......... 123,438 2,168,368 2,291,806 382,537 113,654 2,405,460
--------- ----------- ----------- --------- -------- -----------
Net cash provided by
financing
activities......... 123,438 2,183,368 2,306,806 387,537 113,654 2,420,460
--------- ----------- ----------- --------- -------- -----------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............ 5,014 (3,891) 1,123 17,920 1,996 3,119
CASH AND CASH
EQUIVALENTS, Beginning
of period.............. -- 5,014 -- 5,014 1,123 --
--------- ----------- ----------- --------- -------- -----------
CASH AND CASH
EQUIVALENTS, End of
period................. $ 5,014 $ 1,123 $ 1,123 $ 22,934 $ 3,119 $ 3,119
========= =========== =========== ========= ======== ===========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sprint Spectrum Holding Company, L.P. (the "Partnership") is a limited
partnership formed in Delaware on March 28, 1995, by Sprint Enterprises L.P.
("Sprint"), TCI Network Services ("TCI"), Cox Telephony Partnership ("Cox")
and Comcast Telephony Services ("Comcast") (the "Partners"). The Partnership
was formed pursuant to a reorganization of the operations of an existing
partnership, WirelessCo, L.P. In March 1995, the partners of WirelessCo, L.P.
transferred their interest in WirelessCo, L.P. to Sprint Spectrum Holding
Company, L.P. The Partnership and certain other affiliated partnerships are
doing business as Sprint Spectrum.
The Partnership is consolidated with certain subsidiaries, including Sprint
Spectrum L.P., WirelessCo, L.P. and NewTelco, L.P. These entities are
development stage enterprises. The Partners of Sprint Spectrum have the
following ownership interests in Sprint Spectrum Holding Company, L.P. as of
December 31, 1995:
<TABLE>
<S> <C>
Sprint Enterprises, L.P. ............................................. 40%
TCI Network Services.................................................. 30%
Cox Telephony Partnership............................................. 15%
Comcast Telephony Services............................................ 15%
</TABLE>
Each Partner's ownership interest consists of a 99% general partner interest
and a 1% limited partnership interest.
On February 29, 1996, the Partnership's name was changed to Sprint Spectrum
Holding Company, L.P. from MajorCo, L.P. and MajorCo Sub, L.P. changed its
name to Sprint Spectrum L.P.
Venture Formation and Affiliated Partnerships--A Joint Venture Formation
Agreement ( the "Formation Agreement"), dated as of October 24, 1994, and
subsequently amended as of March 28, 1995, and January 31, 1996, was entered
into by Sprint Corporation, Tele-Communications, Inc., Cox Communications,
Inc., and Comcast Corporation (collectively, the "Parents"), pursuant to which
the parties agreed to form certain entities to (i) provide national wireless
telecommunications services, including acquisition and development of personal
communications service ("PCS") licenses, (ii) develop a PCS wireless system in
the Los Angeles-San Diego Major Trading Area ("MTA") and (iii) take certain
other actions.
On October 24, 1994, WirelessCo, L.P. was formed and on March 28, 1995,
additional partnerships were formed consisting of Sprint Spectrum Holding
Company, L.P., MinorCo, L.P., NewTelco, L.P., and Sprint Spectrum L.P. As of
December 31, 1995, the Partnership held ownership interests in NewTelco, L.P.
and Sprint Spectrum L.P. (which holds a 99% general partner interest in
WirelessCo, L.P.). MinorCo, L.P. held the remaining ownership interests in
NewTelco, L.P., Sprint Spectrum L.P. and WirelessCo, L.P. at December 31,
1995. An additional partnership, Cox-California PCS, L.P., is proposed to be
formed by the Partnership and another entity affiliated with Cox
Communications, Inc. for the purpose of holding and developing a PCS system
using the LA-San Diego Pioneer's Preference License.
Partnership Agreement--The Amended and Restated Agreement of Limited
Partnership of MajorCo, L.P. (the "MajorCo Agreement"), dated as of January
31, 1996, among Sprint, TCI, Comcast and Cox provides that
F-21
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the purpose of the Partnership is to engage in wireless communications
services. The MajorCo Agreement provides for the governance and administration
of partnership business, allocation of profits and losses (including
provisions for special and curative allocations), tax allocations,
transactions with partners, disposition of partnership interests and other
matters.
The MajorCo Agreement provides for a planned capital amount to be
contributed by the Partners, pursuant to circumstances defined in the MajorCo
Agreement, equal to the sum of $1.898 billion over an initial period from
January 1, 1996, through December 31, 1997. Such amount is included as a
portion of "Total Mandatory Contributions", defined in the MajorCo Agreement
as the sum of $4.2 billion, plus agreed upon values attributable to the
contributions of certain additional PCS licenses by a Partner. Approximately
$2.3 billion of such Total Mandatory Contributions amount has been previously
contributed to Sprint Spectrum Holding Company, L.P., WirelessCo, L.P. and
other affiliated partnerships.
The planned capital amount would be contributed in accordance with a capital
contribution schedule in the approved budget. The partnership board may
request capital contributions be made more quickly than that provided for in
the budget, but always subject to the Total Mandatory Contributions limit. The
Partners may agree to contribute capital in excess of the Total Mandatory
Contributions limit.
The MajorCo Agreement generally provides for the allocation of profits and
losses according to each Partner's proportionate percentage interest, after
giving effect to special allocations. After special allocations, profits are
allocated to partners to the extent of and in proportion to cumulative net
losses previously allocated. Losses are allocated, after considering special
allocations, according to each Partner's allocation of net profits previously
allocated.
Parent Undertaking--In addition to the MajorCo Agreement, each Parent has
entered into an agreement which provides for certain undertakings by each
Parent in favor of other Partners and which addresses certain obligations of
the Parent pertaining to items including provision of services,
confidentiality, foreign ownership, purchasing, restrictions on disposition
and certain other matters.
Trademark Agreement--Sprint(R) is a registered trademark of Sprint
Communications Company, L.P. and is licensed to the Partnership on a royalty-
free basis pursuant to a trademark license agreement between the Partnership
and Sprint.
Development Stage Enterprises--The Partnership and its subsidiaries are
development stage enterprises. The success of their development is dependent
on a number of business factors, including securing financing to complete
network construction and fund initial operations, successfully deploying the
PCS network and attaining profitable levels of market demand for Partnership
products and services. The partnership and its subsidiaries have not yet
generated operating revenues.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--The financial statements have been prepared from the
date of inception, October 24, 1994, for WirelessCo, L.P., and March 28, 1995,
for other consolidated subsidiaries, through December 31, 1995. The assets,
liabilities, results of operations and cash flows of entities in which the
Partnership has a controlling interest have been consolidated.
The financial information as of March 31, 1996 and for the three month
periods ended March 31, 1996 and 1995 is unaudited. The Partnership believes
such information includes all adjustments (consisting only of normal
F-22
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recurring adjustments) necessary to present fairly the consolidated financial
position, results of operations and cash flows.
The limited partnership interest of MinorCo, L.P. in WirelessCo, L.P.,
Sprint Spectrum L.P. and NewTelco, L.P. is reflected as a minority interest.
Pursuant to the Amended and Restated Agreement of Limited Partnership of
WirelessCo, L.P. ("WirelessCo Agreement"), MinorCo, L.P. has not been
allocated any losses incurred by WirelessCo, L.P. The WirelessCo Agreement
stipulates that all losses are to be allocated to Sprint Spectrum L.P., the
general partner, until the general partner's capital account is depleted.
Pursuant to the Agreement of Limited Partnership of NewTelco, L.P. ("NewTelco
Agreement"), MinorCo, L.P., the limited partner, has been allocated $1,829,882
of losses incurred by NewTelco, L.P. for the year ended December 31, 1995, as
losses in excess of the general partner's capital account (which consisted of
$1,000) are to be allocated to the limited partner to the extent of its
capital account. All significant intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents--The Partnership considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Construction work in progress represents costs incurred to design and
construct the PCS network. Repair and maintenance costs are charged to expense
as incurred. When telecommunications plant is retired, or otherwise disposed
of, its book value, net of salvage, is charged to accumulated depreciation.
Property, plant and equipment are depreciated using the straight-line method
based on estimated useful lives of the assets. Depreciable lives range from 3
to 20 years.
Investment in PCS Licenses and Other Intangibles--During 1994 and 1995, the
Federal Communications Commission ("FCC") auctioned PCS licenses in specific
geographic service areas. The FCC grants licenses for terms of up to ten
years, and generally grants renewals if the licensee has complied with its
license obligations. The Partnership believes it has and will continue to meet
all requirements necessary to secure renewal of its PCS licenses. The
Partnership has also incurred costs associated with microwave relocation in
the construction of the PCS network. Amortization of PCS licenses and
microwave relocation costs will commence as each service area becomes
operational, over estimated useful lives of 40 years. No amortization expense
was recorded in 1995, or in the period from October 24, 1994 (date of
inception) to December 31, 1994. No interest expense has been incurred or
capitalized pertaining to the acquisition of the PCS licenses.
The ongoing value and remaining useful life of intangible assets are subject
to periodic evaluation. The Partnership currently expects the carrying amounts
to be fully recoverable. Impairments of intangibles and long-lived assets are
assessed based on an undiscounted cash flow methodology.
Income Taxes--The Partnership has not provided for federal or state income
taxes since such taxes are the responsibility of the individual Partners.
Financial Instruments--All of the Partnership's financial instruments,
including cash and cash equivalents, receivables from affiliates and accounts
payable are short-term in nature. Accordingly, the balance sheet amounts
approximate the fair value of the Partnership's financial instruments.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-23
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
-------- -----------
<S> <C> <C>
Office furniture and fixtures....................... $450,910 $ 2,901,633
Telecommunications plant--construction work in pro-
gress.............................................. -- 29,200,467
-------- -----------
450,910 32,102,100
Less accumulated depreciation....................... (37,716) (204,721)
-------- -----------
$413,194 $31,897,379
======== ===========
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
On January 9, 1995, WirelessCo, L.P., acquired a 49% limited partnership
interest in American PCS, L.P. ("APC"). American Personal Communications, Inc.
("APC, Inc.") is the general partner. The investment in APC is accounted for
under the equity method. Summarized financial information of APC as of and for
the year ended December 31, 1995, is as follows:
<TABLE>
<S> <C>
Total assets.................................................... $237,325,784
Total liabilities............................................... 171,179,908
Total revenues.................................................. 5,153,469
Net loss........................................................ 51,551,446
</TABLE>
The following table summarizes the status and results of WirelessCo, L.P.'s
investment in APC as of December 31, 1995:
<TABLE>
<S> <C>
Beginning investment........................................... $ 23,422,000
Payment for call option........................................ 10,000,000
Capital contributions.......................................... 98,330,068
Equity in losses............................................... (46,206,097)
------------
Ending investment.............................................. $ 85,545,971
============
</TABLE>
The unamortized excess of WirelessCo, L.P.'s investment over its equity in
the underlying net assets of APC at the date of acquisition was $10,139,459.
The excess investment amount is amortized on a straight line basis over an
estimated useful life of 40 years. Amortization included in equity in loss of
unconsolidated partnership was $239,727 for the year ended December 31, 1995.
WirelessCo, L.P. receives an affiliation fee of 3% of gross revenues from
APC for APC's affiliation with the Sprint Spectrum business.
The call option in APC acquired on January 9, 1995, provides WirelessCo,
L.P. with the right to purchase an additional interest in APC from APC, Inc.
in annual increments beginning five years after the initial PCS network build-
out is completed. The first increment, an additional 20% of the APC, Inc.
ownership interest, can be acquired in each of the fifth through seventh years
with the remaining interest available for purchase in the eighth through tenth
year. APC, Inc. also has the right to put a portion of its ownership interest
to WirelessCo, L.P. on an annual basis in an amount representing the greater
of (i) one-fifth of APC, Inc.'s initial percentage interest of 51% in APC or
(ii) the portion of APC, Inc.'s interest equal to APC, Inc.'s obligation for
annual FCC
F-24
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
payments to be made by APC, beginning after the completion of the initial PCS
network build-out, through the fifth anniversary date. The exercise price of
the call and put options are based on the Fair Value, as defined, of APC at
the date of exercise.
During the initial five year build-out period, which began in December 1994,
APC, Inc. and WirelessCo, L.P. are obligated as follows: (a) APC, Inc. is
obligated to make capital contributions in an amount equal to the aggregate
principal and interest payments to the FCC, provided APC, Inc. has sufficient
cash flows or can obtain financing from a third party; (b) if APC, Inc. is
unable to meet such obligation, WirelessCo, L.P. is required to contribute the
shortfall, upon ten days prior notice; (c) WirelessCo, L.P. is required to
contribute equity to APC necessary for operations up to an amount of
approximately $98 million; and (d) WirelessCo, L.P. is obligated to fund the
cash requirements of APC in excess of that described in (a), (b), and (c)
above, in the form of either loans or additional capital up to a total of $275
million (including the amount in (c) above). Contributions in excess of $275
million, however, require approval of WirelessCo, L.P. and may be made in the
form of additional equity or loans. Under certain circumstances, APC, Inc. has
the right and is obligated to exercise its put right to the extent necessary
to fund additional capital contributions. As of December 31, 1995, $98 million
of equity had been contributed and $654,982 of partner advances had been
extended. Outstanding partner advances will be non-recourse and bear interest
at an agreed upon rate and will be payable at such time when APC has
sufficient funds to permit repayment. Subsequent to December 31, 1995, and
through March 29, 1996, $83 million of additional advances were extended to
APC.
The partnership agreement between WirelessCo, L.P. and APC, Inc. specifies
that losses are allocated based on capital contributions and certain other
factors. Under the equity method, WirelessCo, L.P. has recognized the majority
of the partnership losses to date in its financial statements based on its
capital contributions and commitments to provide initial funding. Loss
allocations in the future may vary depending on additional capital
contributions of APC, Inc.
5. EMPLOYEE BENEFITS
The Partnership maintains short-term and long-term incentive plans. All
exempt employees are eligible for the short-term incentive plan commencing at
date of hire. Short-term incentive compensation is based on incentive targets
established for each position based on the Partnership's overall compensation
strategy. Targets contain both an objective Partnership component and a
personal objective component.
Employees meeting certain eligibility requirements are considered
participants in the long-term incentive plan. Long-term incentive compensation
is based upon individual performance, the achievement of certain partnership
goals and the management of departmental costs.
Employees performing services for the Partnership were employed by Sprint
Corporation through December 31, 1995. Amounts paid to Sprint Corporation
relating to pension expense and employer contributions to the Sprint
Corporation 401(k) plan for these employees approximated $323,000 in 1995. No
payments were made through December 31, 1994.
Savings and Retirement Plan--Effective January, 1996, the Partnership
established a savings and retirement program (the "Savings Plan") for certain
employees, which is intended to qualify under Section 401(k) of the Internal
Revenue Code. Most permanent full-time, and certain part-time, employees are
eligible to become participants in the plan. Participants make contributions
to a basic before tax account and supplemental before tax account. The maximum
contribution for any participant for any year is 16% of such participant's
compensation. For each eligible employee who elects to participate in the
Savings Plan and makes a contribution
F-25
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to the basic before tax account, the Partnership makes a matching
contribution. The matching contributions equal 50% of the amount of the basic
before tax contribution of each participant up to 6% of such employee's
contribution. Contributions to the Savings Plan are invested, at the
participants discretion, in several designated investment funds. Distributions
from the Savings Plan generally will be made only upon retirement or other
termination of employment, unless deferred by the participant.
Profit Sharing (Retirement) Plan--Effective January, 1996, the Partnership
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts
of the Partnership's 401(k) plan. Vesting occurs once a participant completes
five years of service.
6. COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
Operating Leases--Minimum rental commitments as of December 31, 1995, for
all noncancelable operating leases, consisting principally of leases for
office space and cell and switch sites, are as follows:
<TABLE>
<S> <C>
1996.............................................................. $1,642,415
1997.............................................................. 1,315,215
1998.............................................................. 1,318,578
1999.............................................................. 1,335,398
2000.............................................................. 1,231,998
Thereafter........................................................ 40,370
----------
$6,883,974
==========
</TABLE>
Subsequent to December 31, 1995, and through March 29, 1996, the Partnership
entered into several significant operating leases with minimum rental
commitments over the lives of the leases of approximately $58 million.
Gross rental expense aggregated $687,486 and $104,573 for the year ended
December 31, 1995 and for the period from October 24, 1994 (date of inception)
to December 31, 1994, respectively, and is included in general and
administrative expense in the consolidated statements of operations. Certain
leases contain renewal options that may be exercised from time to time and are
excluded from the above amounts.
On May 15, 1996, Sprint Spectrum Equipment Company, L.P. ("EquipmentCo") and
Sprint Spectrum Realty Company, L.P. ("RealtyCo") were organized as
subsidiaries of Sprint Spectrum L.P. and MinorCo, L.P. for the purpose of
holding PCS network-related asssets. On May 20, 1996, an additional subsidiary
of Sprint Spectrum L.P., Sprint Spectrum Finance Corporation, was also formed
to be a co-obligor of certain proposed debt financing.
Procurement Contracts--On January 31, 1996, the Partnership entered into
procurement and services contracts (the "Procurement Contracts") with AT&T
Corp. (subsequently assigned to Lucent Technologies, Inc., "Lucent") and
Northern Telecom, Inc. ("Nortel" and together with Lucent, the "Vendors") for
the engineering and construction of a PCS network. The Procurement Contracts
were assigned to Sprint Spectrum L.P. and then to EquipmentCo by the
Partnership on June 21, 1996 for the Lucent contract and June 26, 1996 for the
Nortel contract. Each contract provides for an initial term of ten years with
renewals for additional one-year periods. The Vendors must achieve substantial
completion of the PCS network within an established time frame and in
F-26
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accordance with criteria specified in the Procurement Contracts. Pricing for
the initial equipment, software and engineering services has been established
in the Procurement Contracts. The Procurement Contracts provide for payment
terms based on delivery dates, substantial completion dates, and final
acceptance dates. In the event of delay in the completion of the PCS network,
the Procurement Contracts provide for certain amounts to be paid to the
Partnership by the Vendors. The minimum commitments for the initial term are
$0.8 billion and $1.0 billion from Lucent and Nortel, respectively, which
include, but are not limited to, all equipment required for the establishment
and installation of the PCS network.
Purchase Commitments--The Partnership has also entered into agreements to
acquire various cell and switch sites. Commitments to site acquisition vendors
are approximately $152 million and commitments for construction contracts and
purchases of equipment, handsets and other services are approximately $469
million. Such agreements have been executed by, or assigned to, Sprint
Spectrum L.P. or its subsidiaries on or before July 1, 1996.
Vendor Financing--Sprint Spectrum L.P. has obtained financing commitments
from Nortel dated June 11, 1996 for $1.3 billion and from Lucent dated June
21, 1996 for $1.8 billion of multiple drawdown term loan facilities (the
"Vendor Financing"). The proceeds of such facilities would be used to finance
the purchase of goods and services provided by the Vendors under the
Procurement Contracts. The Vendor Financing would be non-recourse to, and will
not be guaranteed by, the Parents and the Partners.
Borrowings under the Vendor Financing would be collateralized by a first
priority lien (the "Shared Lien") on (i) all of the partnership interests in
WirelessCo, L.P., RealtyCo and EquipmentCo, (ii) certain intangible property
assets and (iii) any real property having a value greater than $15 million.
The Shared Lien would serve as collateral for the Vendor Financing and certain
other financing from banks or other parties, not to exceed a specified level.
Such financing would be unconditionally guaranteed by WirelessCo, L.P.,
RealtyCo and EquipmentCo.
Loans under the Vendor Financing would amortize quarterly over the five year
period commencing on the date that is 39 months after the end of the one-year
period during which such loans were made.
Under the Vendor Financing, subject to certain conditions, Sprint Spectrum
L.P. would be required to make mandatory prepayments of 100% of the net cash
proceeds of any sale or disposition of subsidiaries or any sale of material
assets that are not reinvested in the wireless telecommunications businesses.
Sprint Spectrum L.P. would be able to elect that all or any portion of the
borrowings under the Vendor Financing bear interest at a rate per annum equal
to either (i) the ABR plus an applicable margin or (ii) the Eurodollar rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by a commercial bank to be determined as its prime
rate in effect at its principal office in New York City and (y) the federal
funds effective rate plus 0.5%.
The Nortel portion of the Vendor Financing requires, as a condition to
funding, the commitment of certain additional financing from third-parties.
Bank Credit Facility--Sprint Spectrum L.P. has received a commitment from
Chemical Bank to provide a fully underwritten senior credit facility, (the
"Bank Credit Facility") in the amount of $2.0 billion. The proceeds of the
loans under the Bank Credit Facility would be used to finance capital
expenditures, operating losses, the working capital needs of Sprint Spectrum
L.P. and for partnership purposes.
F-27
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Borrowings under the Bank Credit Facility would be unconditionally
guaranteed by WirelessCo L.P., RealtyCo and EquipmentCo. In addition,
borrowings under the Bank Credit Facility would be collateralized by the
Shared Lien. The Bank Credit Facility would be non-recourse to, and would not
be guaranteed by, the Parents or the Partners.
The Bank Credit Facility is expected to automatically reduce quarterly
commencing five years and three months following the closing date of such
facility and ending nine years after the closing date. Subject to certain
conditions, Sprint Spectrum L.P. would be required to make mandatory
prepayments or apply a portion of its excess cash flow to ratably reduce
commitments under the Bank Credit Facility and prepay loans under the Vendor
Financing.
Sprint Spectrum L.P. would be able to elect that all or any portion of the
borrowings under the Bank Credit Facility bear interest at a rate per annum
equal to (i) the ABR plus an applicable margin or (ii) the Eurodollar Rate
(LIBOR) plus an applicable margin. The ABR is the higher of (x) the rate of
interest publicly announced by the administrative agent as its prime rate in
effect at its principal office in New York City and (y) the federal funds
effective rate from time to time plus 0.5%.
The Bank Credit Facility and the Vendor Financing would contain a number of
financial operating covenants that, among other things, limit the ability of
Sprint Spectrum L.P. to incur additional indebtedness, create liens and other
encumbrances, make guarantee obligations, make distributions to partners and
repurchases of equity, make acquisitions, investments, loans and advances,
merge or consolidate with another entity or engage in any business other than
the telecommunications business and related businesses as well as restrictions
on the ability of WirelessCo, L.P., RealtyCo, and EquipmentCo to incur
liabilities or engage in non-designated activities.
7. RELATED PARTY TRANSACTIONS
The Partnership reimburses Sprint Corporation for certain accounting, data
processing, and other related services, and for certain cash payments made by
Sprint Corporation on behalf of the Partnership. The Partnership is allocated
the costs of such services based on direct usage. Allocated expenses of
approximately $2,646,000 are included in general and administrative expense in
the consolidated statement of operations for 1995. No reimbursement was made
through December 31, 1994.
PhillieCo, L.P. and a Cox affiliate were formed by certain Partners,
individually and collectively, for the purposes of providing PCS wireless
services in their respective geographic areas. The Partnership, having made
certain cash payments on behalf of PhillieCo, L.P. and Cox's affiliate, will
receive reimbursements for direct costs incurred plus an amount for management
services provided to PhillieCo, L.P. and Cox's affiliate. Included in
receivables from affiliates are receivables for services provided as of
December 31, 1995, of $183,225 and $156,528 due from PhillieCo, L.P. and,
Cox's affiliate, respectively.
Sprint acts as agent for the Partnership in sales of paging services,
purchased for resale by the Partnership from a third-party provider.
* * * * * *
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of Sprint Spectrum Finance Corporation
Kansas City, Missouri
We have audited the accompanying balance sheet of Sprint Spectrum Finance
Corporation (a wholly-owned subsidiary of Sprint Spectrum L.P.), as of May 21,
1996. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of Sprint Spectrum Finance Corporation as of May 21,
1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
August 8, 1996
F-29
<PAGE>
SPRINT SPECTRUM FINANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF SPRINT SPECTRUM L.P.)
OPENING BALANCE SHEET
MAY 21, 1996
ASSETS
<TABLE>
<S> <C>
Receivable from parent................................................... $100
----
TOTAL ASSETS........................................................... $100
====
STOCKHOLDER'S EQUITY
Common stock, $1.00 par value; 1,000 shares authorized; 100 shares issued
and outstanding......................................................... $100
----
TOTAL STOCKHOLDER'S EQUITY............................................. $100
====
</TABLE>
See note to balance sheet.
F-30
<PAGE>
SPRINT SPECTRUM FINANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF SPRINT SPECTRUM L.P.)
NOTE TO BALANCE SHEET
MAY 21, 1996
Sprint Spectrum Finance Corporation (the "Finance Corp."), a Delaware
corporation, was formed on May 21, 1996 and is a wholly-owned subsidiary of
Sprint Spectrum L.P. (the "Partnership").
The Partnership and Finance Corp. intend to offer approximately $150,000,000
aggregate principal amount of Senior Notes, and Senior Discount Notes at a
discount to their aggregate principal amount at maturity to generate gross
proceeds to the Partnership of approximately $500,000,000. Finance Corp. would
be a co-obligor for the new Senior and Senior Discount Notes to be offered.
The Partnership contributed $100 to Finance Corp. on May 21, 1996 in exchange
for 100 shares of common stock.
F-31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
of American PCS, L.P.
In our opinion, the accompanying balance sheets and the related statements
of loss, of cash flows and of changes in partners' capital present fairly, in
all material respects, the financial position of American PCS, L.P. at
December 31, 1994 and 1995 and at March 31, 1996, and the results of its
operations and its cash flows for the years ended December 31, 1994 and 1995
and the three months ended March 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, D.C.
June 19, 1996
F-32
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- ----------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 1,671,728 $ 7,637,436 $ 12,711,657
Accounts receivable, less
allowance of $250,000 and
$1,225,000 at December 31, 1995
and March 31, 1996,
respectively..................... -- 3,909,169 9,444,464
Inventory......................... -- 5,186,190 10,406,230
Receivable from limited partner... 122,781 -- --
Prepaid expenses.................. 248,218 1,049,003 1,169,605
------------ ------------ ------------
Total current assets............ 2,042,727 17,781,798 33,731,956
Property and equipment, net......... 9,625,926 116,547,158 125,148,817
License, net of accumulated
amortization of $320,567 at
December 31, 1995 and $961,701 at
March 31, 1996..................... 92,876,203 102,260,322 101,619,188
Other assets........................ 765,749 736,506 671,909
------------ ------------ ------------
Total assets.................... $105,310,605 $237,325,784 $261,171,870
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued
expenses......................... $ 2,325,016 $ 71,323,125 $ 45,616,778
Accrued interest.................. -- 6,509,983 8,320,769
Due to related parties............ 141,435 2,151,323 89,472,501
Accrued payroll and related
expenses......................... 677,444 2,397,947 1,169,879
Current portion of long-term
debt............................. 1,326,625 2,532,219 2,559,901
------------ ------------ ------------
Total current liabilities....... 4,470,520 84,914,597 147,139,828
Long-term debt...................... 81,472,831 86,265,311 86,980,016
------------ ------------ ------------
Total liabilities............... 85,943,351 171,179,908 234,119,844
Commitments (Note 8)
Partners' capital................... 19,367,254 66,145,876 27,052,026
------------ ------------ ------------
Total liabilities and partners'
capital........................ $105,310,605 $237,325,784 $261,171,870
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF LOSS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- -------------------------
1994 1995 1995 1996
----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Airtime and access
charges............... $ -- $ 598,768 $ -- $ 5,488,846
Handset sales.......... -- 4,406,383 -- 6,102,444
Other.................. -- 148,318 1,700 7,051
----------- ------------ ----------- ------------
-- 5,153,469 1,700 11,598,341
----------- ------------ ----------- ------------
Cost and expenses:
Cost of handset sales.. -- 13,621,834 -- 18,681,368
Operating expenses..... -- 3,792,048 -- 7,213,114
Selling, general and
administrative........ 7,413,659 35,767,479 3,784,545 16,722,629
Depreciation and amor-
tization.............. 491,447 2,751,841 137,959 4,536,881
----------- ------------ ----------- ------------
7,905,106 55,933,202 3,922,504 47,153,992
----------- ------------ ----------- ------------
Operating loss......... (7,905,106) (50,779,733) (3,920,804) (35,555,651)
Other (income) expense:
Interest income........ (27,448) (1,201,461) (23,631) (314,787)
Interest expense....... 566 1,976,856 141,147 4,839,774
Other, net............. 5,929 (3,682) 15 13,212
----------- ------------ ----------- ------------
Net loss................. $(7,884,153) $(51,551,446) $(4,038,335) $(40,093,850)
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- -------------------------
1994 1995 1995 1996
------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss................ $ (7,884,153) $(51,551,446) $(4,038,335) $(40,093,850)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities:
Depreciation and
amortization......... 491,447 2,751,841 137,958 4,536,881
Provision for
allowance............ -- 250,000 -- 975,000
Accretion of debt
discount............. -- -- -- 999,094
Loss on sale of
assets............... 5,125 3,682 -- --
Change in assets and
liabilities:
Increase in accounts
receivable......... -- (4,159,169) -- (6,510,295)
Increase in
inventory.......... -- (5,186,190) -- (5,220,040)
Increase in prepaid
expenses........... (195,410) (800,785) (90,420) (120,602)
(Increase) decrease
in other
receivables........ (21,921) 122,781 122,781 --
Increase in other
assets............. (188,517) (274,506) (29,190) (12,392)
Increase (decrease)
in accounts payable
and accrued
expenses........... 1,190,590 68,998,109 1,156,271 (25,706,347)
Increase in accrued
interest........... -- 1,312,828 -- 1,810,786
Increase in due to
related parties.... 141,435 1,354,907 70,277 4,321,178
Increase (decrease)
in accrued payroll
and related
expenses........... 677,444 1,720,503 (400,571) (1,228,068)
------------ ------------ ----------- ------------
Net cash (used in)
provided by
operating
activities......... (5,783,960) 14,542,555 (3,071,229) (66,248,655)
------------ ------------ ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures,
net.................. (8,773,442) (105,439,229) (8,859,884) (12,420,417)
License costs......... (3,069,740) (515,366) (140,663) --
------------ ------------ ----------- ------------
Net cash used in
investing
activities......... (11,843,182) (105,954,595) (9,000,547) (12,420,417)
------------ ------------ ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Partners' capital
contributions........ 19,100,000 98,330,068 14,524,000 1,000,000
Repayment of notes
payable.............. -- (1,326,625) -- --
Principal payments
under capital lease
obligations.......... -- (280,676) -- (256,707)
Advances from related
party................ -- 654,981 -- 83,000,000
------------ ------------ ----------- ------------
Net cash provided by
financing
activities......... 19,100,000 97,377,748 14,524,000 83,743,293
------------ ------------ ----------- ------------
Net increase in cash and
cash equivalents....... 1,472,858 5,965,708 2,452,224 5,074,221
Beginning cash and cash
equivalents............ 198,870 1,671,728 1,671,728 7,637,436
------------ ------------ ----------- ------------
Ending cash and cash
equivalents............ $ 1,671,728 $ 7,637,436 $ 4,123,952 $ 12,711,657
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
AMERICAN
PERSONAL THE WASHINGTON
COMMUNICATIONS, INC. WIRELESSCO, L.P. POST COMPANY TOTAL
-------------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Balance, December 31,
1993 (unaudited)....... $ -- $ -- $ 8,151,407 $ 8,151,407
Capital
contributions........ -- -- 19,100,000 19,100,000
Allocation of net
loss................. -- -- (7,884,153) (7,884,153)
----------- ----------- ------------ ------------
Balance, December 31,
1994................... -- -- 19,367,254 19,367,254
----------- ----------- ------------ ------------
Allocation of net loss
for the period
January 1, 1995 to
January 9, 1995...... -- -- (392,195) (392,195)
Allocation of net loss
for the period
January 10, 1995 to
December 31, 1995.... (5,001,957) (45,908,065) (249,229) (51,159,251)
----------- ----------- ------------ ------------
1995 net loss...... (5,001,957) (45,908,065) (641,424) (51,551,446)
----------- ----------- ------------ ------------
Change in ownership
interest............. 5,285,910 13,282,541 (18,568,451) --
----------- ----------- ------------ ------------
Capital
contributions........ -- 98,330,068 -- 98,330,068
----------- ----------- ------------ ------------
Balance, December 31,
1995................... 283,953 65,704,544 157,379 66,145,876
----------- ----------- ------------ ------------
Capital contribution.. 1,000,000 -- -- 1,000,000
Allocation of net
loss................. (3,708,873) (36,227,598) (157,379) (40,093,850)
----------- ----------- ------------ ------------
Balance, March 31,
1996................... $(2,424,920) $29,476,946 $ -- $ 27,052,026
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS
General
American PCS, L.P. (the Partnership) is a Delaware limited partnership
operating a personal communications services (PCS) system in the greater
Washington, D.C./Baltimore area. Development stage activities during the
period from September 20, 1990 (inception) through November 14, 1995 consisted
principally of forming the partnership, obtaining experimental and commercial
licenses from the Federal Communications Commission (FCC), and designing and
constructing a communications system. At November 15, 1995, the Partnership
had finished the design and the construction of a significant portion of the
communications system, and had commenced operations. Accordingly, as of
November 1995, the Partnership was no longer considered a development stage
enterprise for financial reporting purposes.
In 1990, the Partnership was awarded an experimental license by the FCC and
subsequently operated an experimental PCS system in the Washington,
D.C./Baltimore area. In December 1993, the Partnership was awarded a pioneer's
preference by the FCC, which guaranteed the Partnership receipt of one of two
30 MHZ PCS commercial licenses for the intended area. In December 1994, the
Partnership obtained the commercial license and began construction of a
communication system shortly thereafter.
Partnership Agreement
The Partnership was formed on September 20, 1990 in accordance with a
limited partnership agreement between American Personal Communications, Inc.
(APC) and The Washington Post Company (the Post). In January 1995, the Post
sold substantially all of its interest in the Partnership to two parties: APC
and WirelessCo, L.P. (WirelessCo) a subsidiary of Sprint Spectrum L.P. In
March 1996, the Post sold its remaining interest to APC. As a result of these
transactions, APC's interest is 51% and WirelessCo's interest is 49%. APC is a
General and Limited Partner and WirelessCo is a Limited Partner with no voting
rights or management control.
During the initial five year buildout period, which began in December 1994,
APC and WirelessCo are obligated as follows: (a) APC is obligated to make
capital contributions in an amount equal to the aggregate principal and
interest payments to the FCC, provided APC has sufficient cash flows or can
obtain financing from a third party; (b) if APC is unable to meet such
obligation, WirelessCo is required to contribute the shortfall, upon ten days
prior notice; (c) WirelessCo is required to contribute equity to the
Partnership necessary for operations up to an amount of approximately $98
million; and (d) WirelessCo is obligated to fund the cash requirements of the
Partnership in excess of that described in (a), (b) and (c) above, in the form
of either loans or additional capital up to a total of $275 million (including
the amount in (c) above). Contributions in excess of the $275 million,
however, require approval of WirelessCo and may be made in the form of
additional equity or loans.
Profit and losses will be allocated to the partners in accordance with
certain special allocations and formulas set forth in the partnership
agreement. These formulas are based on amounts which include, among others,
capital contributions, prior year losses and distributions of property and
cash to the partners. Once these provisions are satisfied, profit and losses
will be allocated in proportion to the partners' percentage interests.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Partnership prepares its financial statements on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements. Actual results
may differ from those estimates.
F-37
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue recognition
Airtime and access charges are recorded as revenue based on the amount of
communications services rendered as measured principally by traffic processed
after deducting an estimate of the traffic that will neither be billed nor
collected. Revenue from the sale of handsets and related accessories is
recognized upon shipment or point-of-sale.
Cash and cash equivalents
All highly liquid investments with an original maturity of three months or
less at the date of acquisition are considered cash equivalents.
Inventory
Inventory, consisting of handsets and related accessories, is stated at the
lower of cost or replacement value. Costs are based on the first-in, first-out
method.
Property and equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the related assets' estimated useful lives
ranging from five to forty years. Leasehold improvements are amortized over
the shorter of the term of the related lease or the estimated useful lives of
the assets.
Equipment under capital leases
The Partnership leases certain of its office and other equipment under
capital lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum lease
payments, including estimated bargain purchase options, or the fair value of
the assets under lease. Assets under these capital leases are depreciated over
their estimated useful lives of five to seven years, which are generally
longer than the terms of the leases.
License
The PCS license includes FCC, legal and consulting fees and capitalized
interest. The FCC license fee has been recorded at its fair value on the basis
of the payment terms to the FCC and the Partnership's estimated incremental
borrowing rate for similar debt at the date of award. The license expires in
December 2004; however, FCC rules provide for renewal expectancy provisions.
The Partnership expects to exercise the renewal provisions, and accordingly
the license is being amortized using the straight-line method over a period of
40 years. Amortization of these amounts commenced upon launch of the system in
November 1995.
Amortization of the license cost was $320,567 and $641,134 for the year
ended December 31, 1995 and the three months ended March 31, 1996,
respectively. Additionally, interest capitalized during 1995 as part of the
license cost was $9,193,528.
The ongoing value and remaining useful life of intangible assets are subject
to periodic evaluation. The Partnership currently expects the carrying amounts
to be fully recoverable. Impairments of intangible assets are assessed based
on an undiscounted cash flow methodology.
Organizational costs
Certain costs, totaling $1,539,780, were incurred during the formation of
the Partnership and have been deferred and included in other assets. These
costs are being amortized on a straight-line basis over a period of five
years. Accumulated amortization at December 31, 1994 and 1995 and March 31,
1996 was $975,194, $1,283,151 and $1,360,140, respectively.
F-38
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Preoperating costs
Prior to commencement of operations, preoperating costs, such as salaries,
marketing, recruiting and administrative costs, were expensed as incurred.
Preoperating costs, totaling $7,905,106 and $28,805,236 for the years ended
December 31, 1994 and 1995, respectively, are classified as selling, general
and administrative expenses and depreciation and amortization expenses in the
Statements of Loss.
Income taxes
No provision has been made for Federal and state income taxes since such
taxes, if any, are the responsibility of the individual partners.
Concentration of credit risk
The Partnership's subscribers are dispersed throughout the Washington,
D.C./Baltimore area. No single subscriber accounted for a significant amount
of the Partnership's revenue. A significant portion of handset sales revenue
is earned through certain retailers. Sales to one retailer accounted for 25%
and 37% of total handset sales revenue for the year ended December 31, 1995
and the three months ended March 31, 1996, respectively. The Partnership
reviews the credit histories of potential subscribers and retailers prior to
extending credit and maintains allowances for potential credit losses. The
Partnership maintains cash and cash equivalents in high credit financial
institutions. The Partnership believes that its risk from concentration of
credit is limited.
Interim financial statements
The interim financial data for the three months ended March 31, 1995 is
unaudited. However, in the opinion of the Partnership, the interim financial
data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 and at March 31, 1996
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ------------
1994 1995 1996
---------- ------------ ------------
<S> <C> <C> <C>
Communications system.................. $ -- $106,225,628 $114,304,350
Office and other equipment............. 830,297 913,290 954,520
Leasehold improvements................. 77,894 1,959,463 2,032,897
---------- ------------ ------------
908,191 109,098,381 117,291,767
Less accumulated depreciation and
amortization........................ (304,778) (2,144,822) (5,789,103)
---------- ------------ ------------
603,413 106,953,559 111,502,664
---------- ------------ ------------
Leased office and other equipment...... -- 3,609,002 3,609,002
Less accumulated depreciation........ -- (279,576) (454,053)
---------- ------------ ------------
-- 3,329,426 3,154,949
---------- ------------ ------------
Communications system construction in
progress.............................. 9,022,513 6,264,173 10,491,204
---------- ------------ ------------
Net property and equipment............. $9,625,926 $116,547,158 $125,148,817
========== ============ ============
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1994
and 1995 and the three months ended March 31, 1996 was $183,490, $2,123,317
and $3,808,030, respectively.
F-39
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1995 and at March 31, 1996 consists
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Due to FCC less unamortized discount of
$23,978,236, $19,981,863 and
$18,982,770........................... $78,365,303 $82,361,676 $83,360,769
Note payable, less unamortized discount
of $1,010,360, $522,146
and $423,228.......................... 4,434,153 3,107,528 3,107,528
Capital lease obligations at interest
rates ranging from 8.33%
to 10.94%............................. -- 3,328,326 3,071,620
----------- ----------- -----------
82,799,456 88,797,530 89,539,917
Less current portion................. (1,326,625) (2,532,219) (2,559,901)
----------- ----------- -----------
Total long-term debt................... $81,472,831 $86,265,311 $86,980,016
=========== =========== ===========
</TABLE>
The Partnership became obligated to the FCC for $102,343,539 upon receipt
of the commercial PCS license. In March 1996, the FCC determined that interest
on the amount due will begin to accrue on March 8, 1996 (at an interest rate
of 7.75%). Beginning with the first payment due in April 1996, the FCC has
granted two years of interest-only payments followed by three years of
principal and interest payments. Principal payments total $23,420,619,
$33,400,477, $36,065,221 and $9,457,222 in 1998, 1999, 2000 and 2001,
respectively. Based on the interest and payment provisions determined by the
FCC and the Partnership's incremental borrowing rate for similar debt, the
Partnership has accrued interest beginning upon receipt of the license at an
effective rate of 13%. The unamortized discount is reflected as a reduction to
the cost of the license.
The note payable was issued in exchange for services received in obtaining
the license. The non-interest bearing note requires three equal payments of
$1,814,837, the first of which was paid on October 13, 1995, and the remaining
two payments are to be made on August 13, 1996 and June 13, 1997. The
unamortized discount was calculated using an interest rate of prime plus 2%,
or 10.5% at the time the debt was issued, which approximated the Partnership's
incremental borrowing rate for similar debt.
The estimated fair value of the Partnership's debt approximated its carrying
value at March 31, 1996.
Interest paid was $1,000, $664,000 and $85,513 for the years ended December
31, 1994 and 1995 and the three months ended March 31, 1996, respectively.
NOTE 5--LEASES
The Partnership has various non-cancellable operating leases for office
space and communications system sites. Rental expense related to operating
leases was $695,482, $1,681,276 and $1,977,398 for the years ended December
31, 1994 and 1995 and the three months ended March 31, 1996, respectively.
During 1995, the Partnership incurred capital lease obligations of
$3,609,002. The Partnership did not enter into any new capital lease
obligations during the first three months of 1996. The capital lease
obligations are generally repayable in 36-60 monthly installments from the
dates of purchase.
F-40
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments required under capital leases and non-
cancellable operating leases as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
EAR ENDINGY CAPITAL OPERATING
DCEMBER 31,E LEASES LEASES
- - ------------ ---------- -----------
<S> <C> <C>
1996 (nine months ending December 31,)................ $1,013,468 $ 6,776,189
1997.................................................. 1,351,320 8,996,509
1998.................................................. 998,978 9,079,073
1999.................................................. 96,271 8,981,275
2000.................................................. 65,477 7,372,796
Thereafter............................................ -- 19,892,775
---------- -----------
3,525,514 $61,098,617
---------- ===========
Less amounts representing interest.................... (453,894)
----------
Present value of minimum lease payments............... $3,071,620
==========
</TABLE>
NOTE 6--RETIREMENT SAVINGS PLAN
The Partnership has an employee savings plan that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue code. All
employees completing one year of service are eligible and may contribute up to
15% of their pretax earnings. The Partnership matches 100% of the first 3% of
the employee's contribution. Employees are immediately fully vested in the
Partnership's contributions. In addition, the Partnership makes discretionary
contributions on behalf of eligible participants in the amount of 2% of
employee's compensation. The Partnership's expenses relating to the employee
savings plan were $38,000, $109,000 and $44,005 for the years ended December
31, 1994 and 1995 and the three months ended March 31, 1996, respectively.
NOTE 7--RELATED PARTY TRANSACTIONS
Certain contributions from WirelessCo aggregating $654,981, exceeded amounts
required under the partnership agreement as capital contributions. As of March
31, 1996, such amounts aggregated $86,254,346 including $2,599,365 of accrued
interest. Such amounts are not evidenced by a note agreement and accordingly,
have been classified as due to related parties.
The Partnership is a party to an affiliation agreement with WirelessCo under
which the Partnership agrees to conform to certain standards established by
WirelessCo and receives the right to use the "Sprint" brand in connection with
its offering of wireless products and services. The Partnership is obligated
as part of this agreement to pay a fee of 3% of its service revenue and to
reimburse WirelessCo for a certain portion of national expenses that are
deemed to benefit all WirelessCo markets, including the Partnership's markets.
During 1995, the Partnership was not allocated any national expenses by
WirelessCo. Total fees incurred and owed to WirelessCo at March 31, 1996 are
$3,487,639. WirelessCo allocated $1,360,627 of national expenses to the
Partnership for the three months ended March 31, 1996.
The Partnership has a Sales Agency and Billing Collection agreement with
Sprint Communications Company, L.P. ("Sprint") under which the Partnership
acts as an agent to sell, bill and collect for Sprint long distance service
provided to its customers. Additionally, the Partnership purchases various
communications services from Sprint in support of its network infrastructure
and general business and obtains supplemental customer service support from
Sprint. The net cost of services received from Sprint for the year ended
December
F-41
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
31, 1995 and the three months ended March 31, 1996 was $882,306 and
$1,556,930, respectively. Amounts outstanding at December 31, 1995 and March
31, 1996 totaled $711,517 and $2,483,744, respectively.
A company that is partially owned by the chairman of the General Partner
performed consulting services for the Partnership related to the determination
and acquisition of base station sites for the communications system. Amounts
capitalized for these services totaled $1,468,994 and $2,407,400 for the years
ended December 31, 1994 and 1995, respectively. At December 31, 1994 and 1995
and at March 31, 1996, the Partnership owed the company approximately
$141,435, $759,325 and $28,768, respectively.
During 1995, APC granted to certain executives of the Partnership 27,147
stock appreciation rights. All stock appreciation rights entitle the holder to
receive the difference between the fair value of the rights exercised, based
on the fair value of APC's common stock, and the base price ($1,118 per share)
of the exercised rights. The stock appreciation rights are exercisable upon
the sale of a general or limited interest in the Partnership by APC which
results in available cash proceeds, as defined in the respective agreements,
of at least $5 million. Upon exercise of the rights, the holder will receive
cash unless certain conditions are present which would allow APC to pay the
holder in APC stock, promissory notes, or a combination thereof. The stock
appreciation rights terminate upon the earlier to occur of (a) the tenth
anniversary of the grant date, (b) the exercise in full of such rights or (c)
the termination of such rights. In general, the rights expire upon the
employees' termination of employment. Substantially all of the rights were
vested at the grant date.
As of December 31, 1995 and March 31, 1996, there were 21,498 rights
outstanding. During the year ended December 31, 1995, 5,649 rights were
forfeited. No rights were forfeited during the three months ended March 31,
1996. No stock appreciation rights have been exercised. The estimated
liability related to the stock appreciation rights, based on the fair value of
APC's common stock, was approximately $10 million and $22 million at December
31, 1995 and March 31, 1996, respectively, and is being amortized over a
period of approximately six years.
The Partnership leases office space from a limited partnership owned by
officers of APC. Lease payments of $65,215 and $13,560 were paid to the
limited partnership during the year ended December 31, 1995 and the three
months ended March 31, 1996, respectively.
A corporation owned by the chairman of the General Partner provided certain
consulting services in 1994, and in return, the Partnership made payments of
approximately $357,000. In addition, the Partnership paid the owner of the
corporation $100,000 in 1994 for consulting fees.
NOTE 8--COMMITMENTS
In February 1995, the Partnership selected Ericsson, Inc. and Northern
Telecom as the companies to supply the infrastructure equipment for the
communications network. Ericsson supplies switching and base station radio
equipment for the Washington-Baltimore corridor, while Northern Telecom
provides base stations for Maryland's Eastern Shore and western portions of
the Partnership's major trading area.
The contract with Ericsson is a five year acquisition agreement for certain
network hardware, software, handsets and documentation. Although the agreement
is for five years, the initial purchase commitment relates only to the initial
network configuration, which was substantially completed in December 1995 at a
contract price of approximately $47 million. Subsequent to December 31, 1995,
the Partnership has agreed to acquire additional equipment totaling $33.5
million. At June 19, 1996 the Partnership had approximately a $20.7 million
commitment remaining under the agreement.
F-42
<PAGE>
AMERICAN PCS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Northern Telecom agreement is for 2 1/2 years and provides for the
purchase of network hardware, software and documentation as well as the
installation of the equipment. During the agreement period, the Partnership is
required to purchase at least $12 million in communication equipment. At June
19, 1996, the Partnership had approximately a $2.9 million commitment
remaining under the agreement.
The Partnership has handset supply agreements with various vendors extending
over the next 12 to 18 months. At June 19, 1996, the Partnership had
approximately a $51.8 million commitment remaining under these agreements.
F-43
<PAGE>
SPRINT SPECTRUM L.P.
- - --------------------------------------------------------------------------------
Pop Data Regarding Sprint Spectrum Market Areas
<TABLE>
<CAPTION>
MTA ESTIMATED PRICE
NUMBER SPRINT SPECTRUM MARKETS 1995 POPS PER POP (A)
------ -------------------------------------- ------------- -----------
(in Millions)
OWNED MARKETS:
--------------
<S> <C> <C> <C>
1 New York 26.8 $16.76
4 San Francisco-Oakland-San Jose 13.0 17.37
5 Detroit 10.0 8.61
7 Dallas-Ft. Worth 10.5 9.12
8 Boston-Providence 9.7 13.44
12 Minneapolis-St. Paul 6.1 6.63
15 Miami-Ft. Lauderdale 5.7 25.64
17 New Orleans-Baton Rouge 5.0 19.07
19 St. Louis 4.7 24.51
20 Milwaukee 4.6 18.73
21 Pittsburgh 4.0 7.00
22 Denver 4.1 16.60
24 Seattle 4.2 27.48
26 Louisville-Lexington-Evansville 3.6 13.10
27 Phoenix 4.0 21.54
29 Birmingham 3.3 10.97
30 Portland 3.2 11.16
31 Indianapolis 3.0 23.34
32 Des Moines-Quad Cities 2.9 7.00
33 San Antonio 3.2 18.21
34 Kansas City 3.0 8.11
35 Buffalo-Rochester 2.8 6.80
36 Salt Lake City 2.7 17.95
40 Little Rock 2.1 6.01
41 Oklahoma City 1.9 7.00
42 Spokane-Billings 1.9 3.32
43 Nashville 1.9 9.26
46 Wichita 1.1 4.36
48 Tulsa 1.1 15.32
----- ------
TOTAL 150.3 $14.54
45 Omaha (to be contributed) 1.7 3.06
AFFILIATED MARKETS:
-------------------
10 Washington, D.C.-Baltimore (APC) 8.3 $13.16
2 Los Angeles-San Diego (Cox-California) 21.5 $13.16
9 Philadelphia (PhillieCo) 9.1 $9.52
-----
SPRINT SPECTRUM AND AFFILIATES TOTAL 190.9
National Total (A and B Blocks) $15.29
National Total (C Block) $40.00(b)
</TABLE>
- - --------
(a) Based on 1990 Census.
(b) Includes re-auctioned licenses, net of 25% bidding credit.
<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....................................................... 3
Risk Factors............................................................. 13
The Reorganization....................................................... 24
The Company.............................................................. 24
Use of Proceeds.......................................................... 27
Capitalization........................................................... 27
Selected Historical and Pro Forma Financial Data......................... 28
Pro Forma Condensed Financial Statements................................. 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 31
Business................................................................. 35
Management............................................................... 56
Certain Relationships and Related Transactions........................... 63
Principal Security Holders............................................... 65
The Partnership Agreements............................................... 66
Description of Vendor Contracts and Financing............................ 73
Description of the Notes................................................. 78
Certain Federal Income Tax Consequences.................................. 106
Underwriting............................................................. 109
Legal Matters............................................................ 110
Experts.................................................................. 110
Available Information.................................................... 110
Glossary of Selected Terms............................................... 111
Index to Financial Statements............................................ F-1
</TABLE>
---------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
$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
---------------
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 .................................. 100,000
Printing expenses................................................ 600,000
Legal fees and expenses.......................................... 550,000
Blue Sky fees and expenses....................................... 35,000
Trustees' fees and expenses...................................... 10,000
Miscellaneous fees and expenses.................................. 100,362
Other............................................................ 100,000
----------
Total.......................................................... $1,750,000
==========
</TABLE>
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
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* Form of Purchase 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 (included in Exhibit 4.1)
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 (included in Exhibit 4.3)
5.1* Opinion of Simpson Thacher & Bartlett regarding the legality of the
Notes being registered
8.1 Opinion of Simpson Thacher & Bartlett regarding material United States
federal income tax consequences of the purchase, ownership and
disposition 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. [Certain schedules
omitted]
10.2** Procurement and Services Contract, dated as of January 31, 1996,
between MajorCo, L.P. and AT&T Corp. [Certain schedules omitted]
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
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. [Certain
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. [Certain 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
10.12* Assignment, Assumption and Amendment No. 1, dated as of June 21, 1996,
to Procurement and Services Agreement, dated as of January 31, 1996,
between MajorCo, L.P. and AT&T Corp.
10.13* Assignment, Assumption and Amendment No. 1, dated as of June 26, 1996,
to Procurement and Services Contract, dated as of January 31, 1996,
between MajorCo, L.P. and Northern Telecom, Inc.
10.14* Assignment and Assumption, dated as of July 1, 1996, between Sprint
Spectrum Holding Company, L.P., Sprint Spectrum L.P. and Sprint
Spectrum Realty Company, L.P.
10.15* Property Use Agreement, dated as of July 1, 1996, between Sprint
Spectrum Realty Company, L.P. and Sprint Spectrum L.P.
10.16* Assignment and Assumption, dated as of July 1, 1996, between Sprint
Spectrum Holding Company, L.P., Sprint Spectrum L.P. and Sprint
Spectrum Equipment Company, L.P.
10.17* Equipment Lease Agreement, dated as of July 1, 1996, between Sprint
Spectrum Equipment Company, L.P. and Sprint Spectrum L.P. [Schedule
omitted]
10.18* Customer Account and Billing System Agreement, dated as of February
26, 1996, between Sprint Spectrum L.P. and Cincinnati Bell Information
Systems Inc. [Schedules omitted]
10.19* Capital Contribution Agreement, dated as of July 15, 1996, among
Sprint Corporation, Tele- Communications, Inc., Comcast Corporation,
Cox Communications, Inc. and Sprint Spectrum L.P.
10.20 Employment Agreement, dated as of July 29, 1996, between Sprint
Spectrum Holding Company, L.P. and Andrew Sukawaty
10.21 First Amendment, dated as of July 29, 1996, to the Capital
Contribution Agreement, dated July 15, 1996, among Sprint Corporation,
Tele-Communications, Inc., Comcast Corporation, Cox Communications,
Inc. and Sprint Spectrum L.P.
12.1 Not applicable
21.1* Subsidiaries of the Registrants
23.1 Consents of Simpson Thacher & Bartlett (included in Exhibits 5.1 and
8.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Price Waterhouse LLP
23.4 Consent of Simpson Thacher & Bartlett
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>
- - --------
* Previously filed.
** Portions of these Exhibits have been redacted. These portions are being
separately filed with the Commission pursuant to a request for confidential
treatment under Rule 406.
*** Portions of certain of the schedules to these Exhibits have been redacted.
These portions are being filed separately with the Commission pursuant to a
request for confidential treatment under Rule 406.
(b) Financial Statement Schedules
Schedules are omitted for the reason that they are not required or are not
applicable.
II-3
<PAGE>
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 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 AUGUST 12, 1996.
Sprint Spectrum L.P.
By: Sprint Spectrum Holding Company,
L.P., its General Partner
By: /s/ Robert M. Neumeister, Jr.
---------------------------------
Chief Financial Officer
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
* Chief Executive August 12, 1996
- - ------------------------------------- Officer and
RONALD T. LEMAY President
* Chief Technology August 12, 1996
- - ------------------------------------- Officer
ARTHUR A. KURTZE
* Chief Business August 12, 1996
- - ------------------------------------- Development Officer
BERNARD A. BIANCHINO
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
* Chief Financial August 12, 1996
- - ------------------------------------- Officer
ROBERT M. NEUMEISTER, JR.
* General Counsel and August 12, 1996
- - ------------------------------------- Secretary
JOSEPH M. GENSHEIMER
* Partnership Board August 12, 1996
- - ------------------------------------- Representative from
WILLIAM T. ESREY Sprint Spectrum
Holding Company,
L.P.
* Partnership Board August 12, 1996
- - ------------------------------------- Representative from
GARY D. FORSEE Sprint Spectrum
Holding Company,
L.P.
* Partnership Board August 12, 1996
- - ------------------------------------- Representative from
GERALD W. GAINES Sprint Spectrum
Holding Company,
L.P.
* Partnership Board August 12, 1996
- - ------------------------------------- Representative from
ARTHUR B. KRAUSE Sprint Spectrum
Holding Company,
L.P.
* Partnership Board August 12, 1996
- - ------------------------------------- Representative from
JAMES O. ROBBINS Sprint Spectrum
Holding Company,
L.P.
* Partnership Board August 12, 1996
- - ------------------------------------- Representative from
LAWRENCE S. SMITH Sprint Spectrum
Holding Company,
L.P.
</TABLE>
/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 AUGUST 12, 1996.
Sprint Spectrum Finance Corporation
By: /s/ Robert M. Neumeister, Jr.
---------------------------------
VICE PRESIDENT AND TREASURER
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
* President and August 12, 1996
- - ------------------------------------- Director
RONALD T. LEMAY
* Vice President, August 12, 1996
- - ------------------------------------- Treasurer
ROBERT M. NEUMEISTER, JR. (Principal
Financial and
Accounting
Officer), and
Director
* Secretary and August 12, 1996
- - ------------------------------------- Director
JOSEPH M. GENSHEIMER
</TABLE>
/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 Purchase 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 (included in Exhibit 4.1)
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 (included in Exhibit 4.3)
5.1* Opinion of Simpson Thacher & Bartlett regarding the
legality of the Notes being registered
8.1 Opinion of Simpson Thacher & Bartlett regarding
material United States federal income tax consequences
of the purchase, ownership and disposition 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. [Certain schedules omitted]
10.2** Procurement and Services Contract, dated as of January
31, 1996, between MajorCo, L.P. and AT&T Corp. [Certain
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. [Certain 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. [Certain 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 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ------------
<C> <S> <C>
10.12* Assignment, Assumption and Amendment No. 1, dated as of
June 21, 1996, to Procurement and Services Agreement,
dated as of January 31, 1996, between MajorCo, L.P. and
AT&T Corp.
10.13* Assignment, Assumption and Amendment No. 1, dated as of
June 26, 1996, to Procurement and Services Contract,
dated as of January 31, 1996, between MajorCo, L.P. and
Northern Telecom, Inc.
10.14* Assignment and Assumption, dated as of July 1, 1996,
between Sprint Spectrum Holding Company, L.P., Sprint
Spectrum L.P. and Sprint Spectrum Realty Company, L.P.
10.15* Property Use Agreement, dated as of July 1, 1996,
between Sprint Spectrum Realty Company, L.P. and Sprint
Spectrum L.P.
10.16* Assignment and Assumption, dated as of July 1, 1996,
between Sprint Spectrum Holding Company, L.P., Sprint
Spectrum L.P. and Sprint Spectrum Equipment Company,
L.P.
10.17* Equipment Lease Agreement, dated as of July 1, 1996,
between Sprint Spectrum Equipment Company, L.P. and
Sprint Spectrum L.P. [Schedule omitted]
10.18* Customer Account and Billing System Agreement, dated as
of February 26, 1996, between Sprint Spectrum L.P. and
Cincinnati Bell Information Systems Inc. [Schedules
omitted]
10.19* Capital Contribution Agreement, dated as of July 15,
1996, among Sprint Corporation, Tele-Communications,
Inc., Comcast Corporation, Cox Communications, Inc. and
Sprint Spectrum L.P.
10.20 Employment Agreement, dated as of July 29, 1996,
between Sprint Spectrum Holding Company, L.P. and
Andrew Sukawaty
10.21 First Amendment, dated as of July 29, 1996, to the
Capital Contribution Agreement, dated July 15, 1996,
among Sprint Corporation, Tele-Communications, Inc.,
Comcast Corporation, Cox Communications, Inc. and
Sprint Spectrum L.P.
12.1 Not applicable.
21.1* Subsidiaries of the Registrants
23.1 Consents of Simpson Thacher & Bartlett (included in
Exhibits 5.1 and 8.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Price Waterhouse LLP
23.4 Consent of Simpson Thacher & Bartlett
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>
- - -------
* Previously filed.
** Portions of these Exhibits have been redacted. These portions are being
separately filed with the Commission pursuant to a request for confidential
treatment under Rule 406.
*** Portions of certain of the schedules to these Exhibits have been redacted.
These portions are being filed separately with the Commission pursuant to a
request for confidential treatment under Rule 406.
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS-REFFERENCE
- - ---------- ------------------------------------------
Inside A map of the continental United States
Front Gate divided into MTAs showing the PCS
license coverage of the Company through
direct ownership or affiliation.
<PAGE>
EXHIBIT 8.1
August 12, 1996
--
Sprint Spectrum L.P.
4717 Grand Avenue, Fifth Floor
Kansas City, Missouri 64112
Ladies and Gentlemen:
We have acted as counsel to Sprint Spectrum L.P. (the "Company") in
connection with the preparation and filing of the Registration Statement on Form
S-1 filed with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended, in respect of Senior Notes and Senior Discount Notes to
be offered by the Company. In that connection, we have given the opinion
contained in the section entitled "Certain Federal Income Tax Consequences" in
the Registration Statement.
We hereby confirm that the section entitled "Certain Federal
Income Tax Consequences" sets forth our opinion regarding the material United
States federal income tax consequences of the purchase, ownership and
disposition of Notes as of the effective date of the Registration Statement and
hereby consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the use of our name in the section entitled "Certain Federal
Income Tax Consequences" in the Registration Statement.
We are members of the Bar of the State of New York, and we do not
express any opinion herein concerning any law other than the federal law of the
United States.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE>
EXHIBIT 10.1
PROCUREMENT AND SERVICES CONTRACT
---------------------------------
between
MAJORCO L.P.,
Owner
and
NORTHERN TELECOM INC.,
Vendor
Dated as of January 31, 1996
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406.
<PAGE>
PROCUREMENT AND SERVICES CONTRACT
---------------------------------
This Procurement and Services Contract (the "Contract") is made and is
effective as of January 31, 1996 (the "Effective Date"), by and between MajorCo
L.P., a Delaware limited partnership (the "Owner"), and Northern Telecom Inc., a
Delaware corporation (the "Vendor" and, together with the Owner, the "Parties").
RECITALS:
--------
A. The Federal Communications Commission (the "FCC") granted to the
Owner or certain of its Affiliates (as defined below) personal communications
services licenses (the "PCS FCC Licenses") to build and operate PCS Systems (as
defined below) in specified geographic areas in the United States;
B. The Owner desires to have the Vendor engineer and construct PCS
Systems in the geographic areas specified on Schedule 4 (collectively, the
"System Areas") pursuant to the terms of this Contract;
C. The Vendor, itself or through its Subcontractors (as defined
below), desires to provide Products (as defined below) and Services (as defined
below) to the Owner in connection with the engineering and construction of PCS
Systems in the System Areas, including, but not limited to, the Vendor's
obligation to engineer, equip, install, build, test and service an operating PCS
System in each System Area in accordance with the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in this Contract, the Owner and the Vendor hereby agree as follows:
SECTION 1 DEFINITIONS
1.1 Definitions. In addition to the terms listed below, certain
-----------
additional terms are defined in Schedule 1 and in the Exhibits, subject to the
provisions of subsection 1.2 hereof. As used in this Contract, the following
terms have the following meanings:
"AAA" means the American Arbitration Association.
---
"Acceptance Certificates" means the collective reference to the
-----------------------
Factory Test Certificate, the Initial PCS System Certificate, the Substantial
Completion Certificate and the Final Acceptance Certificate.
"Acceptance Tests" means the collective reference to the performance
----------------
and reliability demonstrations and tests specified in Exhibits B1, B2 and B3 to
determine whether the Products, the Services, any of the PCS Systems and/or the
System meet the Specifications and the terms and conditions of this Contract.
<PAGE>
2
"Additional Affiliate Agreement" has the meaning ascribed thereto in
------------------------------
subsection 3.3.
"Additional Affiliate Arrangement" means a formal arrangement in
--------------------------------
connection with the Owner's build-out of the Nationwide Network between the
Owner and a Person to be designated an Additional Affiliate under the terms of
this Contract which arrangement must include agreements on marketing and any of
one or more of the following characteristics: backhaul, billing systems, resale
agreements (other than or in addition to marketing agreements) and/or revenue
sharing. In any event, the Parties understand that roaming agreements and/or
arrangements alone will not constitute an Additional Affiliate Arrangement
unless at least one of the other characteristics listed above (other than or in
addition to marketing agreements) is also made a part of any such agreement
and/or arrangement.
"Additional Affiliate" has the meaning ascribed thereto in
--------------------
subsection 3.1.
"Affiliates" means the collective reference to the Initial
----------
Affiliates and the Additional Affiliates.
"ANSI" means the American National Standards Institute.
----
"APC" means American PCS, L.P., a Delaware limited partnership.
---
"Applicable Laws" means, as to any Person, the certificate of
---------------
incorporation and by-laws or other organizational or governing documents of such
Person, all North American or foreign laws (including, but not limited to,
Environmental Laws), treaties, ordinances, judgments, decrees, injunctions,
writs, orders and stipulations of any court, arbitrator or governmental agency
or authority and statutes, rules, regulations, orders and interpretations
thereof of any federal, state, provincial, county, municipal, regional,
environmental or other Governmental Entity, instrumentality, agency, authority,
court or other body (i) applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject or (ii)
having jurisdiction over a or any part of any PCS System, the System or the Work
to be performed pursuant to the terms of this Contract.
"Applicable Permits" means any waiver, exemption, zoning, building,
------------------
variance, franchise, permit, authorization, approval, license or similar order
of or from any North American or foreign, federal, state, provincial, county,
municipal, regional, environmental or other governmental body, instrumentality,
agency, authority, court or other body having jurisdiction over all or any part
of any PCS System, the System or the Work to be performed pursuant to the terms
of this Contract.
"Backwards Compatibility" or "Backwards Compatible" means that any
-------------------------------------------------
referenced prior Software Revision Level or Levels of the applicable Software
and any referenced prior Equipment Revision Level or Levels of the applicable
Equipment, as the case may be, remain fully functional in accordance with and up
to the performance levels to which it was performing immediately prior to any
such enhancement and/or revision after the
<PAGE>
3
integration with the succeeding Software Revision Level or Equipment Revision
Level, as the case may be, and that after such integration such prior Software
Revision Level or Equipment Revision Level loses no functionality and such
succeeding Software Revision Level or Equipment Revision Level interoperates
with all such functionalities of such prior Software Revision Level or Equipment
Revision Level.
"Base Station ("BTS")" means the radio subsystem that handles the
--------------------
Owner's PCS radio traffic in a designated cell. The Base Station includes all
amplification, modulation, synchronization and other circuitry required to
process a radio signal. The inputs to a Base Station are a landline signal
(e.g. T1) and the radio signal that is fed into antenna lines.
"Building Ready Date" has the meaning ascribed thereto in subsection
-------------------
2.5.
"Cable Microcell Integrator ("CMI")" means a form of cable microcell
----------------------------------
integrator that provides for transportation of wireless communication signals
over a cable TV distribution plant. The CMI takes certain signals from the
cable TV distribution plant (the "cable PCS band or bands") and suitably
heterodynes, filters and amplifies these signals such that they can be radiated
by a CMI antenna or antennas in the designated PCS band to PCS wireless
handsets. The CMI takes signals received from the PCS wireless handsets from
one or more CMI receiving antennas and suitably heterodynes, filters and
amplifies these signals for transportation by the cable TV distribution plant to
a Headend Interface Converter or Distributive Cable Access Provider ("DCAP") at
a PCS Base Station. Additionally, the CMI unit responds to control signaling
and provides status signals. The CMI is normally collocated with the cable TV
distribution plant and takes power from the cable plant.
"CDMA" means code division multiple access as specified in ANSI-J-
----
STD-008.
"Change Orders" has the meaning ascribed thereto in subsection 7.3.
-------------
"Civil Work" means the labor and materials necessary in the
----------
performance of demolition, construction and renovation work (e.g., roads,
grading, fencing and structural improvements, including, but not limited to, any
buildings and towers) in order to construct a System Element Facility in
accordance with Exhibit E.
"Completion Cure Period" has the meaning ascribed thereto in
----------------------
subsection 15.3.
"Configuration Engineering" means the engineering required to
-------------------------
establish System Element configuration including, without limitation, preparing
component, inventory and layout drawings, Equipment labels, cable tray layout
drawings, and "as-built" drawings and Documentation. Configuration Engineering
also includes the design, power distribution and supply for each of the System
Elements.
"Continental" means Continental Cablevision, Inc.
-----------
<PAGE>
4
"Contract" has the meaning ascribed thereto in the prefatory
--------
paragraph to this Contract.
"Contract Documents" means this Contract and all of the Exhibits and
------------------
Schedules attached hereto.
"Contract Price" has the meaning ascribed thereto in subsection 6.1.
--------------
"CSR" has the meaning ascribed thereto in subsection 2.26.2.
---
"Customer" means any CDMA 1900 customer doing business in North
--------
America of the Vendor or any CDMA 1900 customer doing business in North America
of any of the Vendor's affiliates or subsidiaries.
"Custom Material" has the meaning ascribed thereto in subsection
---------------
11.10.1.
"Defects and Deficiencies," "Defects or Deficiencies" or "Defective""
-------------------------------------------------------------------
means any one or a combination of the following or items of a similar nature:
(a) when used with respect to the performance of labor or service items
of Work (including any work by any Subcontractor), such items that are not
provided in a workmanlike manner and in accordance with the standards and/or
Specifications set forth herein;
(b) when used with respect to structures, materials, Equipment and
Software items of Work (including any Work by any Subcontractor), such items
that are not (i) new and of good quality and free from improper workmanship and
defects in accordance with the standards set forth herein and standards of good
procurement, manufacturing and construction standards, or (ii) free from errors
and omissions in design or engineering services in light of such standards; or
(c) in general, (i) Work (including any Work by any Subcontractor) that
does not conform to the Specifications and/or requirements of this Contract,
(ii) Work (including any Work by any Subcontractor) that is not free from
excessive corrosion or erosion or (iii) any design, engineering, start-up
activities, materials, Equipment, Software, tools, supplies, Installation or
Training that (1) does not conform to the standards and/or Specifications set
forth herein, (2) has improper or inferior workmanship, (3) would materially and
adversely affect the ability of the System and/or any PCS System and/or any
material part thereof to meet the performance criteria specified in Exhibit F on
a consistent and reliable basis or (4) would materially and adversely affect the
continuous operation of the System and/or any PCS System or any material part
thereof.
"Discontinued Products" has the meaning ascribed thereto in
---------------------
subsection 10.2.
<PAGE>
5
"Documentation" means the documentation for the System and/or any
-------------
PCS System and/or any material part thereof.
"Effective Date" has the meaning ascribed thereto in the prefatory
--------------
paragraph to this Contract.
"E1 Emergency Condition ("E1")" has the meaning ascribed thereto in
-----------------------------
subsection 2.26.3.
"E2 Emergency Condition ("E2")" has the meaning ascribed thereto in
-----------------------------
subsection 2.26.3.
"Emergency Technical Assistance ("ETA")" means the provision of
--------------------------------------
emergency technical assistance to the Owner for the purpose of diagnosing and
resolving a problem which adversely affects the System and/or any PCS System
and/or a material part thereof, its operation and/or its service pursuant to and
in connection with subsection 2.26.3.
"Engineer" means the engineer or engineers appointed from time to time
--------
by the Owner to do certain work and/or inspections and reviews on behalf of the
Owner and/or provide advice or information to the Owner in connection with the
System and/or any PCS System and/or any part thereof.
"Engineering" means all of the engineering required to be done by the
-----------
Vendor to complete the System in accordance with the Specifications including,
but not limited to, RF Engineering, Configuration Engineering, Network
Interconnection Engineering and Facilities Engineering done in accordance with
the Specifications and the CDMA standards.
"Engineering Warranty Period" has the meaning ascribed thereto in
---------------------------
subsection 17.3.
"Environmental Laws" means any and all North American and foreign,
------------------
federal, state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Entity, or
requirements of law (including, without limitation, common law) relating in any
manner to contamination, pollution, or protection of human health or the
environment, as now or may at any time hereafter be in effect.
"Equipment" means all equipment, hardware and other items of personal
---------
property which are required to construct and operate the System and/or any PCS
System and/or any part thereof in accordance with the Specifications including,
without limitation, additional equipment required as a result of the expansion
or additional coverage required pursuant to subsection 2.2 and the equipment
listed on Exhibit D or on Schedule 7 (parts A and B).
"Equipment Combined Release" has the meaning ascribed thereto in
--------------------------
subsection 13.1.
<PAGE>
6
"Equipment Enhancements" means modifications or improvements made to
----------------------
the Equipment which improve performance or capacity of the Equipment.
"Equipment Revision Level" means each version of an Item of Equipment
------------------------
that reflects any modification or change from the immediately preceding version
of such Item of Equipment.
"Equipment Upgrade" means a change or modification in any Equipment
-----------------
which fixes or otherwise corrects faults, design shortcomings or shortcomings in
meeting the Specifications, or failure rates, or in any such case, that is
necessary to enable performance in accordance with the most current version of
the Equipment (which may be referred to by the Vendor as "class A changes").
"Escrow Agreement" has the meaning ascribed thereto in subsection
----------------
11.8.
"Exchange Act" has the meaning ascribed thereto in subsection 27.22.
------------
"Expansions" means any additional Products or Services resulting from
----------
a modification by the Owner to the Specifications, the performance criteria set
forth in Exhibit F or the Project Milestones set forth on Exhibit A resulting in
a change to the System and/or any PCS System and/or any material part thereof,
including, but not limited to, the extension or expansion of the System and/or
any PCS System (i) into geographic areas outside of the System Areas covered by
the PCS Systems identified in Schedule 4, or (ii) to increase capacity and/or
performance of the System and/or any PCS System beyond the performance criteria
and/or Specifications originally contemplated herein. Expansions will not
include any additional Products or Services required to meet the Specifications
applicable to the Initial System.
"Extraordinary Transportation" means the Vendor's or its
----------------------------
Subcontractors' transport of Products and/or other materials pursuant to the
terms of this Contract where the circumstances of such transport require the
Vendor to use any one or a combination of the following extraordinary means of
transport and/or extraordinary methods of achieving access to the Owner's
facilities: (i) four-wheel drive vehicle (other than those typically used for
the delivery of Equipment), (ii) helicopter, (iii) boat, (iv) airplane, (v)
bulldozer, (vi) clear physical obstructions requiring the building of a new road
by the Vendor or its Subcontractors or (vii) a construction crane.
"Facilities Engineering" means the engineering required to design each
----------------------
System Element Facility including, without limitation pursuant to and as
required by Exhibit E and Exhibit B2, building layout, drawings and relevant
Specifications for the construction of the buildings, towers, generators, cable
and antennae and all other items required to make the System Element Facility
functional. Facilities Engineering does not include Configuration Engineering.
"Facilities Preparation Services" means all Facilities Engineering,
-------------------------------
Civil Work, Site Plan Architectural Work, Structural Architectural Work, and
Utilities Work, all of
<PAGE>
7
which must be performed in accordance with the Specifications. Facility
Preparation Services does not include Site Acquisition or Microwave Relocation.
"Facilities Preparation Services Warranty Period" has the meaning
-----------------------------------------------
ascribed thereto in subsection 17.3(c).
"Factory Test Certificate" means a document submitted by the Vendor to
------------------------
the Owner and signed by an authorized representative of the Owner and an
authorized officer of the Vendor stating that in accordance with the
requirements of Exhibit B3 and this Contract the Vendor has successfully
completed all factory tests on the Products in accordance with the requirements
of Exhibit B3 and this Contract.
"FCC" has the meaning ascribed thereto in the recitals to this
---
Contract.
"Final Acceptance" means, as to any PCS System, the successful
----------------
completion by the Vendor of all of the final acceptance tests and requirements
applicable to such PCS System set forth in Exhibit B3 in accordance with the
requirements of Exhibit B3 and the terms of this Contract.
"Final Acceptance Certificate" means a document submitted by the
----------------------------
Vendor to the Owner and signed by an authorized officer of the Vendor stating
that the Vendor has successfully completed the Final Acceptance Acceptance Tests
applicable to the relevant PCS System in accordance with the requirements of
Exhibit B3.
"Final RF Engineering Plan" has the meaning ascribed thereto in
-------------------------
subsection 2.6.
"Final RF Review Period" has the meaning ascribed thereto in
----------------------
subsection 2.6.
"Final Site Count" has the meaning ascribed thereto in subsection
----------------
2.6.
"Financing Interim Period" has the meaning ascribed thereto in
------------------------
subsection 24.9.
"Force Majeure" means the following:
-------------
(a) Acts of God, epidemic, earthquake, landslide, lightning, fire,
explosion, accident, tornado, drought, flood, hurricane, or extraordinary
weather conditions more severe than those normally and typically
experienced in the affected geographic area constituted by each of the
specified System Areas in which the Vendor is seeking to claim Contract
suspension due to Force Majeure;
(b) Acts of a public enemy, war (declared or undeclared), blockade,
insurrection, riot or civil disturbance, sabotage, quarantine, or any
exercise of the police power by or on behalf of any public entity;
<PAGE>
8
(c) (i) The valid order, judgment or other act of any federal, state or
local court, administrative agency, Governmental Entity or authority
issued after the Effective Date; (ii) with respect to the Vendor, the
suspension, termination, interruption, denial or failure of or delay in
renewal or issuance of any Applicable Permit required by this Contract to
be obtained by the Owner; (iii) with respect to the Owner, the
suspension, termination, interruption, denial or failure of or delay in
renewal or issuance of any Applicable Permit required by this Contract to
be obtained by the Vendor; or (iv) a change in law; provided that no such
-------- ----
order, judgment, act, event or change is the result of the action or
inaction of, or breach of this Contract by, the Party relying thereon;
(d) Strikes, boycotts or lockouts, except for any such strike,
boycott or lockout involving the employees of the Vendor or the employees
of a material Subcontractor;
(e) A partial or entire delay or failure of utilities; or
transportation embargoes; or
(f) The presence of (i) any Hazardous Waste on or at any System
Element Location which materially interferes with the Work to be done
thereon or otherwise materially endangers the safety of any personnel at
such location; (ii) any unknown historical or archeological sites which
are not shown or indicated in the survey of any System Element Locations
and of which the Vendor could not have reasonably been expected to be
aware; or (iii) any mining or water recovery activities (other than such
activities by the Vendor or its Subcontractors) at or under any System
Element Location after the Effective Date.
Events of Force Majeure include the failure of a Subcontractor to
furnish labor, services, materials, or equipment in accordance with its
contractual obligations, only if such failure is itself due to an event of Force
Majeure. A Force Majeure does not include any delay in performance to the
extent due to the failure of the Vendor or any Subcontractor to provide an
adequate number of engineers or other workmen or to manufacture or procure an
adequate amount of Equipment, Software and/or Services.
"Friable Asbestos" has the meaning ascribed thereto in subsection
----------------
20.4.
"Governmental Entity" means any nation or government, any state,
-------------------
province or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranteed Substantial Completion Date" means the date which is
--------------------------------------
defined in Exhibit A as "Milestone M8" as such date may be delayed for the Non-
Designated System Areas pursuant to subsection 2.7(b) and any other System Area
pursuant to subsection 15.4(c).
"Hazardous Waste" means any and all hazardous or toxic substances,
---------------
wastes, materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum
<PAGE>
9
products, asbestos and asbestos-containing materials, pollutants, contaminants,
polychlorinated biphenyls and any and all other materials or substances,
regulated pursuant to any Environmental Laws or that could result in the
imposition of liability under any Environmental Laws.
"Headend Interface Converter ("HIC")" means a form of CMI that
-----------------------------------
provides for transportation of wireless communication signals over a cable TV
distribution plant. The HIC takes signals from the PCS Base Station transmitter
and suitably heterodynes, filters and amplifies these signals for processing by
the PCS Base Station receiver. Additionally, the HIC provides reference and
control signals to the CMI units and receives and processes status signals from
the CMI unit.
"Independent Auditor" means any of the Persons set forth on Schedule
-------------------
15 or any Person mutually agreeable to the Parties.
"Indemnitees" has the meaning ascribed thereto in subsection 20.1.
-----------
"Initial Affiliates" means the collective reference to each of the
------------------
Persons set forth on Schedule 5.
"Initial Affiliate Agreement" has the meaning ascribed thereto in
---------------------------
subsection 3.2.
"Initial Commitment" has the meaning ascribed thereto in subsection
------------------
7.1.
"Initial PCS System" means that PCS System, or a portion thereof,
------------------
designated by the Owner within one hundred twenty (120) days of the Effective
Date as the Initial PCS System in which Substantial Completion must take place
in accordance with the terms of Exhibit B3 prior to and as a condition of the
Owner's acceptance of Substantial Completion of any other PCS System within the
Initial System; provided that at any time after the designation of the Initial
-------- ----
PCS System prior to the Substantial Completion of the first PCS System within
the Initial System the Parties may mutually agree to change the designation of
the Initial PCS System.
"Initial PCS System Certificate" means a document submitted by the
------------------------------
Vendor to the Owner and signed by an authorized representative of the Owner and
an authorized officer of the Vendor stating that the Vendor has successfully
completed the Acceptance Tests applicable to the Initial PCS System in
accordance with the requirements of Exhibit B3.
"Initial System" means the build-out of that portion of the System
--------------
Areas as shown on Schedule 4 prior to any Expansions or Owner requests for
additional coverage for such System Areas pursuant to the terms of this
Contract.
"Initial Term" has the meaning ascribed thereto in subsection 5.1.
------------
<PAGE>
10
"In Revenue Service" means the commercial operation of any PCS System,
------------------
or a portion thereof, exclusive of operation for purposes of conducting
Acceptance Tests; provided that In Revenue Service will not by itself constitute
-------- ----
acceptance of any such PCS System or any portion thereof.
"Inspector" means a qualified Person designated as an authorized
---------
representative of the Owner assigned to make all necessary inspections of the
Work, or of the labor, materials and equipment furnished or being furnished by
the Vendor or any of its Subcontractors at the System Element Locations and the
other sites where the Vendor or any Subcontractor is prosecuting the Work,
subject to appropriate safety, security and confidentiality requirements.
"Installation" means the performance and supervision by the Vendor of
------------
all installation of Products within the System and/or any PCS System.
"Intellectual Property Rights" has the meaning ascribed thereto in
----------------------------
subsection 14.2.
"Interim Delay Penalty" has the meaning ascribed thereto in
---------------------
subsection 15.2.
"Interim Milestone" has the meaning ascribed thereto in subsection
-----------------
15.2.
"Interoperability" means (i) the ability of the System and/or any PCS
----------------
System and/or any material part thereof to interconnect and successfully operate
with the equipment and software of other Systems and/or PCS Systems and/or any
material part thereof of the Vendor and/or the Other Vendors and/or other
suppliers whose equipment and software also meet the relevant ANSI standards and
other Specifications identified in Exhibit D and (ii) the ability of each of the
Products to operate with one another and to operate with and within the System,
including, but not limited to, the ability of the handsets (to be delivered
pursuant to subsection 2.3) to operate with and within the System, all in
accordance with the Specifications. Since certain sections of the ANSI
standards are currently undefined, and certain sections are left available for
independent development by suppliers, the potential for such interoperability or
incompatibility with properly designed systems exists, and must be resolved by
the Vendor or any Subcontractor providing PCS Systems to the Vendor in
accordance with the terms hereof.
"Item" means any item at any time listed in any of the Vendor's price
----
lists and it specifically includes, without limitation, all Software Upgrades,
Software Enhancements, Equipment Upgrades, Equipment Enhancements and
modifications, enhancements, updates or other revisions of any kind in any such
item, spare parts with respect to any of the foregoing and any other PCS/CDMA
related item.
"Late Completion Payment Cap" has the meaning ascribed thereto in
---------------------------
subsection 15.3.
<PAGE>
11
"Late Completion Payments" has the meaning ascribed thereto in
------------------------
subsection 15.3.
"Liabilities" has the meaning ascribed thereto in subsection 20.1.
-----------
"Liquidated Damages" has the meaning ascribed thereto in subsection
------------------
15.1.
"Maintenance and Instruction Manuals" means the manuals prepared by
-----------------------------------
the Vendor and delivered to the Owner pursuant to subsection 2.21 containing
detailed procedures and specifications for the ongoing maintenance of the
System.
"Major Portion" of the Work means a segregated portion of the Work
-------------
with a cost of ten million dollars ($10,000,000) or more.
"MFC Certificate" has the meaning ascribed thereto in subsection
---------------
26.1.
"Microwave Delay Period" has the meaning ascribed thereto in
----------------------
subsection 2.37.
"Microwave Relocation" means the process by which incumbent point to
--------------------
point microwave users of the 1850 - 1990 Mhz frequency spectrum are moved to
other frequencies or alternate transmission facilities in order to clear the
licensed PCS spectrum for broadband wireless service.
"Microwave Relocation Completion" means, with respect to any given PCS
-------------------------------
System, the point at which the Owner will have finished sufficient Microwave
Relocation in such PCS System to permit the commercially viable and marketable
operation of such PCS System in accordance with the terms of this Contract.
"Minimum Commitment" has the meaning ascribed thereto in subsection
------------------
7.2.
"Nationwide Network" means all of the PCS Systems built or to be owned
------------------
and/or operated by the Owner or its Affiliates in North America.
"NDAB" means the New Development Advisory Board established pursuant
----
to the terms of this Contract including subsections 2.11, 2.31 and 2.32.
"Net Price" means the final price paid by any Customer after all
---------
discounts, reductions, rebates, volume discounts or adjustments of any kind are
applied, whether under the original contract of purchase, as it may be amended,
supplemented or otherwise modified from time to time, or any supplemental,
separate, or complimentary transaction.
"Network Interconnection" means the transmission linkage between Base
-----------------------
Stations and MSCs and between MSCs and PSTNs but does not include Network
Interconnection Engineering. Typically T1 transmission links are used for
connectivity.
<PAGE>
12
"Network Interconnection Engineering" means the traffic engineering
-----------------------------------
among all System Elements within the System.
"NewTelCo" means NewTelCo. L.P., a Delaware limited partnership.
--------
"Non-Designated System Areas" means the collective reference to the
----------------------------
four System Areas not set forth in the notice provided to the Vendor by the
Owner pursuant to subsection 15.4(c).
"Non-Essential Equipment" means all Equipment listed on part B of
-----------------------
Schedule 7.
"Non-Essential Equipment Warranty Period" has the meaning ascribed
---------------------------------------
thereto in subsection 17.2.
"North America" means the United States, Canada (including the
-------------
Province of Quebec) and Mexico.
"Notice to Proceed" means a written notice given by the Owner to the
-----------------
Vendor in the form attached hereto as Schedule 9 and in compliance with the
provisions of this Contract, fixing the date on which the Vendor will have the
full right, in accordance with the terms of this Contract, and the full
obligation, subject to the terms of this Contract, to commence the Work to be
performed under this Contract.
"Notice to Proceed Date" means the date on which any Notice to Proceed
----------------------
is issued by the Owner in accordance with the terms of this Contract.
"OCC" has the meaning ascribed thereto in subsection 2.26.2.
---
"OM&P" has the meaning ascribed thereto in subsection 2.23.
----
"Operating Manuals" means the manuals to be prepared by the Vendor and
-----------------
delivered to the Owner pursuant to subsections 2.20, 2.22 and 2.23 containing
detailed procedures and specifications for the operation of the System and/or
any part thereof.
"Operative" has the meaning ascribed thereto in subsection 27.26.
---------
"Other Vendors" means vendors, other than the Vendor, with whom the
-------------
Owner has entered, or may enter in the future, into a contract for the provision
of products and services for the engineering and construction of any portion of
the Nationwide Network. Other Vendors does not include any Subcontractors in
connection with the Work to be performed under this Contract in their capacity
as Subcontractors.
"Outage" has the meaning ascribed thereto in subsection 17.5.
------
<PAGE>
13
"Owner" has the meaning ascribed thereto in the prefatory paragraph
-----
to this Contract.
"Owner Loss" means an insured loss incurred by the Owner relating to
----------
the System.
"Owner's Succeeding Entity" has the meaning ascribed thereto in
-------------------------
subsection 27.23.
"Parties" has the meaning ascribed thereto in the prefatory
-------
paragraph to this Contract.
"P1 Major Condition ("P1")" has the meaning ascribed thereto in
-------------------------
subsection 2.26.3.
"P2 Significant Problem ("P2")" has the meaning ascribed thereto in
-----------------------------
subsection 2.26.3.
"P3 Minor Problem ("P3")" has the meaning ascribed thereto in
-----------------------
subsection 2.26.3.
"Partners" means the collective reference to Sprint Spectrum, L.P., a
--------
Delaware limited partnership and/or Sprint Corporation ("Sprint"), TCI Network
Services, a Delaware general partnership ("TCI"), Cox Telephony Partnership, a
Delaware general partnership ("Cox"), and Comcast Telephony Services, a Delaware
general partnership ("Comcast").
"Patent License" has the meaning ascribed thereto in subsection
--------------
14.5.
"PCS" means personal communication services authorized by the FCC.
---
"PCS FCC Licenses" has the meaning ascribed thereto in the recitals
----------------
of this Agreement.
"PCS System" means all Products and other equipment, tools and
----------
software, all System Element Sites and any property located thereat necessary or
required to provide PCS in a given specified System Area.
"Person" means an individual, partnership, limited partnership,
------
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity of whatever
nature.
"Phillieco" means Phillieco L.P.
---------
"Preliminary RF Design" has the meaning ascribed thereto in
---------------------
subsection 2.6.
<PAGE>
14
"Product Warranty Period" has the meaning ascribed thereto in
-----------------------
subsection 17.1.
"Products" means the collective reference to the Equipment and the
--------
Software provided by the Vendor or any Subcontractor pursuant to and in
accordance with the terms of this Contract.
"Project Milestones" means the collective reference to the milestone
------------------
dates and intervals as set forth in Exhibits A1 and A2, each a "Milestone."
"Proprietary Information" has the meaning ascribed thereto in
-----------------------
subsection 27.19.
"Punch List" means that list prepared in conjunction with the
----------
Acceptance Tests and included in any Acceptance Certificate, which contains one
or more immaterial non service-affecting items (specifying the cost of
completing such items) which have not been fully completed by the Vendor as of
the Substantial Completion of any PCS System; provided that the aggregate price
-------- ----
of completing such items will not exceed ten percent (10%) of the Contract Price
for any such PCS System, or in the case of acceptance of a System Element
Facility ten percent (10%) of the cost of the Civil Work related thereto, and
such incomplete portion of the Work will not during its completion, materially
impair the normal daily operation of such PCS System in accordance with the
Specifications.
"Qualcomm" has the meaning ascribed thereto in subsection 21.1.5.
--------
"Reviewers" has the meaning ascribed thereto in subsection 2.14.
---------
"RF" means radio frequency.
--
"RF Engineering" means radio frequency engineering required in
--------------
connection with the architectural design of the System and/or any PCS System.
"RF Services Warranty Period" has the meaning ascribed thereto in
---------------------------
subsection 17.3(b).
"RFP" has the meaning ascribed thereto in subsection 11.10.1.
---
"RTM License" has the meaning ascribed thereto in subsection 11.7.
-----------
"RTU License" has the meaning ascribed thereto in subsection 11.1.
-----------
"Services" means the collective reference to all of the services to be
--------
conducted by the Vendor as part of the Work pursuant to the terms of this
Contract including, but not limited to, Facilities Preparation Services, RF
Engineering, System Maintenance Support, System Support Services and other
repair and maintenance services, performed in accordance with the terms of this
Contract including, but not limited to, the Specifications.
<PAGE>
15
Services does not include Site Acquisition, Network Interconnection or Microwave
Relocation.
"Services Warranty Periods" has the meaning ascribed thereto in
-------------------------
subsection 17.3(c).
"Site Acquisition" means the services to be performed by the Owner
----------------
and/or its subcontractors necessary for identifying and acquiring sufficient
rights to the System Element Locations within the System Areas including all
requisite zoning approvals and all building approvals required by any
Governmental Entity; provided that Site Acquisition does not include any of the
-------- ----
Site Plan Architectural Work.
"Site Acquisition Substantial Completion" means, with respect to any
---------------------------------------
PCS System, the point at which the Owner will have acquired, by purchase, lease
or otherwise, rights to a sufficient number of System Element Locations within
the specified System Area to be covered by such PCS System such that the
performance criteria specified in Exhibit F applicable to such PCS System would
be substantially satisfied in the reasonable opinion of the Owner subject to the
reasonable acceptance of the Vendor. If the Vendor upon receiving notice from
the Owner that Site Acquisition Substantial Completion has been achieved in any
given PCS System disagrees with the Owner's claim, then the Vendor will have ten
(10) days to detail its disagreement in writing to the Owner and an Independent
Auditor chosen by the Owner and such Independent Auditor will have ten (10)
business days from the receipt of such writing to make a determination whether
or not the Owner's claim of Site Acquisition Substantial Completion is
reasonable. The Independent Auditor will have no discretion or authority to
provide the Parties with any answer other than whether in its judgment the
Owner's claim is reasonable. If the Parties still disagree in good faith with
the determination by the Independent Auditor such dispute will be referred to
arbitration pursuant to the terms of subsection 23.1 for final resolution.
"Site Acquisition Substantial Completion Date" means with respect to
--------------------------------------------
any PCS System the date on which the Owner will have achieved Site Acquisition
Substantial Completion.
"Site Plan Architectural Work" means the preparation of architectural
----------------------------
and/or engineering drawings, plans and/or specifications necessary to obtain
zoning permits and/or approvals, building permits and/or approvals and/or
conditional use permits for any given System Element Facility.
"Software" means (a) all computer software furnished hereunder for use
--------
with any Equipment including, but not limited to, computer programs contained on
a magnetic or optical storage medium, in a semiconductor device, or in another
memory device or system memory consisting of (i) hardwired logic instructions
which manipulate data in central processors, control input-output operations,
and error diagnostic and recovery routines, or (ii) instruction sequences in
machine-readable code furnished hereunder that control call processing,
peripheral equipment and administration and maintenance functions, (b) any
Software Enhancements, Software Features and Software Upgrades furnished by the
Vendor
<PAGE>
16
to the Owner hereunder, and (c) any Documentation furnished hereunder for use
and maintenance of the Software.
"Software Combined Release" has the meaning ascribed thereto in
-------------------------
subsection 12.1.
"Software Enhancements" means modifications or improvements made to
---------------------
the Software which improve performance or capacity of the Software or which
provide additional functions to the Software.
"Software Licenses" means the collective reference to the RTU
-----------------
License and the RTM License.
"Software Revision Level" means each version of Software that reflects
-----------------------
any amendment, modification or change from the immediately preceding version.
"Software Upgrades" means periodic updates to the Software issued by
-----------------
the Vendor to the Owner under Warranty and Software maintenance obligations to
correct Defects or Deficiencies in the Software (which may be referred to by the
Vendor as "patches").
"Sony/Qualcomm Agreement" has the meaning ascribed thereto in
-----------------------
subsection 2.3.
"Source Code" means all CDMA 1900 intellectual information including,
-----------
but not limited to, all relevant documentation, Software in human-readable form,
flow charts, schematics and annotations which comprise the pre-coding detailed
design specifications for Software (excluding Third Party Software) which are
then being maintained by the Vendor which constitutes the "embodiment of the
intellectual property" of the Software as such concept is referenced in Section
365(n) of the United States Bankruptcy Code, as amended.
"Specifications" means the collective reference to the specifications
--------------
and performance standards of the design, Facilities Preparation Services,
Engineering, Products, Installation and Services contemplated by this Contract
and includes any Expansions, amendments, modifications and/or other revisions
thereto made in accordance with the terms of this Contract and as more fully set
forth in Exhibits C, D, E and F; provided, however, that with respect to
-------- -------
Facilities Preparation Services, design, Engineering, Products, Installation and
Services for which specifications and performance standards are not provided and
listed in such Exhibits, "Specifications" refers to performance, functionality
and fitness for the intended purpose for which such design, Facilities
Preparation Services, Engineering, Products, Installation and Services are
employed specified in the manner as set forth in the Exhibits.
"Structural Architectural Work" means the preparation of all
-----------------------------
architectural drawings and blueprints relating to the structural specifications
for a System Element Facility.
<PAGE>
17
"Subcontractor" means a contractor, vendor, supplier, licensor or
-------------
other Person, having a contract with the Vendor or with any other Subcontractor
of the Vendor who has been hired to assist the Vendor in certain specified areas
of its performance of its obligations under this Contract including, without
limitation, performance of any part of the Work.
"Substantial Completion" means the point at which the Vendor has
----------------------
completed a portion of the Work other than specified Items set forth on
applicable Punch Lists such that the geographic areas of any System Area as
specified in Schedule 4 all have been covered to the extent set forth in
Schedule 4, in accordance with the Specifications and the System Standards and
as verified to the Owner in accordance with the criteria and requirements set
forth in Exhibit B3.
"Substantial Completion Certificate" means, with respect to a given
----------------------------------
PCS System, a document submitted by the Vendor to the Owner and signed by an
authorized representative of the Owner and an authorized officer of the Vendor
stating that the Vendor has successfully completed the Acceptance Tests
applicable to the Substantial Completion of the Work to be done in such PCS
System in accordance with the requirements of Exhibit B3.
"System" means all of the PCS Systems built by the Vendor in the
------
System Areas allocated to the Vendor pursuant to the terms of this Contract and
as set forth on Schedule 4.
"System Areas" has the meaning ascribed thereto in the recitals to
------------
this Contract.
"System Element" means the Equipment and Software required to perform
--------------
radio, switching and/or related functions for the System and/or any PCS System
(which may include, without limitation, Authentication Center ("AUC"), Base
Station, Base Station Controller ("BSC"), Equipment Identity Register ("EIR"),
Messaging System ("MXE"), Mobile Switching Center/Visitor Location Register
("MSC/VLR"), Mobile Service Node ("MSN"), Signal Transfer Point ("STP"), Home
Location Register ("HLR"), Service Control Point ("SCP") and Intelligent
Peripheral ("IP")).
"System Element Facility" means the structures, improvements,
-----------------------
foundations, towers, and other facilities necessary to house or hold any System
Element and any related Equipment to be located at a particular System Element
Location.
"System Element Location" means the physical location for a System
-----------------------
Element.
"System Element Site" means the collective reference to a particular
-------------------
System Element, together with the related System Element Location and System
Element Facility.
"System Element Verification" means the Vendor's laboratory level
---------------------------
testing on the Products conducted by the Vendor in accordance with Exhibit B3.
<PAGE>
18
"System Maintenance Support" means those Services offered by the
--------------------------
Vendor for maintenance of any of the Products and/or any System Element or
collection thereof.
"System Managers" means each of the managers designated by the Owner
---------------
and the Vendor, respectively, for the purposes of subsection 23.1.
"System Standards" means the collective reference to the industry
----------------
standards specified in Exhibits C, D, F, G and H.
"System Support Services" means those services offered by the Vendor
-----------------------
relating to System design, enhancement and optimization.
"System Warranty Period" has the meaning ascribed thereto in
----------------------
subsection 17.4.
"TCG" means the collective reference to Teleport Communications
---
Group, Inc., and TCG Partners.
"Technical Documentation" means the documentation identified as such
-----------------------
in the Specifications.
"Term" has the meaning ascribed thereto in subsection 5.2.
----
"Test-bed Laboratory" has the meaning ascribed thereto in subsection
-------------------
2.5.
"Third Party Software" means Software which is independently developed
--------------------
by a third party, sublicensed to the Owner under this Contract or otherwise
provided with the Products in accordance with the Specifications.
"Training" has the meaning ascribed thereto in subsection 2.23.
--------
"Trouble Report ("TR")" has the meaning ascribed thereto in
---------------------
subsection 2.26.2.
"Utilities Work" means the installation of electric and telephone
--------------
utilities at the System Element Locations.
"Vendor" has the meaning ascribed thereto in the prefatory paragraph
------
to this Contract.
"Vendor-Controlled Location" has the meaning ascribed thereto in
--------------------------
subsection 2.12.
"Vendor Developments" has the meaning ascribed thereto in subsection
-------------------
2.11.
<PAGE>
19
"Vendor Event of Default" has the meaning ascribed thereto in
-----------------------
subsection 24.2.
"Vendor Patents" has the meaning ascribed thereto in subsection
--------------
14.5.
"Vendor procedural error" has the meaning ascribed thereto in
-----------------------
subsection 17.5.
"Vendor's Succeeding Entity" has the meaning ascribed thereto in
--------------------------
subsection 27.22.
"Warranty Damages" has the meaning ascribed thereto in subsection
----------------
17.5.
"Warranty Periods" means the collective reference to the Product
----------------
Warranty Period, the Non-Essential Equipment Warranty Period, the Services
Warranty Period and the System Warranty Period.
"Work" means all phases of this Contract, including engineering and
----
design, procurement, manufacture, construction and erection, installation,
training, start-up (including calibration, inspection and start-up operation),
testing and start-up and testing operation with respect to the System and/or any
PCS System and/or any part thereof to be performed by the Vendor or its
Subcontractors pursuant to this Contract. Work includes (i) all labor,
materials, equipment, services, and any other items to be used by the Vendor or
its Subcontractors in the prosecution of this Contract, wherever the same are
being engineered, designed, procured, manufactured, delivered, constructed,
installed, trained, erected, tested, started up or operated during start-up and
testing and whether the same are on or are not on any System Element Location or
any other site within the System and/or any PCS System and (ii) all related
items which would be required of a contractor of projects of comparable size and
design which are necessary for the System and/or any PCS System and/or any part
thereof to (x) operate in accordance with all Applicable Laws and Applicable
Permits, and (y) provide the operating personal communications service systems
required pursuant to this Contract. The Vendor will be responsible for
providing in accordance with the terms of this Contract any and all additional
items and services which are not expressly included by the terms of this
Contract and which are reasonably required for construction and start-up of the
System and/or any PCS System.
1.2 Other Definitional Provisions. 1.2.1 When used in any other
-----------------------------
Contract Documents, unless otherwise specified therein, all terms defined in
this Contract will have the defined meanings set forth herein. Terms defined in
Schedule 1 and the Exhibits are deemed to be terms defined herein; provided,
--------
that in the case of any terms that are defined both in this Contract, in
- - ----
Schedule 1 and/or an Exhibit, the definitions contained in this Contract will
supersede such other definitions for all purposes of this Contract; provided,
--------
further, that definitions contained in any Exhibit shall control as to such
- - -------
Exhibit.
1.2.2 The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Contract refer to this Contract as a whole and
not to any particular
<PAGE>
20
provision of this Contract and Section, subsection, Schedule and Exhibit
references are to this Contract unless otherwise specified.
1.2.3 The meanings given to terms defined in this Contract are
equally applicable to both the singular and plural forms of such terms.
SECTION 2 SCOPE OF WORK, RESPONSIBILITIES AND PROJECT
MILESTONES
2.1 Scope of Work. Upon the terms and conditions herein set forth, the
-------------
Vendor will provide all Products and Services to the Owner required for the
establishment of the System including, but not limited to, the Vendor's
obligation to engineer, equip, install, build, test and service the PCS Systems
in the System Areas set forth on Schedule 4 in accordance with the
Specifications and that otherwise satisfies all conditions of Final Acceptance;
provided, that the Vendor will not be responsible for Site Acquisition (except
- - --------
to the extent certain Facilities Preparation Services, including Site Plan
Architectural Work, are required for the successful completion of Site
Acquisition), Network Interconnection or Microwave Relocation. The Vendor must
complete the Work in accordance with the Project Milestones set forth in Exhibit
A1 and as further specified herein. The Vendor must furnish all labor,
materials, tools, transportation and supplies required to complete the Work in
accordance with the Specifications and the terms of this Contract.
2.2 Additional Coverage. (a) The Owner has the option from time to
-------------------
time, upon not less than thirty (30) days' written notice to the Vendor, to
designate additional geographic areas, including, but not limited to, additional
System Areas, as to which the Owner may purchase from the Vendor some or all, as
determined by the Owner in its sole discretion, of the Products and Services
required for the PCS coverage of such areas as provided for in this Contract,
all on the terms and conditions set forth in this Contract; provided that the
-------- ----
Parties will mutually agree on the Project Milestones and the System performance
criteria applicable to such additional coverage pursuant to this subsection 2.2;
provided further that any such agreement on (i) such Project Milestones must be
- - -------- -------
based on substantially the same intervals (including, but not limited to, the
number of days specified in each such interval) as set forth in Exhibits A1 and
A2, to the extent possible or (ii) such System performance criteria must be
based on substantially the same System performance criteria as set forth in
Exhibit F, to the extent possible.
(b) The Owner has the option from time to time upon not less than thirty
(30) days' prior written notice to the Vendor and in accordance with applicable
ordering procedures set forth herein, to require the Vendor to increase the
level of capacity or coverage of an already allocated PCS System (whether such
PCS System has been so allocated pursuant to Schedule 4 or subsection 2.2(a)),
all on the terms and conditions of this Contract.
2.3 Handsets. The Vendor must supply the Owner with two thousand
--------
(2,000) subscriber handsets at the prices set forth on Schedule 2 and meeting
the criteria set forth in Exhibit H within sixty (60) days prior to the
Substantial Completion of the Initial PCS
<PAGE>
21
System in accordance with Exhibit B3; provided that the criteria set forth in
-------- ----
Exhibit H will conform to the specifications and/or criteria agreed between the
Owner and Sony/Qualcomm (the "Sony/Qualcomm Agreement") if such agreement has
been entered into as of the date required for the delivery of handsets by the
Vendor pursuant to this subsection 2.3; provided further that in the event the
-------- -------
Sony/Qualcomm Agreement has not been entered into as of the date the Vendor is
required to deliver handsets pursuant to the first sentence of this subsection
2.3 the handsets required to be delivered by the Vendor pursuant to this
subsection 2.3, will substantially conform to the criteria set forth in Exhibit
H, but in any event will work with the System and in accordance with the
applicable requirements related thereto. The Vendor must supply a sufficient
number of subscriber handsets, but in no event not less than one hundred (100)
per PCS System within the Initial System, acceptable to the Owner and the
necessary equipment related thereto for testing and operation of each such PCS
System pursuant to, and in accordance with, the terms of this Contract, Exhibit
B3 and Exhibit H.
2.4 Initial PCS System. Pursuant to Exhibit B3, the Vendor must achieve
------------------
Substantial Completion of the Initial PCS System in accordance with the
requirements of Exhibit B3 prior to, and as a condition of, the Substantial
Completion of any other PCS System within the Initial System. This requirement
in no way relieves the Vendor of its obligations prior to the Substantial
Completion of the Initial PCS System to continue with the Work on all of the PCS
Systems constituting the Initial System in accordance with the requirements of
this Contract and the Project Milestones applicable to each such PCS System.
2.5 System Element Verification; Test-bed Laboratory. (a) In
------------------------------------------------
accordance with Milestone M4 (as set forth on Exhibit A1) the Vendor must
successfully complete System Element Verification pursuant to the terms of this
Contract including, but not limited to, the Specifications and Exhibit B3 no
later than August 19, 1996.
(b) The Vendor will supply, at no additional cost to the Owner, the
Products and Services necessary for the establishment of a test-bed laboratory,
which laboratory will include the Products and Services set forth on Exhibit I
(the "Test-bed Laboratory"), and the ongoing maintenance of such laboratory at
the then-current level of technology throughout the Term of this Contract. The
Test-bed Laboratory will be provided by the Vendor in accordance with Milestone
M3 applicable to the Initial PCS System as set forth on Exhibit A1 but in no
event later than ninety (90) days after a date specified by the Owner provided
--------
that such date is not before April 19, 1996 (the "Building Ready Date").
- - ----
2.6 RF Engineering and Site Acquisition. (a) In accordance with the
-----------------------------------
Project Milestones set forth on Exhibit A1, within sixty (60) days of the
Effective Date, the Vendor must deliver to the Owner a detailed preliminary RF
design (the "Preliminary RF Design") for each of the System Areas in accordance
with the requirements and criteria set forth in Exhibit B1. The Owner and the
Vendor agree to cooperate with each other to complete the RF Engineering and the
Site Acquisition. The Owner must notify the Vendor of desired coverage areas,
RF Engineering parameters or other information or restrictions the Owner wishes
to be included in the Final RF Engineering Plan for each PCS System. In
accordance with Exhibit B1, the Vendor will do the RF Engineering in each of the
PCS Systems and in connection therewith will use the parameters, information and
restrictions supplied by the Owner. As
<PAGE>
22
part of the RF Engineering, the Vendor will establish "search rings" in each of
the PCS Systems that will specify areas in which the Owner may proceed with Site
Acquisition.
(b) In accordance with Exhibit B1 the Vendor will be kept reasonably
informed of the progress made on ongoing Site Acquisition within the System
Areas. As the Site Acquisition progresses, the Vendor agrees to regularly alter
the RF Engineering plan to determine a new search ring or rings to take into
account any changes or modifications requested by the Owner due to the Owner's
inability to acquire sufficient rights to a location which could constitute a
System Element Location in a timely or economic manner. When making changes to
the RF Engineering plan the Vendor must take into account the Site Acquisition
already completed by the Owner.
(c) In accordance with the Project Milestones set forth on Exhibit A1
and the requirements and criteria set forth in Exhibit B1, within five (5) days
of the Owner achieving Site Acquisition Substantial Completion within any given
System Area (the "Final RF Review Period"), the Owner and the Vendor will use
their best efforts to agree on a final System Element Location count (the "Final
Site Count") and a final RF Engineering plan (the "Final RF Engineering Plan")
for such System Area upon which the PCS System for such System Area will be
built by the Vendor. Failure of the Owner and the Vendor to reach satisfactory
agreement on a Final Site Count and/or a Final RF Engineering Plan for any given
System Area within the Final RF Review Period will automatically result in the
referral of any such disagreement to the most senior RF engineers of both the
Owner and the Vendor for their review and resolution within five (5) days after
the end of any such Final RF Review Period. If the senior RF engineers fail to
resolve any such disagreement within the extended five (5) day resolution
period, the disagreement shall automatically be referred for resolution in
accordance with subsection 23.1. It is understood by the Parties that during
the period of any such disagreement and the resolution thereof in accordance
with the Contract, the Work on such PCS System, to the extent possible, will be
ongoing and that Substantial Completion on such PCS System cannot be achieved
without agreement by the Parties on a Final RF Engineering Plan and/or a Final
Site Count for such PCS System and/or System Area.
2.7 Facilities Preparation Services, Installation and Substantial
-------------------------------------------------------------
Completion. (a) In accordance with the Project Milestones specified in Exhibit
- - ----------
A and the requirements and criteria of Exhibit B2, for each System Area the
Vendor must complete the Facilities Preparation Services for all System Element
Locations within such PCS System in accordance with the construction criteria
set forth in Exhibit E and the performance criteria set forth in Exhibit F no
later than ninety (90) days from the Owner/Vendor agreement on a Final Site
Count and a Final RF Engineering Plan for such System Area. Pursuant to the
Project Milestones the Vendor must complete Installation of the Products for any
given PCS System within three (3) days of its completion of the Facilities
Preparation Services for such PCS System pursuant to the requirements and
criteria set forth in Exhibit D and Exhibit F.
(b) In accordance with the terms of this Contract, including but not
limited to subsection 2.37, the Vendor must achieve Substantial Completion for
each PCS System within the Initial System pursuant to the Substantial Completion
testing set forth in Exhibit B3 by the later of (i) thirty (30) days from
Microwave Relocation Completion in such
<PAGE>
23
PCS System or (ii) thirty (30) days from Milestone M7 (as set forth in Exhibit
A1) for such PCS System; provided that for any of the PCS Systems within the
-------- ----
Non-Designated System Areas the Vendor will not be required to achieve
Substantial Completion in accordance with Milestone M8 (as set forth on Exhibit
A1) and Exhibits A1 and B3 prior to June 1, 1997 and Milestone M6 (as set forth
on Exhibit A1) applicable to the PCS Systems in the Non-Designated System Areas
will not be required to be achieved by the Vendor prior to thirty-two and one-
half (32- 1/2) days prior to the Vendor's achievement of Substantial Completion
in such PCS Systems; provided, further that Vendor will endeavor to achieve
--------
Substantial Completion of the PCS Systems within such Non-Designated System
Areas on or about January 31, 1997. For example, if, with respect to a PCS
System within a Non-Designated System Area, the date specified in clauses (i) or
(ii) (excluding the first proviso in this subsection 27(b)) above occurs on
-------
December 15, 1996, then the Guaranteed Substantial Completion Date for such PCS
System would be June 1, 1997.
2.8 Site Acquisition Modifications. In the event that the Owner
------------------------------
determines that it is unlikely to achieve Site Acquisition Substantial
Completion for any PCS System in a timely and cost-effective manner, the Vendor
will modify certain performance criteria set forth in Exhibit F with respect to
such PCS System in the manner and to the degree that the Owner reasonably
specifies in writing to the Vendor in accordance with the terms of Exhibit B3.
2.9 Design/System Architecture and Engineering; Interoperability. (a)
------------------------------------------------------------
The Vendor must provide all Engineering and design services necessary for the
completion of the Work and the System in conformity with the Specifications and
the CDMA standards, including, but not limited to, the Engineering and design
necessary to describe and detail the System and the specified PCS Systems.
(b) Pursuant to and in accordance with the terms of Exhibits B3 and G,
BTS/BSC-MSC Interoperability must be achieved upon the earlier of (i) the
Substantial Completion of the last PCS System within the Initial System or (ii)
December 1, 1996 (provided that such date will change to reflect the actual
-------- ----
delay in the finalization of Attachment A to be attached to Exhibit G); provided
--------
that the requirements of this subsection 2.9(b) are a condition to the Vendor's
- - ----
Substantial Completion of such last PCS System within the Initial System and
Substantial Completion of such last PCS System will not be deemed to have been
achieved by the Vendor unless and until such Interoperability shall have been
achieved in accordance with the criteria set forth in Exhibit G; provided
--------
further that in no event will the achievement of BTS/BSC-MSC Interoperability in
- - -------
accordance with Exhibit G be required prior to December 1, 1996 and that in any
event any delay in such Interoperability which is not due substantially to the
fault of the Vendor will not be a delay pursuant to the terms of this subsection
2.9(b) subject to the reasonable opinion of the Owner.
2.10 Certification. The Vendor must coordinate its performance of the
-------------
Services described in subsection 2.9 with the Engineering and design efforts
(including, without limitation, any and all RF Engineering and/or Site
Acquisition) of all Subcontractors, the Owner, the Other Vendors, any and all
supply and transportation requirements and all federal, state and local
authorities or agencies. The Vendor will be fully knowledgeable about and
<PAGE>
24
will, after reasonable review thereof, accept all Engineering, including,
without limitation, RF Engineering and design, irrespective of whether the
Vendor, the Other Vendors, the Owner or third parties such as the Subcontractors
may furnish such services. All Engineering requiring certification must be
certified by professional engineers licensed or properly qualified to perform
such Engineering services in all appropriate jurisdictions if such certification
is, in the Owner's opinion, appropriate and reasonable under the circumstances.
2.11 Notice of Developments. 2.11.1 Vendor Developments. The Vendor
---------------------- -------------------
must provide the Owner, through the NDAB or the Owner's vice president and/or
director of product development, with reasonable prior notice (but in any event
not less than ten (10) business days) of any CDMA 1900 Vendor Product
developments, innovations and/or technological advances (collectively "Vendor
Developments") relevant to the System prior to giving such notice to any other
Customer of the Vendor or otherwise making any such Vendor Development public
within the relevant marketplace; provided that any such notice pursuant to this
-------- ----
subsection 2.11.1 need not include any information originated by another
Customer which is proprietary to such other Customer of the Vendor. For the
purposes of this subsection 2.11.1 the term "Vendor" includes the Vendor and its
affiliates and subsidiaries.
2.11.2 Participation in Testing. The Owner has the right, but not the
------------------------
obligation, to witness and/or participate in any initial testing and/or
application of any Vendor Development; provided that any such initial testing of
-------- ----
such Vendor Development shall be subject to (i) scheduling as reasonably
determined by the Vendor, (ii) the qualification that the Owner's PCS System
meets the technical requirements for the testing of such Vendor Development as
reasonably determined by the Vendor (or otherwise that the Owner is willing to
update such PCS System to meet such requirements), (iii) the Owner's
acknowledgement that it will be able to provide the resources necessary to
implement the initial testing for such Vendor Development, and (iv) the Owner
and the Vendor executing a reasonable verification office testing agreement that
identifies the scope, terms, pricing, responsibilities and schedule related to
the initial testing of such Vendor Development. The Vendor must provide the
Owner at least thirty (30) days' prior notice of its intent to test any such
Vendor Development and upon the Owner's written request the Vendor will allow
the Owner to participate in such testing upon terms and in a testing environment
reasonably acceptable to the Parties at such time. The Owner will make its
Test-bed Laboratory and/or certain of its PCS Systems (following Final
Acceptance thereof) available to the Vendor for any such testing in which the
Owner has the right, and will have notified the Vendor of its desire, to
participate in pursuant to the terms of this subsection 2.11.2. The length of
the prior notice period described above may be shortened to under thirty (30)
days if necessary and appropriate under the circumstances, but in no event will
any such prior notice period be less than ten (10) days.
2.12 Safety. To the extent the Vendor is in control of any System
------
Element Location, or other site within the System or any System Area during the
term of this Contract (a "Vendor-Controlled Location") including, but not
limited to, during the build-out of the Initial System, the Vendor will be
solely responsible for initiating, maintaining, and supervising all safety
precautions and programs in connection with all such Vendor-Controlled
<PAGE>
25
Locations. The Vendor must materially comply with Applicable Laws and
Applicable Permits and the Specifications bearing on safety of persons or
property or protection against injury, damages or loss. The Vendor must provide
a written report to the Owner describing fully all incidents affecting safety on
any Vendor-Controlled Location and must also furnish to the Owner copies of all
MSHA, OSHA and workers' compensation reports. The Vendor acknowledges and
agrees that until Substantial Completion of any given PCS System is achieved the
Vendor will be deemed to be in control of all Products, tools, designs,
buildings, structures and/or Engineering (other than those Products, tools,
designs, buildings, structures and/or Engineering specific to and necessary for
Site Acquisition, Network Interconnection and/or Microwave Relocation) at, in or
upon all System Element Locations and/or any other site within such PCS System.
2.13 Emergencies. In the event of any emergency endangering life or
-----------
property, the Vendor must take such action as may be reasonable and necessary to
prevent, avoid or mitigate injury, damage or loss and will, as soon as possible,
report any such incidents, including the Vendor's response thereto, to the
Owner. Whenever, in the reasonable opinion of the Owner, the Vendor has failed
to take sufficient precautions for the safety of the public or the protection of
the Work or of structures or property on or adjacent to any Vendor-Controlled
Location, creating, in the reasonable opinion of the Owner, an emergency
requiring immediate action, then the Owner, after having given reasonable prior
notice to the Vendor, may cause such sufficient precautions to be taken or
itself provide such protection. The taking or provision of any such precautions
or protection by the Owner or its agents or representatives will be for the
account of the Vendor and the Vendor must reimburse the Owner for the cost
thereof.
2.14 Right of Inspection. The Owner, the parties providing financing in
-------------------
connection with the build-out of the Nationwide Network or their duly appointed
representatives, including Inspectors (collectively "Reviewers"), will at all
reasonable times have access to the various sites where the Vendor or its
Subcontractors are prosecuting the Engineering, design, procurement, testing or
manufacture of the Work; provided that this subsection 2.14 will not be presumed
-------- ----
to give access to the Vendor's or its Subcontractors' sites to direct
competitors of the Vendor provided that such sites are not otherwise Owner
sites. For these purposes, reasonable access will be given during normal
business hours to the Vendor's and its Subcontractors' plants, premises, storage
and deposit areas, facilities and offices, sources of materials, Equipment being
assembled, already assembled or in operation, Equipment being performance tested
or tested to the Vendor's specifications and to any other places or areas
occupied by the Vendor or its Subcontractors in connection with the Work.
Notwithstanding anything herein to the contrary, any Reviewer's right of access
to the Vendor's and/or the Subcontractors' plants, premises, storage and deposit
areas, facilities and offices, sources of materials, Equipment being assembled,
already assembled or in operation, Equipment being performance tested or tested
to the Vendor's specifications and to any other places or areas occupied by the
Vendor or its Subcontractors in connection with the Work will be subject to the
reasonable confidentiality, safety and security requirements of same and further
subject to such Reviewers' non-interference with the Work and other work being
performed thereon. The Vendor must provide reasonable temporary office space
and services for the Reviewers to the extent necessary.
<PAGE>
26
2.15 Transportation. The Vendor must provide for the transport and
--------------
delivery of all the Products to be delivered pursuant to, and in accordance
with, the terms of this Contract. The costs for such transportation will be
borne by the Vendor as part of the Contract Price; provided that the Owner will
-------- ----
reimburse the Vendor for any costs incurred by the Vendor for any Extraordinary
Transportation in such cases where the Vendor, subject to prior notice to the
Owner, found it actually necessary to utilize such Extraordinary Transportation;
provided, further that any amounts due to the Vendor from the Owner pursuant to
- - -------- -------
the first proviso of this subsection 2.15 will be reduced by the amount of non-
extraordinary transportation costs which otherwise would have been applicable to
the transport of such Products.
2.16 Security. During the course of the Work, the Vendor will perform
--------
the security services necessary to ensure the safety and security of the System
Element Locations, the Products and/or other materials or designs relevant to
the Work.
2.17 Materials and Equipment. Except for materials or Equipment to be
-----------------------
supplied by Subcontractors identified on part B of Schedule 7, whenever
materials or Equipment are specified or described in this Contract (including
the Specifications) by using the name of a proprietary item or the name of a
particular supplier, the naming of the item is intended to establish the type,
function and quality required, and substitute materials or Equipment may
nonetheless be used, provided that such materials or Equipment are equivalent or
equal to that named. If the Vendor wishes to furnish or use a substitute item
of material or Equipment, the Vendor must first certify that the proposed
substitute will perform at least as well the functions and achieve the results
called for by this Contract, will be substantially similar or of equal substance
to that specified and be suited for the same use as that specified. The Owner
may require the Vendor to furnish, at the Vendor's expense, additional data
about the proposed substitute as required to evaluate the substitution. For
Major Portions of the Work, or materials or Equipment listed on part B of
Schedule 7, the Vendor must first receive prior written approval of the Owner
for any substitution. The Owner will be allowed a reasonable time within which
to evaluate each proposed substitute.
2.18 Equipment and Data. The Vendor must furnish all drawings,
------------------
specifications, specific high level design data, preliminary arrangements and
outline drawings of the Equipment and all other information as required in
accordance with this Contract in sufficient detail to indicate that the
Equipment and fabricated materials to be supplied under this Contract comply
with the Specifications.
2.19 References to Certain Sources. Reference to standard
-----------------------------
specifications, manuals or codes of any technical society, organization or
association or to the laws or regulations of any Governmental Entity by this
Contract, means (unless specifically stated otherwise) the latest standard
specification, manual, code, laws or regulations in effect at the time of such
reference (unless specifically stated otherwise) except as may be otherwise
specifically agreed to by the Parties. However, no provision of any reference,
standard, specification, manual or code (whether or not specifically
incorporated by reference in this Contract) will be effective to change the
duties and responsibilities of the Owner, the Vendor, the Subcontractors or any
of their consultants, agents or employees from those set forth in this Contract.
<PAGE>
27
2.20 Operating Manuals. The Vendor will provide the Owner Operating
-----------------
Manuals in accordance with this subsection 2.20 as soon as they are reasonably
available but in no event less than thirty (30) days prior to Substantial
Completion of the Initial PCS System. In accordance with this subsection 2.20
the Vendor will provide the Owner with as many sets of the Operating Manuals for
the entire System as the Owner then reasonably requires. The Operating Manuals
will be prepared in accordance with the relevant Specifications and in
sufficient detail to accurately represent the System and all of its component
System Elements as constructed and will recommend procedures for operation.
Operating Manuals with up to date (but not "as-built") drawings, specifications
and design sheets will be available for the Training as set forth in subsection
2.23. All other Technical Documentation not already delivered to the Owner
pursuant to the terms of the Contract must be delivered to the Owner within ten
(10) days after the successful achievement of all Final Acceptance tests in
accordance with Exhibit B3. The Owner will not be required to deliver the Final
Acceptance Certificate until all such Technical Documentation has been so
delivered (and Final Acceptance will not be deemed to have occurred earlier than
the date that is ten (10) days prior to the date of delivery of such Technical
Documentation).
2.21 Maintenance and Instruction Manuals. The Vendor will provide the
-----------------------------------
Owner Maintenance and Instruction Manuals in accordance with this subsection
2.21 as soon as they are reasonably available but in no event less than thirty
(30) days prior to Substantial Completion of the Initial PCS System. In
accordance with this subsection 2.20 the Vendor must provide the Owner with as
many sets of the Maintenance and Instruction Manuals for the entire System as
the Owner then reasonably requires. The Maintenance and Instruction Manuals
will be prepared in accordance with the Specifications and in sufficient detail
to accurately represent the System and all of its component System Elements as
constructed and will set forth procedures for inspection and maintenance.
Maintenance and Instruction Manuals with up to date (but not "as-built")
drawings, specifications and design sheets will be available for the Training
set forth in subsection 2.23. The Maintenance and Instruction Manuals must
include the volumes compiled by the Vendor containing all as-built Subcontractor
furnished product data.
2.22 Standards for Manuals. All Operating Manuals and Maintenance and
---------------------
Instruction Manuals required to be provided by the Vendor pursuant to this
Contract must be:
(a) detailed and comprehensive and prepared in conformance with the
System Standards and generally accepted national standards of professional care,
skill, diligence and competence applicable to telecommunications and operation
practices for facilities similar to the System;
(b) consistent with good quality industry operating practices for
operating personal communications service systems of similar size, type and
design;
(c) sufficient to enable the Owner to operate and maintain each PCS
System in each of the specified System Areas and the System as a whole on a
continuous basis; and
<PAGE>
28
(d) prepared subject to the foregoing standards with the goal of
achieving operation of the System at the capacity, efficiency, reliability,
safety and maintainability levels contemplated by this Contract and the
Specifications and required by all Applicable Laws and Applicable Permits.
In addition to, and without limiting the requirements set forth in the
preceding sentence, the Operating Manuals and the Maintenance and Instruction
Manuals (but not "as-built" drawings) will be submitted to the Owner in CD-ROM
format in addition to hard-copy volume format if so requested by the Owner and
will include maintenance procedures for circuit breakers, relays and auxiliary
equipment and devices in accordance with the manufacturers' recommendations
therefor. In addition to any of the Owner's other rights and remedies, the
Owner will have the right to reject the Operating Manual and the Maintenance and
Instruction Manuals if in its reasonable judgment any of the foregoing does not
meet the standards set forth in this Contract.
2.23 Training. As more fully described below, starting at least one
--------
hundred and eighty (180) days prior to Substantial Completion of the Initial PCS
System, the Vendor must provide to the Owner a practical and participatory on-
site training program with respect to the System, which program will include
technical education (collectively, the "Training"). The Vendor will provide,
upon the Owner's prior written request and at the time or times required by the
Owner during the Term of this Contract, not less than four hundred and fifty
(450) Training seats or a minimum of four thousand five hundred ninety (4,590)
man days of Training and Training materials for the Owner's personnel, at no
cost to the Owner. Such Training must be kept current to encompass the latest
Software and Equipment, or any other Software Revision Level and/or Equipment
Revision Level directed by the Owner pursuant to the terms of this Contract.
Subject to the foregoing, Training course content and material will be designed
and agreed to by mutual consent between the Parties. Unless otherwise directed
by the Owner in writing to the Vendor, Training courses must be limited to a
maximum of eight (8) to ten (10) attendees in each course session (but not less
than six (6) attendees unless otherwise specifically requested by the Owner
subject to the reasonable agreement of the Vendor). The Owner agrees to
reimburse the Vendor for reasonable and actual travel and living expenses for
Vendor's on-site training so long as such costs do not exceed, in any event, the
Owner's own travel expense limitations for such attendees. The Vendor will
conduct classes for each course described below:
(a) Installation Training will include PCS Training to the Owner's
technical personnel presumed not qualified or trained specifically on
Installation or testing of a PCS System or the Equipment and/or Software
included therein. The subject matter of such Training will include (i) a
general overview of PCS/CDMA technology and the System, (ii) an overview of the
System which includes coverage of specific Equipment and Software, and (iii) any
other information necessary to successfully install and test each PCS System in
any System Area;
(b) Operations, maintenance and provisioning ("OM&P") Training will
include System Training to technical personnel presumed not qualified or trained
specifically on operating a PCS System or the Equipment and/or Software included
therein. The subject
<PAGE>
29
matter will include (i) a general overview of PCS/CDMA technology and the
System, (ii) a System overview of the Equipment, Software initiation and
configuration requirements, required interconnections, troubleshooting and
testing requirements, recovery from System failures, and (iii) any other
information necessary to successfully operate, maintain, or set up the Equipment
and the Software to work in accordance with the System Element performance
criteria set forth in Exhibit D, in each case so that each PCS System
successfully operates in accordance with the performance criteria set forth in
Exhibit F within its System Area; and
(c) The Vendor must provide PCS/CDMA qualified technical staff and
material to train the Owner's personnel so as to enable them to train other
personnel of the Owner (i.e., train the trainers) on the subject matter topics
----
listed below. The Owner's personnel trained by the Vendor will be evaluated and
certified by the Vendor upon successful completion of the course as competent to
train other personnel of the Owner. Such content and materials may be tailored
or customized by the Owner for internal use only and include, without
limitation, Training with respect to the following topics:
(i) System Element configuration;
(ii) Communication interfaces and protocols;
(iii) Software operating system (current to the latest
Software Revision Level);
(iv) Database configuration, structure and content;
(v) Database down loading;
(vi) Program function;
(vii) Troubleshooting procedures; and
(viii) Other subject matter which is necessary or
desirable to understand the operation of the System and
maintenance of the System as well as any enhancements as they
are added to the System and/or any part thereof.
2.24 Manuals and Training. The training and the documentation provided
--------------------
in connection herewith, including, without limitation, all documentation
provided in CD-ROM format, and pursuant to subsections 2.20, 2.21 and 2.23 will
be updated pursuant to and in accordance with all technology and Product
upgrades applicable to the System, any PCS System and/or any part thereof.
2.25 Spare Parts. (a) Prior to the Substantial Completion of the
-----------
Initial PCS System the Vendor and the Owner will agree, pursuant to and in
accordance with the terms of this subsection 2.25, as to the type, quantity and
storage location of the spare parts required to continually operate the System
and in accordance with the Specifications. Until the
<PAGE>
30
expiration of the applicable Warranty Periods, the Vendor will, if requested by
the Owner, provide such spare parts at its own expense. Following the
expiration of such Warranty Periods, the Vendor will provide such spare parts
pursuant to Schedule 12A and at the prices set forth on Schedule 12B. After the
expiration of the applicable Warranty Periods invoices for such System spare
parts will be issued directly to the Owner and will be paid for directly by the
Owner by the dates set forth on a schedule provided by the Owner, which schedule
will be consistent with the Vendor's schedule and in accordance with the terms
and conditions required by the suppliers of such System spare parts if such
supplier is a Person other than the Vendor. Any System spare parts utilized or
withdrawn from the System will be promptly replaced by the Vendor at its own
cost during the period the Vendor is responsible for providing such spare parts
at no cost pursuant to this subsection 2.25.
(b) The Owner has the right to withhold from its final payment to the
Vendor with respect to any PCS System an amount equal to the Owner's reasonably
estimated cost of any utilized or System spare parts for such PCS System not so
replaced prior to Final Acceptance; provided that such withheld funds will be
-------- ----
released upon such satisfactory replacement of such spare parts by the Vendor.
To the extent that System spare parts need to be acquired from third party
suppliers, the Vendor will use its best efforts to obtain from suppliers a
supply of System spare parts at no additional cost as part of the original
Product package. To the extent that the Vendor is able to so obtain such System
spare parts at no additional cost as part of the original Product package, it
will provide such System spare parts to the Owner without cost (and without any
charge for the procurement of such spare parts by the Vendor).
2.26 System Support Services. The Vendor will provide the specified
-----------------------
System support services for the operation, maintenance and/or repair of the
System and all Products to the extent set forth herein below and at the prices
set forth on Schedule 3.
2.26.1 Vendor Assistance. (a) Upon receipt of a request for technical
-----------------
assistance from the Owner, the nature of the problem will be identified by the
Owner, and a priority assigned by the Owner (upon discussion with the Vendor
which in no event will require the agreement and/or consent of the Vendor) as
either an emergency or non-emergency condition and resolution thereof will be
expedited accordingly.
(b) Following attempted corrective actions by the Owner in accordance
with applicable Maintenance and Instruction Manuals provided by the Vendor, when
the Vendor is notified by the Owner that the System, any PCS System or any part
thereof fails to operate in accordance with the Specifications, the Vendor will
promptly commence and diligently pursue all reasonable efforts to correct the
Defect or Deficiency.
(c) The Vendor's correction of such Defects or Deficiencies in the
System, any PCS System or any part thereof may take the form of new Software
codes, new or supplementary operating instructions or procedures, modifications
of the Software codes in the Owner's possession, or any other commonly used
method for correcting Software Defects or Deficiencies, as the Owner and Vendor
deem appropriate.
<PAGE>
31
(d) When appropriate, the Vendor will provide non-emergency technical
support to the Owner via telephone, facsimile transmission, modem, or other
acceptable means during the Owner's normal business hours.
(e) The Vendor will provide emergency technical assistance to the Owner
via an ETA telephone number designated to the Owner in advance by the Vendor,
twenty-four (24) hours per day, three hundred sixty-five (365) days per year.
(f) The Vendor will provide remote intervention and assistance capability
to the Owner for remotely accessing operating System Elements. Upon mutual
agreement between the Parties, the Vendor may remotely access operating System
Elements for the purpose of ETA.
2.26.2 Trouble Reports. From time to time, failures in or degradation
---------------
of Products comprising the System may cause services provided by the System to
be adversely affected. It is necessary that immediate assistance be provided by
the Vendor to allow the Owner to restore the affected service. Critical service
Outages which cannot be resolved by the Owner's field technicians or technical
support engineers using procedures described in the Vendor's Operating Manuals,
Maintenance and Instruction Manuals and Training will be transmitted to the
Vendor as a Trouble Report ("TR"). The Vendor will assign an identifying number
to each TR to aid in tracking its disposition. TRs will be immediately
addressed by the Vendor through Emergency Technical Assistance under guidelines
set forth in this subsection 2.26.2. TRs may not be considered concluded until
the solution is concurred upon by an Owner's employee within the Owner's
operations control center ("OCC"). The root cause of problems resulting in TRs
may be System Defects or Deficiencies which must be corrected through Product or
procedure changes. Problems with the System requiring such changes will be
referred to the Vendor for action through a customer service request ("CSR").
The Vendor is authorized by the Owner to install and integrate, at the Vendor's
expense, any Software Upgrade or Software Enhancement pursuant to mutual
agreements reached between the Vendor and the Owner.
2.26.3 Emergency Technical Assistance. (a) When a problem is
------------------------------
encountered which adversely affects service and/or performance with respect to
the Products, any PCS System and/or the System and/or any part thereof, in each
case provided by the Vendor, an Owner maintenance technician will attempt to
repair or replace any malfunctioning Product adversely affecting such service
and/or performance using the procedures recommended in the Maintenance and
Instruction Manuals and/or the Operating Manuals. If unsuccessful, an Owner
technical representative will consult the Vendor's designated ETA group at the
telephone number provided by the Vendor in subsection 2.26.3(c) below.
Following receipt of notification by the ETA group, the ETA group will utilize
all available technical resources and will ensure that a qualified technical
engineer is communicating with the Owner's personnel regarding the problem
within fifteen (15) minutes of any such notification.
(b) A problem adversely affecting service that has a severity level
defined below either as an "E1 Emergency Condition" or an "E2 Emergency
Condition" is to be addressed under the ETA procedures set forth below in this
subsection 2.26.3 and in subsection 2.26.4.
<PAGE>
32
(i) An E1 Emergency Condition means a problem resulting from any one or
more of the following events:
.[ ]
.[ ]
.[ ]
.[ ]
.[ ]
.[ ]
.[ ]
.[ ]
.[ ]
.[ ]
The Vendor must clear all El Emergency Conditions within twelve
(12) hours of notification of their occurrence. Work must continue
without any cessation until the defect causing the E1 Emergency
Condition is solved or the
<PAGE>
33
severity thereof is reduced to a "P1 Major Condition", as defined
below, or less.
(ii) An E2 Emergency Condition means a problem resulting from any one or
more of the following events:
. [ ]
. [ ]
. [ ]
. [ ]
. [ ]
. [ ]
. [ ]
. [ ]
The Vendor must clear all E2 Emergency Conditions within
twenty-four (24) hours of notification of such E2 Emergency
Conditions. Work must continue without any cessation until the
defect causing the E2 Emergency Condition is solved or the severity
is reduced to a P1 Major Condition or less.
(c) In the event that an E1 Emergency Condition or an E2 Emergency
Condition should remain unresolved following referral to the Vendor by the
Owner, the problem causing such condition must be reported to the levels of
management set forth below (with comparable titles, if different) to ensure all
available resources necessary to address the problem will be committed in
accordance with the following:
The following are the reporting levels if an E1 Emergency Condition or
an E2 Emergency Condition is not resolved within the time periods set forth
below as amended from time to time following referral thereof to the Vendor by
the Owner:
<TABLE>
<CAPTION>
Vendor Contact Vendor Contact Name Telephone Number
------------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
One hour - Technical Assistance Mgr. to be designated to be designated
</TABLE>
<PAGE>
34
<TABLE>
<S> <C> <C> <C> <C>
Two hours - Customer Service Director Ron Fordon (214) 684-2999
Three hours - Customer Service AVP Norm Peters (214) 684-1299
Four hours - Vice President Chris MacIssac (905) 238-7229
</TABLE>
(d) If the Owner reasonably determines that the Vendor has not provided
sufficient ETA to resolve any E1 Emergency Condition or E2 Emergency Condition
on a timely basis, the Owner will be entitled to withhold all payments with
respect to the affected PCS System then due or outstanding prior to the date of
such determination until such time as adequate ETA is provided to the Owner to
resolve such Emergency Condition.
(e) If an E1 Emergency Condition or an E2 Emergency Condition exists in a
PCS System prior to Final Acceptance of such PCS System the Vendor must deliver
to the Owner each Software Upgrade and each Equipment Upgrade developed by or on
behalf of the Vendor to resolve any E1 Emergency Condition or E2 Emergency
Condition promptly following completion of development of such Software Upgrades
or promptly following availability of such Equipment Upgrades but in no event
later than forty-eight (48) hours following such completion or such development
of such Software Upgrades or availability of such Equipment Upgrades.
(f) The term Non-Emergency Services includes providing to the Owner any
requested technical assistance and support, remote monitoring and outage review
consultation and the handling of Customer Service Requests ("CSR").
(g) Technical assistance and support must be provided for the purpose of
resolving non-emergency problems defined below as "P1 Major Condition", "P2
Significant Problem" and "P3 Minor Problem" which are reported to the Vendor.
(i) P1 Major Condition means any non-emergency
failure of specific features or functions of the System, any PCS
System and/or any Product that restricts its operations, but does
not render the System, any PCS System and/or any Product
inoperable, impact traffic capacity or coverage or require
significant manual intervention for the System, any PCS System
and/or any Product to operate properly and in accordance with its
applicable Specifications. These events will include loss of
diagnostic capabilities and/or loss of reporting functions.
(ii) P2 Significant Problem means any non-emergency
intermittently occurring problem related to specific primary
functions or features and/or any inoperable secondary functions,
which does not have a significant adverse effect on the overall
performance of the System, any PCS System and/or any Product.
By-pass or work around procedures must be used to alleviate such
P2 Significant Problem until it is corrected.
(iii) P3 Minor Problem means any non-emergency
problem that does not affect the performance or functions of the
System, any PCS System
<PAGE>
35
and/or any Product, and, despite such problem, the System, any
PCS System and/or any Product is fully operable without
restrictions. Such P3 Minor Problems may include documentation
inaccuracies, cosmetics, minor requests for changes or
maintenance requests. The Vendor will resolve such P3 Minor
Problems during the next available scheduled Software Upgrade or
Equipment Upgrade.
(h) Should a non-emergency problem remain unresolved for the period or
periods of time set forth below following referral to the Vendor by the Owner,
such problem must be reported to the levels of management set forth below to
ensure all available resources necessary to correct such problem will be
committed to address such problem pursuant to the following:
<TABLE>
<CAPTION>
REPORTING LEVELS IF NON-EMERGENCY
IS NOT RESOLVED WITHIN
<S> <C> <C> <C> <C>
CONDITION 1 DAY 2 DAYS 7 DAYS 30 DAYS
P1 Technical Technical Customer Service Vice President
Major Condition Assistance Manager Assistance Senior Director
Manager
P2 Technical Technical Customer
Significant Assistance Assistance Senior Service
Condition Manager Manager Director
P3 Technical Customer
Minor Condition Assistance Service
Manager Director
- - ------------------------------------------------------------------------------------------------
</TABLE>
Non-emergency problems referred to the Vendor as a CSR will be resolved
based upon the priority assigned to them as determined by the Owner or as
mutually agreed by the Parties, and to the extent possible will be incorporated
into the next scheduled Software Release or Equipment Upgrade.
2.26.4 ETA and CSR. In the event that emergency or non-emergency
-----------
technical support provided from the Vendor's technical support center is not
sufficient to resolve an E1 Emergency Condition or an E2 Emergency Condition, a
P1 Major Condition or a P2 Significant Problem, the Vendor must send a
technically qualified person or persons to the site of such emergency condition
or problem to assist the Owner's employees in solving such condition or problem.
The Vendor's technically qualified person or persons must be on-site within
twelve (12) hours after notification to the Vendor by the Owner, or at such
later time as may be determined by the Owner. A CSR will be submitted by the
Owner to request a repair of the emergency condition or the non-emergency
problem, or to request the addition of a Software or Equipment Upgrade or other
Software or Equipment Feature Enhancement. The Owner's CSRs will define the
condition or problem and state whether the Owner considers the CSR to be for a
Software/Equipment Upgrade or Software/Equipment Enhancement. Changes to the
System or any PCS System resulting from CSRs must be fully
<PAGE>
36
tested and accepted in accordance with the Specifications. The Vendor must
respond to the submission of a CSR by the Owner within five (5) business days,
acknowledging receipt of the CSR, confirming or denying agreement with the
Owner's assessment of whether the CSR may be considered a Software or Equipment
Upgrade or a Software or Equipment Feature Enhancement and summarizing the
Vendor's intended actions to handle the CSR. A CSR may result in System fixes,
or enhancements, resulting in Product modifications reasonably acceptable to the
Owner.
2.27 Review of Contract Documents. The Vendor has examined in detail and
----------------------------
carefully studied and compared the Contract Documents with all other information
furnished by the Owner as of the Effective Date and has promptly reported to the
Owner any material errors, inconsistencies or omissions so discovered or
discovered by any of the Subcontractors. The Vendor will not prosecute any
Major Portion of the Work knowing that it involves a material error,
inconsistency or omission in the Contract Documents without prior written notice
to and approval by the Owner. If for any reason the Vendor violates this
subsection 227, the Vendor will, in addition to being subject to any other
remedies of the Owner and, in such case, will be deemed to have waived any
claims for an adjustment in any of the Specifications and/or System Standards
which results directly from any such error, inconsistency or omission. This
subsection 227 does not, nor will be deemed to, in any manner limit the terms
of subsection 2.38.
2.28 Licenses, Permits and Approvals. Except as otherwise provided for
-------------------------------
herein with respect to Site Acquisition, Microwave Relocation and Network
Interconnection, any Applicable Permits required by any Government Entity
relating to the manufacture, importation, re-exportation, safety or use of the
Products, the System or any PCS System throughout North America or in any state,
province or any political sub-division thereof will be the sole responsibility
of the Vendor. Prior to the commencement of any Work and/or other activities by
the Vendor or any of its Subcontractors in connection with or pursuant to this
Contract, the Vendor will furnish the Owner with evidence that such Applicable
Permits have been obtained and are in full force and effect to the extent that
Applicable Permits are necessary for the commencement or undertaking of such
activities, and from time to time thereafter the Vendor, upon the reasonable
request of the Owner, will provide such further evidence as the Owner will deem
reasonably necessary.
2.29 Eligibility under Applicable Laws and Applicable Permits. The Vendor
--------------------------------------------------------
will be responsible for ensuring that the Vendor and its Subcontractors are and
remain eligible under all Applicable Laws and Applicable Permits to perform the
Work under this Contract in the various jurisdictions involved.
2.30 Customs Approvals. The Owner agrees to reasonably assist, so long as
-----------------
such assistance will not involve the incurrence of any costs or expenses by the
Owner, the Vendor to obtain and maintain (i) Applicable Permits for importation
or re-exportation of the Products on a duty and customs free basis and (ii)
entry or work permits, visas or authorizations required for personnel engaged by
the Vendor to perform Work under this Contract.
<PAGE>
37
2.31 Owner Participation. In addition to the right of observation
-------------------
contained in subsection 9.4 hereof, the Owner will be entitled to participate in
the Vendor's research and development activities (subject to the reasonable
acceptance of the Vendor) and product development and testing activities
pursuant to this Contract; provided that such observation will not affect the
--------
Vendor's responsibilities and warranties hereunder and will not otherwise
interfere with the Vendor's research and development activities.
2.32 New Development Advisory Board. In order to accommodate the Owner's
------------------------------
participation pursuant to this Contract, including, without limitation, pursuant
to subsections 2.11 and 2.31, the Owner and the Vendor will establish an NDAB
within sixty (60) days of the Effective Date. The purpose of the NDAB will be
to review the development requirements and high level development milestones, to
ensure that the Vendor understands the Owner's requirements for each PCS System,
the System and/or any extensions thereto including, without limitation, any
subsequent Products and/or enhancements. The NDAB will provide an executive
forum to discuss product ideas, Owner requirements and its recommended
development prioritization for improved infrastructure-based subscriber features
and System features, functions and capabilities. The focus of the NDAB will be
on System features and services, new CDMA Products, System enhancements,
critical operational issues, future developments beyond CDMA cellular without
the need for System additions and on such other matters as the Parties mutually
agree upon from time to time. Nothing contained in this subsection 2.32 will in
any way limit and/or modify the Owner's ability to enforce its rights under this
Contract and/or the Contract Documents or to otherwise maintain contacts with
the Vendor in any other way it sees fit.
2.33 Market Development Manager. The Vendor will provide a market
--------------------------
development manager to coordinate the efforts of the Vendor in meeting its
obligations relating to the NDAB who will specifically focus on new Products,
CDMA services and features. Such market development manager must be
knowledgeable in CDMA technology and the Owner's System and must work closely,
and on a regularly scheduled basis, with the Owner's senior engineering and
marketing personnel on feature development, feature roll-out, future road maps
for CDMA Products, and any other marketing aspect of providing PCS that the
Owner believes is beneficial to the System and/or any PCS System at such time.
The Vendor's market development manager and the manager's staff will serve as
the Owner's direct liaison with the Vendor to ensure that the Vendor's product
development teams are focusing on the Owner's priorities as described to the
Vendor by the Owner from time to time either through the NDAB or by any other
means acceptable to the Parties.
2.34 Further Assurances. The Vendor will execute and deliver all further
------------------
instruments and documents, and take all further action, including, but not
limited to, assisting the Owner in filing notices of completion with the
appropriate state, provincial and local lien recording offices, that may be
necessary or that the Owner may reasonably request in order to enable the Vendor
to complete performance of the Work or to effectuate the purposes or intent of
this Contract.
<PAGE>
38
2.35 Liens and Other Encumbrances. (a) In consideration of the mutual
----------------------------
undertakings herein and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the Vendor:
(i) covenants and agrees to protect and keep free the System and/or
any PCS System and any and all interests and estates therein, and all
improvements and materials now or hereafter placed thereon under the terms
of this Contract, from any and all claims, liens, charges or encumbrances
of the nature of mechanics, labor or materialmen liens or otherwise arising
out of or in connection with performance by any Subcontractor, including
services or furnishing of any materials hereunder, and to promptly have any
such lien released by bond or otherwise;
(ii) give notice of this subsection 2.35 to each Subcontractor before
such Subcontractor furnishes any labor or materials for the System and/or
any PCS System; and
(iii) make any and all filings reasonably requested by the Owner in
order that the Owner may take advantage of the relevant local mechanics'
lien waiver procedures with respect to mechanics' liens of any such
Subcontractor and the Owner will cooperate in helping the Vendor to fulfill
its obligation under this clause (iii) to the extent necessary.
(b) If any laborers', materialmen's, mechanics', or other similar lien or
claim thereof is filed by any Subcontractor, the Vendor will cause such lien to
be satisfied or otherwise discharged, or will file a bond in form and substance
satisfactory to the Owner in lieu thereof within ten (10) business days. If any
such lien is filed or otherwise imposed, and the Vendor does not cause such lien
to be released and discharged forthwith, or file a bond in lieu thereof, then,
without limiting the Owner's other available remedies, the Owner has the right,
but not the obligation, to pay all sums necessary to obtain such release and
discharge or otherwise cause the lien to be removed or bonded to the Owner's
satisfaction from funds retained from any payment then due or thereafter to
become due to the Vendor.
(c) The Owner reserves the right to post or place within the System and/or
any PCS System notices of non-responsibility or to do any other act required by
Applicable Law, to exempt the Owner and the System from any liability to third
parties by reason of any work or improvements to be performed or furnished
hereunder; provided that failure by the Owner to do so will not release or
-------- ----
discharge the Vendor from any of its obligations hereunder.
2.36 Forecasting and Ordering. Throughout the Term of this Contract, on a
------------------------
quarterly basis commencing on the Effective Date, the Owner will provide the
Vendor with rolling twelve-month forecasts of its ongoing Product and Service
requirements. Upon the review and reasonable acceptance of such forecasts by
the Vendor pursuant to the terms of this Contract, the Owner will have the
right, but not the obligation, to confirm to the Vendor its orders for the
Products and Services set forth in such forecasts pursuant to the Owner's
delivery to the Vendor of formal written orders specifying the Products and/or
Services to be purchased in connection with the terms of this Contract. The
Vendor's obligation to deliver
<PAGE>
39
in accordance with accepted forecasts will be subject to receipt of the Owner's
orders not later than [ ] days prior to delivery of commercially
available MSC Equipment and [ ] days prior to delivery of
commercially available BTS Equipment; provided, however, that nothing contained
-------- -------
in this subsection 2.36 will in any way limit and/or modify the Vendor
obligations under this Contract to deliver Products and Services and to
otherwise do the Work in accordance with the Project Milestones set forth in
Exhibit A pursuant to the terms of this Contract.
2.37 Microwave Relocation; Network Interconnection. (a) The Vendor will
---------------------------------------------
not be responsible for Microwave Relocation within the System. Unless otherwise
waived by the Owner, however, completion of Microwave Relocation in any given
System Area will be a prerequisite to the commencement of the Substantial
Completion testing to be performed by the Vendor in accordance with Exhibit B3
in such System Area. The Owner may at its option choose instead to modify the
System performance criteria as set forth in Exhibit F by way of a Change Order
in order to account for the failure to fully and/or satisfactorily complete
Microwave Relocation in any such System Area such that Substantial Completion
testing in accordance with the requirements of Exhibit B3 may proceed.
Notwithstanding anything stated herein to the contrary (other than clause (b)
below), the Owner's failure and/or inability to fully complete Microwave
Relocation in any such System Area within eighteen (18) months of Milestone M6
(as set forth in Exhibit A1) (the "Microwave Delay Period") will entitle the
Vendor to otherwise commence Substantial Completion testing for the PCS System
in such System Area in accordance with Exhibit B3. Pursuant to the requirements
of Exhibits A1, B1 and B3 with respect to any PCS System within the System the
Owner may upon the prior written request of the Vendor consent (such consent not
to be unreasonably withheld) to extend the scheduling of the Vendor's
Substantial Completion testing by not more than an additional thirty (30) days
pursuant to Milestone M8 in the event that more than twenty-five percent (25%)
of the System Element Sites in such PCS System as set forth in the Final Site
Count for such PCS System require Vendor optimization pursuant to Exhibit B1
that was otherwise delayed due to incomplete Microwave Relocation in such PCS
System immediately prior to the date scheduled for Substantial Completion
testing pursuant to Milestone M8.
(b) The Vendor will not be responsible for Network Interconnection within
the System. Unless otherwise waived by the Owner, completion of Network
Interconnection in any given System Area will be a prerequisite to the
commencement of the Substantial Completion testing to be performed by the Vendor
in accordance with Exhibit B3 in such System Area. Notwithstanding anything
stated herein to the contrary (other than clause (a) above), if the Owner fails
to fully complete Network Interconnection in any such System Area within ninety
(90) days after Milestone 6 (as set forth on Exhibit A1), the Vendor will be
entitled to commence Substantial Completion testing for the PCS System in such
System Area in accordance with Exhibit B3.
2.38 Vendor To Inform Itself Fully; Waiver of Defense. (a) The Vendor
------------------------------------------------
will be deemed to have notice of and to have fully examined and approved the
Specifications and all other documents referred to herein, and all drawings,
specifications, schedules, terms and conditions of this Contract, regulations
and other information in relation to this Contract
<PAGE>
40
and/or the Contract Documents and/or any amendments, modifications or
supplements thereto at any time on or after the Effective Date and to have fully
examined, understood and satisfied itself as to all relevant information of
which the Vendor is aware or should have been aware and which is relevant as to
the risks, contingencies and other circumstances which could affect this
Contract and in particular the installation of the System, any PCS System or any
part thereof. The Owner, its directors, officers, employees and agents and all
of them have no liability in law or equity or in contract or in tort with
respect to any such specifications, drawings, information, risks, contingencies
or other circumstances.
(b) The fact that the Owner may have prepared or taken part in the
preparation of Specifications, documents, drawings, Engineering, designs,
specifications, schedules, terms or conditions, or may have designated
particular types of Products and/or Services to be furnished hereunder or
designated particular manufacturers or suppliers of Products or Services, or may
have taken part in the designation of any particular Subcontractor(s) or
subcontractor(s), or given vetoes or approvals with respect to the Work, or
otherwise become involved in the Work, will not give rise to any claim by the
Vendor or any Subcontractor or any defense to any warranty or other claims
asserted against the Vendor or any Subcontractor to the extent any such claim or
defense arises out of any information, specifications, drawings, documents or
other information, which the Vendor is deemed to have had notice of pursuant to
subsection 238(a) above and with respect to any such information arising after
the Effective Date which the Vendor had a reasonable opportunity to review.
2.39 CMI/HIC. From time to time throughout the Term of this Contract the
-------
Parties may mutually agree as to the incorporation and integration of CMI/HIC
into the System in accordance with Exhibit D.
SECTION 3 AFFILIATES
3.1 Additional Affiliates. On a quarterly basis commencing on the
---------------------
Effective Date and during the term of this Contract, the Owner may, upon fifteen
(15) days' prior written notice to the Vendor, designate any Person which is not
an Initial Affiliate as an "Additional Affiliate"; provided that the Vendor will
-------- ----
have a reasonable opportunity to review and approve such designation, such
approval not to be unreasonably withheld, based upon (i) reasonable credit
criteria within the context of the PCS industry, (ii) the fact that such
proposed Additional Affiliate has not in the past materially breached prior
material agreements with the Vendor, (iii) the fact that the proposed Additional
Affiliate is not, at the time of such determination, a direct competitor to the
Vendor in the wireless telecommunications business and (iv) the fact that the
proposed Additional Affiliate is not, at the time of such determination,
otherwise engaged with the Vendor in a material agreement for the purchase
and/or supply of PCS CDMA wireless technology; and provided, further, that (x)
-------- -------
the Owner, any Partner or any Initial Affiliate has at least a ten percent (10%)
equity ownership in such Person, (y) such Person is controlled by or under the
common control with the Owner, any Partner or any Initial Affiliate or (z) there
exists between the Owner and such Person an Additional Affiliate Arrangement.
<PAGE>
41
3.2 Agreements with Initial Affiliates. During the term of this Contract,
----------------------------------
the Owner will have the right, but not the obligation, to require that the
Vendor enter into separate agreements with any Initial Affiliate designated by
the Owner (each, an "Initial Affiliate Agreement") for the supply of Products
and Services on similar terms and conditions as those set forth herein that
relate to the initial build-out of the Initial System as set forth on Schedule
4; provided that the Vendor will not be required to include in any Initial
-------- ----
Affiliate Agreement any provisions substantially similar to those set forth in
Section 15 and subsections 2.5, 21.1, 24.1 and 27.5; and provided further that
-------- -------
after the date on which Final Acceptance of the last PCS System to reach Final
Acceptance has occurred, Initial Affiliate Agreements (whether or not executed
prior to such date) need not contain or retain substantially the same terms and
conditions as those set forth herein, except for those terms and conditions
related to pricing and warranties as are then available to the Owner pursuant to
this Contract. Any Initial Affiliate that enters into an Initial Affiliate
Agreement with the Vendor will have the right to choose among the Products and
Services offered to the Owner under this Contract solely for use within the
Nationwide Network.
3.3 Agreements with Additional Affiliates. During the term of this
-------------------------------------
Contract, the Owner will have the right, but not the obligation, to require that
the Vendor enter into separate agreements with any Additional Affiliate
designated by the Owner (each, an "Additional Affiliate Agreement") for the
supply of Products and Services at similar price and warranty terms as are then
available to the Owner pursuant to the terms of this Contract. The Vendor must
enter into good faith negotiations for the establishment of such Additional
Affiliate Agreements with any such Additional Affiliate promptly upon the
designation of such Additional Affiliate by the Owner and upon notice to the
Vendor that such Additional Affiliate desires to enter into an Additional
Affiliate Agreement. Any Additional Affiliate that enters into an Additional
Affiliate Agreement with the Vendor will have the right to choose among the
Products and Services offered to the Owner under this Contract solely for use
within the Nationwide Network.
3.4 Affiliate Rights. Notwithstanding anything herein contained to the
----------------
contrary, Affiliates will not be deemed third party beneficiaries to this
Contract or otherwise have any rights hereunder. Only the Owner may designate a
Person as an Affiliate in accordance with the terms of this Section 3 and only
the Owner has the right and/or the ability to enforce any rights hereunder
against the Vendor.
SECTION 4 SUBCONTRACTORS
4.1 Subcontractors. The Vendor will select Subcontractors in connection
--------------
with the performance of the Work such that all Products and Services provided by
any such Subcontractors meet the System Standards and reliability and
performance requirements set forth in this Contract. Regardless of whether or
not the Vendor obtains approval from the Owner of a Subcontractor or whether the
Vendor uses a Subcontractor recommended by the Owner, use by the Vendor of a
Subcontractor will not, under any circumstances: (i) give rise to any claim by
the Vendor against the Owner if such Subcontractor breaches its subcontract or
contract with the Vendor; (ii) give rise to any claim by such Subcontractor
against the
<PAGE>
42
Owner; (iii) create any contractual obligation by the Owner to the
Subcontractor; (iv) give rise to a waiver by the Owner of its rights to reject
any Defects or Deficiencies or Defective Work; or (v) in any way release the
Vendor from being solely responsible to the Owner for the Work to be performed
under this Contract.
4.2 The Vendor's Liability. The Vendor is the general contractor for the
----------------------
Work and remains responsible for all of its obligations under this Contract,
including the Work, regardless of whether a subcontract or supply agreement is
made or whether the Vendor relies upon any Subcontractor to any extent. The
Vendor's use of Subcontractors for any of the Work will in no way increase the
Vendor's rights or diminish the Vendor's liabilities to the Owner with respect
to this Contract, and in all events, except as otherwise expressly provided for
herein, the Vendor's rights and liabilities hereunder with respect to the Owner
will be as though the Vendor had itself performed such Work. The Vendor will be
liable for any delays caused by any Subcontractor as if such delays were caused
by the Vendor.
4.3 No Effect of Inconsistent Terms in Subcontracts. The terms of this
-----------------------------------------------
Contract shall in all events be binding upon the Vendor regardless of and
without regard to the existence of any inconsistent terms in any agreement
between the Vendor and any Subcontractor whether or not and without regard to
the fact that the Owner may have directly and/or indirectly had notice of any
such inconsistent term.
4.4 Assignability of Subcontracts to Owner. The Vendor will use its best
--------------------------------------
efforts to ensure that each material agreement between the Vendor and a
Subcontractor must contain a provision stating that, in the event that the
Vendor is terminated for cause, convenience, abandonment of this Contract or
otherwise, (i) each Subcontractor will continue its portion of the Work as may
be requested by the Owner and (ii) such agreement permits assignment thereof
without penalty to the Owner and, in order to create security interests, to the
Other Vendors, in either case at the option of the Owner and for the same price
and under the same terms and conditions as originally specified in such
Subcontractor's agreement with the Vendor. Furthermore, the Vendor will use its
best efforts to ensure that each material agreement between the Vendor and a
Subcontractor contains a provision stating that such agreement may be made
available in whole or in part to the Owner at its reasonable request without
causing the violation and/or breach of any such agreement. In the event the
Vendor is unable to ensure each such material Subcontractor agreement complies
with all of the requirements of this subsection 4.4 to the Owner, the Vendor
will notify the Owner of its inability to do so prior to executing such
arrangement with such Subcontractor and the Vendor will provide the Owner a
reasonable opportunity to determine whether it requires any such requirement in
question and if the Owner determines in its reasonable opinion that it in fact
requires such requirement the Vendor will not execute such Subcontractor
agreement without first obtaining the prior written consent of the Owner.
4.5 Removal of Subcontractor or Subcontractor's Personnel. The Owner has
-----------------------------------------------------
the right at any time to require removal of a Subcontractor and/or any of a
Subcontractor's personnel from Work on the System upon reasonable grounds and
reasonable prior written notice to the Vendor. The exercise of such right by
the Owner will have no effect on the provisions of subsections 4.1 and 4.2.
<PAGE>
43
4.6 Subcontractor Insurance. The Vendor must require all Subcontractors
-----------------------
to obtain, maintain and keep in force during the time they are engaged in
providing Products and Services hereunder adequate insurance coverage consistent
with Section 18 and Schedule 6 (provided that the maintenance of any such
Subcontractor insurance will not relieve the Vendor of its other obligations
pursuant to Section 18 and Schedule 6). The Vendor will, upon the Owner's
request, furnish the Owner with evidence of such insurance in form and substance
reasonably satisfactory to the Owner. To the extent requested by the Owner all
such insurance will be subject to the Owner's reasonable approval. All
Subcontractors must be of bondable financial condition.
4.7 Review and Approval not Relief of Vendor Liability. Any inspection,
--------------------------------------------------
review or approval by the Owner permitted under this Contract of any portion of
the Work by the Vendor or any Subcontractor will not relieve the Vendor of any
duties, liabilities or obligations under this Contract.
4.8 Vendor Warranties. Except as otherwise expressly provided in Section
-----------------
17, the warranties of the Vendor pursuant to Section 17 will be deemed to
apply to all Work performed by any Subcontractor as though the Vendor had itself
performed such Work. Except as otherwise specifically provided in Section 17,
the Parties agree that such warranties will not be enforceable merely on a
"pass-through" basis. The Owner may, but shall not be obligated to, enforce
such warranties of any Subcontractor to the extent that the Owner determines
that the Vendor is not paying and/or performing its warranties; provided that
-------- ----
any such election by the Owner will not relieve the Vendor from any obligations
or liability with respect to any such warranty.
4.9 Payment of Subcontractors. The Vendor must make all payments to all
-------------------------
Subcontractors (except in the case of legitimate disputes between the Vendor and
any such Subcontractor arising out of the agreement between the Vendor and such
Subcontractor) in accordance with the respective agreements between the Vendor
and its Subcontractors such that Subcontractors will not be in a position to
enforce liens and/or other rights against the Owner, the System or any part
thereof.
SECTION 5 TERM OF CONTRACT
5.1 Initial Term. The initial term of this Contract (the "Initial Term")
------------
is ten (10) years from the Effective Date, subject to the terms and conditions
of this Contract including, without limitation, the termination provisions set
forth in Section 24.
5.2 Renewal. This Contract is subject to renewal for one year periods
-------
(all such periods plus the Initial Term, the "Term") following the expiration of
the Initial Term, on the same terms and conditions contained herein, unless
either Party gives notice to each other Party of its intention not to renew this
Contract within ninety (90) days prior to the expiration of the then current
Term.
<PAGE>
44
SECTION 6 PRICES AND PAYMENT
6.1 Prices. The prices for the Work to be performed pursuant to this
------
Contract (collectively, the "Contract Price") are as set forth on Schedules 2
and 3, subject to the price variation provisions contained on Schedule 2.
Prices for the Work not set forth on Schedules 2 or 3, if not otherwise set
forth in this Contract, will be no greater than the Vendor's best list prices
then in effect at the time of ordering by the Owner and at discounts otherwise
provided to the Owner pursuant to the terms of this Contract.
6.2 Price Reduction. The Contract Price will be reduced by all amounts
---------------
saved as a result of Engineering changes suggested by the Owner which are
incorporated into the Specifications by the Vendor provided that the Vendor
--------
reasonably believes that such changes will not make it impossible or
impracticable for it to comply with any of its obligations under this Contract.
Any reduction in Contract Price pursuant to the preceding sentence will be
agreed upon promptly by the Owner and the Vendor. Failure of the Parties to
mutually agree to such price reductions within ten (10) days from the date the
Owner delivered written notice to the Vendor of the need for such price
reduction due to incorporated Engineering changes will result in the automatic
reference of such matter to dispute resolution in accordance with subsection
23.1. During the pendency of any such dispute resolution prices payable
pursuant to subsection 6.1 will be payable by the Owner to the Vendor at the
reduced level pursuant to this subsection 6.2 so long as such dispute resolution
pursuant to this subsection 6.2 does not exceed thirty (30) days; provided that
-------- ----
in the event such dispute resolution exceeds thirty (30) days prices in question
pursuant to this subsection 6.2 will revert back to the level prior to the
Owner's invocation of this subsection 6.2 for the remaining period of any such
dispute resolution. If in accordance with subsection 23.1 such dispute
resolution results in a finding that such price reduction was not in fact
justified then the Owner will refund to the Vendor the amounts that would
otherwise have been payable to the Vendor during the pendency of such dispute
resolution.
6.3 Payments. Except with respect to Facilities Preparation Services and
--------
RF Engineering as set forth below, an invoice may be submitted to the Owner only
after shipment of a Product or performance of a Service. Invoices for Products
delivered and Services performed on or prior to Final Acceptance of the PCS
System to which such invoices relate are payable in the following manner:
(a) fifteen percent (15%) of the total amount due under subsection 6.1 will
be paid within thirty (30) days from receipt of the invoice by the Owner;
(b) sixty-five percent (65%) of the total amount due under subsection 6.1
will be paid within thirty (30) days from the later of (i) Substantial
Completion of the PCS System to which such invoice relates or (ii) receipt of
the invoice by the Owner; and
(c) twenty percent (20%) of the total amount due under subsection 6.1 will
be paid within thirty (30) days from the later of (i) Final Acceptance of the
PCS System to which such invoice relates or (ii) receipt of the invoice by the
Owner.
<PAGE>
45
Notwithstanding the foregoing, (i) invoices for RF Engineering for each PCS
System will be payable in accordance with subsection 6.4(b) below and (ii)
invoices for Facilities Preparation Services within any PCS System will be
submitted by the Vendor in accordance with the terms of Exhibit B2 and will be
payable by the Owner with respect to each System Element Facility within forty-
five (45) days after the date of acceptance by the Owner of any such System
Element Facility in accordance with the terms of Exhibit B2.
Any invoice for Products delivered and installed by the Vendor or its
Subcontractors and Services performed by the Vendor or its Subcontractors after
Final Acceptance of the PCS System to which such invoice relates will be payable
as follows: [ ] of the amount of the invoice will be payable within forty-five
(45) days following receipt of such installed Products by the Owner or the full
performance of the Services by the Vendor and the outstanding balance will be
payable upon final acceptance by the Owner of the Products or Services to which
such invoice relates pursuant to section B.3.5 of Exhibit B3. Any invoice for
Products delivered by the Vendor but not installed by the Vendor or its
Subcontractors after Final Acceptance of the PCS System to which such invoice
relates will be payable by the Owner at the level of [ ] of the amount of
such invoice within forty-five (45) days from the date of delivery of such
invoice to the Owner.
6.4 Payments for Facilities Preparation Services and RF Engineering
---------------------------------------------------------------
Services. (a) The Vendor will pay each Subcontractor for Facilities
- - --------
Preparation Services the amount to which each Subcontractor is entitled pursuant
to such Subcontractor's agreement with the Vendor, based on each Subcontractor's
portion of such Work. By appropriate agreement in each Subcontractor's
agreement with the Vendor, the Vendor will require such Subcontractor to make
payments to sub-Subcontractors and materialmen in a similar manner. The Owner
shall have no obligations to pay any amount other than for Facilities
Preparation Services performed and shall have no obligations to pay any other
amount to which a Subcontractor may be entitled pursuant to its agreement with
the Vendor including, without limitations, any indemnity damage or penalty. The
Owner has no duty or obligation to insure the payment of money to a
Subcontractor, sub-Subcontractor, materialman or any other third party, any such
payment being the obligation of the Vendor. Subcontractors, sub-Subcontractors,
materialmen and any other third parties will not be deemed third party
beneficiaries of the Owner's obligations to pay the Vendor. On or before the
Owner's acceptance of the Facilities Preparation Services of any System Element
Facility within any given PCS System in accordance with the terms of Exhibit B2,
the Owner will have received details (in a form reasonably satisfactory to the
Owner) of all invoices and charges for such Facilities Preparation Services
incurred by the Vendor in connection with the Facilities Preparation Services
for such System Element Facility.
(b) The Owner will make payment to the Vendor for RF Engineering Services
performed by the Vendor within any given System Area pursuant to the terms of
this Contract based upon the following: (i) [ ] of the "RF Engineering
Services price" within the applicable System Area will be payable by the Owner
within forty-five (45) days after receiving the Preliminary RF Design for such
System Area pursuant to Milestone M2 for such System Area as set forth on
Exhibit A1; (ii) [ ] of the RF Engineering Services price within the
applicable PCS System will be payable by the Owner within forty-
<PAGE>
46
five (45) days after the determination of the Final Site Count and delivery of
the Final RF Design for such PCS System in accordance with subsection 2.6 and
Milestone M5 for such System Area as set forth on Exhibit A1; and (iii) [ ] of
the RF Engineering Services price will be payable by the Owner within the
applicable PCS System within forty-five (45) days of the Vendor's Installation
of the Products for such PCS System in accordance with the terms of the Contract
and Milestone M7 for such System Area as set forth on Exhibit A1. For the
purposes of this subsection 6.4(b) the term "RF Engineering Services price"
shall mean the number of System Element Facilities within the applicable PCS
System pursuant to the build-out of the Initial System multiplied by the
Vendor's System Element Facility RF Engineering price as set forth on Schedule
3. In any given PCS System and/or System Area the RF Engineering Services price
shall be readjusted (and any amounts owed to either Party will be reimbursed) at
the point in time that payment would be made for such RF Engineering pursuant to
clause (iii) of this subsection 6.4(b) in accordance with the determination of
the actual Final Site Count and delivery of Final RF Design applicable to such
PCS System.
6.5 Monthly Forecasts. Commencing on the Effective Date, the Vendor will
-----------------
provide the Owner with monthly forecasts of the costs of RF Engineering and
Facilities Preparation Services in each PCS System in which such Services are
being provided by the Vendor and/or any of its Subcontractors throughout the
period that any such Services are being provided during the Term of this
Contract. The forecasts provided by the Vendor pursuant to this subsection 6.5
must be in sufficient detail to reasonably inform the Owner of the nature of the
costs to be incurred for each of RF Engineering and Facilities Preparation
Services in each of the PCS Systems in which such Services are being provided by
the Vendor and/or any of its Subcontractors pursuant to the terms of this
Contract.
6.6 No Payment in Event of Material Breach. Notwithstanding any other
--------------------------------------
provision to the contrary contained herein, within any given PCS System the
Owner will have no obligation to make any payment for work done in such PCS
System in addition to amounts previously paid to the Vendor at any time the
Vendor is in material breach of this Contract with respect to such PCS System
(whether within the Initial System or otherwise) until and unless such material
breach is cured or waived by the Owner in accordance with the terms of this
Contract.
6.7 Microwave Relocation Delay Partial Payments. In the event of a delay
-------------------------------------------
in the Owner's completion of Microwave Relocation in any given PCS System
pursuant to and in accordance with subsection 2.37 during the Microwave Delay
Period within such PCS System, the Owner agrees to pay to the Vendor (i) [ ]
provided that Substantial Completion of such PCS
- - -------- ----
<PAGE>
47
System will have been achieved by the Vendor in accordance with the terms of
this Contract and Exhibit B3.
SECTION 7 ORDERS AND SCHEDULING
7.1 Initial Commitment. Subject to subsection 7.3 and to subsection 2.6
------------------
and the determination of the Final Site Count and the delivery of the Final RF
Engineering Plan for each PCS System, the Parties understand that the Products
and Services identified on Schedule 13 constitute the Owner's initial purchase
commitment under this Contract (the "Initial Commitment").
7.2 Minimum Commitment. The Minimum Commitment of the Owner to the Vendor
------------------
pursuant to this Contract is an amount of Services and Products purchased by the
Owner from the Vendor under this contract constituting an aggregate amount
payable to the Vendor based upon the pricing set forth in this Contract of not
less than one billion dollars ($1,000,000,000) (the "Minimum Commitment").
7.3 Change Orders. The Owner has the right by way of written orders
-------------
("Change Orders") to request Expansions and/or other revisions in the Work,
including but not limited to the Specifications, the manner of performance of
the Work or the timing of the completion of the Work; provided that specific
-------- ----
Change Orders will be submitted to the Vendor and the Vendor will be entitled to
make reasonable price and/or Project Milestone adjustments to the Contract Price
(subject to the Owner's agreement) in the case of material modifications. The
Vendor must promptly notify the Owner of any such requested change or changes to
Products which may materially affect the operation and/or maintenance of the
System, any PCS System or any part thereof. The Parties agree that within
fifteen (15) business days after the Owner's initial request for a Change Order
pursuant to this subsection 7.3 they will mutually agree to all aspects of such
Change Order, which agreement shall be evidenced by a writing executed by an
authorized representative of each of the Parties. In the event the Vendor
refuses to agree to any such Change Order within such fifteen (15) day period
then the Vendor will provide a written notice to the Owner detailing its reasons
for such refusal and if the Owner, at such time, disagrees with the reasons set
forth in such Vendor notice the matter will then be referred to dispute
resolution pursuant to Section 23.
7.4 Cancellation. During the term of this Contract, and subject to
------------
Section 24, the Owner will have the right, but not the obligation, at any time
to cancel, in whole or in part, any order made pursuant to the terms of this
Contract upon advance written notice to the Vendor. In the event of a
cancellation permitted hereunder, the Owner will pay to the Vendor order
cancellation charges in accordance with, and pursuant to, the terms of Schedule
11.
7.5 Supply of Additional Products. During the Term of this Contract (but
-----------------------------
in no event less than ten (10) years from the Effective Date) and for a period
of three (3) years thereafter, the Vendor will make available for purchase by
the Owner, on terms and conditions, as applicable, set forth in subsection 2.2,
subsection 6.3, as otherwise set forth in this Contract or as otherwise mutually
agreed between the Parties, Vendor Products to enable
<PAGE>
48
the Owner to expand the System and/or any PCS System and/or any part thereof,
which Products will provide equivalent functionality for and will be compatible
with the System or any such PCS System at such time.
SECTION 8 INSTALLATION
8.1 Installation. The Vendor will furnish and install the Products
------------
pursuant to the Project Milestones set forth on Exhibit A and in accordance with
the requirements and criteria set forth in Exhibit D. In accordance with the
Project Milestones set forth on Exhibit A, the Vendor will complete all Product
Installation in any given PCS System in conformance with the requirements and
criteria set forth in Exhibit D within three (3) days of completion of the
Facilities Preparation Services in such PCS System.
8.2 No Interference. The Vendor will install the Products and build each
---------------
of the PCS Systems so as to cause no unauthorized interference with or
obstruction to lands and thoroughfares or rights of way on or near which the
Installation work may be performed. The Vendor must exercise every reasonable
safeguard to avoid damage to existing facilities, and if repairs or new
construction are required in order to replace facilities damaged by the Vendor
due to its carelessness, negligence or willful misconduct, such repairs or new
construction will be at the Vendor's sole cost and expense.
SECTION 9 ACCEPTANCE TESTING AND ACCEPTANCE
9.1 Acceptance Testing. The Vendor must carry out the Acceptance Tests on
------------------
the Products and the PCS Systems as specified in Exhibit B3 and each PCS System
must successfully achieve acceptance (including Substantial Completion and Final
Acceptance) in accordance with the terms of Exhibit B3.
9.2 Costs and Expenses. The costs and expenses of such Acceptance Tests
------------------
will be borne by the Vendor, and the Owner will not be charged or billed for
such costs and expenses. If the Acceptance Tests performed by the Vendor are
not satisfied in accordance with the relevant requirements of Exhibit B3 or are
otherwise inconclusive in the reasonable judgment of the Owner, the Owner will
have the right to order further Acceptance Tests at the sole cost and expense of
the Vendor.
9.3 Notification. The Vendor will notify the Owner at least ten (10) days
------------
prior to the performance of any Acceptance Tests. Prior to or at the first
practicable date after such notification, the Vendor and the Owner will each
agree upon and approve any test forms to be used as part of the particular
Acceptance Test being conducted.
9.4 Presence at Acceptance Tests. The Owner and its representatives will
----------------------------
be permitted to witness and have unrestricted access to the Vendor's and its
Subcontractors' Acceptance Tests.
<PAGE>
49
9.5 Correction of Defects. If any Acceptance Test is not satisfied, the
---------------------
Vendor will, at its sole cost and expense, (i) in writing, notify the Owner of
such failure, and (ii) promptly correct whatever Defects or Deficiencies caused
such Acceptance Test not to be satisfied. After such correction, the Vendor
must (i) repeat at its sole cost and expense the failed Acceptance Tests and as
many other Acceptance Tests as are necessary to ensure in the reasonable opinion
of the Owner that such correction made by the Vendor would not have affected the
outcome of such other Acceptance Tests, and (ii) in writing, notify the Owner as
to what correction was made and what Acceptance Tests were repeated.
9.6 Acceptance Certificate. Upon the successful completion of the
----------------------
Acceptance Tests for a PCS System or any part thereof conducted by the Vendor,
the Vendor must submit to the Owner an Acceptance Certificate certifying that
(i) such Acceptance Tests have been successfully completed, (ii) the Work so
tested has been completed in accordance with the terms of this Contract, and
(iii) if applicable, that the remainder of the Work is continuing in accordance
with the Project Milestones set forth on Exhibit A. Upon its reasonable
satisfaction that such Acceptance Certificate is correct and complete, the Owner
will acknowledge such certification by signing the Acceptance Certificate. In
the event of any dispute as to the results of any Acceptance Tests, such dispute
will be resolved pursuant to the dispute resolution mechanisms set forth in
subsection 23.1.
SECTION 10 DISCONTINUED PRODUCTS
10.1 Notice of Discontinuation. During the Term of this Contract, the
-------------------------
Vendor agrees to provide the Owner, or the respective Affiliates as the case may
be, not less than ninety (90) business days' prior written notice of its intent
to discontinue any Product being supplied by the Vendor to the Owner and/or any
Affiliate in connection with the terms of this Contract.
10.2 Discontinuation During Warranty Period. In the event that the Vendor
--------------------------------------
discontinues the manufacture of a Product ("Discontinued Products"), the Vendor
will promptly notify the Owner of such discontinuance. The Vendor, at its
option, may continue to make such Discontinued Products available to the Owner.
If, during the applicable Warranty Period thereof pursuant to Section 17, the
Vendor does not make such Products which were previously purchased by the Owner
and have become Discontinued Products available to the Owner, the price of any
Products provided as a replacement for the Discontinued Product by the Vendor
and required to be purchased by the Owner during such Warranty Period in order
to maintain performance and functionality equivalent to that previously provided
by the Discontinued Products will be discounted by an amount equal to 65% of the
price previously paid for such Discontinued Products.
10.3 Discontinuation After Warranty Period. In the event that the Vendor
-------------------------------------
discontinues the manufacture of a Product following the expiration of the
applicable Warranty Period and the Owner is required to replace a Product which
was previously purchased by the Owner and has become a Discontinued Product in
order to maintain performance and functionality, the Owner will receive a credit
in an amount equal to the percentage set forth
<PAGE>
50
below multiplied by the purchase price paid for such original Product, which
credit will be applied against the Vendor's then-current list price for a
replacement for such Discontinued Product; provided that the credit will not
-------- ----
exceed the Vendor's then-current best price for such replacement Product subject
to the discounts available to the Owner pursuant to the terms of this Contract:
(i) up to and including one year following expiration of the
applicable Warranty Period: forty percent (40%);
(ii) more than one year and up to and including two years following
expiration of the applicable Warranty Period: thirty percent
(30%);
(iii) more than two years and up to and including three years following
expiration of the applicable Warranty Period: twenty percent
(20%); and
(iv) more than three years and up to and including four years
following expiration of the applicable Warranty Period: ten
percent (10%).
SECTION 11 SOFTWARE; CONFIDENTIAL INFORMATION
11.1 RTU License. The Owner is hereby granted a perpetual, non-exclusive,
-----------
non-transferable (except as set forth in subsections 11.5 and 27.4), fully paid-
up, worldwide multi-site (capability to move Software from site to site) right
to use ("RTU") license for the Software ("RTU License"), to operate each of the
PCS Systems and to operate the System as a whole subject to the payment of the
appropriate license fees pursuant to and in accordance with the terms of this
Contract. Except as otherwise provided herein, the Owner is granted no title or
ownership rights to the Software. Such rights will remain with the Vendor or
its Subcontractors, as appropriate.
11.2 Additional Copies. The Vendor must provide two (2) additional copies
-----------------
of the Software to the Owner for use in the Test-bed Laboratory and in
accordance with Exhibit I at no additional charge or expense; provided that such
-------- ----
copies will be used for testing and validation purposes only.
11.3 Owner's Obligations. The Owner agrees that the Software, whether or
-------------------
not modified, will be treated as proprietary and the Owner will:
(a) Utilize the Software solely in conjunction with the System and/or any
PCS System; provided that the Vendor acknowledges that the Software will be
-------- ----
connected in a working manner with systems, equipment and software provided by
other suppliers and customers including, but not limited to, the Other Vendors;
<PAGE>
51
(b) Ensure that all copies of the Software will, upon reproduction by the
Owner and whether or not in the same form or format as such Software, contain
the same proprietary and confidentiality notices or legends which appear on the
Software provided pursuant hereto; and
(c) Hold secret and not disclose the Software to any person, except to (i)
such of its employees, contractors, agents or Affiliates that are involved in
the operation or management of the System and/or any PCS System or otherwise
need to have access thereto to fulfill their duties in such capacity, or (ii)
other Persons (other than the Other Vendors except to the extent required for
the implementation of Exhibit G pursuant to the terms of this Contract) who need
to use the Software to permit connection in a working manner of the System
and/or any PCS System with systems and software of other suppliers and customers
including, but not limited to, the Other Vendors; provided that such other
-------- ----
Persons (and/or the contractors or agents described in clause (i) above agree,
or are otherwise obligated, to hold secret and not disclose the Software to the
same extent as if they were subject to this Contract.
11.4 Backwards Compatibility. (a) In addition to the warranties
-----------------------
contained in Section 17 of this Contract, the Vendor represents and warrants
that each Software Revision Level during the Term of this Contract will be
Backwards Compatible with all existing in-service Equipment and all previous
Software Revision Levels of the Software made available to the Owner by the
Vendor during the three (3) year period prior to the date each such current
Software Revision Level is first made available to Owner. So long as the Owner
has opted to deploy any one of the last two (2) consecutive Software Revision
Levels prior to the current Software Revision Level, the Owner will not be
required to purchase more than one Software Revision Level of the Software at
each System Element Location to achieve the functionality and features of the
most current Software Revision Level of the Software and to maintain Backwards
Compatibility.
(b) In the event that Software supplied by the Vendor for any System
Element at any time does not provide Backwards Compatibility as required by this
subsection 11.4, then the Vendor will provide, without charge to the Owner, the
Software Upgrades of the Software to such System Element, and otherwise take
such steps as may be necessary to achieve Backwards Compatibility.
11.5 Assignment. The Owner and any successor to the Owner's title in the
----------
Products has the right (subject to written approval from the Vendor, which
approval will not be unreasonably withheld), to assign the Software licenses to
any other Person who acquires legal title to the Products including, but not
limited to, any Person or Persons taking part in the financing of any part of
the Nationwide Network provided that no such assignment to Persons taking part
-------- ----
in the financing of any part of the Nationwide Network will be permitted except
in accordance with the provisions of subsection 27.4 of this Contract. The
Vendor also hereby grants to the Owner the right to sublicense the Software
Licenses to any Affiliate.
11.6 Survival. The obligations of the Owner under the Software Licenses
--------
will survive the termination of this Contract, regardless of the cause of
termination.
<PAGE>
52
11.7 Access to Source Codes. The Vendor grants the Owner a right to
----------------------
modify (the "RTM License") for the maintenance, modification and support of
those Products purchased from the Vendor and owned or operated by the Owner.
The RTM License does not permit access to Source Codes, except as set forth in
this Contract and in the Escrow Agreement under the following circumstances:
(a) If the Vendor becomes insolvent, makes a general assignment for the
benefit of creditors, files a voluntary petition in bankruptcy or an involuntary
petition in bankruptcy is filed against the Vendor which is not dismissed within
sixty (60) days, or suffers or permits the appointment of a receiver for its
business, or its assets become subject to any proceeding under a bankruptcy or
insolvency law, domestic or foreign, or has liquidated its business, or the
Vendor, or a business unit of the Vendor that is responsible for maintenance of
the Software, ceases doing business without providing for a successor, or the
Owner has reasonable cause to believe that any such event will occur; or
(b) Pursuant to the dispute resolution mechanisms set forth in subsection
23.1, it is determined that the Vendor or its transferee or assignee has proved
unwilling, or is otherwise unable, to provide the warranty service or support of
the System and/or any PCS System contemplated by this Contract.
11.8 Escrow Agreement. The Vendor agrees to become a party to a Source
----------------
Code escrow agreement (the "Escrow Agreement") which will enable the Owner to
obtain access to the applicable Source Codes in any of the circumstances set
forth in subsection 11.7. The Vendor shall do so promptly and cooperatively
upon the first to occur of the following events: (i) before Substantial
Completion of the last PCS System within the Initial System, upon the Owner
declaring to the Vendor in writing that any one of the occasions enumerated in
the alternative in subsection 11.7(a) has been realized; or (ii) after the
Substantial Completion of the last PCS System within the Initial System, upon
the Owner declaring over the signature of an officer of the Owner that the Owner
elects, in its sole discretion, to call upon the Vendor to enter into such an
Escrow Agreement. The Owner will pay all costs associated with such Escrow
Agreement including but not limited to the Vendor's reasonable Source Code
gathering costs in connection with such Escrow Agreement. The Vendor
represents, warrants and agrees that (i) the Source Codes delivered into escrow
in accordance with the Escrow Agreement will comprise the full Source Code
language statement of the Software as used, or required to be used, by the
Vendor to maintain or modify the System and/or any PCS System without the help
of any other Person or reference to any other material, (ii) such Source Codes
will include all relevant versions thereof, and (iii) such Source Codes must be
kept up to date, including all updates needed to maintain compliance with the
Specifications and the System Standards. In addition, all parts of the Source
Codes and all updates thereto (including, without limitation, those that are
necessary to maintain compliance with the Specifications) must be delivered into
escrow in accordance with the Escrow Agreement.
11.9 Software Maintenance. The Vendor represents and warrants that the
--------------------
Software delivered to the escrow agent pursuant to subsection 11.8 and to the
Owner pursuant to the Escrow Agreement will be in a form suitable for
reproduction by the Owner and will include
<PAGE>
53
the full Source Code language statement of the Software as used by the Vendor
sufficient to allow the Owner to maintain or modify the System without the help
of any other Person or reference to any other material.
11.10 Custom Software. 11.10.1 Request for Custom Material. (a) From
--------------- ---------------------------
time to time, the Owner may have requirements for custom Software or custom
development of Equipment to be provided by the Vendor under this Contract (the
"Custom Material"). If the Owner has a requirement for Custom Material that is
a specific enhancement or modification of a previously licensed feature or of
previously purchased Products, the Owner will identify to the Vendor in writing
a summary of any such proposed development of Custom Material. Such summary
will provide a description of any proposed Custom Material sufficient to enable
the Vendor to determine the general demand for, and its plans, if any, to
develop the same or similar Products. The Vendor will respond to such summary
within ten (10) days after receipt thereof and indicate if it has the ability to
fulfill a subsequent Request for Proposal ("RFP") from the Owner for such
development of Custom Material.
(b) If the Vendor decides after reasonable review that it does not have
the technical ability or the capacity to fulfill a subsequent RFP for such
Custom Material development, the Vendor will (i) provide the Owner no later than
twenty (20) days from the date of receiving the initial request from the Owner
pursuant to this subsection 11.10 a detailed explanation of why it cannot
fulfill such RFP and (ii) use its best efforts to make available to the Owner an
alternative route for such development reasonably acceptable to the Owner.
(c) In the event the Vendor fails to agree to a request for Custom
Material development pursuant to the terms of this subsection 11.10 then the
matter will be referred to dispute resolution pursuant to Section 23.
11.10.2 Vendor Response. After reviewing such RFP, the Vendor will
---------------
respond to the Owner within ten (10) business days, stating the terms and
conditions upon which the Vendor would be willing to undertake such development,
including, but not limited to, a listing of specifications, ownership rights,
custom development charges, planned license fees and a proposed delivery
schedule provided, however, that no response shall require the Owner to forfeit
-------- -------
rights of invention or authorship otherwise arising under law or as a condition
of contracting with the Vendor for such Custom Developments, and in any event
the Vendor will use its best efforts to provide the Owner full ownership rights
to such Custom Developments where practical.
11.10.3 Ownership of Intellectual Property. The Vendor will own or
----------------------------------
have valid and enforceable licenses to use, transfer or distribute all forms of
intellectual property rights (including, but not limited to, patent, trade
secret, copyright and mask rights) pertaining to Products, and will have the
right to file for or otherwise secure and protect such rights. The foregoing
notwithstanding, the Parties understand and agree that from time to time the
Owner may devise, develop or otherwise create ideas or other concepts for
services or new products which are patentable or otherwise capable of receiving
protection from duplication. In such event, the Owner will have the right to
patent or otherwise protect such ideas or concepts for its own use and benefit.
<PAGE>
54
SECTION 12 SOFTWARE CHANGES
12.1 Software Upgrades. Software Upgrades must be provided to the Owner
-----------------
by the Vendor at no charge to the Owner for the Term of this Contract. Software
Enhancements will be provided to the Owner by the Vendor, if requested by the
Owner, and the Owner will be obligated to pay a license fee therefor at a price
that is no less favorable to the Owner than that offered or available to any
other Customer of the Vendor, which fee will be adjusted pursuant to subsections
6.2, 7.3 and 27.16. The Owner will not be obligated to pay any fee related to
any Software Enhancement supplied to the Owner at the initiative of the Vendor
unless the Owner elects to utilize any new feature included therein, in which
event the fee for such Software Enhancement will be due and payable within
thirty (30) days of written notice from the Owner to the Vendor that the Owner
has elected to use such feature and has accepted such Software Enhancement. In
the event the Vendor at any time issues a Software Upgrade which is combined
with any Software Enhancement (collectively, the "Software Combined Release") to
such Software, the Software Combined Release will be provided at no charge to
the Owner unless and until the Owner elects to use any of the feature
enhancement or enhancements included within the Software Combined Release and
has accepted such Software Combined Release, in which event the fee for such
Software Combined Release will be due and payable within thirty (30) days of
written notice from the Owner to the Vendor that the Owner has elected to use
such feature enhancement and has accepted such Software Combined Release.
12.2 Notice. The Vendor must give the Owner not less than six (6) months
------
prior written notice of the introduction of any Software Enhancement release or
any Software Combined Release. In addition, on each January 15 and July 15 of
each year during the Term of this Contract, the Vendor must provide the Owner
with a forecast of future Software Enhancement releases or Software Combined
Releases then currently being developed by or on behalf of the Vendor.
12.3 Development Resources. During the Term of this Contract, if
---------------------
requested by the Owner, the Vendor will make available to the Owner sufficient
resources for the development of identified features or modifications to
Software or Software Enhancements for a fee no less favorable to the Owner than
that charged to any Customer other than the Owner, which fee will be adjusted as
contemplated by subsections 6.2, 7.3 and 27.16.
12.4 Installation, Testing and Maintenance. The installation and testing
-------------------------------------
of the Software by the Vendor and the acceptance thereof by the Owner will be
performed in accordance with the criteria set forth in Exhibit B3.
12.5 Software Fixes. In the event that any Software Upgrade or Software
--------------
Enhancement supplied by the Vendor during the Term of this Contract has the
effect of preventing the System and/or any PCS System or any part thereof from
satisfying, or performing in accordance with the Specifications, the System
Standards and/or Exhibit F or otherwise adversely affects the functionality or
features of the System, any PCS System or any part thereof, then the Vendor will
promptly retrofit or take such other corrective action as
<PAGE>
55
may be necessary to assure that the System, any such PCS System or any such
affected part, as modified to include each such Software Upgrade or Software
Enhancement, will satisfy, and perform in accordance with, the Specifications,
the System Standards and/or Exhibit F and restore all pre-existing functionality
and features as well as provide any new features and functionality provided by
any of the foregoing modifications, in each case without any charge to the
Owner.
SECTION 13 EQUIPMENT CHANGES
13.1 Equipment Upgrades. Equipment Upgrades will be provided to the Owner
------------------
by the Vendor at no charge to the Owner for the Term of this Contract.
Equipment Enhancements must be provided to the Owner by the Vendor, if requested
by the Owner, and the Owner is obligated to make payment therefor in an amount
that is no higher than that payable by any Customer other than the Owner, which
amount of payment will be adjusted as set forth in subsections 6.2, 7.3 and
27.16. The Owner will not be obligated to pay any amount for any Equipment
Enhancement supplied to the Owner at the initiative of the Vendor unless the
Owner elects to utilize any new feature included therein, in which event the Net
Price for any such Equipment Enhancement will be due within forty-five (45) days
of written notice from the Owner to the Vendor that the Owner has elected to use
such new feature and has accepted such Equipment Enhancement. If the Vendor at
any time issues an Equipment Upgrade which is combined with any Equipment
Enhancement (collectively, the "Equipment Combined Release") to such Equipment,
the Equipment Combined Release will be provided at no charge to the Owner unless
and until the Owner elects to use any of the feature enhancement or enhancements
included within the Equipment Combined Release and has accepted such Equipment
Combined Release.
13.2 Notice. The Vendor will give the Owner not less than six (6) months
------
prior written notice of the introduction of any Equipment Enhancement or any
Equipment Combined Release. In addition, on each January 15 and July 15 of each
year during the Term of this Contract, the Vendor will provide the Owner with a
forecast of future Equipment Enhancements to the Equipment or Equipment Combined
Releases then currently being developed by or on behalf of the Vendor.
13.3 Development Resources. During the term of this Contract, if
---------------------
requested by the Owner, the Vendor will make available to the Owner sufficient
resources for the development of identified features, modifications or
enhancements to any Equipment, at charges no less favorable to the Owner than
those charged to any Customer other than the Owner, and such charges will be
adjusted as contemplated by subsections 6.2, 7.3 and 27.16.
13.4 Installation, Testing and Acceptance. The Installation and testing
------------------------------------
of the Equipment by the Vendor and the acceptance thereof by the Owner must be
performed in accordance with Exhibit B3 pursuant to the Project Milestones in
Exhibit A.
<PAGE>
56
13.5 Equipment Fixes. In the event that any Equipment Upgrade or
---------------
Equipment Enhancement supplied by the Vendor during the Term of this Contract
has the effect of preventing the System and/or any PCS System or any part
thereof from satisfying, or performing in accordance with, the Specifications,
the System Standards and/or Exhibit F or otherwise adversely affects the
functionality, interoperability or features of the System, any such PCS System
or any part thereof then the Vendor will without any charge to the Vendor
promptly retrofit or take such other corrective action as may be necessary to
assure that the System, any such PCS System or any such affected part, as
modified to include each such Equipment Upgrade and Equipment Enhancement, will
satisfy, and perform in accordance with, the Specifications, the System
Standards and/or Exhibit F and restore all pre-existing functionality and
features as well as provide any features and functionality provided by any of
the foregoing modifications.
SECTION 14 INTELLECTUAL PROPERTY
14.1 Intellectual Property. The Vendor grants the Owner rights to use any
---------------------
copyrights, trademarks or servicemarks necessary or useful for the use,
operation, maintenance, marketing, advertising and publication of the System,
any PCS System or any part thereof, subject to the prior consent of the Vendor,
which consent will not be unreasonably withheld.
14.2 Infringement. The Vendor agrees that it will defend, at its own
------------
expense, all suits and claims against the Owner for infringement or violation of
any patent, trademark, copyright, trade secret, mark or other intellectual
property rights of any third party (collectively, "Intellectual Property
Rights"), covering, or alleged to cover, the Equipment, Software, the System
and/or any PCS System or any component thereof or the use thereof, in the form
furnished or as subsequently modified by the Vendor. The Vendor agrees that it
will pay all sums, including, without limitation, attorneys' fees and other
costs, which, by judgment or decree, or in settlement of any suit or claim, may
be assessed against the Owner on account of such infringement or violation,
provided that:
- - -------- ----
(a) the Vendor will be given written notice of all claims of any such
infringement or violation and of any suits or claims brought or threatened
against the Owner or the Vendor of which the Owner has actual knowledge and the
Vendor will promptly either accept or deny the defense of such claim;
(b) the Vendor will be given full authority to assume control of the
defense thereof through its own counsel at its sole expense but will not
compromise or settle any suits or claims without the express prior written
consent of the Owner provided that such consent will not be unreasonably
-------- ----
withheld; and
(c) the Owner will cooperate fully with the Vendor in the defense of such
suit or claims and provide the Vendor such assistance as the Vendor may
reasonably require in connection therewith so long as any such assistance will
not include any cost and/or expense to the Owner.
<PAGE>
57
14.3 Vendor's Obligations. If in any such suit so defended, all or any
--------------------
part of the Equipment, Software, the System, any PCS System or any component
thereof or the use thereof is held to constitute an infringement or violation of
Intellectual Property Rights and its use is enjoined, or if in respect of any
claim of infringement or violation the Vendor deems it advisable to do so, the
Vendor will at its sole cost and expense take one or more of the following
actions: (i) procure the right to continue the use of the same without
interruption for the Owner; (ii) subject to the terms of subsection 2.17 replace
the same with noninfringing Equipment or Software that meets the Specifications;
or (iii) modify said Equipment, Software, the System, any PCS System or any
component thereof so as to be noninfringing, provided that the Equipment,
-------- ----
Software, the System, any PCS System or any component thereof as modified meets
all of the Specifications.
14.4 Vendor's Remedies. The Vendor's obligations under this Section 14
-----------------
will not apply to any infringement or violation of Intellectual Property Rights
caused by modification of the Products, the System, any PCS System or any
component thereof by the Owner, or any infringement caused solely by the Owner's
use and maintenance of the Products other than in accordance with the
Specifications or the purposes contemplated by this Contract, except as
expressly authorized or permitted by the Vendor. The Owner will indemnify the
Vendor against all liabilities and costs, including reasonable attorneys' fees,
for defense and settlement of any and all claims against the Vendor based upon
infringement or violation of third parties' Intellectual Property Rights in
connection with this subsection 14.4 and arising solely from modification of the
Equipment made without Vendor's express prior consent.
14.5 License to Use Vendor Patents. In consideration of the purchase of
-----------------------------
Products from the Vendor, the Vendor hereby grants to the Owner and its
Affiliates, under patents associated with such Products or parts thereof and
which the Vendor owns or has a right to license ("Vendor Patents"), a world-wide
royalty-free, non-exclusive license (the "Patent License") to utilize the Vendor
Patents in connection with the Owner's provision of telecommunications services
utilizing or in connection with the Products. The Patent License includes the
right to use not only the Products licensed or purchased hereunder, but also
combinations of the Equipment and the Software with other equipment and software
which are utilized by the Owner and its Affiliates in the provision of such
telecommunications services. The scope of the Patent License will extend only
to the right to use and/or the right to sell, but not manufacture, the Product
or Products to which such Patent License relates. The Patent License includes
those patents existing on the date of this Contract and those patents which come
into existence during the Term of this Contract. The Patent License will
continue for the entire unexpired term of the last to expire of such Vendor
Patents.
The Patent License may be assigned to any successor in interest of the
Owner which acquires all or substantially all of the assets of the Owner by
sale, merger, consolidation or otherwise. The Vendor will not assert any claim
of infringement against other suppliers (including, but not limited to, the
Other Vendors) of the Owner, arising out of authorized activities for
interconnection with Equipment or Software provided to the Owner by the Vendor.
<PAGE>
58
SECTION 15 DELAY
15.1 Liquidated Damages. (a) The Parties agree that damages for delay
------------------
are difficult to calculate accurately and, therefore, agree that liquidated
damages (the "Liquidated Damages") will be paid for non-performance or late
performance of the Vendor's obligations under this Contract pursuant to the
terms hereof. Except as otherwise specifically set forth in this Contract the
damages, penalties and/or payments payable to the Owner pursuant to subsections
15.1, 15.2 and 15.3 will be the sole and exclusive remedies for the specific
delays described in such subsections 15.1, 15.2 and 15.3.
15.2 Interim Delay. (a) Subject to the terms of this Contract, failure
-------------
of the Vendor to complete the Work necessary to achieve each of the Project
Milestones set forth in Exhibit A1 applicable to any PCS System on or before the
date applicable to such Milestone for such PCS System that is required to be
achieved by the Vendor prior to the Guaranteed Substantial Completion Date for
such PCS System (each an "Interim Milestone") will result in the Vendor being
liable to pay to the Owner an amount equal to [ ]; provided that no such
-------- ----
Interim Delay Penalty will be due if the delay is directly and expressly
attributable primarily to (i) an event constituting a Force Majeure pursuant to
the terms of this Contract or (ii) an act or omission of the Owner. Interim
Delay Penalties accrued pursuant to this subsection 15.2(a) will be offset
against the payment to be made by the Owner to the Vendor upon Substantial
Completion of the PCS System to which such interim delay relates. The Interim
Delay Penalty applicable to each of Project Milestones M3 and M4 as set forth on
Exhibit A will be [ ]
(b) To the extent that the Vendor is responsible for Interim Delay
Penalties pursuant to subsection 15.2(a) such penalties will be credited back to
the Vendor by the Owner to the extent that (i) the Vendor successfully achieves
the Interim Milestone subject to delay within thirty (30) days of the date
scheduled therefor pursuant to the terms hereof and Exhibit A and (ii) such
interim delay does not otherwise materially adversely affect the Owner, such PCS
System and/or the System as a whole. Any such reimbursement will be credited
back to the Vendor such that the Interim Delay Penalty otherwise offset against
the relevant Substantial Completion payment in accordance with subsection
15.1(a) above will be added back to such Substantial Completion payment to be
made to the Vendor by the Owner. Interim Delay Penalties applicable to Interim
Milestones M6 and M7 within any PCS System in any Non-Designated System Area may
be assessed on the earliest date any such Interim Delay Penalties may be
retroactively calculated in accordance with subsection 2.7(b).
15.3 Completion Delay. (a) [ ]
----------------
<PAGE>
59
[ ]
(b) If any PCS System does not achieve Substantial Completion by the
Guaranteed Substantial Completion Date but the Owner nonetheless chooses (in its
sole discretion) to commence In Revenue Service in such incomplete PCS System
(such action in no way constituting the Owner's acceptance, express or implied,
of the System or such PCS System or any part thereof), then the Vendor will be
required to pay, on a daily basis, only that percentage of the daily Late
Completion Payment equal to that percentage of the geographic area to be
otherwise covered by such PCS System not otherwise placed in In Revenue Service
by the Owner.
(c) In the event of a change in the Contract Price pursuant to subsections
6.2, 7.3 or 27.16 during the Term of this Contract from the amount originally
set forth in this Contract pursuant to Section 6 the per diem amount of Late
Completion Payments set forth above will be increased or decreased, as
appropriate, by an amount equal to the increase or decrease in the Owner's per
diem interest payment obligation resulting from any change in the amount of debt
incurred or to be incurred by the Owner related to such change in the Contract
Price.
(d) Late Completion Payments, including any portions of such payments
payable in accordance with paragraphs (a) and (b) above, will be accrued during
the Completion Cure Period and offset against payments otherwise due to the
Vendor upon the achievement of Substantial Completion pursuant to the terms of
subsection 6.3. If the Vendor fails to achieve Substantial Completion within
forty-five (45) days, or thirty (30) days in the event the Owner chooses to
commence In Revenue Service as described in clauses (b) and (c) to this
subsection 15.3, of the Guaranteed Substantial Completion Date for any reason
other than primarily because of (i) a Force Majeure event pursuant to Section
16 or (ii) the direct and explicit act or omission of the Owner, then the Owner
will have the option to terminate this Contract without any penalty or payment
obligation (other than payment obligations under this Contract outstanding as of
the date of any such termination; provided that any such amounts payable by the
-------- ----
Owner will not include any amounts that would have been payable to the Vendor
only upon Substantial Completion or Final Acceptance). For the purposes of
determining amounts owed to the Owner by the Vendor pursuant to the terms of
this subsection 15.3, the term "Contract Price" as applicable to any given PCS
System will mean the total cost of such PCS System as incurred by the Owner and
payable to the Vendor or any of its Subcontractors for any and all Products and
Services provided or performed by the Vendor or any of its Subcontractors in
connection with the construction and operation of such PCS System pursuant to
the terms of this Contract other than Facilities Preparation Services performed
within such PCS System; provided that in the event of any delay in the Vendor's
-------- ----
performance in a given PCS System subject to the damages set forth in this
subsection 15.3 that is due in whole or in part, directly or indirectly, to a
delay in satisfactory completion of the Facilities Preparation Services within
such PCS System to be performed by the Vendor or any of its Subcontractors
pursuant to the terms of this Contract and in accordance with
<PAGE>
60
Exhibit E, the calculation of the Contract Price will include the full cost of
all Facilities Preparation Services performed by the Vendor or any of its
Subcontractors in such PCS System. In any given PCS System the aggregate amount
of all Interim Delay Penalties and Late Completion Payments owed to the owner
pursuant to this Section 15 will in no event exceed thirty-five percent (35%) of
the Contract Price applicable to such PCS System.
15.4 PCS System and System Element Delivery Prioritization. (a) In no
-----------------------------------------------------
event will the Vendor be required under the terms of this Contract to deliver to
the Owner Products on a time schedule and/or in amounts greater than that set
forth on Exhibit A2.
(b) In the event the Vendor is required pursuant to the progression
of the Work and the Project Milestones in every PCS System within the System to
deliver an amount of Products equal to or more than ninety-five percent (95%) of
the amount of Products indicated for delivery by the Vendor in the fourth
quarter of 1996 as set forth on Exhibit A2, the Vendor will have the right, but
not the obligation, pursuant to this subsection 15.4, to request in writing that
the Owner re-prioritize up to three (3) PCS Systems within the System and in
such event the Owner will delay the Project Milestones to be achieved by the
Vendor in each such PCS System as the Owner will designate to the Vendor, in its
sole and absolute discretion, for a period not in excess of ninety (90) days
without any penalty to the Vendor under this Section 15.
(c) The Owner will use reasonable efforts to inform the Vendor by
5:00 p.m. on April 15, 1996 which System Areas, of all of the System Areas set
forth on Schedule 4, it, in its sole and absolute discretion, has determined to
designate as the thirteen (13) System Areas which should receive priority as to
the build-out by the Vendor of the PCS Systems within such System Areas. The
remaining four System Areas are the "Non-Designated System Areas" referred to
herein. Any such notification provided pursuant to and in accordance with this
subsection 15.4(c) will in no way modify the Vendor's obligations under the
terms of this Contract; provided that any delay by the Owner in providing the
-------- ----
Vendor the notice described in this subsection 15.4(c) will result in day-for-
day delays in the Guaranteed Completion Dates applicable to the PCS Systems
within the Initial System (other than the PCS Systems in the Non-Designated
System Areas).
SECTION 16 FORCE MAJEURE
16.1 (a) Either Party may make a claim for excusable failure or delay
with respect to any obligation of such Party under this Contract, except any
obligation to make payments when due. Excusable failure or delay will be
allowed only in the event of an event of Force Majeure that is beyond the
reasonable control of the affected Person. Notwithstanding the foregoing, the
Vendor will not be entitled to relief under this Section 16 to the extent that
any event otherwise constituting an event of Force Majeure results from the
negligence or fault of the Vendor or any Subcontractor, and the Owner will not
be entitled to relief under this Section 16 to the extent any event otherwise
constituting an event of Force Majeure results from the negligence or fault of
the Owner.
<PAGE>
61
(b) The Party claiming the benefit of excusable delay hereunder must (i)
promptly notify the other Party of the circumstances creating the failure or
delay and provide a statement of the impact of such Party failure or delay and
(ii) use reasonable efforts to avoid or remove such causes of nonperformance,
excusable failure or delay. If an event of Force Majeure prevents the Vendor
from performing its obligations under this Contract for a period exceeding sixty
(60) days, the Owner may, upon prior written notice to the Vendor, terminate
this Contract.
(c) The Party not claiming the benefit of excusable delay hereunder will
likewise be excused from performance of its obligations hereunder on a day-for-
day basis to the extent such Party's obligations are affected due to the other
Party's delayed performance.
SECTION 17 WARRANTIES
17.1 Product Warranty. (a) Except as otherwise provided below in
----------------
subsection 17.2, the Vendor warrants that, for a period of three (3) years from
the date of Final Acceptance of any PCS System (the "Product Warranty Period"),
all Products and the Installation thereof within such PCS System will materially
conform with and perform the functions set forth in the Specifications and the
relevant performance criteria set forth in Exhibit D and will be free from
Defects and Deficiencies in material or workmanship which impair service to
subscribers, System performance, billing, administration and/or maintenance. In
the case of Software, the Product Warranty Period applicable to any such
Software shall be automatically extended upon, and simultaneous with, any
Software Upgrade pursuant to the terms of Section 12.
(b) To the extent the Owner orders additional Products from the Vendor in
accordance with the terms of this Contract including, but not limited to,
subsections 2.2 and/or 7.3, any such Products so ordered by the Owner and
delivered and installed by the Vendor or its Subcontractors will be warranted to
the same extent as set forth in clause (a) above for a period of not less than
twelve (12) months from the date the Owner puts such additional Products into
commercial service but for a period of not greater than fifteen (15) months from
shipment. If in the event, pursuant to the Owner's order for such additional
Products the Vendor is not required to install such additional Products, the
warranty on such additional products will run fifteen (15) months from the date
the Vendor shipped such products to the Owner.
17.2 Non-Essential Equipment Warranty. The Vendor warrants, to the extent
--------------------------------
and for the time period of the warranties received by the Vendor from any third
party manufacturer or supplier of Non-Essential Equipment (the "Non-Essential
Equipment Warranty Period"), that all such Non-Essential Equipment and the
Installation thereof will conform with and perform the functions set forth in
the Specifications and the performance criteria set forth in Exhibit F and will
be free from Defects and Deficiencies in material or workmanship which impair
service to subscribers, System performance, billing, administration and/or
maintenance; provided that to the extent any Defect or Deficiency or failure in
-------- ----
the performance of Non-Essential Equipment causes a Defect or Deficiency or
failure in any Equipment, the Vendor
<PAGE>
62
will be responsible for the repair and/or replacement of such Equipment
throughout the applicable Product Warranty Period in accordance with subsection
17.1 except to the extent the Owner is otherwise covered by insurance for any
such failure in Equipment. The Owner agrees to maintain reasonable and ordinary
levels of insurance for each of the PCS Systems within the System.
17.3 Services Warranty (a) The Vendor warrants that, for a period of not
-----------------
less than three (3) years from the date of completion of Network Interconnection
Engineering or Configuration Engineering provided by the Vendor to the Owner
pursuant to the terms of this Contract in any given PCS System (the "Engineering
Warranty Period"), such Network Interconnection Engineering or Configuration
Engineering, as the case may be, will be (i) operational in accordance with the
Specifications, (ii) in compliance with all material Applicable Laws and
material Applicable Permits in effect at the time of the completion of such
engineering in such PCS System, and (iii) free from Defects or Deficiencies in
design, materials, workmanship or otherwise.
(b) The Vendor warrants that, for a period of not less than three (3)
years from the date of completion of RF Engineering to be done by the Vendor or
its Subcontractors (but in no event earlier than the achievement of Milestone M5
in such PCS System) in any given PCS System (the "RF Services Warranty Period")
the Final Site Count within and the Final RF Design applicable to such PCS
System will be accurate based upon the circumstances in such PCS System as they
existed at the time of the Final Acceptance of such PCS System; provided that in
-------- ----
no event will the RF Engineering warranty pursuant to this subsection 17.3(b)
cover or warrant items or performance otherwise covered or warranted pursuant to
subsection 17.4 below.
(c) The Vendor warrants that, for a period of not less than three (3)
years from the date of completion of Facilities Preparation Services within any
PCS System but in no event later than the achievement of Milestone M8 pursuant
to Exhibit A1 in such PCS System (provided that in the event of a Microwave
-------- ----
Delay Period in such PCS System pursuant to subsection 2.37, the commencement of
the Facilities Preparation Services Warranty Period will not be later than three
(3) months from the date the Vendor would have otherwise been able to commence
Substantial Completion testing in such PCS System in accordance with Exhibit B3
and Milestone M8 as set forth on Exhibit A1 but for the existence of such
Microwave Delay Period) (the "Facilities Preparation Services Warranty Period"
and collectively with the Engineering Warranty Period and the RF Services
Warranty Period, the "Services Warranty Periods") such Facilities Preparation
Services will be (i) operational in accordance with the Specifications, (ii) in
compliance with all material Applicable Laws and material Applicable Permits in
effect at the time of the completion of such Facilities Preparation Services in
such PCS System, and (iii) free from Defects or Deficiencies in design,
materials, workmanship or otherwise.
17.4 System Warranty. The Vendor warrants that, for a period three (3)
---------------
years from the Final Acceptance of the last PCS System within the Initial System
(the "System Warranty Period"), the ongoing performance of each PCS System
together with all other PCS Systems within the System will conform with and
perform to the performance criteria set forth
<PAGE>
63
Exhibit F as of the date of the Final Acceptance of such PCS System based on the
circumstances within such PCS System on such date.
17.5 Breach of Warranties. (a) In the event of any breach of any of the
--------------------
Warranties during any of the applicable Warranty Periods set forth in
subsections 17.1, 17.2, 17.3(a), 17.3(b), 17.3(c) and 17.4, the Vendor will, in
accordance with the terms of this Section 17, promptly repair or replace the
defective or nonconforming Product or otherwise cure any Defects and
Deficiencies so that each PCS System and the System as a whole will perform in
accordance with the Specifications and Exhibit F. If the Vendor fails to
promptly repair, replace and/or cure such defect, the Owner may, in addition to
exercising any other remedies available to it, itself cause such repair,
replacement and/or cure, at its option and at the sole cost and expense of the
Vendor.
(b) The Vendor recognizes that the Owner may suffer injury and may be
damaged in an amount which will be difficult to determine with certainty as a
result of Outages resulting from causes attributable to the failure of the
Vendor's Products and/or Services to perform in accordance with the
Specifications. As used herein, "Outage" means an unscheduled loss of
functionality of the System or any PCS System defined as the loss of the
capability to originate or terminate [ ] or more of the active voice channels
then in service within the System or such PCS System for a period of time
exceeding [ ] minutes.
(c) During the System Warranty Period, the Vendor will be liable to the
Owner for damages (the "Warranty Damages") for Outages that result from (i) the
failure of the Vendor's Equipment and/or Software to perform in accordance with
the Specifications, (ii) the failure of the Vendor to provide Services in
accordance with the Specifications applicable thereto, (iii) a Vendor procedural
error or (iv) inaccurate Technical Documentation, excluding marketing bulletins,
sales literature or other promotional materials provided by the Vendor to the
Owner. As used herein, "Vendor procedural error" means an error or improper
deviation from the Vendor's or its Subcontractors' procedures by, or
attributable to, the Vendor's personnel. Warranty Damages will be calculated
based upon [ ] for each Outage occurring in any given PCS System to the extent
such Outage exceeds [ ] from the time the Owner notified the Vendor of
such Outage (not including such first hour), plus [ ] per minute for each
minute the duration of the Outage exceeds one (1) hour from the time the Owner
notifies the Vendor of such Outage (not including such first hour).
(d) In no event will the Vendor's liability for Warranty Damages pursuant
to this subsection 17.5 exceed [ ] with respect to each Outage in any given
PCS System. In addition, the Vendor's total liability for Warranty Damages
pursuant to this subsection 17.5 will not exceed [ ] per calendar year during
the Term of this Contract with respect to Outages in any given PCS System per
calendar year.
(e) Notwithstanding the foregoing, the Vendor will have no liability
pursuant to this subsection 17.5 for:
<PAGE>
64
(i) Outages caused by a Force Majeure event as
described in Section 16 other than to the extent that any of the
Vendor's Products and/or Services resulting in such Outages
should, in accordance with the Specifications and/or the Vendor's
representations be able to withstand any such Force Majeure
event;
(ii) Outages resulting from a scheduled activity,
including, but not limited to, System maintenance or Software or
Equipment Upgrades, unless said Outage extends beyond the
expected downtime, as provided in the Specifications applicable
thereto, associated with such Equipment or Software maintenance
Upgrades;
(iii) alterations by the Owner and/or the Vendor at
the Owner's request or otherwise pursuant to the terms of this
Contract to the System and/or any PCS System, excluding normal
maintenance or parameter changes as prescribed by the applicable
Technical Documentation;
(iv) Outages resulting from the Owner's, its
subcontractors' or any third party's (if such third party is
employed by the Owner) failure to follow the Technical
Documentation;
(v) Outages resulting from the gross negligence or
willful misconduct of the Owner, or any of its employees, agents
or contractors; or
(vi) Outages resulting from failure of equipment or
software not supplied by the Vendor or any Subcontractors or from
the performance of services not performed by the Vendor or any
Subcontractors.
(f) On or before the beginning of each quarter of each calendar year
during the Term of this Contract, the Owner shall provide the Vendor a written
report summarizing any Outages occurring during the previous calendar quarter.
The amount of any Warranty Damages shall be determined by the Owner as of the
end of the fourth quarter of each calendar year during the Term, for the
preceding four quarterly reporting periods during such Term. The Owner will
notify the Vendor of any such Warranty Damages in writing. Such Damages will be
payable in credits on future purchases under this Contract or otherwise if this
Contract is terminated for any reason within thirty (30) days of the occurrence.
Any disputes regarding the determination of the cause of an Outage or the amount
of any such Warranty Damages shall be resolved in accordance with the provisions
of Section 23.
17.6 Repair and Return. (a) If the Owner claims a breach of warranty
-----------------
under subsections 17.1, 17.2, 17.3 or 17.4, it must notify the Vendor of the
claimed breach within a reasonable time after its determination that a breach
has in fact occurred. The Owner will allow the Vendor to inspect the Products,
the Non-Essential Equipment, the Services or the System, as the case may be, on-
site, or, upon the Vendor's reasonable request and, subject to subsection
17.6(d) below, at the Vendor's sole expense: (i) with respect to Products,
return such Products to any of the Vendor's repair facilities located in North
America and listed on
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65
Schedule 8, or (ii) with respect to Non-Essential Equipment, return such Non-
Essential Equipment to the Vendor for further return to the applicable third
party manufacturer.
(b) The Vendor agrees to commence work on all such Products, Non-
Essential Equipment, Services or any System Defect, as the case may be, or
Installation Defects as soon as practicable, but in no event later than twenty-
four (24) hours after notification of such defect, and, subject to subsections
17.6(e) and 17.6(f), the Vendor will cure such defect as promptly as
practicable. During the Product Warranty Period and the Non-Essential Equipment
Warranty Period, electronic circuit board components of Equipment or Non-
Essential Equipment, as the case may be, will be repaired or replaced by the
Vendor.
(c) Failure of the System to function to the level of the performance
warranty as set forth in subsection 17.4 will result in the obligation of the
Vendor to promptly make whatever repairs, modifications, alterations, expansions
or to take any other action of any kind, including but not limited to the
provision of additional Products and/or Services, necessary to satisfactorily
fix that portion of the System causing such failure.
(d) All costs associated with (i) removing or disconnecting the
Products or the Non-Essential Equipment subject to the warranty claim pursuant
to the terms of this Section 17 from any other Products, the respective PCS
System or any part thereof or from other equipment, any other pcs system or any
part thereof to which they are attached or connected, or (ii) dismantling
surrounding Products, the respective PCS System or any part thereof or any other
equipment or other pcs system or any part thereof in order to so remove or
disconnect the Products or Non-Essential Equipment subject to such warranty
claim shall be borne by the Vendor throughout the applicable Warranty Period.
All packaging, shipping and freight charges incurred in connection with the
Vendor's obligations under this subsection 17.6 will be borne by the Vendor,
unless the Products or Non-Essential Equipment, as the case may be, returned are
not Defective or otherwise not covered by the Vendor's warranty pursuant to
subsections 17.1 and 17.2, in which case the Owner will pay for all such charges
between the Owner's point of origin and the Vendor's applicable repair facility
in North America.
(e) For routine warranty service, the Vendor will, during the
respective Warranty Period, ship replacement or repaired Products or Non-
Essential Equipment (or components thereof) within thirty (30) days of receipt
of the Defective Equipment or Non-Essential Equipment (or components thereof)
from the Owner. In the event such replacement or repaired Products or Non-
Essential Equipment cannot be shipped within such time period, or if the Vendor
determines that due to the particular circumstances, on-site repairs or services
are required, the Vendor shall undertake such repairs or replacement services
on-site within thirty (30) days of notification of the warranty Defect by the
Owner. In the event that the Vendor fails to repair or replace Defective
Products and/or Non-Essential Equipment within thirty (30) days from the Owner's
notice to the Vendor, then the Vendor shall be deemed to be in material breach
of its obligations pursuant to this Contract and the Owner shall be entitled to
receive a refund of all amounts previously paid to the Vendor for the Defective
Products or Non-Essential Equipment, and shall have no further obligation to pay
additional amounts in connection with the Defective Products or Non-Essential
Equipment.
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66
The Owner shall return such Defective Products and Non-Essential Equipment to
the Vendor at the Vendor's sole cost and expense.
(f) For emergency warranty service situations, the Vendor will,
during the applicable Warranty Periods, use its best efforts to ship replacement
Products or Non-Essential Equipment (or components thereof) no later than twelve
(12) hours after notification of the warranty Defect by the Owner. The Owner
shall ship the Defective Products or Non-Essential Equipment to the Vendor
within thirty (30) days of receipt of the replacement Products or Non-Essential
Equipment, as the case may be. In the event the Vendor fails to receive such
Defective Products or Non-Essential Equipment within such thirty (30) day
period, the Vendor shall invoice the Owner for the replacement Products or Non-
Essential Equipment at the then-current price in effect therefor pursuant to the
terms of this Contract. If in an emergency warranty service situation, the
Owner and/or the Vendor determines that due to the particular circumstances, on-
site technical assistance is necessary, the Vendor shall use its best efforts to
dispatch emergency service personnel to the site within twelve (12) hours of
notification of the warranty Defect by the Owner. For the purpose of this
subsection 17.6, an emergency warranty service situation shall be deemed to
exist upon the occurrence of any E1 Emergency Condition or E2 Emergency
Condition. The Vendor agrees to commence work on all Equipment, Non-Essential
Equipment, Facilities Preparation Services or any System defect, as the case may
be, or Installation defects materially impairing service to subscribers, System
performance, billing, administration and/or maintenance as soon as practicable,
but in no event later than twenty-four (24) hours after notification of such
defect, and the Vendor will cure such defect as promptly as practicable.
17.7 Technical Assistance Center. The Vendor must maintain a technical
---------------------------
assistance center in the United States, and during the Warranty Periods
established pursuant to subsections 17.1, 17.2, 17.3 and 17.4, respectively,
will make such support center available to the Owner twenty-four (24) hours per
day free of charge to the Owner.
17.8 Scope of Warranties. Unless otherwise stated herein, the Vendor's
-------------------
warranties under this Section 17 will not apply to:
17.8.1 damage or defects resulting from the gross negligence or willful
misconduct of the Owner, or any of its employees, agents or
contractors;
17.8.2 any Equipment or Software damaged by accident or disaster,
including without limitation, fire, flood, wind, water, lightning
or power failure other than to the extent that any such Equipment
or Software should in accordance with the Specifications and/or the
Vendor's representations be able to withstand any such events;
17.8.3 Non-Essential Equipment normally consumed in operation or which has
a normal life inherently shorter than the Warranty Periods (e.g.,
----
fuses, lamps, magnetic tape); or
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67
17.8.4 damages or defects resulting directly from the Other Vendor's
equipment provided that this will in no event limit the Vendor's
obligation as to Interoperability pursuant to the terms of this
Contract.
17.9 Expenses. Except as otherwise provided in this Section 17, the
--------
Owner will reimburse the Vendor for the Vendor's out-of-pocket expenses incurred
at the Owner's request in responding to and/or remedying Products, Non-Essential
Equipment, Services or any System defect, or service Deficiencies not covered by
the warranties set forth herein or otherwise covered under a separate System
maintenance agreement (subject, however, to the terms and conditions of any such
agreement) between the Vendor and the Owner.
17.10 Third Party Warranties. If the Vendor purchases or subcontracts for
----------------------
the manufacture of any part of the System or the performance of any of the
Services to be provided hereunder from a third party, the warranties given to
the Vendor by such third party will inure, to the extent applicable or permitted
by law, to the benefit of the Owner, and the Owner will have the right, at its
sole discretion, to enforce such warranties directly and/or through the Vendor.
The warranties of such third parties will be in addition to and will not, unless
otherwise expressly stated herein, be in lieu of any warranties given by the
Vendor under this Contract.
SECTION 18 INSURANCE
18.1 Insurance. The Vendor and the Owner will maintain insurance in
---------
accordance with the provisions set forth in Schedule 6; provided that the Owner
-------- ----
will have the right to maintain otherwise reasonable levels of insurance
substantially similar to that set forth on Schedule 6.
SECTION 19 TAXES
19.1 Taxes. The amounts to be paid by the Owner under this Contract do
-----
not include any state, provincial or local sales and use taxes, however
designated, which may be levied or assessed on the System, any PCS System or any
component thereof, including, but not limited to, the Services. With respect to
such taxes, the Owner will either furnish the Vendor with an appropriate
exemption certificate applicable thereto or pay to the Vendor, upon presentation
of invoices therefor, such amounts thereof as the Vendor may by law be required
to collect or pay; provided, however, that the Vendor will use its reasonable
-------- -------
efforts to minimize the amount of any such taxes. The Owner has no obligation
to the Vendor with respect to other taxes, including, but not limited to, those
relating to franchise, net or gross income or revenue, license, occupation,
other real or personal property, and fees relating to importation or exportation
of the Products.
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SECTION 20 INDEMNIFICATION AND LIMITATION OF LIABILITY
20.1 Vendor Indemnity. The Vendor will indemnify and hold the Owner and
----------------
its Affiliates, partners, directors, officers, agents and employees (the
"Indemnitees") harmless from and against all claims, demands suits, proceedings,
damages, costs, expenses, liabilities (including, without limitation, reasonable
legal fees) or causes of action (collectively, "Liabilities") brought against or
incurred by any Indemnitee for (i) injury to persons (including physical or
mental injury, libel, slander and death), or (ii) loss or damage to property
including, without limitation, the System, any PCS System or any part thereof or
(iii) violations of Applicable Laws, Applicable Permits, codes, ordinances or
regulations by the Vendor, or (iv) any claims arising out of or in connection
with the Vendor's obligation pursuant to subsection 14.2 or (v) any other
liability, resulting from the gross negligence, wilful misconduct or product
liability, of the Vendor, its officers, agents, employees, or Subcontractors in
the performance of this Contract. If the Vendor and the Owner jointly cause
such Liabilities, the Parties will share the liability in proportion to their
respective degree of causal responsibility.
20.2 LIMITATION ON LIABILITY. EXCEPT AS TO THE DAMAGES, AMOUNTS AND/OR
-----------------------
COSTS PROVIDED IN SUBSECTIONS 14.2, 15.2, 15.3, 17.5, 20.1, AND 20.3 HEREOF, IN
NO EVENT, AS A RESULT OF BREACH OF CONTRACT OR BREACH OF WARRANTY, WILL EITHER
PARTY HERETO OR EITHER PARTY'S SUBCONTRACTORS, BE LIABLE UNDER THIS CONTRACT TO
THE OTHER PARTY FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING LOST
PROFITS OR REVENUES OF SUCH PARTY, BEFORE OR AFTER ACCEPTANCE, WHETHER OR NOT
SUCH DAMAGES ARE FORESEEABLE. SUCH LIMITATION SHALL NOT APPLY TO LIABILITIES
PAYABLE UNDER THE VENDOR'S OR ANY SUBCONTRACTOR'S INSURANCE POLICIES. EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN THIS CONTRACT NOTHING CONTAINED HEREIN WILL BE
DEEMED TO IMPLY A WARRANTY OF FITNESS FOR PARTICULAR PURPOSE.
20.3 Damages for Fraud, Gross Negligence or Willful Misconduct (a) The
---------------------------------------------------------
Vendor shall be responsible for all damages incurred by the Owner as a result of
any damage or injury caused by or resulting from the fraud, gross negligence or
willful misconduct of the Vendor.
(b) The Vendor shall be responsible for all damages, but excluding
indirect, incidental and consequential damages, incurred by the Owner as a
result of any damages or injury caused by or resulting from the fraud, gross
negligence or willful misconduct of any of the Subcontractors.
20.4 Friable Asbestos. (a) Each party will notify the other Party in
----------------
writing of the existence of any friable asbestos that is an imminent health
hazard ("Friable Asbestos") at any System Element Location which is the subject
of the Work hereunder of which such Party has actual knowledge. The foregoing
notwithstanding, the Owner will not be required to notify the Vendor of the
existence of any Friable Asbestos which is contained in Equipment
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69
supplied by the Vendor or its Subcontractors or brought onto any System Element
Location by the Vendor. If the Owner fails to notify the Vendor of the
existence of such Friable Asbestos as required by this subsection 20.4 and the
Vendor, during the performance of Services hereunder, discovers that Friable
Asbestos is present, other than such Friable Asbestos brought onto the premises
or otherwise disturbed by the Vendor or any Subcontractor at the System Element
Location where such Services are to be performed, the Vendor may upon written
notice to the Owner, and without penalty, suspend the performance of the
Services at the affected System Element Location for only the period of time
that Friable Asbestos remains an imminent health hazard.
(b) The Owner shall be responsible for, without cost to the Vendor, the
abatement or removal of the imminent health hazard presented by the Friable
Asbestos encountered by the Vendor; provided that the Vendor shall be
-------- ----
responsible for, without cost to the Owner, the abatement or removal of such
health hazard if the Friable Asbestos causing such health hazard was brought
onto the premises or otherwise disturbed by the Vendor or any of its
Subcontractors. In the event the Owner chooses not to do the foregoing, the
Owner shall provide, at no charge to the Vendor, alternative plans for providing
such Services that will not expose the Vendor or its Subcontractors to such
imminent health hazard. In the event the Vendor elects to suspend the
performance of Services hereunder due to the presence of Friable Asbestos, the
Vendor's obligations with respect to the performance of the Work on such System
Element Location will only be delayed for that period of time such Friable
Asbestos remains unabated.
(c) Except where such Friable Asbestos was brought onto the premises or
otherwise disturbed by the Vendor or any of its Subcontractors the Owner will
indemnify and hold harmless the Vendor against and in respect of any and all
damages, claims, losses, liabilities and reasonable legal expenses which may be
imposed upon or incurred by the Vendor or asserted against the Vendor by any
employees and/or contractors of the Vendor or any of its Subcontractors and any
Governmental Entity arising out of or in connection with the Owner's failure to
identify and inform the Vendor of the existence of Friable Asbestos as required
by this subsection 20.4.
SECTION 21 REPRESENTATIONS AND WARRANTIES
21.1 Representations and Warranties of the Vendor. The Vendor hereby
--------------------------------------------
represents and warrants to the Owner as follows:
21.1.1 Due Organization of the Vendor. The Vendor is a corporation
------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own and
operate its business and properties and to carry on its business as such
business is now being conducted and is duly qualified to do business in all
jurisdictions in which the transaction of its business in connection with the
performance of its obligations in connection with this Contract makes such
qualification necessary.
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21.1.2 Due Authorization of the Vendor; Binding Obligation. The
---------------------------------------------------
Vendor has full corporate power and authority to execute and deliver this
Contract and to perform its obligations hereunder, and the execution, delivery
and performance of this Contract by the Vendor have been duly authorized by all
necessary corporate action on the part of the Vendor; this Contract has been
duly executed and delivered by the Vendor and is the valid and binding
obligation of the Vendor enforceable in accordance with its terms, except as
enforcement thereof may be limited by or with respect to the following: (i)
applicable insolvency, moratorium, bankruptcy, fraudulent conveyance and other
similar laws of general application relating to or affecting the rights and
remedies of creditors; (ii) application of equitable principles (whether
enforcement is sought in proceedings in equity or at law); and (iii) provided
the remedy of specific enforcement or of injunctive relief is subject to the
discretion of the court before which any proceeding therefore may be brought.
21.1.3 Non-Contravention. The execution, delivery and performance of
-----------------
this Contract by the Vendor and the consummation of the transactions
contemplated hereby do not and will not contravene the certificate of
incorporation or by-laws of the Vendor and do not and will not conflict with or
result in (i) a breach of or default under any indenture, agreement, judgment,
decree, order or ruling to which the Vendor is a party which would materially
adversely affect the Vendor's ability to perform its obligations under this
Contract; or (ii) a breach of any Applicable Law.
21.1.4 Regulatory Approvals. All authorizations by, approvals or
--------------------
orders by, consents of, notices to, filings with or other acts by or in respect
of any Governmental Entity or any other Person required in connection with the
execution, delivery and performance of this Contract by the Vendor have been
obtained or will be obtained in due course.
21.1.5 Non-Infringement. The Vendor represents and warrants to the
----------------
best of its knowledge based on reasonable diligence that as of the Effective
Date there are no threatened or actual claims or suits in connection with
patents and other intellectual property matters that would materially adversely
affect the Vendor's ability to perform its obligations under this Contract.
Furthermore, the Vendor represents and warrants to the best of its knowledge
that its own agreements with Qualcomm Incorporated ("Qualcomm") for the
licensing of CDMA technology are enforceable in accordance with their terms and
that the Vendor has all necessary rights and licenses to such CDMA technology so
as to be authorized and/or able to perform its obligations under this Contract
with respect thereto.
21.1.6 Scope. The representations and warranties of the Vendor
-----
pursuant to this subsection 21.1 will be deemed to apply to all of the Work
performed by any Subcontractor employed by the Vendor as though the Vendor had
itself performed such Work.
21.1.7 Requisite Knowledge. The Vendor represents and warrants that
-------------------
it has all requisite knowledge, know-how, skill, expertise and experience to
perform the Work in accordance with the terms of this Contract.
21.2 Representations and Warranties of the Owner. The Owner hereby
-------------------------------------------
represents and warrants to the Vendor as follows:
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21.2.1 Due Organization of the Owner. The Owner is a limited
-----------------------------
partnership, validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to own and operate its
business and properties and to carry on its business as such business is now
being conducted and is duly qualified to do business in Delaware and in any
other jurisdiction in which the transaction of its business makes such
qualification necessary.
21.2.2 Due Authorization of the Owner; Binding Obligation. The Owner
--------------------------------------------------
has full power and authority to execute and deliver this Contract and to perform
its obligations hereunder, and the execution, delivery and performance of this
Contract by the Owner have been duly authorized by all necessary partnership
action on the part of the Owner; this Contract has been duly executed and
delivered by the Owner and is the valid and binding obligation of the Owner
enforceable in accordance with its terms, except as enforcement thereof may be
limited by or with respect to the following: (i) applicable insolvency,
moratorium, bankruptcy, fraudulent conveyance and other similar laws of general
application relating to or affecting the rights and remedies of creditors; (ii)
application of equitable principles (whether enforcement is sought in
proceedings in equity or at law); and (iii) provided the remedy of specific
enforcement or of injunctive relief is subject to the discretion of the court
before which any proceeding therefor may be brought.
21.2.3 Non-Contravention. The execution, delivery and performance of
-----------------
this Contract by the Owner and the consummation of the transactions contemplated
hereby do not and will not contravene the partnership arrangements governing the
conduct of the partners in the Owner and do not and will not conflict with or
result in (i) a breach of or default under any indenture, agreement, judgment,
decree, order or ruling to which the Owner is a party which would materially
adversely affect the Owner's ability to perform its obligations under this
Contract or (ii) a breach of any Applicable Law.
SECTION 22 TITLE AND RISK OF LOSS
22.1 Title. Title to each Item of Equipment will pass to the Owner upon
-----
delivery thereof by the Vendor to the System Element Location to which each such
Item belongs. Prior to acquiring title to the Equipment, the Owner will not
cause or permit the Equipment to be sold, leased or subjected to a lien or other
encumbrance.
22.2 Risk of Loss. Risk of loss of any Products furnished to the Owner in
------------
connection with this Contract will pass from the Vendor to the Owner upon the
completion of the Installation by the Vendor of any such Product at the
appropriate System Element Location within the given PCS System provided that
the risk of loss of any given PCS System within the System will not pass to the
Owner until such time as the Vendor is fully prepared to commence testing for
the Substantial Completion of such PCS System in accordance with and pursuant to
Exhibit B3 and Exhibit A1; provided, however, that the Owner will assume the
-------- -------
risk of loss prior to such Substantial Completion by the Vendor for any such
Products damaged due to the gross negligence or willful misconduct of the Owner.
Until such time as
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risk passes to the Owner, the Vendor will, at its sole cost and expense, remedy,
repair and replace all physical damage, loss or injury to such property;
provided that, prior to the passing of risk of loss to the Owner, any actual
- - -------- ----
proceeds of the insurance described in Schedule 6 payable with respect to such
physical damage, loss or injury, and any deductible payable with respect to an
Owner Loss, are paid to the Vendor as necessary to achieve such remedy, repair
or replacement.
SECTION 23 DISPUTE RESOLUTION
23.1 Dispute Resolution. Subject to subsections 24.1, 24.2, 24.3, 24.8
------------------
and 23.3, in the event any controversy, claim, dispute, difference or
misunderstanding arises out of or relates to this Contract, any term or
condition hereof, any of the Work to be performed hereunder or in connection
herewith, the respective System Managers of the Owner and the Vendor will meet
and negotiate in good faith in an attempt to amicably resolve such controversy,
claim, dispute, difference or misunderstanding in writing. Such System Managers
must meet for this purpose within ten (10) business days, or such other time
period mutually agreed to by the Parties, after such controversy, claim,
dispute, difference or misunderstanding arises. If the Parties are unable to
resolve the controversy, claim, dispute, difference or misunderstanding through
good faith negotiations within such ten (10) business day period, each Party
will, within five (5) business days after the expiration of such ten (10)
business day period, prepare a written position statement which summarizes the
unresolved issues and such Party's proposed resolution. Such position statement
must be delivered by the Vendor to the Owner's Vice President of Engineering or
Operations and by the Owner to the Vendor's corresponding officer or
representative for resolution within (5) business days, or such other time
period mutually agreed to by the Parties.
If the Parties continue to be unable to resolve the controversy, claim,
dispute, difference or misunderstanding, either Party may initiate arbitration
in accordance with the provisions of subsection 23.2 below; provided, however,
-------- -------
that with respect to any controversy, claim, dispute, difference or
misunderstanding arising out of or relating to this Contract by which either
Party seeks to obtain from the other monetary damages in excess of ($5,000,000)
either Party, in such case, may commence an action in any state or federal court
in accordance with subsection 27.7 to resolve such matter in lieu of proceeding
with an arbitration pursuant to and in accordance with subsection 23.2.
23.2 Arbitration. An arbitration proceeding initiated by either Party
-----------
under this Contract with respect to any controversy, claim, dispute, difference
or misunderstanding will be conducted in Kansas City, Missouri in accordance
with the Commercial Arbitration rules of the AAA, except that, at the request of
either Party, a stenographic transcript of the testimony and proceedings will be
taken and the arbitrators will base their decision upon the records and briefs
of the Parties.
Such arbitration will be initiated by either Party by notifying the other
Party in writing and will be settled before three (3) impartial arbitrators, one
of whom will be named by the Owner, one by the Vendor and the third by the two
arbitrators appointed by the Owner and
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73
the Vendor, respectively. All of the named arbitrators will have significant
experience in the wireless telecommunications industry. If either the Owner or
the Vendor fails to select an arbitrator within ten (10) days after notice has
been given of the initiation of the arbitration, the officer in charge of the
Kansas City, Missouri office of the AAA will have the right to appoint the other
arbitrator, and the two arbitrators thus chosen will then select the third
arbitrator.
The arbitration hearings will be held within fifteen (15) business days
after a Party's initiation of the arbitration. The Federal Rules of Evidence
will apply and reasonable discovery, including depositions, will be permitted.
Discovery issues will be decided by the arbitrators and post-hearing briefs will
be permitted.
The arbitrators will render a decision within ten (10) days after the
conclusion of the hearing(s) and a written opinion setting forth findings of
fact and conclusions of law will be made available to the Parties within that
time period. The decision of the majority of the arbitrators regarding the
matter submitted will be final and binding upon the Parties. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
Each Party will pay for the services and expenses of the arbitrator
appointed by it, its witnesses and attorneys, and all other costs incurred in
connection with the arbitration (including, without limitation, the cost of the
services and expenses of the arbitrator appointed by the two arbitrators
appointed by the Parties) will be paid in equal part by the Parties, unless the
award will specify a different division of the costs. Unless otherwise
specifically stated in this Contract, during the pendency of any arbitration
proceedings, the Parties agree to continue to perform their obligations
hereunder in the same manner as prior to the institution of arbitration
proceedings.
23.3 Other Remedies. Notwithstanding anything to the contrary herein
--------------
contained, each Party will be entitled to pursue any equitable rights and
remedies that are available at law or in equity without complying with
subsection 23.1 or 23.2.
SECTION 24 TERMINATION AND EVENTS OF DEFAULT
24.1 Termination Without Cause. (a) The Owner may, at its sole option,
-------------------------
terminate this Contract, in its entirety, for convenience upon sixty (60) days'
prior written notice at any time; provided that prior to any such termination
-------- ----
pursuant to this subsection 24.1 the Minimum Commitment will have been fulfilled
by the Owner in accordance with the terms of this Contract.
(b) Any orders made prior to any such termination described in clause (a)
above, other than the Initial Commitment, will remain in effect and will be
fulfilled to the extent that such orders are outstanding as of the date of such
termination.
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24.2 Termination for Cause. The Owner also has the right to terminate
---------------------
this Contract in its entirety (except as otherwise set forth in clause (l)
below) without any penalty or payment obligation upon the occurrence of any
Vendor event of default (each a "Vendor Event of Default") as set forth below.
The occurrence of any of the following will constitute a Vendor Event of
Default:
(a) the Vendor (i) files a voluntary petition in bankruptcy or has an
involuntary petition in bankruptcy filed against it that is not dismissed within
sixty (60) days of such involuntary filing, (ii) admits the material allegations
of any petition in bankruptcy filed against it, (iii) is adjudged bankrupt, or
(iv) makes a general assignment for the benefit of its creditors, or if a
receiver is appointed for all or a substantial portion of its assets and is not
discharged within sixty (60) days after his appointment; or
(b) the Vendor commences any proceeding for relief from its creditors in
any court under any state insolvency statutes; or
(c) the Vendor materially disregards or materially violates material
Applicable Laws or material Applicable Permits; or
(d) the Vendor persistently and materially fails to timely correct Defects
and Deficiencies in accordance with the terms of this Contract; or
(e) the Vendor persistently fails to fulfill its obligations with respect
to the satisfaction, discharge or bonding of liens as set forth in subsection
2.35 hereof; or
(f) the Vendor abandons or ceases for a period in excess of thirty (30)
days its performance of the Work (except as a result of an event of Force
Majeure or a casualty which is fully covered by insurance or as to which other
provisions reasonably acceptable to the Owner are being diligently pursued) or
fails to begin the Work within thirty (30) days after the Notice to Proceed
Date; or
(g) the Vendor assigns or subcontracts Work other than in accordance with
the terms and conditions of Section 4; or
(h) the Vendor fails to materially comply with any accepted Change Order
pursuant to subsection 7.3; or
(i) the Vendor materially breaches this Contract (including, without
limitation, any action the Vendor may take on any Vendor-Controlled Site) and
thereby prejudices in any way deemed material by the parties providing financing
in connection with the build-out of the Nationwide Network in their reasonable
opinion (whether expressed and/or communicated through the Owner or otherwise);
or
(j) the Vendor fails to pay to the Owner any material amount due not
otherwise in good faith dispute to the Owner by the date required for such
payment; or
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(k) the Vendor fails to comply with subsection 27.22; or
(l) the Vendor misses any Interim Milestone within any given PCS System by
a period in excess of thirty (30) days and such failure to achieve such Interim
Milestone was not caused by (i) a Force Majeure event and/or (ii) any act or
omission of the Owner; provided that in such case the Owner will have the right,
-------- ----
but not the obligation, to terminate this Contract with respect to only that PCS
System in which such interim delay occurred unless such interim delay relates to
Project Milestones M3 and M4 as set forth on Exhibit A1 in which case the Owner
will have the right, but not the obligation, to terminate this Contract in its
entirety as otherwise set forth in this subsection 24.2; or
(m) the Vendor otherwise materially breaches any provision of this
Contract.
24.3 Remedies. (a) If any of the Vendor Events of Default exists, the
--------
Owner may, without prejudice to any other rights or remedies of the Owner in
this Contract or at law or in equity, terminate this Contract upon written
notice to the Vendor; provided, however, that the Owner will have first provided
-------- -------
to the Vendor the following periods of notice and opportunity to cure:
(i) in the case of an Event of Default specified in the
foregoing subsections 24.2 (e) and (k), the Owner will have provided
ten (10) business days' prior written notice to the Vendor, and the
Vendor will have failed to remedy such breach entirely by the end of
such ten (10) business day period;
(ii) in the case of an Event of Default specified in the
foregoing subsections 24.2 (a) or (b), no notice or opportunity to
cure will be required from the Owner; and
(iii) in the case of any other Event of Default by the
Vendor, the Owner will have provided forty-five (45) days' prior
written notice, and the Vendor will have failed (i) to commence to
cure the default within five (5) days after receipt of such notice,
and (ii) to diligently pursue such cure and remedy the breach entirely
by the end of said forty-five (45) day notice period.
(b) If the Owner elects to terminate this Contract, the Owner may,
without prejudice to any other rights or remedies of the Owner in this Contract
or of law or in equity, do one or more of the following:
(i) Take possession of all Engineering and design data,
procurement data, manufacturing data, construction and erection data,
start-up and testing data, materials, and Products that will become
part of the System and/or the specified PCS Systems, or the Work and
which Owner will have the right of ownership to and/or possession of
under the terms of this Contract, whether any of
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76
the same is in a partial state of completion or completed condition,
and title to any of said items vests in the Owner (if not already
vested by the provisions of this Contract);
(ii) Take possession of all Engineering and design data,
procurement data, manufacturing data, construction and erection data,
start-up and testing data, materials, and Products that will become
part of the System and/or the specified PCS Systems, or the Work
whether any of the same is in a partial state of completion or
completed condition (if not already vested in the Owner by the
provisions of this Contract);
(iii) Take temporary possession and control of all of the
Vendor's installation equipment, machinery, and the Vendor's
materials, supplies, Software and any and all tools (including, but
not limited to, any and all RF Engineering tools and/or software) at
any project site, including but not limited to any System Element
Location, within the System and/or the specified PCS Systems which in
the Owner's opinion are necessary to finish the Work subject to any
enforceable licenses related thereto or any confidentiality
restrictions otherwise contained in this Contract;
(iv) Direct that the Vendor assign its Subcontractor
agreements to the Owner without any change of price or conditions
therein or penalty or payment therefor to the full extent permitted by
such agreement or agreements; or
(v) Take over and finish the Work by whatever reasonable
methods the Owner may deem expedient;
provided, that, nothing contained in paragraphs (a) through (d) above will
- - -------- ----
require the Vendor to relinquish to the Owner any of its manufacturing
facilities, specific Product designs (other than such designs previously
provided to the Owner pursuant to the terms of this Contract), Software Source
Codes, trade secrets or proprietary information not previously provided or made
available to the Owner, the System or any part thereof or any materials,
supplies, inventories, tools, software, engineering and/or designs that are not
integral or relevant to the completion of the Work.
24.4 Discontinuance of Work. Upon such notification of termination, the
----------------------
Vendor must immediately discontinue all of the Work (unless such notice of
termination directs otherwise), and, as more fully set forth in subsection
24.3(b), deliver to the Owner copies of all data, drawings, specifications,
reports, estimates, summaries, and such other information, and materials as may
have been accumulated by the Vendor in performing the Work, whether completed or
in process. Furthermore, the Vendor must assign, assemble and deliver to the
Owner all purchase orders and Subcontractor agreements (and in connection with
such agreements, to the full extent permitted by such agreements) requested by
the Owner.
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77
24.5 Payments. In the event the Owner terminates this Contract for cause
--------
pursuant to subsection 24.2, the Vendor will not be entitled to receive further
payment other than payments due and payable under this Contract and not subject
to dispute prior to such termination. Notwithstanding anything herein to the
contrary, the Owner may withhold payments, if any, to the Vendor for the
purposes of offset of amounts owed to the Owner pursuant to the terms of this
Contract until such time as the exact amount of damages due the Owner from the
Vendor is fully determined; provided, however, that the amount of any such
-------- -------
offset pursuant to this subsection 24.5 will not be greater than the amounts
otherwise owed to the Vendor and claimed hereunder.
24.6 Costs. In the event of a termination due to a Vendor Event of
-----
Default, the Owner will be entitled to the costs in connection with finishing
the Work (exclusive of any Liquidated Damages already paid and/or owing to the
Owner upon termination of this Contract), and if such costs exceed the unpaid
balance of the Contract Price for such Work, the Vendor will be liable to pay
such excess to the Owner, provided that the Owner will use the same care as it
-------- ----
would otherwise use in light of the extraordinary circumstances contemplated
under this subsection 24.6. The amount to be paid by the Vendor pursuant to
this subsection 24.6 will survive termination of this Contract and will be
subject to the limitations of liability in this Contract.
24.7 Continuing Obligations. Termination of this Contract for any reason
----------------------
(i) will not relieve either Party of its obligations with respect to the
confidentiality of the Proprietary Information as set forth in subsection 27.19,
(ii) shall not relieve either Party of any obligation which expressly or by
implication survives termination, and (iii) except as otherwise provided in any
provision of this Contract expressly limiting the liability of either Party,
will not relieve either Party of any obligations or liabilities for loss or
damage to the other Party arising out of or caused by acts or omissions of such
Party prior to the effectiveness of such termination or arising out of its
obligations as to portions of the Work already performed or of obligations
assumed by the Vendor prior to the date of such termination.
24.8 Vendor's Right to Terminate. The Vendor will have the option to
---------------------------
terminate this Contract without any penalty or payment obligations, other than
undisputed payment obligations outstanding as of the date of any such
termination pursuant to the terms of this Contract if:
(a) the Owner (i) files a voluntary petition in bankruptcy or has an
involuntary petition in bankruptcy filed against it that is not dismissed within
forty-five (45) days of such involuntary filing, (ii) admits the material
allegations of any petition in bankruptcy filed against it, (iii) is adjudged
bankrupt, or (iv) makes a general assignment for the benefit of its creditors,
or if a receiver is appointed for all or a substantial portion of its assets and
is not discharged within sixty (60) days after his appointment, and any such
filing, proceeding, adjudication or assignment as described herein above will
otherwise materially impair the Owner's ability to perform its obligations under
this Contract;
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78
(b) the Owner commences any proceeding for relief in any court under any
state insolvency statutes;
(c) the Owner fails to make payments of undisputed amounts due to the
Vendor pursuant to the terms of this Contract which are more than sixty (60)
days overdue, provided that such failure has continued for at least thirty (30)
-------- ----
days after the Vendor has notified the Owner of its right and intent to so
terminate on account of such overdue amount;
(d) the Owner continuously and materially breaches subsection 11.1 or
subsection 27.19 notwithstanding the fact that the Vendor will have provided the
Owner with prior written notice describing the alleged material breaches and
will have given the Owner a reasonable time (not less than thirty (30) days) to
cure any such breaches; or
(e) except as otherwise provided in subsection 24.1 the Owner fails to
fulfill its Initial Commitment within five (5) years of the Effective Date for
whatever reason other than (i) any act or omission of the Vendor, (ii) inability
to successfully complete Microwave Relocation in any PCS System, (iii) inability
to successfully attain Site Acquisition Substantial Completion in any given PCS
System or (iv) any event otherwise constituting a Force Majeure hereunder; or
(f) the Owner otherwise materially breaches this Contract in a way which
materially and adversely affects the Vendor and/or its performance under this
Contract, provided that in no event will (i) Site Acquisition, Microwave
-------- ----
Relocation and/or Network Interconnection be deemed to be obligations of the
Owner under this Contract for the purposes of this subsection 24.8(f) or (ii)
the failure and/or inability of the Owner to complete any such activities for
any reason whatsoever be deemed a breach of the Owner under the terms of this
Contract including, but not limited to, this subsection 24.8(f).
24.9 Special Termination Events. (a) In the event that financing for the
--------------------------
Owner's build-out of the initial phase of the Nationwide Network has not been
finalized with the Vendor and the Other Vendors on terms and conditions
reasonably satisfactory to the Owner, on or before one hundred and eighty (180)
days after the Effective Date, the Owner will have the right, but not the
obligation, to terminate this Contract in its entirety without charge or penalty
of any kind. In the event of a termination of this Contract pursuant to this
subsection 24.9(a) the Owner will remain liable for amounts due to the Vendor
for all Work performed or Products delivered by the Vendor or any of its
Subcontractors pursuant to the specific terms of this Contract which had been
directly delivered to or performed for the Owner and/or any of its facilities or
sites in accordance with the terms of this Contract including, but not limited
to, the Project Milestones. Any amounts owed by the Owner for Work done or
Products delivered by the Vendor during such interim one hundred and eighty
(180) day period (the "Financing Interim Period") not otherwise invoiced to the
Owner by the Vendor prior to the termination of such Financing Interim Period,
will be invoiced to the Owner by the Vendor within forty-five (45) days of such
termination pursuant to this subsection 24.9(a) and will be payable to the
extent not otherwise in dispute by the Owner within forty-five (45) days of
receipt of such invoice; provided that in no event will the Owner be liable to
-------- ----
the Vendor due to a termination of this Contract pursuant to this subsection
24.9(a) for any of the
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79
Vendor's direct or indirect costs or expenses incurred in connection with any
suppliers or equipment ordered by the Vendor or agreements entered into by the
Vendor in order to enable it to fulfill its obligations hereunder or in
connection with the establishment of and/or upgrade to its manufacturing,
personnel, engineering, administrative or other capacities and/or resources in
contemplation of or pursuant to its performance in accordance the terms of this
Contract and any amounts due to the Vendor pursuant to this subsection 24.9(a)
will be limited in all cases to Work actually done or Products actually
delivered to the Owner, its sites or its facilities.
(b) At any time after the Effective Date of this Contract during the
Financing Interim Period, the Vendor will have the right, but not the
obligation, upon not less than thirty (30) days' prior written notice to the
Owner, to terminate its obligations under this Contract without penalty if it
believes, in its reasonable opinion, that the financing for the System and/or
the Nationwide Network is not likely to be finalized by the end of any such
Financing Interim Period. In the event of a termination pursuant to this
subsection 24.9(b) payment obligations incurred by the Owner for Work done by
the Vendor pursuant to the terms of this Contract will be payable by the Owner
to the Vendor on the same terms and subject to the limitations set forth in
subsection 24.9(a) above.
(c) If at any time after the Effective Date any material change shall have
occurred in any Applicable Law or in the interpretation thereof by any
Governmental Entity, or there shall be rendered any decision in any judicial or
administrative case, in either case which, in the reasonable opinion of the
Owner, would make the Owner's use of any part of any PCS System illegal or would
subject the Owner or any of its Affiliates to any material penalty, other
material liability or onerous condition or to any burdensome regulation by any
Governmental Entity or otherwise render the use of such PCS System economically
nonviable, then, with respect to such PCS System, or affected part thereof, or
with respect to the entire System if so affected, the Owner may terminate this
Contract without charge or penalty of any kind; provided that (i) the Owner
-------- ----
gives the Vendor prior written notice of any such change or decision; (ii) that
the Owner uses its reasonable efforts for a reasonable time to reverse or
ameliorate such change or decision to the extent possible or practical prior to
declaring such termination and (iii) the Owner, at the Vendor's request, gives
the Vendor a legal opinion from a reputable law firm with experience in the area
confirming the Owner's reasonable opinion as set forth above. In the event of a
termination pursuant to this subsection 24.9(c), payment obligations incurred by
the Owner for work done by the Vendor prior to such termination pursuant to this
Contract will be payable by the Owner to the Vendor on the same terms and
subject to the limitations set forth in subsection 24.9(a) above.
SECTION 25 SUSPENSION
25.1 Owner's Right to Suspend Work. The Owner may, at any time and upon
-----------------------------
reasonable notice to the Vendor, order the Vendor, in writing, to suspend all or
any part of the Work for such reasonable period of time as the Owner may
reasonably determine to be appropriate for its convenience. Any request by the
Vendor for a change in the Specifications caused by the Owner's suspension of
the Work pursuant to this subsection 25.1 will be
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80
subject to the review and reasonable acceptance of the Owner. No modification
to the Specifications will be made to the extent that performance is, was or
would have been suspended, delayed or interrupted for any other cause due to the
Vendor's fault or if the suspension had no effect on agreed upon performance
deadlines and/or Project Milestones set forth in this Contract.
SECTION 26 MOST FAVORED CUSTOMER
26.1 Most Favored Customer Status. (a) With respect to the Initial
----------------------------
System (including any Expansions or additions to the Initial System within the
context of the Initial System pursuant to the terms of this Contract), the Owner
will be deemed the Vendor's most important and favored Customer and will always
receive priority in terms of price, availability and quantity of CDMA 1900
Products, Engineering and Services. [ ] the Owner will receive Products,
Engineering and Services at prices and on payment terms no less favorable to the
Owner than those offered or available to any other Customer (other than Initial
Affiliates and/or Additional Affiliates pursuant to the terms of this Contract)
of the Vendor.
(b) On an annual basis throughout the Term of this Contract commencing on
the Effective Date the Vendor will be required to audit its pricing of all CDMA
1900 products, engineering and services provided to all of its Customers (other
than Initial Affiliates and/or Additional Affiliates pursuant to the terms of
this Contract) in the preceding calendar year and certify to the Owner in a
certificate executed by a duly authorized officer of the Vendor (the "MFC
Certificate") that the Owner has in fact received the prices, availability and
quantity of and on Products, Engineering and Services in accordance with the
terms of clause (a) above. The annual MFC Certificate delivered to the Owner in
accordance with this subsection 26.1 will be subject to verification by an
independent, reputable and nationwide public accounting firm reasonably
acceptable to the Owner and at the sole cost and expense of the Vendor.
(c) To the extent that it is determined pursuant to clause (b) above that
the Vendor has not in fact complied with the terms of clause (a) above the Owner
will have thirty (30) business days from receipt of the MFC Certificate as
verified by the independent public accountant to provide the Vendor with a
written claim for Product and/or Engineering and/or Service pricing rebates on
future purchases under this Contract based upon the Owner's reasonable
calculation of the impact on the Owner of the Vendor's failure to comply with
clause (a) of this subsection 26.1. To the extent the Vendor disagrees with any
such claim for such pricing rebates made by the Owner pursuant to this clause
(c) the Vendor will have the right within ten (10) business days of receiving
the Owner's written rebate claim to submit the Owner's claim and the Vendor's
written response thereto to an Independent Auditor who will have the authority
only to determine whether the Owner's calculation of the claimed pricing rebate
is fair and reasonable in light of the Vendor's non-compliance with the terms of
clause (a) above. The Independent Auditor's determination must be made and
delivered to both the Vendor and the Owner within ten (10) business days of
receiving the
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81
request from the Vendor. Such determination once made by the Independent
Auditor will be final and binding on the Parties and will not be subject to
further modification.
SECTION 27 MISCELLANEOUS
27.1 Amendments. The terms and conditions of this Contract, including the
----------
provisions of Exhibits and Schedules hereto, may only be amended by mutually
agreed contract amendments. Each amendment must be in writing and will identify
the provisions to be changed and the changes to be made. Contract amendments
must be signed by duly authorized representatives of each of the Vendor and the
Owner.
27.2 Owner Liabilities. The Parties understand and agree that none of the
-----------------
Partners, nor any of their affiliates will guarantee or otherwise be in any way
liable with respect to any obligations or liabilities of the Owner or any of its
subsidiaries pursuant to this Contract. The Parties further understand and
agree that neither the Owner nor any of its subsidiaries will guarantee or
otherwise be in any way liable for any obligations or liabilities of any of the
Partners or any Affiliate of the Owner pursuant to this Contract unless, and
only to the extent, (i) the Owner or any one of its subsidiaries in accordance
with the Owner's direction expressly agrees in writing to guarantee or otherwise
be liable for such liability, or (ii) in the case of an Affiliate, such
Affiliate orders Products and/or Services through the Owner under this Contact.
27.3 Offset. The Vendor hereby waives any right of offset of amounts owed
------
by the Owner to the Vendor pursuant to the terms of this Contract.
27.4 Assignment. Except as otherwise permitted herein, neither this
----------
Contract nor any portion hereof may be assigned by either Party without the
express prior written consent of the other Party. The Owner may, without the
consent of the Vendor, collaterally assign its rights hereunder to any or all
parties providing financing for any part of the Nationwide Network under a
collateral trust for the benefit of the Vendor and one or more other entities
providing financing for any part of the Nationwide Network or similar
arrangement for the benefit of the Vendor and one or more other entities
providing for the financing for any part of the Nationwide Network, in either
case, which collateral trust or similar arrangement, as the case may be, is
reasonably acceptable to the Vendor in accordance with the terms of the
financing documents. If requested by the Owner, the Vendor will within seven
(7) days of such request provide a written consent to any such assignment;
provided that such consent will permit re-assignment if the financing parties
- - -------- ----
exercise their remedies under the documents for such financing subject to
reasonable standards as to (i) the creditworthiness of the assignee and (ii) the
fact that the assignee is not at such time a competitor of the Vendor. The
foregoing rights and obligations are in addition to those set forth in
subsection 27.21. Any attempted assignment in violation of the terms of this
Contract will be null and void.
27.5 Enforcement. The Parties agree that the Owner may enforce the
-----------
provisions of subsections 11.5 and 27.4 regarding assignment by an action for
injunction or other equitable remedies.
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27.6 Notices. Any notice, request, consent, waiver or other communication
-------
required or permitted hereunder will be effective only if it is in writing and
personally delivered by hand or by overnight courier or sent by certified or
registered mail, postage prepaid, return receipt requested, addressed as
follows:
If to the Owner:
MajorCo L.P.
c/o Sprint Telecommunications Venture
9221 Ward Parkway
Kansas City, Missouri 64113
Attention: Director, Program Management
If to the Vendor:
Northern Telecom Inc.
2435 N. Central Expressway
Richardson, TX 75080
Attention: Director, CDMA 1900 Wireless Contract Administration
Written notice given pursuant to this subsection 27.6 will be delivered to
recipients authorized by the Owner and the Vendor, as the case may be, in
writing and when so delivered will be deemed to have been fully served and
delivered.
27.7 Governing Law and Forums. This Contract is governed by the laws and
------------------------
statutes of the State of Missouri, exclusive of Missouri's conflict of laws
rules. This Contract and the Work will be deemed to be made, executed and
performed in the State of Missouri. If one Party commences a lawsuit in
relation to this Contract against the other Party, such lawsuit can only be
brought in the State of Missouri or the State of Delaware. The Parties hereby
waive a trial by jury in any such lawsuit. The Vendor and the Owner each hereby
irrevocably (a) agrees that any suit, action or other legal proceeding arising
out of or relating to this Contract will be brought in the Federal District
Court for the Western District of Missouri or the District of Delaware, as the
case may be, which courts will have exclusive jurisdiction over any controversy
arising out of this Contract, (b) consents to the jurisdiction of such courts in
any such suit, action or proceeding and (c) waives any objection which it may
have to the laying of venue of any such suit, action or proceeding in such
courts and claim that any such suit, action or proceeding has been brought in an
inconvenient forum. Service of process in any suit, action or proceeding may be
made by mailing or delivering a copy of such process to the Owner or the Vendor,
as the case may be, at the addresses indicated in subsection 27.6 hereof and in
the manner set forth in such subsection 27.6. Nothing in this subsection 27.7
will affect the right of the Owner or the Vendor to serve legal process in any
other manner permitted by law.
27.8 Compliance with Law. The Owner and the Vendor will (a) comply with
-------------------
all Applicable Laws in the performance of this Contract, including, without
limitation, the laws
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83
and regulations of the United States Department of Commerce and State Department
and any other applicable agency or department of the United States regarding the
import, re-import, export or re-export of products or technology; and (b)
indemnify each other for any loss, liability or expense incurred as the result
of breach of this subsection 27.8.
27.9 Independent Contractor. All work performed by any Party under this
----------------------
Contract will be performed as an independent contractor and not as an agent of
the other and no Persons furnished by the performing Party will be considered
the employees or agents of the other. The performing Party will be responsible
for its employees' compliance with all laws, rules, and regulations while
performing all work under this Contract.
27.10 Headings. The headings given to the Sections and subsections herein
--------
are inserted only for convenience and are in no way to be construed as part of
this Contract or as a limitation of the scope of the particular Section or
subsection to which the title refers.
27.11 Severability. Whenever possible, each provision of this Contract
------------
will be interpreted in such a manner as to be effective and valid under such
applicable law, but, if any provision of this Contract will be held to be
prohibited or invalid in any jurisdiction, the remaining provisions of this
Contract will remain in full force and effect and such prohibited or invalid
provision will remain in effect in any jurisdiction in which it is not
prohibited or invalid.
27.12 Waiver. Unless otherwise specifically provided by the terms of this
------
Contract, no delay or failure to exercise a right resulting from any breach of
this Contract will impair such right or will be construed to be a waiver
thereof, but such right may be exercised from time to time as may be deemed
expedient. If any representation, warranty or covenant contained in this
Contract is breached by either Party and thereafter waived by the other Party,
such waiver will be limited to the particular breach so waived and not be deemed
to waive any other breach under this Contract.
27.13 Public Statements. Neither the Owner, Vendor nor its Subcontractors
-----------------
will issue any public statement (or any private statement unless required in the
performance of the Work), except as stated below, relating to or in any way
disclosing any aspect of the Work, the System, or any PCS System including the
scope, extent or value of the Work and/or the System or any PCS System. Express
written consent of the other Party (except in the case of any Subcontractors the
consent of the Owner will be required) is required prior to the invitation of or
permission to any reporter or journalist to enter upon the System or any part
thereof. The Vendor agrees not to use for publicity purposes any photographs,
drawings and/or materials describing the System without obtaining the prior
written consent of the Owner, which consent will not be unreasonably withheld.
This subsection 27.13 is not intended to exclude the provision of necessary
information to prospective Subcontractors and the Vendor's personnel. All other
such public disclosures require the written consent of the Owner. The
obligations of the Parties under this subsection 27.13 are in addition to their
respective obligations pursuant to subsection 27.19.
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84
27.14 Records and Communications. To the extent not already established,
--------------------------
promptly after the Work begins, procedures for keeping and distributing orderly
and complete records of the Work and its progress will be established. The
procedures so established will be followed throughout the course of the Work
unless the Owner and the Vendor mutually agree in advance in writing to revise
the procedures. Furthermore, immediately after the Notice to Proceed is issued,
complete procedures for communications among the Owner and the Vendor will be
established. The procedures so established will be followed throughout the
course of the Work unless the Owner and the Vendor mutually agree in advance and
in writing to revise such procedure.
27.15 Ownership of Specifications. Neither the Vendor nor any
---------------------------
Subcontractor, nor any other Person performing or furnishing the Work, whether
or not under a direct or indirect contract with the Owner, will have or acquire
any title to or ownership rights in any of the Specifications, or in any other
part or portion of this Contract (or copies of any of the Specifications or this
Contract); and no such Party will reuse any of the Specifications on and/or with
respect to any other project without the prior written consent of the Owner.
The Specifications and this Contract (and any and all copies thereof), are owned
by and title resides in the Owner, unless otherwise agreed between the Owner and
any other Person. Notwithstanding anything contained in this subsection 27.15
to the contrary, the Owner will not acquire any patent, copyright or trade
secret rights as a result of this Contract, except pursuant to licenses and
other approvals provided in connection with the performance of the Work and
except to the extent that a non-exclusive license of any of the Vendor's patent,
copyright or trade secret rights is required to perform the Work and as further
provided for in this Contract.
27.16 Financing Parties Requirements. The Vendor acknowledges that the
------------------------------
Owner represents that attainment of financing for construction of the Nationwide
Network may be subject to conditions that are customary and appropriate for the
providers of such financing. Therefore, the Vendor agrees to execute promptly
any reasonable amendment to or modification of this Contract required by such
providers (including, without limitation, any pertinent industrial development
authority or other similar governmental agency issuing bonds for financing of
the System) in order to obtain such financing. In the event that any such
amendment or modification materially increases the Vendor's risk or costs
hereunder, the Owner and the Vendor will negotiate in good faith to adjust the
Contract Price, and to equitably adjust such other provisions of this Contract,
if any, which may be affected thereby, to the extent necessary to reflect such
increased risk or costs. Amendments or modifications not materially increasing
the Vendor's risk or costs will be made without charge by the Vendor. The
Vendor will be responsible for and pay all costs as a result of the Vendor's or
its Subcontractors' failure to promptly comply with the request for any such
modification or amendment made by any provider of financing described in this
subsection.
27.17 Owner Review, Comment and Approval. To the extent that various
----------------------------------
provisions of this Contract provide for the Owner's review, comment, inspection,
evaluation, recommendation or approval, the Owner may at its option do so in
conjunction and/or consultation with the Vendor. To the extent that this
Contract requires the Owner to submit, furnish, provide or deliver to the Vendor
any report, notice, Change Order, request or other
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85
items, the Owner may at its option and upon written notice to the Vendor
designate the Engineer to submit, furnish, provide or deliver such items as the
Owner's agent therefor. To the extent that various provisions of this Contract
provide that the Owner may order, direct or make requests with respect to
performance of the Work or is provided access to the System sites or any other
site, the Owner may at its option and upon written notice to the Vendor
authorize the Engineer to act as the Owner's agent therefor. Upon receipt of
such notice, the Vendor shall be entitled to rely upon such authorization until
a superseding written notice from the Owner is received by the Vendor.
27.18 Specifications. The Owner acknowledges that parts of the
--------------
Specifications are comprised of Specifications prepared by the Vendor and that
the Vendor contributed significantly to many other portions thereof. The Owner
also acknowledges that, during the normal design, evolution and development
process, portions of the Specifications may appear in design and procurement
documents prepared by the Vendor in its normal course of business; provided,
--------
however, that the Owner will have no liability for any third party claims for
- - -------
contributor infringement or the like with respect to such Specifications
prepared by the Vendor or portions thereof to which the Vendor contributed
significant portions or use and the Vendor will hold the Owner harmless from any
such third party claims.
27.19 Confidentiality. (a) All information, including without limitation
---------------
all oral and written information, disclosed to the other Party is deemed to be
confidential, restricted and proprietary to the disclosing Party (hereinafter
referred to as "Proprietary Information"). Each Party agrees to use the
Proprietary Information received from the other Party only for the purpose of
this Contract. Except as specified in this Contract, no other rights, and
particularly licenses, to trademarks, inventions, copyrights, patents, or any
other intellectual property rights are implied or granted under this Contract or
by the conveying of Proprietary Information between the Parties. Proprietary
Information supplied is not to be reproduced in any form except as required to
accomplish the intent of, and in accordance with the terms of, this Contract.
The receiving Party must provide the same care to avoid disclosure or
unauthorized use of Proprietary Information as it provides to protect its own
similar proprietary information. All Proprietary Information must be retained
by the receiving Party in a secure place with access limited to only such of the
receiving Party's employees or agents who need to know such information for
purposes of this Contract and to such third parties as the disclosing Party has
consented to by prior written approval. All Proprietary Information, unless
otherwise specified in writing (i) remains the property of the disclosing Party,
(ii) must be used by the receiving Party only for the purpose for which it was
intended, and (iii) such Proprietary Information, including all copies of such
information, must be returned to the disclosing Party or destroyed after the
receiving Party's need for it has expired or upon request of the disclosing
Party, and, in any event, upon termination of this Contract. At the request of
the disclosing Party, the receiving Party will furnish a certificate of an
officer of the receiving Party certifying that Proprietary Information not
returned to disclosing Party has been destroyed. For the purposes hereof,
Proprietary Information does not include information which:
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86
(i) has been or may in the future be published or is now or may
in the future be otherwise in the public domain through no fault
of the receiving Party;
(ii) prior to disclosure pursuant to this Contract is properly
within the legitimate possession of the receiving Party;
(iii) subsequent to disclosure pursuant to this Contract is
lawfully received from a third party having rights in the
information without restriction of the third party's right to
disseminate the information and without notice of any restriction
against its further disclosure;
(iv) is independently developed by the receiving Party through
parties who have not had, either directly or indirectly, access
to or knowledge of such Proprietary Information;
(v) is transmitted to the receiving Party after the disclosing
Party has received written notice from the receiving Party that
it does not desire to receive further Proprietary Information; or
(vi) is obligated to be produced under order of a court of
competent jurisdiction or other similar requirement of a
Governmental Entity, so long as the Party required to disclose
the information provides the other Party with prior notice of
such order or requirement.
(b) Because damages may be difficult to ascertain, the Parties agree that
in the event of a breach or threatened breach of this Contract, without limiting
any other rights and remedies specified herein, an injunction may be sought
against the Party who has breached or threatened to breach this subsection
27.19. Each Party represents and warrants that it has the right to disclose all
Proprietary Information which it has disclosed to the other Party pursuant to
this Contract, and each Party agrees to indemnify and hold harmless the other
from all claims by a third party related to the wrongful disclosure of such
third party's proprietary information. Otherwise, neither Party makes any
representation or warranty, express or implied, with respect to any Proprietary
Information.
27.20 Entirety of Contract; No Oral Change. This Contract and the
------------------------------------
Exhibits and Schedules referenced herein constitute the entire contract between
the Parties with respect to the subject matter hereof, and supersede all
proposals, oral or written, all previous negotiations, and all other
communications between the Parties with respect to the subject matter hereof.
No modifications, alterations or waivers of any provisions herein contained will
be binding on the Parties hereto unless evidenced in writing signed by duly
authorized representatives of both Parties as set forth in subsection 27.1. Any
representations by the Vendor in any RFP response and/or any documentation
otherwise provided to the Owner in connection with the Vendor's solicitation of
the business granted pursuant hereto prior to the execution hereof will also be
deemed to be incorporated into and otherwise made a part of this Contract.
<PAGE>
87
27.21 Successors and Assigns. This Contract will bind and inure to the
----------------------
benefit of the Parties to this Contract, their successors and permitted assigns.
27.22 Change of Control of the Vendor. The Vendor will not consolidate
-------------------------------
with or merge into any other Person or convey, transfer or lease all or
substantially all of its assets to any Person, nor will any Person or group (as
such term is defined in the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) own or acquire fifty percent (50%) of the value of the Vendor's
equity where such Person or group did not own as of the Effective Date in excess
of ten percent (10%) of such equity (any such Person or group will be referred
to as the "Vendor's Succeeding Entity"), unless:
(i) the Vendor's Succeeding Entity will agree to
assume the obligations of the Vendor under this Contract; and
(ii) the Owner will have approved the transaction,
based solely on (i) the creditworthiness of the Vendor's
Succeeding Entity, (ii) whether the Vendor's Succeeding Entity is
a competitor of the Owner and (iii) whether in the Owner's
reasonable judgment the Vendor's Succeeding Entity will be able
to fulfill the obligations for present and future orders under
this Contract.
27.23 Change of Control of the Owner. Except as otherwise permitted under
------------------------------
the documents relating to the financing of the build-out of the Nationwide
Network, the Owner will not consolidate with or merge into any other business
entity or convey, transfer or lease all or substantially all of its assets to
any Person, nor will any Person or group (as such term is defined in the
Exchange Act) own or acquire fifty percent (50%) of the value of the Owner's
limited partnership interests or general partnership interests where such Person
or group did not own as of the Effective Date in excess of ten percent (10%) of
either of such partnership interests (any such Person or group will be referred
to as the "Owner's Succeeding Entity"), unless:
(a) the Owner's Succeeding Entity will agree to assume the obligations of
the Owner under this Contract; and
(b) the Vendor will have approved the transaction, based solely on (i) the
creditworthiness of the Owner's Succeeding Entity and (ii) whether the Owner's
Succeeding Entity is a competitor of the Vendor.
27.24 Relationship of the Parties. Pursuant to subsection 27.9, nothing
---------------------------
in this Contract will be deemed to constitute either Party a partner, agent or
legal representative of the other Party, or to create any fiduciary relationship
between the Parties. The Vendor is and will remain an independent contractor in
the performance of this Contract, maintaining complete control of its personnel,
workers, Subcontractors and operations required for performance of the Work.
This Contract will not be construed to create any relationship, contractual or
otherwise, between the Owner and any Subcontractor.
<PAGE>
88
27.25 Discretion. Notwithstanding anything contained herein to the
----------
contrary, to the extent that various provisions of this Contract call for an
exercise of discretion in making decisions or granting approvals or consents,
the Parties will be required to exercise such discretion, decision or approvals
in accordance with accepted PCS industry practices.
27.26 Non-Recourse. No past, present or future limited or general partner
------------
in or of the Owner, no parent or other affiliate of any company comprising the
Owner, and no officer, employee, servant, executive, director, agent or
authorized representative of any of them (each, an "Operative") will be liable
by virtue of the direct or indirect ownership interest of such Operative in the
Owner for payments due under this Contract or for the performance of any
obligation, or breach of any representation or warranty made by the Owner
hereunder. The sole recourse of the Vendor for satisfaction of the obligations
of the Owner under this Contract will be against the Owner and the Owner's
assets and not against any Operative or any assets or property of any such
Operative. In the event that a default occurs in connection with such
obligations, no action will be brought against any such Operative by virtue of
its direct or indirect ownership interest in the Owner. The foregoing
provisions of this subsection 27.26 will not in any way limit or restrict any
right or remedy of the Vendor with respect to, and the Operatives will remain
fully liable for, any fraud perpetuated by such Operatives.
27.27 Improvements, Inventions and Innovations. All rights in any
----------------------------------------
improvements, inventions, and innovations made by the Owner will vest in the
Owner, and the Owner and its affiliates will have the right to exploit such
improvements, inventions, and innovations. Except as may have been otherwise
agreed with respect to Custom Material under subsection 11.10.2, all rights in
any improvements, inventions and innovations made by the Vendor will vest in the
Vendor, and the Vendor and its affiliates will have the right to exploit such
improvements, inventions and innovations; provided, however, that the Owner and
-------- -------
its affiliates will be granted a non-exclusive royalty-free license for use in
any future project in connection with or related to the System by the Owner (or
the parties that comprise the Owner or their respective affiliates) of any such
improvement, invention or innovation made by the Vendor (but not by any
Subcontractor) in the course and as a result of performing the Work and in which
the Vendor owns or possesses any proprietary interest.
27.28 Attachments and Incorporations. All Schedules and Exhibits attached
------------------------------
hereto, are hereby incorporated by reference herein and made a part of this
Contract with the same force and effect as though set forth in their entirety
herein.
27.29 Conflicts. In the event of any conflict or inconsistency among the
---------
provisions of this Contract and the documents attached hereto and incorporated
herein, such conflict or inconsistency will be resolved by giving precedence to
this Contract and thereafter to the Exhibits and Schedules.
27.30 Counterparts. This Contract may be executed by one or more of the
------------
Parties to this Contract on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
<PAGE>
THE OWNER AND THE VENDOR HAVE READ THIS CONTRACT INCLUDING ALL SCHEDULES
AND EXHIBITS HERETO AND AGREE TO BE BOUND BY ALL THE TERMS AND CONDITIONS HEREOF
AND THEREOF.
IN WITNESS WHEREOF, the Parties have executed this Contract as of the date
first above written.
NORTHERN TELECOM INC.
By: /s/ D.A. Twyver
----------------
Name: D.A. Twyver
Title: Vice President
MAJORCO L.P., as the Owner
By: /s/ Ronald T. LeMay
--------------------
Name: Ronald T. LeMay
Title: Chief Executive Officer
<PAGE>
SCHEDULE 2
[ ]
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SCHEDULE 2
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SCHEDULE 2
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SCHEDULE 2
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SCHEDULE 2
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SCHEDULE 2
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SCHEDULE 2
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SCHEDULE 3
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SCHEDULE 3
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SCHEDULE 3
[ ]
<PAGE>
SCHEDULE 3
[ ]
<PAGE>
SCHEDULE 3
[ ]
<PAGE>
SCHEDULE 3
[ ]
<PAGE>
SCHEDULE 4
ALLOCATED SYSTEM AREAS
----------------------
(NORTEL)
CITY
----
Miami
New Orleans
Louisville
Birmingham
Nashville
St. Louis
Dallas
San Antonio
Kansas City
Oklahoma City
Little Rock
Wichita
Tulsa
Omaha
Minneapolis
Des Moines
Indianapolis
<PAGE>
Attached are the Owner's System Area (or MTA) coverage definition maps.
LEGEND
The highways shown in green are only those highways with an average daily
traffic count of greater than 10,000 vehicles. The darker green represents an
average daily traffic count of greater than 50,000 vehicles.
The census tracts of the System Areas were combined and ranked by demand
density in erlangs (wireless talk time traffic) per square mile for year 10,
based on busy hour (peak daily demand hour) minutes of use estimates. Those
tracts which fall within the top 70% of the population total a national level
are displayed in red. Those tracts which fall within the next 10% of the total
population (70 to 80% at the national level) are displayed in pink.
INITIAL SYSTEM COVERAGE
For contiguous Initial System coverage, the Contract's requirement is to
cover all of the red, pink and green areas within the blue "Arbitron Radio
Market" boundaries. This represents 60% covered population at the national
level for the Initial System.
<PAGE>
Birmingham MTA
[MAP]
<PAGE>
Dallas MTA
[MAP]
<PAGE>
Des Moines MTA
[MAP]
<PAGE>
Indianapolis MTA
[MAP]
<PAGE>
Kansas City MTA
[MAP]
<PAGE>
Little Rock MTA
[MAP]
<PAGE>
Louisville MTA
[MAP]
<PAGE>
Miami MTA
[MAP]
<PAGE>
Minneapolis MTA
[MAP]
<PAGE>
Nashville MTA
[MAP]
<PAGE>
New Orleans MTA
[MTA]
<PAGE>
Oklahoma MTA
[MAP]
<PAGE>
Omaha MTA
[MAP]
<PAGE>
San Antonio MTA
[MAP]
<PAGE>
St Louis MTA
[MAP]
<PAGE>
Tulsa MTA
[MAP]
<PAGE>
Wichita MTA
[MAP]
<PAGE>
SCHEDULE 5
- - ----------
INITIAL AFFILIATES
1. Each of the Partners and their operating subsidiaries.
2. APC and its operating subsidiaries.
3. PhillieCo and its operating subsidiaries.
4. Continental and its operating subsidiaries.
5. TCG and its operating subsidiaries.
6. NewTelCo. And its operating subsidiaries.
<PAGE>
SCHEDULE 7
- - ----------
PRODUCTS
A. Essential Equipment: (Including Applicable Software)
* DMS-MTX
* Base Station Controller (BSC) and Base Station Manager (BSM)
* Base Transceiver Station (BTS)
* Visual Display Units (VDU) used as DMS-MTX Maintenance and Administration
Positions (MAP) and provided by Vendor
* Printers used at DMS-MTX Maintenance and Administration Positions (MAP) and
provided by Vendor
* Voice Mail Systems if provided by Vendor
* Service Node if provided by Vendor
* HLR/SCP if provided by Vendor
* DC Power plants and batteries if provided by Vendor
B. Non-Essential Equipment:
Non-Essential Equipment includes, by way of example:
* Towers
* Antennas
* Concrete
* Fences
* Roads
* Buildings/Shelters
* Fire Extinguishers
* 120 VAC Electrical Systems
* Lighting
* Thermostats
* Heater/Air Conditioners
* Cable Rack
* Nuts, Bolts, Connectors, Washers
* Isolators
* Furniture
* Coax Cable
* Antenna Mounting Assemblies
* Connectors, Isolators
* Cable Rack
* CMI/HIC (Including Applicable Software)
<PAGE>
Schedule 11
-----------
CANCELLATION CHARGES
Without charge and/or penalty, the Owner may cancel any order for a Product no
later than ninety (90) days prior to the earliest date scheduled for shipment of
such Product; or
If the Owner cancels an order less than ninety (90) days prior to the earliest
date scheduled for shipment of such Product, the Owner shall pay to the Vendor a
cancellation charge of ten percent (10%) of the price for such Product pursuant
to Schedule 2; or
If the Owner cancels an order less than sixty (60) days prior to the earliest
date scheduled for shipment of such Product, the Owner shall pay to the Vendor a
cancellation charge of fifteen percent (15%) of the price for such Product
pursuant to Schedule 2; or
If the Owner cancels an order less than thirty (30) days prior to the earliest
date scheduled for shipment of such Product, the Owner shall pay to the Vendor a
cancellation charge of twenty percent (20%) of the price for such Product
pursuant to Schedule 2.
The Owner may not cancel an order after the applicable date scheduled for
shipment of such Product. The payment of such charges shall be the Vendor's
sole remedy and the Owner's sole obligation for such canceled order. Any
changes requested by the Owner that involve the return or exchange of Non-
essential Equipment will be subject to the standard policies of the applicable
Non-essential Equipment supplier unless such policies of such supplier are
otherwise set out in the applicable agreement between such Non-essential
Equipment supplier and the Vendor, in which case the Owner will be entitled to
cancel any such order for Non-essential Equipment in accordance with the terms
of such agreement. For the purposes of this Schedule 11, the term "order" shall
not mean the Minimum Commitment or the Initial Commitment.
<PAGE>
SCHEDULE 12 A/B
[ ]
Page 1
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SCHEDULE 12 A/B
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Page 2
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SCHEDULE 12 A/B
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SCHEDULE 12 A/B
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SCHEDULE 12 A/B
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<PAGE>
SCHEDULE 12 A/B
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Page 6
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SCHEDULE 13
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<PAGE>
SCHEDULE 13
[ ]
<PAGE>
SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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<PAGE>
SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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SCHEDULE 13
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<PAGE>
SCHEDULE 13
[ ]
<PAGE>
SCHEDULE 13
[ ]
<PAGE>
[PROJECT MILESTONES ORGANIZATIONAL CHART APPEARS HERE]
<PAGE>
EXHIBIT A2
[ ]
<PAGE>
EXHIBIT 10.2
PROCUREMENT AND SERVICES CONTRACT
---------------------------------
between
MAJORCO L.P.,
Owner
and
AT&T CORP.,
Vendor
Dated as of January 31, 1996
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406.
<PAGE>
PROCUREMENT AND SERVICES CONTRACT
---------------------------------
This Procurement and Services Contract (the "Contract") is made and is
effective as of January 31, 1996 (the "Effective Date"), by and between MajorCo
L.P., a Delaware limited partnership (the "Owner"), and AT&T Corp., a New York
corporation by and through its Network Systems Group (the "Vendor" and, together
with the Owner, the "Parties").
RECITALS:
--------
A. The Federal Communications Commission (the "FCC") granted to the
Owner or certain of its Affiliates (as defined below) personal communications
services licenses (the "PCS FCC Licenses") to build and operate PCS Systems (as
defined below) in specified geographic areas in the United States;
B. The Owner desires to have the Vendor engineer and construct PCS
Systems in the geographic areas specified on Schedule 4 (collectively, the
"System Areas") pursuant to the terms of this Contract;
C. The Vendor, itself or through its Subcontractors (as defined below),
desires to provide Products (as defined below) and Services (as defined below)
to the Owner in connection with the engineering and construction of PCS Systems
in the System Areas, including, but not limited to, the Vendor's obligation to
engineer, equip, install, build, test and service an operating PCS System in
each System Area in accordance with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in this Contract, the Owner and the Vendor hereby agree as follows:
SECTION 1 DEFINITIONS
1.1 Definitions. In addition to the terms listed below, certain
-----------
additional terms are defined in the Exhibits, subject to the provisions of
subsection 1.2 hereof. As used in this Contract, the following terms have the
following meanings:
"AAA" means the American Arbitration Association.
---
"Acceptance Certificates" means the collective reference to the
-----------------------
Factory Test Certificate, the Initial PCS System Certificate, the Substantial
Completion Certificate and the Final Acceptance Completion Certificate.
"Acceptance Tests" means the collective reference to the performance
----------------
and reliability demonstrations and tests specified in Exhibits B1, B2 and B3 to
determine whether the Products, the Services, any of the PCS Systems and/or the
System meet the Specifications and the terms and conditions of any applicable
order and this Contract.
<PAGE>
2
"Additional Affiliate Agreement" has the meaning ascribed thereto in
------------------------------
subsection 3.3.
"Additional Affiliate Arrangement" means a formal arrangement between
--------------------------------
the Owner and a Person to be designated an Additional Affiliate under the terms
of this Contract, which arrangement will include, but not be limited to,
agreements on marketing, backhaul, common billing, resale agreements and/or
revenue sharing.
"Additional Affiliate" has the meaning ascribed thereto in
--------------------
subsection 3.1.
"Affiliates" means the collective reference to the Initial
----------
Affiliates and the Additional Affiliates.
"Annual Release Maintenance Fees" means those recurring annual fees of
-------------------------------
the Vendor, usually invoiced annually in January, the Owner's payment of which
entitles the Owner to receive all Combined Software Releases, Software
Enhancements, and Software Upgrades applicable to PCS Products (but not Optional
Software Features) which will be made available to the Owner when made generally
available to the Vendor's Customers during the period for which the fees were
paid. All Annual Release Maintenance Fees will be as in the Vendor's Customer
Price Guides (subject to Section 26) except as otherwise set forth on Schedule
3. The Annual Release Maintenance Fees applicable to the Owner will for the
period from the Effective Date until the Final Acceptance of the last PCS System
within the Initial System always cover at least those PCS Products included in
the Initial System.
"ANSI" means the American National Standards Institute.
----
"APC" means American PCS, L.P., a Delaware limited partnership.
---
"Applicable Laws" means, as to any Person, the certificate of
---------------
incorporation and by-laws or other organizational or governing documents of such
Person, all United States or foreign laws (including, but not limited to, any
Environmental Laws), treaties, ordinances, judgments, decrees, injunctions,
writs, orders and stipulations of any court, arbitrator or governmental agency
or authority and statutes, rules, regulations, orders and interpretations
thereof of any federal, state, provincial, county, municipal, regional,
environmental or other Governmental Entity, instrumentality, agency, authority,
court or other body (i) applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject or (ii)
having jurisdiction over a or any part of any PCS System, the System or the Work
to be performed pursuant to the terms of this Contract.
"Applicable Permits" means any waiver, exemption, zoning, building,
------------------
variance, franchise, permit, authorization, approval, license or similar order
of or from any United States, foreign, federal, state, provincial, county,
municipal, regional, environmental or other governmental body, instrumentality,
agency, authority, court or other body having jurisdiction over all or any part
of any PCS System, the System or the Work to be performed pursuant to the terms
of this Contract.
<PAGE>
3
"AT&T Assignment" has the meaning ascribed thereto in subsection
---------------
27.22
"Backwards Compatibility" or "Backwards Compatible" means that any
-------------------------------------------------
referenced prior Software Revision Level or Levels of the applicable Software
and any referenced prior Equipment Revision Level or Levels of the applicable
Equipment, as the case may be, remain fully functional in accordance with and up
to the performance levels to which it was performing immediately prior to any
such enhancement and/or revision after the integration with the succeeding
Software Revision Level or Equipment Revision Level, as the case may be, and
that after such integration such prior Software Revision Level or Equipment
Revision Level loses no functionality and such succeeding Software Revision
Level or Equipment Revision Level interoperates with all such functionalities of
such prior Software Revision Level or Equipment Revision Level.
"Base Station ("BTS")" means the radio subsystem that handles the
--------------------
Owner's PCS radio traffic in a designated cell. The Base Station includes all
amplification, modulation, synchronization and other circuitry required to
process a radio signal. The inputs to a Base Station are a landline or radio
signal (e.g., T1) and the radio signal that is fed into antenna lines.
"best efforts" means a Party's best efforts under the circumstances,
------------
provided that the use of best efforts will not require the Party to breach any
- - -------- ----
outstanding contract or to violate any Applicable Law.
"Bolt-down" means for the purposes of each PCS Product all work that
---------
needs to be done by the Vendor in order to permanently and securely place such
PCS Product in its appropriate location within the relevant System Element
Location, provided that Bolt-down will not necessarily constitute installation
-------- ----
of any such PCS Product.
"Building Ready Date" has the meaning ascribed thereto in subsection
-------------------
2.5.
"Build Notice" has the meaning ascribed thereto in subsection 2.7a.
------------
"Business Day" means any day of the year other than a Saturday,
------------
Sunday or a United States national holiday.
"Cable Microcell Integrator ("CMI")" means a form of cable microcell
----------------------------------
integrator that provides for transportation of wireless communication signals
over a cable TV distribution plant. The CMI takes certain signals from the
cable TV distribution plant (the "cable PCS band or bands") and suitably
heterodynes, filters and amplifies these signals such that they can be radiated
by a CMI antenna or antennas in the designated PCS band to PCS wireless
handsets. The CMI takes signals received from the PCS wireless handsets from
one or more CMI receiving antennas and suitably heterodynes, filters and
amplifies these signals for transportation by the cable TV distribution plant to
a Headend Interface Converter ("HIC") or Distributive Cable Access Provider
("DCAP") at a PCS Base Station. Additionally, the CMI unit responds to control
signaling and provides status signals. The CMI is normally collocated with the
cable TV distribution plant and takes power from the cable plant.
<PAGE>
4
"CDMA" means code division multiple access as specified in ANSI-J-
----
STD-008.
"Change Orders" has the meaning ascribed thereto in subsection 7.2.
-------------
"Civil Work" means the labor and materials necessary in the
----------
performance of demolition, construction and renovation work (e.g., roads,
grading, fencing and structural improvements, including, but not limited to, any
buildings, towers and antennas) in order to construct a System Element Facility
in accordance with Exhibit E.
"Completion Cure Period" has the meaning ascribed thereto in
----------------------
subsection 15.3(a).
"Configuration Engineering" means the engineering required to
-------------------------
establish System Element configuration including, without limitation, preparing
component, inventory (including T1 quantities and configurations) and layout
drawings, Equipment labels, cable tray layout drawings, and "as-built" drawings
and Documentation. Configuration Engineering also includes the design, power
distribution and supply for each of the System Elements.
"Continental" means Continental Cablevision, Inc.
-----------
"Contract" has the meaning ascribed thereto in the prefatory paragraph
--------
to this Contract. "Contract" will in all instances include all Exhibits,
Schedules and Specifications and will, unless specifically stated otherwise,
always be deemed to include all amendments, modifications and supplements to the
Contract or any part thereof (including any Exhibits, Schedules or the
Specifications) pursuant to the terms of this Contract.
"Contract Price" has the meaning ascribed thereto in subsection 6.1.
--------------
"Customer" means any PCS customer of the Vendor doing business in
--------
North America or any PCS customer doing business in North America of any of the
Vendor's affiliates or subsidiaries.
"Customer Price Guide" means the Vendor's published "Network Wireless
--------------------
Systems Price Reference Guide" or other price notification releases furnished
for the purpose of communicating the Vendor's list pricing or pricing related
items applicable to PCS Products to Customers intending to operate PCS systems
in the United States, provided that the term does not necessarily include firm
-------- ----
price quotes.
"Custom Material" has the meaning ascribed thereto in subsection
---------------
11.9.1.
"Customer Service Request ("CSR")" has the meaning ascribed thereto
--------------------------------
in subsection 2.26.2.
<PAGE>
5
"Defects and Deficiencies," "Defects or Deficiencies" or "Defective"
------------------------------------------------------------------
means any one or a combination of the following items or other items of a
substantially similar nature:
(a) when used with respect to the performance of labor or service items
of Work (including any work by any Subcontractor), such items that are not
provided in a workmanlike manner and in accordance with the standards and/or
Specifications set forth herein;
(b) when used with respect to structures, materials, Equipment and
Software items of Work (including any Work by any Subcontractor), such items
that are not (i) new and of good quality and free from improper workmanship and
defects in accordance with the standards and/or Specifications set forth herein
or established hereunder and standards of good procurement, manufacturing and
construction standards, or (ii) free from errors and omissions in design or
engineering services in light of such standards; or
(c) in general, (i) Work (including any Work by any Subcontractor) that
does not conform to the Specifications and/or requirements of this Contract, or
(ii) any design, engineering, start-up activities, materials, Equipment,
Software, tools, supplies, Installation or Training that (1) does not conform to
the standards and/or Specifications set forth herein or established hereunder,
(2) has improper or inferior workmanship, (3) would materially and adversely
affect the ability of the System and/or any PCS System and/or any material part
thereof to meet the performance criteria specified in Exhibit F on a consistent
and reliable basis or (4) would materially and adversely affect the continuous
operation of the System and/or any PCS System or any material part thereof in
accordance with the standards and/or Specifications set forth herein or
established hereunder. Defects and Deficiencies will be deemed to exist when
actually discovered or when they should have been apparent to a Person in the
Vendor's position after reasonable inspection and testing.
"Discontinued Products" has the meaning ascribed thereto in
---------------------
subsection 10.1.
"Documentation" means the documentation for the System and/or any
-------------
PCS System and/or any material part thereof.
"Effective Date" has the meaning ascribed thereto in the prefatory
--------------
paragraph to this Contract.
"E1 Emergency Condition ("E1")" has the meaning ascribed thereto in
-----------------------------
subsection 2.26.3(b).
"E2 Emergency Condition ("E2")" has the meaning ascribed thereto in
-----------------------------
subsection 2.26.3(b).
"Emergency Technical Assistance ("ETA")" means the provision of
--------------------------------------
emergency technical assistance to the Owner for the purpose of diagnosing and
resolving a
<PAGE>
6
problem which adversely affects the System and/or any PCS System and/or a
material part thereof, its operation and/or its service pursuant to and in
connection with subsection 2.26.3.
"Engineer" means the engineer or engineers appointed from time to time
--------
by the Owner to do certain work and/or inspections and reviews on behalf of the
Owner and/or provide advice or information to the Owner in connection with the
System and/or any PCS System and/or any part thereof.
"Engineering" means all of the engineering required to be done by the
-----------
Vendor to complete the System in accordance with the Specifications including,
but not limited to, RF Engineering, Configuration Engineering and Facilities
Engineering done in accordance with the Specifications and the CDMA standards.
"Environmental Laws" means any and all United States and foreign,
------------------
federal, state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Entity, or
requirements of law (including, without limitation, common law) relating in any
manner to contamination, pollution, or protection of human health or the
environment, as now or may at any time hereafter be in effect.
"Equipment" means all equipment, hardware and other items of personal
---------
property which are required to be furnished by the Vendor or any Subcontractor
pursuant to and in accordance with the terms and conditions of this Contract and
in connection with the System and/or any PCS System and/or any part thereof in
accordance with the Specifications including, without limitation, additional
equipment required as a result of the expansion or additional coverage required
pursuant to subsection 2.2, or otherwise pursuant to the terms of this Contract,
and the equipment listed on Exhibit D or on Schedule 7 (parts A and B).
"Equipment Combined Release" has the meaning ascribed thereto in
--------------------------
subsection 13.1(a).
"Equipment Enhancements" means modifications or improvements made to
----------------------
the PCS Equipment which improve performance or capacity of such Equipment
(sometimes referred to by the Vendor as its "Class B" changes).
"Equipment Revision Level" means each version of an Item of PCS
------------------------
Equipment that reflects any modification or change from the immediately
preceding version of such Item of Equipment.
"Equipment Upgrade" means a change or modification in any delivered
-----------------
PCS Equipment which fixes or otherwise corrects faults, design shortcomings or
shortcomings in meeting the Specifications, required to correct defects of a
type that result in inoperative conditions, unsatisfactory operating conditions,
or which is recommended to enhance safety (sometimes referred to by the Vendor
as its "Class A" changes).
"Escrow Agreement" has the meaning ascribed thereto in subsection
----------------
11.7.
<PAGE>
7
"Exchange Act" has the meaning ascribed thereto in subsection 27.22.
------------
"Expansions" means any additional Products or Services resulting from
----------
a modification by the Owner to the Specifications, the performance criteria set
forth in Exhibit F or the Project Milestones set forth on Exhibit A resulting in
a change to the System and/or any PCS System and/or any material part thereof,
including, but not limited to, the extension or expansion of the System and/or
any PCS System (i) into geographic areas outside of the System Areas covered by
the PCS Systems identified in Schedule 4, or (ii) to increase capacity and/or
performance of the System and/or any PCS System beyond the performance criteria
and/or Specifications originally contemplated herein. Expansions will not
include any additional Products or Services required to meet the Specifications
applicable to the Initial System.
"Extraordinary Transportation" means the Vendor's or its
----------------------------
Subcontractors' transport of Products and/or other materials pursuant to the
terms of this Contract where the circumstances of such transport require the
Vendor to use any one or a combination of the following extraordinary means of
transport and/or extraordinary methods of achieving access to the Owner's
facilities: (i) four-wheel drive vehicle (other than those typically used for
the delivery of Products), (ii) helicopter, (iii) boat, (iv) airplane, (v)
bulldozer, (vi) clear physical obstructions requiring the building of a new road
by the Vendor or its Subcontractors, or (vii) a construction crane.
"Facilities Engineering" means the engineering required to design each
----------------------
System Element Facility including, without limitation, System Element Locations
and System Element layout, drawings and relevant Specifications for the
construction of the buildings, towers, generators, cable and antennae and all
other items required to make the System Element Facility functional. Facilities
Engineering does not include Configuration Engineering.
"Facilities Preparation Services" means all Facilities Engineering,
-------------------------------
Civil Work, Site Plan Architectural Work, Structural Architectural Work, and
Utilities Work, all of which must be performed in accordance with the
Specifications. Pursuant to the definition of Civil Work, Facilities
Preparation Services will (unless otherwise agreed by the Owner) include all
Work to complete the Civil Work in a given System Element Location including,
but not limited to, the supply, building and installation of all buildings,
towers and antennas. Facility Preparation Services does not include Site
Acquisition, Network Interconnection, Microwave Relocation or any of the above
referenced activities for the construction of a Switch Site (except as otherwise
provided in this Contract).
"Facilities Preparation Services Warranty Period" has the meaning
-----------------------------------------------
ascribed thereto in subsection 17.2b.
"Factory Test Certificate" means a document submitted by the Vendor to
------------------------
the Owner and signed by an authorized representative of the Owner and an
authorized officer of the Vendor stating that in accordance with the
requirements of Exhibit B3 and this Contract the Vendor has successfully
completed all factory tests on the PCS Products (of the type to be
<PAGE>
8
installed as part of the Initial System) in accordance with the requirements of
Exhibit B3 and this Contract.
"FCC" has the meaning ascribed thereto in the recitals to this
---
Contract.
"Final Acceptance" means, as to any PCS System, the successful
----------------
completion by the Vendor of all of the final acceptance tests and requirements
applicable to such PCS System set forth in Exhibit B3 in accordance with the
requirements of Exhibit B3 and the terms of this Contract.
"Final Acceptance Completion Certificate" means, with respect to a
---------------------------------------
given PCS System, a document submitted by the Vendor to the Owner and signed by
an authorized representative of the Owner and an authorized officer of the
Vendor stating that the Vendor has successfully completed the Acceptance Tests
and requirements applicable to the Final Acceptance of the Work to be done in
such PCS System in accordance with the requirements of Exhibit B3.
"Final RF Engineering Plan" has the meaning ascribed thereto in
-------------------------
subsection 2.6(c).
"Final RF Review Period" has the meaning ascribed thereto in
----------------------
subsection 2.6(c).
"Final Site Count" has the meaning ascribed thereto in subsection
----------------
2.6(c).
"Financing Interim Period" has the meaning ascribed thereto in
------------------------
subsection 24.9(a).
"Force Majeure" means the following:
-------------
(a) Acts of God, epidemic, earthquake, landslide, lightning, fire,
explosion, accident, tornado, drought, flood, hurricane, or extraordinary
weather conditions more severe than those normally and typically
experienced in the affected area constituted by each of the specified
System Areas in which the Vendor is seeking to claim Contract suspension
due to Force Majeure;
(b) Acts of a public enemy, war (declared or undeclared), blockade,
insurrection, riot or civil disturbance, sabotage, quarantine, or any
exercise of the police power by or on behalf of any public entity;
(c) (i) The valid order, judgment or other act of any federal,
state or local court, administrative agency, Governmental Entity or
authority issued after the Effective Date; (ii) with respect to the
Vendor, the suspension, termination, interruption, denial or failure of
or delay in renewal or issuance of any Applicable Permit required by this
Contract to be obtained by the Owner; (iii) with respect to the Owner,
the suspension, termination, interruption, denial or failure of or delay
in
<PAGE>
9
renewal or issuance of any Applicable Permit required by this Contract to
be obtained by the Vendor; or (iv) a change in Applicable Law (including
the adoption of a new Applicable Law); provided that no such order,
-------- ----
judgment, act, event or change is the result of the action or inaction
of, or breach of this Contract by, the Party relying thereon;
(d) Strikes, boycotts or lockouts, except for any such strike,
boycott or lockout involving the employees of the Vendor or the permanent
employees (not hired on a contract basis) of a Subcontractor (for the
period from the Effective Date until the Final Acceptance of the last PCS
System within the Initial System but in no event to exceed three (3)
years from the Effective Date);
(e) A partial or entire delay or failure of utilities; or
transportation embargoes; or
(f) The presence of (i) any Hazardous Waste on or at any System
Element Location which materially interferes with the Work to be done
thereon or otherwise materially endangers the safety of any personnel at
such location; (ii) any unknown historical or archeological sites which
are not shown or indicated in the survey of any System Element Locations
and of which the Vendor could not have reasonably been expected to be
aware; or (iii) any mining or water recovery activities (other than such
activities by the Vendor or its Subcontractors) at or under any System
Element Location after the Effective Date.
Events of Force Majeure include the failure of a Subcontractor to
furnish labor, services, materials, or equipment in accordance with its
contractual obligations, only if such failure is itself due to an event of Force
Majeure. A Force Majeure does not include any delay in performance to the
extent due to the failure of the Vendor or any Subcontractor to provide an
adequate number of engineers or other workmen or to manufacture or procure an
adequate amount of Equipment, Software and/or Services.
"Governmental Entity" means any nation or government, any state,
-------------------
province or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranteed Substantial Completion Date" means the date which is
--------------------------------------
defined in Exhibit A as "Milestone 8."
"Hazardous Waste" means any and all hazardous or toxic substances,
---------------
wastes, materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum products, asbestos and asbestos-containing materials,
pollutants, contaminants, polychlorinated biphenyls and any and all other
materials, substances, regulated pursuant to any Environmental Laws or that
could result in the imposition of liability under any Environmental Laws.
<PAGE>
10
"Headend Interface Converter ("HIC")" means a form of CMI that
-----------------------------------
provides for transportation of wireless communication signals over a cable TV
distribution plant. The HIC takes signals from the PCS Base Station transmitter
and suitably heterodynes, filters and amplifies these signals for processing by
the PCS Base Station receiver. Additionally, the HIC provides reference and
control signals to the CMI units and receives and processes status signals from
the CMI unit.
"Independent Auditor" means any of the Persons set forth on Schedule
-------------------
15.
"Indemnitees" has the meaning ascribed thereto in subsection 20.2(a)
-----------
"Initial Affiliates" means the collective reference to each of the
------------------
Persons set forth on Schedule 5.
"Initial Affiliate Agreement" has the meaning ascribed thereto in
---------------------------
subsection 3.2.
"Initial Commitment" has the meaning ascribed thereto in subsection
------------------
7.1.
"Initial PCS System" means that PCS System, or a portion thereof,
------------------
designated by the Owner within one hundred twenty (120) days of the Effective
Date as the Initial PCS System in which Substantial Completion must take place
in accordance with the terms of Exhibit B3 prior to and as a condition of the
Owner's acceptance of Substantial Completion of any other PCS System within the
Initial System; provided that at any time after the designation of the Initial
-------- ----
PCS System prior to the Substantial Completion of the first PCS System within
the Initial System the Parties may mutually agree to change the designation of
the Initial PCS System; provided further that in the event the Parties are
-------- -------
unable or unwilling to mutually agree on such redesignation of the Initial PCS
System in good faith within a reasonable time, for the purposes hereof the first
PCS System within the Initial System to actually achieve Substantial Completion
in accordance with and pursuant to the terms of Exhibit A1 and Exhibit B3 will
be deemed to be the Initial PCS System.
"Initial PCS System Certificate" means a document submitted by the
------------------------------
Vendor to the Owner and signed by an authorized representative of the Owner and
an authorized officer of the Vendor stating that the Vendor has successfully
completed the Acceptance Tests applicable to the Initial PCS System in
accordance with the requirements of Exhibit B3.
"Initial System" means the build-out of that portion of the System
--------------
Areas as shown on Schedule 4 prior to any Expansions or Owner requests for
additional coverage for such System Areas pursuant to the terms of this
Contract.
"Initial Term" has the meaning ascribed thereto in subsection 5.1.
------------
"In Revenue Service" or "In Revenue" means the commercial operation of
----------------------------------
any PCS System, or a portion thereof, exclusive of operation for purposes of
conducting Acceptance Tests; provided that In Revenue Service or In Revenue will
-------- ----
not by itself
<PAGE>
11
constitute acceptance in accordance with the terms of this Contract of any such
PCS System or any portion thereof.
"Inspector" means a qualified Person designated as an authorized
---------
representative of the Owner assigned to make all necessary inspections of the
Work, or of the labor, materials and equipment furnished or being furnished by
the Vendor or any of its Subcontractors at the System Element Locations and the
other sites where the Vendor or any Subcontractor is prosecuting the Work,
subject to appropriate safety, security and confidentiality requirements.
"Installation" or "Installed" means the performance and supervision by
------------ ---------
the Vendor of all installation of Products within the System and/or any PCS
System.
"Intellectual Property Rights" has the meaning ascribed thereto in
----------------------------
subsection 14.2(a)
"Interim Delay Penalty" has the meaning ascribed thereto in
---------------------
subsection 15.2.
"Interim Milestone" has the meaning ascribed thereto in subsection
-----------------
15.2.
"Interoperability" means (i) the ability of the System and/or any PCS
----------------
System and/or any material part thereof to interconnect and successfully operate
with the equipment and software of other Systems and/or PCS Systems and/or any
material part thereof of the Vendor and/or the Other Vendors and/or other
suppliers whose equipment and software also meet the relevant ANSI standards and
other Specifications identified in Exhibit D and (ii) the ability of each of the
Products to operate with one another and to operate with and within the System,
including, but not limited to, the ability of the handsets (to be delivered
pursuant to subsection 2.3) to operate with and within the System, all in
accordance with the Specifications. Since certain sections of the ANSI
standards are currently undefined, and certain sections are left available for
independent development by suppliers, the potential for such interoperability or
incompatibility with properly designed systems exists, and must be resolved by
the Vendor or any Subcontractor providing PCS Systems to the Vendor in
accordance with the terms hereof.
"Item" means any item at any time listed in any of the Vendor's price
----
lists and it specifically includes, without limitation, all Software Upgrades,
Software Enhancements, Equipment Upgrades, Equipment Enhancements and
modifications, enhancements, updates or other revisions of any kind in any such
item, spare parts with respect to any of the foregoing and any other PCS/CDMA
related item.
"Late Completion Payment Cap" has the meaning ascribed thereto in
---------------------------
subsection 15.3
"Late Completion Payments" has the meaning ascribed thereto in
------------------------
subsection 15.3
<PAGE>
12
"Liabilities" has the meaning ascribed thereto in subsection 20.1(a)
-----------
"Liquidated Damages" has the meaning ascribed thereto in subsection
------------------
15.1
"M5 Forecast" has the meaning ascribed thereto in subsection 2.7(a)
-----------
"Maintenance and Instruction Manuals" means the manuals prepared by
-----------------------------------
the Vendor and delivered to the Owner pursuant to subsection 2.21 containing
detailed procedures and specifications for the ongoing maintenance of the
System.
"Major Portion" of the Work means a segregated portion of the Work
-------------
with a cost to the Owner of $10,000,000 or more.
"MFC Certificate" has the meaning ascribed thereto in subsection
---------------
26.1(b)
"Microwave Delay Period" has the meaning ascribed thereto in
----------------------
subsection 2.38(a)
"Microwave Relocation" means the process by which incumbent point to
--------------------
point microwave users of the 1850 - 1990 Mhz frequency spectrum are moved to
other frequencies or alternate transmission facilities in order to clear the
licensed PCS spectrum for broadband wireless service.
"Microwave Relocation Completion" means, with respect to any given PCS
-------------------------------
System, the point at which the Owner will have finished sufficient Microwave
Relocation in such PCS System to permit the commercially viable and marketable
operation of such PCS System in accordance with the terms of this Contract.
"Minimum Commitment" means sixty percent (60%) of the Initial
------------------
Commitment.
"Nationwide Network" means all of the PCS Systems built or to be owned
------------------
and/or operated by the Owner or its Affiliates in North America.
"NDAB" means the New Development Advisory Board established pursuant
----
to the terms of this Contract including subsections 2.11, 2.32 and 2.33.
"Network Interconnection" means the transmission links between Base
-----------------------
Stations and MSCs, between an MSC and another MSC, and between MSCs and PSTNs
but does not include connections between demarcation points of transmission
links and System Elements for which the Vendor will be responsible pursuant to
the terms of this Contract, including its obligations to install and test upon
the Owner's completion of such transmission links. Typically T1 transmission
links are used for connectivity.
"NewTelCo" means NewTelCo. L.P., a Delaware limited partnership.
--------
<PAGE>
13
"Non-Essential Equipment" means a Product other than a PCS Product
-----------------------
obtained from a third party supplier and furnished to the Owner as part of
Facilities Preparation Services in accordance with the terms of this Contract,
which Product will be furnished with an assignable warranty from the such third
party supplier of a length and scope determined by the Parties in the
development of the Specifications in accordance with the terms of Exhibit E for
the Product pursuant to the terms of this Contract, including but not limited
to;
Antennas
Transmission towers
Monopoles
Prefabricated equipment shelters
Power transformers
Batteries
Rectifiers
Uninterrupted power sources.
Non-Essential Equipment does not include normal construction materials
(including, but not limited to pipes, conduits, concrete, fences, lighting and
paving materials) used by the Vendor or its Subcontractors in the performance of
its Facilities Preparation Services.
"North America" means the United States, Canada (including the
-------------
Province of Quebec) and Mexico.
"Notice to Proceed" means a written notice given by the Owner to the
-----------------
Vendor in the form attached hereto as Schedule 9 and in compliance with the
provisions of this Contract, fixing the date on which the Vendor will have the
full right, in accordance with the terms of this Contract, and the full
obligation, subject to the terms of this Contract, to commence the Work to be
performed under this Contract.
"Notice to Proceed Date" means the date on which any Notice to Proceed
----------------------
is issued by the Owner in accordance with the terms of this Contract.
"OCC" has the meaning ascribed thereto in subsection 2.26.2.
---
"OM&P" has the meaning ascribed thereto in subsection 2.23(a).
----
"Operating Manuals" means the manuals to be prepared by the Vendor and
-----------------
delivered to the Owner pursuant to subsections 2.20, 2.22 and 2.23 containing
detailed procedures and specifications for the operation of the System and/or
any part thereof.
"Operative" has the meaning ascribed thereto in subsection 27.26.
---------
"Optional Software Features" means Software features for PCS Products
--------------------------
available to Customers on an optional, separate fee, basis. The initial fees
for such Optional Software Features are not included in Annual Release
Maintenance Fees.
<PAGE>
14
"Other Vendors" means vendors, other than the Vendor, with whom the
-------------
Owner has entered, or may enter in the future, into a contract for the provision
of products and services for the engineering and construction of any portion of
the Nationwide Network. Other Vendors does not include any Subcontractors in
connection with the Work to be performed under this Contract in their capacity
as Subcontractors.
"Outage" has the meaning ascribed thereto in subsection 17.4(b).
------
"Owner" has the meaning ascribed thereto in the prefatory paragraph
-----
to this Contract.
"Owner Loss" means an insured loss incurred by the Owner relating to
----------
the System.
"Owner's Succeeding Entity" has the meaning ascribed thereto in
-------------------------
subsection 27.23.
"Parties" has the meaning ascribed thereto in the prefatory
-------
paragraph to this Contract.
"Patent License" has the meaning ascribed thereto in subsection
--------------
14.5.
"P1 Major Condition ("P1")" has the meaning ascribed thereto in
-------------------------
subsection 2.26.3(g).
"P2 Significant Problem ("P2")" has the meaning ascribed thereto in
-----------------------------
subsection 2.26.3(g).
"P3 Minor Problem ("P3")" has the meaning ascribed thereto in
-----------------------
subsection 2.26.3(g).
"Partners" means the collective reference to Sprint Spectrum, L.P., a
--------
Delaware limited partnership and/or Sprint Corporation ("Sprint"), TCI Network
Services, a Delaware general partnership ("TCI"), Cox Telephony Partnership, a
Delaware general partnership ("Cox"), and Comcast Telephony Services, a Delaware
general partnership ("Comcast").
"PCS" means personal communication services authorized by the FCC.
---
"PCS FCC Licenses" has the meaning ascribed thereto in the recitals
----------------
of this Agreement.
"PCS Products" means the Vendor's PCS Equipment and Software, as
------------
offered from time to time in the Customer Price Guide; provided that for the
-------- ----
purposes of this Contract PCS Products will always (subject to subsection 10.1)
include at least those Items listed on the Vendor's Customer Price Guide as of
the Effective Date. As the context
<PAGE>
15
requires and notwithstanding the above, the term PCS Products includes all
Vendor manufactured Products provided to the Owner in connection with its
obligations pursuant to the terms of this Contract, but excludes Items furnished
solely as part of Facilities Preparation Services not otherwise integral to the
operation or maintenance of the PCS Items set forth on the Customer Price Guide,
including Non-Essential Equipment.
"PCS System" means all Products and other equipment, tools and
----------
software, all System Element Sites and any property located thereat necessary or
desirable to provide PCS in a given specified System Area.
"Person" means an individual, partnership, limited partnership,
------
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity of whatever
nature.
"Phillieco" means Phillieco L.P.
---------
"Preliminary RF Design" means an RF Engineering design which
---------------------
incorporates as many prequalified System Element Locations (including existing
structures and other sites provided by Site Acquisition that have a high
likelihood of meeting the zoning requirements) as possible without compromising
the quality of the System or System Element Location counts, design grids,
signal level plots and prequalified site map overlays for each of the System
Areas. The Preliminary RF Design must also include those Items listed on
Schedule 1. The Preliminary RF Design must be based upon all information
reasonably available to the Vendor or provided to the Vendor by the Owner as of
the Effective Date including, but not limited to, the information set forth in
this Contract.
"Product Warranty Period" has the meaning ascribed thereto in
-----------------------
subsection 17.1(a), 17.1(b).
"Product Contract Price" means, at the time of determination, the
----------------------
Contract Price minus the costs applicable to and actually invoiced to such date
by the Owner pursuant to and in accordance with Section 6 for Facilities
Preparation Services and RF Engineering.
"Products" means the collective reference to the PCS Products, the
--------
Equipment and the Software provided by the Vendor or any Subcontractor pursuant
to and in accordance with the terms of this Contract.
"Project Milestones" means the collective reference to the milestone
------------------
dates and intervals as set forth in Exhibits A1 and A2, each a "Milestone."
"Proprietary Information" has the meaning ascribed thereto in
-----------------------
subsection 27.19(a).
"Punch List" means that list prepared in conjunction with the
----------
Acceptance Tests and included in any Acceptance Certificate, which contains one
or more immaterial non-service-affecting items (specifying the cost of
completing such items either determined as
<PAGE>
16
of the date of the Substantial Completion of the relevant PCS System or within a
reasonable time thereafter) which have not been fully completed by the Vendor as
of the Substantial Completion of any PCS System; provided that such incomplete
--------
portion of the Work will not, during its completion, materially impair the
normal daily operation of such PCS System in accordance with the Specifications.
"Reviewers" has the meaning ascribed thereto in subsection 21.4.
---------
"RF" means radio frequency.
--
"RF Engineering" means radio frequency engineering required in
--------------
connection with the architectural design of the System and/or any PCS System.
"RFP" has the meaning ascribed thereto in subsection 11.9.1(a).
---
"RTM License" has the meaning ascribed thereto in subsection 11.6.
-----------
"RTU License" has the meaning ascribed thereto in subsection 11.1.
-----------
"Services" means the collective reference to all of the services to be
--------
conducted by the Vendor as part of the Work pursuant to the terms of this
Contract including, but not limited to, Installation, Facilities Preparation
Services, RF Engineering, System Maintenance Support, System Support Services
and other repair and maintenance services, performed in accordance with the
terms of this Contract including, but not limited to, the Specifications.
Services does not include Site Acquisition, Network Interconnection or Microwave
Relocation.
"Services Warranty Period" has the meaning ascribed thereto in
------------------------
subsection 17.2(b).
"Site Acquisition" means the services to be performed by the Owner
----------------
and/or its subcontractors necessary for identifying and acquiring sufficient
rights to the System Element Locations within the System Areas including all
requisite zoning approvals and all building approvals required by any
Governmental Entity; provided that Site Acquisition does not include any of the
-------- ----
Site Plan Architectural Work or the Facilities Engineering.
"Site Acquisition Delay Period" has the meaning ascribed thereto in
-----------------------------
subsection 2.41.
"Site Acquisition Substantial Completion" means, with respect to any
---------------------------------------
PCS System, the point at which the Owner will have acquired, by purchase, lease
or otherwise, rights to a sufficient number of System Element Locations within
the specified System Area to be covered by such PCS System such that the
performance criteria specified in Exhibit F applicable to such PCS System would
be substantially satisfied in the reasonable opinion of the Owner subject to the
reasonable acceptance of the Vendor. If the Vendor upon receiving notice from
the Owner that Site Acquisition Substantial Completion has been achieved in any
<PAGE>
17
given PCS System disagrees with the Owner's claim, then the Vendor will have ten
(10) Business Days to detail its disagreement in writing to the Owner and a
Third Party Engineer chosen by the Owner and such Third Party Engineer will have
ten (10) Business Days from the receipt of such writing to make a determination
whether or not the Owner's claim of Site Acquisition Substantial Completion is
reasonable. The Third Party Engineer will have no discretion or authority to
provide the Parties with any answer other than whether in its judgment the
Owner's claim is reasonable. Such determination by the Third Party Engineer
will be final and binding upon the Parties.
"Site Acquisition Substantial Completion Date" means with respect to
--------------------------------------------
any PCS System the date on which the Owner will have achieved Site Acquisition
Substantial Completion.
"Site Plan Architectural Work" means the preparation of architectural
----------------------------
and/or engineering drawings, plans and/or specifications necessary to obtain
zoning permits and/or approvals, building permits and/or approvals and/or
conditional use permits for any given System Element Facility.
"Software" means (a) all computer software furnished hereunder for use
--------
with any Equipment including, but not limited to, computer programs contained on
a magnetic or optical storage medium, in a semiconductor device, or in another
memory device or system memory consisting of (i) hardwired logic instructions
which manipulate data in central processors, control input-output operations,
and error diagnostic and recovery routines, or (ii) instruction sequences in
machine-readable code furnished hereunder that control call processing,
peripheral equipment and administration and maintenance functions, (b) any
Software Enhancements, Software Features and Software Upgrades furnished by the
Vendor to the Owner hereunder, and (c) any Documentation furnished hereunder for
use and maintenance of the Software; provided that no Source Code versions of
-------- ----
Software are included in the term Software.
"Software Combined Release" means a Software Upgrade which is at any
-------------------------
time combined with any Software Enhancement.
"Software Enhancements" means modifications or improvements made to
---------------------
the Software relating to PCS Products which improve performance or capacity of
the Software or which provide additional functions to the Software.
"Software Licenses" means the collective reference to the RTU
-----------------
License and the RTM License.
"Software Revision Level" means each version of Software that reflects
-----------------------
any amendment, modification or change from the immediately preceding version.
"Software Upgrades" means periodic updates to the Software issued by
-----------------
the Vendor to the Owner under Warranty and Software maintenance obligations to
correct Defects or Deficiencies in the Software relating to PCS Products.
<PAGE>
18
"Sony/Qualcomm Agreement" has the meaning ascribed thereto in
-----------------------
subsection 2.3(a).
"Source Code" means Software in human-readable form and all
-----------
documentation, such as flow charts, schematics and annotations, that comprise
the precoding detailed design specifications (which constitutes the "embodiment
of the intellectual property" of the Software (excluding Third Party Software)
as such concept is referenced in Section 365(n) of the United States Bankruptcy
Code, as amended), which is necessary to enable the Owner to maintain and modify
the Software in accordance with the licenses granted in this Contract.
"Specifications" means the collective reference to the specifications
--------------
and performance standards of the design, Facilities Preparation Services,
Engineering, Products, Installation and Services contemplated by this Contract
and includes any Expansions, amendments, modifications and/or other revisions
thereto made in accordance with the terms of this Contract and as more fully set
forth in Exhibits C, D, E and F, or as otherwise determined hereunder pursuant
to the terms of this Contract; provided that, except as otherwise provided in or
-------- ----
determined pursuant to this Contract or as otherwise mutually agreed between the
Parties, the applicable Specifications for an Item will be the Vendor's or other
manufacturer's standard technical specifications for such Item, as applicable,
unless the Owner will have specifically not agreed with such Vendor or other
manufacturer specification; and provided further, that with respect to
-------- -------
Facilities Preparation Services, design, Engineering, Products, Installation and
Services for which specifications and performance standards are not provided and
listed in such Exhibits, "Specifications" refers to performance, functionality
and fitness for the intended purpose in which such design, Facilities
Preparation Services, Engineering, Products, Installation and Services are
employed.
"Structural Architectural Work" means the preparation of all
-----------------------------
architectural drawings and blueprints relating to the structural specifications
for a System Element Facility.
"Subcontractor" means a contractor, vendor, supplier, licensor or
-------------
other Person, having a direct or indirect contract with the Vendor or with any
other Subcontractor of the Vendor who has been hired specifically to assist the
Vendor in certain specified areas of its performance of its obligations under
this Contract including, without limitation, performance of any part of the
Work.
"Substantial Completion" means the point at which the Vendor has
----------------------
completed a portion of the Work other than specified Items set forth on
applicable Punch Lists such that the geographic areas of any System Area as
specified in Schedule 4 all have been covered to the extent set forth in
Schedule 4, in accordance with the Specifications and the System Standards and
as verified to the Owner in accordance with the criteria and requirements set
forth in Exhibit B3.
"Substantial Completion Certificate" means, with respect to a given
----------------------------------
PCS System, a document submitted by the Vendor to the Owner and signed by an
authorized representative of the Owner and an authorized officer of the Vendor
stating that the Vendor
<PAGE>
19
has successfully completed the Acceptance Tests applicable to the Substantial
Completion of the Work to be done in such PCS System in accordance with the
requirements of Exhibit B3.
"Successor" has the meaning ascribed thereto in subsection 27.22.
---------
"Switch Site" means the System Element Location designated by the
-----------
Owner as the site in which it wants the MSC(s) to be Installed in any given PCS
System.
"Switch Site Notice" has the meaning ascribed thereto in subsection
------------------
2.6(d).
"Switch Site Notice Date" has the meaning ascribed thereto in
-----------------------
subsection 2.6(d).
"Switch Site Ready Date" has the meaning ascribed thereto in
----------------------
subsection 2.6(d).
"System" means all of the PCS Systems built by the Vendor in the
------
System Areas allocated to the Vendor pursuant to the terms of this Contract and
as set forth on Schedule 4.
"System Areas" has the meaning ascribed thereto in the recitals to
------------
this Contract.
"System Element" means the Equipment and Software required to perform
--------------
radio, switching and/or system element functions for the System and/or any PCS
System (which may include, without limitation, Base Station ("BTS"), Equipment
Identity Register ("EIR"), Messaging System ("MXE"), Mobile Switching
Center/Visitor Location Register ("MSC/VLR"), Mobile Service Node ("MSN"),
Signal Transfer Point ("STP"), Home Location Register ("HLR"), Service Control
Point ("SCP"), Intelligent Peripheral ("IP") and Access Manager ("AM")).
"System Element Facility" means the structures, improvements,
-----------------------
foundations, towers, and other facilities necessary to house or hold any System
Element and any related Equipment to be located at a particular System Element
Location.
"System Element Location" means the physical location for a System
-----------------------
Element.
"System Element Site" means the collective reference to a particular
-------------------
System Element, together with the related System Element Location and System
Element Facility.
"System Element Verification" means the Vendor's laboratory level
---------------------------
testing on the Products conducted by the Vendor in accordance with Exhibit B3.
"System Maintenance Support" means those Services offered by the
--------------------------
Vendor for maintenance of any of the Products and/or any System Element or
collection thereof.
<PAGE>
20
"System Managers" means each of the managers designated by the Owner
---------------
and the Vendor, respectively, for the purposes of subsection 23.1.
"System Standards" means the collective reference to the industry
----------------
standards specified in Exhibits C, D, F, G and H.
"System Support Services" means those services offered by the Vendor
-----------------------
relating to System design, enhancement and optimization.
"System Warranty Period" has the meaning ascribed thereto in
----------------------
subsection 17.3.
"TCG" means the collective reference to Teleport Communications
---
Group, Inc. and TCG Partners.
"Technical Documentation" means the documentation identified as such
-----------------------
in the Specifications.
"Term" has the meaning ascribed thereto in subsection 5.2.
----
"Test-bed Laboratory" has the meaning ascribed thereto in subsection
-------------------
2.5.
"Third Party Engineer" means any one of the Persons listed on
--------------------
Schedule 14.
"Third Party Software" means Software which is independently developed
--------------------
by a third party, sublicensed to the Owner under this Contract or otherwise
provided with the Products in accordance with the Specifications.
"Training" has the meaning ascribed thereto in subsection 2.23.
--------
"Trouble Report ("TR")" has the meaning ascribed thereto in
---------------------
subsection 2.26.2.
"United States" means the fifty states of the United States and the
-------------
District of Columbia.
"Utilities Work" means the installation of electric and telephone
--------------
utilities at the System Element Locations.
"Vendor" has the meaning ascribed thereto in the prefatory paragraph
------
to this Contract.
"Vendor-Controlled Location" has the meaning ascribed thereto in
--------------------------
subsection 2.12.
<PAGE>
21
"Vendor Developments" has the meaning ascribed thereto in subsection
-------------------
2.11.1.
"Vendor Event of Default" has the meaning ascribed thereto in
-----------------------
subsection 24.2.
"Vendor procedural error" has the meaning ascribed thereto in
-----------------------
subsection 17.4(c).
"Vendor Patents" has the meaning ascribed thereto in subsection
--------------
14.5.
"Vendor's Succeeding Entity" has the meaning ascribed thereto in
--------------------------
subsection 27.22.
"Warranty Damages" has the meaning ascribed thereto in subsection
----------------
17.4(c).
"Warranty Periods" means the collective reference to the Product
----------------
Warranty Period, the Non-Essential Equipment Warranty Period, the Services
Warranty Period and the System Warranty Period.
"Work" means all phases of this Contract, including, as required by
----
the terms of this Contract, engineering and design, procurement, manufacture,
construction and erection, installation, training, start-up (including
calibration, inspection and start-up operation), testing and start-up and
testing operation with respect to the System and/or any PCS System and/or any
part thereof to be performed by the Vendor or its Subcontractors pursuant to
this Contract. As required by the terms of this Contract, Work includes (i) all
labor, materials, equipment, services, and any other items to be used by the
Vendor or its Subcontractors in the prosecution of this Contract, wherever the
same are being engineered, designed, procured, manufactured, delivered,
constructed, installed, trained, erected, tested, started up or operated during
start-up and testing and whether the same are on or are not on any System
Element Location or any other site within the System and/or any PCS System and
(ii) all related items which would be required of a contractor of projects of
comparable size and design which are necessary for the System and/or any PCS
System and/or any part thereof to (x) operate in accordance with all Applicable
Laws and Applicable Permits, and (y) provide the operating personal
communications service systems required pursuant to this Contract. The Vendor
will be responsible for providing in accordance with the terms of this Contract
any and all additional items and services which are not expressly included by
the terms of this Contract and which are reasonably required for construction
and start-up of the System and/or any PCS System.
1.2 Other Definitional Provisions. (a) When used in this Contract,
-----------------------------
unless otherwise specified therein, all terms defined in this Contract will have
the defined meanings set forth herein. Terms defined in the Exhibits are deemed
to be terms defined herein; provided that in the case of any terms that are
-------- ----
defined both in this Contract and/or an Exhibit, the definitions contained in
this Contract will supersede such other definitions for all purposes
<PAGE>
22
of this Contract; provided further, that definitions contained in any Exhibit
-------- -------
will control as to such Exhibit.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Contract refer to this Contract as a whole and not to
any particular provision of this Contract and Section, subsection, Schedule and
Exhibit references are to this Contract unless otherwise specified.
(c) The meanings given to terms defined in this Contract are equally
applicable to both the singular and plural forms of such terms.
SECTION 2 SCOPE OF WORK, RESPONSIBILITIES AND PROJECT
MILESTONES
2.1 Scope of Work. Upon the terms and conditions herein set forth, the
-------------
Vendor will provide all Products and Services to the Owner required for the
establishment of the System including, but not limited to, the Vendor's
obligation to engineer, equip, install, build, test and service the PCS Systems
in the System Areas set forth on Schedule 4 in accordance with the
Specifications and that otherwise satisfies all conditions of Final Acceptance;
provided, that the Vendor will not be responsible for Site Acquisition (except
- - --------
to the extent certain Facilities Preparation Services, including Site Plan
Architectural Work, are required for the successful completion of Site
Acquisition), Network Interconnection or Microwave Relocation. The Vendor must
complete the Work in accordance with the Project Milestones set forth in Exhibit
A1 and as further specified herein provided that Milestone 5 (as set forth on
-------- ----
Exhibit A1) in any PCS System within the Initial System will in no event be
deemed to have occurred prior to March 31, 1996. The Vendor must furnish all
labor, materials, tools, transportation and supplies required to complete the
Work in accordance with the Specifications and the terms of this Contract.
2.2 Additional Coverage. (a) The Owner has the option from time to
-------------------
time, upon not less than thirty (30) days, written notice to the Vendor, to
designate additional geographic areas in the United States, including, but not
limited to, additional System Areas, as to which the Owner may purchase from the
Vendor some or all, as determined by the Owner in its sole discretion, of the
Products and Services required for the PCS coverage of such areas as provided
for in this Contract, all on the terms and conditions set forth in this
Contract; provided that the Parties will mutually agree in good faith on the
-------- ----
payment terms (provided that pricing will be as set forth in this Contract),
-------- ----
liquidated damages, Project Milestones and the System performance criteria
applicable to such additional coverage pursuant to this subsection 2.2(a); and
provided further that any such agreement on (i) such Project Milestones must be
- - --------- -------
based on substantially the same intervals (including, but not limited to, the
number of days specified in each such interval) as set forth in Exhibits A1 and
A2, to the extent possible, (ii) such payment terms and liquidated damages must
be based on substantially the same terms as are otherwise set forth in this
Contract, and (iii) such System performance criteria must be based on
substantially the same System performance criteria as set forth in Exhibit F, to
the extent possible. The Parties agree that this subsection 2.2(a) will be
<PAGE>
23
effective at any given time during the Term of this Contract as to the
determination of payment terms (other than pricing) and Project Milestones
applicable to the Vendor's provision of additional coverage pursuant to this
subsection 2.2(a) only if (i) the aggregate price of the Products and Services
to be provided by the Vendor at such time under this subsection 2.2(a) is at
such time at least five million dollars ($5,000,000) and (ii) the Vendor is at
such time providing Installation Services and at least one other Service
provided for under this Contract in connection with such additional coverage
provided by the Vendor at any time during the Term of this Contract pursuant to
this subsection 2.2(a). Unless otherwise mutually agreed among the Parties, the
payment terms for additional Products provided by the Vendor after Final
Acceptance of the last PCS System within the Initial System not otherwise
covered by or otherwise determined pursuant to this subsection 2.2(a) will be
subject to the terms of Section 6.
(b) The Owner has the option from time to time upon not less than thirty
(30) days' prior written notice to the Vendor and in accordance with the
applicable change order provisions of subsection 7.2 set forth herein, to
require the Vendor to increase the level of capacity or coverage of an already
allocated PCS System (whether such PCS System has been so allocated pursuant to
Schedule 4 or subsection 2.2(a), all on the terms and conditions of this
Contract.
(c) Where the Owner wishes to purchase PCS Products or Services for use
and/or application in a country outside the United States but within North
America including any territory of the United States not otherwise covered by
the definition of the "United States" as set forth herein, the Owner and the
Vendor will, in good faith, negotiate a separate agreement for such purchase
upon substantially all of the same terms as those set forth in this Contract,
with only such modifications as may reasonably be appropriate to reflect the
international nature of such transaction and to assure protection of the
Vendor's intellectual property. The PCS Product and Software prices and price
discounts set forth in this Contract will prevail in any such separate
agreement, subject only to reasonable pricing adjustments which will be in no
event ten percent (10%) higher than the prices set forth in or determined
pursuant to this Contract plus foreign import duties and taxes. Any such
agreement may, at the Vendor's option, be entered into by any of the
subsidiaries or other affiliates of the Vendor as listed on Schedule 13.
2.3 Handsets. (a) The Vendor must supply the Owner with two thousand
--------
(2,000) subscriber handsets at the prices set forth on Schedule 2 and
substantially meeting the applicable criteria set forth in Exhibit H within
sixty (60) days prior to the Substantial Completion of the Initial PCS System in
accordance with Exhibit B3; provided that the criteria set forth in Exhibit H
-------- ----
will substantially conform to the applicable specifications and/or criteria (but
which will in no event be more than what is required by Exhibit H) agreed
between the Owner and Sony/Qualcomm (the "Sony/Qualcomm Agreement") if such
agreement exists as of the date required for the delivery of handsets by the
Vendor pursuant to this subsection 2.3; provided further that in the event the
-------- -------
Sony/Qualcomm Agreement does not exist as of the date the Vendor is required to
deliver handsets pursuant to the first sentence of this subsection 2.3 the
handsets required to be delivered by the Vendor pursuant to this subsection 2.3
will substantially conform to the criteria set forth in Exhibit H, but in
<PAGE>
24
any event will work in the System and in accordance with the applicable
requirements related thereto.
(b) The Vendor must supply at the prices set forth on Schedule 2 one
hundred (100) handsets per PCS System within the Initial System, acceptable to
the Owner, and the necessary equipment related thereto for testing and operation
of each such PCS System pursuant to, and in accordance with, the terms of this
Contract, Exhibit B3 and substantially in accordance with Exhibit H to the
extent applicable; provided however, with the consent of the Owner, which
-------- -------
consent will not be unreasonably withheld, such handsets will not be required to
be in substantial compliance with the criteria set forth in Exhibit H if they
will otherwise be sufficient to test and accurately demonstrate that the PCS
System meets the Specifications. The one hundred (100) handsets required to be
delivered by the Vendor pursuant to the immediately preceding sentence will be
delivered to the Owner on or before Milestone 7 (as set forth in Exhibit A1) for
the PCS System for which such handsets are provided.
(c) Notwithstanding any other provision of this Contract, including
Section 17, the Vendor does not warrant the handsets provided hereunder, but to
the extent that the Vendor is authorized to do so by the terms of any applicable
agreement or agreements with such third party suppliers, the Vendor will assign
or otherwise transfer any warranty received from its supplier(s) of the handsets
to the Owner at no additional cost to the Owner. For the purposes of this
Contract a supplier of handsets to the Vendor will not be deemed a
Subcontractor.
2.4 Initial PCS System. Pursuant to Exhibit B3, the Vendor must achieve
------------------
Substantial Completion of the Initial PCS System in accordance with the
requirements of Exhibit B3 prior to, and as a condition of, the Substantial
Completion of any other PCS System within the Initial System. This requirement
in no way relieves the Vendor of its obligations prior to the Substantial
Completion of the Initial PCS System to continue with the Work on all of the PCS
Systems constituting the Initial System in accordance with the requirements of
this Contract and the Project Milestones applicable to each such PCS System.
2.5 System Element Verification; Test-bed Laboratory. (a) In
------------------------------------------------
accordance with Milestone 4 (as set forth on Exhibit A1) the Vendor must
successfully complete System Element Verification pursuant to the terms of this
Contract including, but not limited to, the Specifications and Exhibit B3 no
later than August 19, 1996.
(b) The Vendor will supply, at no additional cost to the Owner (except
as provided in Exhibit I), the Products and Services necessary for the
establishment of a test-bed laboratory, which laboratory will include the
Products and Services set forth on Exhibit I (the "Test-bed Laboratory"). Such
Products and Services will be subject to the applicable warranty terms of this
Contract. The Vendor will provide all relevant Software Upgrades, Software
Enhancements and Software Combined Releases applicable to the Test-bed
Laboratory. Equipment Upgrades, Equipment Enhancements and Equipment Combined
Releases will be available for the Test-bed Laboratory as provided in this
Contract. The Test-bed Laboratory will be provided by the Vendor in accordance
with Milestone 3 applicable to the Initial PCS System as set forth on Exhibit
A1, but in no event will the Vendor be required
<PAGE>
25
to provide the Test-bed Laboratory earlier than ninety (90) days after the
building site for such laboratory has been made ready by the Owner and the
Vendor has received the Owner's notice thereof, provided that such notice will
-------- ----
not be delivered to the Vendor before April 19, 1996 (the "Building Ready
Date"). The Owner expressly agrees that it will not use the Test-bed Laboratory
for In Revenue Service or any purpose other than testing without the prior
written consent of the Vendor, which consent the Vendor will not unreasonably
withhold or delay.
2.6 RF Engineering; Site Acquisition and MSC Installation. (a) In
-----------------------------------------------------
accordance with Milestone 2 as set forth on Exhibit A1, within sixty (60) days
of the Effective Date, the Vendor must deliver to the Owner the Preliminary RF
Design for each of the System Areas in accordance with the requirements and
criteria set forth in Exhibit B1 and Schedule 1; provided that the Vendor agrees
-------- ----
to (i) provide Preliminary RF Designs (as set forth above) to the Owner for each
of the Milwaukee, Denver, Salt Lake and Spokane System Areas (as set forth on
Schedule 4) within sixty (60) days of the Effective Date unless, within fourteen
(14) days from delivery of the existing RF information relating to the above
listed four (4) System Areas from the Owner to the Vendor, the Vendor, after
careful consideration determines in good faith that such information or plans
need to be redesigned so that the Vendor may achieve such Milestone 2 (as set
forth in Exhibit A1) for such four (4) System Areas in accordance with Schedule
1 and the terms of this Contract, in which case the Vendor will receive an
additional twenty-one (21) days in which to deliver such Preliminary RF Designs
for such four (4) System Areas only (in no event will such time period from the
Effective Date exceed eighty-one (81) days for such four (4) System Areas) and
(ii) provide to the Owner such a Preliminary RF Design for the Detroit System
Area (as set forth on Schedule 4) within eighty-one (81) days of the Effective
Date. The Vendor must provide the Owner with the applicable search rings for
each PCS System based upon the Preliminary RF Design within twenty (20) Business
Days of Milestone 2 (as set forth in Exhibit A1). The Owner and the Vendor
agree to cooperate with each other to complete the RF Engineering and the Site
Acquisition. The Owner must notify the Vendor of desired coverage areas, RF
Engineering parameters or other information or restrictions the Owner wishes to
be included in the Final RF Engineering Plan for each PCS System. In accordance
with Exhibit B1, the Vendor will do the RF Engineering in each of the PCS
Systems and in connection therewith will use the parameters, information and
restrictions supplied by the Owner. As part of the RF Engineering, the Vendor
will establish "search rings" in each of the PCS Systems that will specify areas
in which the Owner may proceed with Site Acquisition.
(b) In accordance with Exhibit B1 the Vendor, at its request, must be
kept informed of the progress made on ongoing Site Acquisition within the System
Areas. As the Site Acquisition progresses, the Vendor agrees to regularly alter
the RF Engineering plan to determine a new search ring or rings to take into
account any changes or modifications requested by the Owner or otherwise
requested by the Owner due to the Owner's inability to acquire sufficient rights
to a location which could constitute a System Element Location in a timely or
economic manner. When making changes to the RF Engineering plan the Vendor must
take into account the Site Acquisition already completed by the Owner.
<PAGE>
26
(c) Milestone 5 (as set forth in Exhibit A1) will be achieved in each
PCS System in accordance with this subsection 2.6(c); provided that for each PCS
-------- ----
System the appropriate MSCs have been installed by the Vendor in the Owner's
relevant Switch Sites within each such PCS System in accordance with subsection
2.6(d) below. In accordance with the Project Milestones set forth on Exhibit A1
and the requirements and criteria set forth in Exhibit B1, within five (5) days
of the Owner achieving Site Acquisition Substantial Completion within any given
System Area (the "Final RF Review Period"), the Owner and the Vendor will use
their best efforts to agree on a final System Element Location count (the "Final
Site Count") and a final RF Engineering plan (the "Final RF Engineering Plan")
for such System Area upon which the PCS System for such System Area will be
built by the Vendor. Failure of the Owner and the Vendor to reach satisfactory
agreement on a Final Site Count and/or a Final RF Engineering Plan for any given
System Area within the Final RF Review Period will automatically result in the
referral of any such disagreement to the most senior RF engineers of both the
Owner and the Vendor for their review and resolution within five (5) days after
the end of any such Final RF Review Period. If the senior RF engineers fail to
resolve any such disagreement within the extended five (5) day resolution
period, the disagreement will automatically be referred for resolution in
accordance with subsection 23.1. It is understood by the Parties that during
the period of any such disagreement and the resolution thereof in accordance
with the Contract, the Work on such PCS System, to the extent possible, will be
ongoing and that Substantial Completion on such PCS System cannot be achieved
without agreement by the Parties on a Final RF Engineering Plan and/or a Final
Site Count for such PCS System and/or System Area.
(d) The Vendor will install each of the MSCs in each of the Switch Sites
identified by the Owner in each PCS System within the System within sixty (60)
days of the Switch Site Ready Date; provided that (i) the Owner will have
-------- ----
provided the Vendor with the MSC configuration engineering information at least
one hundred (100) days prior to the Switch Site Notice Date, for each such MSC,
such that the Vendor may actually perform the Owner's MSC configuration
engineering (other than the Switch Site layout configuration), (ii) the Owner
will have provided the Vendor with the applicable Switch Site description (in
appropriate detail) at least sixty (60) days prior to the Switch Site Notice
Date and (iii) as of the Switch Site Ready Date the applicable Switch Site will
have been made ready by the Owner such that the relevant MSC can in fact be
installed by the Vendor. For the purposes hereof (i) the "Switch Site Ready
Date" means the date specified by the Owner as the date on which the Switch Site
will in fact be ready for MSC installation as communicated to the Vendor by the
Owner in the Owner's Switch Site Notice to the Vendor, (ii) the "Switch Site
Notice Date" will mean, as to any Switch Site Notice, the date on which such
notice was delivered to the Vendor by the Owner and (iii) the "Switch Site
Notice" will mean the notice provided to the Vendor by the Owner in sufficient
detail to describe the Switch Site so that the Vendor may reasonably engineer
the layout of the MSC configuration specifically for such Switch Site. Nothing
contained herein will in any way limit the Vendor's obligation pursuant to the
terms of this Contract to do the MSC engineering and the RF Engineering in
accordance with the terms of this Contract. Pursuant to this subsection 2.6(d)
in no event will the Owner provide the Vendor the Switch Site Notice more than
sixty (60) days later than the date the Owner delivers the Vendor the Build
Notice pursuant to subsection 2.7(a).
<PAGE>
27
2.7 Facilities Preparation Services and Installation. (a) For any
------------------------------------------------
given PCS System within the Initial System prior to Milestone 5 (as set forth on
Exhibit A1) for such PCS System the Owner (i) may, in its discretion, provide
notice to the Vendor when it has achieved Site Acquisition of at least fifty
(50) System Element Locations in any given PCS System or (ii) in any event, (if
the Owner hasn't already provided notice pursuant to clause (i) above) will
provide such notice to the Vendor when it has achieved Site Acquisition of at
least thirty percent (30%) of the System Element Locations in any given PCS
System (in either event, the "Build Notice"). The Build Notice calculation will
be based upon the Owner's reasonable estimate of System Element Locations within
or in connection with the Preliminary RF Design applicable to the PCS System in
which such Build Notice is issued to the Vendor. The Build Notice for each PCS
System will also include the Owner's best forecast based upon information
available at such time (the "M5 Forecast") of when it expects to be able to
declare Site Acquisition Substantial Completion within such PCS System. The
Owner understands that the Vendor will not be required to commence Facilities
Preparation Services and/or Installation in any given PCS System until and
unless it has received the applicable Build Notice pursuant to and in accordance
with this subsection 2.7.
(b) In accordance with the Project Milestones specified in Exhibit A and
the requirements and criteria of Exhibit B2, for each System Area the Vendor
must complete the Facilities Preparation Services for all System Element
Locations within such PCS System in accordance with the construction criteria
set forth in Exhibit E and the performance criteria set forth in Exhibit F no
later than ninety (90) days from the Owner/Vendor agreement on a Final Site
Count and a Final RF Engineering Plan for such System Area; provided that upon
-------- ----
the prior written request of the Vendor, the Owner may consent (which consent
will not be unreasonably withheld) to postpone Milestone 6 (as set forth in
Exhibit A1) with respect to any PCS System by not more than an additional sixty
(60) days in the event that more than ten percent (10%) of the System Element
Locations in such PCS System estimated as of the date of the Build Notice for
such PCS System have not been fully acquired by the Owner immediately prior to
the date on which Milestone 5 (as set forth in Exhibit A1) otherwise occurs in
such PCS System. Pursuant to the Project Milestones the Vendor must complete
Installation of the Products for any given PCS System within thirty-two and one
half (32-1/2) days of its completion of the Facilities Preparation Services in
accordance with Milestone 6 (as set forth on Exhibit A1) for such PCS System
pursuant to the requirements and criteria set forth in Exhibit D and Exhibit F.
2.8 Site Acquisition Modifications. In the event that the Owner
------------------------------
determines that it is unlikely to achieve Site Acquisition Substantial
Completion for any PCS System in a timely and cost-effective manner, the Vendor
will modify certain performance criteria set forth in Exhibit F with respect to
such PCS System in the manner and to the degree that the Owner reasonably
specifies in writing to the Vendor in accordance with the terms of Exhibit B3.
In the event the Owner notifies the Vendor of a modification to the System
performance criteria for such PCS System pursuant to this subsection 2.8, such
modified criteria, including any such lower number of System Element Locations
that the Owner, in its sole discretion, deems at such time to be satisfactory so
as to constitute Site Acquisition Substantial Completion, will be deemed the
performance criteria and the System Element Location count
<PAGE>
28
applicable to such PCS System for the purposes of Milestone 5 (as set forth on
Exhibit A1) and all other remaining Project Milestones for such PCS System
thereafter.
2.9 Design/System Architecture and Engineering; Interoperability. (a)
------------------------------------------------------------
The Vendor must provide all Engineering and design services necessary for the
completion of the Work and the System in conformity with the Specifications and
the CDMA standards, including, but not limited to, the Engineering and design
necessary to describe and detail the System and the specified PCS Systems.
(b) Pursuant to and in accordance with the terms of Exhibits B3 and G,
BTS/BSC-MSC Interoperability must be demonstrated on or before December 1, 1996
(provided that such date will change to reflect the actual delay beyond December
-------- ----
31, 1995 in the finalization of "Attachment A" to be attached to Exhibit G);
provided that in any event the requirements of this subsection 2.9(b) are a
- - -------- ----
condition to the Vendor's Substantial Completion of the last PCS System within
the Initial System and Substantial Completion of such last PCS System will not
be deemed to have been achieved by the Vendor unless and until such
Interoperability will have been demonstrated in accordance with the criteria set
forth in Exhibit G; provided further that any delay in such Interoperability
-------- -------
which is not due substantially to the fault of the Vendor, in the reasonable
opinion of the Owner, will not be a delay pursuant to the terms of this
subsection 2.9(b).
2.10 Certification. The Vendor must coordinate its performance of the
-------------
Services described in subsection 2.9 with the Engineering and design efforts
(including, without limitation, any and all RF Engineering and/or Site
Acquisition) of all Subcontractors, the Owner, the Other Vendors, any and all
supply and transportation requirements and all federal, state and local
authorities or agencies. The Vendor will be fully knowledgeable about and will,
after reasonable review thereof, accept all Engineering, including, without
limitation, RF Engineering and design, irrespective of whether the Vendor, the
Other Vendors, the Owner or third parties such as the Subcontractors may furnish
such services. All Engineering requiring certification must be certified by
professional engineers licensed or properly qualified to perform such
Engineering services in all appropriate jurisdictions if such certification is,
in the Owner's opinion, appropriate and reasonable under the circumstances.
This subsection 2.10 will not modify or restrict the Vendor's obligation and/or
right to provide the Services contracted for pursuant to the terms of this
Contract.
2.11 Notice of Developments. 2.11.1 Vendor Developments. The Vendor
---------------------- -------------------
must provide the Owner, through the NDAB or the Owner's vice president and/or
director of product development, with reasonable prior notice of any PCS Product
developments, innovations and/or technological advances (collectively "Vendor
Developments") relevant to the System prior to giving such notice to any other
Customer or otherwise making any such Vendor Development public within the
relevant marketplace; provided that the Vendor will not be obligated to provide
-------- ----
the Owner such notice before any other Customer if doing so would not be
reasonable under the circumstances and/or otherwise breach any contractual
obligation to any other Customer; provided further that any such notice pursuant
-------- -------
to this subsection 2.11.1 need not include any information originated by another
Customer which is
<PAGE>
29
proprietary to such other Customer of the Vendor. For the purposes of this
subsection 2.11.1 the term "Vendor" includes the Vendor and its affiliates and
subsidiaries.
2.11.2 Participation in Testing. The Owner has the right, but not the
------------------------
obligation, to witness and/or participate in any initial testing and/or
application of any such Vendor Development (other than a Vendor Development
originated by another Customer which includes information which is proprietary
to such other Customer); provided that any such initial testing of Vendor
-------- ----
Developments will be subject to (i) scheduling as reasonably determined by the
Vendor, (ii) the qualification that the Owner's PCS System meets the technical
requirements for the testing of such Vendor Development as reasonably determined
by the Vendor (or otherwise that the Owner is willing to update such PCS System
to meet such requirements), (iii) the Owner's acknowledgement that it will be
able to provide the resources necessary to implement the initial testing for
such Vendor Development, and (iv) the Owner and the Vendor executing a
verification office testing agreement that identifies the scope, terms, pricing,
responsibilities and schedule related to the initial testing of such Vendor
Development. The Vendor must provide the Owner at least thirty (30) days' prior
notice of its intent to test any such Vendor Development and upon the Owner's
written request the Vendor will allow the Owner to participate in such testing
upon terms and in a testing environment reasonably acceptable to the Parties at
such time. The Owner will make its Test-bed Laboratory and/or certain of its
PCS Systems (following Final Acceptance thereof) available to the Vendor for any
such testing in which the Owner has the right, and will have notified the Vendor
of its desire, to participate in pursuant to the terms of this subsection
2.11.2. Where the Vendor and the Owner have agreed that the Owner's Test-bed
Laboratory or PCS System will be used as a test bed for Vendor Developments, the
Owner will not unreasonably withhold the Vendor's requests for other Customers
to observe the tests or to release results of the tests to other Customers;
provided that the Owner will have had reasonable prior notice that the Vendor
- - -------- ----
would like to have other Customers observe such testing and that the Vendor will
remain liable in all respects pursuant to the terms of this Contract for the
protection of Proprietary Information in connection with any such testing. The
length of the prior notice period described above may be shortened to under
thirty (30) days if necessary and appropriate under the circumstances, but in no
event will any such prior notice period be less than ten (10) days.
2.12 Safety. To the extent the Vendor is in control of any System
------
Element Location, or other site within the System or any System Area during the
term of this Contract (a "Vendor-Controlled Location") including, but not
limited to, during the build-out of the Initial System, the Vendor will be
solely responsible for initiating, maintaining, and supervising all safety
precautions and programs in connection with all such Vendor-Controlled
Locations. The Vendor must materially comply with Applicable Laws and
Applicable Permits and the Specifications bearing on safety of persons or
property or protection against injury, damages or loss. The Vendor must provide
a written report to the Owner describing fully all incidents affecting safety on
any Vendor-Controlled Location and must also furnish to the Owner copies of all
MSHA, OSHA and workers' compensation reports. The Vendor acknowledges and
agrees that until Bolt-down of all of the PCS Products to be provided by the
Vendor pursuant to the terms of this Contract on any given System Element
Location (other than the Switch Site or the Test-bed Laboratory) within any
given PCS System is
<PAGE>
30
achieved the Vendor will be deemed to be in control of all Products, tools,
designs, buildings, structures and/or Engineering (other than those Products,
tools, designs, buildings, structures and/or Engineering specific to and
necessary for Site Acquisition, Network Interconnection and/or Microwave
Relocation) at, in or upon any such System Element Location within such PCS
System; provided that in any event for each such System Element Location the
-------- ----
Vendor will always be deemed to be in control of such System Element Location
until the Facilities Preparation Services for such System Element Location have
been completed in accordance with Exhibit B2.
2.13 Emergencies. In the event of any emergency at a Vendor-Controlled
-----------
Location endangering life or property, the Vendor must take such action as may
be reasonable and necessary to prevent, avoid or mitigate injury, damage or loss
and will, as soon as possible, report any such incidents, including the Vendor's
response thereto, to the Owner. Whenever, in the reasonable opinion of the
Owner, the Vendor has failed to take sufficient precautions for the safety of
the public or the protection of the Work or of structures or property on or
adjacent to any Vendor-Controlled Location, creating, in the reasonable opinion
of the Owner, an emergency requiring immediate action, then the Owner, after
having given reasonable prior notice to the Vendor, may cause such sufficient
precautions to be taken or itself provide such protection. The taking or
provision of any such precautions or protection by the Owner or its agents or
representatives will be for the account of the Vendor and the Vendor must
reimburse the Owner for the cost thereof.
2.14 Right of Inspection. The Owner, the parties providing financing in
-------------------
connection with the build-out of the Nationwide Network or their duly appointed
representatives, including Inspectors (collectively "Reviewers"), will at all
reasonable times have access to the various sites where the Vendor or its
Subcontractors are prosecuting the Engineering, design, procurement, testing or
manufacture of the Work; provided that this subsection 2.14 will not be presumed
-------- ----
to give access to the Vendor's or its Subcontractors' sites to direct
competitors of the Vendor provided that such sites are not otherwise Owner
sites. For these purposes, reasonable access will be given during normal
business hours to the Vendor's and its Subcontractors' plants, premises, storage
and deposit areas, facilities and offices, sources of materials, Equipment being
assembled, already assembled or in operation, Equipment being performance tested
or tested to the Vendor's specifications and to any other places or areas
occupied by the Vendor or its Subcontractors in connection with the Work.
Notwithstanding anything herein to the contrary, any Reviewer's right of access
to the Vendor's and/or the Subcontractors' plants, premises, storage and deposit
areas, facilities and offices, sources of materials, Equipment being assembled,
already assembled or in operation, Equipment being performance tested or tested
to the Vendor's specifications and to any other places or areas occupied by the
Vendor or its Subcontractors in connection with the Work will be subject to the
reasonable confidentiality, safety and security requirements of same and further
subject to such Reviewers' non-interference with the Work and other work being
performed thereon. The Vendor must provide reasonable temporary office space
(in the Vendor's facilities where such space is available) and services for the
Reviewers to the extent necessary.
<PAGE>
31
2.15 Transportation. The Vendor must provide for the transport and
--------------
delivery of all the Products to be delivered pursuant to, and in accordance
with, the terms of this Contract. The costs for such transportation will be
borne by the Vendor as part of the Contract Price; provided that the Owner will
-------- ----
reimburse the Vendor for any costs incurred by the Vendor for any Extraordinary
Transportation in such cases where the Vendor, subject to prior notice to the
Owner, found it actually necessary to utilize such Extraordinary Transportation;
provided, further that any amounts due to the Vendor from the Owner pursuant to
- - -------- -------
the first proviso of this subsection 2.15 will be reduced by the amount of non-
extraordinary transportation costs which otherwise would have been applicable to
the transport of such Products.
2.16 Security. Subject to subsection 2.12, during the course of the
--------
Work, the Vendor will perform the security services necessary to ensure the
safety and security of the System Element Locations, the Products and/or other
materials or designs relevant to the Work.
2.17 Materials and Equipment. Except for materials or Equipment to be
-----------------------
supplied by Subcontractors identified on part B of Schedule 7, whenever
materials or Equipment are specified or described in this Contract (including
the Specifications) by using the name of a proprietary item or the name of a
particular supplier, the naming of the item is intended to establish the type,
function and quality required, and substitute materials or Equipment may
nonetheless be used, provided that such materials or Equipment are equivalent or
equal to that named. If the Vendor wishes to furnish or use a substitute item
of material or Equipment, the Vendor must first certify that the proposed
substitute will perform at least as well the functions and achieve the results
called for by this Contract, will be substantially similar or of equal substance
to that specified and be suited for the same use as that specified. The Owner
may require the Vendor to furnish, at the Vendor's expense, additional data
about the proposed substitute as required to evaluate the substitution. For
Major Portions of the Work, or materials or Equipment listed on part B of
Schedule 7, the Vendor must first receive prior written approval of the Owner
for any substitution. The Owner will be allowed a reasonable time within which
to evaluate each proposed substitute. Notwithstanding the foregoing, with
respect to PCS Products, prior to the shipment of such PCS Products pursuant to
the terms of this Contract, the Vendor may at any time without notice to or
consent of the Owner make changes in a Vendor PCS Product furnished pursuant to
this Contract, or modify the drawings and published specifications relating
thereto, or substitute Products of similar or later design to fulfill its
obligations under this Contract or otherwise fill an order, provided that the
--------
changes, modifications or substitutions will in no way affect or otherwise
impact upon the form, fit, or function of an ordered Product pursuant to and in
accordance with the applicable Specifications. With respect to changes,
modifications and substitutions which do in fact affect the form, fit, or
function of an ordered Product pursuant to and in accordance with the
Specifications, the Vendor must notify the Owner in writing at least thirty (30)
days prior to the effective dates of any such changes, modifications or
substitutions. In the event that any such change, modification or substitution
is not desired by the Owner, the Owner will notify the Vendor within thirty (30)
days from the date of notice and the Vendor will not furnish any such changed
Products to the Owner on any orders in process at the time the Owner is so
notified; provided that nothing contained herein will otherwise modify the
-------- ----
Vendor's obligations under the terms of this Contract.
<PAGE>
32
2.18 Equipment and Data. The Vendor must furnish all drawings,
------------------
specifications, specific design data, preliminary arrangements and outline
drawings of the Equipment and all other information as required in accordance
with this Contract in sufficient detail to indicate that the Equipment and
fabricated materials to be supplied under this Contract comply with the
Specifications.
2.19 References to Certain Sources. Reference to standard
-----------------------------
specifications, manuals or codes of any technical society, organization or
association or to the laws or regulations of any Governmental Entity, whether
such reference is specific or by implication, by this Contract, means the latest
standard specification, manual, code, laws or regulations in effect at the time
of such reference, except as may be otherwise specifically agreed to by the
Owner. However, no provision of any reference, standard, specification, manual
or code (whether or not specifically incorporated by reference in this Contract)
will be effective to change the duties and responsibilities of the Owner, the
Vendor, the Subcontractors or any of their consultants, agents or employees from
those set forth in this Contract; provided that nothing contained in this
-------- ----
Contract will require the Vendor to violate then existing and enforceable
Applicable Laws.
2.20 Operating Manuals. The Vendor will provide the Owner Operating
-----------------
Manuals in accordance with this subsection 2.20 as soon as they are reasonably
available but in no event less than thirty (30) days prior to Substantial
Completion of the Initial PCS System, the Vendor will provide the Owner with as
many sets of the Operating Manuals for the entire System as the Owner then
reasonably requires. The Operating Manuals will be prepared in accordance with
the relevant Specifications and in sufficient detail to accurately represent the
System and all of its component System Elements as constructed and will
recommend procedures for operation. Operating Manuals with up to date (but not
"as-built") drawings, specifications and design sheets will be available for the
Training as set forth in subsection 2.23. All other Technical Documentation not
already delivered to the Owner pursuant to the terms of the Contract must be
delivered to the Owner within ten (10) days after the successful achievement of
all Final Acceptance tests in accordance with Exhibit B3. The Owner will not be
required to deliver the Final Acceptance Certificate until all such Technical
Documentation has been so delivered (and Final Acceptance will not be deemed to
have occurred earlier than the date that is ten (10) days prior to the date of
delivery of such Technical Documentation).
2.21 Maintenance and Instruction Manuals. The Vendor will provide the
-----------------------------------
Owner Maintenance and Instruction Manuals in accordance with this subsection
2.21 as soon as they are reasonably available but in no event less than thirty
(30) days prior to Substantial Completion of the Initial PCS System, the Vendor
must provide the Owner with as many sets of the Maintenance and Instruction
Manuals for the entire System as the Owner then reasonably requires. The
Maintenance and Instruction Manuals will be prepared in accordance with the
Specifications and in sufficient detail to accurately represent the System and
all of its component System Elements as constructed and will set forth
procedures for inspection and maintenance. Maintenance and Instruction Manuals
with up to date (but not "as-built") drawings, specifications and design sheets
will be available for the Training set forth in subsection 223. The
Maintenance and Instruction Manuals must include the volumes compiled by the
Vendor containing all as-built Subcontractor furnished product data.
<PAGE>
33
2.22 Standards for Manuals. All Operating Manuals and Maintenance and
---------------------
Instruction Manuals required to be provided by the Vendor pursuant to this
Contract must be:
(a) detailed and comprehensive and prepared in conformance with the
System Standards and generally accepted national standards of professional care,
skill, diligence and competence applicable to telecommunications and operation
practices for facilities similar to the System;
(b) consistent with good quality industry operating practices for
operating personal communications service systems of similar size, type and
design;
(c) sufficient to enable the Owner to operate and maintain each PCS
System in each of the specified System Areas and the System as a whole on a
continuous basis; and
(d) prepared subject to the foregoing standards with the goal of
achieving operation of the System at the capacity, efficiency, reliability,
safety and maintainability levels contemplated by this Contract and the
Specifications and required by all Applicable Laws and Applicable Permits.
In addition to, and without limiting the requirements set forth in the
preceding sentence, the Operating Manuals and the Maintenance and Instruction
Manuals will be submitted to the Owner in CD-ROM format (as soon as such format
is available provided that such availability will be no later than December
1996) in addition to hard-copy volume format if so requested by the Owner. In
addition to any of the Owner's other rights and remedies, the Owner will have
the right to reject the Operating Manual and the Maintenance and Instruction
Manuals if in its reasonable judgment any of the foregoing does not meet the
standards set forth in this Contract.
2.23 Training. As more fully described below, starting at least one
--------
hundred and eighty (180) days prior to Substantial Completion of the Initial PCS
System, the Vendor must provide to the Owner a practical and participatory and,
where feasible, on-site training program with respect to the System, which
program will include technical education (collectively, the "Training"). The
Vendor will provide, upon the Owner's prior written request and at the time or
times mutually agreed in good faith by the Owner during the Initial Term of this
Contract, not less than a minimum of twelve thousand fifty (12,050) man days of
Training and Training materials for the Owner's personnel, at no cost to the
Owner. The Owner will be responsible for the travel and living expenses of
personnel receiving Training. Such Training must be kept current to encompass
the latest Software and Equipment, or any other Software Revision Level and/or
Equipment Revision Level directed by the Owner pursuant to the terms of this
Contract. Subject to the foregoing, Training course size, content and material
will be designed and agreed to by mutual consent between the Parties. The
Vendor will conduct classes for the subjects described below:
(a) Operations, maintenance and provisioning ("OM&P") Training will
include System Training to technical personnel presumed not qualified or trained
specifically on operating a PCS System or the Equipment and/or Software included
therein. The subject
<PAGE>
34
matter will include (i) a general overview of PCS/CDMA technology and the
System, (ii) a System overview of the Equipment, Software initiation and
configuration requirements, required interconnections, troubleshooting and
testing requirements, recovery from System failures, and (iii) any other
information necessary to successfully operate, maintain, or set up the Equipment
and the Software to work in accordance with the System Element performance
criteria set forth in Exhibit D, in each case so that each PCS System
successfully operates in accordance with the performance criteria set forth in
Exhibit F within its System Area;
(b) The Vendor must provide PCS/CDMA qualified technical staff and
material to train the Owner's personnel so as to enable them to train other
personnel of the Owner (i.e., train the trainers) on the subject matter topics
----
listed below. The Owner's personnel trained by the Vendor will be evaluated and
certified by the Vendor upon successful completion of the course as competent to
train other personnel of the Owner. Such content and materials may be tailored
or customized by the Owner for internal use only and include, without
limitation, Training with respect to the following topics:
(i) System Element configuration;
(ii) Communication interfaces and protocols;
(iii) Software operating system (current to the latest Software
Revision Level);
(iv) Database configuration, structure and content;
(v) Database down loading;
(vi) Program function;
(vii) Troubleshooting procedures; and
(viii) Other subject matter which is necessary or desirable to
understand the operation of the System and maintenance of the
System as well as any enhancements as they are added to the
System and/or any part thereof.
(c) Except for certain plug-in modules and certain Software delivered
under this Contract, the Vendor does not provide, nor does this Contract require
that the Vendor provide, Training, training manuals, Operating manuals or
Maintenance and Instruction Manuals intended to make the Owner proficient in
Installation of any of the Products furnished under this Contract. In the event
that the Vendor should elect to provide training, documentation and/or test
equipment to facilitate self-installation of the Products by a Customer
purchasing PCS Products from the Vendor, the Vendor agrees to make such items
available to the Owner under the Vendor's standard terms and conditions for such
offering as they may exist from time to time subject to the Vendor's obligations
under Section 26; and
<PAGE>
35
(d) Promptly upon execution of this Contract, the Vendor will establish
a training coordinator, whose responsibility will be to work with the Owner to
ensure that the Owner receives the Training set forth above. Such coordinator
(or his or her replacement) will continue in such assignment until the earlier
of (i) the Final Acceptance of the last PCS System within the Initial System, or
(ii) receipt by the Owner of all of the Training required to be provided at no
cost under this subsection 2.23.
2.24 Manuals and Training. The training and the documentation provided
--------------------
in connection herewith, including, without limitation, all documentation
provided in CD-ROM format, and pursuant to subsections 2.20, 2.21 and 2.23 will
be updated pursuant to and in accordance with all Product upgrades and/or
modifications applicable to the System, any PCS System and/or any part thereof.
2.25 Spare Parts. (a) Prior to the Substantial Completion of the
-----------
Initial PCS System the Vendor and the Owner will agree, pursuant to and in
accordance with the terms of this subsection 2.25, as to the type, quantity and
storage location of the spare parts required to continually operate the Initial
System as intended and in accordance with the Specifications. For a period of
two (2) years following Final Acceptance of each PCS System, the Vendor will, if
requested by the Owner, provide such spare parts at its own expense. Following
the expiration of such two (2) year period, the Vendor will provide such spare
parts pursuant to Schedule 12A and at the prices set forth on Schedule 12B.
After the expiration of such two (2) year period invoices for such System spare
parts will be issued directly to the Owner and will be paid for directly by the
Owner in accordance with the invoice and payment terms of this Contract. Any
PCS spare parts applicable to the System utilized or withdrawn from any PCS
System during such two (2) year period will be promptly replaced by the Vendor
at its own cost. With respect to such spare parts provided at the Vendor's
expense, the Owner expressly agrees that (i) the Owner will not utilize such
spare parts for increasing the performance or capacity of the PCS Systems for
which they were provided or otherwise expanding such PCS Systems or any other
PCS systems, (ii) until any such spare part is drawn from storage and utilized
as a replacement in a PCS System or until the Owner pays for such spare part,
title to such spare part will remain with the Vendor, (iii) risk of loss of or
damage to such a spare part will be with the Owner from the time of delivery to
the Owner, and (iv) the Owner will, at its expense, return to the Vendor any
Item replaced by a spare part delivered to the Owner pursuant to the terms of
this subsection 2.25.
(b) The Owner has the right to withhold from its final payment to the
Vendor with respect to any PCS System an amount equal to the Owner's reasonably
estimated cost of any utilized spare parts for such PCS System not so replaced
prior to Final Acceptance; provided that such withheld funds will be released
-------- ----
upon such satisfactory replacement of such spare parts by the Vendor.
(c) To the extent that System PCS spare parts need to be acquired from
third party suppliers, the Vendor will use its reasonable efforts to obtain from
suppliers a supply of System spare parts at no additional cost as part of the
original Product package. To the extent that the Vendor is able to so obtain
such System spare parts at no additional cost as
<PAGE>
36
part of the original Product package, it will provide such System spare parts to
the Owner without cost (and without any charge for the procurement of such spare
parts by the Vendor).
2.26 System Support Services. The Vendor will provide the specified
-----------------------
support services for the operation, maintenance and repair of the System and all
Products to the extent set forth herein below and at the Annual Release
Maintenance Fees.
2.26.1 Vendor Assistance. (a) Upon receipt of a request for technical
-----------------
assistance from the Owner, the nature of the problem will be identified by the
Owner, and a priority assigned by the Owner (upon discussion with the Vendor
which in no event will require the agreement and/or consent of the Vendor) as
either an emergency or non-emergency condition and resolution thereof will be
expedited in accordance with the severity levels set forth below.
(b) Following attempted corrective actions by the Owner in accordance
with applicable Maintenance and Instruction Manuals provided by the Vendor, when
the Vendor is notified by the Owner that the System, any PCS System or any part
thereof fails to operate in accordance with the Specifications, the Vendor will
promptly commence and diligently pursue all reasonable efforts to identify the
Defect or Deficiency and, in the event the Vendor has responsibility therefor,
to correct such Defect or Deficiency.
(c) The Vendor's correction of such Defects or Deficiencies in the
System, any PCS System or any part thereof may take the form of new software
codes, new or supplementary operating instructions or procedures, modifications
of the software codes in the Owner's possession, or any other commonly used
method for correcting Defects or Deficiencies in Software, as the Owner and the
Vendor deem appropriate.
(d) When appropriate, the Vendor will provide non-emergency technical
support to the Owner via telephone, facsimile transmission, modem, or other
means acceptable to the Owner during the Owner's normal business hours.
(e) The Vendor will provide emergency technical assistance to the Owner
via an ETA telephone number designated to the Owner in advance by the Vendor,
twenty-four (24) hours per day, three hundred sixty-five (365) days per year.
(f) The Vendor will provide remote intervention and assistance
capability to the Owner for remotely accessing operating System Elements. Upon
mutual agreement between the Parties, the Vendor may remotely access operating
System Elements for the purpose of ETA.
2.26.2 Trouble Reports. From time to time, failures in, or degradation
---------------
of, Products may cause services provided by the System to be adversely affected.
It is necessary that immediate assistance be provided by the Vendor to allow the
Owner to restore the affected service. Critical service outages that cannot be
resolved by the Owner's field technicians or technical support engineers using
procedures described in the Operating Manuals, Maintenance and Instruction
Manuals and Training will be transmitted to the Vendor as a Trouble Report
("TR"). The Vendor will assign an identifying number to each TR to aid in
<PAGE>
37
tracking its resolution. TRs will be immediately addressed by the Vendor
through Emergency Technical Assistance under guidelines set forth in subsection
2.26.3. TRs may not be considered concluded until the solution is concurred
upon by an employee of the Owner within the Owner's operations control center
("OCC"). The root cause of problems resulting in TRs may be Defects or
Deficiencies which must be corrected through Product or procedure changes.
Problems with the System requiring such changes will be referred to the Vendor
for action through a Customer Service Request ("CSR"). The Vendor is authorized
by the Owner to install and integrate, at the Vendor's expense, any Software
Upgrade or Software Enhancement pursuant to mutual agreements reached between
the Vendor and the Owner.
2.26.3 Emergency Technical Assistance ("ETA"). (a) When a problem is
--------------------------------------
encountered that adversely affects service or performance with respect to the
Products, any PCS System, the System or any part thereof, in each case provided
by the Vendor, an Owner maintenance technician will attempt to repair or replace
any malfunctioning Product adversely affecting such service or performance using
the procedures recommended in the Maintenance and Instruction Manuals or the
Operating Manuals. If unsuccessful, a technical representative of the Owner
will consult the Vendor's designated ETA group at the telephone number provided
by the Vendor in subsection 2.26.3(c) below. Following receipt of notification
by the ETA group, the ETA group will utilize all available technical resources
and will ensure that a qualified technical engineer is communicating with the
Owner's personnel regarding the problem on average within fifteen (15) minutes
of any such notification; provided that no single response will exceed thirty
-------- ----
(30) minutes. If necessary and appropriate the Owner's technician will be
dispatched to assist in the normal change-out of replaceable hardware units.
(b) A problem adversely affecting service that has a severity level
defined below either as an "E1 Emergency Condition" or an "E2 Emergency
Condition" is to be addressed under the ETA procedures set forth below in this
subsection 2.26.3 and in subsection 2.26.4.
(i) An E1 Emergency Condition (this roughly corresponds to a
Critical Condition in the Vendor's ISO 9001 documentation) means a
problem resulting from any one or more of the following events:
. [ ]
. [ ]
. [ ]
. [ ]
<PAGE>
38
. [ ]
. [ ]
. [ ]
The Vendor must clear all E1 Emergency Conditions within twelve
(12) hours of notification of their occurrence. Work must continue
without any cessation until the defect causing the E1 Emergency
Condition is solved or the severity thereof is reduced to a "P1
Major Condition", as defined below, or less.
(ii) An E2 Emergency Condition (this roughly corresponds to
Severity 1 Conditions in the Vendor's ISO 9001 documentation) means
a problem resulting from any one or more of the following events:
. [ ]
. [ ]
. [ ]
. [ ]
. [ ]
. [ ]
. [ ]
. [ ]
The Vendor must clear all E2 Emergency Conditions within
twenty-four (24) hours of notification of such E2 Emergency
Conditions. Work must continue without any cessation until the
defect causing the E2 Emergency Condition is solved or the severity
is reduced to a P1 Major Condition or less.
<PAGE>
39
(c) In the event that an E1 Emergency Condition or an E2 Emergency
Condition should remain unresolved following referral to the Vendor by the
Owner, the problem causing such condition must be reported to the levels of
management set forth below (with comparable titles, if different) to ensure all
available resources necessary to address the problem will be committed in
accordance with the following:
The following are the reporting levels if an E1 Emergency Condition or
an E2 Emergency Condition is not resolved within the time periods set forth
below as amended from time to time with the reasonable acceptance of the Owner
following referral thereof to the Vendor by the Owner:
<TABLE>
<CAPTION>
Vendor Contact Vendor Contact Name Telephone Number
------------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
One hour - Technical Assistance Mgr. to be designated to be designated
Two hours - Customer Service Director to be designated to be designated
Three hours - Customer Service AVP R.B. Andrews (708) 713-1500
Four hours - Vice President R.G. Garriques to be designated
</TABLE>
(d) If the Owner reasonably determines that the Vendor has not provided
sufficient ETA to resolve any E1 Emergency Condition or E2 Emergency Condition
on a timely basis, the Owner will be entitled to withhold all payments with
respect to the affected PCS System then due or outstanding prior to the date of
such determination until such time as adequate ETA is provided to the Owner to
resolve such Emergency Condition.
(e) If an E1 Emergency Condition or an E2 Emergency Condition exists in a
PCS System prior to Final Acceptance of such PCS System, the Vendor will use all
reasonable efforts to deliver to the Owner each Software Upgrade and each
Equipment Upgrade developed by or on behalf of the Vendor to resolve any E1
Emergency Condition or E2 Emergency Condition within forty-eight (48) hours
following completion of development of such Software Upgrades or availability of
such Equipment Upgrades.
(f) The term Non-Emergency Services includes providing to the Owner any
requested technical assistance and support, remote monitoring and outage review
consultation and the handling of CSRs.
(g) Technical assistance and support must be provided for the purpose of
resolving non-emergency problems defined below as "P1 Major Condition", "P2
Significant Problem" and "P3 Minor Problem" which are reported to the Vendor.
(i) P1 Major Condition (this roughly corresponds to
Severity 1 Conditions in the Vendor's ISO 9001 documentation)
means any non-emergency failure of specific features or functions
of the System, any PCS System or any Product that restricts its
operations, but does not render the System, any PCS System or any
Product inoperable, impact traffic capacity or coverage or
require significant manual intervention for the System, any PCS
System or any Product to operate properly and in
<PAGE>
40
accordance with its applicable Specifications. These events will
include loss of diagnostic capabilities and loss of reporting
functions. The Vendor will use all reasonable efforts to use by-
pass or work-around procedures to alleviate such P1 Major
Condition until it is corrected and, upon mutual agreement of the
Parties, the Vendor will resolve such P1 Major Condition during
the next available scheduled Software Upgrade or Equipment
Upgrade.
(ii) P2 Significant Problem (this roughly corresponds
to Severity 2 Conditions in the Vendor's ISO 9001 documentation)
means any non-emergency, intermittently occurring problem related
to specific primary functions or features or any inoperable
secondary functions that do not have a significant adverse effect
on the overall performance of the System, any PCS System or any
Product. The Vendor will undertake appropriate and reasonable
efforts to correct such P2 Significant Problem.
(iii) P3 Minor Problem (this roughly corresponds to
Severity 3 Conditions in the Vendor's ISO 9001 documentation)
means any non-emergency problem that does not affect the
performance or functions of the System, any PCS System or any
Product, and, despite such problem, the System, any PCS System or
any Product is fully operable without restrictions. Such P3 Minor
Problems may include documentation inaccuracies, cosmetics, minor
requests for changes or maintenance requests. The Vendor will
undertake appropriate and reasonable efforts to correct such P3
Minor Problem.
(h) Should a non-emergency problem remain unresolved for the period or
periods of time set forth below following referral to the Vendor by the Owner,
such problem must be reported to the levels of management set forth below to
ensure all available resources necessary to correct such problem will be
committed to address such problem pursuant to the following:
- - ------------------------------------------------------------------------------
REPORTING LEVELS IF NON-EMERGENCY
IS NOT RESOLVED WITHIN
CONDITION 30 DAYS 45 DAYS 60 DAYS
- - ------------------------------------------------------------------------------
P1 Technical Manager Customer Service Vice President
Major Condition Director
P2 Technical Manager Customer Service
Significant Problem Director
P3 Technical Manager
Minor Problem
- - ------------------------------------------------------------------------------
<PAGE>
41
Non-emergency problems referred to the Vendor as a CSR will be resolved
based upon the priority assigned to them as determined by the Owner or as
mutually agreed by the Parties and, to the extent reasonably possible, will be
incorporated into the next scheduled Software release.
2.26.4 ETA and CSR. In the event that emergency technical support
-----------
provided from the Vendor's technical support center is not sufficient to resolve
an E1 Emergency Condition, the Vendor must send a technically qualified person
or persons to the site of such emergency condition or problem to assist the
Owner's employees in solving such condition or problem. The Vendor's
technically qualified person or persons must be on-site as soon as possible, but
in no event more than twenty-four (24) hours after notification to the Vendor by
the Owner, or at such later time as may be mutually agreed on by the Parties.
In the event that emergency technical support provided from the Vendor's
technical support center is not sufficient to resolve an E2 Emergency Condition,
then the Parties will mutually agree to a desired course of action, which may
include requiring the Vendor to send a technically qualified person or persons
to the site of such emergency.
A CSR may be submitted by the Owner to request a repair or work-around of
an emergency condition or repair of a non-emergency problem, or to request a
Software Upgrade or an Equipment Upgrade or other Software or Equipment
operational enhancement. The Owner's CSRs will define the condition or problem
and state whether the Owner considers the CSR to be for a Software Upgrade or an
Equipment Upgrade or other Software or Equipment operational enhancement.
Changes to the System or any PCS System resulting from any CSR must be fully
tested and accepted in accordance with the Specifications. The Vendor must
respond to the submission of a CSR by the Owner within five (5) Business Days,
acknowledging receipt of the CSR. Within thirty (30) days of receipt of the
CSR, the Vendor will respond to the CSR summarizing the Vendor's intended
actions to handle the CSR. A CSR may result in System fixes or enhancements, or
in Product modifications reasonably acceptable to the Owner.
Notwithstanding the above, no event, lack of functionality or failure of
the Test-bed Laboratory will be assigned as an E1 Emergency Condition or E2
Emergency Condition. Any such event, lack of functionality or failure
applicable to the Test-bed Laboratory, which would otherwise be assigned such a
category in accordance with the definitions above, will be assigned a P1 Major
Condition.
2.27 Supply of Additional Products. During the Initial Term of this
-----------------------------
Contract and for a period of three (3) years thereafter, the Vendor will make
available for purchase by the Owner, on applicable terms and conditions set
forth in this Contract or as otherwise mutually agreed between the Parties, PCS
Products to enable the Owner to expand the System and/or any PCS System and/or
any part thereof, which Products will provide equivalent functionality for and
will be compatible with the System or any such PCS System at such time. Nothing
herein will be deemed to prohibit the Vendor from designating any specific PCS
Products as Discontinued Products in accordance with Section 10 of this
Contract.
<PAGE>
42
2.28 Review of Contract. The Vendor has examined in detail and carefully
------------------
studied and compared the Contract with all other information furnished by the
Owner and has promptly reported to the Owner any material errors,
inconsistencies or omissions so discovered or discovered by any of the
Subcontractors. The Vendor will not prosecute any Major Portion of the Work
knowing that it involves a material error, inconsistency or omission in the
Contract without prior written notice to and approval by the Owner. If for any
reason the Vendor violates this subsection 2.28, the Vendor will, in addition to
being subject to any other remedies of the Owner, assume responsibility for such
violation and, in such case, will be deemed to have waived any claims for an
adjustment in any of the Specifications and/or System Standards which results
directly from any such error, inconsistency or omission. This subsection 2.28
does not, nor will be deemed to, in any manner limit the terms of subsection
2.39.
2.29 Licenses, Permits and Approvals. Except as otherwise provided for
-------------------------------
herein with respect to Site Acquisition, Microwave Relocation and Network
Interconnection, any Applicable Permits (in connection with the Vendor's Work)
required by any Government Entity relating to the manufacture, importation,
safety or use of the Products, the System or any PCS System throughout the
United States or in any state or any political sub-division thereof will be the
sole responsibility of the Vendor. Prior to the commencement of any Work and/or
other activities by the Vendor or any of its Subcontractors in connection with
or pursuant to this Contract, upon request of the Owner the Vendor will furnish
the Owner with evidence that such Applicable Permits have been obtained and are
in full force and effect to the extent that Applicable Permits are necessary for
the commencement or undertaking of such activities, and from time to time
thereafter the Vendor, upon the reasonable request of the Owner, will provide
such further evidence as the Owner will deem reasonably necessary.
2.30 Eligibility under Applicable Laws and Applicable Permits. The Vendor
--------------------------------------------------------
will be responsible for ensuring that the Vendor and its Subcontractors are and
remain eligible under all Applicable Laws and Applicable Permits to perform the
Work under this Contract in the various jurisdictions involved.
2.31 Customs Approvals. The Owner agrees to reasonably assist, so long as
-----------------
such assistance will not involve the incurrence of any costs or expenses by the
Owner, the Vendor to obtain and maintain (i) Applicable Permits for importation
into the Products on a duty and customs free basis and (ii) entry or work
permits, visas or authorizations required for personnel engaged by the Vendor to
perform Work under this Contract.
2.32 Owner Participation. In addition to the right of observation
-------------------
contained in subsection 9.4 hereof, the Owner will be entitled to participate in
the Vendor's research and development activities (subject to the reasonable
acceptance of the Vendor) and product development and testing activities
pursuant to this Contract (other than research and development activities
originated by another Customer which is proprietary to such other Customer);
provided that such observation and participation will not affect the Vendor's
- - --------
responsibilities and warranties hereunder and will not otherwise interfere with
the Vendor's research and development activities. Nothing contained in this
subsection 2.32 purports to grant the Owner rights to the Vendor's research and
development other than such rights
<PAGE>
43
otherwise granted to the Owner pursuant to the terms of this Contract or as
otherwise mutually agreed by the Parties at such time.
2.33 New Development Advisory Board. In order to accommodate the Owner's
------------------------------
participation pursuant to this Contract, including, without limitation, pursuant
to subsections 2.11 and 2.32, the Owner and the Vendor will establish an NDAB
within sixty (60) days of the Effective Date. The purpose of the NDAB will be
to review the development requirements and high level development milestones, to
ensure that the Vendor understands the Owner's requirements for each PCS System,
the System and/or any extensions thereto including, without limitation, any
subsequent Products and/or enhancements. The NDAB will provide an executive
forum to discuss product ideas, Owner requirements and its recommended
development prioritization for improved infrastructure-based subscriber features
and System features, functions and capabilities. The focus of the NDAB will be
on System features and services, new PCS Products, System enhancements, critical
operational issues, future developments beyond CDMA cellular without the need
for System additions and on such other matters as the Parties mutually agree
upon from time to time.
2.34 Market Development Manager. The Vendor will provide a market
--------------------------
development manager to coordinate the efforts of the Vendor in meeting its
obligations relating to the NDAB who will specifically focus on new Products,
CDMA services and features. Such market development manager must be
knowledgeable in CDMA technology and the Owner's System and must work closely,
and on a regularly scheduled basis, with the Owner's senior engineering and
marketing personnel on feature development, feature roll-out, future road maps
for PCS Products, and any other marketing aspect of providing PCS that the Owner
believes is beneficial to the System and/or any PCS System at such time. The
Vendor's market development manager and the manager's staff will serve as the
Owner's direct liaison with the Vendor to ensure that the Vendor's product
development teams are focusing on the Owner's priorities as described to the
Vendor by the Owner from time to time either through the NDAB or by any other
means acceptable to the Parties. Nothing contained in this subsection 2.34 will
in any way limit and/or modify the Owner's ability to enforce its rights under
this Contract or to otherwise maintain contacts with the Vendor in any other way
it sees fit.
2.35 Further Assurances. The Vendor will execute and deliver all further
------------------
instruments and documents, and take all further action, including, but not
limited to, assisting the Owner in filing notices of completion with the
appropriate state and local lien recording offices, that may be necessary or
that the Owner may reasonably request in order to enable the Vendor to complete
performance of the Work or to effectuate the purposes or intent of this
Contract.
2.36 Liens and Other Encumbrances. (a) In consideration of the mutual
----------------------------
undertakings herein and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the Vendor:
(i) covenants and agrees to protect and keep free the System and/or
any PCS System and any and all interests and estates therein, and all
improvements and
<PAGE>
44
materials now or hereafter placed thereon under the terms of this Contract,
from any and all claims, liens, charges or encumbrances of the nature of
mechanics, labor or materialmen liens or otherwise arising out of or in
connection with performance by any Subcontractor, including services or
furnishing of any materials hereunder, and to promptly have any such lien
released by bond or otherwise;
(ii) give notice of this subsection 2.36 to each Subcontractor before
such Subcontractor furnishes any labor or materials for the System and/or
any PCS System; and
(iii) make any and all filings reasonably requested by the Owner in
order that the Owner may take advantage of the relevant local mechanics'
lien waiver procedures with respect to mechanics' liens of any such
Subcontractor.
(b) If any laborers', materialmen's, mechanics', or other similar lien or
claim thereof is filed by any Subcontractor, the Vendor will cause such lien to
be satisfied or otherwise discharged, or will file a bond in form and substance
satisfactory to the Owner in lieu thereof within ten (10) days of the Vendor's
receipt of notice of such filing. If any such lien is filed or otherwise
imposed, and the Vendor does not cause such lien to be released and discharged
forthwith, or file a bond in lieu thereof, then, without limiting the Owner's
other available remedies, the Owner has the right, but not the obligation, to
pay all sums necessary to obtain such release and discharge or otherwise cause
the lien to be removed or bonded to the Owner's satisfaction from funds retained
from any payment then due or thereafter to become due to the Vendor.
(c) The Owner reserves the right to post or place within the System and/or
any PCS System notices of non-responsibility or to do any other act required by
Applicable Law, to exempt the Owner and the System from any liability to third
parties by reason of any work or improvements to be performed or furnished
hereunder; provided that failure by the Owner to do so will not release or
-------- ----
discharge the Vendor from any of its obligations hereunder.
2.37 Forecasting and Ordering. Throughout the Term of this Contract, on a
------------------------
monthly basis commencing on the Effective Date, the Owner will provide the
Vendor with rolling twelve-month forecasts of its ongoing Product and Service
requirements. Such forecasts will, to the extent applicable, include, but not
be limited to, the Owner's Site Acquisition, Switch Site Ready Date, Network
Interconnection and Microwave Relocation progress to such date. Upon the review
and reasonable acceptance of such forecasts by the Vendor pursuant to the terms
of this Contract, the Owner will have the right, but not the obligation, to
confirm to the Vendor its orders for the Products and Services set forth in such
forecasts pursuant to the Owner's delivery to the Vendor of formal written
orders specifying the Products and/or Services to be purchased in connection
with the terms of this Contract. The Vendor's obligation to deliver in
accordance with accepted forecasts will be subject to receipt of the Owner's
orders in accordance with the applicable ordering procedures. If the Owner
fails to deliver any forecast pursuant to this subsection 2.37 for any reason,
the Vendor will be responsible for asking the Owner to actually deliver such
forecast to the extent it requires such forecast at such time.
<PAGE>
45
2.38 Microwave Relocation; Network Interconnection. (a) The Vendor will
---------------------------------------------
not be responsible for Microwave Relocation within the System. Unless otherwise
waived by the Owner, however, completion of Microwave Relocation in any given
System Area will be a prerequisite to the commencement of the Substantial
Completion testing to be performed by the Vendor in accordance with Exhibit B3
in such System Area. The Owner may at its option choose instead to modify the
System performance criteria as set forth in Exhibit F by way of a Change Order
in order to account for the failure to fully and/or satisfactorily complete
Microwave Relocation in any such System Area such that Substantial Completion
testing in accordance with the requirements of Exhibit B3 may proceed.
Notwithstanding anything stated herein to the contrary (other than clause (b)
below), the Owner's failure and/or inability to fully complete Microwave
Relocation in any such System Area within twelve (12) months of Milestone 6 (as
set forth in Exhibit A1) (the "Microwave Delay Period") will entitle the Vendor
to otherwise commence Substantial Completion testing (as deemed applicable and
appropriate pursuant to good faith mutual agreement between the Parties at such
time) for the PCS System in such System Area in accordance with Exhibit B3.
Pursuant to the requirements of Exhibits A1, B1 and B3 with respect to any PCS
System within the System the Owner may, upon the prior written request of the
Vendor, consent (such consent not to be unreasonably withheld) to extend the
scheduling of the Vendor's Substantial Completion testing by not more than an
additional sixty (60) days pursuant to Milestone 8 in the event that more than
ten percent (10%) of the System Element Sites in such PCS System as set forth in
the Final Site Count for such PCS System require Vendor optimization pursuant to
Exhibit B1 that was otherwise delayed due to incomplete Microwave Relocation in
such PCS System immediately prior to the date scheduled for Substantial
Completion testing pursuant to Milestone 8 (as set forth on Exhibit A1).
(b) The Vendor will not be responsible for Network Interconnection within
the System. In any given System Area, completion of Network Interconnection in
such System Area at least sixty (60) days (or as otherwise mutually agreed
between the Parties at such time) prior to Milestone 7 (as set forth on Exhibit
A1) will be a prerequisite to the Vendor's obligation pursuant to the terms of
this Contract to successfully achieve Milestone 7 (as set forth in Exhibit A1)
in such System Area.
2.39 Vendor To Inform Itself Fully; Waiver of Defense. (a) The Vendor
------------------------------------------------
will be deemed to have notice of and to have fully examined and approved the
Specifications and all other documents referred to herein, and all drawings,
specifications, schedules, terms and conditions of this Contract, regulations
and other information in relation to this Contract and/or any amendments,
modifications or supplements thereto at any time on or after the Effective Date
and to have fully examined, understood and satisfied itself as to all
information of which the Vendor is aware or should have been aware and which is
relevant as to the risks, contingencies and other circumstances which could
affect this Contract and in particular the installation of the System, any PCS
System or any part thereof. The Owner, its directors, officers, employees and
agents and all of them have no liability in law or equity or in contract or in
tort with respect to any such specifications, drawings, information, risks,
contingencies or other circumstances.
<PAGE>
46
(b) The fact that the Owner may have prepared or taken part in the
preparation of Specifications, documents, drawings, Engineering, designs,
specifications, schedules, terms or conditions, or may have designated
particular types of Products and/or Services to be furnished hereunder or
designated particular manufacturers or suppliers of Products or Services, or may
have taken part in the designation of any particular Subcontractor(s) or
subcontractor(s), or given vetoes or approvals with respect to the Work, or
otherwise become involved in the Work, will not give rise to any claim by the
Vendor or any Subcontractor or any defense to any warranty or other claims
asserted against the Vendor or any Subcontractor to the extent that any such
claim or defense arises out of any specifications, drawings, documents, or other
information, which the Vendor is deemed to have had notice of pursuant to
subsection 2.39(a) above and with respect to any such information arising after
the Effective Date which the Vendor had a reasonable opportunity to review.
2.40 CMI/HIC. From time to time throughout the Term of this Contract the
-------
Parties may mutually agree as to the incorporation and integration of CMI/HIC
into the System in accordance with Exhibit D.
2.41 Site Acquisition Delay Testing. In any given System Area within the
------------------------------
Initial System, in the event Site Acquisition Substantial Completion is delayed
more than one hundred and fifty (150) days beyond the forecasted date for Site
Acquisition Substantial Completion as set forth in the M5 Forecast (the "Site
Acquisition Delay Period") provided to the Vendor with the Build Notice
applicable to such System Area due solely to the Owner's inability to achieve
sufficient Site Acquisition in such System Area, the Vendor will have the right,
but not the obligation, to commence Substantial Completion testing (as deemed
applicable and appropriate pursuant to good faith mutual agreement between the
Parties at such time but in any event to be completed within thirty (30) days of
such commencement) for that portion of the otherwise incomplete PCS System in
which the Vendor has (i) completed all applicable Facilities Preparation
Services and (ii) fully Installed, to the extent possible at such time, all such
Products to be Installed by the Vendor or its Subcontractors on otherwise fully
constructed System Element Locations within such PCS System. Subject to
Section 6, in the event the Vendor successfully completes such modified
Substantial Completion testing for such Installed portion of such otherwise
incomplete PCS System pursuant to and in accordance with this subsection 2.41
and Exhibit B3, the Vendor will be entitled to such portion of the payments that
otherwise would be made by the Owner pursuant to subsection 6.3(b) as applicable
only to those Services and Products actually provided by the Vendor pursuant to
and in accordance with the terms of this Contract in such portion of the
otherwise incomplete PCS System that was subject to testing pursuant to this
subsection 2.41. Nothing contained herein to the contrary will in any way
modify the Vendor's obligations as to the completion and testing of the
remaining portion of such PCS System pursuant to and in accordance with the
terms of this Contract, including but not limited to the Project Milestones set
forth in Exhibit A1. Nothing contained herein to the contrary will in any way
require the Owner to pay the Vendor amounts already paid or otherwise provided
for pursuant to any other provision of this Contract.
SECTION 3 AFFILIATES
<PAGE>
47
3.1 Additional Affiliates. On a quarterly basis commencing on the
---------------------
Effective Date and during the term of this Contract, the Owner may, upon fifteen
(15) days' prior written notice to the Vendor, designate any Person who has been
licensed to use PCS in the United States which is not an Initial Affiliate as an
"Additional Affiliate"; provided that the Vendor will have a reasonable
-------- ----
opportunity to review and approve such designation, such approval not to be
unreasonably withheld, based upon (i) reasonable credit criteria within the
context of the PCS industry, (ii) the fact that such proposed Additional
Affiliate has not in the past materially breached prior material agreements with
the Vendor, (iii) the fact that the proposed Additional Affiliate is not, at the
time of such determination, a direct competitor to the Vendor in the wireless
telecommunications business and (iv) the fact that the proposed Additional
Affiliate is not, at the time of such determination, otherwise engaged with the
Vendor in a material agreement for the purchase and/or supply of PCS CDMA
wireless technology; and provided, further, that (x) the Owner, any Partner or
-------- -------
any Initial Affiliate has at least a ten percent (10%) equity ownership in such
Person, (y) such Person is controlled by or under the common control with the
Owner, any Partner or any Initial Affiliate or (z) there exists between the
Owner and such Person an Additional Affiliate Arrangement.
3.2 Agreements with Initial Affiliates. During the term of this Contract,
----------------------------------
the Owner will have the right, but not the obligation, to require that the
Vendor enter into separate agreements with any Initial Affiliate designated by
the Owner (each, an "Initial Affiliate Agreement") for the supply of Products
and Services on similar terms and conditions as those set forth herein that
relate to the initial build-out of the Initial System as set forth on Schedule
4; provided that the Vendor will not be required to include in any Initial
-------- ----
Affiliate Agreement any provisions substantially similar to those set forth in
subsections 2.3(a), 2.5, 2.23 (but only to the extent of the specific amounts
set forth in such subsection 2.23), 3.1, 3.3, 11.7, 15.1, 21.1, 24.1 and 27.5;
and provided further that after the date on which Final Acceptance of the last
-------- -------
PCS System to reach Final Acceptance has occurred, Initial Affiliate Agreements
(whether or not executed prior to such date) need not contain or retain
substantially the same terms and conditions as those set forth herein, except
for those terms and conditions related to pricing and warranties as are then
available to the Owner pursuant to this Contract. Any Initial Affiliate that
enters into an Initial Affiliate Agreement with the Vendor will have the right
to choose among the Products and Services offered to the Owner under this
Contract solely for use within the Nationwide Network.
3.3 Agreements with Additional Affiliates. During the term of this
-------------------------------------
Contract, the Owner will have the right, but not the obligation, to require that
the Vendor enter into separate agreements with any Additional Affiliate
designated by the Owner (each, an "Additional Affiliate Agreement") for the
supply of Products and Services at similar price and warranty terms as are then
available to the Owner pursuant to the terms of this Contract. The Vendor must
enter into good faith negotiations for the establishment of such Additional
Affiliate Agreements with any such Additional Affiliate promptly upon the
designation of such Additional Affiliate by the Owner and upon notice to the
Vendor that such Additional Affiliate desires to enter into an Additional
Affiliate Agreement. Any Additional Affiliate that enters into an Additional
Affiliate Agreement with the Vendor will have the right to choose among the
Products and Services offered to the Owner under this Contract solely for use
within the Nationwide Network.
<PAGE>
48
3.4 Affiliate Rights. Notwithstanding anything herein contained to the
----------------
contrary, Affiliates will not be deemed third party beneficiaries to this
Contract or otherwise have any rights hereunder. Only the Owner may designate a
Person as an Affiliate in accordance with the terms of this Section 3 and only
the Owner has the right and/or the ability to enforce any rights hereunder
against the Vendor.
SECTION 4 SUBCONTRACTORS
4.1 Subcontractors. The Vendor will select Subcontractors in connection
--------------
with the performance of the Work such that all Products and Services provided by
any such Subcontractors meet the System Standards and reliability and
performance requirements set forth in this Contract. Regardless of whether or
not the Vendor obtains approval from the Owner of a Subcontractor or whether the
Vendor uses a Subcontractor recommended by the Owner, use by the Vendor of a
Subcontractor will not, under any circumstances: (i) give rise to any claim by
the Vendor against the Owner if such Subcontractor breaches its subcontract or
contract with the Vendor; (ii) give rise to any claim by such Subcontractor
against the Owner; (iii) create any contractual obligation by the Owner to the
Subcontractor; (iv) give rise to a waiver by the Owner of its rights to reject
any Defects or Deficiencies or Defective Work; or (v) in any way release the
Vendor from being solely responsible to the Owner for the Work to be performed
under this Contract.
4.2 The Vendor's Liability. The Vendor is the general contractor for the
----------------------
Work and remains responsible for all of its obligations under this Contract,
including the Work, regardless of whether a subcontract or supply agreement is
made or whether the Vendor relies upon any Subcontractor to any extent. The
Vendor's use of Subcontractors for any of the Work will in no way increase the
Vendor's rights or diminish the Vendor's liabilities to the Owner with respect
to this Contract, and in all events, except as otherwise expressly provided for
herein, the Vendor's rights and liabilities hereunder with respect to the Owner
will be as though the Vendor had itself performed such Work. The Vendor will be
liable for any delays caused by any Subcontractor as if such delays were caused
by the Vendor.
4.3 No Effect of Inconsistent Terms in Subcontracts. The terms of this
-----------------------------------------------
Contract will in all events be binding upon the Vendor regardless of and without
regard to the existence of any inconsistent terms in any agreement between the
Vendor and any Subcontractor whether or not and without regard to the fact that
the Owner may have directly and/or indirectly had notice of any such
inconsistent term.
4.4 Assignability of Subcontracts to Owner. Each agreement between the
--------------------------------------
Vendor and a Subcontractor must contain a provision stating that, in the event
that the Vendor is terminated for cause, convenience, abandonment of this
Contract or otherwise, (i) each Subcontractor will continue its portion of the
Work as may be requested by the Owner and (ii) such agreement permits assignment
thereof without penalty to the Owner and, in order to create security interests,
to the Other Vendors, in either case at the option of the Owner and for the same
price and under the same terms and conditions as originally specified in such
Subcontractor's agreement with the Vendor.
<PAGE>
49
4.5 Removal of Subcontractor or Subcontractor's Personnel. The Owner has
-----------------------------------------------------
the right at any time to require removal of a Subcontractor and/or any of a
Subcontractor's personnel from Work on the System upon reasonable grounds and
reasonable prior notice to the Vendor. The exercise of such right by the Owner
will have no effect on the provisions of subsections 4.1 and 4.2.
4.6 Subcontractor Insurance. The Vendor must require its Subcontractors
-----------------------
to obtain, maintain and keep in force during the time they are engaged in
providing Products and Services hereunder adequate insurance coverage consistent
with Section 18 and Schedule 6 (provided that the maintenance of any such
Subcontractor insurance will not relieve the Vendor of its other obligations
pursuant to Section 18 and Schedule 6). The Vendor will, upon the Owner's
request, furnish the Owner with evidence of such insurance in form and substance
reasonably satisfactory to the Owner. All such insurance will be subject to the
Owner's approval. All Subcontractors must be of bondable financial condition.
Nothing herein will be deemed to bar the Vendor or any Subcontractor from
obtaining such insurance on a project basis for each of the Subcontractors
participating in such project.
4.7 Review and Approval not Relief of Vendor Liability. Any inspection,
--------------------------------------------------
review or approval by the Owner permitted under this Contract of any portion of
the Work by the Vendor or any Subcontractor will not relieve the Vendor of any
duties, liabilities or obligations under this Contract, but nothing contained in
this subsection 4.7 will be deemed a bar of any waiver given by the Owner to the
Vendor pursuant to and in accordance with the terms of this Contract.
4.8 Vendor Warranties. Except as otherwise expressly provided in Section
-----------------
17, the warranties of the Vendor pursuant to Section 17 will be deemed to
apply to all Work performed by any Subcontractor as though the Vendor had itself
performed such Work. Except as otherwise specifically provided in Section 17,
the Parties agree that such warranties will not be enforceable merely on a
"pass-through" basis. The Owner may, but will not be obligated to, enforce
such warranties of any Subcontractor to the extent that the Owner determines
that the Vendor is not paying and/or performing its warranties; provided that
-------- ----
any such election by the Owner will not relieve the Vendor from any obligations
or liability with respect to any such warranty.
4.9 Payment of Subcontractors. The Vendor must make all payments to all
-------------------------
Subcontractors (except in the case of legitimate disputes between the Vendor and
any such Subcontractor arising out of the agreement between the Vendor and such
Subcontractor) in accordance with the respective agreements between the Vendor
and its Subcontractors such that Subcontractors will not be in a position to
enforce liens and/or other rights against the Owner, the System or any part
thereof.
SECTION 5 TERM OF CONTRACT
<PAGE>
50
5.1 Initial Term. The initial term of this Contract (the "Initial Term")
------------
is ten (10) years from the Effective Date, subject to the terms and conditions
of this Contract including, without limitation, the termination provisions set
forth in Section 24.
5.2 Renewal. This Contract is subject to renewal for one year periods
-------
(all such periods plus the Initial Term, the "Term") following the expiration of
the Initial Term, on the same terms and conditions contained herein, unless
either Party gives notice to each other Party of its intention not to renew this
Contract within ninety (90) days prior to the expiration of the then current
Term.
SECTION 6 PRICES AND PAYMENT
6.1 Prices. The prices for the Work to be performed pursuant to this
------
Contract (collectively, the "Contract Price") are as set forth on Schedules 2
and 3, subject to the price variation provisions contained on Schedule 2.
Notwithstanding the prices set forth on Schedules 2 and 3 and the Contract
Price, the Vendor will provide the Owner credits in aggregate value not to
exceed [ ] to purchase any Products in the following System Areas and in the
following amounts per such System Areas:
System Credit
Area Amount
----------- ----------
Detroit [ ]
Milwaukee [ ]
Denver [ ]
Salt Lake [ ]
Spokane [ ]
The Owner is also entitled to additional purchase credits of up to [ ] to be
applied in the Owner's discretion to the purchase of any Products in any or all
of the above listed System Areas. At any time during the Term of this Contract
that the Owner wishes to apply the purchase credits referenced in this
subsection 6.1 to any of its Products purchases for the System Areas listed
immediately above, the Owner must notify the Vendor of its intent to do so and
it will be the Vendor's sole responsibility, throughout the Term of this
Contract, to keep account of the remaining purchase credits available to the
Owner. Prices for the Work not otherwise set forth on Schedules 2 or 3, if not
otherwise set forth in this Contract, will be no greater than the Vendor's best
list prices then in effect at the time of ordering by the Owner (as established
by the Vendor's then applicable Customer Price Guide for sales in the United
States) and at discounts otherwise provided to the Owner pursuant to the terms
of this Contract.
6.2 Price Reduction. The Contract Price will be reduced by all amounts
---------------
saved as a result of Engineering changes suggested by the Owner which are
incorporated into the Specifications by the Vendor provided that the Vendor
--------
reasonably believes that such changes will not make it impossible or
impracticable to comply with any of its obligations under this
<PAGE>
51
Contract, including, without limitation, those Vendor obligations relating to
the performance criteria applicable to the System. Any reduction in Contract
Price pursuant to the preceding sentence will be agreed upon promptly by the
Owner and the Vendor. Failure of the Parties to mutually agree to such price
reductions within ten (10) days from the date the Owner delivered written notice
to the Vendor of the need for such price reduction due to incorporated
Engineering changes will result in the automatic reference of such matter to
dispute resolution in accordance with subsection 23.1. During the pendency of
any such dispute resolution prices payable pursuant to subsection 6.1 will be
payable by the Owner to the Vendor at the reduced level pursuant to this
subsection 6.2. If in accordance with subsection 23.1 such dispute resolution
results in a finding that such price reduction was not in fact justified then
the Owner will reimburse the Vendor the amounts that would otherwise have been
payable to the Vendor during the pendency of such dispute resolution.
6.3 Payments. Except with respect to Facilities Preparation Services and
--------
RF Engineering as set forth below, an invoice may be submitted to the Owner only
after shipment of a Product or performance of a Service. Invoices for Products
delivered and Services performed on or prior to Final Acceptance of the PCS
System to which such invoices relate are payable in the following manner:
(a) twenty-five percent (25%) of the amount of each invoice will be paid
within thirty (30) days from receipt of the invoice by the Owner,
(b) fifty-seven and one half percent (57-1/2%) of the amount of such
invoice will be paid within thirty (30) days from the later of (i) Substantial
Completion of the PCS System to which such invoice relates and (ii) receipt of
the invoice by the Owner;
(c) seventeen and one half percent (17-1/2%) of the amount of the invoice
will be paid within thirty (30) days from the later of (i) Final Acceptance of
the PCS System to which such invoice relates and (ii) receipt of the invoice by
the Owner; and
(d) Pursuant to subsection 2.6(d) and provided that any MSCs sought to be
covered hereby have in fact been installed by the Vendor in accordance with
subsection 2.6(d), the Owner will pay to the Vendor [ ] of the price invoiced
to the Owner for any MSC within any PCS System within the Initial System upon
the Vendor's successful achievement of Milestone 5 (as set forth in Exhibit A1)
in such PCS System and an additional [ ] of the price invoiced to the Owner
for any such MSC upon the Vendor's successful achievement of Milestone 8 (as set
forth in Exhibit A1) in such PCS System. All other amounts payable by the Owner
to the Vendor for MSCs within any PCS System within the Initial System will be
otherwise payable in accordance with the terms of this Contract provided that
--------
the Owner will not be obligated to make any payments to the Vendor for MSCs
pursuant to subsection 6.3(b) to the extent it made any payments for any such
MSCs pursuant to this subsection 6.3(d).
Notwithstanding the foregoing, (i) invoices for RF Engineering for each PCS
System will be payable in accordance with subsection 6.4(b) below and (ii)
invoices for Facilities Preparation Services within any PCS System may be
submitted by the Vendor in accordance
<PAGE>
52
with the terms of Exhibit B2 and will be payable by the Owner with respect to
each System Element Facility within thirty (30) days after the date of
acceptance by the Owner of any such System Element Facility in accordance with
the terms of Exhibit B2. Payments for third party manufactured Products (other
than any PCS Products or any Products integral to construction (e.g., concrete,
----
nuts, bolts and other customary building supplies)) purchased by the Vendor or
its Subcontractors for installation on the Owner's System Element Locations
during the course of and as part of Facilities Preparation Services may be made
by the Owner on a current basis (but in no event more often than monthly during
the course of such Facilities Preparation Services) as mutually agreed by the
Parties.
63.1 Additional Products not in Initial System or Otherwise Provided for
------------------------------------------------------------------
in Section 2.2. Any invoice for Products delivered and installed by the Vendor
- - -------------
and Services performed by the Vendor not otherwise provided for under this
subsection 6.3, subsection 2.2(a) or as otherwise specifically set forth in this
Contract will be payable as follows: [ ] of the amount of the invoice will be
payable within thirty (30) days following receipt of such Products by the Owner
or the full performance of the Services by the Vendor and the outstanding
balance will be payable upon final acceptance by the Owner of the Products or
Services to which such invoice relates. Any invoice (not otherwise provided for
under this subsection 6.3) for Products delivered by the Vendor but not
installed by the Vendor to which such invoice relates will be payable by the
Owner at the level of [ ] of the amount of such invoice within thirty (30)
days from the date of delivery of such invoice to the Owner. For any Services
not otherwise covered by this last paragraph of subsection 6.3, including
without limitation repair services, Engineering and Installation Services not
performed pursuant to a combined furnish and install order, and maintenance fees
(including Annual Release Maintenance Fees), an invoice will be payable by the
Owner at the level of [ ] of the amount of such invoice within thirty (30)
days from the date of delivery of such invoice to the Owner or as otherwise
mutually agreed in good faith between the Parties. For the purposes of this last
paragraph of this subsection 6.3 any acceptance or "final acceptance" relevant
to the Owner's obligation to pay will be deemed to occur on the earlier of (i)
the Owner's In Revenue use of such Products and/or Services, (ii) the Owner's
notification of acceptance of such Products and/or Services or (iii) thirty (30)
days following, as applicable, the Owner's completion of Installation of the
Products (where the Vendor is not performing Installation Services), without the
Owner's having given notice of non-acceptance of such Products and/or Services.
6.4 Payments for Facilities Preparation Services. (a) Upon receipt of
--------------------------------------------
payment from the Owner for Facilities Preparation Services the Vendor will
promptly pay each Subcontractor for Facilities Preparation Services the amount
to which each Subcontractor is entitled pursuant to such Subcontractor's
agreement with the Vendor, based on each Subcontractor's portion of such Work.
By appropriate agreement in each Subcontractor's agreement with the Vendor, the
Vendor will require such Subcontractor to make payments to sub-Subcontractors
and materialmen in a similar manner. The Owner has no duty or obligation to
insure the payment of money to a Subcontractor, sub-Subcontractor, materialman
or any other third party, any such payment being the obligation of the Vendor.
Subcontractors, sub-Subcontractors, materialmen and any other third parties will
not be deemed third party beneficiaries of the Owner's obligations to pay the
Vendor. On or before
<PAGE>
53
the Owner's acceptance of the Facilities Preparation Services of any System
Element Facility within any given PCS System in accordance with the terms of
Exhibit B2, the Owner will have received details (in a form reasonably
satisfactory to the Owner) of all invoices and charges for such Facilities
Preparation Services incurred by the Vendor in connection with the Facilities
Preparation Services for such System Element Facility.
(b) The Owner will make payment to the Vendor for RF Engineering Services
performed by the Vendor within any given System Area pursuant to the terms of
this Contract based upon the following: (i) [ ] of the "RF Engineering
Services price" within the applicable System Area will be payable by the Owner
within thirty (30) days after receiving the Preliminary RF Design for such
System Area pursuant to Milestone 2 for such System Area as set forth on
Exhibit A1; (ii) [ ] of the RF Engineering Services price within the
applicable PCS System will be payable by the Owner within thirty (30) days after
the determination of the Final Site Count and delivery of the Final RF Design
for such PCS System in accordance with subsection 2.6 and Milestone 5 for
such System Area as set forth on Exhibit A1; and (iii) [ ] of the RF
Engineering Services price will be payable by the Owner within the applicable
PCS System within thirty (30) days of the Vendor's Installation of the Products
for such PCS System in accordance with the terms of the Contract and Milestone 7
for such System Area as set forth on Exhibit A1. For the purposes of this
subsection 6.4(b) the term "RF Engineering Services price" will mean the number
of System Element Facilities within the applicable PCS System pursuant to the
build-out of the Initial System multiplied by the Vendor's System Element
Facility RF Engineering price as set forth on Schedule 3. In any given PCS
System and/or System Area the RF Engineering Services price will be readjusted
(and any amounts owed to either Party will be reimbursed) at the point in time
that payment would be made for such RF Engineering pursuant to clause (iii) of
this subsection 6.4(b) in accordance with the determination of the actual Final
Site Count and delivery of Final RF Design applicable to such PCS System.
6.5 Monthly Forecasts. Commencing on the Effective Date, the Vendor will
-----------------
provide the Owner with monthly forecasts of the costs of RF Engineering and
Facilities Preparation Services in each PCS System in which such Services are
being provided by the Vendor and/or any of its Subcontractors throughout the
period that any such Services are being provided during the Term of this
Contract. The forecasts provided by the Vendor pursuant to this subsection 6.5
must be in sufficient detail to reasonably inform the Owner of the nature of the
costs to be incurred for each of RF Engineering and Facilities Preparation
Services in each of the PCS Systems in which such Services are being provided by
the Vendor and/or any of its Subcontractors pursuant to the terms of this
Contract.
6.6 No Payment in Event of Material Breach. Notwithstanding any other
--------------------------------------
provision to the contrary contained herein, the Owner will have no obligation to
make any payment with respect to the affected PCS System in addition to amounts
previously paid to the Vendor at any time the Vendor is in material breach of
this Contract with respect to such PCS System until and unless such breach is
cured or waived by the Owner in accordance with the terms of this Contract.
<PAGE>
54
6.7 Microwave Relocation Delay Partial Payments. In the event the Vendor
-------------------------------------------
has achieved Milestone 7 (as set forth on Exhibit A1) within any given PCS
System but there is a delay in the Owner's completion of Microwave Relocation in
such PCS System pursuant to and in accordance with subsection 2.38, then during
the Microwave Delay Period within such PCS System, the Owner agrees to pay to
the Vendor [ ] provided that Substantial Completion (as deemed applicable and
-------- ----
appropriate pursuant to good faith mutual agreement between the Parties at such
time) of such PCS System will have been achieved by the Vendor in accordance
with the terms of this Contract and Exhibit B3. Nothing contained herein to the
contrary will in any way release the Vendor from its obligations or otherwise
modify the Vendor's obligations as to the completion of testing in accordance
with Exhibit B3 once Microwave Relocation in such affected PCS System or
affected portion of a PCS System has been successfully achieved by the Owner.
Nothing contained herein to the contrary will in any way require the Owner to
pay the Vendor amounts already paid or otherwise provided for pursuant to any
other provision of this Contract.
6.8 In Revenue Payments. At any time during the Site Acquisition Delay
-------------------
Period or the Microwave Delay Period, as the case may be, the Owner may, in its
sole discretion, decide to place the PCS System or any portion thereof which is
subject to such delay into In Revenue Service. In the event the Owner does in
fact decide, in its sole discretion, to place any PCS System or any portion of a
PCS System into In Revenue Service during any such Site Acquisition Delay Period
or Microwave Delay Period, as the case may be, the Owner will be obligated to
pay to the Vendor the amounts it would have otherwise paid to the Vendor upon
the Substantial Completion of such In Revenue PCS System or In Revenue portion
of such PCS System, as the case may be, and the Vendor will be entitled to
commence Substantial Completion testing for such In Revenue PCS System or In
Revenue portion of such PCS System; provided that the Owner understands that the
-------- ----
Vendor can only do such Substantial Completion testing as set forth in Exhibit
B3 as is at such time applicable and appropriate (pursuant to the good faith
mutual agreement of the Parties at such time) to such In Revenue PCS System or
In Revenue portion of such PCS System. The Parties expressly understand and
agree that this subsection 6.8 will only be effective in the event that the
Owner chooses, in its sole discretion, to place a PCS System or a portion
thereof In Revenue during a Microwave Delay Period or Site Acquisition Delay
Period, as applicable to such In Revenue PCS System or In Revenue portion of
such PCS System. Nothing contained herein to the contrary will in any way
modify the Vendor's obligations as to the completion and testing of the
remaining incomplete non-In Revenue portion of any such PCS System which is
otherwise partially In Revenue pursuant to and in accordance with the terms of
this Contract, including but not limited to the Project Milestones set forth on
Exhibit A1. Nothing contained herein to the contrary will in any way require
the Owner to pay the Vendor
<PAGE>
55
amounts already paid or otherwise provided for pursuant to any other provision
of this Contract.
SECTION 7 ORDERS AND SCHEDULING
7.1 Initial Commitment. Subject to subsection 7.2 and to subsection 2.6
------------------
and the determination of the Final Site Count and the delivery of the Final RF
Engineering Plan for each PCS System, the Parties understand that the quantities
of Products and Services identified on Schedules 2 and 3 which are necessary for
the build-out by the Vendor of the Initial System pursuant to the terms and
conditions of this Contract constitute the Owner's initial purchase commitment
under this Contract (the "Initial Commitment").
7.2 Change Orders. The Owner has the right by way of written orders
-------------
("Change Orders") to request Expansions, other revisions and/or modifications in
the Work, including but not limited to the Specifications, the manner of
performance of the Work or the timing of the completion of the Work; provided
--------
that specific Change Orders will be submitted to the Vendor and the Vendor
- - ----
(subject to the Owner's agreement) will be entitled to make reasonable price
and/or Project Milestone adjustments to the Contract Price in the case of
material modifications. The Vendor must promptly notify the Owner of any such
requested change or changes to Products which may materially affect the
operation and/or maintenance of the System, any PCS System or any part thereof.
The Parties agree that within fifteen (15) Business Days after the Owner's
initial request for a Change Order pursuant to this subsection 7.2 they will
mutually agree to all aspects of such Change Order which agreement will be
evidenced by a writing executed by an authorized representative of each of the
Parties. In the event the Vendor refuses to agree to any such Change Order
within such fifteen (15) day period then the Vendor will provide a written
notice to the Owner detailing its reasons for such refusal and if the Owner, at
such time, disagrees with the reasons set forth in such Vendor notice the matter
will then be referred to dispute resolution pursuant to Section 23. Nothing
contained in this subsection 7.2 is intended to limit the Vendor's right, from
time to time, to make suggestions for modifications to the Work or the
Specifications pursuant to and in accordance with this subsection 7.2 and the
terms of this Contract, provided that in any such event the Owner, in its sole
-------- ----
and absolute discretion pursuant to the terms of this Contract may refuse to
make any such modification or otherwise agree to issue a Change Order
incorporating any such Vendor suggestion.
7.3 Cancellation. During the term of this Contract, and subject to
------------
Section 24, the Owner will have the right, but not the obligation, at any time
to cancel, in whole or in part, any order made pursuant to the terms of this
Contract upon advance written notice to the Vendor. In the event of a
cancellation permitted hereunder, the Owner will pay to the Vendor order
cancellation charges in accordance with, and pursuant to, the terms of Schedule
11.
<PAGE>
56
SECTION 8 INSTALLATION
8.1 Installation. The Vendor will furnish and install the Products
------------
pursuant to the Project Milestones set forth on Exhibit A and in accordance with
the requirements and criteria set forth in Exhibit D. In accordance with and
subject to the Project Milestones set forth on Exhibit A (and the intervals set
forth therein and herein), the Vendor will complete all Product Installation in
any given PCS System in conformance with the requirements and criteria set forth
in Exhibit D within thirty-two and one-half (32-1/2) days of completion of the
Facilities Preparation Services pursuant to Milestone 6 (as set forth in Exhibit
A1) in such PCS System.
8.2 No Interference. The Vendor will install the Products and build each
---------------
of the PCS Systems so as to cause no unauthorized interference with or
obstruction to lands and thoroughfares or rights of way on or near which the
Installation work may be performed. The Vendor must exercise every reasonable
safeguard to avoid damage to existing facilities, and if repairs or new
construction are required in order to replace facilities damaged by the Vendor
due to its carelessness, negligence or willful misconduct, such repairs or new
construction will be at the Vendor's sole cost and expense.
SECTION 9 ACCEPTANCE TESTING AND ACCEPTANCE
9.1 Acceptance Testing. The Vendor must carry out the Acceptance Tests on
------------------
the Products and the PCS Systems as specified in Exhibit B3 and each PCS System
must successfully achieve acceptance (including Substantial Completion and Final
Acceptance) in accordance with the terms of Exhibit B3.
9.2 Costs and Expenses. The costs and expenses of such Acceptance Tests
------------------
will be borne by the Vendor, and the Owner will not be charged or billed for
such costs and expenses, except to the extent that such charges or expenses are
not included in the Contract Price pursuant to and in accordance with the terms
of this Contract. If the Acceptance Tests performed by the Vendor are not
satisfied in accordance with the relevant requirements of Exhibit B3 or are
otherwise inconclusive in the reasonable judgment of the Owner, the Owner will
have the right to order further Acceptance Tests at the sole cost and expense of
the Vendor.
9.3 Notification. The Vendor will notify the Owner at least ten (10) days
------------
prior to the performance of any Acceptance Tests. Prior to or at the first
practicable date after such notification, the Vendor and the Owner will each
agree upon and approve any test forms to be used as part of the particular
Acceptance Test being conducted.
9.4 Presence at Acceptance Tests. The Owner and its representatives will
----------------------------
be permitted to witness and have unrestricted access to the Vendor's and its
Subcontractors' Acceptance Tests, provided that no such access will materially
-------- ----
interfere with or cause undue delay of the Vendor's Work. Nothing herein will
be deemed to require the Vendor to reimburse the Owner for any costs incurred by
the Owner in the Owner's participation in or
<PAGE>
57
observation of Acceptance Tests or other tests performed by the Vendor pursuant
to and in accordance with the terms of this Section 9.
9.5 Correction of Defects. (a) If any Acceptance Test is not satisfied,
---------------------
the Vendor will, at its sole cost and expense, (i) in writing, notify the Owner
of such failure, and (ii) promptly correct whatever Defects or Deficiencies
caused such Acceptance Test not to be satisfied. After such correction, the
Vendor must (i) repeat at its sole cost and expense the failed Acceptance Tests
and as many other Acceptance Tests as are necessary to ensure in the reasonable
opinion of the Owner that such correction made by the Vendor would not have
affected the outcome of such other Acceptance Tests, and (ii) in writing, notify
the Owner as to what correction was made and what Acceptance Tests were
repeated.
(b) If Final Acceptance of a PCS System cannot be achieved after
Substantial Completion of such PCS System (provided that the Vendor will have
fully built-out the Final RF Engineering Plan in accordance with the Final Site
Count in accordance with the terms of this Contract) because such PCS System
fails to meet applicable performance criteria as set forth in Exhibit F, but
would do so with only the implementation and installation of additional Base
Stations at additional System Element Locations over and above the Final Site
Count for such PCS System, the Owner will have the right, in its sole and
absolute discretion, to (i) Finally Accept such PCS System in which case the
Parties will mutually agree in good faith on revised performance criteria for
such PCS System, or (ii) require the Vendor to continue to work (in which case
Final Acceptance of such PCS System will be delayed until completion of the work
and testing contemplated herein and in Exhibit B3) to cause such PCS System to
perform at the applicable levels of the then existing performance criteria as
set forth in Exhibit F, in which case, the required additional Base Stations and
additional System Element Locations will be treated as provided for in
subsections 17.5(c) and 17.10. Any additional Base Station(s) paid for by the
Owner pursuant to this subsection 9.5(b) (which would only have to be paid for
(including any costs associated with the installation thereof) by the Owner upon
the subsequent achievement of Final Acceptance by the Vendor in accordance with
Exhibit B3 which such payment will be made with the payments otherwise made on
Final Acceptance pursuant to Section 6) will be offset against the number of
new Base Stations that may subsequently be for the account of the Owner pursuant
to the terms of subsection 17.5(c). If the Parties are unable to agree upon
revised performance criteria as provided in clause (i) above, the matter will be
resolved in accordance with the provisions of subsection 23.3.
9.6 Acceptance Certificate. Upon the successful completion of the
----------------------
Acceptance Tests for a PCS System or any part thereof conducted by the Vendor,
the Vendor must submit to the Owner an Acceptance Certificate certifying that
(i) such Acceptance Tests have been successfully completed, (ii) the Work so
tested has been completed in accordance with the terms of this Contract, and
(iii) if applicable, that the remainder of the Work is continuing in accordance
with the Project Milestones set forth on Exhibit A. Upon its reasonable
satisfaction that such Acceptance Certificate is correct and complete, the Owner
will acknowledge such certification by signing the Acceptance Certificate. In
the event of any dispute as to the results of any Acceptance Tests, such dispute
will be resolved pursuant to
<PAGE>
58
the dispute resolution mechanisms set forth in Section 23 including, but not
limited to, the Third Party Engineer review mechanism set forth in subsection
23.3.
SECTION 10 DISCONTINUED PRODUCTS
10.1 Notice of Discontinuation. During the Term of this Contract the
-------------------------
Vendor agrees to provide the Owner, or the respective Affiliates as the case may
be, except under extraordinary circumstances not less than one (1) year notice
before the Vendor discontinues accepting orders for a PCS Product ("Discontinued
Products") sold under this Contract. Where the Vendor offers a product for sale
that is equivalent in form, fit and function in accordance with and pursuant to
the Specifications, the notification period may vary but in no event will be
less than the applicable notice period set forth in subsection 2.17.
Notwithstanding the foregoing, the Vendor will not discontinue accepting orders
for any PCS Product applicable to or otherwise used in the System or any portion
thereof until and unless the Vendor and the Owner have agreed upon a mutually
acceptable transition plan that takes into account the Owner's and its
Affiliates' existing investment in the Item scheduled for discontinuance subject
to the minimum terms and conditions set forth in subsections 10.2 and 10.3
below. The Parties' failure to reach agreement within sixty (60) days or such
other reasonable time as they may mutually establish will, upon the request of
either Party, be referred for resolution pursuant to Section 23. In the event
of the foregoing, the Vendor must continue to furnish PCS Products fully
compatible with the System Elements within the System at such time during the
Term of the Contract; provided that nothing herein will bar the Vendor from
-------- ----
discontinuing individual Items of PCS Products as provided in and pursuant to
this subsection 10.1.
10.2 Discontinuation During Warranty Period. If, during the Warranty
--------------------------------------
Period applicable to the relevant Discontinued Product pursuant to Section 17,
the Vendor does not make such Discontinued Products available to the Owner, the
price of any Products provided as a replacement for the Discontinued Product by
the Vendor and required to be purchased by the Owner during such Warranty Period
to replace existing Discontinued Products delivered to the Owner in order to
maintain performance and functionality equivalent to that previously provided by
the Discontinued Products will be discounted by an amount equal to fifty percent
(50%) of the price previously paid for such Discontinued Products.
10.3 Discontinuation After Warranty Period. In the event that the Vendor
-------------------------------------
discontinues the manufacture of a Product following the expiration of the
applicable Warranty Period and the Owner is required to replace an existing
Discontinued Product with a new Product in order to maintain performance and
functionality, the Owner will receive a credit in an amount equal to the
percentage set forth below multiplied by the purchase price paid for such
original Product, which credit will be applied against the Vendor's then-current
list price for a replacement for such Discontinued Product; provided that the
-------- ----
credit will not exceed the Vendor's then-current best list price (as determined
by the Customer Price Guide) for such replacement Product subject to the
discounts available to the Owner pursuant to Section 26 and the other terms of
this Contract:
<PAGE>
59
(i) up to and including one year following expiration
of the applicable Warranty Period: 40%;
(ii) more than one year and up to and including two years
following expiration of the applicable Warranty Period:
30%; and
(iii) more than two years and up to and including three years
following expiration of the applicable Warranty Period:
20%.
SECTION 11 SOFTWARE; CONFIDENTIAL INFORMATION
11.1 RTU License. The Owner is hereby granted a perpetual, non-exclusive,
-----------
non-transferable (except as set forth in subsections 11.4 and 27.4), fully paid-
up, multi-site (capability to move Software from site to site) right to use
license for the Software ("RTU License"), to operate the Products provided in
each of the PCS Systems and the System as a whole, subject to payment of any
license fees in accordance with the terms of this Contract. Except as otherwise
provided herein, the Owner is granted no title or ownership rights to the
Software. Such rights will remain with the Vendor, its Subcontractors or
suppliers, as appropriate.
11.2 Owner's Obligations. The Owner agrees that the Software, whether or
-------------------
not modified, will be treated as proprietary to the Vendor, its Subcontractors
or its suppliers, as appropriate and the Owner will:
(a) Utilize the Software solely in conjunction with the System and/or any
PCS System; provided that the Vendor acknowledges that the Software will be
-------- ----
integrated across interfaces with systems, equipment and software provided by
other suppliers and customers including, but not limited to, the Other Vendors;
(b) Ensure that all copies of the Software will, upon any reproduction by
the Owner authorized by the Vendor and whether or not in the same form or format
as such Software, contain the same proprietary, confidentiality and copyright
notices or legends which appear on the Software provided pursuant hereto; and
(c) Hold secret and not disclose the Software (or, subject to subsection
27.19, interfaces to or with such Software) to any person, except to (i) such of
its employees, contractors, agents or Affiliates that are involved in the
operation or management of the System and/or any PCS System and need to have
access thereto to fulfill their duties in such capacity, or (ii) other Persons
who need to use such Software to permit integration of the System and/or any PCS
System with systems and software of other suppliers and customers including, but
not limited to, the Other Vendors; provided that such persons agree, or are
-------- ----
otherwise obligated, to hold secret and not disclose the Software to the same
extent as if they were subject to this Contract.
<PAGE>
60
(d) When and if the Owner determines that it no longer needs the Software
or if the Owner's license is canceled or terminated pursuant to the terms of
this Contract, return all copies of such Software to the Vendor or follow
reasonable written disposition instructions provided by the Vendor. If the
Vendor authorizes disposition by erasure or destruction, the Owner will remove
from the medium on which Software resides all electronic evidence of the
Software, both original and derived, in such manner that prevents subsequent
recovery of such original or derived Software.
11.3 Backwards Compatibility. (a) In addition to the warranties
-----------------------
contained in Section 17 of this Contract, the Vendor represents and warrants
that each Software Revision Level during the Term of this Contract will be
Backwards Compatible with all existing in-service Equipment provided by the
Vendor and the immediately preceding Software Revision Level of such Software
made available to Customers by the Vendor.
(b) In the event that Software supplied by the Vendor at any System
Element Site at any time does not provide Backwards Compatibility as required by
this subsection 11.3, then the Vendor will provide, without charge to the Owner,
the most current Software Updates of the Software to each such System Element
Location, and otherwise take such steps as may be necessary to achieve Backwards
Compatibility.
11.4 Transfer and Relocation. (a) Except as provided in subsection 27.4,
-----------------------
where the Owner or any successor to the Owner's title in the Products (i) elects
to transfer a Product to a third party, and where such Product will remain in
place and operational for the purpose of continuing to provide PCS in the
franchise area in which such Product is installed, or (ii) elects to transfer
Products to an Affiliate for reuse within the United States, the Owner may
transfer its RTU License for the Software furnished under this Contract for use
with such Product, without the payment of any additional Software right-to-use
fees by the transferee, but only under the following conditions:
(A) The right to use such Software may be transferred only together
with the Products with which the Owner has a right to use such
Software, and such right to use the Software will continue to be
limited to use with such Products;
(B) Before any such Software are transferred, the Owner will notify
the Vendor of such transfer and the transferee will have agreed
in writing (a copy of which will be provided to the Vendor) to
keep the Software in confidence and to corresponding conditions
respecting possession and use of Software as those imposed on the
Owner in this Contract; and
(C) The transferee will have the same right to Software warranty and
Software maintenance for such Software as the transferor,
provided the transferee continues to pay the fees, including
recurring fees, such as Annual Release Maintenance Fees, if any,
associated with such Software warranty or maintenance.
<PAGE>
61
(b) Except as provided in subsection 11.4(a) or subsection 27.4, and except
as may otherwise in this Contract be provided expressly, the Owner or any
successor to the Owner's title in the Products will have no right to transfer
Software furnished by the Vendor under this Contract without the consent of the
Vendor. If the Owner or such successor elects to transfer a Product purchased
under this Contract for which it does not under this Contract have the right to
transfer related Software, the Vendor agrees that upon written request of the
transferee of such Product, or of the Owner or such successor, the Vendor will
not without reasonable cause fail to grant to the transferee a license to use
such Software with the Products, whether to be located within the United States
or elsewhere, upon payment of a relicensing fee to the Vendor in an amount equal
to fifty percent (50%) of the license fee for the Software originally paid by
the Owner to the Vendor at the time of the original purchase of the Software
from the Vendor; provided that such relicensing fee will in no event exceed
-------- ----
fifteen percent (15%) of the price paid by the transferee to the Owner for the
Product with respect to which such Software is used.
11.5 Survival. The obligations of the Owner under the Software Licenses
--------
will survive the termination of this Contract, regardless of the cause of
termination.
11.6 Access to Source Codes. The Vendor grants the Owner a right to
----------------------
access the Source Code and to modify the Software (the "RTM License") for the
maintenance, enhancement and support of those Products purchased from the Vendor
and owned or operated by the Owner under the following circumstances which will
be set forth in the Escrow Agreement:
(a) If the Vendor becomes insolvent, makes a general assignment for the
benefit of creditors, files a voluntary petition in bankruptcy or an involuntary
petition in bankruptcy is filed against the Vendor which is not dismissed within
sixty (60) days, or suffers or permits the appointment of a receiver for its
business, or its assets become subject to any proceeding under a bankruptcy or
insolvency law, domestic or foreign, or has liquidated its business, or the
Vendor, or a business unit of the Vendor that is responsible for maintenance of
the Software, ceases doing business without providing for a successor, and the
Owner has reasonable cause to believe that any such event will cause the Vendor
to be unable to meet its warranty service or support requirements hereunder; or
(b) If it is determined, pursuant to the dispute resolution mechanisms set
forth in subsection 23.1, that the Vendor, its assignee or designee has failed,
or is unable, to provide the warranty service or support of the System and/or
any PCS System contemplated by this Contract.
11.7 Escrow Agreement. The Vendor agrees, at the Owner's request, to
----------------
become party to a Source Code escrow agreement (the "Escrow Agreement") which
will allow the Owner to obtain access to the applicable Source Codes in the
circumstances set forth in subsection 11.6 and such Escrow Agreement. The Owner
will pay all costs, including the Vendor's reasonable costs incurred in
gathering, organizing and delivering such Source Code, associated with such
Escrow Agreement. The Vendor represents, warrants and agrees that (i) the
Source Codes delivered into escrow in accordance with the Escrow Agreement will
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62
comprise the full Source Code language statement of the Software as used, or
required to be used, by the Vendor to maintain or modify the System and/or any
PCS System without the help of any other Person or reference to any other
material, (ii) such Source Codes will include all versions thereof from the date
of initial creation, and (iii) such Source Codes must be kept up to date,
including all updates needed to maintain compliance with the Specifications and
the System Standards. In addition, all parts of the Source Codes from the date
of creation thereof, and all updates thereto (including, without limitation,
those that are necessary to maintain compliance with the Specifications) must be
delivered into escrow in accordance with the Escrow Agreement.
11.8 Software Maintenance. The Vendor represents and warrants that the
--------------------
Software delivered to the escrow agent pursuant to subsection 11.7 for
redelivery to the Owner pursuant to the Escrow Agreement will be in a form
suitable for reproduction by the Owner and will include the full Source Code
language statement of the Software as used by the Vendor sufficient to allow
maintenance and modification.
11.9 Custom Development. 11.9.1 Request for Custom Material. (a) From
------------------ ---------------------------
time to time, the Owner may have requirements for custom Software (including,
but not limited to, development of identified features or modifications to
Software or Software Enhancements) or custom development of Equipment
(including, but not limited to, development of identified features or
modifications to Equipment or Equipment Enhancements) to be provided by the
Vendor under this Contract (the "Custom Material"). If the Owner has a
requirement for Custom Material that is a specific enhancement or modification
of a previously licensed feature or of previously purchased Products, the Owner
will identify to the Vendor in writing a summary of any such proposed
development of Custom Material. Such summary will provide a description of any
proposed Custom Material sufficient to enable the Vendor to determine the
general demand for, and its plans, if any, to develop the same or similar
Products. The Vendor will respond to such summary within thirty (30) days after
receipt thereof and indicate if it has the ability to fulfill a subsequent
Request for Proposal ("RFP") from the Owner for such development of Custom
Material. The Owner acknowledges that the Vendor will have no obligation to
develop any proprietary materials for Owner.
(b) If the Vendor decides that it does not have the technical ability or
the capacity to fulfill a subsequent RFP for such Custom Material development,
the Vendor's response pursuant to subsection 11.9.1(a) will (i) provide the
Owner an explanation of why it cannot fulfill such RFP and (ii) use reasonable
diligence to work with the Owner to identify an alternative source for such
development reasonably acceptable to the Owner. In determining whether the
Vendor has the technical ability or the capacity to fulfill the RFP, the Vendor
may consider factors including, but not limited to, (1) the Vendor's likelihood
of recovering its costs for performing such development, (2) the impact of such
development on the Vendor's actual outstanding commitments to perform work for
other Customers and to pursue strategic development activities; and (3) whether
the Vendor can perform the work utilizing existing software development staff
without stopping work underway.
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63
(c) If the Vendor fails to agree to a request for Custom Material
development pursuant to the terms of this subsection 11.9 then the matter may,
at the Owner's option, be referred to dispute resolution pursuant to Section
23.
11.9.2 Vendor Response. After reviewing an RFP issued for such
---------------
Custom Material, the Vendor will respond to the Owner within thirty (30) days,
unless otherwise agreed by the Parties, stating the terms and conditions upon
which the Vendor would be willing to undertake such development, including, but
not limited to, a listing of specifications, custom development charges, planned
license fees and a proposed delivery schedule.
11.9.3 Ownership of Intellectual Property. The Vendor will own all
----------------------------------
forms of intellectual property rights (including, but not limited to, patent,
trade secret, copyright and mask rights) pertaining to Products, and will have
the right to file for or otherwise secure and protect such rights. The
foregoing notwithstanding, the Parties understand and agree that from time to
time the Owner may devise, develop or otherwise create ideas or other concepts
for services or new products which are patentable or otherwise capable of
receiving protection from duplication. In such event, the Owner will have the
right to patent or otherwise protect such ideas or concepts for its own use and
benefit.
SECTION 12 SOFTWARE CHANGES
12.1 Annual Release Maintenance Fees. So long as the Owner pays the
-------------------------------
applicable Annual Release Maintenance Fees in accordance with the terms of this
Contract during the Term (including at any time after the Term so long as the
Owner at such time continues to pay the Annual Release Maintenance Fees), the
Vendor will provide to the Owner, at such times as they become generally
available to the Vendor's Customers, all Software Upgrades, all Software
Enhancements and all Combined Releases (but not Optional Software Features,
unless otherwise mutually agreed between the Parties) applicable to Software for
PCS Products for which the Owner has obtained a RTU License pursuant to the
terms of this Contract.
12.2 Notice. The Vendor must give the Owner not less than ninety (90)
------
days, prior written notice of the introduction of any Software Enhancement
release or any Software Combined Release or any Optional Software release. In
addition, in each February and August of each year during the Term of this
Contract, the Vendor must provide the Owner with a forecast of future Software
Enhancement releases or Software Combined Releases or any Optional Software
release, as the case may be, then currently being developed by or on behalf of
the Vendor.
12.3 Installation, Testing and Maintenance. The installation and testing
-------------------------------------
of the Software by the Vendor and the acceptance thereof by the Owner will be
performed in accordance with the criteria set forth in Exhibit B3.
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64
12.4 Software Fixes. In the event that any Software Upgrade, Software
--------------
Enhancement or Software Combined Release supplied by the Vendor during the Term
of this Contract has the effect of preventing the System and/or any PCS System
or any part thereof from satisfying, or performing in accordance with the
Specifications, the System Standards and/or Exhibit F or otherwise adversely
affects the functionality or features of the System, any PCS System or any part
thereof, then the Vendor will promptly retrofit or take such other corrective
action as may be necessary to assure that the System, any such PCS System or any
such affected part, as modified to include each such Software Upgrade, Software
Enhancement or Software Combined Release, will satisfy, and perform in
accordance with, the Specifications, the System Standards and/or Exhibit F and
restore all pre-existing functionality and features as well as provide any new
features and functionality provided by any of the foregoing modifications, in
each case without any charge to the Owner (other than payment of the applicable
Annual Release Maintenance Fees pursuant to the terms of this Contract).
SECTION 13 EQUIPMENT CHANGES
13.1 Equipment Upgrades. (a) Equipment Upgrades will be provided to the
------------------
Owner by the Vendor at no charge to the Owner as provided in subsection 13.1(b)
below. Equipment Enhancements must be provided to the Owner by the Vendor, if
requested by the Owner, and the Owner is obligated to make payment therefor in
an amount that is no higher than that payable by any Customer other than the
Owner, which amount of payment will be adjusted as set forth in subsections 6.2,
7.2 and 27.16 and Section 26. If the Vendor at any time issues an Equipment
Upgrade which is combined with any Equipment Enhancement (collectively, the
"Equipment Combined Release") to such Equipment, the Equipment Combined Release
will be provided at no charge to the Owner unless and until the Owner elects to
use any of the feature enhancement or enhancements included within the Equipment
Combined Release and has accepted such Equipment Combined Release.
(b) (i) After a PCS Product has been shipped to the Owner, if the Vendor
issues an Equipment Upgrade ("Class A change") or Equipment Enhancement ("Class
B change"), or where a modification to correct an error in field documentation
is to be introduced, the Vendor will promptly notify the Owner of such change
through the Vendor's design change management system or another Vendor
notification procedure. Each change notification, whether or not it bears a
restrictive legend, will be subject to subsection 27.19, except that such
information may be reproduced by the Owner for the Owner's use as required
within the System. If the Vendor has engineered, furnished, and installed a
Product which is subject to an Equipment Upgrade, the Vendor will implement such
change, at its sole cost and expense, if it is announced within fifteen (15)
years from the date of shipment of that Product, by, at its option (subject to
the reasonable review and acceptance of the Owner at such times as the Owner
reasonably determines that it needs to review such Vendor decision), either (A)
modifying the Product at the Owner's site; (B) modifying the Product which the
Owner has returned to the Vendor in accordance with the Vendor's reasonable
instructions pursuant to and in accordance with the terms of this Contract; or
(C) replacing the Product requiring the change with a replacement Product for
which such change has already been implemented. If
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65
the Vendor has not engineered the original Product application and accordingly
office records are not available to the Vendor, the Vendor will provide the
generic change information and associated parts for the Owner's use in
implementing such change.
(ii) In any of the instances described in clause (i) above, if the
Vendor and the Owner agree that a Product or part thereof subject
to such change is readily returnable, the Owner, at its expense,
will remove and return such Product or part to the Vendor's
designated facility within the United States and the Vendor, at
its sole expense, will implement such change (or replace it with
a Product or part for which such change has already been
implemented) at its facility and return such changed (or
replacement) Product or part at its sole cost and expense to the
Owner's designated location within the United States. Any such
reinstallation will be performed by the Owner at its sole
expense. At any such time that the Owner's spares or plug-in
stocks are not available to implement a rotational program for an
Equipment Upgrade, the Vendor will provide a seed stock, where
feasible and necessary.
(iii)If the Owner does not make or permit the Vendor to make an
Equipment Upgrade as stated above within one (1) year from the
date of change notification or such other period as the Vendor
may agree, subsequent changes, repairs or replacements affected
by the failure to make such change may, at the Vendor's option,
be invoiced to the Owner whether or not such subsequent change,
repair or replacement is covered under the warranty provided in
this Contract for such Product. If requested by the Owner,
Equipment Upgrades announced more than fifteen (15) years from
the date of shipment will be implemented at the Owner's expense.
(iv) If the Vendor issues an Equipment Enhancement after a PCS Product
has been shipped to the Owner, the Vendor will promptly notify
the Owner of such change if it is being offered to any of the
Vendor's Customers. Except as otherwise set forth above in
subsection 13.1(a), when an Equipment Enhancement is requested by
the Owner, the pricing set for such Equipment Enhancements will
be at the Vendor's standard charges subject to the applicable
discounts set forth in this Contract and Section 26.
(v) All change notifications for Equipment Upgrades and Equipment
Enhancements provided by the Vendor to the Owner pursuant to the
terms of this Contract must contain the following information:
(i) a detailed description of the change; (ii) the reason for the
change; (iii) the effective date of the change; and (iv) the
implementation schedule for such change, if appropriate.
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66
13.2 Notice. The Vendor will give the Owner not less than ninety (90)
------
days, prior written notice of the introduction of any Equipment Enhancement or
any Equipment Combined Release. In addition, in each February and August of
each year during the Term of this Contract, the Vendor will provide the Owner
with a forecast of future Equipment Enhancements to the Equipment or Equipment
Combined Releases then currently being developed by or on behalf of the Vendor.
13.3 Installation, Testing and Acceptance. The Installation and testing
------------------------------------
of the Equipment by the Vendor and the acceptance thereof by the Owner must be
performed in accordance with Exhibit B3 pursuant to the Project Milestones in
Exhibit A.
13.4 Equipment Fixes. In the event that any Equipment Upgrade or
---------------
Equipment Enhancement supplied by the Vendor during the Term of this Contract
has the effect of preventing the System and/or any PCS System or any part
thereof from satisfying, or performing in accordance with, the Specifications,
the System Standards and/or Exhibit F or otherwise adversely affects the
functionality, interoperability or features of the System, any such PCS System
or any part thereof then the Vendor will without any charge to the Owner
promptly retrofit or take such other corrective action as may be necessary to
assure that the System, any such PCS System or any such affected part, as
modified to include each such Equipment Upgrade and Equipment Enhancement, will
satisfy, and perform in accordance with, the Specifications, the System
Standards and/or Exhibit F and restore all pre-existing functionality and
features as well as provide any features and functionality provided by any of
the foregoing modifications.
SECTION 14 INTELLECTUAL PROPERTY
14.1 Intellectual Property. The Vendor grants the Owner rights to state
---------------------
that it is using the Vendor's Products or Services in the Owner's marketing,
advertising or promotion of the System, any PCS System or any part thereof. The
Owner has the right to use for such marketing, advertising or promotion the
Vendor's advertising and marketing materials (including pamphlets and brochures)
provided to the Owner by the Vendor describing the System, any PCS System or any
part thereof, or any Product. Other than as set forth in this subsection 14.1,
the Owner has the right to use the trademarks and service marks of the Vendor or
its assignee in the Owner's marketing, advertising and promotion of the System,
any PCS System or any part thereof only with the written consent of the Vendor
not to be unreasonably withheld subject to and in accordance with the terms of
subsection 27.13.
14.2 Infringement. (a) The Vendor agrees that it will defend, at its own
------------
expense, all suits and claims against the Owner for infringement or violation
(whether by use, sale or otherwise) in the United States of any patent,
trademark, copyright, trade secret or other intellectual property rights of any
third party (collectively, "Intellectual Property Rights"), covering, or alleged
to cover, the Equipment, Software, the System and/or any PCS System or any
component thereof for its intended use, in the form furnished or as subsequently
modified by the Vendor or as otherwise modified by the Owner pursuant to the
direction or approval of
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67
the Vendor. The Vendor agrees that it will pay all sums, including, without
limitation, attorneys' fees and other costs, which, by final judgment or decree,
or in settlement of any suit or claim to which the Vendor agrees, may be
assessed against the Owner on account of such infringement or violation,
provided that:
- - -------- ----
(i) the Vendor will be given prompt written notice of all claims of
any such infringement or violation and of any suits or claims
brought or threatened against the Owner or the Vendor of which
the Owner has actual knowledge;
(ii) the Vendor will be given full authority to assume control of the
defense (including appeals) thereof through its own counsel at
its sole expense and will have the sole right to settle any suits
or claims without the consent of the Owner; provided that the
-------- ----
Vendor will have no right to agree to injunctive relief against
the Owner; provided further that the Vendor will notify the
-------- -------
Owner of any proposed settlement condition prior to the
Vendor's acceptance of such settlement; and
(iii)the Owner will cooperate fully with the Vendor in the defense of
such suit or claims and provide the Vendor, at the Vendor's
expense, such assistance as the Vendor may reasonably require in
connection therewith.
(b) The Vendor's obligation under this subsection 14.2 will not extend to
alleged infringements or violations that arise because the Products provided by
the Vendor are used in combination with other products furnished by third
parties and where any such combination was not installed, recommended, approved,
explicitly or by implication, by the Vendor.
14.3 Vendor's Obligation to Cure. If in any such suit so defended, all or
---------------------------
any part of the Equipment, Software, the System, any PCS System or any component
thereof is held to constitute an infringement or violation of Intellectual
Property Rights and its use is enjoined, or if in respect of any claim of
infringement or violation the Vendor deems it advisable to do so, the Vendor
will at its sole cost, expense and option take one or more of the following
actions: (i) procure the right to continue the use of the same without
interruption for the Owner; (ii) subject to the terms of subsection 2.17 replace
the same with noninfringing Equipment or Software that meets the Specifications;
or (iii) modify said Equipment, Software, the System, any PCS System or any
component thereof so as to be noninfringing, provided that the Equipment,
-------- ----
Software, the System, any PCS System or any component thereof as modified meets
all of the Specifications. In the event that the Vendor is not able to cure the
infringement pursuant to clause (i), (ii) or (iii) in the immediately preceding
sentence, the Vendor will refund to the Owner the full purchase price paid by
the Owner for such infringing Product or feature, and the Owner will be under no
obligation to return to the Vendor such infringing Product or feature regardless
of whether, or by what means, the Owner, on its own or otherwise, subsequently
cures such infringement.
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14.4 Vendor's Obligations. The Vendor's obligations under this Section
--------------------
14 will not apply to any infringement or violation of Intellectual Property
Rights caused by modification of the Equipment, Software, the System, any PCS
System or any component thereof by the Owner, or any infringement caused solely
by the Owner's use and maintenance of the Products other than in accordance with
the Specifications and the purposes contemplated by this Contract, except as
expressly authorized or permitted by the Vendor. The Owner will indemnify the
Vendor against all liabilities and costs, including reasonable attorneys' fees,
for defense and settlement of any and all claims against the Vendor for
infringements or violations based upon this subsection 14.4.
14.5 License to Use Vendor Patents. (a) The Vendor grants to the Owner
-----------------------------
and its Affiliates, under patents which the Vendor (or in the event of an AT&T
Assignment pursuant to and in accordance with subsection 27.22 the Vendor's
Successor) owns or has a right to license ("Vendor Patents"), a worldwide,
royalty-free, nonexclusive license (the "Patent License") to use any Product
furnished by the Vendor under this Contract (including any combination of
products and services, whether or not furnished at the same time or as part of a
larger combination) for provision of telecommunications services; provided,
--------
however, that no rights are conveyed to the Owner and its Affiliates with
- - -------
respect to any invention which is directed to (i) a combination of a Product or
Products furnished with any other Item which the Vendor does not furnish to the
Owner under this Contract wholly or in part for such use, or (ii) a method or
process which is other than an inherent use of the Products furnished. As used
in this subsection 14.5, the term "inherent use" means a use that can be
completely performed by a Product furnished by the Vendor (or a combination of
Products furnished by the Vendor), without the need for any additional product,
service, development modification or programming by the Owner and its Affiliates
or by a third party. The Owner understands that in the event of an AT&T
Assignment pursuant to and in accordance with subsection 27.22 the Owner's
rights to any Patent Licenses granted pursuant to this subsection 14.5 will be
from the Vendor's Successor under only the patents the Vendor's Successor owns
or has a right to license and not those patents as to which there is no such
right to license.
(b) The Owner and any successor to the Owner's title in the Products has
the right (subject to written approval of the Vendor, which approval will not be
unreasonably withheld), to assign the Patent Licenses to any other Person who
acquires legal title to the Products including, but not limited to, any Person
or Persons who taking part in the financing or any part of the Nationwide
Network, provided that no such assignment to Persons taking part in the
-------- ----
financing of any part of the Nationwide Network will be permitted except in
accordance with the provisions of subsection 27.4 of this Contract. Nothing
contained in this subsection 14.5 is intended to, and shall not, limit any
rights or privileges that the Owner has under this Contract or otherwise under
Applicable Law.
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SECTION 15 DELAY
15.1 Liquidated Damages. The Parties agree that damages for delay are
------------------
difficult to calculate accurately and, therefore, agree that liquidated damages
(the "Liquidated Damages") will be paid for non-performance or late performance
of the Vendor's obligations under this Contract pursuant to the terms hereof.
15.2 Interim Delay. (a) Failure of the Vendor to complete the Work
-------------
necessary to achieve each of the Project Milestones applicable to any PCS System
(other than Milestone 3 (as set forth on Exhibit A1)) on or before the date
applicable to such Milestone for such PCS System that is required to be achieved
by the Vendor prior to the Guaranteed Substantial Completion Date for such PCS
System (each an "Interim Milestone") will result in the Vendor being liable to
pay to the Owner an amount equal to [ ]; provided that no such Interim Delay
-------- ----
Penalty will be due if the delay is directly and expressly attributable solely
to (i) an event constituting a Force Majeure pursuant to the terms of this
Contract or (ii) an act or omission of the Owner. Interim Delay Penalties
accrued pursuant to this subsection 15.2(a) will be offset against the payment
to be made by the Owner to the Vendor upon Substantial Completion of the PCS
System to which such interim delay relates. The Interim Delay Penalty applicable
to Milestone 4 (as set forth on Exhibit A1) will be [ ]. This subsection 15.2
will not be applicable to Milestone 3 (as set forth on Exhibit A1) for either
the System or any PCS System.
(b) To the extent that the Vendor is responsible for Interim Delay
Penalties pursuant to subsection 15.2(a) such penalties will be credited back to
the Vendor by the Owner to the extent that (i) the Vendor successfully achieves
the Interim Milestone subject to delay within thirty (30) days of the date
scheduled therefore pursuant to the terms hereof and Exhibit A and (ii) such
interim delay does not otherwise materially adversely affect the Owner, such PCS
System and/or the System as a whole. Any such reimbursement will be credited
back to the Vendor such that the Interim Delay Penalty otherwise offset against
the relevant Substantial Completion payment in accordance with subsection
15.2(a) above will be added back to such Substantial Completion payment to be
made to the Vendor by the Owner.
15.3 Completion Delay. (a) [ ]
----------------
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70
[ ]
(b) If any PCS System does not achieve Substantial Completion by the
Guaranteed Substantial Completion Date but the Owner nonetheless chooses (in its
sole discretion) to commence In Revenue Service in such incomplete PCS System
(such action in no way constituting the Owner's acceptance, express or implied,
of the System or such PCS System or any part thereof), then the Vendor will be
required to pay, on a daily basis, only that percentage of the daily Late
Completion Payment equal to that percentage of the geographic area to be
otherwise covered by such PCS System not otherwise placed In Revenue Service by
the Owner.
(c) In the event of a change in the Product Contract Price pursuant to
subsections 6.2, 7.2 or 27.16 or Section 26 during the Term of this Contract
from the amount originally set forth in this Contract pursuant to Section 6 the
per diem amount of Late Completion Payments set forth above will be increased or
decreased, as appropriate, by an amount equal to the increase or decrease in the
Owner's per diem interest payment obligation resulting from any change in the
amount of debt incurred or to be incurred by the Owner related to such change in
the Product Contract Price.
(d) Late Completion Payments, including any portions of such payments
payable in accordance with paragraphs (a) and (b) above, will be accrued during
the Completion Cure Period and offset against payments otherwise due to the
Vendor upon the achievement of Substantial Completion pursuant to the terms of
subsection 6.3. If the Vendor fails to achieve Substantial Completion within
sixty (60) days of the Guaranteed Substantial Completion Date for any reason
other than primarily because of (i) a Force Majeure event pursuant to Section
16 or (ii) the direct and explicit act or omission of the Owner, then the Owner
will have the option to terminate this Contract with respect to the PCS System
affected by any such delay without any penalty or payment obligation (other than
payment obligations under this Contract outstanding as of the date of any such
termination; provided that any such amounts payable by the Owner will not
-------- ----
include any amounts that would have been payable to the Vendor only upon
Substantial Completion or Final Acceptance); provided further that in the event
-------- -------
the Vendor fails to achieve Substantial Completion within such sixty (60) day
period in any two (2) PCS Systems within the Initial System over any period of
time (regardless of whether such events are concurrent or whether the first such
event was subsequently cured) the Owner will have the right, but not the
obligation, to terminate this Contract in its entirety.
SECTION 16 FORCE MAJEURE
16.1 (a) Either Party may make a claim for excusable failure or delay
with respect to any obligation of such Party under this Contract, except any
obligation to make payments when due. Excusable failure or delay will be
allowed only in the event of an event of Force Majeure that is beyond the
reasonable control of the affected Person. Notwithstanding the foregoing, the
Vendor will not be entitled to relief under this Section 16 to the extent that
any event otherwise constituting an event of Force Majeure results from the
negligence or fault of
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the Vendor or any Subcontractor, and the Owner will not be entitled to relief
under this Section 16 to the extent any event otherwise constituting an event
of Force Majeure results from the negligence or fault of the Owner.
(b) The Party claiming the benefit of excusable delay hereunder must (i)
promptly notify the other Party of the circumstances creating the failure or
delay and provide a statement of the impact of such Party failure or delay and
(ii) use reasonable efforts to avoid or remove such causes of nonperformance,
excusable failure or delay. If an event of Force Majeure prevents the Vendor
from performing its obligations under this Contract for a period exceeding sixty
(60) days, the Owner may, upon prior written notice to the Vendor, terminate
this Contract.
(c) The Party not claiming the benefit of excusable delay hereunder will
likewise be excused from performance of its obligations hereunder on a day-for-
day basis to the extent such Party's obligations are affected due to the other
Party's delayed performance.
(d) In the event of a Force Majeure which the Party claiming relief for
such event has used all best efforts to resolve in accordance with the terms of
this Contract, upon the written request of either Party, the other Party will in
good faith negotiate modifications, to the extent reasonable and necessary, in
scheduling and performance criteria in order to reasonably address the impact of
such Force Majeure.
SECTION 17 WARRANTIES
17.1 Product Warranty. (a) The Vendor warrants that, for a period of two
----------------
(2) years from the date of Final Acceptance of any PCS System (the "Product
Warranty Period"), all Products and all of the Installation and the
Configuration Engineering thereof within such PCS System will materially conform
with and perform the functions set forth in the Specifications and the relevant
performance criteria set forth in Exhibit D, to the extent applicable, and will
be free from Defects and Deficiencies in material or workmanship which impair
service to subscribers, System performance, billing, administration and/or
maintenance. In the case of Software, the Product Warranty Period applicable to
any such Software will be automatically extended upon, and simultaneous with,
any Software Upgrade issued pursuant to the terms of Section 12. The Vendor
will assign to the Owner all outstanding Subcontractor warranties attributable
to Non-Essential Equipment at such time that the Vendor's warranty on such Non-
Essential Equipment pursuant to this subsection 17.1 expires pursuant to and in
accordance with the Product Warranty Period applicable to such Item of Non-
Essential Equipment. The Warranty Period for a PCS Product or part thereof
repaired or provided as a replacement under this Product warranty is six (6)
months or the unexpired term of the new Product Warranty Period applicable to
the repaired or replaced PCS Product or part, whichever is longer.
(b) To the extent the Owner orders additional Products from the Vendor in
accordance with the terms of this Contract including, but not limited to,
subsections 2.2 and/or 7.2, any such Products so ordered by the Owner and
delivered and installed by the Vendor or its Subcontractors will be warranted to
the same extent as set forth in clause (a) above for a
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period of not less than twenty four (24) months from the earlier of (i) the date
the Owner puts such additional Products into In Revenue Service, (ii) the date
of the Owner's acceptance and (iii) thirty (30) days after the Vendor completes
the installation of such additional Products. If in the event, pursuant to the
Owner's order for such additional Products the Vendor is not required to install
such additional Products, the warranty on such additional products will run
twenty-four (24) months from the date the Vendor shipped such products to the
Owner.
17.2 Services Warranty. (a) The Vendor warrants that, for a period of not
-----------------
less than three (3) years from the date of completion of RF Engineering done by
the Vendor or its Subcontractors (but in no event earlier than the achievement
of Milestone 5 in such PCS System) in any given PCS System (the "RF Services
Warranty Period") the Final Site Count within and the Final RF Design applicable
to such PCS System will be accurate based upon the environmental circumstances
in such PCS System as they existed at the time of the Final Acceptance of such
PCS System provided that the projections of subscriber growth, traffic and other
-------- ----
predictive data, including all applicable standards as identified in Exhibits
B1, D and H, upon which the Final Site Count and Final RF Design have been
determined, have not been materially exceeded or the applicable and relevant
industry standards have not materially changed; and provided further that in no
-------- ------- ----
event will the RF Engineering warranty pursuant to this subsection 17.2(a) cover
or warrant items or performance otherwise covered or warranted pursuant to
subsection 17.3 below.
(b) The Vendor warrants that, for a period of not less than two (2) years
from the date of completion of Facilities Preparation Services within any PCS
System but in no event later than the achievement of Milestone 8 pursuant to
Exhibit A1 in such PCS System (provided that in the event of a Microwave Delay
-------- ----
Period in such PCS System pursuant to subsection 23.8, the commencement of the
Facilities Preparation Services Warranty Period will not be later than three (3)
months from the date the Vendor would have otherwise been able to commence
Substantial Completion testing in such PCS System in accordance with Exhibit B3
and Milestone 8 as set forth on Exhibit A1 but for the existence of such
Microwave Delay Period) (the "Facilities Preparation Services Warranty Period"
and collectively with the RF Services Warranty Period, the "Services Warranty
Periods") such Facilities Preparation Services will be (i) operational in
accordance with the Specifications, (ii) in compliance with all material
Applicable Laws and material Applicable Permits in effect at the time of the
completion of such Facilities Preparation Services in such PCS System, and (iii)
free from Defects or Deficiencies.
(c) The Vendor warrants that, for a period of six (6) months from the date
of completion, with respect to other Services performed by the Vendor and not
otherwise covered elsewhere in this Section 17, including, but not limited to,
repair Services, such other Service(s) will be free from Defects or Deficiencies
for which the Vendor is responsible pursuant to the terms of this Contract.
17.3 System Warranty. The Vendor warrants that, for a period ending three
---------------
(3) years from the Final Acceptance of the last PCS System within the Initial
System (the "System Warranty Period"), the ongoing performance of each PCS
System together with all other PCS Systems within the System will conform with
and perform to the performance criteria set
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73
forth Exhibit F as of the date of the Final Acceptance of such PCS System based
on the circumstances within such PCS System on such date. The System warranty
pursuant to this subsection 17.3 will be limited to the extent that the
projections of subscriber growth, traffic and other predictive data, including
all applicable standards as identified in Exhibits B1, D and H, upon which the
Final Site Count and Final RF Design have been determined, have not been
materially exceeded or the applicable and relevant industry standards have not
materially changed.
17.4 Breach of Warranties. (a) In the event of any breach of any of the
--------------------
Warranties during any of the applicable Warranty Periods set forth in
subsections 17.1(a), 17.1(b), 17.2(a), 17.2(b), 17.2(c) and 17.3, the Vendor
will, in accordance with the terms of this Section 17, promptly repair or
replace the defective or nonconforming Product or otherwise cure any Defects and
Deficiencies so that each PCS System and the System as a whole will perform in
accordance with the Specifications and Exhibit F. If the Vendor fails to
promptly repair, replace and/or cure such defect, the Owner may, in addition to
exercising any other remedies available to it, itself cause such repair,
replacement and/or cure, at its option and at the sole cost and expense of the
Vendor.
(b) The Vendor recognizes that the Owner may suffer injury and may be
damaged in an amount which will be difficult to determine with certainty as a
result of Outages resulting from causes attributable to the failure of the
Vendor's Products and/or Services to perform in accordance with the
Specifications. As used herein, "Outage" means an unscheduled loss of
functionality of the System or any PCS System due to the failures of PCS
Products or any combination thereof defined as the loss of the capability to
originate or terminate [ ] or more of the active voice channels then in service
within the System or such PCS System for a period of time exceeding [ ] minutes.
(c) During the System Warranty Period, the Vendor will be liable to the
Owner for damages (the "Warranty Damages") for Outages (for other than in the
Test-bed Laboratory) that result from (i) the failure of the Vendor's Equipment
and/or Software to perform in accordance with the Specifications, (ii) the
failure of the Vendor to provide Services in accordance with the Specifications
applicable thereto, (iii) a Vendor procedural error or (iv) inaccurate Technical
Documentation, excluding marketing bulletins, sales literature or other
promotional materials provided by the Vendor to the Owner. As used herein,
"Vendor procedural error" means an error or improper deviation from the Vendor's
or its Subcontractors' procedures by, or attributable to, the Vendor's
personnel. Warranty Damages will be calculated based upon [ ] for each Outage
occurring in any given PCS System to the extent such Outage exceeds [ ] from
the time the Owner notified the Vendor of such Outage (not including such
[ ]), plus [ ] for each minute the duration of the Outage exceeds [ ]from
the time the Owner notifies the Vendor of such Outage (not including such [ ]).
(d) In no event will the Vendor's liability for Warranty Damages pursuant
to this subsection 17.4 exceed [ ] with respect to each Outage in any given
PCS System. In addition, the Vendor's total liability for Warranty Damages
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74
pursuant to this subsection 17.4 will not exceed [ ] per calendar year during
the Term of this Contract with respect to Outages in any given PCS System per
calendar year.
(e) Notwithstanding the foregoing, the Vendor will have no liability
pursuant to this subsection 17.4 for:
(i) Outages caused by a Force Majeure event as
described in Section 16 other than to the extent that any of the
Vendor's Products and/or Services resulting in such Outages
should, in accordance with the Specifications be able to
withstand any such Force Majeure event;
(ii) Outages resulting from a scheduled activity,
including, but not limited to, System maintenance or loading of
Software or Equipment Upgrades, Enhancements or Combined
Releases, unless said Outage (without fault of the Owner) extends
beyond the expected downtime, as provided in the Specifications
applicable thereto, associated with such Equipment or Software
maintenance Upgrades, Enhancements or Combined Releases;
(iii) alterations by the Owner and/or the Vendor at
the Owner's request or otherwise pursuant to the terms of this
Contract to the System and/or any PCS System, excluding normal
maintenance or parameter changes as prescribed by the applicable
Technical Documentation;
(iv) Outages resulting from the Owner's, its
subcontractors' or any third party's (if such third party is
employed by the Owner) failure to follow the Technical
Documentation;
(v) Outages resulting from the negligence, gross
negligence or willful misconduct of the Owner, or any of its
employees, agents or contractors or any other third party (other
than any Subcontractor or any employees, representatives or
agents of the Vendor); or
(vi) Outages resulting from failure of equipment or
software not supplied by the Vendor or any Subcontractors or from
the performance of services not performed by the Vendor or any
Subcontractors; or
(vii) Outages caused by the Owner's deactivation of
the System or any portion thereof, unless the deactivation is
undertaken in avoidance of an unplanned outage; or
(viii) Outages caused by the failure of the Network
Interconnection facilities.
(f) On or before the beginning of each quarter of each calendar year
during the Term of this Contract, the Owner will provide the Vendor a written
report summarizing any Outages occurring during the previous calendar quarter.
The amount of any Warranty
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75
Damages will be determined by the Owner as of the end of the fourth quarter of
each calendar year during the Term, for the preceding four quarterly reporting
periods during such Term. The Owner will notify the Vendor of any such Warranty
Damages in writing. Such Damages will be payable in credits on future purchases
under this Contract or otherwise if this Contract is terminated for any reason
within thirty (30) days of the occurrence. Any disputes regarding the
determination of the cause of an Outage or the amount of any such Warranty
Damages will be resolved in accordance with the provisions of Section 23.
17.5 Repair and Return. (a) If the Owner claims a breach of warranty
-----------------
under subsections 17.1, 17.2 or 17.3, it must notify the Vendor of the claimed
breach within a reasonable time after its determination that a breach has in
fact occurred. The Owner will allow the Vendor to inspect the Products, the
Services or the System, as the case may be, on-site, or, upon the Vendor's
reasonable request and, subject to subsection 17.5(d) below, at the Vendor's
sole expense: (i) with respect to Products, return such Products to any of the
Vendor's repair facilities located in the United States and listed on Schedule
8, or (ii) with respect to Non-Essential Equipment, return such Non-Essential
Equipment to the Vendor (or to the third party manufacturer if previously
requested by the Vendor) for further return to the applicable third party
manufacturer. The Vendor or such third party manufacturer may use either new,
remanufactured, reconditioned, refurbished, or functionally equivalent Products
or parts pursuant to the terms of this Contract, including, but not limited to,
the Specifications, in the furnishing of warranty repairs or replacements under
this Contract.
(b) The Vendor agrees to commence work on all such Products, Non-Essential
Equipment, Services or any System Defect, as the case may be, or Installation
defects as soon as practicable, but the Vendor will use reasonable efforts to
commence such Work in no event later than twenty-four (24) hours after
notification of such defect, and, subject to subsections 17.5(e) and 17.5(f),
the Vendor will cure such defect as promptly as practicable. During the Product
Warranty Period electronic circuit board components of Equipment or Non-
Essential Equipment, as the case may be, will be repaired or replaced by the
Vendor.
(c) Failure of the System to function to the level of the performance
warranty as set forth in subsection 17.3 will result in the obligation of the
Vendor to promptly make whatever repairs, modifications, alterations, expansions
or to take any other action of any kind, including but not limited to the
provision of additional Products and/or Services, necessary to satisfactorily
fix that portion of the System causing any failure for which the Vendor is
responsible. In the event of a breach of the warranties in Section 17 which
will be cured with the installation of additional PCS Products, the Vendor will
provide such PCS Products, together with related transportation, Installation
and optimization Services, as are reasonably required to remedy the shortfall,
at no charge to the Owner, provided that, if in order to remedy the shortfall,
-------- ----
the number of additional Base Stations required to cure the Vendor's breach
under these warranties is not in excess of five percent (5%) of the total number
of Base Stations in the relevant PCS System (as such "total number" is as set
forth in the Final RF Engineering Plan), the Vendor will not be obligated to pay
for the Base Stations and the installation and transportation related thereto
required to cure such breach, provided further that the Vendor will be obligated
-------- ------- ----
to provide and pay for any Base Stations and the installation and transportation
related thereto in excess of any such five percent (5%) shortfall.
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76
(d) All costs associated with (i) removing or disconnecting the Products
or the Non-Essential Equipment subject to the warranty claim pursuant to the
terms of this Section 17 from any other Products, the respective PCS System or
any part thereof or from other equipment, any other pcs system or any part
thereof to which they are attached or connected, or (ii) dismantling surrounding
Products, the respective PCS System or any part thereof or any other equipment
or other pcs system or any part thereof in order to so remove or disconnect the
Products or Non-Essential Equipment subject to such warranty claim will be borne
by the Vendor throughout the applicable Warranty Period unless such Products are
readily returnable to the Vendor in which case the Owner will bear all such
costs. All packaging, shipping and freight charges incurred in connection with
the return of Items to the Vendor will be borne by the Owner. The Vendor will
be responsible for packing, shipping and freight charges for return of repaired
or replacement Items to the Owner, unless the Products or Non-Essential
Equipment, as the case may be, returned are not Defective or otherwise not
covered by the Vendor's warranty pursuant to subsection 17.1, in which case the
Owner will pay for all such charges between the Owner's point of origin and the
Vendor's applicable repair facility in the United States.
(e) For routine warranty service, the Vendor will, during the respective
Warranty Period, ship replacement or repaired Products or Non-Essential
Equipment (or components thereof) within thirty (30) days of receipt of the
Defective Equipment or Non-Essential Equipment (or components thereof) from the
Owner. In the event such replacement or repaired Products or Non-Essential
Equipment cannot be shipped within such time period, or if the Vendor determines
that due to the particular circumstances, on-site repairs or services are
required, the Vendor will undertake such repairs or replacement services on-site
within thirty (30) days of notification of the warranty Defect by the Owner. In
the event that the Vendor fails to repair or replace Defective Products and/or
Non-Essential Equipment within thirty (30) days from the Owner's notice to the
Vendor, then the Vendor will be deemed to be in breach of its obligations
pursuant to this Contract and the Owner will be entitled to receive a refund of
all amounts previously paid to the Vendor for the Defective Products or Non-
Essential Equipment, and will have no further obligation to pay additional
amounts in connection with the Defective Products or Non-Essential Equipment.
The Owner will return such Defective Products and Non-Essential Equipment to the
Vendor at the Vendor's sole cost and expense.
(f) For emergency warranty service situations, the Vendor will, during the
applicable Warranty Periods, use its best efforts to ship replacement Products
or Non-Essential Equipment (or components thereof) no later than twelve (12)
hours after notification of the warranty Defect by the Owner. The Owner will
ship the Defective Products or Non-Essential Equipment to the Vendor within
thirty (30) days of receipt of the replacement Products or Non-Essential
Equipment, as the case may be. In the event the Vendor fails to receive such
Defective Products or Non-Essential Equipment within such thirty (30) day
period, the Vendor will invoice the Owner for the replacement Products or Non-
Essential Equipment at the then-current price in effect therefor pursuant to the
terms of this Contract. If in an emergency warranty service situation, the
Owner and/or the Vendor determines that due to the particular circumstances, on-
site technical assistance is necessary, the Vendor will dispatch emergency
service personnel to the site in accordance with the terms of subsection 2.26.
For
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77
the purpose of this subsection 17.5, an emergency warranty service situation
will be deemed to exist upon the occurrence of any E1 Emergency Condition or E2
Emergency Condition. The Vendor agrees to commence work on all Equipment, Non-
Essential Equipment, Facilities Preparation Services or any System defect, as
the case may be, or Installation defects materially impairing service to
subscribers, System performance, billing, administration and/or maintenance as
soon as practicable, but in no event later than twenty-four (24) hours after
notification of such defect, and the Vendor will cure such defect as promptly as
practicable.
17.6 Technical Assistance Center. The Vendor must maintain a technical
---------------------------
assistance center in the United States, and during the Warranty Periods
established pursuant to subsections 17.1(a), 17.1(b), 17.2 and 17.3,
respectively, will make such support center available to the Owner twenty-four
(24) hours per day free of any additional charge to the Owner (other than
applicable Annual Release Maintenance Fees).
17.7 Scope of Warranties. Unless otherwise stated herein, the Vendor's
-------------------
warranties under this Section 17 will not apply to:
17.7.1 damage or defects resulting from the negligence, gross
negligence or willful misconduct of the Owner, or any of its employees, agents
or contractors;
17.7.2 any Equipment or Software damaged by accident or disaster,
including without limitation, fire, flood, wind, water, lightning or power
failure other than to the extent that any such Equipment or Software should in
accordance with the Specifications and/or the Vendor's representations be able
to withstand any such events; or
17.7.3 non-integral items (other than any Non-Essential Equipment
otherwise covered by subsection 17.1) normally consumed in operation or which
has a normal life inherently shorter than the Warranty Periods (e.g., fuses,
----
lamps, magnetic tape); or
17.7.4 damages or defects resulting directly from Other Vendor's
equipment provided that this will in no event limit the Vendor's obligations as
to Interoperability pursuant to the terms of this Contract;
17.7.5 Products which have had their serial numbers or months and
year of manufacture removed or obliterated by the Owner; or
17.7.6 failures or deficiencies in BTS performance resulting solely
from changed environmental conditions, including, but not limited to, the growth
of trees and other foliage, the erection of buildings, and interference from
third party radio transmissions not otherwise engineered for by the Vendor;
except when any such damage or defects are made, done or caused by the Vendor or
any of its Subcontractors.
17.8 Expenses. Except as otherwise provided in this Section 17, the
--------
Owner will reimburse the Vendor for the Vendor's out-of-pocket expenses incurred
at the Owner's
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78
request in responding to and/or remedying Products, Non-Essential Equipment,
Services or any System defect, or service Deficiencies not covered by the
warranties set forth herein or otherwise covered under a separate System
maintenance agreement (subject, however, to the terms and conditions of any such
agreement) between the Vendor and the Owner.
17.9 Third Party Warranties. If the Vendor purchases or subcontracts for
----------------------
the manufacture of any part of the System or the performance of any of the
Services to be provided hereunder from a third party, the warranties given to
the Vendor by such third party will inure, to the extent assigned to the Owner
pursuant to this Section 17 or permitted by law, to the benefit of the Owner,
and the Owner will have the right, at its sole discretion, to enforce such
warranties directly and/or through the Vendor. The warranties of such third
parties will be in addition to and will not, unless otherwise expressly stated
herein, be in lieu of any warranties given by the Vendor under this Contract.
17.10 Additional System Element Locations. In the event that under the
-----------------------------------
remedy provisions of this Section 17 the Vendor is required to provide
additional MSC and/or Base Stations requiring additional System Element
Locations, the Owner will be responsible for all Site Acquisition and Facilities
Preparation Services costs (other than any construction management costs or fees
which will be borne by the Vendor).
17.11 EXCLUSIVE REMEDIES. THE FOREGOING PRODUCT, SERVICES AND SYSTEM
------------------
WARRANTIES AND REMEDIES ARE EXCLUSIVE FOR THE PURPOSES OF ANY BREACH BY THE
VENDOR OF ANY SUCH WARRANTY AND ARE IN LIEU OF ALL OTHER EXPRESS AND IMPLIED
WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
SECTION 18 INSURANCE
18.1 Insurance. The Vendor will maintain insurance in accordance with the
---------
provisions set forth in Schedule 6.
SECTION 19 TAXES
19.1 Taxes. The amounts to be paid by the Owner under this Contract do
-----
not include any state, provincial or local sales and use taxes, however
designated, which may be levied or assessed on the System, any PCS System or any
component thereof, including, but not limited to, the Services. With respect to
such taxes, the Owner will either furnish the Vendor with an appropriate
exemption certificate applicable thereto or pay to the Vendor, upon presentation
of invoices therefor, such amounts thereof as the Vendor may by law be required
to collect or pay; provided, however, that the Vendor will use its best efforts
-------- -------
to minimize the amount of any such taxes. The Owner has no obligation to the
Vendor with respect to other taxes, including, but not limited to, those
relating to franchise, net or gross income or revenue,
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79
license, occupation, other real or personal property, and fees relating to
importation of the Products in the United States.
SECTION 20 INDEMNIFICATION AND LIMITATION OF LIABILITY
20.1 Vendor Indemnity. (a) The Vendor will indemnify and hold the Owner
----------------
and its Affiliates, partners, directors, officers, agents and employees (the
"Indemnitees") harmless from and against all third party claims, demands suits,
proceedings, damages, costs, expenses, liabilities (including, without
limitation, reasonable legal fees) or causes of action (collectively,
"Liabilities") brought against or incurred by any Indemnitee for (i) injury to
persons (including physical or mental injury, libel, slander and death), or (ii)
loss or damage to any property, or (iii) violations of Applicable Laws,
Applicable Permits, codes, ordinances or regulations by the Vendor, or (iv) any
patent or trademark claims arising out of the Vendor's obligation subject to
subsection 14.2 or (v) any other liability, resulting from the acts or
omissions, negligence, error, wilful misconduct or strict liability, of the
Vendor, its officers, agents, employees, or Subcontractors in the performance of
this Contract. If the Vendor and the Owner jointly cause such Liabilities, the
Parties will share the liability in proportion to their respective degree of
causal responsibility.
(b) The Vendor's obligation to indemnify under subsection 20.1(a) with
respect to any Liability will not arise unless the Owner or the Indemnitee (i)
notifies the Vendor in writing of such potential Liability, in the case of the
Owner, within a reasonable time after the Owner will receive written notice of
such Liability; provided that the lack of such notice will not affect the
-------- ----
Vendor's obligation hereunder (A) if the Vendor otherwise has knowledge of such
Liability and (B) unless such lack of notice is the cause of the Vendor being
unable to adequately and reasonably defend such Liability, (ii) gives the Vendor
the opportunity and authority to assume the defense of and settle such
Liability, subject to the provisions of the next two sentences, and (iii)
furnishes to the Vendor all such reasonable information and assistance available
to the Owner (or other Indemnitees) as may be reasonably requested by the Vendor
and necessary for the defense against such Liability. The Vendor will assume on
behalf of the Indemnitee and conduct with due diligence and in good faith the
defense of such Liability with counsel (including in-house counsel) reasonably
satisfactory to the Indemnitee; provided that the Indemnitee will have the right
-------- ----
to be represented therein by advisory counsel of its own selection and at its
own expense. If the Indemnitee will have reasonably concluded that there may be
legal defenses available to it which are different from or additional to, or
inconsistent with, those available to the Vendor, the Indemnitee will have the
right to select separate counsel reasonably satisfactory to the Vendor to
participate in the defense of such action on its own behalf at the Vendor's
expense. In the event the Vendor fails to defend any Liability as to which an
indemnity might be provided herein, then the Indemnitee may, at the Vendor's
expense, contest or settle such matter without the Vendor's consent. All
payments, losses, damages and reasonable costs and expenses incurred in
connection with such contest, payment or settlement will be to the Vendor's
account and may be deducted from any amounts due to the Vendor. The Vendor will
not settle any such Liability without consent of the Indemnitee, which consent
will not be unreasonably withheld. This indemnity is in lieu of all other
obligations of the Vendor, expressed or implied, in law
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or in equity, to indemnify the Indemnitees (except pursuant to Section 14 or
any other Vendor indemnitees set forth in this Contract).
20.2 LIMITATION ON LIABILITY. EXCEPT AS PROVIDED IN SUBSECTIONS 14.2,
-----------------------
15.2, 15.3, 17.4, 20.1, AND 20.3 HEREOF, IN NO EVENT, AS A RESULT OF BREACH OF
CONTRACT OR BREACH OF WARRANTY, WILL EITHER PARTY HERETO BE LIABLE UNDER THIS
CONTRACT TO THE OTHER PARTY FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES,
INCLUDING LOST PROFITS OR REVENUES OF SUCH PARTY, BEFORE OR AFTER ACCEPTANCE,
WHETHER OR NOT SUCH DAMAGES ARE FORESEEABLE.
20.3 Damages for Fraud or Willful Misconduct (a) The Vendor will be
---------------------------------------
responsible for all damages, including without limitation, indirect, incidental
and consequential damages, incurred by the Owner as a result of any damage or
injury caused by or resulting from the fraud or willful misconduct of the
Vendor.
(b) The Vendor will be responsible for all damages, but excluding
indirect, incidental and consequential damages, incurred by the Owner as a
result of any damages or injury caused by or resulting from the fraud, gross
negligence or willful misconduct of any of the Subcontractors related to the
performance of the Work, to the extent the Vendor would have liability therefor
under this Contract if the Vendor had engaged in such conduct.
SECTION 21 REPRESENTATIONS AND WARRANTIES
21.1 Representations and Warranties of the Vendor. The Vendor hereby
--------------------------------------------
represents and warrants to the Owner as follows:
21.1.1 Due Organization of the Vendor. The Vendor is a corporation
------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of New York and has all requisite corporate power and authority to own and
operate its business and properties and to carry on its business as such
business is now being conducted and is duly qualified to do business in all
jurisdictions in which the transaction of its business in connection with the
performance of its obligations under this Contract makes such qualification
necessary or required.
21.1.2 Due Authorization of the Vendor; Binding Obligation. The
---------------------------------------------------
Vendor has full corporate power and authority to execute and deliver this
Contract and to perform its obligations hereunder, and the execution, delivery
and performance of this Contract by the Vendor have been duly authorized by all
necessary corporate action on the part of the Vendor; this Contract has been
duly executed and delivered by the Vendor and is the valid and binding
obligation of the Vendor enforceable in accordance with its terms, except as
enforcement thereof may be limited by or with respect to the following: (i)
applicable insolvency, moratorium, bankruptcy, fraudulent conveyance and other
similar laws of general application relating to or affecting the rights and
remedies of creditors; (ii) application of equitable principles (whether
enforcement is sought in proceedings in equity or at law); and
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(iii) provided the remedy of specific enforcement or of injunctive relief is
subject to the discretion of the court before which any proceeding therefore may
be brought.
21.1.3 Non-Contravention. The execution, delivery and performance of
-----------------
this Contract by the Vendor and the consummation of the transactions
contemplated hereby do not and will not contravene the certificate of
incorporation or by-laws of the Vendor and do not and will not conflict with or
result in (i) a breach of or default under any indenture, mortgage, lease,
agreement, instrument, judgment, decree, order or ruling to which the Vendor is
a Party or by which it or any of its properties is bound or affected, or (ii) a
breach of any Applicable Law.
21.1.4 Regulatory Approvals. All authorizations by, approvals or
--------------------
orders by, consents of, notices to, filings with or other acts by or in respect
of any Governmental Entity or any other Person required in connection with the
execution, delivery and performance of this Contract by the Vendor have been
obtained or will be obtained in due course.
21.1.5 Non-Infringement. The Vendor represents and warrants to the
----------------
best of its knowledge based on reasonable diligence under the circumstances that
as of the Effective Date there are no actual claims or threatened or actual
suits in connection with patents and other intellectual property matters that
would materially adversely affect the Vendor's ability to perform its
obligations under this Contract.
21.1.6 Scope. The representations and warranties of the Vendor
-----
pursuant to this subsection 21.1 will be deemed to apply to all of the Work
performed by any Subcontractor employed by the Vendor as though the Vendor had
itself performed such Work.
21.1.7 Requisite Knowledge. The Vendor represents and warrants that
-------------------
it has all requisite knowledge, know-how, skill, expertise and experience to
perform the Work in accordance with the terms of this Contract.
21.1.8 Financial Capacity. The Vendor represents and warrants the
------------------
financial, management and manufacturing capacity and capabilities to do the Work
in a timely manner in accordance with the terms of this Contract.
21.2 Representations and Warranties of the Owner. The Owner hereby
-------------------------------------------
represents and warrants to the Vendor as follows:
21.2.1 Due Organization of the Owner. The Owner is a limited
-----------------------------
partnership, validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to own and operate its
business and properties and to carry on its business as such business is now
being conducted and is duly qualified to do business in Delaware and in any
other jurisdiction in which the transaction of its business makes such
qualification necessary.
21.2.2 Due Authorization of the Owner; Binding Obligation. The Owner
--------------------------------------------------
has full power and authority to execute and deliver this Contract and to perform
its obligations
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82
hereunder, and the execution, delivery and performance of this Contract by the
Owner have been duly authorized by all necessary partnership action on the part
of the Owner; this Contract has been duly executed and delivered by the Owner
and is the valid and binding obligation of the Owner enforceable in accordance
with its terms, except as enforcement thereof may be limited by or with respect
to the following: (i) applicable insolvency, moratorium, bankruptcy, fraudulent
conveyance and other similar laws of general application relating to or
affecting the rights and remedies of creditors; (ii) application of equitable
principles (whether enforcement is sought in proceedings in equity or at law);
and (iii) provided the remedy of specific enforcement or of injunctive relief is
subject to the discretion of the court before which any proceeding therefor may
be brought.
21.2.3 Non-Contravention. The execution, delivery and performance of
-----------------
this Contract by the Owner and the consummation of the transactions contemplated
hereby do not and will not contravene the partnership arrangements governing the
conduct of the partners in the Owner and do not and will not conflict with or
result in (i) a breach of or default under any indenture, mortgage, lease,
agreement, instrument, judgment, decree, order or ruling to which the Owner is a
Party or by which it or any of its properties is bound or affected, or (ii) a
breach of any Applicable Law.
SECTION 22 TITLE AND RISK OF LOSS
22.1 Title. Title to each Item of Equipment (but in no case Software)
-----
will pass to the Owner upon delivery thereof by the Vendor to the System Element
Location to which each such Item belongs or such other location specifically
requested by the Owner or as otherwise mutually agreed to by the Parties. Prior
to acquiring title to the Equipment, the Owner will not cause or permit the
Equipment to be sold, leased or subjected to a lien or other encumbrance.
22.2 Risk of Loss. Risk of loss of any Products furnished to the Owner in
------------
connection with this Contract will pass from the Vendor to the Owner upon the
completion of the Bolt-down by the Vendor of any PCS Product or at the
completion of installation of any other Product each at the appropriate System
Element Location within the given PCS System provided that the risk of loss of
any given PCS System within the System will not pass to the Owner until such
time as the Vendor is fully prepared to commence testing for the Substantial
Completion of such PCS System in accordance with and pursuant to Exhibit B3 and
Exhibit A1; provided, however, that the Owner will assume the risk of loss prior
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to such Substantial Completion by the Vendor for any such Products damaged due
to the gross negligence or willful misconduct of the Owner (provided that the
-------- ----
Owner will also assume the risk of loss for its own negligence at any time after
Milestone 6 (as set forth in Exhibit A1) in each PCS System within the System).
With respect to Products delivered by the Vendor but not otherwise installed by
the Vendor pursuant to and in accordance with the terms of this Contract, risk
of loss will pass to the Owner upon delivery by the Vendor to the Owner's
designated site. Until such time as risk passes to the Owner, the Vendor will,
at its sole cost and expense, remedy, repair and replace all physical damage,
loss or injury to such property; provided that, prior to the passing of risk of
-------- ----
loss to the Owner, any actual proceeds of its
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83
applicable insurance payable with respect to such physical damage at such time,
loss or injury are paid to the Vendor as necessary to achieve such remedy,
repair or replacement.
SECTION 23 DISPUTE RESOLUTION
23.1 Dispute Resolution. Subject to subsection 24.3 and subsection 23.4,
------------------
in the event any controversy, claim, dispute, difference or misunderstanding
arises out of or relates to this Contract, any term or condition hereof, any of
the Work to be performed hereunder or in connection herewith, the respective
System Managers of the Owner and the Vendor will meet and negotiate in good
faith in an attempt to amicably resolve such controversy, claim, dispute,
difference or misunderstanding in writing. Such System Managers must meet for
this purpose within ten (10) Business Days, or such other time period mutually
agreed to by the Parties, after such controversy, claim, dispute, difference or
misunderstanding arises. If the Parties are unable to resolve the controversy,
claim, dispute, difference or misunderstanding through good faith negotiations
within such ten (10) business day period, each Party will, within five (5)
Business Days after the expiration of such ten (10) business day period, prepare
a written position statement which summarizes the unresolved issues and such
Party's proposed resolution. Such position statement must be delivered by the
Vendor to the Owner's Vice President of Engineering or Operations and by the
Owner to the Vendor's corresponding officer or representative for resolution
within (5) Business Days, or such other time period mutually agreed to by the
Parties.
If the Parties continue to be unable to resolve the controversy, claim,
dispute, difference or misunderstanding, either Party may initiate arbitration
in accordance with the provisions of subsection 23.2 below; provided, however,
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that with respect to any controversy, claim, dispute, difference or
misunderstanding arising out of or relating to this Contract by which either
Party seeks to obtain from the other monetary damages in excess of twenty-five
million dollars ($25,000,000), either Party, in such case, may commence an
action in any state or federal court in accordance with subsection 27.7 to
resolve such matter in lieu of proceeding with an arbitration pursuant to and in
accordance with subsection 23.2. The arbitrators hired or otherwise chosen
pursuant to and in accordance with the terms of this Contract will determine
issues of arbitrability pursuant to the terms of this Contract but may not in
any way limit, expand or otherwise modify the terms of this Contract nor will
they have any authority to award punitive or other damages in excess of
compensatory damages (other than as specifically set forth in this Contract) and
each Party irrevocably waives any such claim thereto when invoking the
arbitration provisions of subsection 23.2.
23.2 Arbitration. An arbitration proceeding initiated by either
-----------
Party under this Contract with respect to any controversy, claim, dispute,
difference or misunderstanding will be conducted in Kansas City, Missouri in
accordance with the Commercial Arbitration rules of the AAA, except that, at the
request of either Party, a stenographic transcript of the testimony and
proceedings will be taken and the arbitrators will base their decision upon the
records and briefs of the Parties.
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84
Such arbitration will be initiated by either Party by notifying the other
Party in writing and will be settled before three (3) impartial arbitrators, one
of whom will be named by the Owner, one by the Vendor and the third by the two
arbitrators appointed by the Owner and the Vendor, respectively. All of the
named arbitrators will have significant experience in the wireless
telecommunications industry. If either the Owner or the Vendor fails to select
an arbitrator within ten (10) days after notice has been given of the initiation
of the arbitration, the officer in charge of the Kansas City, Missouri office of
the AAA will have the right to appoint the other arbitrator, and the two
arbitrators thus chosen will then select the third arbitrator.
Except as the Parties may otherwise mutually agree, the arbitration
hearings will commence within fifteen (15) Business Days after a Party's
initiation of the arbitration. The Federal Rules of Evidence will apply and
reasonable discovery, including depositions, will be permitted. Discovery
issues will be decided by the arbitrators and post-hearing briefs will be
permitted.
The arbitrators will render a decision within ten (10) days after the
conclusion of the hearing(s) and submission of post-hearing briefs and a written
opinion setting forth findings of fact and conclusions of law will be made
available to the Parties within that time period. The decision of the majority
of the arbitrators regarding the matter submitted will be final and binding upon
the Parties. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
Each Party will pay for the services and expenses of the arbitrator
appointed by it, its witnesses and attorneys, and all other costs incurred in
connection with the arbitration (including, without limitation, the cost of the
services and expenses of the arbitrator appointed by the two arbitrators
appointed by the Parties) will be paid in equal part by the Parties, unless the
award will specify a different division of the costs. Unless otherwise
specifically stated in this Contract, during the pendency of any arbitration
proceedings, the Parties agree to continue to perform their obligations
hereunder in the same manner as prior to the institution of arbitration
proceedings.
23.3 Third Party Engineer. Disputes arising under subsections 2.6, 2.7,
--------------------
9.5(b), 9.6, 10.1 and 17.4 of this Contract, or as otherwise specifically
provided elsewhere in this Contract, or as otherwise mutually agreed by the
Parties, are to be resolved by the Third Party Engineer in the manner provided
in this subsection 23.3. The Vendor and the Buyer will first attempt to resolve
the dispute through consultation and negotiation in good faith and in a spirit
of mutual cooperation as provided in subsection 23.1 above. If those attempts
fail, then either Party may submit its written notice to the other Party
requesting that the dispute be resolved by the Third Party Engineer, in
accordance with the merits of the dispute. If, within ten (10) Business Days
after the receipt of such notice by the notified Party, the dispute is not
resolved, the Owner will select one of the Third Party Engineers listed on
Schedule 14 to render decision in the dispute. The Third Party Engineer will
issue a written decision containing an explanation of how and why the decision
was reached. The Third Party Engineer's decision will be final and binding,
except with respect to any opinion that over the Term of the Contract will
impact the losing Party in the amount of one million dollars
<PAGE>
85
($1,000,000) or more. If within ten (10) Business Days following the issuance
of any such opinion the Parties have not agreed to implement the terms of any
such opinion that is not final, either Party may seek arbitration pursuant to
the provisions of subsection 23.2 above. In such arbitration, either Party may
introduce into evidence the opinion of the Third Party Engineer, but the
arbitrator(s) must rule on all issues of the dispute on a de novo basis, except
-------
as to any facts or other matters set forth in the opinion and stipulated by both
of the Parties. If none of the listed Third Party Engineers is available or if
none accepts the assignment and the Parties cannot otherwise mutually agree to
another Third Party Engineer, an experienced and reputable engineer (who is not
employed by either Party or any of their Affiliates or affiliates) will be
chosen by the then President of the Institute of Electrical and Electronic
Engineers (or the Vice President, if the President is a present or former
employee of any such entities) to serve as the Third Party Engineer for the
purposes of resolving the dispute. Unless otherwise mutually agreed by the
Parties, any Person who is an officer or employee, agent, Subcontractor or
subcontractor of, or a technical consultant to, either Party will be
automatically ineligible to be the Third Party Engineer. The costs of
utilizing a Third Party Engineer to resolve disputes under this subsection 23.3
will be shared equally by both Parties.
23.4 Other Remedies. Notwithstanding anything to the contrary herein
--------------
contained, each Party will be entitled to pursue any equitable rights and
remedies that are available at law or in equity without complying with
subsection 23.2 or 23.3.
23.5 Tolling. All applicable statutes of limitation will be tolled to the
-------
extent permitted by Applicable Law while the dispute resolution procedures
specified in this Section 23 are pending, and nothing herein will be deemed to
bar any Party from taking such action as the Party may reasonably deem to be
required to effectuate such tolling.
SECTION 24 TERMINATION AND EVENTS OF DEFAULT
24.1 Termination Without Cause. (a) The Owner may, at its sole option,
-------------------------
terminate this Contract, in its entirety, for convenience upon ninety (90) days'
prior written notice at any time; provided that prior to any such termination
-------- ----
pursuant to this subsection 24.1 the Minimum Commitment will have been fulfilled
by the Owner in accordance with the terms of this Contract.
(b) Any orders for Vendor Work within any PCS System within the System
made by the Owner pursuant to and in accordance with the terms of this Contract
and the program management procedures of the Owner prior to any such termination
described in clause (a) above, other than the Initial Commitment, will remain in
effect and will be fulfilled to the extent that such orders are outstanding as
of the date of such termination. For the purposes of this subsection 24.1(b) an
"order" will not include the Initial Commitment or any order for a full PCS
System within the Initial System or the System.
24.2 Termination for Cause. The Owner also has the right to terminate
---------------------
this Contract in its entirety (except as otherwise set forth in clause (l)
below) without any penalty or
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86
payment obligation upon the occurrence of any Vendor event of default (each a
"Vendor Event of Default") as set forth below. The occurrence of any of the
following will constitute a Vendor Event of Default:
(a) the Vendor (i) files a voluntary petition in bankruptcy or has an
involuntary petition in bankruptcy filed against it that is not dismissed within
forty-five (45) days of such involuntary filing, (ii) admits the material
allegations of any petition in bankruptcy filed against it, (iii) is adjudged
bankrupt, or (iv) makes a general assignment for the benefit of its creditors,
or if a receiver is appointed for all or a substantial portion of its assets and
is not discharged within sixty (60) days after his appointment; or
(b) the Vendor commences any proceeding for relief from its creditors in
any court under any state insolvency statutes; or
(c) the Vendor materially disregards or materially violates material
Applicable Laws or material Applicable Permits; or
(d) the Vendor persistently and materially allows Defects and Deficiencies
to exist; or
(e) the Vendor fails to fulfill its obligations with respect to the
satisfaction, discharge or bonding of liens as set forth in subsection 23.6
hereof; or
(f) the Vendor abandons or ceases for a period in excess of thirty (30)
days its performance of the Work (except as a result of a casualty which is
fully covered by insurance or as to which other provisions reasonably acceptable
to the Owner are being diligently pursued) or fails to begin the Work within
thirty (30) days after the Notice to Proceed Date; or
(g) the Vendor assigns or subcontracts Work other than as provided for in
this Contract; or
(h) the Vendor fails to materially comply with any Change Order; or
(i) the Vendor fails to perform this Contract (including, without
limitation, any action the Vendor may take on any Vendor-Controlled Site) and
thereby prejudices in any way deemed material by the parties providing financing
in connection with the build-out of the Nationwide Network and/or the Owner in
their reasonable opinion the Owner's efforts to obtain financing for the System
and/or the Nationwide System; or
(j) the Vendor fails to pay to the Owner any material amount due to the
Owner by the date required for such payment; or
(k) the Vendor fails to comply with subsection 27.22;
(l) the Vendor misses any Interim Milestone within any given PCS System by
a period in excess of thirty (30) days and such failure to achieve such Interim
Milestone was
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87
not caused by (i) a Force Majeure event and/or (ii) any act or omission of the
Owner; provided that in such case the Owner will have the right, but not the
-------- ----
obligation, to terminate this Contract with respect to only that PCS System in
which such interim delay occurred unless such interim delay relates to Milestone
4 (as set forth on Exhibit A1) in which case the Owner will have the right, but
not the obligation, to terminate this Contract in its entirety as otherwise set
forth in this subsection 24.2; or
(m) the Vendor otherwise materially breaches any provision of this
Contract.
24.3 Remedies. (a) If any of the Vendor Events of Default exists, the
--------
Owner may, without prejudice to any other rights or remedies of the Owner in
this Contract or at law or in equity, terminate this Contract upon written
notice to the Vendor; provided, however, that the Owner will have first provided
-------- -------
to the Vendor the following periods of notice and opportunity to cure:
(i) in the case of an Event of Default specified in the
foregoing clauses (e) and (k), the Owner will have provided seven (7) days'
prior written notice to the Vendor, and the Vendor will have failed to
remedy such breach entirely by the end of such seven (7) day period;
(ii) in the case of an Event of Default specified in the
foregoing clauses (a) or (b), no notice or opportunity to cure will be
required from the Owner; and
(iii) in the case of any other Event of Default by the Vendor,
the Owner will have provided forty-five (45) days' prior written notice,
and the Vendor will have failed (i) to commence to cure the default within
five (5) days of delivery of such notice, and (ii) to diligently pursue
such cure and remedy the breach entirely by the end of said forty-five (45)
day notice period.
(b) If the Owner elects to terminate this Contract, the Owner may, without
prejudice to any other rights or remedies of the Owner in this Contract or of
law or in equity, do one or more of the following:
(i) Take possession of all Engineering and design data,
procurement data, manufacturing data, construction and erection data,
start-up and testing data, materials, and Products that will become part of
the System and/or the specified PCS Systems, or the Work, whether any of
the same is in a partial state of completion or completed condition, and
title to any of said items vests in the Owner (if not already vested by the
provisions of this Contract);
(ii) Take temporary possession and control of all of the
Vendor's installation equipment, machinery, and the Vendor's materials,
supplies, Software and any and all tools (including, but not limited to,
any and all RF Engineering tools and/or software) at any project site,
including but not limited to any System Element Location, within the System
and/or the specified PCS Systems which in the Owner's opinion are necessary
to finish the Work;
<PAGE>
88
(iii) Direct that the Vendor assign its Subcontractor agreements to
the Owner without any change of price or conditions therein or penalty or
payment therefor; or
(iv) Take over and finish the Work by whatever reasonable
methods the Owner may deem expedient;
provided, that, nothing contained in paragraphs (a) through (d) above will
- - -------- ----
require the Vendor to relinquish to the Owner any of its manufacturing
facilities, specific Product designs (other than such designs previously
provided to the Owner pursuant to the terms of this Contract), Software Source
Codes, trade secrets or proprietary information not previously provided or made
available to the Owner, the System or any part thereof or any materials,
supplies, inventories, tools, software, engineering and/or designs that are not
integral or relevant to the completion of the Work.
24.4 Discontinuance of Work. Upon such notification of termination, the
----------------------
Vendor must immediately discontinue all of the Work (unless such notice of
termination directs otherwise), and, as more fully set forth in subsection
24.3(b) clauses (i) through (iv), deliver to the Owner copies of all data,
drawings, specifications, reports, estimates, summaries, and such other
information, and materials as may have been accumulated by the Vendor in
performing the Work, whether completed or in process. Furthermore, the Vendor
must assign, assemble and deliver to the Owner all purchase orders and
Subcontractor agreements requested by the Owner.
24.5 Payments. When the Owner terminates this Contract for cause pursuant
--------
to subsection 24.2, the Vendor will not be entitled to receive further payment
other than payments due and payable under this Contract and not subject to
dispute prior to such termination (provided that any such disputed amounts will
-------- ----
be paid by the Owner when and if such dispute is in fact resolved).
Notwithstanding anything herein to the contrary, the Owner may withhold
payments, if any, to the Vendor for the purposes of offset of amounts owed to
the Owner pursuant to the terms of this Contract until such time as the exact
amount of damages due the Owner from the Vendor is fully determined.
24.6 Costs. In the event of a termination due to a Vendor Event of
-----
Default, the Owner will be entitled to the costs in connection with finishing
the Work (exclusive of any Liquidated Damages already paid and/or owing to the
Owner upon termination of this Contract), and if such costs exceed the unpaid
balance of the Contract Price, the Vendor will be liable to pay such excess to
the Owner. The amount to be paid by the Vendor pursuant to this subsection 24.6
will survive termination of this Contract and will be subject to the limitations
of liability in this Contract.
24.7 Continuing Obligations. Termination of this Contract for any reason
----------------------
(i) will not relieve either Party of its obligations with respect to the
confidentiality of the Proprietary Information as set forth in subsection 27.19,
(ii) will not relieve either Party of any obligation which applies to it and
which expressly or by implication survives termination, and (iii) except as
otherwise provided in any provision of this Contract expressly limiting the
liability of either Party, will not relieve either Party of any obligations or
liabilities for loss or damage
<PAGE>
89
to the other Party arising out of or caused by acts or omissions of such Party
prior to the effectiveness of such termination or arising out of its obligations
as to portions of the Work already performed or of obligations assumed by the
Vendor prior to the date of such termination.
24.8 Vendor's Right to Terminate. The Vendor will have the option to
---------------------------
terminate this Contract without any penalty or payment obligations, other than
undisputed payment obligations outstanding as of the date of any such
termination pursuant to the terms of this Contract if:
(a) the Owner (i) files a voluntary petition in bankruptcy or has an
involuntary petition in bankruptcy filed against it that is not dismissed within
forty-five (45) days of such involuntary filing, (ii) admits the material
allegations of any petition in bankruptcy filed against it, (iii) is adjudged
bankrupt, or (iv) makes a general assignment for the benefit of its creditors,
or if a receiver is appointed for all or a substantial portion of its assets and
is not discharged within sixty (60) days after his appointment, and any such
filing, proceeding, adjudication or assignment as described herein above will
otherwise materially impair the Owner's ability to perform its obligations under
this Contract;
(b) the Owner commences any proceeding for relief in any court under any
state insolvency statutes;
(c) the Owner fails to make payments of undisputed amounts due to the
Vendor pursuant to the terms of this Contract which are more than sixty (60)
days overdue, provided that such failure has continued for at least thirty (30)
-------- ----
days after the Vendor has notified the Owner of its right and intent to so
terminate on account of such overdue amount;
(d) the Owner persistently and materially breaches subsection 11.1 or
subsection 27.19 notwithstanding the fact that the Vendor will have provided the
Owner with prior written notice describing the alleged material breaches and
will have given the Owner a reasonable time (not less than thirty (30) days) to
cure any such breaches; or
(e) except as otherwise provided in subsection 24.1 the Owner fails to
fulfill its Initial Commitment within five (5) years of the Effective Date for
whatever reason other than (i) any act or omission of the Vendor, (ii) failure
or inability to successfully complete Microwave Relocation in any PCS System,
(iii) failure or inability to successfully attain Site Acquisition Substantial
Completion in any given PCS System or (iv) any event otherwise constituting a
Force Majeure hereunder.
24.9 Special Termination Events. (a) In the event that financing for the
--------------------------
Owner's build-out of the initial phase of the Nationwide Network has not been
finalized with the Vendor and the Other Vendors on terms and conditions
reasonably satisfactory to the Owner, on or before one hundred and eighty (180)
days after the Effective Date, the Owner will have the right, but not the
obligation, to terminate this Contract in its entirety without charge or penalty
of any kind. In the event of a termination of this Contract pursuant to this
subsection 24.9 the Owner will remain liable for amounts due to the Vendor for
all Work performed
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90
or Products delivered by the Vendor or any of its Subcontractors pursuant to the
specific terms of this Contract which had been directly delivered to or
performed for the Owner and/or any of its facilities or sites in accordance with
the terms of this Contract including, but not limited to, the Project
Milestones. Any amounts owed by the Owner for Work done or Products delivered by
the Vendor during such interim one hundred and eighty (180) day period (the
"Financing Interim Period") not otherwise invoiced to the Owner by the Vendor
prior to the termination of such Financing Interim Period, will be invoiced to
the Owner by the Vendor within thirty (30) days (but failure to so invoice will
not excuse the Owner's obligation to otherwise pay the Vendor pursuant to the
terms of this subsection 24.9(a)) of such termination pursuant to this
subsection 24.9(a) and will be payable to the extent not otherwise in dispute by
the Owner within thirty (30) days of receipt of such invoice; provided that in
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no event will the Owner be liable to the Vendor due to a termination
of this Contract pursuant to this subsection 24.9(a) for any of the Vendor's
direct or indirect costs or expenses incurred in connection with any supplies or
equipment ordered by the Vendor or agreements entered into by the Vendor in
order to enable it to fulfill its obligations hereunder or in connection with
the establishment of and/or upgrade to its manufacturing, personnel,
engineering, administrative or other capacities and/or resources in
contemplation of or pursuant to its performance in accordance with the terms of
this Contract and any amounts due to the Vendor pursuant to this subsection
24.9(a) will be limited in all cases to Work actually done or Products or
Services actually delivered to the Owner, its sites or its facilities.
(b) If at any time after the Effective Date any material change will have
occurred in any Applicable Law or in the interpretation thereof by any
Governmental Entity, or there will be rendered any decision in any judicial or
administrative case, in either case which, in the reasonable opinion of the
Owner, would make the Owner's use of any part of any PCS System illegal or would
subject the Owner or any of its Affiliates to any material penalty, other
material liability or onerous condition or to any burdensome regulation by any
Governmental Entity or otherwise render the use of such PCS System economically
nonviable, then, with respect to such PCS System, or affected part thereof, or
with respect to the entire System if so affected, the Owner may terminate this
Contract without charge or penalty of any kind; provided that (i) the Owner
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gives the Vendor prior written notice of any such change or decision; (ii) that
the Owner uses its reasonable efforts for a reasonable time to reverse or
ameliorate such change or decision to the extent possible or practical prior to
declaring such termination and (iii) the Owner, at the Vendor's request, gives
the Vendor a legal opinion from a reputable law firm with experience in the area
confirming the Owner's reasonable opinion as set forth above. In the event of a
termination pursuant to this subsection 24.9(b), payment obligations incurred by
the Owner for Work actually done or Products or Services actually delivered by
the Vendor prior to such termination pursuant to this Contract will be payable
by the Owner to the Vendor on the same terms and subject to the limitations set
forth in subsection 24.9(a) above.
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91
SECTION 25 SUSPENSION
25.1 Owner's Right to Suspend Work. The Owner may, at any time and upon
-----------------------------
reasonable notice to the Vendor, order the Vendor, in writing, to suspend all or
any part of the Work for such reasonable period of time as the Owner may
reasonably determine to be appropriate for its convenience. Any request by the
Vendor for a change in the Specifications caused by the Owner's suspension of
the Work pursuant to this subsection 25.1 will be subject to the review and
reasonable acceptance of the Owner. No modification to the Specifications will
be made to the extent that performance is, was or would have been suspended,
delayed or interrupted for any other cause due to the Vendor's fault or if the
suspension had no effect on agreed upon performance deadlines and/or Project
Milestones set forth in this Contract. In the event of any such suspension, the
Vendor will be compensated for any actual and reasonable loss, actual and
reasonable damages or actual and reasonable expenses arising directly from such
delay, including but not limited to payments contractually required under any
Subcontractor agreements and reimbursement of reasonable expenses associated
with the necessary re-deployment of the Vendor's resources; provided that the
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Vendor will in such event use reasonable efforts to estimate and report to the
Owner any such costs or expenses prior to the commencement of any such Owner
suspension pursuant to this subsection 25.1.
SECTION 26 MOST FAVORED CUSTOMER
26.1 Most Favored Customer Status. (a) With respect to the deployment of
----------------------------
the Initial System (including any Expansions or additions to the Initial System
within the context of the Initial System pursuant to the terms of this
Contract), the Owner will be deemed one of the Vendor's most important and
favored Customers and will always receive priority in terms of availability and
quantity of Products, Engineering and Services no less favorable than any other
Customer of the Vendor and in any event always in accordance with the terms of
this Contract, including, but not limited to, Exhibit A2. At any time during the
Term, the Owner will receive PCS Products, Engineering and Services at prices
and on payment terms and all other contract terms, including financing terms, no
less favorable to the Owner (when viewed collectively) than those offered or
available to any other Customer (other than Initial Affiliates and/or Additional
Affiliates pursuant to the terms of this Contract) of the Vendor for use of such
Items within the Unites States who are involved in transactions and/or
arrangements of similar or lesser volumes (for the purposes hereof, the Owner's
volume will always be deemed to be at least the level of the Initial Commitment
plus any more PCS Products, Services and/or Engineering ordered at such time
- - ----
during the Term of this Contract.)
(b) On an annual basis throughout the Term of this Contract commencing on
the Effective Date the Vendor will be required to audit its offering of all CDMA
PCS Products, engineering and services provided to the then-existing ten (10)
largest of its Customers (other than Initial Affiliates and/or Additional
Affiliates pursuant to the terms of this Contract) (based on volume purchased or
to be purchased) in the preceding calendar year and certify to the Owner in a
certificate executed by a duly authorized officer of the Vendor (the "MFC
Certificate") that the Owner has in fact received the prices, payment and other
contract terms,
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92
availability and quantity of and on Products, Engineering and Services in
accordance with the terms of clause (a) above.
(c) To the extent the Owner determines pursuant to clause (b) above, or
otherwise, that the Vendor has not in fact complied with the terms of clause (a)
above the Owner will have thirty (30) Business Days from receipt of the MFC
Certificate to provide the Vendor with a written claim for Product and/or
Engineering and/or Service pricing rebates on future purchases under this
Contract based upon the Owner's reasonable calculation of the impact on the
Owner of the Vendor's failure to comply with clause (a) of this subsection 26.1.
The Owner's written claim will specify the reasoning underlying its claim. To
the extent the Vendor disagrees with any such claim for such pricing rebates
made by the Owner pursuant to this clause (c) the Vendor will have the right
within ten (10) Business Days of receiving the Owner's written rebate claim to
request management escalation of the matter as provided in subsection 23.1. In
the event that the Parties have not resolved the matter within ten (10) Business
Days after commencement of such escalation, either Party will have the right to
submit the Owner's claim and the Vendor's written response thereto to an
Independent Auditor who will have the authority only to determine whether the
Vendor is in non-compliance with the terms of clause (a) above and whether the
Owner's calculation of the claimed pricing rebate is fair and reasonable in
light of the Vendor's non-compliance with the terms of clause (a) above. Any
such independent determination will be made upon specific procedures and a set
of factors mutually agreed by the Parties. The Vendor will provide to the
Independent Auditor records and summaries of its agreements with such ten (10)
largest Customers pursuant to and in accordance with the terms of this
subsection 26.1. The Independent Auditor's determination must be made and
delivered to both the Vendor and the Owner within ten (10) Business Days of
receiving the request from the Vendor. The report of the Independent Auditor
will not be determinative of the Owner's right to pricing rebates under this
clause, and any dispute between the Vendor and the Owner as to such matter after
the Independent Auditor has rendered its opinion may be referred to arbitration
as provided in subsection 23.2; provided that the report of such Independent
-------- ----
Auditor will be admissible as evidence in any such arbitration. The Party
requesting a determination by an Independent Auditor will bear the cost of the
auditor, provided that, if the other Party's position is not supported by the
-------- ----
Independent Auditor, such other Party will bear any such cost.
SECTION 27 MISCELLANEOUS
27.1 Amendments. The terms and conditions of this Contract, including the
----------
provisions of Exhibits and Schedules hereto, may only be amended by mutually
agreed contract amendments. Each amendment must be in writing and will identify
the provisions to be changed and the changes to be made. Contract amendments
must be signed by duly authorized representatives of each of the Vendor and the
Owner.
27.2 Owner Liabilities. The Parties understand and agree that none of the
-----------------
Partners, nor any of their Affiliates, will guarantee or otherwise be in any way
liable with respect to any obligations or liabilities of the Owner or any of its
subsidiaries pursuant to this Contract. The Parties further understand and
agree that neither the Owner nor any of its subsidiaries
<PAGE>
93
will guarantee or otherwise be in any way liable for any obligations or
liabilities of any of the Partners or any Affiliate of the Owner pursuant to
this Contract unless, and only to the extent, (i) the Owner or any one of its
subsidiaries in accordance with the Owner's direction expressly agrees in
writing to guarantee or otherwise be liable for such liability, or (ii) in the
case of an Affiliate, such Affiliate orders Products and/or Services through the
Owner pursuant to the terms of this Contact.
27.3 Offset. The Vendor hereby waives any right of offset of amounts owed
------
by the Owner to the Vendor pursuant to the terms of this Contract.
27.4 Assignment. Except as otherwise permitted herein, neither this
----------
Contract nor any portion hereof may be assigned by either Party without the
express prior written consent of the other Party provided that such consent will
-------- ----
not otherwise be unreasonably withheld (provided further that the Owner's
-------- ------- ----
reasonable concern about an assignee's ability to perform the obligations and/or
the Work of the Vendor pursuant to and in accordance with the terms of this
Contract will be deemed to be reasonable grounds for the Owner withholding any
such consent). The Owner may, without the consent of the Vendor, collaterally
assign its rights hereunder (including, but not limited to, all licenses with
respect to the Software) to any or all parties providing financing for any part
of the Nationwide Network under a collateral trust for the benefit of the Vendor
and one or more other entities providing financing for any part of the
Nationwide Network or similar arrangement for the benefit of the Vendor and one
or more other entities providing for the financing for any part of the
Nationwide Network, in either case, which collateral trust or similar
arrangement, as the case may be, is reasonably acceptable to the Vendor in
accordance with the terms of the financing documents. If requested by the
Owner, the Vendor will within seven (7) days of such request provide a written
consent to any such assignment; provided that such consent will permit
-------- ----
reassignment if the financing parties exercise their remedies under the
documents for such financing subject to reasonable standards as to (i) the
creditworthiness of the assignee and (ii) the fact that the assignee is not at
such time a competitor of the Vendor. The foregoing rights and obligations are
in addition to those set forth in subsection 27.21. Any attempted assignment in
violation of the terms of this Contract will be null and void.
27.5 Enforcement. The Parties agree that either Party may enforce the
-----------
provisions of subsections 11.4 and 27.4 regarding assignment by an action for
injunction or other equitable remedies.
27.6 Notices. Any notice, request, consent, waiver or other communication
-------
required or permitted hereunder will be effective only if it is in writing and
personally delivered by hand or by overnight courier or sent by certified or
registered mail, postage prepaid, return receipt requested, addressed as
follows:
<PAGE>
94
If to the Owner:
MajorCo L.P.
c/o Sprint Telecommunications Venture
9221 Ward Parkway
Kansas City, Missouri 64113
Attention: Director, Program Management
If to the Vendor:
AT&T Corp.
7500 College Boulevard
Suite 1212
Overland Park, Kansas 66210
Attention: W.M. Plunkett
With a copy to;
AT&T Network Systems
Law Department
475 South Street
Morristown, New Jersey 07962
Attention: General Counsel
Written notice given pursuant to this subsection 27.6 will be delivered in
accordance with this subsection 27.6 in writing and when so delivered will be
deemed to have been fully served and delivered. By written notice provided
pursuant to this subsection 27.6, either Party may change its designated
addressee for purposes of giving notices under this Contract.
27.7 Governing Law and Forums. This Contract is governed by the laws and
------------------------
statutes of the State of Missouri, exclusive of Missouri's conflict of laws
rules. This Contract and the Work will be deemed to be made, executed and
performed in the State of Missouri. If one Party commences a lawsuit in
relation to this Contract against the other Party, such lawsuit can only be
brought in the State of Missouri. The Parties hereby waive a trial by jury in
any such lawsuit. The Vendor and the Owner each hereby irrevocably (a) agrees
that any suit, action or other legal proceeding arising out of or relating to
this Contract will be brought in the Federal District Court for the Western
District of Missouri, or in the Federal District Court for the District of
Delaware, which courts will have exclusive jurisdiction over any controversy
arising out of this Contract, (b) consents to the jurisdiction of such courts in
any such suit, action or proceeding and (c) waives any objection which it may
have to the laying of venue of any such suit, action or proceeding in such
courts and claim that any such suit, action or proceeding has been brought in an
inconvenient forum. Service of process in any suit, action or proceeding may be
made by mailing or delivering a copy of such process to the Owner or the Vendor,
as the case may be, at the addresses indicated in subsection 27.6 hereof and in
the manner set forth in such subsection 27.6. Nothing in this subsection 27.7
<PAGE>
95
will affect the right of the Owner or the Vendor to serve legal process in any
other manner permitted by law.
27.8 Compliance with Law. The Owner and the Vendor will (a) comply with
-------------------
all Applicable Laws in the performance of this Contract, including, without
limitation, the laws and regulations of the United States Department of Commerce
and State Department and any other applicable agency or department of the United
States regarding the import, re-import, export or re-export of products or
technology; and (b) indemnify each other for any loss, liability or expense
incurred as the result of breach of this subsection 27.8.
27.9 Independent Contractor. All work performed by any Party under this
----------------------
Contract will be performed as an independent contractor and not as an agent of
the other and no Persons furnished by the performing Party will be considered
the employees or agents of the other. The performing Party will be responsible
for its employees' compliance with all laws, rules, and regulations while
performing all work under this Contract.
27.10 Headings. The headings given to the Sections and subsections herein
--------
are inserted only for convenience and are in no way to be construed as part of
this Contract or as a limitation of the scope of the particular Section or
subsection to which the title refers.
27.11 Severability. Whenever possible, each provision of this Contract
------------
will be interpreted in such a manner as to be effective and valid under such
applicable law, but, if any provision of this Contract will be held to be
prohibited or invalid in any jurisdiction, the remaining provisions of this
Contract will remain in full force and effect and such prohibited or invalid
provision will remain in effect in any jurisdiction in which it is not
prohibited or invalid.
27.12 Waiver. Unless otherwise specifically provided by the terms of this
------
Contract, no delay or failure to exercise a right resulting from any breach of
this Contract will impair such right or will be construed to be a waiver
thereof, but such right may be exercised from time to time as may be deemed
expedient. If any representation, warranty or covenant contained in this
Contract is breached by either Party and thereafter waived by the other Party,
such waiver will be limited to the particular breach so waived and not be deemed
to waive any other breach under this Contract.
27.13 Public Statements and Advertising. (a) Neither Party nor its
---------------------------------
Subcontractors will issue any public statement (or any private statement unless
required in the performance of the Work), except as stated below, relating to or
in any way disclosing any aspect of the Work, the System, or any PCS System
including the scope, the specific terms of this Contract, extent or value of the
Work and/or the System or any PCS System. Express written consent of the other
Party is required prior to the invitation of or permission to any reporter or
journalist to enter upon the System or any part thereof. The Vendor agrees not
to use for publicity purposes any photographs, drawings and/or materials
describing the System or any PCS System without obtaining the prior written
consent of the Owner, which consent will not be unreasonably withheld. This
subsection 27.13(a) is not intended to exclude the provision of necessary
information to prospective Subcontractors and the Vendor's or the Owner's
<PAGE>
96
personnel, agents or consultants. All other such public disclosures by a Party
require the written consent of the other Party. The obligations of the Parties
under this subsection 27.13(a) are in addition to their respective obligations
pursuant to subsection 27.19. This subsection 27.13(a) will in no way limit
either Party from responding to customary press inquiries or otherwise making
public or private statements not otherwise disclosing Proprietary Information or
the specific terms of this Contract in the normal course of its business and/or
in connection with the Work hereunder.
(b) Subject to the last sentence of subsection 27.13(a), each Party will
submit to the other proposed copies of all advertising (other than public
statements or press releases) wherein the name, trademark or service mark of the
other Party or its Affiliates or affiliates is mentioned; and neither Party will
publish or use such advertising without the other Party's prior written
approval. Such approval will be granted as promptly as possible and will not be
unreasonably withheld. The Parties acknowledge that the obtaining of prior
written approval for each such use pursuant to this subsection 27.13(b) may be
an administrative burden. At the request of either Party, the Owner and the
Vendor will establish mutually acceptable guidelines that will constitute pre-
authorization for the uses specified therein. Such guidelines will be subject to
change from time to time at the reasonable request of either Party.
27.14 Records and Communications. To the extent not already established,
--------------------------
promptly after the Work begins, procedures for keeping and distributing orderly
and complete records of the Work and its progress will be established. The
procedures so established will be followed throughout the course of the Work
unless the Owner and the Vendor mutually agree in advance in writing to revise
the procedures. Furthermore, immediately after the Notice to Proceed is issued,
complete procedures for communications among the Owner and the Vendor will be
established. The procedures so established will be followed throughout the
course of the Work unless the Owner and the Vendor mutually agree in advance and
in writing to revise such procedure.
27.15 Ownership of Specifications. Neither the Vendor nor any
---------------------------
Subcontractor, nor any other Person performing or furnishing the Work, whether
or not under a direct or indirect contract with the Owner, will have or acquire
any title to or ownership rights in any of the Specifications, or in any other
part or portion of this Contract (or copies of any of the Specifications or this
Contract); and no such Person will reuse any of the Specifications on and/or
with respect to any other project without the prior written consent of the
Owner. The Specifications and this Contract (and any and all copies thereof),
are owned by and title resides in the Owner, unless otherwise agreed between the
Owner and any other Person. Notwithstanding anything contained herein to the
contrary, the Owner will not acquire any patent, copyright or trade secret
rights as a result of this Contract, except with respect to copyright and trade
secret rights pursuant to licenses and other approvals provided in connection
with the performance of the Work and except to the extent that a non-exclusive
license of any of the Vendor's copyright or trade secret rights is required to
perform the Work.
27.16 Financing Parties Requirements. The Vendor acknowledges that the
------------------------------
Owner represents that attainment of financing for construction of the Nationwide
Network may be
<PAGE>
97
subject to conditions that are customary and appropriate for the providers of
such financing. Therefore, the Vendor agrees to execute promptly any reasonable
amendment to or modification or assignment of this Contract required by such
providers (including, without limitation, any pertinent industrial development
authority or other similar governmental agency issuing bonds for financing of
the System) which do not materially modify the scope of the Vendor's Work in
order to obtain such financing. In the event that any such amendment or
modification materially increases the Vendor's risk or costs hereunder, the
Owner and the Vendor will negotiate in good faith to adjust the Contract Price,
and to equitably adjust such other provisions of this Contract, if any, which
may be affected thereby, to the extent necessary to reflect such increased risk
or costs. In no event will the Vendor be required to accept any modification or
amendment pursuant to this subsection 27.16 which places material increased risk
on the Vendor or otherwise materially modifies the scope of the Vendor's Work,
if, in the Vendor's reasonable opinion, such materially increased risk or
material modification in the Work is not otherwise adequately addressed by the
Owner or otherwise. The Vendor will be responsible for and pay all costs as a
result of the Vendor's unreasonable refusal to promptly comply with the request
for any such modification or amendment made by any provider of financing
described in this subsection 27.16.
27.17 Owner Review, Comment and Approval. To the extent that various
----------------------------------
provisions of this Contract provide for the Owner's review, comment, inspection,
evaluation, recommendation or approval, the Owner may at its option do so in
conjunction and/or consultation with the Vendor. To the extent that this
Contract requires the Owner to submit, furnish, provide or deliver to the Vendor
any report, notice, Change Order, request or other items, the Owner may at its
option and upon written notice to the Vendor designate the Engineer to submit,
furnish, provide or deliver such items as the Owner's agent therefor. To the
extent that various provisions of this Contract provide that the Owner may
order, direct or make requests with respect to performance of the Work or is
provided access to the System sites or any other site, the Owner may at its
option and upon written notice to the Vendor authorize the Engineer to act as
the Owner's agent therefor. Upon receipt of such notice, the Vendor will be
entitled to rely upon such authorization until a superseding written notice from
the Owner is received by the Vendor.
27.18 Specifications. The Owner acknowledges that parts of the
--------------
Specifications are comprised of Specifications prepared by the Vendor and that
the Vendor contributed significantly to many other portions thereof. The Owner
also acknowledges that, during the normal design, evolution and development
process, portions of the Specifications may appear in design and procurement
documents prepared by the Vendor in its normal course of business; provided,
--------
however, that the Owner will have no liability for any third party infringement
- - -------
claims arising from such Specifications prepared by the Vendor and the Vendor
will hold the Owner harmless from any such third party claims as provided in
subsection 14.2.
27.19 Confidentiality. (a) All information, including without limitation
---------------
all oral and written information (including, but not limited to, determinations
or reports by arbitrators or the Third Party Engineer pursuant to the terms of
this Contract), disclosed to the other Party is deemed to be confidential,
restricted and proprietary to the disclosing Party (hereinafter
<PAGE>
98
referred to as "Proprietary Information"). Each Party agrees to use the
Proprietary Information received from the other Party only for the purpose of
this Contract. Except as specified in this Contract, no other rights, and
particularly licenses, to trademarks, inventions, copyrights, patents, or any
other intellectual property rights are implied or granted under this Contract or
by the conveying of Proprietary Information between the Parties. Proprietary
Information supplied is not to be reproduced in any form except as required to
accomplish the intent of, and in accordance with the terms of, this Contract.
The receiving Party must provide the same care to avoid disclosure or
unauthorized use of Proprietary Information as it provides to protect its own
similar proprietary information but in no event will the receiving Party fail to
use reasonable care under the circumstances to avoid disclosure or unauthorized
use of Proprietary Information. All Proprietary Information must be retained by
the receiving Party in a secure place with access limited to only such of the
receiving Party's employees, subcontractors or agents who need to know such
information for purposes of this Contract and to such third parties as the
disclosing Party has consented to by prior written approval. All Proprietary
Information, unless otherwise specified in writing (i) remains the property of
the disclosing Party, (ii) must be used by the receiving Party only for the
purpose for which it was intended, and (iii) such Proprietary Information,
including all copies of such information, must be returned to the disclosing
Party or destroyed after the receiving Party's need for it has expired or upon
request of the disclosing Party, and, in any event, upon termination of this
Contract. At the request of the disclosing Party, the receiving Party will
furnish a certificate of an officer of the receiving Party certifying that
Proprietary Information not returned to disclosing Party has been destroyed.
For the purposes hereof, Proprietary Information does not include information
which:
(i) is published or is otherwise in the public domain
through no fault of the receiving Party at the time of any
claimed disclosure or unauthorized use by the receiving Party;
(ii) prior to disclosure pursuant to this Contract is
properly within the legitimate possession of the receiving Party
as evidenced by reasonable documentation to the extent
applicable;
(iii) subsequent to disclosure pursuant to this Contract
is lawfully received from a third party having rights in the
information without restriction of the third party's right to
disseminate the information and without notice of any restriction
against its further disclosure;
(iv) is independently developed by the receiving Party or
is otherwise received through parties who have not had, either
directly or indirectly, access to or knowledge of such
Proprietary Information;
(v) is transmitted to the receiving Party after the
disclosing Party has received written notice from the receiving
Party after termination or expiration of this Contract that it
does not desire to receive further Proprietary Information;
<PAGE>
99
(vi) is obligated to be produced under order of a
court of competent jurisdiction or other similar requirement of a
Governmental Entity, so long as the Party required to disclose
the information provides the other Party with prior notice of
such order or requirement and its cooperation to the extent
reasonable in preserving its confidentiality; or
(vii) the disclosing Party agrees in writing is free of
such restrictions.
(b) Because damages may be difficult to ascertain, the Parties agree,
without limiting any other rights and remedies specified herein, an injunction
may be sought against the Party who has breached or threatened to breach this
subsection 27.19. Each Party represents and warrants that it has the right to
disclose all Proprietary Information which it has disclosed to the other Party
pursuant to this Contract, and each Party agrees to indemnify and hold harmless
the other from all claims by a third party related to the wrongful disclosure of
such third party's proprietary information. Otherwise, neither Party makes any
representation or warranty, express or implied, with respect to any Proprietary
Information.
27.20 Entirety of Contract; No Oral Change. This Contract and the
------------------------------------
Exhibits and Schedules referenced herein constitute the entire contract between
the Parties with respect to the subject matter hereof, and supersede all
proposals, oral or written, all previous negotiations, and all other
communications between the Parties with respect to the subject matter hereof.
No modifications, alterations or waivers of any provisions herein contained will
be binding on the Parties hereto unless evidenced in writing signed by duly
authorized representatives of both Parties as set forth in subsection 27.1. Any
representations by the Vendor in any RFP response and/or any documentation
otherwise provided to the Owner in connection with the Vendor's solicitation of
the business granted pursuant hereto prior to the execution hereof will also be
deemed to be incorporated into and otherwise made a part of this Contract;
provided that any such information will in no way be deemed to modify the
- - -------- ----
Specifications unless otherwise specifically mutually agreed by the Parties.
27.21 Successors and Assigns. This Contract will bind and inure to the
----------------------
benefit of the Parties to this Contract, their successors and permitted assigns.
27.22 Change of Control of the Vendor. The Vendor will not consolidate
-------------------------------
with or merge into any other Person or convey, transfer or lease all or
substantially all of its assets to any Person, nor will any Person or group (as
such term is defined in the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) own or acquire fifty percent (50%) of the value of the Vendor's
equity where such Person or group did not own as of the Effective Date in excess
of ten percent (10%) of such equity (any such Person or group will be referred
to as the "Vendor's Succeeding Entity"), unless:
(i) the Vendor's Succeeding Entity will agree to
assume the obligations of the Vendor under this Contract; and
(ii) the Owner will have approved the transaction,
based solely on (i) the creditworthiness of the Vendor's
Succeeding Entity, (ii) whether the
<PAGE>
100
Vendor's Succeeding Entity is a competitor of the Owner and (iii)
whether in the Owner's reasonable judgment the Vendor's
Succeeding Entity will be able to fulfill the obligations for
present and future orders under this Contract.
Notwithstanding the foregoing paragraph, by provision of prior written
notice in accordance with this Contract, the Vendor will have the right, without
further consent of the Owner, to assign the Vendor's rights and delegate the
Vendor's obligations and liabilities under this Contract in whole (but not in
part), to any Person that is, or that was immediately prior to the assignment, a
current or former subsidiary, business unit, division or other affiliate of the
Vendor, provided that such entity is in fact the full successor to the Network
Systems Group (the "Successor") in connection with the transaction effecting
restructure of the Vendor and its affiliates announced on September 20, 1995
(the "AT&T Assignment"). The notice of the AT&T Assignment will state the
effective date of the AT&T Assignment. Upon the effective date of the AT&T
Assignment, the Vendor will be released and discharged from all obligations and
liabilities under this Contract provided that the Successor will have assumed
-------- ----
all obligations and liabilities under this Contract. The AT&T Assignment will
be complete and will not be altered by the termination of the affiliation
between the Vendor and the Successor.
27.23 Change of Control of the Owner. Except as otherwise permitted under
------------------------------
the documents relating to the financing of the build-out of the Nationwide
Network, the Owner will not consolidate with or merge into any other business
entity or convey, transfer or lease all or substantially all of its assets to
any Person, nor will any Person or group (as such term is defined in the
Exchange Act) own or acquire fifty percent (50%) of the value of the Owner's
limited partnership interests or general partnership interests where such Person
or group did not own as of the Effective Date in excess of ten percent (10%) of
either of such partnership interests (any such Person or group will be referred
to as the "Owner's Succeeding Entity"), unless:
(a) the Owner's Succeeding Entity will agree to assume the obligations of
the Owner under this Contract; and
(b) the Vendor will have approved the transaction, based solely on (i) the
creditworthiness of the Owner's Succeeding Entity and (ii) whether the Owner's
Succeeding Entity is a competitor of the Vendor.
27.24 Relationship of the Parties. Pursuant to subsection 27.9, nothing
---------------------------
in this Contract will be deemed to constitute either Party a partner, agent or
legal representative of the other Party, or to create any fiduciary relationship
between the Parties. The Vendor is and will remain an independent contractor in
the performance of this Contract, maintaining complete control of its personnel,
workers, Subcontractors and operations required for performance of the Work.
This Contract will not be construed to create any relationship, contractual or
otherwise, between the Owner and any Subcontractor.
<PAGE>
101
27.25 Discretion. Notwithstanding anything contained herein to the
----------
contrary, to the extent that various provisions of this Contract call for an
exercise of discretion in making decisions or granting approvals or consents,
the Parties will be required to exercise such discretion, decision or approvals
in accordance with accepted PCS industry practices and in good faith.
27.26 Non-Recourse. No past, present or future limited or general partner
------------
in or of the Owner, no parent or other affiliate of any company comprising the
Owner, and no officer, employee, servant, executive, director, agent or
authorized representative of any of them (each, an "Operative") will be liable
by virtue of the direct or indirect ownership interest of such Operative in the
Owner for payments due under this Contract or for the performance of any
obligation, or breach of any representation or warranty made by the Owner
hereunder. The sole recourse of the Vendor for satisfaction of the obligations
of the Owner under this Contract will be against the Owner and the Owner's
assets and not against any Operative or any assets or property of any such
Operative. In the event that a default occurs in connection with such
obligations, no action will be brought against any such Operative by virtue of
its direct or indirect ownership interest in the Owner. The foregoing
provisions of this subsection 27.26 will not in any way limit or restrict any
right or remedy of the Vendor with respect to, and the Operatives will remain
fully liable for, any fraud perpetuated by such Operatives.
27.27 Improvements, Inventions and Innovations. All rights in any
----------------------------------------
improvements, inventions, and innovations made by the Owner will vest in the
Owner, and the Owner and its affiliates will have the right to exploit such
improvements, inventions, and innovations. All rights in any improvements,
inventions and innovations made by the Vendor will vest in the Vendor, and the
Vendor and its affiliates will have the right to exploit such improvements,
inventions and innovations; provided, however, that subject to and in accordance
-------- -------
with subsection 11.9 the Owner and its affiliates may be granted certain rights
to improvements, inventions or innovations made in connection with the System
pursuant to subsection 11.9 by the Vendor (but not by any Subcontractor) in the
course and as a result of performing the Work and in which the Vendor owns or
possesses any proprietary interest (provided that the immediately preceding
-------- ----
proviso of this last sentence of this subsection 27.27 is not subject to
subsection 23.2).
27.28 Attachments and Incorporations. All Schedules and Exhibits attached
------------------------------
hereto, are hereby incorporated by reference herein and made a part of this
Contract with the same force and effect as though set forth in their entirety
herein.
27.29 Conflicts. In the event of any conflict or inconsistency among the
---------
provisions of this Contract and the documents attached hereto and incorporated
herein, such conflict or inconsistency will be resolved by giving precedence to
this Contract and thereafter to the Exhibits, Schedules and Specifications.
27.30 Counterparts. This Contract may be executed by one or more of the
------------
Parties to this Contract on any number of separate counterparts, and all of said
counterparts taken together will be deemed to constitute one and the same
instrument.
<PAGE>
102
THE OWNER AND THE VENDOR HAVE READ THIS CONTRACT INCLUDING ALL SCHEDULES
AND EXHIBITS HERETO AND AGREE TO BE BOUND BY ALL THE TERMS AND CONDITIONS HEREOF
AND THEREOF.
IN WITNESS WHEREOF, the Parties have executed this Contract as of the
date first above written.
AT&T CORP., as the Vendor
By: /s/ Daniel C. Stanzione
-------------------------
Name: Daniel C. Stanzione
Title: President, Network Systems
MAJORCO L.P., as the Owner
By: /s/ Ronald T. LeMay
---------------------
Name: Ronald T. LeMay
Title: Chief Executive Officer
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 DEFINITIONS
1.1 Definitions......................................... 1
1.2 Other Definitional Provisions....................... 21
SECTION 2 SCOPE OF WORK, RESPONSIBILITIES AND PROJECT
MILESTONES
2.1 Scope of Work....................................... 22
2.2 Additional Coverage................................. 22
2.3 Handsets............................................ 23
2.4 Initial PCS System.................................. 24
2.5 System Element Verification; Test-bed Laboratory.... 24
2.6 RF Engineering; Site Acquisition and MSC
Installation............................................ 25
2.7 Facilities Preparation Services and Installation.... 27
2.8 Site Acquisition Modifications...................... 27
2.9 Design/System Architecture and Engineering.......... 28
2.10 Certification...................................... 28
2.11 Notice of Developments............................. 28
2.11.1 Vendor Developments.............................. 28
2.11.2 Participation in Testing......................... 29
2.12 Safety............................................. 29
2.13 Emergencies........................................ 30
2.14 Right of Inspection................................ 30
2.15 Transportation..................................... 31
2.16 Security........................................... 31
2.17 Materials and Equipment............................ 31
2.18 Equipment and Data................................. 32
2.19 References to Certain Sources...................... 32
2.20 Operating Manuals.................................. 32
2.21 Maintenance and Instruction Manuals................ 32
2.22 Standards for Manuals.............................. 33
2.23 Training........................................... 33
2.24 Manuals and Training............................... 35
2.25 Spare Parts........................................ 35
2.26 System Support Services............................ 36
2.26.1 Vendor Assistance................................ 36
2.26.2 Trouble Reports.................................. 36
2.26.3 Emergency Technical Assistance ("ETA")........... 37
2.26.4 ETA and CSR...................................... 41
2.27 Supply of Additional Products...................... 41
2.28 Review of Contract................................. 42
2.29 Licenses, Permits and Approvals.................... 42
2.30 Eligibility under Applicable Laws and Applicable
Permits................................................. 42
</TABLE>
<PAGE>
<TABLE>
Page
<S> <C> <C>
2.31 Customs Approvals.. 42
2.32 Owner Participation... 42
2.33 New Development Advisory Board 43
2.34 Market Development Manager 43
2.35 Further Assurances.... 43
2.36 Liens and Other Encumbrances 43
2.37 Forecasting and Ordering 44
2.38 Microwave Relocation; Network Interconnection 45
2.39 Vendor To Inform Itself Fully; Waiver of Defense 45
2.40 CMI/HIC 46
2.41 Site Acquisition Delay Testing 46
SECTION 3 AFFILIATES
3.1 Additional Affiliates.. 47
3.2 Agreements with Initial Affiliates 47
3.3 Agreements with Additional Affiliates 47
3.4 Affiliate Rights....... 48
SECTION 4 SUBCONTRACTORS
4.1 Subcontractors......... 48
4.2 The Vendor's Liability 48
4.3 No Effect of Inconsistent Terms in Subcontracts 48
4.4 Assignability of Subcontracts to Owner 48
4.5 Removal of Subcontractor or Subcontractor's
Personnel.................. 49
4.6 Subcontractor Insurance 49
4.7 Review and Approval not Relief of Vendor Liability 49
4.8 Vendor Warranties...... 49
4.9 Payment of Subcontractors 49
SECTION 5 TERM OF CONTRACT
5.1 Initial Term 50
5.2 Renewal 50
SECTION 6 PRICES AND PAYMENT
6.1 Prices 50
6.2 Price Reduction........ 50
6.3 Payments 51
6.3.1 Additional Products not in Initial System
or Otherwise Provided for in Section 22....
6.4 Payments for Facilities Preparation Services 52
6.5 Monthly Forecasts...... 53
6.6 No Payment in Event of Material Breach 53
6.7 Microwave Relocation Delay Partial Payments 54
6.8 In Revenue Payments.... 54
SECTION 7 ORDERS AND
SCHEDULING
</TABLE>
<PAGE>
<TABLE>
Page
<S> <C> <C>
7.1 Initial Commitment..... 55
7.2 Change Orders.......... 55
7.3 Cancellation 55
SECTION 8 INSTALLATION
8.1 Installation 56
8.2 No Interference........ 56
SECTION 9 ACCEPTANCE TESTING
AND ACCEPTANCE
9.1 Acceptance Testing..... 56
9.2 Costs and Expenses..... 56
9.3 Notification 56
9.4 Presence at Acceptance Tests 56
9.5 Correction of Defects.. 57
9.6 Acceptance Certificate 57
SECTION 10 DISCONTINUED
PRODUCTS
10.1 Notice of Discontinuation 58
10.2 Discontinuation During Warranty Period 58
10.3 Discontinuation After Warranty Period 58
SECTION 11 SOFTWARE;
CONFIDENTIAL INFORMATION
11.1 RTU License........... 59
11.2 Owner's Obligations... 59
11.3 Backwards Compatibility 60
11.4 Transfer and Relocation 60
11.5 Survival 61
11.6 Access to Source Codes 61
11.7 Escrow Agreement...... 61
11.8 Software Maintenance.. 62
11.9 Custom Development.... 62
11.9.1 Request for Custom Material 62
11.9.2 Vendor Response 63
11.9.3 Ownership of Intellectual Property 63
SECTION 12 SOFTWARE CHANGES
12.1 Annual Release Maintenance Fees 63
12.2 Notice 63
12.3 Installation, Testing and Maintenance 63
12.4 Software Fixes........ 64
SECTION 13 EQUIPMENT CHANGES
13.1 Equipment Upgrades.... 64
13.2 Notice 66
13.3 Installation, Testing and Acceptance 66
13.4 Equipment Fixes....... 66
</TABLE>
<PAGE>
<TABLE>
Page
<S> <C> <C>
SECTION 14 INTELLECTUAL
PROPERTY
14.1 Intellectual Property 66
14.2 Infringement.......... 66
14.3 Vendor's Obligation to Cure 67
14.4 Vendor's Obligations.. 68
14.5 License to Use Vendor Patents 68
SECTION 15 DELAY
15.1 Liquidated Damages.... 69
15.2 Interim Delay......... 69
15.3 Completion Delay...... 69
SECTION 16 FORCE MAJEURE
SECTION 17 WARRANTIES
17.1 Product Warranty...... 71
17.2 Services Warranty..... 72
17.3 System Warranty....... 72
17.4 Breach of Warranties.. 73
17.5 Repair and Return..... 75
17.6 Technical Assistance Center 77
17.7 Scope of Warranties... 77
17.8 Expenses 77
17.9 Third Party Warranties 78
17.10 Additional System Element Locations 78
17.11 EXCLUSIVE REMEDIES... 78
SECTION 18 INSURANCE
18.1 Insurance 78
SECTION 19 TAXES
19.1 Taxes 78
SECTION 20 INDEMNIFICATION
AND LIMITATION OF LIABILITY
20.1 Vendor Indemnity...... 79
20.2 LIMITATION ON LIABILITY 80
20.3 Damages for Fraud or Willful Misconduct 80
SECTION 21 REPRESENTATIONS
AND WARRANTIES
21.1 Representations and Warranties of the Vendor 80
21.1.1 Due Organization of the Vendor 80
21.1.2 Due Authorization of the Vendor; Binding
Obligation.............. 80
211.3 Non-Contravention 81
211.4 Regulatory Approvals 81
211.5 Non-Infringement 81
211.6 Scope 81
</TABLE>
<PAGE>
<TABLE>
Page
<S> <C> <C>
21.1.7 Requisite Knowledge 81
21.1.8 Financial Capacity 81
21.2 Representations and Warranties of the Owner 81
21.2.1 Due Organization of the Owner 81
21.2.2 Due Authorization of the Owner; Binding
Obligation.............. 81
21.2.3 Non-Contravention 82
SECTION 22 TITLE AND RISK OF
LOSS
22.1 Title 82
22.2 Risk of Loss.......... 82
SECTION 23 DISPUTE RESOLUTION
23.1 Dispute Resolution.... 83
23.2 Arbitration 83
23.3 Third Party Engineer.. 84
23.4 Other Remedies........ 85
23.5 Tolling 85
SECTION 24 TERMINATION AND
EVENTS OF DEFAULT
24.1 Termination Without Cause 85
24.2 Termination for Cause. 85
24.3 Remedies 87
24.4 Discontinuance of Work 88
24.5 Payments 88
24.6 Costs
24.7 Continuing Obligations 88
24.8 Vendor's Right to Terminate 89
24.9 Special Termination Events 89
SECTION 25 SUSPENSION
25.1 Owner's Right to Suspend Work 91
SECTION 26 MOST FAVORED CUSTOMER
26.1 Most Favored Customer Status 91
SECTION 27 MISCELLANEOUS
27.1 Amendments............ 92
27.2 Owner Liabilities..... 92
27.3 Offset 93
27.4 Assignment............ 93
27.5 Enforcement........... 3
27.6 Notices 3
27.7 Governing Law and Forums 4
27.8 Compliance with Law... 5
27.9 Independent Contractor 5
27.10 Headings 5
</TABLE>
<PAGE>
<TABLE>
Page
<S> <C> <C>
27.11 Severability...... 95
27.12 Waiver 95
27.13 Public Statements and Advertising 95
27.14 Records and Communications 96
27.15 Ownership of Specifications 96
27.16 Financing Parties Requirements 96
27.17 Owner Review, Comment and Approval 97
27.18 Specifications....... 97
27.19 Confidentiality...... 97
27.20 Entirety of Contract; No Oral Change 99
27.21 Successors and Assigns 99
27.22 Change of Control of the Vendor 99
27.23 Change of Control of the Owner 100
27.24 Relationship of the Parties 100
27.25 Discretion 101
27.26 Non-Recourse......... 101
27.27 Improvements, Inventions and Innovations 101
27.28 Attachments and Incorporations 101
27.29 Conflicts 101
27.30 Counterparts......... 101
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C><C>
Exhibit A1 - Project Milestones
Exhibit A2 - PCS Product Availability
Exhibit B1 - RF Design and Acceptance Process
Exhibit B2 - Acceptance Process for Completion of System Element Facilities
Exhibit B3 - Validation and Acceptance Testing
Exhibit C - Owner Required Wireless Features and Functions
Exhibit D - System Elements
Exhibit E - Construction Management Criteria
Exhibit F - RF Performance Criteria
Exhibit G - BTS/BSC - MSC Interoperability
Exhibit H - Handsets
Exhibit I - Technology Integration Laboratory Requirements
SCHEDULES
Schedule 1 - Preliminary RF Design
Schedule 2 - Product Prices
Schedule 3 - Services Prices
Schedule 4 - Allocated System Areas
Schedule 5 - Initial Affiliates
Schedule 6 - Insurance Provisions
Schedule 7 - Products
Schedule 8 - Vendor's Repair Facilities
Schedule 9 - Form of Notice to Proceed
Schedule 10 - [Intentionally Omitted]
Schedule 11 - Order Cancellation Charges
Schedule 12A - Spare Parts Requirements
Schedule 12B - Spare Parts Prices
Schedule 13 - AT&T Foreign Subsidiaries and Affiliates
Schedule 14 - Third Party Engineers
Schedule 15 - Independent Auditors
</TABLE>
<PAGE>
Schedule 13
-----------
Foreign Affiliates
Each entity referred to in subsection 2.2 (c) is the Vendor's primary
subsidiary offering PCS Products and Services in the country or territory
involved on the Effective Date, or its successor. As of the Effective Date,
these entities are for Canada, AT&T Canada Inc., and for Mexico, AT&T de Mexico
--------------
SA de CV. This list includes any other foreign or other Vendor affiliate
- - --------
otherwise designated.
<PAGE>
Schedules 2 and 3
-----------------
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12/9/9511:48 A
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12/9/9511:48 A
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12/9/9511:48 A
<PAGE>
[ ]
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12/9/9511:49
<PAGE>
[ ]
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12/9/9511:48 AM
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12/9/9511:48 AM
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12/9/951:03 PM
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12/9/9511:49 A
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 11:49 AM12/9
<PAGE>
[ ]
STV PRICING PROPOSAL AT11:49 AM PROPRIETARY 12/9/9511:49
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12:08 PM12/9
<PAGE>
[ ]
STV PRICING PROPOSAL AT&T PROPRIETARY 12/9/9511:50 A
<PAGE>
SCHEDULE 4
Allocated System Areas
----------------------
(AT&T)
City
----
San Francisco
New York
Boston
Portland
Seattle
Pittsburgh
Phoenix
Philadelphia
Buffalo
Detroit
Milwaukee
Denver
Salt Lake
Spokane
including maps of the aforementioned MTAs
<PAGE>
Attached are the Owner's System Area (or MTA) coverage definition maps.
Legend
The highways shown in green are only those highways with an average
daily traffic count of greater than 10,000 vehicles. The darker green
represents an average daily traffic count of greater than 50,000 vehicles.
The census tracts of the System Areas were combined and ranked by demand
density in erlangs (wireless talk time traffic) per square mile for year 10,
based on busy hour (peak daily demand hour) minutes of use estimates. Those
tracts which fall within the top 70% of the population total a national level
are displayed in red. Those tracts which fall within the next 10% of the total
population (70 to 80% at the national level) are displayed in pink.
Initial System Coverage
For contiguous Initial System coverage, the Contract's requirement is to
cover all of the red, pink and green areas within the blue "Arbitron Radio
Market" boundaries. This represents 60% covered population at the national
level for the Initial System.
<PAGE>
Schedule 5
----------
INITIAL AFFILIATES
1. Each of the Partners and their operating subsidiaries.
2. APC and its operating subsidiaries.
3. PhillieCo and its operating subsidiaries.
4. Continental and its operating subsidiaries.
5. TCG and its operating subsidiaries.
6. NewTelCo. and its operating subsidiaries.
<PAGE>
Schedule 11
-----------
Without charge and/or penalty, the Owner may cancel any Order for Products no
later than ninety (90) days prior to the earliest date scheduled for shipment of
such Product; or
If the Owner cancels an Order less than ninety (90) days prior to the earliest
date scheduled for shipment of such Product, the Owner will pay to the Vendor a
cancellation charge of ten percent (10%) of the price for such Product as
determined pursuant to the Contract; or
If the Owner cancels an Order less than sixty (60) days prior to the earliest
date scheduled for shipment of such Product, the Owner will pay to the Vendor a
cancellation charge of fifteen percent (15%) of the price for such Product as
determined pursuant to the Contract; or
If the Owner cancels an Order less than thirty (30) days prior to the earliest
date scheduled for shipment of such Product, the Owner will pay to the Vendor a
cancellation charge of twenty percent (20%) of the price for such Product as
determined pursuant to the Contract.
The Owner may not cancel an Order after the applicable date scheduled for
shipment of such Product. The payment of such charges will be the Vendor's sole
remedy and the Owner's sole obligation for such canceled Order. Any changes
requested by the Owner that involve the return or exchange of Non-Essential
Equipment will be subject to the standard policies of the applicable Non-
Essential Equipment supplier unless such policies are otherwise set out in the
applicable agreement between such Non-essential Equipment supplier and the
Vendor, in which case the Owner will be entitled to cancel any such Order for
Non-essential Equipment in accordance with the terms of such agreement. For the
purposes of this Schedule 11, the term "Order" will not include the Minimum
Commitment or the Initial Commitment.
Nothing herein will be deemed to bar the Vendor's right to invoice the Owner for
all Services actually performed prior to the date of such performance by the
Vendor in respect of such Products in accordance with the provisions of this
Contract.
<PAGE>
[ ]
<PAGE>
EXHIBIT A2
----------
[ ]
<PAGE>
EXHIBIT 10.4
PAGING SALES AGENCY AGREEMENT
BETWEEN
MAJORCO, L.P.
AND
SPRINT COMMUNICATIONS COMPANY, L.P.
JANUARY 17, 1996
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS.............................................................. 1
1.1 General................................................................. 1
1.2 Rules of Construction................................................... 3
2. RELATIONSHIP OF PARTIES;................................................. 3
2.1 Agency.................................................................. 3
2.1.1 Appointment of Agent................................................ 3
2.1.2 Execution of Program Schedule....................................... 3
2.1.3 Customers........................................................... 4
2.1.4 Compliance.......................................................... 4
2.2 Program Schedule........................................................ 4
2.2.1 Contents............................................................ 4
2.2.2 Effect.............................................................. 5
2.3 Subagents............................................................... 5
2.4 Tariffs and Prices...................................................... 6
2.5 Marketing............................................................... 6
2.5.1 General............................................................. 6
2.5.2 Packaging........................................................... 6
2.5.3 Telemarketing....................................................... 6
2.5.4 Trademark........................................................... 7
2.5.5 Joint Marketing Agreement........................................... 7
2.6 Restriction on Agent Authority.......................................... 7
2.7 Outsourcing............................................................. 7
2.7.1 General............................................................. 7
2.7.2 Outsourcing to Agent................................................ 8
2.8 Order Acceptance and Cancellation; Discontinuation of Service........... 9
2.9 Cooperation............................................................. 9
2.10 Resale Agreement....................................................... 9
2.10.1 General............................................................ 9
2.10.2 Notice............................................................. 9
2.10.3 Vendor intellectual property....................................... 10
2.10.4 Misuse............................................................. 10
2.11 Access................................................................. 10
3. PAYMENTS................................................................. 11
3.1 Determination........................................................... 11
3.2 Commissions of Subagents................................................ 11
3.3 Sole Compensation....................................................... 11
3.4 Taxes................................................................... 12
4. ETHICAL CONDUCT AND RELATED COVENANTS.................................... 12
5. CONFIDENTIALITY; TRADE SECRETS........................................... 12
5.1 Restriction............................................................. 12
5.2 Use..................................................................... 12
5.3 Copying................................................................. 13
5.4 Care.................................................................... 13
5.5 Ownership............................................................... 13
5.6 Limitation.............................................................. 13
5.7 Relief.................................................................. 14
</TABLE>
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<TABLE>
<S> <C>
5.8Term.................................................................... 14
5.9Right to Disclose....................................................... 14
6.INSURANCE................................................................ 15
6.1Required Insurance of Agent............................................. 15
6.2Required Insurance of Principal......................................... 15
6.3Policies of Insurance................................................... 15
6.4No Limitation on Liability.............................................. 15
6.5Compliance.............................................................. 16
6.6Release................................................................. 16
7.REPRESENTATIONS AND WARRANTIES........................................... 16
7.1Due Incorporation or Formation; Authorization of Agreements............. 16
7.2No Conflict; No Default................................................. 17
7.3Litigation.............................................................. 17
8.LIABILITY OF PARTIES..................................................... 17
9.INDEMNIFICATION.......................................................... 18
9.1Indemnification by Agent................................................ 18
9.2Indemnification by Principal............................................ 19
9.3Procedure............................................................... 19
9.3.1 Notice........................................................... 19
9.3.2 Defense by Indemnitor............................................ 19
9.3.3 Defense by Indemnitee............................................ 20
9.3.4 Costs............................................................ 20
10.DISPUTE RESOLUTION....................................................... 20
10.1Negotiation............................................................. 20
10.2Arbitration............................................................. 21
10.3Attorneys and Intent.................................................... 21
11.TERMINATION.............................................................. 21
11.1Termination by Breach................................................... 21
11.2Voluntary Termination................................................... 22
11.3Transition Period....................................................... 22
11.4Effects of Termination.................................................. 23
11.5Sale of Customers....................................................... 23
12.GENERAL PROVISIONS....................................................... 24
12.1Notices and Inquiries................................................... 24
12.2Construction............................................................ 25
12.3Time.................................................................... 25
12.4Headings................................................................ 25
12.5Severability............................................................ 25
12.6Further Action.......................................................... 26
12.7Governing Law........................................................... 26
12.8Counterpart Execution................................................... 26
12.9Specific Performance.................................................... 26
12.10Entire Agreement....................................................... 26
12.11Parties in Interest; Limitation on Rights of Others.................... 27
12.12Assignability.......................................................... 27
12.13Waivers; Remedies...................................................... 27
12.14Force Majeure.......................................................... 27
</TABLE>
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<TABLE>
<S> <C>
12.15 Continuation of Exclusivity........................................... 28
12.16 Consistency........................................................... 28
12.17 Disclosure............................................................ 28
</TABLE>
Exhibit A: Form of Program Schedule
Exhibit B: Senior Executives for Dispute Resolution
iii
<PAGE>
THIS PAGING SALES AGENCY AGREEMENT is entered into as of the 17th day of
January, 1996, by and between SPRINT COMMUNICATIONS COMPANY L.P., a Delaware
limited partnership ("Sprint"), and MAJORCO, L.P., a Delaware limited
partnership ("MajorCo").
1. DEFINITIONS
1.1 GENERAL
- - -----------
As used in this agreement, the following terms have the meanings set forth
below:
"AGENT" means Sprint.
"AGREEMENT" means this agreement, any exhibit to this agreement and any Program
Schedule made pursuant to this agreement.
"CUSTOMER" means customers of Principal for purposes of Paging Services. The
term does not include persons who are customers of Agent for non-Paging
Services.
"DISTRIBUTOR" means an Entity authorized by an Agent or Subagent pursuant to
Section 3 in this Agreement to market Paging Services directly to end-users.
"ENTITY" means any firm, corporation, company, partnership, group, trust, joint
venture, association, Governmental Authority or other legal entity or
organization.
"GOVERNMENTAL AUTHORITY" means any federal, state, or local court,
administrative agency, board, bureau, or commission or other governmental
department, authority, or instrumentality.
"LICENSED MARK" means the trademark "Sprint" together with the related "Diamond"
logo.
"MAJORCO AGREEMENT" means the Agreement of Limited Partnership of MajorCo, L.P.
"MARK" means the tradename, service mark, brand, or trademark of a Party.
"PAGING SERVICE" means that paging service identified as the paging service on a
Program Schedule pursuant to Section 2 in this Agreement.
"PARTY" means Sprint or MajorCo individually, and "PARTIES" means Sprint and
MajorCo collectively.
"PERSON" means any individual or Entity.
1
<PAGE>
"PRINCIPAL" means MajorCo.
"PROGRAM SCHEDULE" means a program schedule that is Issued pursuant to Section 2
in this Agreement.
"PROPRIETARY INFORMATION" as described in Section 5.1.
"RESALE AGREEMENT" means an agreement between a Vendor and Principal under
which Principal purchases paging services from Vendor for resale by Principal.
"RESPONSIBILITY" means a responsibility undertaken by Agent in connection with
its marketing of Paging Services offered by Principal under this Agreement.
"SPRINT TRADEMARK LICENSE AGREEMENT" means the Sprint Trademark License
Agreement of March 28, 1995, between Sprint and MajorCo.
"SUBAGENT" means an Entity authorized by an Agent to appoint Distributors and
to market Paging Services directly to end-users.
"SUBSIDIARY" of any Person means an Entity
(a) of which more than fifty percent (50%) of the outstanding shares or
securities are owned or controlled, directly or indirectly through one or
more Subsidiaries, by such Person, and the shares or securities so owned
entitle such Person and/or Subsidiaries to elect at least a majority of
the members of the board of directors or other managing authority of such
Entity or
(b) which does not have outstanding shares or securities, as may be the
case in a partnership, joint venture or unincorporated association, but of
which more than fifty percent (50%) (by value) of the ownership interest is
owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Person, or in which the ownership interest so owned
entitles such Person and/or Subsidiaries to make the decisions for such
Entity,
provided, in each case, that such Entity will be deemed to be a Subsidiary only
so long as such ownership or control exists.
"TARIFF" means a tariff filed with the Federal Communications Commission and/or
a state regulatory Commission and pursuant to which Principal offers Paging
Services.
"TRANSITION PERIOD" as described in section 11.3.
"VENDOR" means a provider of paging service to Principal.
2
<PAGE>
1.2 RULES OF CONSTRUCTION
- - -------------------------
The definitions in this Agreement apply equally to both the singular and plural
forms of the terms defined.
Whenever the context may require, any pronoun includes the corresponding
masculine, feminine and neuter formS.
The words "include", "includes" and "including" are deemed to be followed by the
phrase "without limitation".
Unless the context otherwise requires, any references to any agreement or other
instrument or statute or regulation are to it as amended and supplemented from
time to time (and, in the case of a statute or regulation, to any corresponding
provisions of successor statutes or regulations).
Any reference in this Agreement to a "day" or number of "days" is a reference to
a calendar day or number of calendar days.
If any action or notice is to be taken or given on or by a particular calendar
day, and such calendar day is not a business day for Principal then such action
or notice will be deferred until, or may be taken or given on, the next business
day.
2. RELATIONSHIP OF PARTIES;
AGENT RESPONSIBILITIES
2.1 AGENCY
- - ----------
2.1.1 APPOINTMENT OF AGENT
MajorCo ("Principal") appoints Sprint ("Agent") to be its agent for the sale of
Paging Services. The Paging Services are all of the Paging Services that
MajorCo, now or in the future, has the right to resell as a reseller pursuant to
a paging resale agreement between MajorCo and any paging company and which
agreement is identified on a Program Schedule, as described in section 11.3
2.1.2 EXECUTION OF PROGRAM SCHEDULE
Concurrently with the execution of this Agreement, the Parties will execute an
initial Program Schedule with respect to those Paging Services that MajorCo has
the right to resell as of the date of this Agreement. If MajorCo subsequently
obtains the right to sell additional Paging Services (e.g. 2-way paging and
voice paging) then Majorco and Sprint will use commercially reasonable efforts
to negotiate a Program Schedule covering such additional Paging Services. The
parties may
3
<PAGE>
designate on the Program Schedule certain paging network features that Agent may
provide rather than using the paging network feature as provided by Principal.
2.1.3 CUSTOMERS
All Customers obtained by Agent are the Customers of Principal. Upon termination
of this Agreement Agent does not have the right to take the Customers, rather
the Customers remain the Customers of Principal. The Agent and Principal may
communicate with Customers at such time and on such conditions as each
separately determines. Agent and Principal will use commercially reasonable
efforts to coordinate their communications to the Customer to ensure the
Customer is receiving a consistent message regarding Paging Services. Agent and
Principal will send to the other a copy of any communication directed to
Customers and relating to paging services, including copies of print ads, tapes
of commercials, and samples of mailing insert within a reasonable time after the
communication with the Customer.
2.1.4 COMPLIANCE
Agent agrees to comply with all procedures and operating guidelines established
by Principal, including procedures required by law, contract or policies adopted
by Principal (e.g. advising Customers of the terms and conditions of the
limitations of liability relevant to the Paging Services or pre-approval of
marketing packets). Principal will notify Agent in writing 30 business days in
advance of the adoption, modification, or termination of any such procedure and
operating guideline, unless a shorter time period is required by law.
2.2 PROGRAM SCHEDULE
- - --------------------
2.2.1 CONTENTS
Program Schedules will be in the form of Exhibit A. The terms and conditions
included in the Program Schedule will include the following:
a) the specific Paging Services;
b) the marketing and sales vehicles in addition to those authorized in
Section 2.5 through which the Paging Services may be offered;
c) the Tariff under which, or price at which, the Paging Services are to
be offered by Agent;
4
<PAGE>
d) the specific Responsibilities, in addition to those provided in this
Agreement, that the Agent is to perform in connection with the
marketing and sales of such Paging Services;
e) the payments to be made between Principal and Agent with respect to
the agency relationship and any other services provided by one to the
other pursuant to this Agreement;
f) the duration of the Program Schedule. If no duration is indicated
then the Program Schedule will continue until this Agreement is
terminated;
g) the redacted Resale Agreement.
The Program Schedule may specify additional terms and conditions, including
without limitation restrictions on the Agent's authority with respect to
Customers, territories, sales vehicles, sales channels and appointment of
Subagents and Distributors.
2.2.2 EFFECT
If there are any inconsistencies between the Resale Agreement and the Program
Schedule of which the Resale Agreement is a part, then the terms and conditions
of the Resale Agreement are controlling. If there are any inconsistencies
between the Program Schedule (as modified to be consistent with the Resale
Agreement) and this Agreement, then the terms and conditions of the Program
Schedule are controlling.
2.3 SUBAGENTS
- - -------------
Unless expressly restricted from doing so in a Program Schedule, Agent has
authority to appoint any of its Subsidiaries as Subagents and Distributors to
market and sell Paging Services, subject to the provisions of this Agreement.
Agent is responsible for ensuring compliance by its Subagents and Distributors
with all the terms and conditions of this Agreement and the applicable Program
Schedule. Agent does not have authority to appoint persons other than its
Subsidiaries as Subagents or Distributors, unless expressly authorized to do so
in a Program Schedule.
5
<PAGE>
2.4 TARIFFS AND PRICES
- - ----------------------
Paging Services offered by Principal pursuant to Tariff will be marketed by
Agent pursuant to the appropriate Tariff. Paging Services not offered by
Principal pursuant to Tariff will be marketed by Agent pursuant to a price
schedule to be mutually agreed upon. Each Party will use commercially reasonable
efforts in negotiating the price schedule. If Principal and Agent cannot agree
upon a price schedule, then Principal may establish a price schedule and such
price schedule is subject to change, modification, or withdrawal by Principal
upon 120 days prior written notice by Principal to Agent, except as otherwise
provided in a Program Schedule or as the Parties may otherwise agree. Tariffs
are subject to change, modification, or withdrawal by Principal upon 120 days
prior written notice by Principal to Agent, except as otherwise provided in a
Program Schedule or as the Parties may otherwise agree.
2.5 MARKETING
- - -------------
2.5.1 GENERAL
Agent may market the Paging Services by means of any of its existing, directly
owned marketing and sales vehicles which Agent chooses, including
outbound/inbound telemarketing, billing inserts, direct mail, direct sales,
employee programs, advertising and promotions. Agent is responsible for all
expenses and obligations that it incurs as a result of its efforts to market
Paging Services.
Without Principals prior written consent, which will not be unreasonably
withheld, Agent will not use any other marketing and sales vehicles ( e.g.
retail channels or third party affinity programs like USAA) to market the Paging
Services, except that Agent may use existing affinity channels (e.g. USAA) as of
the date of this Agreement. The Principal may withhold the consent only to
ensure effective market coordination or to comply with other obligations or
restrictions imposed by other contracts to which Principal is a party and in any
event such consent will not be unreasonably withheld.
2.5.2 PACKAGING
Agent may package any of the Paging Services with any of the Agent's long
distance services, including personal number service (a/k/a "PNS").
2.5.3 TELEMARKETING
Agent may solicit orders by means of telemarketing. Agent must coordinate its
activities with Principal to ensure that activation of Paging Services are in
6
<PAGE>
accordance with federal and state law. Principal may confirm compliance with
this section including, without limitation, contacting Customers solicited by
Agent.
2.5.4 TRADEMARK
All advertising, marketing, and promotional activities undertaken by Agent with
respect to Paging Services, and all other usage by Agent of trademarks, service
marks, brands, and tradenames owned by Principal, will be in accordance with the
terms of the Sprint Trademark License Agreement.
2.5.5 JOINT MARKETING AGREEMENT
The parties acknowledge that the parties are negotiating with the other partners
of MajorCo, L.P. a Joint Marketing Agreement that will define the manner in
which the parties to that agreement market various telecommunications products.
To the extent the Joint Marketing Agreement once effective contains terms
inconsistent with the terms of this Agreement then the Joint Marketing Agreement
will control and this Agreement will be deemed amended to conform to the Joint
Marketing Agreement as of the date the Joint Marketing Agreement becomes
effective.
2.6 RESTRICTION ON AGENT AUTHORITY
- - ----------------------------------
Agent has no authority to act on behalf of Principal, nor may Agent bind
Principal in any manner whatsoever, except as expressly provided in this
Agreement and the Program Schedules. Principal will incur no obligation to
employees or agents utilized by Agent to market Paging Services offered by
Principal and such persons will at all times remain employees and agents of
Agent. Agent will function as a non-exclusive, independent contractor and will
use reasonable commercial efforts to perform its Responsibilities. Agent will
not act outside the scope of its authority granted in this Agreement.
2.7 OUTSOURCING
- - ---------------
2.7.1 General
Principal may in its sole discretion contract with third-parties to provide
various aspects of the operation of the paging business, including activation,
fulfillment, billing, customer service, collections, and sales and marketing.
Principal may make such contracts exclusive or non-exclusive. Principal will
remain liable for all obligations outsourced to third parties. All materials
developed for such operations, including without limitation collateral
materials, scripts, marketing pieces, screen designs, and any intellectual
property remains the property of Principal regardless of whether Principal or
Agent directed the development of such material. Principal
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may provide such material to Agent and any other agents of Principal on the cost
basis described in Article 3.
2.7.2 OUTSOURCING TO AGENT
At present Principal is outsourcing all operations, except certain sales and
marketing operations, to the Vendor. Principal agrees to consider a written
proposal from Agent to provide the operations presently outsourced to the
Vendor. If the proposal is to be approved by Principal it must provide at least
the following:
a) specification of the operations to be performed by Agent,
b) terms and conditions must be commercially reasonable and the terms
and conditions must be at least as favorable to Principal as
Principal may obtain from the current vendor of such outsourced
operations (e.g. performance standards must be at least what
Principal receives from the current vendor and pricing would be the
same or less than that of the current vendor)
c) Principal will have the right to terminate the outsourcing upon 180
days notice to Agent.
d) the outsourced services will be on a non-exclusive basis (i.e. Agent
can have other vendors for the same operation such as permitting
cable companies to bill the Customers they obtain for Principal).
e) the one-time and ongoing costs to Principal and a statement of the
benefits to Principal from the outsourcing.
f) a transition plan and timeline for assumption of functionality by
Agent.
g) a statement of the proposed remedies if Agent fails to meet the
timeline or provide the functionality.
Principal will respond to Agent's completed proposal within 30 days of delivery
to Principal. Principal may accept, reject, or propose revisions to the
proposal. If the proposal is accepted then Principal and Agent will use
commercially reasonable efforts to negotiate a definitive contract for the
outsourcing within 30 days. The timeline will be adjusted to reflect the time
taken to negotiate the contract. Any outsourcing contract between Principal and
Agent will contain such other terms and conditions as the parties agree.
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2.8 ORDER ACCEPTANCE AND CANCELLATION; DISCONTINUATION OF SERVICE
- - -----------------------------------------------------------------
Orders submitted by Agent are not binding until accepted by Principal. Principal
may, in its sole discretion, reject any order solicited or taken by Agent.
Principal may discontinue offering or selling any Paging Service without
liability to Agent, if Principal voluntarily terminates this Agreement in
accordance with Article 11.
2.9 COOPERATION
- - ---------------
Agent must:
a) notify its sales force to cease sales efforts immediately upon
receiving written notice from Principal of termination of this
Agreement;
b) cooperate with Principal to resolve customer service problems
consistent with Principal's customer service policy;
c) designate, within five (5) business days after execution of this
Agreement, a program manager to represent Agent in all Agent's
dealings with Principal; and
d) Agent must submit any reports reasonably requested by Principal.
2.10 RESALE AGREEMENT
- - ---------------------
2.10.1 GENERAL
Agent will take no action that if taken by Principal would be contrary to any
provision of the Resale Agreement.
2.10.2 NOTICE
If the Resale Agreement requires a notice to be given by Principal regarding the
occurrence of an event, then if the event occurs with respect to Agent, Agent
must give notice of the event to Principal, in the manner and in the time
periods provided in this schedule. An event includes, without limitation, the
providing of information necessary for Principal to make required reports to
Vendor.
If the Resale Agreement requires a notice to be given by Principal to Vendor
within a specified time period and if the event requiring notice by Principal
to Vendor occurs to Agent, then Agent must give notice to Principal of such
event within a
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time period equal to one-half the time period available for notice from
Principal to Vendor.
2.10.3 VENDOR INTELLECTUAL PROPERTY
Agent recognizes the right, title and interest of the Vendor and its affiliated
and associated companies to all service marks, logos, trademarks and trade names
used on or in connection with their business activities and agrees not to engage
in any activities or commit any acts, directly or indirectly, which may contest,
dispute or otherwise impair such right, title and interest. Agent agrees that
all its uses of such service marks, logos, trademarks and trade names of the
Vendor must only be according to reasonable and uniform standards furnished by
the Principal, and must be subject to prior written approval by the Principal
which approval may be revoked at any time upon 15 days' notice, and must be in
such manner as to inure at all time to the benefit of the Principal and its
Vendor.
2.10.4 MISUSE
Agent must not misuse the Paging Services. Misuse of Paging Services includes
intentionally and wrongfully obtaining Paging Services by rearranging, tampering
or making unpermitted connection with any facilities of Vendor, or the use of a
PIN for more than one pager unless such PIN is used for a pre-established group
call and Principal is appropriately billed for the group-call format. Misuse
does not include use of the PIN number for Principal's or Agents other services
to a Subscriber. Any misuse of Services by Customer is a material breach of this
Agreement.
2.11 ACCESS
- - -----------
Agent may obtain access and associated telephone numbers for Customers it has
acquired for Principal, provided the following conditions are met:
a) the access and telephone numbers are obtained from a reputable
telecommunications company with a history of providing high quality
service;
b) the access and telephone numbers are obtained at the sole cost and
expense of the Agent; and
c) the agreement for access and telephone number is in writing and
provides that it is assignable by Agent to Principal without the
prior consent of the telephone provider.
Agent agrees that if for whatever reason it ceases to be the agent of Principal
and the Customers are to remain the Customers of Principal, then Agent will
assign the
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agreement for access and telephone numbers to Principal as soon as commercially
reasonable to facilitate the Customers remaining Customers of Principal and in
no event later than Agent ceasing to be an agent of Principal.
3. PAYMENTS
3.1 DETERMINATION
- - -----------------
Agent must pay Principal for Principal's direct costs relating to the provision
of Paging Services pursuant to this Agreement. Principal will provide Agent with
documentation sufficient to show the cost was incurred by Principal and the
amount of the cost. Direct costs include without limitation all amounts due from
Principal to a Vendor, employee expense (including base salary, short term
compensation if any, and cost of benefits), sales, use and excise taxes,
telecommunications charges, cost of lost pagers and mail expense.
Principal may establish from time to time accounting procedures for determining
the direct costs. Such procedures will be binding upon Agent so long as the
procedure is commercially reasonable, or in accordance with industry custom and
usage, or is required in order for Principal to maintain its books and records
in accordance with generally accepted accounting practices.
All costs that are incurred with a third party by Principal and must be paid by
Agent will be paid by Agent without reduction or offset and paid in a timely
fashion in accordance with any Agreement between the third party and Principal.
If Agent disagrees with such cost Agent may submit to Principal an invoice
requesting reimbursement of the contested portion of the payment made to the
third party. If the Parties cannot agree on the amount of the reimbursement, if
any, then the matter will be resolved pursuant to the dispute resolution
mechanisms provided in this Agreeement.
3.2 COMMISSIONS OF SUBAGENTS
- - ----------------------------
Agent will establish the commission structure and level for its Subagents and
Distributors. Agent is responsible for paying to Subagents and Distributors
their commissions.
3.3 SOLE COMPENSATION
- - ---------------------
Agent must collect for Principal the revenues from the Customers. Agents sole
compensation with respect to Paging Services is the difference between the
revenue collected and the payments made to Principal pursuant to Section 2.1 and
any applicable Program Schedule. In no event will Agent additionally receive
separate
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reimbursement of costs incurred in connection with its marketing and sale of
Paging Services.
3.4 TAXES
- - ---------
Agent is responsible for payment of all taxes due as a result of payments made
to Agent by Principal. Principal is responsible for the payment of all excise,
sales and use taxes arising with respect to sales of Paging Services to
Customers. If requested by Principal, Agent will file all excise, sales and use
tax returns relating to the Paging Services for Principal.
4. ETHICAL CONDUCT AND RELATED COVENANTS
Each Party must perform its obligations under this Agreement in a legal,
ethical and professional manner. Neither Party will commit any act that would
reflect unfavorably on the other. Neither Party will misrepresent Paging
Services nor the prices of Paging Services. Agent will not sponsor or
participate in any pyramid or illegal multilevel marketing system. Each Party
will require its respective employees and agents to comply with all terms of
this Agreement. Agent will not package any of its business activities in such a
manner that Customers must pay any fees, initiation charges or minimums as an
Agent-imposed charge for Paging Services, except with the prior written consent
of Principal.
5. CONFIDENTIALITY; TRADE SECRETS
5.1 RESTRICTION
- - ---------------
All information, including without limitation all oral, visual and written
information, including all information disclosed prior to the date of this
Agreement pursuant to the negotiations between the parties, disclosed to the
other party is deemed to be confidential, restricted and proprietary to the
disclosing party (the "Proprietary Information").
5.2 USE
- - -------
Each party agrees to use the Proprietary Information received from the other
party only for the purpose of this Agreement. No other rights, and particularly
licenses, to trademarks, inventions, copyrights, patents, or any other
intellectual property rights are implied or granted under this Agreement or by
the conveying of Proprietary Information between the parties.
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5.3 COPYING
- - -----------
Proprietary Information supplied is not to be reproduced in any form except as
required to accomplish the intent of this Agreement.
5.4 CARE
- - --------
The receiving party must provide the same care to avoid disclosure or
unauthorized use of the Proprietary Information as it provides to protect its
own similar proprietary information. All Proprietary Information must be
retained by the receiving party in a secure place with access limited to only
such of the receiving party's employees, lenders or agents who need to know such
information for purposes of this Agreement and to such third parties as the
disclosing party has consented to by prior written approval.
5.5 OWNERSHIP
- - -------------
All Proprietary Information, unless otherwise specified in writing, (a) remains
the property of the disclosing party, (b) must be used by the receiving party
only for the purpose intended, and (c) such Proprietary Information, including
all copies of such information, must be returned to the disclosing party or
destroyed after the receiving party's need for it has expired or upon request of
the disclosing party, and, in any event, upon termination of this Agreement. At
the request of the disclosing party, the receiving party will furnish a
certificate of an officer of the receiving party certifying that Proprietary
Information not returned to disclosing party has been destroyed.
5.6 LIMITATION
- - --------------
The parties agree that the term "Proprietary Information" does not include
information which:
(a) has been or may in the future be published or is now or may in the
future be otherwise in the public domain through no fault of the
receiving party;
(b) prior to disclosure pursuant to this Agreement is properly within
the legitimate possession of the receiving party;
(c) subsequent to disclosure pursuant to this Agreement is lawfully
received from a third party having rights in the information without
restriction of the third party's right to disseminate the information
and without notice of any restriction against its further disclosure;
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<PAGE>
(d) is independently developed by the receiving party through parties
who have not had, either directly or indirectly, access to or knowledge
of such Proprietary Information; or
(e) is obligated to be produced under order of a court of competent
jurisdiction or other similar requirement of a governmental agency, so
long as the party required to disclose the information provides the
other party with prior notice of such order or requirement.
5.7 RELIEF
- - ----------
Because damages may be difficult to ascertain, the parties agree that in the
event of violation of this Article, without limiting any other rights and
remedies of each other, an injunction may be sought against the party who has
breached or threatened to breach this Agreement.
5.8 TERM
- - --------
A party must not disclose the Proprietary Information for a period which is
the longer of (a) three years from the date of disclosure or (b) the date of
termination of this Agreement.
5.9 RIGHT TO DISCLOSE
- - ---------------------
Each party warrants that it has the right to disclose all Proprietary
Information which it has disclosed to the other party pursuant to this
Agreement, and each party agrees to indemnify and hold harmless the other from
all claims by a third party related to the wrongful disclosure of such third
party's information. Except as expressly provided otherwise in this Agreement,
neither party makes any representation or warranty, express or implied, with
respect to any Proprietary Information.
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6. INSURANCE
6.1 REQUIRED INSURANCE OF AGENT
- - -------------------------------
Agent must, during the term of this Agreement and at its sole expense, obtain
and keep in force, the following insurance:
(a) Commercial General Liability Coverage, including personal injury,
bodily injury, property damage, operations hazard, independent
contractor coverage, contractual liability, and products and completed
operations liability, in limits not less than $5,000,000 for each
occurrence (combined single limit); with Agent named as insured in the
policy and Principal named as additional insured in the policy as their
respective interests may appear; and
(b) Worker's Compensation and Employer's Liability insurance.
6.2 REQUIRED INSURANCE OF PRINCIPAL
- - -----------------------------------
Principal must, during the term of this Agreement and at its sole expense,
obtain and keep in force, the following insurance:
Commercial General Liability Coverage, including personal injury, bodily
injury, property damage, operations hazard, independent contractor
coverage, contractual liability, and products and completed operations
liability, in limits not less than $5,000,000 for each occurrence (combined
single limit) with Principal named as insured in the policy and Agent named
as additional insured in the policy as their respective interests may
appear.
6.3 POLICIES OF INSURANCE
- - -------------------------
All required insurance policies must be taken out with reputable national
insurers that are licensed to do business in the jurisdiction where the Agent is
doing business. Each party agrees that certificates of insurance will be
delivered to the other party as soon as practicable after the execution of this
Agreement. All policies must contain an undertaking by the insurers to notify
the other party in writing not less than 15 days before any material change,
reduction in coverage, cancellation, or termination of the insurance.
6.4 NO LIMITATION ON LIABILITY
- - ------------------------------
The provision of insurance required in this Agreement will not be construed to
limit or otherwise affect the liability of any party to the other party.
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<PAGE>
6.5 COMPLIANCE
- - --------------
Agent will not do or permit to be done anything that:
(a) is prohibited by any insurance policy carried by Principal at the
time of execution of this Agreement, or
(b) is prohibited by any insurance policy carried by Agent, or
(c) will in any way increase the existing premiums for any such policy.
6.6 RELEASE
- - -----------
Principal and Agent release each other, and their respective principals,
employees, representatives and agents, from any claims for damage to any person
or property, that are caused by, or result from, risks insured against under any
insurance policies carried by the parties and in force at the time of any such
damage. Each party will cause each insurance policy obtained by it to provide
that the insurance company waives all right of recovery by way of subrogation
against the other party in connection with any damage covered by any policy.
Neither party will be liable to the other for any damage caused by fire or any
of the risks insured against under any insurance policy required by this
Section.
7. REPRESENTATIONS AND WARRANTIES
Each Party represents and warrants to the other that:
7.1 DUE INCORPORATION OR FORMATION; AUTHORIZATION OF AGREEMENTS
- - ---------------------------------------------------------------
The Party is a limited partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. The Party has
the full power and authority to own its property and carry on its business as
owned and carried on at the date of this Agreement. The Party has the full power
and authority to execute and deliver this Agreement, to perform its obligations
under this Agreement and to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement by the
Party has been duly authorized by all necessary partnership action. This
Agreement constitutes the legal, valid and binding obligation of the Party,
enforceable in accordance with its terms, subject as to enforceability limits
imposed by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and the availability of equitable remedies.
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7.2 NO CONFLICT; NO DEFAULT
- - ---------------------------
Neither the execution, delivery and performance of this Agreement nor the
consummation by the Party of the transactions contemplated hereby
(i) will conflict with, violate or result in a breach of any of the
terms, conditions or provisions of any law, regulation, order, writ,
injunction, decree, determination or award of any Governmental Authority
or any arbitrator, applicable to such Party,
(ii) will conflict with, violate, result in a breach of or constitute a
default under any of the terms, conditions or provisions of the
certificate or articles of incorporation or bylaws (or other governing
documents) of such Party or of any material agreement or instrument to
which such Party is or may be bound or to which any of its material
properties or assets is subject, or
(iii) will conflict with, violate, result in a breach of, constitute a
default under (whether with notice or lapse of time or both), accelerate
or permit the acceleration of the performance required by, give to
others any interests or rights or require any consent, authorization or
approval under any indenture, mortgage, lease agreement or instrument to
which such Party or by which such Party is or may be bound.
7.3 LITIGATION
- - --------------
There are no actions, suits, proceedings or investigations pending or, to the
knowledge of the Party, threatened against or affecting the Party or any of its
properties, assets or businesses in any court or before or by any governmental
department, board, agency or instrumentality, domestic or foreign, or any
arbitrator which could, if adversely determined (or, in the case of an
investigation, could lead to any action, suit or proceeding, which if adversely
determined could) reasonably be expected to have a material adverse effect on
the Party's ability to perform its obligations under this Agreement, except
those described in the Securities Exchange Commission filings of the Party's
ultimate parent entity. The Party has not received any currently effective
notice of any default. The Party is not in default under any applicable order,
writ, injunction, decree, permit, determination or award of any Governmental
Authority or any arbitrator which could reasonably be expected to have a
material adverse effect on the Party.
8. LIABILITY OF PARTIES
IN NO EVENT WILL EITHER PARTY BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL,
EXEMPLARY OR CONSEQUENTIAL DAMAGES, OR LOSS OF PROFITS ARISING FROM THE
RELATIONSHIP OR THE CONDUCT OF
17
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BUSINESS UNDER THIS AGREEMENT. LIABILITY OF EITHER PARTY IN ANY AND ALL
CATEGORIES, INCLUDING BUT NOT LIMITED TO MISTAKE, NEGLIGENCE, ACT OR OMISSION,
INTENTIONAL ACTS, AND BREACH, WILL NOT EXCEED IN THE AGGREGATE ONE (1) MONTH'S
AVERAGE PAYMENT PAID TO AGENT. THE AVERAGE IS BASED ON THE IMMEDIATELY
PRECEDING TWELVE CALENDAR MONTHS OF PAYMENTS CALCULATED FROM THE DATE OF THE
OCCURRENCE OF THE EVENT GIVING RISE TO THE LIABILITY, OR, IF LESS THAN TWELVE
MONTHS OF OPERATIONS, THEN ON THE NUMBER OF MONTHS OF OPERATIONS.
9. INDEMNIFICATION
9.1 INDEMNIFICATION BY AGENT
- - ----------------------------
Agent must indemnify Principal and save it harmless from and against any and all
claims, actions, damages, liability and expense in connection with the loss of
life, personal injury, and/or damage to property arising from or out of
a) any occurrence caused by the act or omission of Agent; or
b) any occurrence caused by any act or omission claimed to have been
caused by the Agent or its agents, customers, invitees,
concessionaires, contractors, servants, vendors, materialmen or
suppliers, except to the extent caused by the negligence or willful
misconduct of Principal, its agents, customers, invitees,
concessionaires, contractor, servants, vendors, materialmen or
suppliers; or
c) any occurrence caused by the violation of any law, regulation or
ordinance applicable to Agent; or
d) any occurrence caused by Agent's failure to file correct or timely
excise, sales and use tax returns for the benefit of Principal or the
failure to pay for the benefit of Principal any tax shown as due on
such returns.
If Principal is made a party to any litigation commenced by or against Agent for
any of the above reasons, then Agent will protect and hold Principal harmless
and pay all costs, penalties, charges, damages, expenses and reasonable
attorneys' fees incurred or paid by Principal.
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9.2 INDEMNIFICATION BY PRINCIPAL
- - --------------------------------
Principal must indemnify Agent and save it harmless from and against any and all
claims, actions, damages, liability and expense in connection with the loss of
life, personal injury, and/or damage to property arising from or out of
a) any occurrence caused by the act or omission of Principal; or
b) any occurrence caused by any act or omission claimed to have been
caused by the Principal or its agents, customers, invitees,
concessionaires, contractors, servants, vendors, materialmen or
suppliers, except to the extent caused by the negligence or willful
misconduct of Agent, its agents, customers, invitees,
concessionaires, contractor, servants, vendors, materialmen or
suppliers; or
c) any occurrence caused by the violation of any law, regulation or
ordinance applicable to Principal: or
d) any occurrence caused by the infringement by Principal of any patent
relating to the Paging Services.
If Agent is made a party to any litigation commenced by or against Principal for
any of the above reasons, then Principal will protect and hold Agent harmless
and pay all costs, penalties, charges, damages, expenses and reasonable
attorneys' fees incurred or paid by Principal.
9.3 PROCEDURE
- - -------------
9.3.1 NOTICE
Any party being indemnified ("Indemnitee") will give the party making the
indemnification ("Indemnitor") written notice within 30 days if:
(i) any claim or demand will be made or liability asserted against
Indemnitee or
(ii) any suit, action, or administrative or legal proceedings will be
instituted or commenced in which any Indemnitee is involved or is named
as a defendant either individually or with others.
9.3.2 DEFENSE BY INDEMNITOR
If, within 30 days after the giving of such notice, the Indemnitee receives
written notice from Indemnitor stating that the Indemnitor disputes or intends
to defend against such claim, demand, liability, suit, action or proceeding,
then Indemnitor
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will have the right to select counsel of its choice and to dispute or defend
against such claim, demand, liability, suit, action or proceeding, at its
expense.
Indemnitee will fully cooperate with Indemnitor in such dispute or defense so
long as Indemnitor is conducting such dispute or defense diligently and in good
faith; provided, however, that Indemnitor will not be permitted to settle such
dispute or claim without the prior written approval of Indemnitee, which will
not be unreasonably withheld. Even though Indemnitor selects counsel of its
choice, Indemnitee has the right to additional representation by counsel of its
choice to participate in such defense at Indemnitee's sole cost and expense.
9.3.3 DEFENSE BY INDEMNITEE
If no such notice of intent to dispute or defend is received by Indemnitee
within the said 30-day period, or if diligent and good faith defense is not
being, or ceases to be, conducted, Indemnitee has the right to dispute and
defend against the claim, demand or other liability at the sole cost and expense
of Indemnitor and to settle such claim, demand or other liability, and in either
event to be indemnified as provided for in this Section. Indemnitee is not
permitted to settle such dispute or claim without the prior written approval of
Indemnitor, which approval will not be unreasonably withheld.
9.3.4 COSTS
The Indemnifying Party's indemnity obligation includes reasonable attorneys'
fees, investigation costs, and all other reasonable costs and expenses incurred
by the Indemnified Party from the first notice that any claim or demand has been
made or may be made, and is not limited in any way by any limitation on the
amount or type of damages, compensation, or benefits payable under applicable
workers' compensation acts, disability benefit acts, or other employee benefit
acts. The provisions of this Section will survive the termination of this
Agreement with respect to any damage, injury, or death occurring before such
termination.
10. DISPUTE RESOLUTION
10.1 NEGOTIATION
- - ----------------
The Parties will attempt in good faith to resolve any dispute arising out of or
relating to this Agreement promptly by negotiation between or among
representatives who have authority to settle the controversy. Any Party may
escalate any dispute not resolved in the normal course of business to the senior
20
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executives for dispute resolution listed on Exhibit B (the "Senior Executives")
by providing written notice.
Within ten business days after delivery of such notice, the Senior Executives of
each Party will meet at a commonly acceptable time and place, and thereafter as
often as they deem reasonably necessary, to exchange relevant information and to
attempt to resolve the dispute. If the matter has not been resolved within 60
days of the disputing Party's notice, or if the Parties fail to meet within ten
days, any Party may initiate arbitration of the dispute as provided in this
Agreement.
10.2 ARBITRATION
- - ----------------
Any dispute arising out of or relating to this Agreement that has not been
resolved by negotiation within the time periods specified in Section 10.1 will
be finally settled by arbitration conducted expeditiously in accordance with the
rules of the American Arbitration Association. The arbitration is governed by
the United States Arbitration Act, 9 U.S.C. Section 1 et seq., and judgment upon
the award rendered by the arbitrator(s) may be entered by any court with
jurisdiction. The location of the arbitration is the Kansas City metropolitan
area which consists of Wyandotte and Johnson Counties in Kansas and Jackson,
Clay and Platter Counties in Missouri, or such other location agreed upon by the
Parties. The arbitrator(s) are not empowered to award damages in excess of those
permitted under this Agreement, and each Party irrevocably waives any damages in
excess of those permitted under this Agreement. The arbitrator(s) will have
current or prior telecommunications industry experience. The arbitrator(s) will
render a written decision setting forth the facts and the basis for their award.
10.3 ATTORNEYS AND INTENT
- - -------------------------
If a Senior Executive intends to be accompanied at a meeting by an attorney, all
other Senior Executives will be given at least three business days prior notice
of such intention and may also be accompanied by an attorney. All negotiations
pursuant to this Section are confidential and will be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and State
rules of evidence.
11. TERMINATION
11.1 TERMINATION BY BREACH
- - --------------------------
If a PartY is in
21
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(a) breach of any representation, warranty or agreement set forth in
this Agreement or
(b) defaults in the performance of any of its obligations with respect
to any Program Schedule,
which default
(x) continues for a period of more than 30 days after receipt of written
notice from the other Party specifying such default, or
(y) is of a nature to require more than 30 days for remedy and continues
beyond such time reasonably necessary to cure (and the defaulting Party
has not undertaken procedures to cure the default within such 30 day
period and diligently and continuously thereafter pursued such efforts
to complete cure),
the other Party may, in addition to any other remedy available at law or in
equity, at its option upon written notice,
(x) terminate the applicable Program Schedule, or
(y) terminate this Agreement and all Program Schedules issued pursuant
to this Agreement.
11.2 VOLUNTARY TERMINATION
- - --------------------------
This Agreement will terminate as follows:
(a) On January 16, 1997, provided Agent may give notice to Principal at
least 30 days in advance of such date that the termination date is
January 16, 1998.
(b) This Agreement will terminate if the agreement between Principal and
the Vendor terminates. If Principal receives advance notice of such
termination pursuant to the terms of the agreement with the Vendor,
Principal will use reasonable efforts to give Agent notice of such
pending termination. Failure of Principal to give such notice does not
prevent the termination pursuant to this subsection.
11.3 TRANSITION PERIOD
- - ----------------------
If this Agreement is terminated then the Parties agree to cooperate to enable
all Customers to continue to use the Paging Services upon the terms and
conditions of
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this Agreement with no disruption during the Transition Period so long as
payment for Paging Services is made. The Transition Period is as follows:
If the termination is by reason of a breach pursuant to Section 11.1
then there is no Transition Period.
If the termination is by reason of a Voluntary Termination pursuant to
Section 11.2(a) then the Transition Period is for three months.
If the termination is by reason of a Voluntary Termination pursuant to
Section 11.2(b) then the Transition Period is for the transition period
provided in the agreement with the Vendor.
11.4 EFFECTS OF TERMINATION
- - ---------------------------
Termination of this Agreement is without prejudice to any other rights or
remedies of the parties and is without liability for any loss or damage
occasioned by the termination. Termination of this Agreement for any cause does
not release either party from any liability which, at the time of termination,
has already accrued to the other party, or which may accrue in respect of any
act or omission prior to termination or from any obligation which is expressly
stated to survive the termination.
Upon termination of this Agreement, Agent will deliver to Principal, in ready to
use form, the entire customer data base which will include information customary
in the telecommunication industry to be kept on customer and must include,
without limitation, name, address, contact number, pager identification,
customer payment history and current status, service profile and any special
arrangements with the customer, IXC for customer paging service. Agent will
provide to Principal all materials in whatever form regarding operating and
internal or Vendor provided customer care procedures. Upon termination of this
Agreement, the parties will use commercially reasonable efforts to transfer
management of the customer accounts and customer care to Principal without
disruption of paging service, billing or customer care.
11.5 SALE OF CUSTOMERS
- - ----------------------
If Principal leaves the paging business, then Agent will have the right to
purchase from the Principal for fair market value the Customers (including all
accounts and contract rights relating to the customer) of Principal for which
Principal is then paying Agent a payment. Payment will be in cash at the
closing. The sale will be on terms and conditions customary and reasonable for
sales of customers in the telecommunications industry and on such other terms
and conditions as the parties may reasonably agree.
23
<PAGE>
If Agent does not complete the purchase of the Customers within 30 days of being
notified by Principal of its right to purchase the Customers, then Principal may
sell the Customers to a third party of its choice. Upon a sale to a third party
the sale of Customers must be subject to the payment rights of Agent.
12. GENERAL PROVISIONS
12.1 NOTICES AND INQUIRIES
- - --------------------------
All notices and inquiries required or permitted to be given by any provision of
this Agreement will be in writing and mailed (certified or registered mail,
postage prepaid, return receipt requested) or sent by hand or overnight courier,
or by facsimile (with acknowledgment received by overnight courier), charges
prepaid and addressed as follows:
If to Sprint:
Sprint Communications Company L.P.
8140 Ward Parkway
Kansas City, Missouri 64114
Attention: Vice President ___________________
with a copy to:
Sprint Communications Company L.P.
8140 Ward Parkway
Kansas City, Missouri 64114
Attention: Director of Wireless Marketing
24
<PAGE>
If to MajorCo:
MajorCo, L.P.
(d/b/a Sprint Telecommunications Venture)
4717 Grand
5th Floor
Kansas City, Missouri 64112
Attention: Chief Marketing Officer
With a copy to:
MajorCo, L.P.
(d/b/a Sprint Telecommunications Venture)
4717 Grand
5th Floor
Kansas City, Missouri 64112
Attention: General Counsel
Any Party may from time to time specify a different address by notice to the
other Party. Any such notice will be deemed to be delivered, given, and received
for all purposes as of the date so delivered.
12.2 CONSTRUCTION
- - -----------------
This Agreement will be construed simply according to its fair meaning and not
strictly for or against any Party. No rule of construction requiring
interpretation against the draftsman will apply in the interpretation of this
Agreement.
12.3 TIME
- - ---------
Time is of the essence with respect to this Agreement (including its Exhibits).
12.4 HEADINGS
- - -------------
The article and other headings contained in this Agreement are for reference
purposes only and are not intended to describe, interpret, define, or limit the
scope, extent, or intent of this Agreement or any provision of this Agreement.
12.5 SEVERABILITY
- - -----------------
Every provision of this Agreement is intended to be severable. If any term or
provision of this Agreement is illegal, invalid or unenforceable for any reason
whatsoever, that term or provision will be enforced to the maximum extent
permissible so as to effect the intent of the Parties, and such illegality,
invalidity or
25
<PAGE>
unenforceability will not affect the validity or legality of the remainder of
this Agreement. If necessary to effect the intent of the Parties, the Parties
will negotiate in good faith to amend this Agreement to replace the
unenforceable language with enforceable language which as closely as possible
reflects such intent.
12.6 FURTHER ACTION
- - -------------------
Each Party, upon the reasonable request of the other Party, agrees to perform
all further acts and execute, acknowledge, and deliver any documents which may
be reasonably necessary, appropriate, or desirable to carry out the intent and
purposes of this Agreement.
12.7 GOVERNING LAW
- - ------------------
The internal laws of the State of Missouri (without regard to principles of
conflict of law) will govern the validity of this Agreement, the construction of
its terms, and the interpretation of the rights and duties of the Parties under
this Agreement.
12.8 COUNTERPART EXECUTION
- - --------------------------
This Agreement may be executed in any number of counterparts with the same
effect as if each Party had signed the same document. All counterparts will be
construed together and will constitute one agreement.
12.9 SPECIFIC PERFORMANCE
- - -------------------------
Each Party agrees with the other Party that the other Party would be irreparably
damaged if any of the provisions of this Agreement are not performed in
accordance with their specific terms and that monetary damages would not provide
an adequate remedy in such event. Accordingly, it is agreed that, in addition to
any other remedy to which the non-breaching Party may be entitled, at law or in
equity, the non-breaching Party is entitled to injunctive relief to prevent
breaches of the provisions of this Agreement and specifically to enforce the
terms and provisions of this Agreement in any action instituted in any court of
the United States or any state thereof having subject matter jurisdiction
thereof.
12.10 ENTIRE AGREEMENT
- - ----------------------
The provisions of this Agreement including the Exhibits and Schedules hereto,
set forth the entire agreement and understanding between the Parties as to the
subject matter of this Agreement and supersede all prior agreements, oral or
written, and
26
<PAGE>
other communications between the Parties relating to the subject matter of this
Agreement.
12.11 PARTIES IN INTEREST; LIMITATION ON RIGHTS OF OTHERS
- - ---------------------------------------------------------
Except as otherwise provided in this Agreement, the terms of this Agreement will
be binding upon and inure to the benefit of the Parties hereto and their
respective successors and assigns. Nothing in this Agreement, whether express or
implied, will be construed to give any Person other than the Parties any legal
or equitable right, remedy or claim under or in respect of this Agreement or any
covenants, conditions or provisions contained in this Agreement.
12.12 ASSIGNABILITY
- - -------------------
Neither Party may assign this Agreement without the prior written consent of the
other Party, except that either Party may assign its rights and obligations
under this Agreement to an Entity which is controlled by, under common control
with, or controlling such Party without consent. The assigning Party will give
notice of any such assignment to the other Party.
12.13 WAIVERS; REMEDIES
- - -----------------------
The observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively) by the Party
entitled to enforce such term, but any such waiver is effective only if in
writing signed by the Party against which such waiver is to be asserted. Except
as otherwise provided in this Agreement, no failure or delay of any Party in
exercising any power or right under this Agreement will operate as a waiver
thereof, nor will any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power.
12.14 FORCE MAJEURE
- - -------------------
No Party is liable for failure to perform its obligations under this Agreement
due such failure arises directly out of causes beyond its control, including]
act of God, fire, flood, other natural cause, or terrorist event; laws, orders,
rules, regulations, directions, or action of any Governmental Authority having
jurisdiction or any civil or military authority; national emergency, riot, or
war; or labor difficulties. The Party suffering an event of force majeure is
excused on a day-to-day basis, provided, however, that such Party will use all
commercially reasonable efforts to avoid or remove such force majeure event.
27
<PAGE>
12.15 CONTINUATION OF EXCLUSIVITY
- - ---------------------------------
This Agreement does not constitute a waiver of the non-compete and exclusivity
provisions of Article 6 of the MajorCo Partnership Agreement and such provisions
remain in full force and effect.
12.16 CONSISTENCY
- - -----------------
If this Agreement is inconsistent with any term of the MajorCo, L.P. Partnership
Agreement or the Joint Marketing Agreement as finally agreed between the MajorCo
partners and Principal, then the terms of the other agreement will control.
12.17 DISCLOSURE
- - ----------------
All media releases and public announcements or disclosures by either party
relating to this Agreement, its subject matter or the purpose of this Agreement
are to be coordinated with and consented to by the other party in writing prior
to the release thereof.
EXECUTED effective the date first above written.
MajorCo L.P. Sprint Communications Company, L.P.
By /s/ Bernie Bianchino By /s/ Gerald A. Rhodes
---------------------- ---------------------------
Name: BERNIE BIANCHINO Name:
Title: CHIEF BUSINESS DEVELOPMENT OFFICER Title:
28
<PAGE>
EXHIBIT A
PROGRAM SCHEDULE NO. ___
to
PAGING SALES AGENCY AGREEMENT
between
MAJORCO, L.P. AND SPRINT COMMUNICATIONS COMPANY,
L.P. DATED JANUARY 17 1995
PAGING VENDOR: The vendor providing the paging services to Principal is
__________. The paging services are provided by vendor to Principal pursuant to
the paging services agreement, a redacted copy of which is attached as Exhibit
1.
PAGING SERVICES:. Only the following Paging Services will be marketed pursuant
to the Agreement: _____________________________
ADDITIONAL MARKETING AND SALES VEHICLES.
ADDITIONAL RESPONSIBILITIES. The Responsibilities of the Agent will be as
follows:
TARIFF OR PRICE SCHEDULE.
RESTRICTIONS ON THE MARKETING OF PAGING SERVICES.
PAYMENTS.
SALES VOLUME COMMITMENT.
PROGRAM TERM. From to .
------------- -------------
ACKNOWLEDGMENT OF EXHIBIT:
By Agent:
-------------------
By Principal:
-----------------
29
<PAGE>
EXHIBIT B
SENIOR EXECUTIVES FOR DISPUTE RESOLUTION
Principal: Chief Marketing Officer
Agent: Chief Marketing Officer
30
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P.
(Subsidiaries)
Sprint Spectrum L.P.
NewTelCo, L.P.
SPRINT SPECTRUM L.P.
(Subsidiaries)
WirelessCo, L.P.
Sprint Spectrum Realty Company, L.P.
Sprint Spectrum Equipment Company, L.P.
Sprint Spectrum Finance Corporation
<PAGE>
PROGRAM SCHEDULE NO. 1
TO
PAGING SALES AGENCY AGREEMENT
BETWEEN
MAJORCO, L.P. AND SPRINT COMMUNICATIONS COMPANY,
L.P. DATED JANUARY 17, 1995
PAGING VENDOR: THE VENDOR PROVIDING THE PAGING SERVICES TO PRINCIPAL IS PAGING
NETWORK EQUIPMENT COMPANY, INC. THE PAGING SERVICES ARE PROVIDED BY VENDOR TO
PRINCIPAL PURSUANT TO THE PAGING SERVICES AGREEMENT, A REDACTED COPY OF WHICH IS
ATTACHED AS EXHIBIT 1 (THE "RESALE AGREEMENT").
PAGING SERVICES:
The following BASIC paging services are available to Agent:
Numeric paging
Alphanumeric paging
Local, regional/statewide, national paging
COAM and leased pagers
Alpha dispatch
The following ADDITIONAL paging services are available to Agent or Agent may
provide them on its own:
Voicemail: standard and feature enhanced
Pager Protection Policy
Alpha software
Maintenance/loaner program
If Agent sells ADDITIONAL paging services provided by Principal through Vendor,
then Agent must price such services in accordance with Exhibit 3
1
<PAGE>
ADDITIONAL MARKETING AND SALES VEHICLES.
None.
ADDITIONAL RESPONSIBILITIES. The Responsibilities Of The Agent Will Be As
Follows:
1. Agent agrees to sell Paging Services only to those customers that are
creditworthy. Agent must make customary credit checks (e.g., through TRW
or credit card validation) to determine the creditworthiness of a
potential customer, except Agent may use its customary credit policies
to determine if a customer is creditworthy. If Agent uses its customary
credit policies and such policies are not as stringent as those required
by the Resale Agreement, then Agent will reimburse to Principal
immediately upon written demand from Principal (a) the value of any
pagers not returned by customers and (b) the amount of any damages,
penalties, fees or other expenses suffered by Principal as the result of
a customer failing to return a pager.
2. Agent will follow the Procedures and Operating Guidelines set forth on
Exhibit 2.
3. Under the terms of the Resale Agreement Principal may request Vendor not
seek recovery of damages from designated Customers for the value of lost
or damaged equipment. Agent may request that Principal not pursue
damages for lost or damaged equipment and Principal will not pursue such
damages if Principal has the right to request of Principal then Agent
will pay to Principal any amount Principal has to pay to Vendor to cause
Vendor not to pursue such damages against a Customer.
4. Agent will file for the benefit of Principal all excise, sales and
use tax returns and will pay for the benefit of Principal all excise,
sales and use taxes due from Principal as a result of the Paging
Services.
TARRIFF OR PRICE SCHEDULE.
See attached Exhibit 3. This Exhibit may be modified from time to time by
Principal as provided in the Agreement.
RESTRICTIONS ON THE MARKETING OF PAGING SERVICES. As provided in the Agreement.
PAYMENTS. No additional provisions.
2
<PAGE>
SALES VOLUME COMMITMENT: None
PROGRAM TERM. Until termination of the Agreement. Principal and Agent agree to
review the payment levels and the pricing levels no later than 6 months from the
date of the Agreement. Such review does not obligate either Party to agree to
any change in the payment or pricing levels as presently established by the
Agreement or this Program Schedule.
ACKNOWLEDGMENT OF EXHIBIT:
By Agent: /s/ Gerald K. Rhodes
------------------------
By Principal: /s/ B. Bianchino
----------------------
[STAMP]
3
<PAGE>
Exhibit 3
[ ]
<PAGE>
[ ]
<PAGE>
EXHIBIT 10.7
EXECUTION COPY
--------------
PURCHASE AND SUPPLY AGREEMENT
-----------------------------
Between
SPRINT SPECTRUM L.P.,
Owner
and
QUALCOMM Personal Electronics,
Vendor
and
QUALCOMM Incorporated,
Guarantor
and
SONY ELECTRONICS INC.
Guarantor
Dated as of June 21, 1996
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Headings and Definitions.......................................... 1
Section 2. Term.............................................................. 10
Section 3. Product Purchases................................................. 10
3.1 Right to Purchase, Resell and Use..................................... 10
3.2 Availability of Subscriber Units and Accessories; Minimum Commitment.. 11
3.3 Most Favored Customer Status.......................................... 15
3.4 Payment Terms, Taxes and Co-op Marketing Fund......................... 17
3.5 Delivery.............................................................. 18
3.6 Pricing............................................................... 18
3.7 Warranty to the Owner................................................. 20
3.8 Consumer Warranty..................................................... 21
3.9 Repair and Replacement Services....................................... 22
3.10 Catastrophic Defects................................................. 23
3.11 New Generation of Products........................................... 24
3.12 Right to Cease Supply of Obsolete Products........................... 24
3.13 [Intentionally Omitted].............................................. 25
3.14 Right to Return Products............................................. 25
3.15 Labeling and Logo Changes............................................ 26
3.16 Materials and Equipment.............................................. 26
3.17 Logos................................................................ 27
3.18 New Development Advisory Board; Notice of New Developments........... 27
3.19 Market Development Manager........................................... 28
3.20 Applicable Law and Radio Frequency Energy Standards.................. 28
3.21 [Intentionally Omitted].............................................. 29
3.22 Test Products; Product Verification and Testing...................... 29
3.23 Change Orders........................................................ 30
Section 4. Lead Times and Delay.............................................. 30
4.1 Lead Times............................................................ 30
4.2 Delivery Delay........................................................ 31
Section 5. Forecasts and Ordering............................................ 33
5.1 Forecasts............................................................. 33
5.2 Ordering.............................................................. 35
Section 6. Sales and Technical Support....................................... 37
6.1 Sales Training 37
6.2 Sales and Promotional Efforts......................................... 38
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7. Intellectual Property............................................. 39
7.1 Intellectual Property Rights Infringement............................. 39
7.2 The Vendor's Obligation to Cure....................................... 39
7.3 The Vendor's Obligations.............................................. 40
7.4 The Owner's Obligations............................................... 40
7.5 Software License 41
7.6 Sublicense of Software................................................ 42
7.7 Ownership of Intellectual Property Rights............................. 42
7.8 Intellectual Property................................................. 42
7.9 Request for Custom Development........................................ 43
7.10 Vendor Response...................................................... 43
Section 8. Proprietary Information........................................... 44
8.1 Public Statements and Advertising..................................... 44
8.2 Confidentiality 44
Section 9. Indemnification/Limitation of Liability........................... 46
9.1 Vendor Indemnity...................................................... 46
9.2 Vendor Damages for Fraud.............................................. 49
9.3 Owner Indemnity....................................................... 49
9.4 Owner Damages for Fraud............................................... 50
Section 10. Termination...................................................... 50
10.1 Termination 50
10.2 Termination For Cause................................................ 50
10.3 Remedies............................................................. 51
10.4 Discontinuance of Supply............................................. 51
10.5 Payments............................................................. 51
10.6 Costs................................................................ 52
10.7 Continuing Obligations............................................... 52
10.8 The Vendor's Right to Terminate...................................... 52
10.9 Vendor Remedies...................................................... 54
10.10 Special Termination Events.......................................... 54
Section 11. General Provisions............................................... 55
11.1 Assignment 55
11.2 Successors and Assigns............................................... 56
11.3 Survival of Obligations.............................................. 56
11.4 Severability 56
11.5 Non-waiver 56
11.6 Compliance with United States Regulations............................ 56
11.7 Notices.............................................................. 56
11.8 Dispute Resolution................................................... 58
11.9 Arbitration 58
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.10 Other Remedies...................................................... 59
11.11 Tolling............................................................. 59
11.12 Governing Law and Forums............................................ 60
11.13 Entire Agreement.................................................... 60
11.14 Improvements, Inventions and Innovations............................ 60
11.15 Conflicts 60
11.16 Independent Contractors............................................. 60
11.17 Force Majeure 61
11.18 Change of Control of the Vendor..................................... 61
11.19 Change of Control of the Owner...................................... 62
11.20 Offset.............................................................. 62
11.21 Additional Insured.................................................. 62
Section 12. Affiliates....................................................... 62
12.1 Agreements with Initial Affiliates................................... 62
12.2 Additional Affiliates................................................ 63
12.3 Agreements with Additional Affiliates................................ 63
12.4 Affiliate Rights 63
Section 13. Representations and Warranties................................... 63
13.1 Representations and Warranties of the Vendor and the Guarantors...... 63
(a) Due Organization of the Vendor and the Guarantors 63
(b) Due Authorization of the Vendor and the Guarantors; Binding
Obligation...................................................... 64
(c) Non-Contravention............................................... 64
(d) Regulatory Approvals............................................ 65
(e) Non-Infringement................................................ 65
(f) Requisite Knowledge............................................. 65
(g) Financial Capacity.............................................. 65
13.2 Representations and Warranties of the Owner.......................... 65
(a) Due Organization of the Owner................................... 65
(b) Due Authorization of the Owner; Binding Obligation.............. 65
(c) Non-Contravention .............................................. 66
(d) Regulatory Approvals............................................ 66
(e) Requisite Knowledge............................................. 66
Section 14. Guaranty......................................................... 66
14.1 Guaranty........................................................... 66
14.2 Guaranty Absolute.................................................. 67
14.3 Waiver............................................................. 68
14.4 No Subrogation..................................................... 68
14.5 No Petition........................................................ 68
14.6 Continuing Guaranty: Assignments................................... 68
14.7 Other Terms........................................................ 69
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 15. Other........................................................... 69
15.1 Owner Liabilities.................................................... 69
15.2 Counterparts......................................................... 69
</TABLE>
iv
<PAGE>
EXHIBIT 10.7
EXECUTION COPY
--------------
PURCHASE AND SUPPLY AGREEMENT
-----------------------------
Between
SPRINT SPECTRUM L.P.,
Owner
and
QUALCOMM Personal Electronics,
Vendor
and
QUALCOMM Incorporated,
Guarantor
and
SONY ELECTRONICS INC.
Guarantor
Dated as of June 21, 1996
The omitted portions indicated by brackets have been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment under Rule 406.
<PAGE>
PURCHASE AND SUPPLY AGREEMENT
-----------------------------
This Purchase and Supply Agreement (the "Agreement") dated as of
June 21, 1996 (the "Effective Date") by and between QUALCOMM Personal
Electronics, a California general partnership (the "Vendor"), Sprint Spectrum
L.P., a Delaware limited partnership (the "Owner"), QUALCOMM Incorporated, a
Delaware corporation ("QUALCOMM"), and SONY Electronics Inc., a Delaware
corporation ("Sony" and together with QUALCOMM, the "Guarantors," each a
"Guarantor").
RECITALS:
--------
WHEREAS, the Vendor has certain rights to use certain proprietary
Code Division Multiple Access ("CDMA") technology;
WHEREAS, the Federal Communications Commission ("FCC") has defined
six spectral bands near 1.9 Ghz for use in Personal Communications Services
("PCS") for auction to bidders;
WHEREAS, the FCC granted to the Owner or certain of its Affiliates
PCS licenses to build and operate PCS systems in specified geographic areas in
the United States;
WHEREAS, the Owner desires to purchase certain CDMA subscriber
equipment from the Vendor and the Vendor desires to sell such equipment to the
Owner in accordance with the terms and conditions of this Agreement;
WHEREAS, in consideration for the Owner entering into this
Agreement the Guarantors as the owners of the Vendor have agreed to guaranty
the obligations of the Vendor under this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth in this Agreement, the Owner and the Vendor hereby agree as
follows:
SECTION 1. HEADINGS AND DEFINITIONS
All headings used in this Agreement are inserted for convenience
only and are not intended to affect the meaning or interpretation of this
Agreement or any section or clause of this Agreement. References to "third
party" or "third parties" will not mean either Party. The meanings given to
terms defined in this Agreement are equally applicable to both the singular and
the plural forms of such terms. Terms used and/or defined in the Exhibits,
appendices or Schedules attached hereto that are not otherwise defined in this
Agreement, will have the meanings as set forth in those Exhibits, appendices or
Schedules for the purposes of those Exhibits, appendices or Schedules only.
For the purposes of this Agreement, the following definitions apply:
<PAGE>
"AAA" means the American Arbitration Association.
---
"Accessories" mean those accessories for the Subscriber Units
-----------
and made generally available to Customers and will include, without limitation,
a car kit, cigarette lighter adapter, desktop charger, travel charger, leather
case, hand strap and extra batteries (all in accordance with and pursuant to
the Specifications) and such other items as are specified in the Specifications
or agreed upon by the Parties from time to time. Individually, an
"Accessory".
---------
"Additional Affiliate" has the meaning ascribed thereto in
--------------------
subsection 12.2.
"Additional Affiliate Agreement" has the meaning ascribed
------------------------------
thereto in subsection 12.3.
"Additional Affiliate Arrangement" means a formal arrangement
--------------------------------
between the Owner and a Person to be designated an Additional Affiliate under
the terms of this Agreement, which arrangement will include, but not be limited
to, agreements on marketing, backhaul, common billing, resale agreements and/or
revenue sharing.
"Affected Products" has the meaning ascribed thereto in
-----------------
subsection 3.6(b).
"Affiliates" means the collective reference to the Initial
----------
Affiliates and the Additional Affiliates.
"Agents" means the Owner's agents with resale capability in the
------
Territory.
"Agreement" means this written contract together with all
---------
appendices, exhibits and schedules attached hereto, as this Agreement may be
amended, supplemented or otherwise modified from time to time in accordance
with the provisions of subsection 11.13 of this Agreement.
"Annual Minimum Commitment" has the meaning ascribed thereto in
-------------------------
subsection 3.2(b).
"Annual Supply Period" has the meaning ascribed thereto in
--------------------
subsection 3.2(b).
"Applicable Laws" means, as to any Person, the certificate of
---------------
incorporation and by-laws or other organizational or governing documents of
such Person, all laws (including, but not limited to, any Environmental Laws),
treaties, ordinances, judgments, orders and stipulations of any court or
governmental agency or authority and statutes, rules, regulations, orders and
interpretations thereof of any federal, state, provincial, county, municipal,
regional, environmental or other Governmental Entity, instrumentality, agency,
authority, court or other body (i) applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is subject
or (ii) having jurisdiction over all or any part of the Products or otherwise
in connection with the Vendor's obligations under this Agreement.
-2-
<PAGE>
"Beta Software" has the meaning ascribed thereto in subsection
-------------
3.2(a).
"Buffer Stock" has the meaning ascribed thereto in subsection
------------
5.1(b).
"Buffer Stock Commencement Date" has the meaning ascribed
------------------------------
thereto in subsection 5.2(d).
"Business Day" means any day of the year other than a Saturday
------------
or Sunday or a United States national public holiday.
"Catastrophic Defect" has the meaning ascribed thereto in
-------------------
subsection 3.10.
"Catastrophic Defect Cure Period" has the meaning ascribed
-------------------------------
thereto in subsection 3.10(a).
"Change Order" has the meaning ascribed thereto in subsection
------------
3.23.
"Commencement" has the meaning ascribed thereto in subsection
------------
4.2(d).
"Commencement Date" has the meaning ascribed thereto in
-----------------
subsection 3.2(a).
"Consumer Warranty" has the meaning ascribed thereto in
-----------------
subsection 3.8.
"Contract Vendors" means the counterparties to Procurement and
----------------
Services Contracts.
"Co-op Marketing Fund" has the meaning ascribed thereto in
--------------------
subsection 3.4(c).
"Customer" means any CDMA customer of the Vendor offering
--------
Products for sale within the Territory (including any CDMA customer outside of
the Territory who intends to use or resell Products within the Territory) or
any CDMA customer of any of the Vendor's affiliates or subsidiaries offering
Products for sale within the Territory.
"Custom Material" has the meaning ascribed thereto in
---------------
subsection 7.9.
"Defects and Deficiencies," "Defects or Deficiencies" or
--------------------------------------------------------
"Defective"" means when used with respect to any Products, such items that
- - -----------
are not (i) new (unless otherwise as specifically set forth in this Agreement)
and of good quality and free from improper or inferior workmanship and defects
or (ii) otherwise in conformance with the Specifications; provided that
-------- ----
any Product defect or deficiency caused by the misuse, neglect or other
improper handling of a Product or Products by any Person other than the Vendor
as described in subsection 3.7(c) will not be deemed a Defect or Deficiency for
the purposes hereof.
-3-
<PAGE>
"Delay Grace Period" has the meaning ascribed thereto in
------------------
subsection 4.2.
"Delay Period" has the meaning ascribed thereto in subsection
------------
4.2(d).
"Delayed Products" has the meaning ascribed thereto in
----------------
subsection 4.2(d).
"End Date" has the meaning ascribed thereto in Section 2.
--------
"Environmental Laws" means any and all federal, state, local
------------------
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
requirements of any Governmental Entity, or requirements of law (including,
without limitation, common law) relating in any manner to contamination,
pollution, or protection of human health or the environment.
"Excess Purchase Order" has the meaning ascribed thereto in
---------------------
subsection 5.2.
"Exchange Act" has the meaning ascribed thereto in subsection
------------
11.18.
"FCC Rules and Regulations" has the meaning ascribed thereto in
-------------------------
subsection 3.20.
"Financing Interim Period" has the meaning ascribed thereto in
------------------------
subsection 10.10.
"First Annual Minimum Commitment" has the meaning ascribed
-------------------------------
thereto in subsection 3.2(b).
"First Sale Date" has the meaning ascribed-thereto in
---------------
subsection 3.10(a).
"First System" has the meaning ascribed thereto in subsection
------------
4.2(d).
"FOB point" means the dock or other distribution point of the
---------
Vendor's then applicable manufacturing facility or facilities or as otherwise
mutually agreed between the Parties from time to time.
"Force Majeure" has the meaning ascribed thereto in subsection
-------------
11.17.
"Forecast" has the meaning ascribed thereto in subsection 5.1.
--------
"Forecast Period" has the meaning ascribed thereto in
---------------
subsection 5.1.
"Governmental Entity" means any nation or government, any
-------------------
state, province or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government within the Territory.
-4-
<PAGE>
"Independent Auditor" means any of the Persons set forth on
-------------------
Schedule 1 or any Person otherwise mutually agreeable to the Parties other than
the then acting Independent Public Accountant.
"Independent Public Accountant" has the meaning ascribed
-----------------------------
thereto in subsection 3.3(b).
"Infrastructure Equipment" means any radio subsystem or any
------------------------
combination of radio subsystems that handle the Owner's PCS radio traffic in a
cell or cells within any given Owner PCS System and all other
telecommunications equipment which is necessary to the functioning of any such
radio subsystem(s) (i) with any other radio subsystem or (ii) otherwise within
the Nationwide Network or any part thereof.
"Initial Affiliates" means the collective reference to each of
------------------
the Persons set forth on Schedule 2.
"Initial Affiliate Agreement" has the meaning ascribed thereto
---------------------------
in subsection 12.1
"Initial Subscriber Units" has the meaning ascribed thereto in
------------------------
subsection 3.2(a).
"Initial Term" has the meaning ascribed thereto in Section 2.
------------
"Intellectual Property Rights" has the meaning ascribed thereto
----------------------------
in subsection 7.1.
"Late Amount" has the meaning ascribed thereto in subsection
-----------
3.4(a).
"Late Postponement" has the meaning ascribed thereto in
-----------------
subsection 5.2(c).
"Launch Units" has the meaning ascribed thereto in subsection
------------
4.2(a).
"Mark" has the meaning ascribed thereto in subsection 3.15.
----
"Material Accessories" means, with respect to each Subscriber
--------------------
Unit, the desktop charger (and the plug therefor), handstrap and the battery.
"MFC Certificate" has the meaning ascribed thereto in
---------------
subsection 3.3(b).
"Nationwide Network" means all of the PCS Systems built or to
------------------
be owned and/or operated by the Owner or its Affiliates in North America.
"NDAB" means the New Development Advisory Board established
----
pursuant to subsection 3.18.
-5-
<PAGE>
"New Products" has the meaning ascribed thereto in subsection
------------
3.11.
"Non-Conforming Products" has the meaning ascribed thereto in
-----------------------
subsection 3.22(b).
"North America" means the United States, Canada (including the
-------------
Province of Quebec) and Mexico.
"NTF Products" or "No Trouble Found Products" means Products
-------------------------------------------
returned to the Vendor pursuant to subsection 3.9(a) which the Vendor has, in
good faith and only after applicable testing, found not to be Defective.
"OEM Customer" means (i) QUALCOMM and Sony Corporation and
------------
their respective subsidiaries and affiliates, (ii) any foreign affiliate of the
Vendor which is selling Products outside of the Territory for use and/or resale
outside of the Territory and (iii) a manufacturer of telecommunications
equipment and a purchaser of products from the Vendor that is not a provider of
cellular and/or PCS services (other than such a manufacturer and purchaser that
holds only a minority non-controlling interest in any such provider) in the
Territory or elsewhere, and that either (i) purchases private-labelled products
(i.e., labelled with the OEM Customer's brand name or trademark) from the
----
Vendor for the primary purpose of reselling such products on a wholesale basis
into channels of distribution, or (ii) is purchasing products from the Vendor
primarily for the purpose of supplying and/or reselling such products to its
customers that purchase telecommunications equipment for resale and use outside
the Territory.
"Operating Subsidiary" means an entity (i) at least fifty-one
--------------------
percent (51%) owned or controlled by an other entity, (ii) operating in the
telecommunications industry and (iii) having assets of at least twenty five
million dollars ($25,000,000).
"Originally Scheduled Supply Period" has the meaning ascribed
----------------------------------
thereto in subsection 3.2(c).
"Owner Defined Feature" means (a) the features listed on
---------------------
Schedule 5 and (b) any feature, enhancement, modification or upgrade to or to
be added to any Product (i) which is not currently listed on or described in
Exhibit A1 or Exhibit A2, (ii) which is, after the Effective Date, specifically
requested in writing by the Owner to the Vendor to be added to any Product
pursuant to and in accordance with the terms of this Agreement, (iii) which is
not otherwise made generally available to the Vendor's Customers and (iv) which
is developed by the Vendor for the Owner based solely upon the initiation of
the Owner.
"Owner Event of Default" has the meaning ascribed thereto in
----------------------
subsection 10.8.
-6-
<PAGE>
"Owner's Succeeding Entity" has the meaning ascribed thereto in
-------------------------
subsection 11.19.
"Parties" means, collectively, the Owner and the Vendor, and
-------
"Party" will individually mean the Owner or the Vendor.
-----
"Partners" means the collective reference to Sprint
--------
Corporation, a Delaware corporation ("Sprint"), Sprint Enterprises, L.P., a
Delaware limited partnership, Tele-Communications Inc., a Delaware corporation,
TCI Network Services, a Delaware general partnership ("TCI"), Comcast
Corporation, a Delaware corporation, Comcast Telephony Services, a Delaware
general partnership ("Comcast"), Cox Communications, Inc., a Delaware
corporation, and Cox Telephony Partnership, a Delaware general partnership
("Cox").
"PCS" has the meaning ascribed thereto in the second Recital.
---
"PCS System" means all products and other equipment, tools and
----------
software, all system element sites and any property located there necessary or
desirable to provide PCS in a given specified System Area.
"Person" means an individual, partnership, limited partnership,
------
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity of whatever
nature.
"Previously Existing Products" has the meaning ascribed thereto
----------------------------
in subsection 3.12.
"Procurement and Services Contract" means a procurement and
---------------------------------
services contract entered into, or to be entered into, between the Owner and
the counterparty or counterparties thereto in connection with the engineering
and construction of PCS Systems or any part thereof, as the same may be
amended, supplemented or otherwise modified from time to time.
"Product Class" has the meaning ascribed thereto in subsection
-------------
3.10(a).
"Product Depreciation" means the depreciation in the value of
--------------------
the relevant Product (based on the prices set forth in Appendix 1) over a
straight line five (5) year term from the date of shipment of such Product.
"Product Enhancements" means modifications or improvements made
--------------------
to the Products which improve performance of such Products.
"Products" means all of the Subscriber Units and the
--------
Accessories provided by the Vendor pursuant to and in accordance with this
Agreement.
-7-
<PAGE>
"Proprietary Information" has the meaning ascribed thereto in
-----------------------
subsection 8.2.
"Proprietary Marks" has the meaning ascribed thereto in
-----------------
subsection 3.17(b).
"Purchase Order" means a written order by the Owner to purchase
--------------
Products pursuant to and in accordance with the terms of this Agreement, each
of which will be deemed to incorporate all terms, conditions and provisions of
this Agreement unless the Parties expressly agree otherwise.
"Purchaser" means a Person who purchases Products from the
---------
Owner or an Agent as an initial end user of the Product or Products
(provided that an Agent that uses the Product will in no event be a
----
Purchaser).
"RF Interference Condition" has the meaning ascribed thereto in
-------------------------
subsection 3.20.
"Purchasing Credits" has the meaning ascribed thereto in
------------------
subsection 3.6(c).
"RFP" has the meaning ascribed thereto in subsection 7.9.
---
"Second Annual Minimum Commitment" has the meaning ascribed
--------------------------------
thereto in subsection 3.2(b).
"Shipped-to Location" has the meaning ascribed thereto in
-------------------
subsection 5.2.
"Shortfall" has the meaning ascribed thereto in subsection
---------
3.2(c).
"Software" has the meaning ascribed thereto in subsection
--------
7.5(a).
"Software Enhancements" means modifications or improvements
---------------------
made to the Software relating to PCS Products which improve performance of the
Software or which provide additional functions to the Software.
"Sony Branded Product" means any Product which bears a
--------------------
trademark, insignia, logo or other proprietary mark listed on Schedule 6 if
such trademark, insignia, logo or other mark consists of or incorporates the
term "Sony" and/or any variations thereof.
"Sony Corporation" means Sony Corporation, a Japanese
----------------
corporation, the parent company of Sony.
"Specifications" means the specifications and performance
--------------
standards of the Products contemplated by this Agreement and includes any
amendments, modifications
-8-
<PAGE>
and/or other revisions thereto made in accordance with the terms of this
Agreement and as more fully set forth in the Exhibits.
"Stub Period" has the meaning ascribed thereto in subsection
-----------
3.2(b).
"Subscriber Unit" means (i) the Vendor's QCP-1900 hand held
---------------
portable phone that provides CDMA service in the PCS band, (ii) the Vendor's
CM-D600 hand held portable phone that provides CDMA service in the PCS band,
and (iii) subsequent portable phone models added pursuant to this Agreement,
all in accordance with and pursuant to the Specifications.
"Succeeding Delay Grace Period" has the meaning ascribed
-----------------------------
thereto in subsection 4.2(b).
"System Area" means a major trading area to which the Owner has
-----------
FCC Licenses to operate PCS services.
"System Managers" means each of the managers designated by the
---------------
Owner and the Vendor, respectively, for the purposes of subsection 11.8.
"Term" has the meaning ascribed thereto in Section 2.
----
"Territory" means (i) with respect to the Vendor's QCP-1900
---------
Subscriber Unit, CM-D600 Subscriber Unit and Accessories therefor, the United
States and Canada (including the province of Quebec) and (ii) with respect to
subsequent hand held portable models and Accessories therefor added pursuant to
this Agreement, such geographical areas as will be mutually agreed to by the
Parties (but in any event not less than the United States); provided
--------
that for Sony Branded Products only, Territory shall not include Canada.
- - ----
"Third Annual Minimum Commitment" has the meaning ascribed
-------------------------------
thereto in subsection 3.2(b).
"Total Minimum Commitment" has the meaning ascribed thereto in
------------------------
subsection 3.2(b).
"Training" has the meaning ascribed thereto in subsection 6.1.
--------
"United States" means the fifty states of the United States,
-------------
the District of Columbia and all United States territories and possessions;
provided that for Sony Branded Products only, the term "United States"
----
shall mean only the continental United States, Alaska and the District of
Columbia.
"UPC" means the Universal Product Code.
---
-9-
<PAGE>
"Vendor Event of Default" has the meaning ascribed thereto in
-----------------------
subsection 10.2.
"Vendor Indemnities" has the meaning ascribed thereto in
------------------
subsection 9.3(a).
"Vendor Liabilities" has the meaning ascribed thereto in
------------------
subsection 9.3(a).
"Vendor's affiliate","affiliate of the Vendor" or "Vendor's
------------------------------------------------------------
affiliates" or the like means any Person which directly or indirectly
- - -----------
controls, or is controlled by, or is under common control with, the Vendor,
Sony Corporation or any of Sony Corporation's affiliates and subsidiaries. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person.
"Vendor's Succeeding Entity" has the meaning ascribed thereto
--------------------------
in subsection 11.18.
"Warranty Period" means (x) as to each Subscriber Unit the
---------------
period expiring (i) with respect to the Owner, twenty four (24) months after
the respective date of delivery of such Subscriber Unit to the FOB point, and
(ii) with respect to a Purchaser, either twenty four (24) months or twelve (12)
months (at the election of the Owner in accordance with subsection 3.8) after
the respective date of first sale of such Subscriber Unit to such Purchaser and
(y) as to each Accessory, the period expiring (i) with respect to the Owner,
twelve (12) months after the respective date of delivery of such Accessory to
the FOB point and (ii) with respect to a Purchaser, twelve (12) months after
the respective date of first sale of such Accessory to such Purchaser.
SECTION 2. TERM
This Agreement will commence on the date first set forth above and will
continue for a period of three (3) years (the "Initial Term") following the
initial purchase of production Subscriber Units by the Owner (the "End Date").
The Initial Term of this Agreement may be extended beyond the End Date for
successive periods by mutual agreement of the Parties hereto (all such periods
plus the Initial Term, the "Term"). The terms, conditions and provisions of
this Agreement will apply to all Purchase Orders issued by the Owner for any
Products during the Term, unless otherwise agreed by the Parties.
SECTION 3. PRODUCT PURCHASES
3.1 Right to Purchase, Resell and Use. (a) During the Term of this
---------------------------------
Agreement, the Owner will purchase Subscriber Units and Accessories on a
non-exclusive basis from the Vendor pursuant to and in accordance with the
terms and conditions of this Agreement. The Vendor understands and agrees that
the Owner will purchase Products from the Vendor pursuant to this Agreement for
the purpose of reselling such Products
-10-
<PAGE>
to the Owner's Agents and/or Purchasers in accordance with the applicable terms
of this Agreement. The Vendor further understands, acknowledges, and agrees
that the Products sold hereunder will be used in accordance with their intended
purpose on and within the Owner's Nationwide Network. The Owner will use its
reasonable efforts to ensure that it will not modify the form, fit, function,
specifications, performance or design of the Products (or components or
subcomponents thereof) without the express authorization of the Vendor, which
authorization, if any, will be provided by the Vendor pursuant to and in
accordance with the terms of this Agreement.
(b) The Vendor hereby grants to the Owner a nonexclusive right to resell
the Products within the Territory by means of (i) the Owner's own direct sales
utilizing its outbound sales force and/or through retail outlets owned or
operated by the Owner, and (ii) resales to Agents, all upon the terms and
conditions set forth herein. Subject to Applicable Law, the Owner agrees that,
in each contract between the Owner and an Agent, the Owner will use its
reasonable commercial efforts to require the Agent to which it supplies,
directly or indirectly, Products to resell such Products only to bona fide end
users, Purchasers or other Agents and only within the Territory. For the
purposes hereof a "bona fide end user" means any Person who is purchasing
Products without the intent to resell such Products.
3.2 Availability of Subscriber Units and Accessories; Minimum
----------------------------------------------------------
Commitment. (a) Subscriber Units and the Accessories therefor may be ordered
- - ----------
by the Owner for delivery at any time during the Term on or after (i) for
Subscriber Units (with accompanying Material Accessories), July 1, 1996 (the
"Commencement Date"), and for other additional Accessories, the respective
dates set forth on APPENDIX 1, in accordance with the lead times and
----------
forecasts set forth in Sections 4 and 5 below; provided that the
----
Accessories specifically listed in APPENDIX 1 hereto shall be available
----------
no later than the dates set forth for such accessories in APPENDIX 1.
----------
Notwithstanding the above, the Owner acknowledges and agrees that, unless the
Vendor otherwise notifies the Owner in writing to the contrary, the Software
contained in any Subscriber Unit manufactured by the Vendor prior to September
24, 1996 may contain "bugs" that may adversely impact the functionality,
performance and/or compliance of the Subscriber Unit with the Specifications
(such Software being hereinafter referred to as the "Beta Software"). With
respect to Subscriber Units forecasted pursuant to subsection 5.1(a) for
delivery on or before October 1, 1996 (the "Initial Subscriber Units"), the
Vendor will build and hold the Initial Subscriber Units in the Vendor's
inventory and will deliver such Initial Subscriber Units in accordance with the
provisions of this subsection 3.2(a). Commencing on September 24, 1996 (and
assuming that the Owner will have placed Purchase Orders for such Products with
the Vendor in accordance with the lead times set forth in this Agreement), the
Vendor will deliver to the FOB point on a daily basis (or such other longer
time intervals ending before October 8, 1996 as the Vendor may request in
writing) those Initial Subscriber Units in which the Vendor has upgraded to the
Specifications the Beta Software. On October 8, 1996, the Vendor will deliver
to the FOB point any then remaining Initial Subscriber Units still in the
Vendor's inventory as of such date (and the Owner will have placed Purchase
Orders for such Products with the Vendor in accordance with the lead times set
forth in this Agreement). Prior to
-11-
<PAGE>
their respective delivery to the FOB point pursuant to the prior two sentences,
the Vendor will upgrade to the Specifications the Beta Software in the subject
Initial Subscriber Units. For each of the Initial Subscriber Units so held in
the Vendor's inventory and upgraded, the Owner will pay to the Vendor a fee of
[ ] Initial Subscriber Unit to be upgraded to the Specifications, such
fee due and payable on the date the invoice for such Products is due and
payable. The Owner may request in writing that up to [ ] of the Initial
Subscriber Units be delivered (with their accompanying Material Accessories)
prior to the dates specified above. Upon such written request, the Vendor will
use its reasonable commercial efforts to comply with the dates and quantities
specified by the Owner in such request forsuch Initial Subscriber Units to be
delivered prior to September 24, 1996; provided that between September 24, 1996
-------- ----
and October 8, 1996, the Owner may request the delivery of any remaining Initial
Subscriber Units (subject to the [ ] limitation set forth above) that have not
been upgraded and were not earlier delivered prior to September 24, 1996. During
the period from September 24, 1996 to October 8, 1996 the Owner may request and
the Vendor will deliver as many upgraded Specification compliant Subscriber
Units as it has so upgraded and otherwise made available pursuant to and in
accordance with the forecasting and ordering requirements set forth in this
Agreement. With respect to any such Initial Subscriber Unit delivered prior to
the dates specified above, (i) acceptance of such Initial Subscriber Units with
the Beta Software will be deemed to have occurred upon delivery, (ii) the Vendor
makes no warranty with respect to the Beta Software (such Beta Software being
delivered on an "AS IS" basis), nor does the Vendor make any warranty with
respect to compliance of such Initial Subscriber Units with the Specifications
as a result of the fact that such Initial Subscriber Units contain Beta
Software; provided that any such Initial Subscriber Unit will be fully
-------- ----
compliant with all other applicable Specifications and the Vendor's warranties
pursuant to subsections 3.7 and 3.8 shall remain in full force and effect except
with respect to the effects of such Beta Software, and (iii) the Vendor shall
have no obligation to upgrade the Beta Software in such delivered Initial
Subscriber Units, but the Vendor agrees to cooperate, to the extent set forth in
the next sentence, with the Owner to assist the Owner to upgrade such Beta
Software in the field. In the event that there are Initial Subscriber Units
containing Beta Software delivered by the Vendor, the Vendor will supply to the
Owner, at no charge to the Owner, the computer disks containing the software
upgrades and reasonable amounts of training and assistance to permit the Owner
to implement a field upgrade of such Beta Software. The provisions of subsection
5.2(c) and subsection 5.2(d) will not apply to Initial Subscriber Units unless
and only to the extent that the Owner postpones delivery of any Initial
Subscriber Units to a date after October 8, 1996 (in which event, for purposes
of applying the provisions of subsection 5.2(c) and subsection 5.2(d), the
initial shipment date for such Initial Subscriber Units will be deemed to be
October 8, 1996). For the purposes hereof, a "bug" or "bugs" means a Software
imperfection, but in any event such Initial Subscriber Units with Beta Software
will be able to at least perform the following basic functions: which are
"power-up," "power-down," placing calls, receiving calls, perform self-check on
power-up, store phone numbers, recall phone numbers and speed dial phone
numbers.
-12-
<PAGE>
(b) Pursuant to and in accordance with the terms of this Agreement,
during the Initial Term of this Agreement the Owner will purchase from the
Vendor not less than [ ] Subscriber Units (the "Total Minimum Commitment").
During the first six (6) months from the Commencement Date (such first six month
period and each succeeding twelve (12) month period during the Term an "Annual
Supply Period") the Owner will only be required to purchase from the Vendor
[ ] Subscriber Units (the "First Annual Minimum Commitment"). During the
second Annual Supply Period the Owner will only be required to purchase from the
Vendor [ ] Subscriber Units (the "Second Annual Minimum Commitment"). During
the third Annual Supply Period the Owner will only be required to purchase from
the Vendor [ ] Subscriber Units (the "Third Annual Minimum Commitment"; each
of the First Annual Minimum Commitment, Second Annual Minimum Commitment, and
Third Annual Minimum Commitment, an "Annual Minimum Commitment").
Notwithstanding anything stated in this subsection 3.2(b) to the contrary, in
any given Annual Supply Period the Owner will only have to purchase [ ] of the
respective amounts set forth in the second, third and fourth sentences of this
subsection 3.2(b), provided that at any time prior to the termination of the
-------- ----
Initial Term (unless earlier terminated in accordance with Section 10) the Owner
will have fulfilled its Total Minimum Commitment pursuant to and in accordance
with the terms of this Agreement. Pursuant to and in accordance with the
immediately preceding sentence, any amounts (up to [ ]) not purchased, or
otherwise subject to firm Purchase Orders in accordance with this Agreement, by
the Owner in any given Annual Supply Period will increase the Annual Minimum
Commitment in the next succeeding Annual Supply Period (without any penalty or
Shortfall payment by the Owner to the Vendor); provided that for the third
-------- ----
Annual Supply Period any such amounts [ ] will be carried over and into the
remaining period within the Initial Term (the "Stub Period") and must be
purchased by the Owner in accordance with the terms of this Agreement during the
Stub Period. Prior to the end of the first Annual Supply Period, the second
Annual Supply Period and the third Annual Supply Period, the Owner will give the
Vendor prior written notice of any election by the Owner to exercise the Owner's
rights under the preceding sentence to purchase less than [ ] of the amount of
the First Annual Minimum Commitment, the Second Annual Minimum Commitment and
the Third Annual Minimum Commitment, as applicable, in the respective first
Annual Supply Period, second Annual Supply Period and the third Annual Supply
Period, as the case may be.
(c) In the event that the Owner elects, in its sole discretion, not to
place Purchase Orders for delivery of Subscriber Units in accordance with the
terms of this Agreement in the amounts as set forth in subsection 3.2(b) above
(the difference between each of the Annual Minimum Commitments and the amount
actually ordered for delivery during each of the relevant Annual Supply Periods
set forth in subsection 3.2(b) or otherwise during the Stub Period by the Owner
herein referred to as the "Shortfall"), then the amount of the relevant Annual
Minimum Commitment for such period (or the residual amount to be purchased in
the Stub Period, as applicable) will be reduced (by an amount equal to the
amount of the Shortfall for such Annual Supply
-13-
<PAGE>
Period or the Stub Period, as the case may be) by paying to the Vendor the
following amounts per Subscriber Unit which are in any such Shortfall, as full
compensation to the Vendor for such a reduction in the applicable Annual
Minimum Commitments:
Charge per Subscriber
Amount of Shortfall Unit in the Shortfall
- - ------------------- ---------------------
Shortfall greater than or equal to [ ] [ ] per Subscriber Unit in
of the applicable Annual Minimum Shortfall
Commitment
Shortfall greater than or equal to [ ] [ ] per Subscriber Unit in
and less than [ ] of the applicable Shortfall
Annual Minimum Commitment
Shortfall greater than or equal to [ ] [ ] per Subscriber Unit in
and less than [ ] of the applicable Shortfall
Annual Minimum Commitment
Shortfall less than [ ] of the applicable [ ] per Subscriber
Annual Minimum Commitment Unit in Shortfall
To the extent there is a Shortfall in any Annual Supply Period or the
Stub Period, as the case may be, the Vendor may invoice the Owner for any
amounts owed by the Owner to the Vendor pursuant to this subsection 3.2(c) no
earlier than 5:00 p.m. on the last Business Day of such period and no later
than ninety (90) days from the last Business Day of such period and the Owner
will have sixty (60) days to pay any such invoice to the extent the amount of
any such invoice is not in good faith dispute between the Parties pursuant to
subsection 11.8. To the extent the Owner is required to pay the Vendor amounts
as set forth in this subsection 3.2(c) for any Shortfall during any Annual
Supply Period, or during the Stub Period, as the case may be, any such amounts
once paid by the Owner will be full compensation to the Vendor for such
reduction in the Annual Minimum Commitments and the Owner will have no further
liability or obligation of any kind to the Vendor for any such reductions in
the Annual Minimum Commitments and any such payment will be the Vendor's sole
remedy (at law or in equity) for any such reductions in the Annual Minimum
Commitments. Nothing set forth in subsections 3.2(b) or 3.2(c) will be
construed or interpreted as relieving the Owner of purchasing those amounts of
Products projected by the Owner in the first five (5) months of a Forecast
which are subject to a firm Purchase Order in accordance with subsection 5.1.
For the purpose of subsections 3.2(b) and 3.2(c), any Purchase Order or Excess
Purchase Order postponed by the Owner pursuant to subsection 5.2(c) which, as a
result of such postponement, would cause the Products subject to such Purchase
Order or Excess Purchase Order not to be purchased in the Annual Supply Period
(the "Originally Scheduled Supply Period") in which such Products otherwise
were to be purchased (but for such postponement), will not be considered to be
Purchase Orders for Products ordered for delivery in the Originally Scheduled
Supply Period and such Products may be considered as part of any such Shortfall
during the Originally Scheduled Supply Period.
-14-
<PAGE>
3.3 Most Favored Customer Status. (a) With respect to all Products
----------------------------
(including any New Products ordered by the Owner pursuant to the terms of this
Agreement), the Owner will be deemed the most important and favored Customer of
the Vendor and will always throughout the [ ]. Notwithstanding the
above, the Vendor will not be obligated to provide such priority to Owner if
providing such priority either (i) would cause the Vendor, QUALCOMM or Sony
(including their respective affiliates) to breach any of their then-existing
contracts and/or any Applicable Law, or (ii) if the Owner elects to exercise
any of its remedies, as specified in subsection 4.2. At any time during the
Term, the Owner will receive Products (including any New Products ordered by
the Owner pursuant to the terms of this Agreement) at prices (prior to taking
into account price increases due to customization specific to the Owner;
[ ]. For the purposes of subsection 3.3 only, "Customer" will not include any
(i) OEM Customer or (ii) any other Customer who is only receiving Products from
the Vendor (or its affiliates) as a piece of a larger telecommunications,
engineering and/or design contract (other than with respect to Products sold
under a contract(s) with a third party to the extent that (x) the price
differential between the Product(s) sold under such third party contract (taking
into account corresponding time periods) multiplied by the number of units of
---------- --
Product(s) to be sold under such third party contract (at a lower price), is (y)
greater than [ ] of the total contract value of such third party contract), the
primary purpose of which is not the sale or supply of Subscriber Units.
(b) On an annual basis throughout the Term of this Agreement commencing
on the Effective Date, each of the Vendor, Sony and QUALCOMM will be required
to audit their pricing of all similar products provided to all of their
customers selling or using or intending to sell or use the Products in the
Territory in the preceding calendar year and certify to the Owner in a
certificate (or in separate certificates) executed by a duly authorized officer
of each such entity (the "MFC Certificate") that the Owner has in fact received
the prices and availability of Products in accordance with the terms of
-15-
<PAGE>
clause (a) of this subsection 3.3. The annual MFC Certificate delivered to the
Owner in accordance with this subsection 3.3(b) will be subject to
verification, at the election of the Owner, by any public accounting firm
reasonably acceptable to the Owner and listed on Schedule 1 (the "Independent
Public Accountant") and at the sole cost and expense of the Party whose
position is not supported by the report of the Independent Public Accountant
or, if contested, the report of the Independent Auditor. The Independent
Public Accountant will in no event disclose to the Owner or any other third
party the details of any contract or amendment between the Vendor and any
Customer (or between QUALCOMM and any of QUALCOMM's customers or between Sony
and any of Sony's customers or between any affiliate and such affiliate's
customers) other than details as necessary to summarize terms including, but
not limited to, pricing relevant to determinations under subsections 3.3(a) and
(b).
(c) To the extent that it is determined pursuant to subsection 3.3(b)
that the provisions of subsection 3.3(a) have not been complied with, the Owner
will have thirty (30) Business Days from receipt of the MFC Certificate (as
verified by the Independent Public Accountant, if the MFC Certificate(s) was so
subject to verification) to provide the Vendor with a written claim for Product
pricing rebates (as measured from the date any Product is delivered at any such
lower prices in violation of this subsection 3.3) on future purchases under
this Agreement based upon (i) the Independent Public Accountant's calculation
of the price differentials between the Vendor's prices for Products (including
any New Products) under this Agreement and any lower prices charged by the
Vendor, Sony or QUALCOMM, as the case may be, to any other Customer (including
customers of either QUALCOMM or Sony (including their respective affiliates)
who intend to use or resell, or who actually use or resell, such Products
within the Territory) in violation of clause (a) of this subsection 3.3. To
the extent that the Vendor, Sony or QUALCOMM, as the case may be, disagrees
with any such claim for such pricing rebates made by the Owner pursuant to this
subsection 3.3(c), the Vendor will have the right within ten (10) Business Days
of receiving the Owner's written rebate claim to submit such claim (including,
but not limited to, the Independent Public Accountant's report on which it as
based) and the Vendor's written response thereto to an Independent Auditor
(other than the Independent Public Accountant) who will have the authority to
determine whether, based on the information provided by the Owner and the
Vendor, the provisions of subsection 3.3(a) have been complied with. As part
of any such submission to the Independent Auditor, either Party may dispute the
validity or accuracy of the Independent Public Accountant's report. If the
Independent Auditor finds that the Owner's pricing rebate claim is incorrect
but that the provisions of subsection 3.3(a) have been violated, then the
Independent Auditor will have the right to adjust any such claim as appropriate
under such circumstances. The Independent Auditor's determination must be made
and delivered to both the Vendor and the Owner within ten (10) Business Days of
receiving the request from the Vendor. Such determination once made by the
Independent Auditor will be final and binding on the Parties and will not be
subject to further modification. The costs and expenses of the Independent
Auditor will be borne by the Party whose position is not supported by the
Independent Auditor or otherwise equitably under the circumstances.
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<PAGE>
3.4 Payment Terms, Taxes and Co-op Marketing Fund. (a) Pursuant to
---------------------------------------------
and in accordance with the terms of this Agreement, the Vendor will invoice the
Owner for Products purchased upon delivery of such Products to the FOB point,
and the Owner will pay all such invoices within [ ] days after the
invoice date unless the Owner disputes (in accordance with subsection 11.8) in
good faith either the Vendor's entitlement to, or the amount of, any such
invoiced amount. The Owner agrees to pay to the Vendor a late charge for
amounts actually due and not paid when due in accordance with the terms of this
Agreement (a "Late Amount") equal to the lesser of [ ] per month,
pro-rata, of the Late Amount, or the maximum amount permitted by Applicable
Law; provided that any such late payment penalties will not accrue
----
until amounts owed by the Owner to the Vendor are actually late and outstanding
and will stop accruing immediately upon the Owner's payment of such Late Amount
plus any such accrued late payment penalties. All amounts stated herein and/or
otherwise required to be paid under or pursuant to this Agreement are stated
in, and will be paid in, U.S. Dollars. In the event that, at any given time,
there are undisputed amounts, in aggregate, of [ ] or more, which the Owner
has failed to pay when due in accordance with the terms of this Agreement, then
the Vendor, upon five Business Days prior written notice to the Owner, shall be
entitled to, without any penalty or payment obligations, suspend shipping
Products.
(b) The amounts to be paid by the Owner under this Agreement do not
include any state, provincial or local sales and use taxes, however designated,
which may be levied or assessed on the Products to be sold hereunder. With
respect to such taxes, the Owner will either furnish the Vendor with an
appropriate exemption certificate applicable thereto or pay to the Vendor, upon
presentation of invoices therefor, such amounts thereof as the Vendor may by
law be required to collect or pay; provided, however, that the Vendor
-------- -------
will use its reasonable efforts to minimize the amount of any such taxes. The
Owner has no obligation to the Vendor with respect to other taxes, including,
but not limited to, those relating to franchise, net or gross income or
revenue, license, occupation, other real or personal property, and fees
relating to importation or exportation of the Products to the FOB point.
(c) Throughout the Term the Vendor will contribute cash amounts equal
to [ ] of the invoiced FOB point price of any Subscriber Units (and their
included accompanying Material Accessories) so invoiced by the Vendor to the
Owner for such Products purchased and paid for by the Owner pursuant to the
terms of this Agreement to a separate fund owned by the Owner and designated in
writing to the Vendor from time to time by the Owner (the "Co-op Marketing
Fund"). Any and all amounts in the Co-op Marketing Fund may be used by the Owner
in its sole and absolute discretion for any purpose in connection with the
marketing and/or advancement of the Nationwide Network or any part thereof,
subject only to the terms of subsection 3.17(b) and Section 8. In accordance
with the terms of this subsection 3.4(c), the Vendor must make any such
contribution to the Co-op Marketing Fund within ten (10) Business Days of
receipt by the Vendor of full payment by the Owner of amounts due under any such
invoice for Subscriber Units (and their included Material Accessories). The
amount of any such contribution to be made by the Vendor pursuant
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<PAGE>
to this subsection 3.4(c) will be calculated based upon [ ] of the invoiced
FOB point price for Subscriber Units (and their included Material Accessories)
invoiced by the Vendor to the Owner. The failure of the Vendor to make the
contributions in cash to the Owner's Co-op Marketing Fund in accordance with and
subject to the terms of this subsection 3.4(c) will entitle the Owner to
withhold any such amounts from any future Vendor invoices (until such time as
the Vendor does make any such required contributions).
3.5 Delivery. (a) All deliveries of Products will be made to the
--------
FOB point. The Owner will specify the desired method of shipping. Unless
otherwise agreed in writing, the Owner will pay for all shipping, freight,
insurance and other similar charges incurred in connection with such
deliveries. In the absence of written shipping instructions from the Owner,
the Vendor will select the carrier and insurance company at the Owner's
expense, taking into account the charges levied by the carriers and insurance
companies under consideration, and will ship Products utilizing ground
transportation; provided that, in the absence of prior shipping
-------- ----
instructions, the Vendor will use reasonable efforts to contact the Owner to
request such shipping instructions prior to making any such selections.
(b) The Owner will inspect and either accept or reject all Products in
whole or in part within ten (10) Business Days after the date of receipt at the
delivery location applicable to such Products pursuant to the terms of this
Agreement. If the Owner fails to reject any Product delivered within such
period, the Owner shall be deemed to have accepted such Product; provided,
--------
however, that any such acceptance will in no event limit, modify, waive or
- - -------
otherwise restrict the Owner's rights under the terms, including without
limitation the warranty provisions, of this Agreement.
(c) The Owner may request that the Vendor provide more extensive
logistical and distribution capabilities to the Owner, which capabilities the
Vendor will use its reasonable commercial efforts to provide. If the Vendor
agrees to provide such services, there may be, depending on the level and scope
of such services, additional charges to the Owner on a per Product basis. Any
such charges will be mutually agreed upon by the Parties during negotiations
between the Parties on the provision of any such additional logistical and
distribution services beyond those outlined in this subsection 3.5;
provided that, in determining any such charges, the Owner will be
- - -------- ----
deemed the Vendor's most important and favored Customer and will receive such
services at prices, on payment terms and subject to all other contract terms on
terms no less favorable to the Owner than those offered or available to any
other Customer subject to and in accordance with the terms of subsection 3.3.
3.6 Pricing. (a) The Owner will purchase Products from the Vendor
-------
in accordance with the Product pricing set forth on Appendix 1. The price for
Products will be the price in effect on the date of the applicable Purchase
Order. Notwithstanding anything to the contrary contained in subsection 3.2(b)
or subsection 5.2(c), to the extent the Owner orders or is required to order
Subscriber Units during 1996, the Owner will be required to pay the 1996 price
(as set forth in Appendix 1) for
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such Subscriber Units, even if and notwithstanding the fact that the Owner will
have moved, or delayed the delivery (pursuant to subsection 3.2(b) or
subsection 5.2(c)) of any such first Annual Supply Period Subscriber Units into
a succeeding Annual Supply Period or the Stub Period, as the case may be;
provided, however, that nothing contained in this sentence will in any
- - -------- -------
way limit or modify the Owner's right to reduce its First Annual Minimum
Commitment pursuant to the shortfall mechanisms in subsection 3.2(c);
provided further, however, in the event the Owner so reduces its
- - -------- ------- -------
First Annual Minimum Commitment but does purchase Subscriber Units subsequent
to December 31, 1996, then the Owner will be required to pay, for each
Subscriber Unit until such time as the Owner has purchased, in aggregate, [ ]
Subscriber Units, an amount equal to (i) the 1996 price (as set forth in
Appendix 1) for such Subscriber Units, less (ii) the amount paid by the Owner to
the Vendor (calculated on a per Subscriber Unit basis) pursuant to subsection
3.2(c) as a result of there being a Shortfall in the First Annual Supply Period.
Pursuant to the terms of this Agreement the Vendor may, upon not less than sixty
(60) days prior written notice to the Owner, increase its pricing for any of its
Products covered by the terms of this Agreement as set forth in Appendix 1 only
once in any given Annual Supply Period, in accordance with the most favored
customer provisions set forth herein; provided that any such price increase will
-------- ----
in no event be in excess of [ ] above the previously established price as set
forth in Appendix 1 for any such Product; and provided further, that nothing in
-------- -------
this subsection 3.6 will limit or otherwise pertain to a price increase
implemented pursuant to a Change Order pursuant to and in accordance with
subsection 3.23. In the event of any such price increase the Owner will have the
right, but not the obligation, by written notice to the Vendor, to reduce the
then remaining unpurchased portion of the applicable Annual Minimum Commitment
by the same percentage [ ] as such price increase in such Annual Supply
Period. For example, if the Vendor pursuant to the terms of this subsection
3.6(a) chose to increase its prices during the First Annual Supply Period by
[ ], then the Owner would have the corresponding right to decrease the then
remaining unpurchased portion of the First Annual Minimum Commitment by [ ].
Initial pricing for new Products not otherwise covered by Appendix 1 or the
terms of this Agreement will be established by mutual good faith agreement
between the Parties, such agreement to be reached no less than ninety (90) days
prior to the commercial availability of any such new Products to any Customer.
All such pricing for such new Products will be determined in accordance with the
terms of this Agreement, including, but not limited to, the most favored
customer provisions set forth herein.
(b) In the event that the Vendor reduces the price (other than the
automatic annual price reductions set forth in Appendix 1 or any price reduction
due to a violation of subsection 3.3) of any Product, the Vendor will credit the
Owner's accounts payable with an amount equal to the difference between the
reduced price (less the applicable [ ] Co-op Marketing Fund contribution
referenced in subsection 3.4(c)) and the price (less the applicable [ ] Co-op
Marketing Fund contribution referenced in subsection 3.4(c)) in effect
immediately prior to such reduction multiplied by the number of units of such
Product which were shipped to the Owner during the thirty (30) days immediately
prior to such price reduction and which remain in the
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<PAGE>
Owner's inventory at such time (the "Affected Products"). Within thirty (30)
days of such price reduction taking effect, the Vendor will notify the Owner of
such price reduction. If the Vendor fails to provide the Owner with such a
credit within such thirty (30) day period after notification by the Owner of
such quantities remaining in the Owner's inventory, the Owner will be entitled
to offset the amount of such credit (calculated in accordance with the
immediately preceding sentence) first against the amounts owed for any of the
Affected Products, and second against any other amounts due to the Vendor by
the Owner pursuant to this Agreement. The Vendor will have the right, but not
the obligation, to have an Independent Auditor audit the Owner's calculation of
the quantity of Products that remain in the Owner's inventory immediately prior
to such price reduction, provided that the Party whose position is not
-------- ----
supported by the Independent Auditor will be responsible for the costs and
expenses of the Independent Auditor designated pursuant to this subsection
3.6(b).
(c) The Owner will receive from the Vendor purchasing credits to be
applied as a reduction in the purchase price of Subscriber Units (with
accompanying Material Accessories) purchased by the Owner in 1998 as follows:
for each Subscriber Unit (with accompanying Material Accessories) purchased by
the Owner in 1997, the Owner will receive from the Vendor [ ] credit (the
"Purchasing Credits"). The Purchasing Credits will be applied by the Vendor
against purchases by the Owner of Subscriber Units in 1998 as a
reduction in the purchase price of such Subscriber Units; provided,
--------
however the amount of the Purchasing Credits to be applied to reduce the
- - -------
purchase price of any individual Subscriber Unit (with accompanying Material
Accessories) purchased in 1998 will be [ ] or such lesser then remaining
unused amount (if the amount of remaining unused Purchasing Credits is then
less than [ ].
3.7 Warranty to the Owner. (a) The Vendor warrants to the Owner
---------------------
that each Product will be, during the applicable Warranty Period, free from
Defects or Deficiencies in material and workmanship.
(b) In the event of any breach of the warranty set forth in subsection
3.7(a) during the applicable Warranty Period, the Vendor will, in accordance
with the terms of this subsection 3.7, promptly repair or replace (in
accordance with subsection 3.9) the defective or nonconforming Product or
otherwise cure any Defects and Deficiencies so that the defective or
nonconforming Product will perform in accordance with the Specifications. If
the Vendor fails to promptly repair, replace and/or cure such defect or
nonconformance, the Vendor will promptly refund any monies paid by the Owner
for such Defective Product, less any amounts contributed by the Vendor to the
Co-op Marketing Fund relating to such defective Product (such refund to be made
no later than the notice to the Owner that it will not repair and replace).
The remedies set forth in this subsection 3.7(b) will be the sole and exclusive
remedies in the event of a breach by the Vendor of its obligation under this
subsection 3.7.
(c) No warranty will extend to any Product which has been subjected to
misuse, neglect or improper storage or installation by any Person other than
the Vendor, its
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<PAGE>
agents, employees, subsidiaries and/or affiliates or which has been used with
accessories other than Accessories provided by the Vendor (or expressly
authorized in writing by the Vendor for use with the subject Product) or any
Product which has been opened, repaired, modified or altered by anyone other
than the Vendor or a Vendor authorized repair facility.
(d) The Owner hereby acknowledges and agrees that it has not relied on
any representations or warranties other than those expressly set forth in this
Agreement. During the applicable Warranty Period (in no event less than the
Term), Vendor will provide, at Vendor's sole expense, to the Owner telephonic
technical support, including a hotline staffed from 7:00 a.m to 10:00 p.m.
Eastern time seven (7) days a week.
3.8 Consumer Warranty. (a) In addition to the warranty provided in
-----------------
subsection 3.7, the Vendor will provide a warranty ("Consumer Warranty") to
Purchasers of Sony Branded Products, on the terms and conditions set forth on
APPENDIX 3, and to Purchasers of all other Products, on the terms and
- - ----------
conditions set forth on APPENDIX 2. At the election of the Owner and
----------
upon prior written notice to the Vendor, the Consumer Warranty for Subscriber
Units not yet delivered to the FOB point can be extended from twelve (12)
months to twenty four (24) months from the date of sale and the forms of the
Consumer Warranty set forth on Appendices 2 and 3 (which shall accompany such
Subscriber Units, as applicable) shall be appropriately modified to implement
the warranty extension for such Subscriber Units. The amount of prior written
notice which the Owner must give to the Vendor to implement such a warranty
extension shall be mutually agreed upon (in any event not in excess of ninety
(90) days) in each instance, taking into account such factors as printing and
packaging lead times, which may vary depending on the number of phones to be
subject to such warranty extension, and any other relevant factor. The Parties
agree that the Consumer Warranty is made solely by the Vendor and that the
Owner makes no warranties with respect to the Products pursuant to this
Agreement. In the event any such Purchaser inadvertently or otherwise forwards
Products subject to the Consumer Warranty to the Owner, the Owner will have the
right to forward such Products to the Vendor and the Vendor will perform its
obligations under the Consumer Warranty as if such Purchaser forwarded such
Products directly to the Vendor.
(b) During the Consumer Warranty period the Vendor agrees to allow a
Purchaser to return a Subscriber Unit (with the original accompanying Material
Accessories) to the Owner or to the locations described in Schedule 4 (or, with
respect to Sony Branded Product, to any authorized dealer or service facility,
as contemplated by APPENDIX 3) for a replacement thereof by the Vendor
----------
in the event that such Subscriber Unit or any such accompanying Material
Accessory suffers from a Defect or Deficiency within ten (10) days after the
purchase of such Subscriber Unit (with such accompanying Material Accessories).
Upon the Owner's receipt of a Defective Product (and prescribed accompanying
Products, if required) from a Purchaser the Owner will have the right to
deliver any such Defective Product (and prescribed accompanying Products, if
required) to the Vendor and the Vendor will within ten (10) days of its receipt
of such Defective Product (and prescribed accompanying Products, if required)
from the Owner replace
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<PAGE>
such Defective Product by sending a replacement Product directly to the Owner
or its designated agents, or as otherwise mutually agreed by the Parties.
3.9 Repair and Replacement Services. (a) If the Owner claims a
-------------------------------
breach of warranty under subsection 3.7, it must notify the Vendor of the
claimed breach within a reasonable time (in any event during the applicable
Warranty Period) after its determination that a breach has in fact occurred.
The Owner will allow the Vendor to inspect the Products, at the Owner's
location designated for such purpose, or, upon the Vendor's issuance of a
return authorization number and at the Vendor's sole expense, the Owner will
return via ground transportation such Products to any of the Vendor's
designated repair facilities located in the United States and listed on
Schedule 4. Notwithstanding anything to the contrary in this subsection
3.9(a), the Owner agrees to pay to the Vendor the lesser of (i) the Vendor's
then current standard cost to refurbish and transport the NTF Product or (ii)
[ ] per NTF Product for each NTF Product actually replaced with a refurbished
or new Product by the Vendor, provided that the Owner will have the right, but
-------- ----
not the obligation, to designate an Independent Auditor to verify the Vendor's
calculation of the quantity of and the Vendor's standard cost to refurbish and
transport any such NTF Products received by the Vendor pursuant to this
subsection 3.9; provided further that the costs and expenses of the Independent
-------- -------
Auditor will be borne by the Party whose position is not supported by the
Independent Auditor or otherwise equitably under the circumstances.
(b) Upon request by the Owner for a return authorization, pursuant to
subsection 3.7 or 3.8, whether for replacement or for repair of a Product, the
Vendor agrees that, within thirty (30) days of such Owner request, it will
either issue such return authorization number or provide the Owner in writing
with reasons for refusing to issue such return authorization number. In the
event that the Vendor fails to provide the return authorization number, or
provide written reasons for refusing to do so, the Owner will be permitted to
offset the value of any amount paid for the Product against any other amounts
owed by the Owner to the Vendor pursuant to this Agreement; provided
--------
that in the event of any such offset the Vendor may request the return of
- - ----
the subject Product and, in the event of such request, the Owner will return
such Product.
(c) The Vendor will repair Products as soon as practicable after receipt
of the Defective Product giving rise to the warranty claim and will maintain a
maximum ten (10) day turn-around time to either repair or replace Products.
Turn-around time is the time between receipt by the Vendor of the Defective
Product and shipment for return by the Vendor of the repaired or replacement
Product. When repairing or replacing any Defective Product, the Vendor will
maintain the quality of the Product and will not substitute any component
thereof with a component of lesser quality or with a component that has a
lesser performance standard or capability. Subject to the immediately
preceding sentence, the Vendor will be entitled to repair or replace defective
Products using refurbished components and refurbished Products.
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3.10 Catastrophic Defects (a) Throughout the applicable Warranty
--------------------
Period for each Product, as applicable to each Product, in the event that (i) in
excess of [ ] of the Products in any class, category or type of Products (a
"Product Class") shipped to the Owner in the initial [ ] period following the
first commercial sale by the Vendor to the Owner of such Product (a "First Sale
Date") (provided that in any event at least [ ] separate Products) are found to
-------- ----
be Defective within any consecutive [ ] month period, (ii) in excess of [ ] of
the Products in any Product Class shipped to the Owner in the second [ ] month
period following the First Sale Date (provided that in any event at least
-------- ----
[ ] separate Products) are found to be Defective within any consecutive [ ]
month period or (iii) in excess of [ ] of the Products in any Product Class
shipped to the Owner after the [ ] month period following the First Sale Date
(provided that in any event at least [ ] separate Products) are found to be
-------- ----
Defective within any consecutive six (6) month period (any such defect described
in clauses (i), (ii) or (iii) above hereinafter referred to as a "Catastrophic
Defect") the Owner will notify the Vendor thereof. Upon receipt of such
notification, the Vendor will have ninety (90) days in which to determine the
cause of and to remedy such Defect (the "Catastrophic Defect Cure Period"). Upon
such remediation, the Vendor will promptly repair or replace any and all
Products that were subject to the same or similar condition(s) causing such
Catastrophic Defect (in the Owner's inventory and any such Products sold by the
Owner to Purchasers) with repaired or otherwise replaced Products at the
Vendor's sole expense (including, without limitation, all freight and duty
payments applicable thereto). In order to accurately determine that any
Catastrophic Defect has in fact been cured by the Vendor in accordance with the
terms of this subsection 3.10, the Owner will not exercise any of its remedies
under this subsection 3.10 against the Vendor until and unless the Defect
percentages for any such class, category or type of Products subject to such a
Catastrophic Defect, as measured during a ninety (90) day period starting on the
date the Vendor commences any such remediation, has failed to fall below the
applicable threshold percentages set forth in clauses (i), (ii) or (iii) above.
(b) In the event that such Catastrophic Defect is not remedied within
the Catastrophic Defect Cure Period in accordance with this subsection 3.10,
the Owner will have the right, but not the obligation, to terminate this
Agreement and to resell to the Vendor for cash payment any and all Products
which are then in the Owner's inventory and which are subject to such
Catastrophic Defect or which are subject to the same or similar condition(s)
causing such Catastrophic Defect at the price paid (less any applicable amounts
contributed by the Vendor to the Co-op Marketing Fund for such Product and less
any Product Depreciation) to the Vendor by the Owner, without charge
(including, without limitation, any restock charge) or penalty; provided
--------
that if the Vendor is diligently pursuing a cure, prior to any such
- - ----
termination the Owner will allow the Vendor an additional fifty (50) days to
remedy such Catastrophic Defect (provided further that any such resale
-------- -------
will be implemented at the end of the initial ninety (90) day cure period for
such Catastrophic Defect). Regardless of whether the Owner exercises the
rights set forth in the immediately preceding sentence, in the event that such
Catastrophic Defect is not remedied, the Vendor agrees to reimburse the Owner
for any
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<PAGE>
and all reasonable direct out of pocket expenses and costs in excess of any
expenses and costs the Owner would have otherwise incurred hereunder in
reasonably replacing (using replacement Products with the most comparable
features and functionality available at such time) the Owner's or any
Purchasers' Products as a result of such Catastrophic Defect and to repurchase
from the Owner any Vendor Products repurchased or otherwise recalled by the
Owner due to the Vendor's failure to remedy any such Catastrophic Defect.
(c) In the event the Vendor has failed to perform any of its warranty
obligations under the terms of this Agreement and if the Vendor purchases or
subcontracts for the manufacture of any part of any Product to be provided
hereunder from a third party, the warranties given to the Vendor by such third
party will inure, to the extent applicable, permitted by such warranties and
permitted by Applicable Law, to the benefit of the Owner, and the Owner will
have the right, to the extent permitted by such warranties and Applicable Law,
in its sole discretion, to enforce such warranties directly against such third
party. The remedies set forth in subsections 3.10(b) and (c) will be the sole
and exclusive remedies in the event of a breach by the Vendor of its obligation
under subsection 3.10(a) above.
(d) Notwithstanding that the applicable Warranty Period in respect
thereof may have expired, the Vendor will provide repair and maintenance (but
not replacement) services as set forth in subsection 3.9 with respect to any
Product purchased under this Agreement for a period of five (5) years following
the purchase of such Product at its standard commercial prices which will be
reasonable, unless (i) such Product has been subjected by a Person other than
the Vendor (or any of its subcontractors or suppliers) to misuse, neglect or
improper storage or installation or (ii) is in such deteriorated or damaged
condition that it cannot reasonably be repaired. In the event that a Product
is not repairable, the Vendor will return such Product to the Person who
returned such Product (at such Person's cost), with a statement certifying the
reasons why such Product cannot be repaired.
3.11 New Generation of Products. The Vendor may, from time to time
--------------------------
during the Term of this Agreement, modify, update or enhance existing or
produce new generations, or updated, modified or enhanced versions, of Products
sold hereunder ("New Products"). In the event that the Vendor makes such New
Products generally available to any of its other Customers, the Vendor will
offer to sell such New Products to the Owner on terms and conditions pursuant
to and in accordance with subsection 3.3. Notwithstanding anything stated
herein to the contrary, no Product subject to a modification which in no way
affects the form, fit or functionality of the Product will be deemed a New
Product and any such Product will remain a Previously Existing Product.
3.12 Right to Cease Supply of Obsolete Products. If the Vendor
------------------------------------------
begins selling and making generally available New Products or products to
replace or as a substitute for previously existing Products ("Previously
Existing Products"), the Vendor may, with the Owner's prior written consent,
such consent not to be unreasonably withheld, cease supplying the Previously
Existing Products to the Owner under this Agreement by
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delivering six (6) months' prior written notice to the Owner regarding such
cessation; provided that the Vendor will offer to supply to the Owner
-------- ----
such replacement or substitute Products on terms and conditions pursuant to and
in accordance with subsection 3.3; and provided further that the
-------- -------
New Products or replacement or substitute Products maintain performance and
functionality equivalent to that previously provided by the Previously Existing
Products (unless any such lower performance and/or functionality has been
consented to by the Owner, such consent not to be unreasonably withheld).
Notwithstanding anything stated herein to the contrary, the Vendor will not be
required to provide the Owner notice under this subsection 3.12 or otherwise of
any modification to a Product or a component thereof which in no way affects
the form, fit and/or functionality of such Product. The Vendor will under no
circumstances be entitled to cease supplying such Previously Existing Products
which are covered under a then unfilled Purchase Order from the Owner. The
Vendor will have no right to cease supplying the Owner under this subsection
3.12 with any such Previously Existing Products so long as the Vendor continues
to supply and make available such Previously Existing Products to any other
Customer. It is expressly understood by the Owner that the Vendor does intend,
not earlier than April 1997, to obsolete the QCP-1900 and the CM-D600 models of
Subscriber Units and replace them with a New Product (at the same prices set
forth in Appendix 1) in accordance with this subsection 3.12. Such New Product
will comply with the specifications as set forth in Exhibit A3. In accordance
with this subsection 3.12, the Owner does hereby give its written consent to
the substitution of the New Product as specified in Exhibit A3 for any QCP-1900
and/or CM-D600 models of Subscriber Units ordered by the Owner under this
Agreement.
3.13 [Intentionally Omitted].
---------------------
3.14 Right to Return Products. The Vendor agrees that at any time within
------------------------
[ ] days immediately prior to the End Date (or the last Business Day of the
Term in the event the End Date should be extended pursuant to the terms of this
Agreement), in the event that items of a Product are not purchased by Purchasers
and remain in the Owner's inventory at such time, the Owner will be permitted,
but not required, to return such items to the Vendor; provided that the
-------- ----
aggregate value of any such Products will not exceed [ ] minus the reasonable
actual rework costs incurred by the Vendor for any such Products which were
customized for the Owner pursuant to and in accordance with the terms of this
Agreement. Upon return of such items to the Vendor, the Vendor will refund to
the Owner the price paid for such items (less such rework costs and less any
amounts contributed by the Vendor to the Co-op Marketing Fund relating to such
returned Products) without charge or penalty or offsetting order, provided that
-------- ----
such returned items are new, unused, in the original as shipped by the Vendor to
the Owner and are not Previously Existing Products. Such refund (less such
rework costs and less any amounts contributed by the Vendor to the Co-op
Marketing Fund relating to such returned Products) will be offset against
outstanding invoices or, if there are no such invoices, in cash. Any freight and
other charges incurred in connection with returning such items to the Vendor
within such [ ] day period will be paid by the Owner.
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3.15 Labeling and Logo Changes. (a) The exterior of each
-------------------------
Subscriber Unit and its packaging will bear the technology mark, as specified
in Appendix 4, or such other substantially equivalent technology mark as
mutually agreed upon by the Parties (a "Mark"). The Mark will be positioned in
accordance with Appendix 4. At the Owner's option, and at the Vendor's sole
expense, and with appropriate lead times agreed to by the Parties, each
Subscriber Unit may be otherwise labeled and/or logoed on the front of the
Subscriber Unit below the key pad in accordance with the Specifications.
(b) The Parties acknowledge that the Owner may want to participate in
certain aspects of the Product labeling and the Vendor agrees to design, upon
mutual agreement with the Owner as to feasibility, timing and additional cost
(subject to the Vendor's obligations as to prices and costs pursuant to
subsection 3.3), if any, associated with any such labeling change not otherwise
at the Vendor's expense pursuant to the terms of this Agreement including, but
not limited to, the Specifications, Product labeling to complement the Owner's
marketing effort in accordance with the Owner's instructions.
3.16 Materials and Equipment. Whenever materials are specified or
-----------------------
described in this Agreement (including the Specifications) by using the name of
a proprietary item or the name of a particular supplier, the naming of the item
is intended to establish the type, function and quality required, and
substitute materials may nonetheless be used, provided that such
-------- ----
materials are equivalent or equal to that named. If the Vendor wishes to
furnish or use a substitute item, the Vendor must first certify that the
proposed substitute will perform at least as well as the intended functions and
achieve the results called for by this Agreement (including but not limited to
the Specifications), will be substantially similar or of equal substance to
that specified and be suited for the same use as that specified. The Owner may
require the Vendor to furnish, at the Vendor's expense, additional data about
the proposed substitute as required to evaluate the substitution. The Owner
will be allowed a reasonable time within which to evaluate each proposed
substitute. Notwithstanding the foregoing, prior to the shipment of Products
pursuant to the terms of this Agreement, the Vendor may at any time without
notice to or consent of the Owner make changes in a Vendor Product furnished
pursuant to this Agreement, or modify the drawings and published specifications
relating thereto, or substitute Products of similar or later design to fulfill
its obligations under this Agreement or otherwise fill an order, provided
--------
that any such changes, modifications or substitutions will in no way have
- - ----
an adverse affect or otherwise adversely impact upon the form, fit, or function
of an ordered Product pursuant to and in accordance with the applicable
Specifications. With respect to changes, modifications and substitutions which
do in fact adversely affect the form, fit, or function of an ordered Product
pursuant to and in accordance with the Specifications, the Vendor must notify
the Owner in writing at least ninety (90) days prior to the effective dates of
any such changes, modifications or substitutions. In the event that any such
change, modification or substitution is not desired by the Owner, the Owner
will notify the Vendor within thirty (30) days from the date of notice and the
Vendor will not furnish any such changed Products to the Owner on any orders in
process at the time the Owner is so notified; provided further, nothing
-------- -------
contained herein will otherwise modify Vendor's obligations under the terms of
this Agreement.
-26-
<PAGE>
3.17 Logos. (a) The Products will bear only those logos as agreed
-----
to by the Owner pursuant to the terms of this Agreement (other than the Mark
pursuant to subsection 3.15). The Products will bear the "Sprint" label or
logo and/or such other labels or logos as the Owner shall require from time to
time, in such size and position on the Products as the Owner shall notify to
the Vendor from time to time pursuant to and in accordance with subsection
3.15.
(b) Throughout the Term of this Agreement, the Owner may use only those
trademarks, insignias, logos or other proprietary marks listed on Schedule 6 or
as otherwise consented to in writing by the Vendor ("Proprietary Marks") in
connection with the Owner's sales, advertisements and marketing of the
Products; provided that the Owner's use thereof shall be in accordance
-------- ----
with the Vendor's, Sony's or Qualcomm's, as applicable, reasonable directions
and policies. The Owner agrees that it has no rights with respect to the
Proprietary Marks, except as expressly provided in this subsection 3.17(b), and
will not use the Proprietary Marks as part of the business name of the Owner.
(c) The Vendor will use its reasonable efforts to cooperate with the
Owner in the development of Product packaging that is fully integrated with the
Owner's branding strategy and which supports the Owner's marketing
communication and segmentation strategy as reasonably communicated to the
Vendor by the Owner from time to time. Such cooperation will focus on the
contents of Product packaging, the configuration, physical dimensions and
materials of such packaging, communications, colors, graphics and descriptive
language used in connection with such Products and such other items as the
Parties shall agree upon from time to time.
(d) If the Vendor is itself unable to meet the Owner's packaging needs
as set forth in subsection 3.17(c) or as otherwise reasonably communicated by
the Owner to the Vendor from time to time, the Vendor agrees to supply the
Products in specified configurations and bulk packaging to the Owner's
designated packager for the required packaging; provided that in such
-------- ----
case the Vendor will credit the Owner against the purchase price for the
subject Products with any amounts saved by the Vendor for not having had to
perform the packaging services as required by the Specifications.
3.18 New Development Advisory Board; Notice of New Developments.
----------------------------------------------------------
The Owner and the Vendor will establish an NDAB within sixty (60) days of the
Effective Date. The purpose of the NDAB will be to review the development
requirements and high level development milestones, to ensure that the Vendor
understands the Owner's requirements for each Product (including New Products)
and/or enhancements. The NDAB will provide an executive forum to discuss
product ideas, Owner requirements and its recommended development
prioritization for improved infrastructure-based subscriber features. The
focus of the NDAB will be on Product features, new CDMA products, Product
Enhancements, critical operational issues, future developments beyond CDMA
cellular without the need for System additions and on such other matters as the
Parties mutually agree upon from time to time. Throughout the Term, the Vendor
will use its reasonable efforts to provide the Owner notice of its
technological innovations
-27-
<PAGE>
and advancements relevant to the Products within a time reasonably prior to
making any such information generally available to its Customers, provided
--------
that nothing herein will require the Vendor to disclose any information
- - ----
proprietary to any other Customer.
3.19 Market Development Manager. The Vendor will provide a market
--------------------------
development manager to coordinate the efforts of the Vendor in meeting its
obligations relating to the NDAB who will specifically focus on new Products,
CDMA services and features. Such market development manager must be reasonably
knowledgeable in CDMA technology and the Owner's Nationwide Network and must
work closely, and on a regularly scheduled basis, with the Owner's senior
engineering and marketing personnel on feature development, feature roll-out,
future road maps for CDMA Products, and any other marketing aspect of providing
PCS that the Owner believes is beneficial to the Nationwide Network and/or any
PCS System and/or Products at such time. The Vendor's market development
manager and the manager's staff will serve as the Owner's direct liaison with
the Vendor to advise the Vendor's product development teams of the Owner's
priorities as described to the Vendor by the Owner from time to time either
through the NDAB or by any other means acceptable to the Parties. Nothing
contained in this subsection 3.19 will in any way limit and/or modify the
Owner's ability to enforce its rights under this Agreement or to otherwise
maintain contacts with the Vendor in any other way it sees fit. Within a
reasonable time after the Effective Date the Owner will use reasonable efforts
to designate appropriate personnel to coordinate with the Vendor's market
development manager pursuant to this subsection 3.19.
3.20 Applicable Law and Radio Frequency Energy Standards. All
---------------------------------------------------
Products must comply, to the extent applicable, with all Applicable Law as of
their respective date of delivery to the FOB point including, but not limited
to, the requirements of Subpart J of Part 15 of the rules and regulations
promulgated by the FCC, as the same may be amended from time to time (the "FCC
Rules and Regulations"), including, without limitation, those provisions
concerning the labeling of Products and the suppression of radio frequency and
electromagnetic radiation to specified levels. In the event that the Products
produce radio frequency interference, notwithstanding that such Products comply
with the FCC Rules and Regulations, the Vendor will use reasonable efforts to
provide the Owner with reasonable technical information in its possession on
the methods to suppress such interference and will exercise reasonable
commercial efforts to isolate and remediate any such radio frequency
interference caused by the Products which constitutes a condition materially
adversely affecting the Nationwide Network (a "RF Interference Condition") or
any part thereof, provided that the Owner will cooperate to the extent
-------- ----
reasonable with the Vendor to achieve such remediation. Nothing in this
subsection 3.20 will be deemed to diminish or otherwise limit the Vendor's
warranty obligations pursuant to this Agreement.
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<PAGE>
3.21 [Intentionally Omitted].
-----------------------
3.22 Test Products; Product Verification and Testing. (a) The
-----------------------------------------------
Vendor agrees to supply the Owner with ten (10) pre-production items of each
Subscriber Unit and Material Accessory no later than five (5) Business Days
after the Effective Date and ten (10) additional pre-production items of each
Subscriber Unit and Material Accessory no later than July 31, 1996 in order to
allow the Owner to test such items to determine whether such Subscriber Units
and Material Accessories comply with the requirements of this Agreement,
including the Specifications; provided that no such tests or any such
-------- ----
knowledge or experience gained or otherwise acquired from such tests or
otherwise will in any way be deemed a waiver of or to reduce or affect the
Vendor's obligations with respect to the provision of warranties pursuant to
this Agreement. The Owner will use reasonable efforts to provide the Vendor
with the results of such tests. In the event of the Vendor's introduction of
New Products pursuant to the terms of this Agreement, the Vendor will provide
the Owner reasonably sufficient numbers of pre-production units (in any event
not more than ten (10)) of any such New Product for the purposes of Owner
testing at least ninety (90) days prior to the general market availability of
any such New Products. Notwithstanding anything stated herein to the contrary,
the warranties set forth in subsections 3.7 and 3.8 will not apply to any
pre-production Subscriber Units required to be delivered by the Vendor pursuant
to this subsection 3.22(a) or otherwise purchased by the Owner. Exhibits B1
and B2 are preliminary and subject to final revision as mutually agreed to by
the Parties in good faith; provided that Exhibits B1 and B2 will be
-------- ----
finalized no later than July 15, 1996; provided further that in the
-------- -------
event the Parties are unable to mutually agree in good faith by July 15, 1996
such disagreement will be immediately referred to dispute resolution pursuant
to and in accordance with the terms of subsection 11.8.
(b) The Vendor will test the Products and verify to the Owner their
performance in accordance with the Specifications pursuant to and in accordance
with the requirements and milestones set forth in Exhibits B1, B2 and B3. The
failure of the Vendor to verify the performance of the Products pursuant to the
requirements of Exhibits B1, B2 and B3 will result in the Owner having the
absolute right to suspend or cancel (in its sole and absolute discretion) any
then existing or future Purchase Orders for any such Products which have not in
fact complied with the requirements of Exhibits B1, B2 and B3. To the extent
any class, category or type of Products do not comply with the requirements of
Exhibits B1, B2 and B3 within ninety (90) days (one hundred forty (140) days in
the event a semiconductor component modification is required) of the testing
dates provided for any such verifications pursuant to Exhibits B1, B2 and B3
(in the case of Exhibit B3 at the Vendor's testing facility), the Owner will
have the right, but not the obligation, to terminate this Agreement without
payment or penalty of any kind; provided that at any time after the
-------- ----
first thirty (30) days of any such applicable cure period as set forth above in
this sentence, the Owner will have the right, in addition to any other rights
set forth in the immediately preceding sentence, to cancel (in its sole and
absolute discretion) any then existing Purchase Orders for Products delivered
or required to be delivered on such date which have not in fact complied with
the requirements of Exhibits B1, B2 or B3 and the Vendor agrees to reimburse
the Owner
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<PAGE>
for any and all reasonable direct out of pocket expenses and costs in excess of
any expenses and costs the Owner would have otherwise incurred hereunder in
reasonably replacing (using replacement Products with the most comparable
specified features and functionality available at such time) any such Products.
In the event that the Owner chooses to terminate this Agreement pursuant to
this subsection 3.22(b) such termination will be the Owner's sole and exclusive
remedy; provided that in the event the Owner does not terminate under
-------- ----
this subsection 3.22(b), the Owner will retain all rights to enforce any and
all delay penalties against the Vendor pursuant to and in accordance with
subsection 4.2 as its sole and exclusive remedy in such case; provided
--------
further that nothing contained herein will be deemed to diminish or
- - -------
otherwise limit the Vendor's warranty obligations pursuant to this Agreement.
Notwithstanding anything to the contrary stated herein above, to the extent
that the Owner decides (in its sole and absolute discretion) to take, delivery
of and place into service any such Products which have failed to pass the
testing required by Exhibits B1, B2 or B3 ("Non-Conforming Products"), the
Owner will be deemed to have accepted any such Non-Conforming Products with any
such non-conformance; provided that, in such case, the Owner will in no
-------- ----
way be deemed to have waived any of its rights to enforce the Vendor's complete
conformance (including, but not limited to, conformance with any requirement
not otherwise met by such Non-Conforming Products) with the testing
requirements set forth in Exhibits B1, B2 and B3 and the Specifications on all
other Products (except for previously delivered and accepted Non-Conforming
Products) already then delivered or yet to be delivered by the Vendor pursuant
to the terms of this Agreement.
3.23 Change Orders. From time to time the Owner may request changes
-------------
or modifications to the Products or packaging and/or the Specifications
("Change Orders"). All such Change Orders requested in writing by the Owner to
the Vendor will be subject to the reasonable good faith and timely agreement
(including, but not limited to, agreement on terms such as one-time charges,
price increases, minimum purchase commitments and schedule impacts) of the
Vendor and the Owner which agreement will be evidenced by a writing executed by
an authorized representative of each of the Parties.
SECTION 4. LEAD TIMES AND DELAY
4.1 Lead Times. Provided that the Owner submits Forecasts to the
----------
Vendor and places Purchase Orders for Products in accordance with Section 5
below and subject to the provisions of subsection 3.2(a), the Vendor will ship
Products (other than as specified in the last sentence of this subsection 4.1)
ordered by the Owner against such Forecasts within the later of (i) ten (10)
Business Days after receipt and the Vendor's acknowledgement of the Owner's
Purchase Order therefor, and (ii) the shipment date specified by the Owner in
such Purchase Order pursuant to subsection 5.2(a); provided that the
-------- ----
Vendor has acknowledged receipt of such Purchase Order, and the time period
from the date of the Vendor's acknowledgement and the specified shipment date
is longer than ten (10) Business Days. The Vendor will be able to provide the
Owner with specific lead times (which will in no event be in excess of ten (10)
days from receipt and acknowledgement by the Vendor of the Owner's Purchase
Order subject to the terms of
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<PAGE>
the first sentence of this subsection 4.1) applicable to each Purchase Order
for Products at the time the Vendor receives and acknowledges the Owner's
Purchase Order therefor. The Vendor will ship Products maintained in the
Buffer Stock ordered by the Owner against Forecasts for such Buffer Stock in
accordance with the provisions set forth in subsection 5.2.
4.2 Delivery Delay. (a) With respect to the first [ ] Subscriber Units
--------------
(and their included Material Accessories) purchased hereunder (the "Launch
Units"), in the event that the Vendor fails to deliver the Launch Units within
[ ] days (the "Delay Grace Period") of the applicable dates for shipment
referred to in subsection 4.1, the Vendor will pay to the Owner as liquidated
damages for such late performance (i) for each of the first [ ] days
beyond such Delay Grace Period, an amount equal to [ ] per day (for such
[ ] day period) of the total price of such undelivered Launch Units and
(ii) on the thirty fourth day after the date set for shipment pursuant to
subsection 4.1, an amount equal to [ ] of the total price of such undelivered
Launch Units; provided that in no event will the Vendor incur aggregate damages
-------- ----
with respect to Launch Units under this subsection 4.2(a) in excess of [ ] and
further, in no event will the Vendor incur damages with respect to Launch Units
on any given day pursuant to this subsection 4.2(a) in excess of [ ] per day;
provided further, that no such liquidated damages for delivery delay will be due
- - -------- -------
if the delay is attributable solely to (i) an event constituting a Force Majeure
pursuant to the terms of this Agreement or (ii) an act or omission of the Owner.
The Owner may offset the amount of such delay penalty against any amounts owed
to the Vendor for Products supplied under this Agreement.
(b) With respect to Subscriber Units (and their included Material
Accessories) that do not constitute Launch Units, for each of the first [
] days beyond the applicable "Succeeding Delay Grace Period" that the Vendor
fails to deliver any Subscriber Units (and their included Material
Accessories), the Vendor will pay to the Owner as liquidated damages for such
late performance an amount equal to [ ] per day (for such [ ] day period)
of the total price of such Subscriber Units (and included Material Accessories)
up to an amount not to exceed, in aggregate, [ ] of the total price of such
Subscriber Units (and included Material Accessories); provided that no such
-------- ----
liquidated damages for delivery delay will be due if the delay is attributable
solely to (i) an event constituting a force majeure pursuant to the terms of
this Agreement or (ii) an act or omission of the Owner. The Owner may offset the
amount of any delay penalty against any amounts owed to the Vendor for Products
supplied under this Agreement. For the purposes hereof, Products that will have
been rightfully rejected by the Owner in accordance with the terms of this
Agreement will not be deemed to be delivered by the Vendor; provided that
-------- ----
liquidated damages for delivery delay will not accrue during the time it takes
the Owner to inspect and reject any such Products. For the purposes of this
subsection 4.2(b) "Succeeding Delay Grace Period" shall mean [ ] days
beyond the applicable dates for shipment referred to in subsection 4.1.
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<PAGE>
(c) Notwithstanding anything stated in this subsection 4.2 to the
contrary, during any time that the Owner is in default under this Agreement for
undisputed payments owed to the Vendor, the Owner will not be entitled to any of
the delay penalties set forth in this subsection 4.2, nor shall any such delay
penalties accrue during the period any such default remains outstanding.
Furthermore, in the event that on the last day of the Initial Term the Owner's
aggregate Shortfall over the Initial Term exceeds [ ] of the Total Minimum
Commitment, the Owner will, within (30) days of receiving an invoice from the
Vendor, refund to the Vendor any delay penalties collected by the Owner pursuant
to this subsection 4.2 (or if such delay penalties have accrued but have not yet
been paid, the obligation to pay such penalties shall be absolved); provided
--------
that in no event will the Owner be obligated to make any such refund if the
- - ----
Owner's Shortfall was reasonably due to the Vendor's delivery delays throughout
the Initial Term.
(d) No liquidated damages for delivery delays under subsection 4.2 will
accrue (nor will the Owner be entitled to exercise any other remedies set forth
herein with respect to the enforcement of timely delivery) with respect to any
Subscriber Units not timely delivered by the Vendor (the "Delayed Products")
(i) to the extent, and only to the extent, that the Delayed Products were
intended for distribution and use in the first System Area in which the Owner
plans (in its sole and absolute discretion) to commence commercial operation
("Commencement") having more than [ ], (ii) if the Commencement of the First
System would have been delayed, even with timely delivery of the Delayed
Products beyond that date the Owner anticipated Commencement was to occur when
the Owner ordered the Delayed Products (the length of such delay being the
"Delay Period"), (iii) the Delayed Products are delivered before the end of the
Delay Period and (iv) the Owner, in such instance, will have given the Vendor
prior written notice of such Commencement delay. The Owner agrees to promptly
give the Vendor written notice of any delay in Commencement. It is the intent of
the Parties that the length of the Delay Period be equal to the number of days
from the date the Owner anticipated Commencement was to occur when the Owner
ordered the Delayed Products until the date Commencement would have occurred
assuming that the Owner had received the Delayed Products. For the purpose of
subsection 4.2(a), liquidated damages for delivery delays will be calculated
with respect to Delayed Products by using the day following the last day of the
Delay Period as the date on which the Delayed Products were to have been
delivered by the Vendor. It is expressly understood and agreed that this
subsection 4.2(d) will only apply to Products ordered by the Owner for the First
System and that the Vendor will not be entitled to the benefits of this
subsection 4.2(d) for any other Products or any other System Area to or for
which Products are to be shipped pursuant to the terms of this Agreement.
(e) In the event (i) there are delivery delays in any given Annual
Supply Period, or the Stub Period, as the case may be, which Vendor fails to
cure within the applicable Delay Grace Period, which delivery delays involve
the Vendor's failure to timely deliver more than [ ] Subscriber Units, in
aggregate, and (ii) the percentage of deliveries of Subscriber Units which are
subject to delivery delays in any given Annual Supply Period, or the Stub
Period, as the case may be, and which Vendor fails to cure
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<PAGE>
within the applicable Delay Grace Period, exceeds [ ], provided that in any
-------- ----
event the actual number of delivery delays referenced in the immediately
proceeding clause (ii) will be at least [ ] of the number of scheduled
deliveries, then the Owner will have the right, but not the obligation, to
terminate this Agreement without any payment or penalty. In the event the Vendor
fails to cure any delivery delay within thirty (30) days from the date delivery
was due, the Owner will have the right, but not the obligation, to cancel the
Purchase Order subject to such delay without any payment or penalty. With
respect to any such cancelled Purchase Order, the Owner will be entitled to
receive from the Vendor any and all reasonable direct out of pocket expenses and
costs in excess of any expenses and costs the Owner would have otherwise
incurred hereunder in order to reasonably fulfill (using replacement products
with the most comparable features and functionality) such cancelled Purchase
Order with any third party supplier acceptable to the Owner.
(f) Notwithstanding anything in this subsection 4.2 to the contrary, the
Vendor will only be obligated to pay to the Owner one-half (1/2) of the Delay
Penalties otherwise applicable to the late delivery of Products ordered
pursuant to an Excess Purchase Order.
(g) In the event the Owner exercises its rights under this subsection
4.2 due to a Vendor delivery delay, the remedies for any such Vendor delivery
delay as set forth in this subsection 4.2 will be exclusive.
SECTION 5. FORECASTS AND ORDERING
5.1 Forecasts. (a) Upon execution of this Agreement and on the
---------
first of each month thereafter, the Owner will deliver to the Vendor written
forecasts (a "Forecast") specifying its estimate of the quantity of each type
of Product that it expects to purchase on a month to month basis during the
twelve (12) months following the date of such Forecast (a "Forecast Period"),
which shall, subject to the provisions of subsection 3.2(a), be treated as
follows;
(i) quantities forecasted to be ordered during the first three
(3) months of each Forecast Period will be a firm Purchase
Order which, pursuant to the terms of this Agreement, must be
taken by the Owner in the month indicated. The Owner will
place one or more Purchase Orders to purchase Products in
accordance with the applicable Forecast;
(ii) quantities forecasted to be ordered during month four (4) of
each such Forecast Period shall be considered reasonably
accurate estimates of prospective Purchase Orders and
accordingly, the Owner will issue the Vendor firm Purchase
Orders to ensure that at least [ ] and not more than [ ]
of the quantities specified during this segment of
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<PAGE>
the Forecast Period are covered by firm Purchase Orders from
the Owner;
(iii) quantities forecasted to be ordered during month five (5) of
each such Forecast Period shall be considered reasonably
accurate estimates of prospective Purchase Orders, and
accordingly, the Owner will issue the Vendor firm Purchase
Orders to ensure that at least [ ] and not more than [ ]
of the quantities specified during this segment of the
Forecast Period are covered by firm Purchase Orders from the
Owner; and
(iv) quantities forecasted to be ordered during months six (6)
through twelve (12) of each such Forecast Period will only be
estimates of prospective Purchase Orders, and subsequent
Forecasts and actual Purchase Orders may completely vary and
be completely changeable by the Owner in its absolute
discretion.
Any reductions in firm Purchase Orders below the specified
forecasted amounts or any increases in firm Purchase Orders above the specified
forecasted amounts pursuant to clause (iii) of this subsection 5.1(a) may, in
the Owner's sole discretion, be cumulative with any such increase or decrease
pursuant to clause (ii) of this subsection 5.1(a). For example, if a
forecasted amount for month five in any forecast is subsequently reduced by the
Owner by [ ] pursuant to clause (iii) of this subsection 5.1(a) the Owner
will have the right, but not the obligation, to further reduce such reduced
amount by an additional [ ] pursuant to clause (ii) of this subsection
5.1(a). The first Forecast to be delivered by the Owner to the Vendor is
attached hereto as Schedule 8 and is expressly accepted by the Vendor. Except
with respect to such first Forecast, in no event will the Vendor be required to
accept an amount in any given month of a Forecast which is greater than [ ]
of the average amount forecasted by the Owner for the five months immediately
preceding the subject month. In the event the Owner fails to deliver to the
Vendor a new Forecast by the first Business Day of any given month, then the
new Forecast for such new twelve month period shall be deemed to be the prior
Forecast, adjusted by shifting the monthly quantities up one month (i.e, the
quantity that used to be forecasted for month two will instead be the quantity
for month one) with the new amount forecasted for month twelve being the same as
the amount for the new month eleven. Notwithstanding anything set forth in this
Agreement, in no event shall the Owner be entitled to increase the amount of
Products forecasted in the months of July through December, 1996 above the
amounts forecasted for any such month in the first Forecast.
(b) Within any Forecast provided to the Vendor by the Owner
pursuant to and in accordance with the terms of this subsection 5.1, the Owner
may designate to the Vendor a certain percentage of each type of the Product
requirements so forecasted ((i) up to [ ] in the Owner's sole
discretion during the first Annual Supply
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<PAGE>
Period and (ii) up to [ ] in the Owner's sole discretion during any
succeeding Annual Supply Period, or the Stub Period, as the case may be) to
be held by the Vendor in separate buffer stock ("Buffer Stock") for accelerated
ordering and shipment of such Products within such Buffer Stock. In the event
of any such designation pursuant to this clause (b) of subsection 5.1, the
Vendor will maintain such Buffer Stock and deliver to the Owner any Products
within such Buffer Stock in accordance with the lead times and ordering
provisions for such Buffer Stock set forth in this Agreement.
(c) The Forecasts will be in a format mutually acceptable to the
Parties; provided that the format of the first Forecast as set forth in
-------- ----
Schedule 8 will at all times be deemed in a format acceptable to both Parties.
5.2 Ordering. (a) In order to be effective, all orders by the
--------
Owner for Products will be made by the Owner in the form of written Purchase
Orders, specifying the quantity of each type of Product to be purchased and the
date or dates on which such Products are required to be shipped to the Owner,
the shipping method and the location to which such Products should be shipped;
provided that such shipment date will be no earlier than (i) ten (10)
- - -------- ----
Business Days after the date of such Purchase Order in the event of Purchase
Orders for Products not in Buffer Stock, (ii) one (1) Business Day for not more
than (x) [ ] Subscriber Units (with accompanying Accessories) and not
exceeding (y) [ ] separate destinations to which Products will be shipped as
designated by the Owner in Purchase Orders (each such destination a
"Shipped-to Location") for Products in Buffer Stock and (iii) two Business Days
for not more than (x) [ ] Subscriber Units (with accompanying Accessories)
and not exceeding (y) [ ] separate Shipped-to Locations for Products in
Buffer Stock; and provided further that the Vendor will use its reasonable
-------- -------
efforts to fulfill Purchase Orders in excess of forecasted quantities that the
Owner is entitled to turn into firm Purchase Orders pursuant to and in
accordance with subsection 5.1 (each an "Excess Purchase Order"). Each Purchase
Order will be submitted to the Vendor, 10300 Campus Point Drive, San Diego, CA
92121, Attn: Sprint Spectrum L.P. Account Manager (or any other authorized
representative of the Vendor designated to the Owner in writing by the Vendor
from time to time) and will be subject to the acknowledgement by the Vendor in
writing to the designated authorized representative of the Owner within two (2)
Business Days of receipt of Purchase Orders for Products in Vendor stock and
within one (1) Business Day of receipt of Purchase Orders for Products in Buffer
Stock. The Vendor will acknowledge Purchase Orders that the appropriate
personnel of the Vendor have actual knowledge of. Subject to the immediately
preceding sentence, failure of the Vendor to acknowledge to the Owner in writing
receipt of any Purchase Order or Excess Purchase Order shall be deemed to render
any such Purchase Order or Excess Purchase Order null and void. Within ten (10)
Business Days of receipt of Purchase Orders for Products in Vendor stock and
within one (1) Business Day of receipt of Purchase Orders for Products in Buffer
Stock, the Vendor will (subject to the terms of the last three sentences of this
subsection 5.2(a)) have the right to reject for non-conformance with the terms
of this Agreement any such Purchase Orders the receipt of which it has
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<PAGE>
acknowledged pursuant to the terms set forth above; provided that for
-------- ----
any acknowledged Purchase Orders which must be fulfilled within one (1)
Business Day pursuant to clause (ii) above, the Vendor must reject for such
non-conformance any such Purchase Order on the same day as the acknowledgment
of such Purchase Order. The failure of the Vendor to so reject Purchase Orders
within the time frames above will be deemed acceptance by the Vendor of any
such acknowledged Purchase Orders. The Vendor will not have the right to
disagree with, reject, modify or otherwise amend any Purchase Order in
conformance with the terms of this Agreement including, but not limited to,
quantities which have already been the subject of Forecasts by the Owner
pursuant to the terms of subsection 5.1; provided that subject to the
-------- ----
terms of the immediately preceding sentence of this subsection 5.2(a), the
Vendor may reject or otherwise respond to any Excess Purchase Order,
provided that failure of the Vendor to respond to any such acknowledged
- - -------- ----
Excess Purchase Order within ten (10) days of receipt thereof will be deemed
acceptance thereof. Any Vendor rejection of or modification to a Purchase
Order (other than Excess Purchase Orders) in conformance with the terms of this
Agreement pursuant to and in accordance with subsection 5.1 will be deemed a
material breach of this Agreement by the Vendor. Notwithstanding subsection
5.2(f) below, to the extent that the Vendor is actually aware that any Purchase
Order in any way contradicts or is not otherwise in conformance with the terms
of this Agreement, the Vendor agrees to promptly notify the Owner of any such
contradiction or non-conformance as soon as possible upon becoming actually
aware of such contradiction or non-conformance so that the Owner will have a
reasonable opportunity to correct any such contradiction or non-conformance and
furthermore to the extent reasonable under the circumstances the Vendor will
endeavor to fulfill any such non-conforming Purchase Order ignoring any such
non-conformity unless the Owner, after notification from the Vendor, will have
expressly refused to accept the fulfillment of such Purchase Order with any
such correcting modification.
(b) [Intentionally Omitted]
(c) Subject to subsections 3.2(b) and 3.2(c), any Purchase Order or
Excess Purchase Order may, in the Owner's sole and absolute discretion, be
postponed once without penalty by written notice from the Owner to the Vendor
at any time prior to ninety (90) days immediately prior to the initial shipment
date established for such Purchase Order pursuant to the terms of this
Agreement for a period not in excess of ninety (90) days from such initial
shipment date. If the Owner chooses to postpone a Purchase Order (for a period
not in excess of ninety (90) days from the initial shipment date for such
Purchase Order) at any time within the ninety (90) days immediately prior to
the initial shipment date (a "Late Postponement"), the Owner will pay to the
Vendor an amount equal to [ ] of the value (based upon the prices set forth in
Appendix 1) of any increased Product inventory for each month or portion of a
month (such amount to be prorated if such time periods are not whole months) the
Vendor is required to carry such increased Product inventory due to such Late
Postponement. The Vendor will invoice any such amounts on a monthly basis. In
any event and notwithstanding anything to the contrary in this clause (c) of
subsection 5.2, no Purchase Order or Excess Purchase Order may be postponed by
the Owner (i) within (10)
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Business Days of the initial shipment date for such Purchase Order or Excess
Purchase Order or (ii) if an Owner Event of Default has occurred or is
continuing pursuant to subsection 10.8.
(d) In accordance with the terms of subsection 5.1(b), the Vendor will
maintain Buffer Stock of Products which, when ordered by the Owner from the
Vendor in accordance with the Owner's Forecasts, will be delivered to the Owner
in accordance with the terms of subsection 5.2(a). The Owner will be liable
for and will pay to the Vendor an amount equal to [ ] of the value
(based upon the prices set forth in Appendix 1) of such Buffer Stock held in the
Vendor's inventory for each month or portion of a month (such amount to be
prorated if such time periods are not whole months) such Buffer Stock is so held
by the Vendor in its inventory in excess of thirty (30) days from the date the
Vendor commenced holding any such Buffer Stock for the Owner pursuant to and in
accordance with subsection 5.1 (each such date a "Buffer Stock Commencement
Date"); provided that during the first Annual Supply Period the Owner will
-------- ----
not be liable for any such amounts during the first thirty (30) day period
commencing upon the applicable Buffer Stock Commencement Date.
(e) The Vendor will reasonably cooperate with the Owner, and/or any
Person designated by the Owner for such purpose, (i) to utilize UPC stock
control numbering and other bar-coding requirements relating to inventory
processes and systems, and (ii) to develop processes and systems that will
maximize delivery logistics. Metric targets will be defined by the mutual good
faith agreement of the Parties for acceptable stock out percentages, delivery
times and total logistics costs.
(f) Unless the Parties otherwise expressly agree in writing, each
Purchase Order will be deemed to incorporate by reference all of the terms and
conditions of this Agreement. Should the terms of any Purchase Order conflict
with the terms of this Agreement, the terms of this Agreement will govern
unless the Parties expressly agree in writing (signed by a duly authorized
representative of both Parties) to the contrary. This Agreement will continue
to apply to a Purchase Order during the Term of this Agreement until all
obligations herein and thereunder are performed.
SECTION 6. SALES AND TECHNICAL SUPPORT
6.1 Sales Training. The Vendor will work with the Owner, at the
--------------
Vendor's sole expense, to agree on a sales training program for the
distribution channel used by the Owner for Subscriber Units. The goal of this
program will be to provide sales training ("Training") to the Owner's personnel
on CDMA and the features of the Subscriber Units, as well as to provide
appropriate Product related collateral material. The training program will
include, but will not be limited to, the following topics: CDMA; Product
features and usage; Subscriber Unit programming, installation and
troubleshooting; and such other matters as the Parties may reasonably agree
upon from time to time. The target audiences for the training will be the
Owner's marketing and sales personnel. These training programs will take place
at mutually agreeable locations (such locations to be provided at the Owner's
sole expense) in each of the Owner's System Areas at
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least once a year for the first two (2) years after introduction of the
Subscriber Units, at no charge to the Owner. Such training program will last
for a period of time as reasonably agreed upon by the Parties. The Vendor
anticipates that the Owner may want to influence aspects of the training and
will design the CDMA training program to complement the Owner's marketing and
sales effort. Should the Owner request the Vendor to modify the program in
such a way as to increase the Vendor's actual expenses, the Owner and the
Vendor will negotiate the terms and conditions of implementing the Owner's
request in good faith.
6.2 Sales and Promotional Efforts. (a) In order to ensure that the
-----------------------------
relationship between the Parties contemplated by this Agreement will be
mutually advantageous, and in recognition of the expertise and commitment by
the Parties necessary for the effective marketing and support of the Products,
the Owner agrees to encourage and develop the sales potential for such
Products, to employ competent personnel to meet the demands and needs for
marketing and support of the Products, and to encourage the purchase of
Products by Agents and Purchasers. Nothing contained in this subsection 6.2(a)
will in any way limit or otherwise modify the Vendor's obligations under this
Agreement.
(b) In order to assist the Owner to promote sales of the Products, the
Vendor will furnish the Owner, at the Vendor's sole expense, Vendor catalogs,
point of sales literature, training documentation, printed technical
information, data sheets and other reasonable advertising materials in such
quantities and at such time as may be reasonably agreed to by the Parties.
(c) If the Owner reasonably requires customized Vendor sales and
training literature, the content of the Vendor's appropriate existing
literature will be provided to the Owner, in the Owner's discretion, at the
Vendor's sole expense, in electronic form, or CD-ROM format or artwork to allow
the Owner to produce literature and promotional pieces that are of the Owner's
style and name. The use of any such literature will be subject to the
guidelines established between the Parties pursuant to subsection 8.1(b). In
addition, the Vendor agrees to grant the Owner a world-wide non-exclusive
royalty-free license to reprint any Vendor-owned sales literature in connection
with the Owner's sales, advertising and promotion of the Products. In
addition, the Vendor agrees to grant the Owner a non-exclusive royalty-free
license to distribute within the Territory any of the Vendor's own sales
literature in connection with the Owner's sales, advertising and promotion of
the Products; provided that in the event any such literature is in fact
-------- ----
distributed outside of the Territory by any Person other than the Owner (or by
an agent or affiliate of the Owner acting on the Owner's behalf or upon the
Owner's direction), the Vendor will not, in such event, take any action for
damages of any nature against the Owner under this Agreement or otherwise.
(d) The Vendor and the Owner agree to reasonably cooperate with each
other in the areas of sales and marketing in support of sales of the Vendor's
Products to customers of the Owner's telecommunications services.
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SECTION 7. INTELLECTUAL PROPERTY
7.1 Intellectual Property Rights Infringement. Subject to the
-----------------------------------------
provisions of subsections 7.3 and 7.4, the Vendor agrees that it will defend,
at its own expense, all suits and claims against the Owner, its affiliates,
directors, officers, agents and employees for infringement or violation
(whether by use, sale or otherwise) of any patent, trademark, copyright, trade
secret or other intellectual property rights of any third party (collectively,
"Intellectual Property Rights"), arising under or in connection with Applicable
Law within the Territory covering, or alleged to cover, the Products or any
component thereof for its intended use, in the form furnished or as
subsequently modified by the Vendor. The Vendor agrees that it will pay all
sums, including, without limitation, attorneys' fees and other costs, which, by
final judgment or decree, or in settlement of any suit or claim to which the
Vendor agrees, may be assessed against the Owner on account of such
infringement or violation, provided that:
-------- ----
(i) the Vendor will be given prompt written notice of all claims
of any such infringement or violation and of any suits or
claims brought or threatened against the Owner or the Vendor
of which the Owner has actual knowledge;
(ii) the Vendor is given full authority to assume control of the
defense (including appeals) thereof through its own counsel
at its sole expense and will have the sole right to settle
any suits or claims without the consent of the Owner;
provided that the Vendor has no right and will have
-------- ----
no right to agree to injunctive relief against the Owner;
provided further that the Vendor will notify the
-------- -------
Owner of any proposed settlement prior to the Vendor's
acceptance of such settlement; and
(iii) the Owner will cooperate fully with the Vendor in the defense
of such suit or claims and provide the Vendor, at the
Vendor's expense, such assistance as the Vendor may
reasonably require in connection therewith.
7.2 The Vendor's Obligation to Cure. If in any such suit so
-------------------------------
defended all or any part of the Products or the Software or any component
thereof is held to constitute an infringement or violation of Intellectual
Property Rights and its use is enjoined, or if in respect of any claim of
infringement or violation the Vendor deems it advisable to do so, the Vendor
will, within one hundred twenty (120) days, at its sole cost, expense and
option take one or more of the following actions: (i) procure the right to
continue the use of the same without interruption for the Owner; (ii) replace
the infringing Product, Software or component with a noninfringing product,
noninfringing Software or a non-infringing component, as applicable, that meets
the Specifications; or (iii) modify said Product, Software or any component
thereof so as to be noninfringing, provided that the Product, Software
-------- ----
or any component thereof as modified meets all of the Specifications. In the
event that the Vendor is not able, using reasonable commercial efforts, to cure
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the infringement pursuant to clause (i), (ii) or (iii) in the immediately
preceding sentence, the Vendor will refund to the Owner the full purchase price
paid (less Product Depreciation and less any amounts contributed by the Vendor
to the Co-op Marketing Fund relating to such Products) by the Owner for such
infringing Product, and the Owner will, if requested by the Vendor, use
reasonable efforts to return, at the Vendor's sole cost and expense, any such
infringing Products which are then available to it; provided that the
-------- ----
Vendor will have first refunded any such monies for such infringing
Products to the Owner. The obligations of the Vendor under subsection 7.1 and
the remedies under this subsection 7.2 will be the sole and exclusive
obligations of the Vendor and the sole and exclusive remedies available to the
Owner against the Vendor in the event of a claim against the Owner which is
covered by subsection 7.1 above.
7.3 The Vendor's Obligations. The Vendor's obligations under this
------------------------
Section 7 will not apply to (i) any infringement or violation of Intellectual
Property Rights caused by modification of any Product, Software or any
component thereof by any Person other than the Vendor, its employees or agents
acting on the Vendor's behalf or at its direction, or (ii) any infringement
caused directly by any such Person's use and maintenance of such Product other
than in accordance with the Specifications and the purposes contemplated by
this Agreement for use in the Owner's Nationwide Network, except as expressly
authorized in writing by the Vendor. The Vendor's obligations under subsection
7.1 will not extend to alleged infringements or violations that arise because
the Products provided by the Vendor are used in combination with other products
(other than Infrastructure Equipment) furnished by third parties and where any
such combination was not installed, recommended or approved, expressly in
writing by the Vendor; provided that in no event will the Owner seek
-------- ----
indemnification against the Vendor under this Section 7 for an infringement
claim based upon any such combination of Products with Infrastructure Equipment
to the extent and only to such extent the Owner is covered by an indemnity
under a then existing Procurement and Services Contract. The Vendor's
indemnification obligations specified in this Section 7 will not apply to any
intellectual property infringement caused directly by an Owner Defined Feature.
Nothing contained herein to the contrary will in any way constitute a waiver or
modification of the Vendor's rights to enforce its intellectual property rights
against third parties.
7.4 The Owner's Obligations. The Owner agrees that it will defend,
-----------------------
at its own expense, and indemnify and hold harmless the Vendor, its affiliates,
directors, officers, agents, employees and successors, from and against all
suits and claims for infringements or violations of any patent, trademark,
copyright, trade secret or other intellectual property rights of any third
party (i) caused directly by the Owner's (or by an affiliate's or agent's if
done at the direction of the Owner) modification, use or maintenance of any
Product other than in accordance with the Specifications and the terms of this
Agreement or the Vendor's written authorization, (ii) to the extent that any
Owner Defined Feature directly gives rise to an intellectual property
infringement claim against the Vendor, its affiliates, directors, officers,
agents, employees and successors, or (iii) to the extent, but only to such
extent, that an intellectual property infringement claim involves any markings
or logos specifically requested by the Owner in writing. The
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<PAGE>
Owner agrees that it will pay all sums, including, without limitation,
attorneys' fees, damages, losses, liabilities, expenses and other costs, which,
by final judgment or decree, or in settlement of any suit or claim to which the
Owner agrees, may be assessed against the Vendor on account of such matters,
provided that:
- - -------- ----
(a) the Owner will be given prompt written notice of all claims of
any such infringement or violation and of any suits or claims brought or
threatened against the Vendor or the Owner of which the Vendor has actual
knowledge;
(b) the Owner is given full authority to assume control of the
defense (including appeals) thereof through its own counsel at its sole
expense and will have the sole right to settle any suits or claims
without the consent of the Vendor, provided that the Owner has no
-------- ----
right to agree to injunctive relief against the Vendor; provided
--------
further that the Owner will notify the Vendor of any proposed
-------
settlement prior to the Owner's acceptance of such settlement; and
(c) the Vendor will cooperate fully with the Owner in the defense
of such suit or claims and provide the Owner, at the Owner's expense,
such assistance as the Owner may reasonably require in connection
therewith, including, but not limited to, implementation of modifications
to Products or other manufacturing fixes pursuant to the provisions of
subsection 3.23.
7.5 Software License. (a) Certain Products sold to the Owner
----------------
hereunder may contain software in executable code form ("Software"), and,
except as otherwise expressly provided herein, all references to "Products" in
this Agreement will be deemed to include the accompanying Software,
provided that nothing herein will be construed as the sale of any
- - -------- ----
Software to the Owner. The Vendor hereby grants to the Owner a non-exclusive
royalty-free world-wide license to use (for the period of time the Product is
in use in accordance with its intended use), and sublicense to the Owner's or
its Agents' Purchasers or end user customers (in object form only), the
Software solely in each of the Products purchased by the Owner from the Vendor
and for use only in the manner in which such Products are intended to be used
pursuant to the terms of this Agreement, including, without limitation, the
Specifications.
(b) The Owner will not, without the prior written consent of the Vendor:
(i) alter, modify, translate or adapt any Software or create any derivative
works based thereon; (ii) copy any Software; (iii) assign, sublicense or
otherwise transfer the Software in whole or in part, except as permitted
herein; (iv) use the Software except as specifically contemplated in this
Agreement; or (v) disclose the Software to any third party except as required
by Applicable Law or pursuant to an order of a court of competent jurisdiction
or other similar requirement of a Governmental Entity; provided that
-------- ----
the Owner will use reasonable efforts to provide the Vendor prior written
notice prior to any such disclosure. The entire right, title and interest in
the Software will remain with the Vendor, and the Owner will not remove any
copyright notices or other legends from the Software or any accompanying
documentation, without the prior written consent of the Vendor.
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7.6 Sublicense of Software. The Owner may sub-license to Agents,
----------------------
Purchasers or other end-user customers the right to use the Software in object
form only with the use of the Products resold by the Owner to such customers,
and such right will survive termination of this Agreement.
7.7 Ownership of Intellectual Property Rights. (a) Except for
-----------------------------------------
licenses expressly granted under this Agreement, the sale of Products and the
license of Software to the Owner does not convey to the Owner any intellectual
property rights in such Products or Software. Neither the sale of Products,
the license of any Software, nor any provision of this Agreement will be
construed to grant to the Owner, either expressly, by implication or by way of
estoppel, any license under any patents or other intellectual property rights
of the Vendor covering or relating to any other product or invention of the
Vendor or any combination of Product or Software with any other product of the
Vendor. The foregoing notwithstanding, the Parties understand and agree that
from time to time the Owner may devise, develop or otherwise create ideas or
other concepts for services or new products which are patentable or otherwise
capable of receiving protection from duplication. In such event, the Owner
will have the right to patent or otherwise protect such ideas or concepts for
its own use and benefit.
(b) The Owner hereby acknowledges and agrees that nothing herein gives
it any right, title or interest in the Mark and that upon termination of this
Agreement, by expiration or termination in accordance with this Agreement, the
Owner will no longer use the Mark in advertising or in any other manner,
provided that such termination will not affect any use by the Owner's
- - -------- ----
Agents, Purchasers or other customers of Products sold by the Owner and
provided further that nothing in this subsection 7.7 will prohibit or
- - -------- -------
otherwise inhibit in any way the sale following such termination by the Owner
of inventory held by it at the time of such termination. The Owner will not
challenge the validity of the Vendor's ownership of or right to use of the Mark
or the Vendor's copyrights, nor otherwise impair the interest of the Vendor in
the Mark or such copyrights. Except as specifically provided for under this
Agreement, the Owner will not use any mark which is confusingly similar to, or
a colorable imitation of the Mark. The Owner will use the Products and
Software furnished by the Vendor solely in accordance with the terms of this
Agreement, and the Owner will not, directly or indirectly, disassemble,
decompile, reverse engineer, or analyze or copy the physical construction of,
any of the Products or Software or any component thereof for any purpose other
than as expressly permitted by the Vendor in writing.
7.8 Intellectual Property. Subject to the Vendor's then existing
---------------------
reasonable marketing policies, if any, with respect to Products sold hereunder,
the Vendor grants the Owner rights to state that it is using the Vendor's
Products in the Owner's marketing, advertising or promotion of the Nationwide
Network, any PCS System, any part thereof or any Product. Subject to the
Vendor's then existing reasonable marketing policies, if any, with respect to
Products sold hereunder the Owner has the right to use for such marketing,
advertising or promotion the Vendor's advertising and marketing materials
(including pamphlets and brochures) provided to the Owner by the Vendor
describing the Nationwide Network, any PCS System, any part thereof or any
Product.
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Other than as set forth in this subsection 7.8 or subsections 3.17 or 6.2, the
Owner has the right to use the trademarks and service marks of the Vendor in
the Owner's marketing, advertising and promotion of the Nationwide Network, any
PCS System, any part thereof or any Product only with the written consent of
the Vendor, such consent not to be unreasonably withheld, subject to and in
accordance with the terms of subsection 8.1.
7.9 Request for Custom Development. (a) From time to time, the
------------------------------
Owner may have requirements for custom Software (including, but not limited to,
development of identified features or modifications to Software or Software
Enhancements) or custom development of Products (including, but not limited to,
development of identified features or modifications to Products or Product
Enhancements) to be provided by the Vendor under this Agreement (the "Custom
Material"). If the Owner has a requirement for Custom Material that is a
specific enhancement or modification of a previously licensed feature or of
previously purchased Products, the Owner will identify to the Vendor in writing
a summary of any such proposed development of Custom Material. Such summary
will provide a description of any proposed Custom Material sufficient to enable
the Vendor to determine the general demand for, and its plans, if any, to
develop the same or similar Products. The Vendor will respond to such summary
within thirty (30) days after receipt thereof and indicate if it has the
ability to fulfill a subsequent Request for Proposal ("RFP") from the Owner for
such development of Custom Material. The Owner acknowledges that the Vendor
shall have no obligation to develop any proprietary materials for Owner other
than as expressly set forth in this subsection 7.9.
(b) If the Vendor decides that it does not have the technical ability or
the capacity to fulfill a RFP for such Custom Material development, the
Vendor's response pursuant to subsection 7.9(a) will (i) provide the Owner an
explanation of why it cannot fulfill such RFP and (ii) use reasonable diligence
to work with the Owner to identify an alternative source for such development
reasonably acceptable to the Owner. In determining whether the Vendor has the
technical ability or the capacity to fulfill the RFP, the Vendor may consider
factors including, but not limited to, (i) the Vendor's likelihood of
recovering the costs for performing such development, (ii) the impact of such
development on the Vendor's actual outstanding commitments to perform work for
other Customers and to pursue strategic development activities; and (iii)
whether the Vendor can perform the work utilizing existing software development
staff without stopping work underway.
7.10 Vendor Response. After reviewing an RFP issued to the Vendor
---------------
from the Owner for such Custom Material, the Vendor will respond to the Owner
within thirty (30) days, unless otherwise agreed by the Parties, stating the
terms and conditions upon which the Vendor would be willing to undertake such
development, including, but not limited to, a listing of specifications, custom
development charges, planned license fees and a proposed delivery schedule.
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SECTION 8. PROPRIETARY INFORMATION
8.1 Public Statements and Advertising. (a) Except to the extent
---------------------------------
specifically set forth herein, the Vendor will not issue any public statement
(or any private statement unless required in the performance of the work
contemplated by this Agreement) relating to or in any way disclosing any aspect
of the work contemplated by this Agreement, the Nationwide Network, any Owner
PCS System or any Product (other than statements regarding the Vendor's
products generally) including the scope, the specific terms of this Agreement,
extent or value of the work contemplated by this Agreement, the Products (other
than statements regarding the Vendor's products generally) and/or the
Nationwide Network or any Owner PCS System. The Owner will not issue any
public statement (or any private statement unless required in the performance
of the work contemplated by this Agreement) relating to or in any way
disclosing any aspect of the work contemplated by this Agreement or any Product
(other than statements regarding the Vendor's products generally), including
the scope, the specific terms of this Agreement, the extent or value of the
work contemplated by this Agreement and/or the Products (other than statements
regarding the Vendor's products generally). The Vendor agrees not to use for
publicity purposes any photographs, drawings and/or materials describing any
PCS System or any part of the Nationwide Network (other than Vendor Products),
without obtaining the prior written consent of the Owner, such consent not to
be unreasonably withheld. The obligations of the Parties under this subsection
8.1 are in addition to their respective obligations pursuant to subsection 8.2
but in no way limit the exceptions to public disclosure specifically referred
to in subsection 8.2(a) clauses (i) through (vii). This subsection 8.1 will in
no way limit (i) either Party from responding to customary press inquiries or
otherwise making public or private statements not otherwise disclosing
Proprietary Information or the specific terms of this Agreement in the normal
course of its business and/or in connection with the obligations hereunder or
(ii) the provision of necessary information to prospective suppliers and the
Vendor's or the Owner's personnel, agents or consultants.
(b) Each Party will submit to the other proposed copies of all
advertising (other than public statements or press releases pursuant to and in
accordance with the last sentence of subsection 8.1(a) above) wherein the name,
trademark or service mark of the other Party or its Affiliates or affiliates is
mentioned; and neither Party will publish or use such advertising without the
other Party's prior written approval. Such approval will be granted as
promptly as possible and will not be unreasonably withheld. The Parties
acknowledge that the obtaining of prior written approval for each such use
pursuant to this subsection 8.1(b) may be an administrative burden. From time
to time at the request of either Party, the Owner and the Vendor will establish
mutually acceptable guidelines that will constitute pre-authorization for the
uses specified therein. Such guidelines will be subject to change from time to
time at the reasonable request of either Party subject to the mutual agreement
of the Parties.
8.2 Confidentiality. (a) All information, including without
---------------
limitation all oral and written information (including, but not limited to,
determinations or reports by arbitrators pursuant to the terms of this
Agreement), disclosed to the other Party is
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deemed to be confidential, restricted and proprietary to the disclosing Party
(hereinafter referred to as "Proprietary Information"). Each Party agrees to
use the Proprietary Information received from the other Party only for the
purpose of this Agreement. Except as specified in this Agreement, no other
rights, and particularly licenses, to trademarks, inventions, copyrights,
patents, or any other intellectual property rights are implied or granted under
this Agreement or by the conveying of Proprietary Information between the
Parties. Proprietary Information supplied is not to be reproduced in any form
except as required to accomplish the intent of, and in accordance with the
terms of, this Agreement. The receiving Party must provide the same care to
avoid disclosure or unauthorized use of Proprietary Information as it provides
to protect its own similar proprietary information but in no event will the
receiving Party fail to use reasonable care under the circumstances to avoid
disclosure or unauthorized use of Proprietary Information. All Proprietary
Information must be retained by the receiving Party in a secure place with
access limited to only such of the receiving Party's employees, subcontractors,
suppliers or agents who need to know such information for purposes of this
Agreement and to such third parties as the disclosing Party has consented to by
prior written approval. All Proprietary Information, unless otherwise
specified in writing (i) remains the property of the disclosing Party, (ii)
must be used by the receiving Party only for the purpose for which it was
intended, and (iii) such Proprietary Information, including all copies of such
information, must be returned to the disclosing Party or destroyed after the
receiving Party's need for it has expired or upon request of the disclosing
Party, and, in any event, upon termination of this Agreement. At the request
of the disclosing Party, the receiving Party will furnish a certificate of an
officer of the receiving Party certifying that Proprietary Information not
returned to the disclosing Party has been destroyed. For the purposes hereof,
Proprietary Information does not include information that:
(i) is published or is otherwise in the public domain through no
fault of the receiving Party at the time of any claimed
disclosure or unauthorized use by the receiving Party;
(ii) prior to disclosure pursuant to this Agreement is properly
within the legitimate possession of the receiving Party as
evidenced by reasonable documentation to the extent
applicable;
(iii) subsequent to disclosure pursuant to this Agreement is
lawfully received from a third party having rights in the
information without restriction of the third party's right to
disseminate the information and without notice of any
restriction against its further disclosure;
(iv) is independently developed by the receiving Party or is
otherwise received through parties who have not had, either
directly or indirectly, access to or knowledge of such
Proprietary Information;
(v) is transmitted to the receiving Party after the disclosing
Party has received written notice from the receiving Party,
after termination
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or expiration of this Agreement, that it does not desire to
receive further Proprietary Information;
(vi) is obligated to be produced under order of a court of
competent jurisdiction or other similar requirement of a
Governmental Entity, so long as the Party required to
disclose the information provides the other Party with prior
notice of such order or requirement and its cooperation to
the extent reasonable in preserving its confidentiality; or
(vii) the disclosing Party agrees in writing is free of such
restrictions.
(b) Because damages may be difficult to ascertain, the Parties agree
that, without limiting any other rights and remedies specified herein, an
injunction may be sought against the Party who has breached or threatened to
breach this subsection 8.2. Each Party represents and warrants that it has the
right to disclose all Proprietary Information which it has disclosed to the
other Party pursuant to this Agreement, and each Party agrees to indemnify and
hold harmless the other from all claims by a third party related to the
wrongful disclosure of such third party's proprietary information. Otherwise,
neither Party makes any representation or warranty, express or implied, with
respect to any Proprietary Information.
SECTION 9. INDEMNIFICATION/LIMITATION OF LIABILITY
9.1 Vendor Indemnity. (a) The Vendor will indemnify and hold the
----------------
Owner and its affiliates, partners, directors, officers, agents and employees
(the "Indemnitees") harmless from and against all third party claims, demands,
suits, proceedings, damages, costs, expenses, liabilities, including, without
limitation, reasonable legal fees (collectively, "Liabilities") brought against
or incurred by any Indemnitee for (i) injury to persons (including physical or
mental injury, libel, slander and death), or (ii) loss or damage to any
property, or (iii) any other liability, in each instance resulting from the
negligence, willful misconduct or gross negligence, of the Vendor in the
performance of this Agreement. If the Vendor and the Owner jointly cause such
Liabilities, the Parties will share the liability in proportion to their
respective degree of causal responsibility.
(b) The Vendor's obligation to indemnify under subsection 9.1(a) with
respect to any Liability will not arise unless the Indemnitee (i) notifies the
Vendor in writing of such potential Liability within a reasonable time after
the Indemnitee is aware of such potential Liability; provided that the
-------- ----
lack of providing such notice will not affect the Vendor's obligation hereunder
(A) if the Vendor otherwise has actual knowledge of such Liability and (B)
unless such lack of notice is the cause of the Vendor being unable to
adequately and reasonably defend such Liability, (ii) gives the Vendor the
opportunity and authority to assume the defense of and settle such Liability,
subject to the provisions of the next two sentences, and (iii) furnishes to the
Vendor all such reasonable information and assistance available to the Owner
(or other Indemnities) as may be reasonably requested by the Vendor and
necessary for the defense against such Liability.
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<PAGE>
The Vendor will assume on behalf of the Indemnitee and conduct in good faith
the defense of such Liability with counsel (including in-house counsel)
reasonably satisfactory to the Indemnitee; provided that the Indemnitee
-------- ----
will have the right to be represented therein by advisory counsel of its own
selection and at its own expense. If the Indemnitee will have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to, or inconsistent with, those available to the Vendor, the
Indemnitee will have the right to select separate counsel reasonably
satisfactory to the Vendor to participate in the defense of such action on its
own behalf at such Indemnitee's expense. In the event the Vendor fails, after
written demand by such Indemnitee, to defend any Liability as to which an
indemnity should be provided under subsection 9.1(a), then the Indemnitee may,
at the Vendor's expense, contest or settle such matter without the Vendor's
consent. All payments, losses, damages and reasonable costs and expenses
incurred in connection with such contest, payment or settlement controlled by
such Indemnitee will be to the Vendor's account. The Vendor will not settle
any such Liability without the consent of the Indemnitee, which consent will
not be unreasonably withheld. Any such Indemnitee will exercise its best
efforts to respond to any request for a consent prior to the expiration of any
such settlement offer. This indemnity is in lieu of all other obligations of
the Vendor, expressed or implied, in law or in equity, to indemnify the
Indemnitees (except those other indemnity obligations expressly set forth in
this Agreement).
(c) EXCEPT AS EXPRESSLY SET FORTH IN SUBSECTIONS 3.7 AND 3.8 OF THIS
AGREEMENT, THE VENDOR MAKES NO WARRANTIES AS TO PRODUCTS, SOFTWARE, TECHNOLOGY,
MATERIALS, SERVICES, INFORMATION OR OTHER ITEMS IT FURNISHES TO THE OWNER,
AGENTS OR PURCHASERS, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR THAT
SUCH ITEMS ARE FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY, BY WAY OF
INFRINGEMENT OR THE LIKE.
(d) EXCEPT AS PROVIDED IN SUBSECTIONS 3.2(c), 4.2, 5.2(c), 5.2(d), 7.1,
7.4, 9.2 AND 9.4 HEREOF, NEITHER PARTY WILL BE LIABLE TO THE OTHER (ITS AGENTS
OR, IN THE CASE OF THE VENDOR, THE PURCHASERS) FOR ANY INCIDENTAL,
CONSEQUENTIAL OR SPECIAL DAMAGES OR ANY OTHER INDIRECT LOSSES OR DAMAGES
ARISING OUT OF THIS AGREEMENT, THE DELIVERY OR THE FAILURE TO DELIVER ANY OF
THE PRODUCTS OR ANY COMPONENT THEREOF, ANY BREACH OF THIS AGREEMENT, THE
FAILURE OF THE PRODUCTS TO PERFORM AS WARRANTED OR OTHERWISE OR ANY RESULTING
OBLIGATION, OR THE USE OR INABILITY TO USE OF ANY PRODUCTS DELIVERED PURSUANT
TO THIS AGREEMENT, WHETHER IN AN ACTION FOR OR ARISING OUT OF BREACH OF
CONTRACT, FOR TORT, OR ANY OTHER CAUSE OF ACTION.
EXCEPT AS PROVIDED IN SUBSECTIONS 3.2(c), 4.2, 5.2(c), 5.2(d), 7.1, 7.4,
9.2 AND 9.4 HEREOF, IN NO EVENT WILL EITHER PARTY BE LIABLE TO
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THE OTHER (ITS AGENTS OR, IN THE CASE OF THE VENDOR, THE PURCHASERS) FOR ANY
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGE OR LOSS OF ANY NATURE
WHICH MAY ARISE IN CONNECTION WITH THE USE, DISTRIBUTION, INSTALLATION,
REMOVAL, MAINTENANCE OR SUPPORT OF PRODUCTS AND/OR SOFTWARE (SEPARATELY OR IN
COMBINATION WITH EACH OTHER OR WITH OTHER PRODUCTS AND/OR SOFTWARE NOT PROVIDED
BY VENDOR) BY OWNER, AGENTS AND ANY PURCHASER PURSUANT TO OR UNDER THIS
AGREEMENT, REGARDLESS OF WHETHER SUCH CLAIMS ARE BASED OR REMEDIES ARE SOUGHT
IN WARRANTY, CONTRACT, NEGLIGENCE, STRICT LIABILITY, TORT, PRODUCTS LIABILITY
OR OTHERWISE, EVEN IF THE PARTY SOUGHT TO BE HELD LIABLE HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGE OR LOSS.
(e) IN NO EVENT WILL THE TOTAL LIABILITY OF THE VENDOR UNDER THIS
AGREEMENT, WHETHER SUCH LIABILITY BE IN CONTRACT, STRICT LIABILITY, PRODUCTS
LIABILITY OR TORT (INCLUDING NEGLIGENCE), EXCEED THE GREATER OF (x) [ ] AND
[ ] PROVIDED THAT ANY SUCH PURCHASE ORDERS ARE IN FACT PAID FOR PRIOR TO
-------- ----
OR OFFSET AGAINST THE PAYMENT OF ANY AMOUNTS OWED BY THE VENDOR TO THE OWNER
PURSUANT TO THE VENDOR INDEMNITIES UNDER THIS AGREEMENT. NOTWITHSTANDING
ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT, IN THE EVENT THE OWNER
EXERCISES ITS RIGHTS TO PURCHASE REPLACEMENT PRODUCTS IN CONNECTION WITH THE
CANCELLATION OF A PURCHASE ORDER, THE TERMINATION OF THIS AGREEMENT OR THE
REPURCHASE OR RECALL OF ANY PRODUCTS (WHETHER PURSUANT TO SUBSECTION 3.10(b),
3.22(b), 4.2(e), 10.2, 10.3, 10.6, 11.10 OF OTHERWISE), THE AMOUNT THAT THE
VENDOR SHALL BE LIABLE TO THE OWNER WITH RESPECT TO THOSE ADDITIONAL EXPENSES
AND COSTS INCURRED BY THE OWNER (IN CONNECTION WITH ACQUIRING SUCH REPLACEMENT
PRODUCTS) IN EXCESS OF ANY EXPENSES AND COSTS THE OWNER WOULD HAVE OTHERWISE
INCURRED UNDER THIS AGREEMENT IN PURCHASING THE SUBJECT PRODUCTS, SHALL NOT
EXCEED (I) IF THE SUBJECT PRODUCTS TO BE REPLACED ARE PRODUCTS THAT CONSTITUTE
PART OF THE FIRST [ ] OF THE TOTAL MINIMUM COMMITMENT, [ ] OF THE PURCHASE
PRICE OF THE SUBJECT PRODUCTS SO REPLACED, AND (II) WITH RESPECT TO ALL OTHER
PRODUCTS, [ ] OF THE PURCHASE PRICE OF THE SUBJECT PRODUCTS SO REPLACED.
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<PAGE>
(f) IN NO EVENT WILL THE TOTAL LIABILITY OF THE OWNER UNDER THIS
AGREEMENT, WHETHER SUCH LIABILITY BE IN CONTRACT, STRICT LIABILITY, PRODUCTS
LIABILITY OR TORT (INCLUDING NEGLIGENCE), EXCEED THE GREATER OF (x) [ ] AND
[ ].
9.2 Vendor Damages for Fraud. The Vendor will be responsible for
------------------------
all actual damages incurred by the Owner as a result of any damage or injury
caused by or resulting from the fraud of the Vendor; provided, however,
-------- -------
if the senior management of the Vendor knew or should have known of such fraud,
then the Vendor will be responsible for all damages (including, but not limited
to, actual, consequential, incidental and special) so incurred by the Owner for
such fraud.
9.3 Owner Indemnity. (a) The Owner will indemnify and hold the
---------------
Vendor and its affiliates, partners, directors, officers, agents and employees
(the "Vendor Indemnitees") harmless from and against all third party claims,
demands, suits, proceedings, damages, costs, expenses, liabilities, including,
without limitation, reasonable legal fees (collectively, "Vendor Liabilities")
brought against or incurred by any Vendor Indemnitee for (i) injury to persons
(including physical or mental injury, libel, slander and death), or (ii) loss
or damage to any property, or (iii) any other liability, in each instance
resulting from the negligence, willful misconduct or gross negligence, of the
Owner in the performance of this Agreement. If the Vendor and the Owner
jointly cause such Vendor Liabilities, the Parties will share the liability in
proportion to their respective degree of causal responsibility.
(b) The Owner's obligation to indemnify under subsection 9.3(a) with
respect to any Vendor Liability will not arise unless the Vendor Indemnitee (i)
notifies the Owner in writing of such potential Vendor Liability within a
reasonable time after the Vendor Indemnitee is aware of such potential Vendor
Liability; provided that the lack of providing such notice will not
-------- ----
affect the Owner's obligation hereunder (A) if the Owner otherwise has actual
knowledge of such Vendor Liability and (B) unless such lack of notice is the
cause of the Owner being unable to adequately and reasonably defend such Vendor
Liability, (ii) gives the Owner the opportunity and authority to assume the
defense of and settle such Vendor Liability, subject to the provisions of the
next two sentences, and (iii) furnishes to the Owner all such reasonable
information and assistance available to the Vendor (or other Vendor
Indemnitees) as may be reasonably requested by the Owner and necessary for the
defense against such Vendor Liability. The Owner will assume on behalf of the
Vendor Indemnitee and conduct in good faith the defense of such Liability with
counsel (including in-house counsel) reasonably satisfactory to the Vendor
Indemnitee; provided that the Vendor Indemnitee will have
-------- ----
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<PAGE>
the right to be represented therein by advisory counsel of its own selection
and at its own expense. If the Vendor Indemnitee will have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to, or inconsistent with, those available to the Owner, the
Vendor Indemnitee will have the right to select separate counsel reasonably
satisfactory to the Owner to participate in the defense of such action on its
own behalf at such Vendor Indemnitee's expense. In the event the Owner fails,
after written demand by such Vendor Indemnitee, to defend any Vendor Liability
as to which an indemnity should be provided under subsection 9.3(a), then the
Vendor Indemnitee may, at the Owner's expense, contest or settle such matter
without the Owner's consent. All payments, losses, damages and reasonable
costs and expenses incurred in connection with such contest, payment or
settlement controlled by such Vendor Indemnitee will be to the Owner's account.
The Owner will not settle any such Vendor Liability without the consent of the
Vendor Indemnitee, which consent will not be unreasonably withheld.
Furthermore, the Owner will indemnify and hold the Vendor Indemnitees harmless
from and against all Vendor Liabilities brought against or incurred by any
Vendor Indemnitee for (i) injury to persons (including physical or mental
injury, libel, slander and death), or (ii) loss or damage to any property, or
(iii) any other liability resulting directly and solely from the unauthorized
modification by the Owner of the Products or by the Owner's use of any Product
in combination with any other Subscriber Unit accessory not furnished and/or
authorized in writing for such use by the Vendor. This indemnity is in lieu of
all other obligations of the Owner, expressed or implied, in law or in equity,
to indemnify the Vendor Indemnitees (except those other indemnity obligations
expressly set forth in this Agreement).
9.4 Owner Damages for Fraud. The Owner will be responsible for
-----------------------
actual damages incurred by the Vendor as a result of any damage or injury
caused by or resulting from the fraud of the Owner; provided, however,
-------- -------
if the senior management of the Owner knew or should have known of such fraud,
then the Owner will be responsible for all damages (including, but not limited
to, actual, consequential, incidental and special) so incurred by the Vendor
for such fraud.
SECTION 10. TERMINATION
10.1 Termination. This Agreement will terminate on the End Date,
-----------
unless extended by mutual agreement of the Parties hereto, in accordance with
Section 2, or unless sooner terminated as provided herein. Any such
termination in accordance with the terms of this Section 10 will in no way
terminate, modify, amend or otherwise affect the Vendor's warranties hereunder
(or the enforceability thereof) in connection with Products sold pursuant to
the terms of this Agreement.
10.2 Termination For Cause. The Owner has the right to terminate
---------------------
this Agreement in its entirety without any penalty or payment obligation upon
the occurrence of any Vendor event of default (each a "Vendor Event of
Default") as set forth below. The occurrence of any of the following will
constitute a Vendor Event of Default:
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(a) the Vendor (i) files a voluntary petition in bankruptcy or has an
involuntary petition in bankruptcy filed against it that is not dismissed
within sixty (60) days of such involuntary filing, (ii) admits the material
allegations of any petition in bankruptcy filed against it, (iii) is adjudged
bankrupt, or (iv) makes a general assignment for the benefit of its creditors,
or if a receiver is appointed for all or a substantial portion of its assets
and is not discharged within sixty (60) days after his appointment; or
(b) the Vendor commences any proceeding for relief from its creditors in
any court under any state insolvency statutes; or
(c) the Vendor violates any Applicable Law and the effect of such
violation materially impairs the Vendor's ability to perform its obligation
under this Agreement; or
(d) the Vendor fails to perform this Agreement in any material respect
and thereby prejudices in any way deemed material by the parties providing
financing in connection with the build-out of the Nationwide Network, in such
parties' reasonable opinion, the Owner's efforts to obtain financing for the
Nationwide Network; or
(e) the Vendor fails to comply with subsection 11.18; or
(f) the Vendor breaches any other provision of this Agreement and the
effect of such breach materially impairs the Vendor's ability to perform its
obligations under this Agreement.
10.3 Remedies. If any of the Vendor Events of Default exists, the
--------
Owner may, without prejudice to any other rights or remedies of the Owner in
this Agreement or at law or in equity (except as such legal or equitable
remedies may be limited by this Agreement), terminate this Agreement upon
written notice to the Vendor; provided, however, that the Owner will
-------- -------
have first provided to the Vendor the following periods of notice and
opportunity to cure:
(i) in the case of an Event of Default specified in subsections
10.2(a) and 10.2(b), no notice or opportunity to cure will be required
from the Owner; and
(ii) in the case of any other Event of Default by the Vendor, the
Owner will have provided thirty (30) days' prior written notice, and the
Vendor will have failed to diligently pursue such cure and remedy the
breach entirely by the end of said thirty (30) day notice period.
10.4 Discontinuance of Supply. Upon such notification of
------------------------
termination, the Vendor must immediately discontinue all supply of Products.
10.5 Payments. When the Owner terminates this Agreement for cause
--------
pursuant to subsection 10.2, notwithstanding anything herein to the contrary,
the Owner may
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<PAGE>
withhold payments in amounts that it reasonably believes are in dispute, if
any, at such time to the Vendor for the purposes of offset of amounts owed to
the Owner pursuant to the terms of this Agreement, until such time as the exact
amount of damages due to the Owner from the Vendor is fully determined;
provided that in the event that any such disputed amounts are
----
determined to in fact be owed by the Owner to the Vendor, such amounts will be
increased by the late payment penalties, if any, applicable thereto pursuant to
subsection 3.4.
10.6 Costs. In the event of a termination due to a Vendor Event of
-----
Default, the Owner will be entitled to receive from the Vendor the following:
(i) with respect to those costs and expenses incurred by the Owner in procuring
substitute subscriber units (and their included accessories) for the Products
not delivered by the Vendor, only those reasonable direct out of pocket costs
and expenses incurred by the Owner in reasonably procuring substitute
subscriber units (and their included accessories) having the most comparable
features and functionality available at such time, in excess of the costs and
expenses the Owner would have otherwise incurred hereunder in purchasing such
undelivered Products; and (ii) with respect to any other costs and expenses
incurred by the Owner, only those reasonable direct out-of-pocket costs and
expenses incurred by the Owner that the Owner would not otherwise have incurred
under this Agreement which arise as a result of the Vendor's failure to perform
any other obligation under this Agreement. For the purpose of clause "(i)" of
this subsection 10.6, the Owner shall be entitled to recover only those
reasonable direct out of pocket costs and expenses pertaining to procuring that
number of substitute subscriber units (and their included accessories) equal to
(x) the amount of the Total Minimum Commitment (as such amount may be increased
or decreased from time to time pursuant to the terms of this Agreement), minus
(y) that number of Subscriber Units purchased by the Owner as of the date of
any such termination. The amount to be paid by the Vendor pursuant to this
subsection 10.6 will survive termination of this Agreement and will be subject
to the limitations of liability set forth in this Agreement.
10.7 Continuing Obligations. Termination of this Agreement for any
----------------------
reason (i) will not relieve either Party of its obligations with respect to the
confidentiality of the Proprietary Information as set forth in subsection 8.2,
(ii) will not relieve either Party of any obligation which applies to it and
which expressly or by implication survives termination, and (iii) except as
otherwise provided in any provision of this Agreement expressly limiting the
liability of either Party, will not relieve either Party of any obligations or
liabilities for loss or damage to the other Party arising out of or caused by
acts or omissions of such Party prior to the effectiveness of such termination.
10.8 The Vendor's Right to Terminate. The Vendor has the right to
-------------------------------
terminate this Agreement in its entirety without any penalty or payment
obligations, upon the occurrence of any of the following (each an "Owner Event
of Default"):
(a) the Owner (i) files a voluntary petition in bankruptcy or has an
involuntary petition in bankruptcy filed against it that is not dismissed
within sixty (60) days of such involuntary filing, (ii) admits the material
allegations of any petition in bankruptcy filed
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<PAGE>
against it, (iii) is adjudged bankrupt, or (iv) makes a general assignment for
the benefit of its creditors, or if a receiver is appointed for all or a
substantial portion of its assets and is not discharged within sixty (60) days
after his appointment; or
(b) the Owner commences any proceeding for relief from its creditors in
any court under any state insolvency statutes; or
(c) the Owner fails to (i) make payments of undisputed amounts
(considered separately and not in aggregate) of less than five million
($5,000,000) due to the Vendor pursuant to the terms of this Agreement,
provided that such failure has continued for at least fifteen (15) days
- - -------- ----
after the Vendor has provided the Owner with written notice of its intent to so
terminate on account of such overdue amount, or (ii) make payments of
undisputed amounts in excess of five million ($5,000,000) due to the Vendor
pursuant to the terms of this Agreement, provided that such failure has
-------- ----
continued for at least thirty (30) days after the Vendor has provided the Owner
with written notice of its intent to so terminate on account of such overdue
amount; and provided further that if the Vendor notice provided to the
-------- -------
Owner pursuant to and in accordance with either clause (i) or (ii) is the first
such notice provided to the Owner by the Vendor in any rolling twelve (12)
month period, the Owner will have an additional thirty (30) days to cure any
such default prior to the Vendor having the right to terminate this Agreement
pursuant to this subsection 10.8(c); or
(d) the Owner repeatedly and materially breaches subsection 8.2
notwithstanding the fact that the Vendor will have provided the Owner with
prior written notice describing the alleged material breaches and will have
given the Owner a reasonable time (not less than thirty (30) days) to cure any
such breaches; or
(e) the Owner fails to comply with subsection 11.19; or
(f) the Owner violates any Applicable Laws, and the effect of such
violation materially impairs the Owner's ability to perform its obligations
under this Agreement; or
(g) the Owner fails to purchase in any of the respective Annual Supply
Periods or the Stub Period, as applicable, the First Annual Minimum Commitment,
the Second Annual Minimum Commitment, the Third Annual Minimum Commitment or
the residual amount to be purchased in the Stub Period, as applicable and as
such Annual Minimum Commitments may reduced from time to time in accordance
with the terms of this Agreement; or
(h) the Owner fails to issue Purchase Orders for those amounts of
Products which are considered to be under firm Purchase Orders pursuant to any
Forecast and in accordance with the terms of this Agreement; or
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<PAGE>
(i) the Owner fails to pay when due more than ten (10) undisputed
payment amounts in aggregate value in excess of seven million five hundred
thousand dollars ($7,500,000) in any given consecutive nine (9) month period;
or
(j) the Owner otherwise materially breaches any provision of this
Agreement which such material breach it has not cured within a reasonable time
after notification by the Vendor thereof.
10.9 Vendor Remedies. If any of the Owner Events of Default exist,
---------------
the Vendor may, without prejudice to any rights or remedies of the Vendor in
this Agreement or at law or in equity (except as such legal or equitable
remedies may be limited by this Agreement), terminate this Agreement (i)
immediately upon the occurrence of any Owner Event of Default specified in
clauses (a), (b), (c), (d), (i) and (j) and (ii) after thirty (30) days prior
written notice upon the occurrence of any other Owner Event of Default. All
amounts owed by the Owner to the Vendor prior to any such termination shall be
payable immediately upon termination. Notwithstanding anything set forth in
this Agreement, immediately upon the occurrence of any Owner Event of Default
the Vendor shall have the right, without any penalty or payment obligations, to
suspend Vendor's performance with respect to manufacturing Products, to stop
shipment of all Products subject to Purchase Orders, and to recall, if
possible, all Products subject to unfulfilled or undelivered Purchase Orders.
10.10 Special Termination Events. (a) In the event that financing
--------------------------
for the Owner's build-out of the initial phase of the Nationwide Network has
not been finalized with the Contract Vendors on terms and conditions reasonably
satisfactory to the Owner, on or before July 29, 1996, the Owner will have the
right, but not the obligation, to terminate this Agreement in its entirety
without charge or penalty of any kind; provided that the Owner will
-------- ----
only have this right if it has terminated or materially amended (as a result of
a failure to achieve adequate financing) at least one of its then existing
Procurement and Services Contracts; and provided further that in the
-------- -------
event the Owner elects to exercise its rights under this subsection 10.10 and
any Procurement and Services Contract then remains outstanding and in force,
the Vendor and the Owner will negotiate in good faith to make any equitable
modifications in Annual Minimum Commitments and corresponding pricing prior to
and in lieu of any such termination. The "Financing Interim Period" means the
period from the Effective Date to July 29, 1996. In the event of a termination
of this Agreement pursuant to this subsection 10.10, the Owner will remain
liable for amounts due to the Vendor for (i) amounts owed by the Owner to the
Vendor prior to such termination, (ii) all Products which are forecasted in the
first five months of the then current Forecast Period for the then current
Forecast (up to the full amount of such forecasted Products) which are
delivered by the Vendor pursuant to the specific terms of this Agreement to the
FOB point, the Owner and/or any of its facilities or sites in accordance with
the terms of this Agreement and (iii) all such other amounts for customization,
specific engineering or change orders ordered by the Owner prior to such
termination. Any amounts owed by the Owner for Products delivered by the
Vendor during such Financing Interim Period not otherwise invoiced to the Owner
by the Vendor prior to the termination of such Financing Interim
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<PAGE>
Period, will be invoiced to the Owner by the Vendor within thirty (30) days
(but failure to so invoice will not excuse the Owner's obligation to otherwise
pay the Vendor pursuant to the terms of this subsection 10.10) of such
termination pursuant to this subsection 10.10 and will be payable by the Owner
within thirty (30) days of receipt of such invoice. Except as specifically set
forth in clause (i), clause (ii) and/or clause (iii) above, in this subsection
10.10, in no event will the Owner be liable to the Vendor due to a termination
of this Agreement pursuant to this subsection 10.10 for any of the Vendor's
direct or indirect costs or expenses incurred in connection with any supplies
or equipment ordered by the Vendor or agreements entered into by the Vendor in
order to enable it to fulfill its obligations hereunder or in connection with
the establishment of and/or upgrade to its manufacturing, personnel,
engineering, administrative or other capacities and/or resources in
contemplation of or pursuant to its performance in accordance with the terms of
this Agreement.
(b) If, prior to [ ] the Vendor, for any reason whatsoever, fails or is
otherwise unable to commence delivery to the Owner of Subscriber Units with an
average of [ ] hours of continuous talk time based on [ ] voice activity,
[ ] dBm transmit power at the antenna,and a standard battery pack, the Owner
will be able to, in its sole discretion, [ ] or at any time within the ten
(10) Business Day period thereafter, terminate this Agreement in its entirety
without any payment or penalty of either Party whatsoever; provided that within
-------- ----
thirty (30) days of such termination each Party will pay any and all monies then
actually outstanding, owed, accrued or otherwise due to the other Party up to
the point of such termination including payment for any Purchase Orders or
Excess Purchase Orders from the Owner to the Vendor outstanding at the time of
such termination; and provided further the Owner will still be committed to
-------- -------
submit Purchase Orders and pay for all Products delivered subject to the most
recent then outstanding Forecasts for [ ], pursuant to the terms of this
Agreement.
SECTION 11. GENERAL PROVISIONS
11.1 Assignment. Except as otherwise permitted herein, neither this
----------
Agreement nor any portion hereof may be assigned by either Party without the
express prior written consent of the other Party provided that such
-------- ----
consent will not otherwise be unreasonably withheld. The Owner may, without
the consent of the Vendor, (i) assign in whole, but not in part, its rights
hereunder to any direct or indirect wholly owned operating subsidiary of the
Owner or of Sprint Spectrum Holding Company, L.P., a Delaware limited
partnership (provided that any such assignment to any such subsidiary
-------- ----
will not be deemed a release of the Owner's obligations hereunder unless the
Vendor will have given prior written consent to any such release) and/or (ii)
collaterally assign its rights hereunder (including, but not limited to, all
licenses with respect to the Software) to the parties providing financing for
any part of the Nationwide Network under a collateral trust for the benefit of
the Vendor and one or more other entities providing financing for any part of
the Nationwide Network or similar arrangement for the benefit of the entities
providing for the financing for any part of the Nationwide Network, in either
case, which collateral trust or similar arrangement, as the case may be, is
reasonably
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acceptable to the parties providing financing for any part of the Nationwide
Network in accordance with the terms of the financing documents. If requested
by the Owner, the Vendor, will within seven (7) days of such request, provide a
written consent to any such assignment; provided that such consent will
-------- ----
permit reassignment if the financing parties exercise their remedies under the
documents for such financing subject to reasonable standards as to (i) the
creditworthiness of the assignee and (ii) the fact that the assignee is not at
such time a direct competitor of the Vendor or of its affiliates. The
foregoing rights and obligations are in addition to those set forth in
subsection 11.2. Any attempted assignment in violation of the terms of this
Agreement will be null and void.
11.2 Successors and Assigns. This Agreement will bind and inure to
----------------------
the benefit of the Parties to this Agreement, their successors and permitted
assigns.
11.3 Survival of Obligations. The Parties' rights and obligations
-----------------------
which, by their nature, would continue beyond the termination, cancellation, or
expiration of this Agreement, including but not limited to those rights and
obligations of the Parties set forth in subsections 3.7, 3.8, 10.6 and 10.9 and
Sections 7, 8 and 9, will survive such termination, cancellation or expiration.
11.4 Severability. If any provision in this Agreement will be held
------------
to be invalid or unenforceable, the remaining portions will remain in effect.
In the event such invalid or unenforceable provision is considered an essential
element of this Agreement, the Parties will promptly negotiate a replacement
provision.
11.5 Non-waiver. No waiver of the terms and conditions of this
----------
Agreement, or the failure of either party strictly to enforce any such term or
condition on one or more occasions will be construed as a waiver of the same or
of any other term or condition of this Agreement on any other occasion.
11.6 Compliance with United States Regulations.Nothing contained in
-----------------------------------------
this Agreement will require or permit the Owner or the Vendor to do any act
inconsistent with the requirements of (a) the regulations of the United States
Department of Commerce, or (b) the foreign assets controls or foreign
transactions controls regulations of the United States Treasury Department, or
(c) any Applicable Law, regulation or executive order as the same may be in
effect in the Territory from time to time.
11.7 Notices. All notices, requests, demands, consents, agreements
-------
and other communications required or permitted to be given under this Agreement
will be in writing and will be mailed to the party to whom notice is to be
given, by facsimile, and confirmed by first class mail, postage prepaid, and
properly addressed as follows (in which case such notice will be deemed to have
been duly given on the day the notice is first received by the party):
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SPRINT SPECTRUM L.P.
4717 Grand Avenue
Kansas City, Missouri 64112
Attention: Vice President, Business Development
Facsimile No.: (816) 559-6040
Telephone No.: (816) 559-6000
with a copy to:
Joe Gensheimer
General Counsel
Sprint Spectrum L.P.
4717 Grand Avenue
Kansas City, Missouri 64112
Facsimile No.: (816) 559-2591
Telephone No.: (816) 559-2500
QUALCOMM Personal Electronics
10300 Campus Point Drive
San Diego, CA 92121-1579
Facsimile No.: (619) 658-1564
Telephone No.: (619) 658-2626
Attn.:Director of Strategic Accounts, Sony/QUALCOMM CDMA Marketing
with a copy to:
Steven Altman
Secretary
6455 Lusk Boulevard
San Diego, California 92121-2779
Facsimile No.: (619) 658-2500
Telephone No.: (619) 658-4811
QUALCOMM Incorporated
6455 Lusk Boulevard
San Diego, CA 92121-2779
Facsimile No.: (619) 658-1564
Telephone No.: (619) 658-2933
Attn.:Vice President and General Manager, Subscriber Products Division
with a copy to:
SONY ELECTRONICS INC.
16450 West Bernardo Drive
San Diego, California 92127
Facsimile No.: (619) 673-3232
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Telephone No.: (619) 673-3219
Attn.:President, Wireless Telecommunications Co.
The above addresses can be changed by providing notice to the other
Party in accordance with this subsection 11.7.
11.8 Dispute Resolution. (a) Subject to subsections 10.2, 10.3,
------------------
10.8, 10.9 and 11.10, in the event any controversy, claim, dispute, difference
or misunderstanding arises out of or relates to this Agreement, any term or
condition hereof, any of the work to be performed hereunder or in connection
herewith, the respective System Managers of the Owner and the Vendor will meet
and negotiate in good faith in an attempt to amicably resolve such controversy,
claim, dispute, difference or misunderstanding in writing. Such System
Managers must meet for this purpose within ten (10) Business Days, or such
other time period mutually agreed to by the Parties, after such controversy,
claim, dispute, difference or misunderstanding arises. If the Parties are
unable to resolve the controversy, claim, dispute, difference or
misunderstanding through good faith negotiations within such ten (10) Business
Day period, each Party will, within five (5) Business Days after the expiration
of such ten (10) Business Day period, prepare a written position statement
which summarizes the unresolved issues and such Party's proposed resolution.
Such position statement must be delivered by the Vendor to the Owner's Vice
President of Engineering or Operations or then equivalent officer and by the
Owner to the Vendor's corresponding officer or representative for resolution
within (5) Business Days, or such other time period mutually agreed to by the
Parties.
(b) If the Parties continue to be unable to resolve the controversy,
claim, dispute, difference or misunderstanding, either Party may initiate
arbitration in accordance with the provisions of subsection 11.9; provided,
--------
however, that with respect to any controversy, claim, dispute, difference
- - -------
or misunderstanding (other than an undisputed claim with respect to the payment
of money) arising out of or relating to this Agreement by which either Party
seeks to obtain from the other monetary damages in excess of [ ], either Party,
in such case, may commence an action in any state or federal court in accordance
with subsection 11.12 to resolve such matter in lieu of proceeding with an
arbitration pursuant to and in accordance with subsection 11.9. The arbitrators
hired or otherwise chosen pursuant to and in accordance with the terms of this
Agreement will determine issues of arbitrability pursuant to the terms of this
Agreement but may not in any way limit, expand or otherwise modify the terms of
this Agreement nor will they have any authority to award punitive or other
damages in excess of compensatory damages (other than as specifically set forth
in this Agreement) and each Party irrevocably waives any such claim thereto when
invoking the arbitration provisions of subsection 11.9.
11.9 Arbitration. (a) An arbitration proceeding initiated by
-----------
either Party under this Agreement with respect to any controversy, claim,
dispute, difference or misunderstanding will be conducted in New York in
accordance with the Commercial Arbitration rules of the AAA, except that, at
the request of either Party, a stenographic
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transcript of the testimony and proceedings will be taken and the arbitrators
will base their decision upon the records and briefs of the Parties.
(b) Such arbitration will be initiated by either Party by notifying the
other Party in writing and will be settled before three (3) impartial
arbitrators, one of whom will be named by the Owner, one by the Vendor and the
third by the two arbitrators appointed by the Owner and the Vendor,
respectively. All of the named arbitrators will have significant experience in
the wireless telecommunications industry. If either the Owner or the Vendor
fails to select an arbitrator within ten (10) days after notice has been given
of the initiation of the arbitration, the officer in charge of the New York
office of the AAA will have the right to appoint the other arbitrator, and the
two arbitrators thus chosen will then select the third arbitrator.
(c) Except as the Parties may otherwise mutually agree, the arbitration
hearings will commence within fifteen (15) Business Days after a Party's
initiation of the arbitration. The Federal Rules of Evidence will apply and
reasonable discovery, including depositions, will be permitted. Discovery
issues will be decided by the arbitrators and post-hearing briefs will be
permitted.
(d) The arbitrator will render a decision within ten (10) days after the
conclusion of the hearing(s) and submission of post-hearing briefs and a
written opinion setting forth findings of fact and conclusions of law will be
made available to the Parties within that time period. The decision of the
majority of the arbitrators regarding the matter submitted will be final and
binding upon the Parties. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
(e) Each Party will pay for the services and expenses of the arbitrator
appointed by it, its witnesses and attorneys, and all other costs incurred in
connection with the arbitration (including, without limitation, the cost of the
services and expenses of the arbitrator appointed by the two arbitrators
appointed by the Parties) will be paid in equal part by the Parties, unless the
award will specify a different division of the costs. Unless otherwise
specifically stated in this Agreement, during the pendency of any arbitration
proceedings, the Parties agree to continue to perform their obligations
hereunder in the same manner as prior to the institution of arbitration
proceedings.
11.10 Other Remedies. Notwithstanding anything to the contrary
--------------
herein contained, each Party will be entitled to pursue any equitable rights
and remedies that are available at law or in equity without complying with
subsection 11.9.
11.11 Tolling. All applicable statutes of limitation will be tolled
-------
to the extent permitted by Applicable Law while the dispute resolution
procedures specified in subsections 11.8 and 11.9 are pending, and nothing
herein will be deemed to bar any Party from taking such action as the Party may
reasonably deem to be required to effectuate such tolling.
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11.12 Governing Law and Forums. This Agreement is governed by the
------------------------
laws and statutes of the State of New York, exclusive of New York's conflict of
laws rules. This Agreement will be deemed to be made and executed in the State
of New York. If one Party commences a lawsuit in relation to this Agreement
against the other Party, such lawsuit can only be brought in the State of New
York. The Parties hereby waive a trial by jury in any such lawsuit. The
Vendor and the Owner each hereby irrevocably (a) agrees that any suit, action
or other legal proceeding arising out of or relating to this Agreement will be
brought in the Federal District Court for the Southern District of New York
which court will have exclusive jurisdiction over any controversy arising out
of this Agreement, (b) consents to the jurisdiction of such court in any such
suit, action or proceeding and (c) waives any objection which it may have to
the laying of venue of any such suit, action or proceeding in such court and
claim that any such suit, action or proceeding has been brought in an
inconvenient forum. Service of process in any suit, action or proceeding may
be made by mailing or delivering a copy of such process to the Owner or the
Vendor, as the case may be, at the addresses indicated in subsection 11.7
hereof and in the manner set forth in such subsection 11.7. Nothing in this
subsection 11.12 will affect the right of the Owner or the Vendor to serve
legal process in any other manner permitted by law.
11.13 Entire Agreement. This Agreement, together with all
----------------
Appendices, Exhibits and Schedules attached hereto, which are incorporated
herein by this reference, constitutes the entire agreement between the Parties
and supersedes all prior oral or written negotiations and agreements between
the Parties with respect to the subject matter hereof. No modification,
variation or amendment to this Agreement will be effective unless made in
writing and signed by duly authorized representatives of each of the Parties.
Except as otherwise provided in this Agreement, any additional or inconsistent
terms stated by the Owner in any Purchase Order issued hereunder will be of no
force or effect other than to express types and quantities of Products ordered
and shipment destinations.
11.14 Improvements, Inventions and Innovations. All rights in any
----------------------------------------
improvements, inventions, and innovations made by the Owner will vest in the
Owner, and the Owner and its Affiliates will have the right to exploit such
improvements, inventions, and innovations. All rights in any improvements,
inventions and innovations made by the Vendor will vest in the Vendor, and the
Vendor and its affiliates will have the right to exploit such improvements,
inventions and innovations.
11.15 Conflicts. In the event of any conflict or inconsistency
---------
among the provisions of this Agreement and the documents attached hereto and
incorporated herein, such conflict or inconsistency will be resolved by giving
precedence to this Agreement and thereafter to the Exhibits, Schedules and the
Appendices.
11.16 Independent Contractors. The relationship between the Vendor
-----------------------
and the Owner pursuant to this Agreement is that of independent contractors.
The Vendor and the Owner are not joint venturers, partners, principal and
agent, master and servant,
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employer or employee, and have no other relationship pursuant to this Agreement
other than independent contracting parties.
11.17 Force Majeure. If the performance of this Agreement
-------------
(including without limitation any deliveries hereunder) is interfered with by
reason of any circumstance beyond the reasonable control of the Party affected,
including without limitation, fire, acts of God or the public enemy, riots and
insurrections, strikes, boycotts or lockouts, embargoes, judicial action, lack
of or inability to obtain export permits or approvals, necessary labor,
materials, energy, components or machinery, and acts of civil or military
authorities (each an event of "Force Majeure"), then the Party affected will be
excused from such performance on a day-for-day basis to the extent of such
interference (and the other Party will likewise be excused from performance on
a day-for-day basis to the extent such Party's obligations relate to the
performance so interfered with); provided that the Party so affected
-------- ----
will use its best efforts under the circumstances to remove such causes of
nonperformance. In the event of a Force Majeure claimed by the Vendor which
lasts in excess of one-hundred twenty (120) days from the commencement of any
such claim by the Vendor hereunder, the Owner will have the right, but not the
obligation, to terminate this Agreement. The Vendor will not be liable to the
Owner for any damages or other amounts as a result of any termination pursuant
to this subsection 11.17. Notwithstanding anything in this subsection 11.17 to
the contrary, from the Effective Date until July 1, 1997, neither Party will be
entitled to claim an event of Force Majeure pursuant to this subsection 11.17
or otherwise, due to or based upon lack or inability to obtain export permits
or approvals, or lack of necessary labor, materials, energy, components or
machinery, unless such lack or inability to obtain export permits or approvals,
lack of necessary labor, materials, energy, components or machinery is due to a
verifiable force majeure claim from a third party supplier (to the Owner or the
Vendor, as the case may be) based upon a fire, act of God or public enemy, riot
or insurrection, strike, boycott or lockout, embargo, judicial action, and/or
acts of civil or military authorities that is beyond the reasonable control of
such third party supplier.
11.18 Change of Control of the Vendor. The Vendor will not
-------------------------------
consolidate with or merge into any other Person or convey, transfer or lease
(other than in connection with sale leaseback or lease financing transactions
in connection with ongoing Vendor operations) all or substantially all of its
assets to any Person, nor will the Vendor permit any Person or group (as such
term is defined in the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) to own or acquire fifty percent (50%) of the value of the
Vendor's equity interests where such Person or group did not own as of the
Effective Date in excess of ten percent (10%) of such equity interests (any
such Person or group will be referred to as the "Vendor's Succeeding Entity"),
unless:
(i) the Vendor's Succeeding Entity will agree to assume the
obligations of the Vendor under this Agreement; and
(ii) the Owner will have approved the transaction, based solely on
(i) the creditworthiness of the Vendor's Succeeding Entity,
(ii) whether the Vendor's Succeeding Entity is a competitor
of the Owner and
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(iii) whether in the Owner's reasonable judgment the Vendor's
Succeeding Entity will be able to fulfill the obligations of
the Vendor (including, but not limited to, the Vendor's
obligations as to then present or future orders) under this
Agreement.
11.19 Change of Control of the Owner. Except as otherwise permitted
------------------------------
under subsection 11.1, the Owner will not consolidate with or merge into any
other business entity or convey, transfer or lease all or substantially all of
its assets to any Person, nor will the Owner permit any Person or group (as
such term is defined in the Exchange Act) to own or acquire fifty percent (50%)
of the value of the Owner's limited partnership interests or general
partnership interests where such Person or group did not own as of the
Effective Date in excess of ten percent (10%) of either of such partnership
interests (any such Person or group will be referred to as the "Owner's
Succeeding Entity"), unless:
(a) the Owner's Succeeding Entity will agree to assume the obligations
of the Owner under this Agreement; and
(b) the Vendor will have approved the transaction, based solely on (i)
the creditworthiness of the Owner's Succeeding Entity and (ii) whether the
Owner's Succeeding Entity is a direct competitor of the Vendor or any affiliate
of the Vendor in the business of selling wireless telephones.
11.20 Offset. Either Party may deduct or retain out of any moneys
------
which may be due or become due to the other Party hereunder or otherwise any
amounts such other Party owes to such first Party hereunder or otherwise.
11.21 Additional Insured. In addition to any indemnities for
------------------
product liability provided by the Vendor to the Owner hereunder as of the
Effective Date, the Vendor will name the Owner as an additional insured on its
product liability insurance policies to provide the Owner with ten million
dollars ($10,000,000) of coverage under such policies. Such policies will be
with reputable carriers and will have terms reasonably satisfactory to the
Owner. With respect to such policies as of the Effective Date, the Owner
acknowledges that the carriers and the terms of such policies are satisfactory
to the Owner.
SECTION 12. AFFILIATES
12.1 Agreements with Initial Affiliates. During the Initial Term of
----------------------------------
this Agreement, the Owner will have the right, but not the obligation, to
require that the Vendor enter into separate agreements with any Initial
Affiliate designated by the Owner (each, an "Initial Affiliate Agreement") for
the supply of Products pursuant to the same prices as set forth herein and on
similar warranty and indemnity terms and conditions as those set forth in this
Agreement.
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12.2 Additional Affiliates. On a quarterly basis commencing on the
---------------------
Effective Date and during the Initial Term of this Agreement, the Owner may,
upon fifteen (15) days' prior written notice to the Vendor, designate any
Person which has been licensed to use PCS in the Territory but which is not an
Initial Affiliate as an "Additional Affiliate"; provided that the
-------- ----
Vendor will have a reasonable opportunity to review and approve such
designation, such approval not to be unreasonably withheld, based upon (i)
reasonable credit criteria, (ii) the fact that such proposed Additional
Affiliate has not in the past materially breached prior material agreements
with the Vendor or its affiliates, (iii) the fact that the proposed Additional
Affiliate is not, at the time of such determination, a direct competitor to the
Vendor or its affiliates in the wireless telecommunications business and (iv)
the fact that the proposed Additional Affiliate is not, at the time of such
determination, otherwise engaged with the Vendor or its affiliates in a
material agreement for the purchase and/or supply of PCS CDMA wireless
technology; and provided, further, that (x) the Owner, any Partner or
-------- -------
any Initial Affiliate has at least a ten percent (10%) equity ownership in such
Person, (y) such Person is controlled by or under the common control with the
Owner, any Partner or any Initial Affiliate or (z) there exists between the
Owner and such Person an Additional Affiliate Arrangement.
12.3 Agreements with Additional Affiliates. During the Initial Term
-------------------------------------
of this Agreement, the Owner will have the right, but not the obligation, to
require that the Vendor enter into separate agreements with any Additional
Affiliate designated by the Owner (each, an "Additional Affiliate Agreement")
for the supply of Products at similar price and warranty terms as are then
available to the Owner pursuant to the terms of this Agreement. The Vendor
must enter into good faith negotiations for the establishment of such
Additional Affiliate Agreements with any such Additional Affiliate promptly
upon the designation of such Additional Affiliate by the Owner and upon notice
to the Vendor that such Additional Affiliate desires to enter into an
Additional Affiliate Agreement. Any Additional Affiliate that enters into an
Additional Affiliate Agreement with the Vendor will have the right to choose
among the Products offered to the Owner under this Agreement solely for use
within the Nationwide Network.
12.4 Affiliate Rights. Notwithstanding anything herein contained to
----------------
the contrary, Affiliates will not be deemed third party beneficiaries to this
Agreement or otherwise have any rights hereunder. Only the Owner may designate
a Person as an Affiliate in accordance with the terms of this Section 12 and
only the Owner has the right and/or the ability to enforce any rights hereunder
against the Vendor.
SECTION 13. REPRESENTATIONS AND WARRANTIES
13.1 Representations and Warranties of the Vendor and the
-----------------------------------------------------
Guarantors. The Vendor and the Guarantors hereby represent and warrant to
- - ----------
the Owner as follows:
(a) Due Organization of the Vendor and the Guarantors. (i) The
-------------------------------------------------
Vendor is a general partnership, validly existing and in good standing under
the laws of the State of California and has all requisite power and authority
to own and operate its business and
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properties and to carry on its business as such business is now being conducted
and is duly qualified to do business in all jurisdictions in which the
transaction of its business in connection with the performance of its
obligations under this Agreement makes such qualification necessary or
required.
(ii) QUALCOMM is a corporation, validly existing and in good
standing under the laws of the State of Delaware and has all requisite power
and authority to own and operate its business and properties and to carry on
its business as such business is now being conducted and is duly qualified to
do business in all jurisdictions in which the transaction of its business in
connection with the performance of its obligations under this Agreement makes
such qualification necessary or required.
(iii) Sony is a corporation, validly existing and in good standing
under the laws of the State of Delaware and has all requisite power and
authority to own and operate its business and properties and to carry on its
business as such business is now being conducted and is duly qualified to do
business in all jurisdictions in which the transaction of its business in
connection with the performance of its obligations under this Agreement makes
such qualification necessary or required.
(b) Due Authorization of the Vendor and the Guarantors; Binding
------------------------------------------------------------
Obligation. The Vendor and each of the Guarantors have full partnership or
- - ----------
corporate power and authority to execute and deliver this Agreement and to
perform their respective obligations hereunder, and the execution, delivery and
performance of this Agreement by each of the Vendor and the Guarantors has been
duly authorized by all necessary corporate and/or partnership action on the
part of each of the Vendor and the Guarantors; this Agreement has been duly
executed and delivered by the Vendor and is the valid and binding obligation of
the Vendor enforceable in accordance with its terms, except as enforcement
thereof may be limited by or with respect to the following: (i) applicable
insolvency, moratorium, bankruptcy, fraudulent conveyance and other similar
laws of general application relating to or affecting the rights and remedies of
creditors; (ii) application of equitable principles (whether enforcement is
sought in proceedings in equity or at law); and (iii) provided the remedy of
specific enforcement or of injunctive relief is subject to the discretion of
the court before which any proceeding therefore may be brought. This Agreement
has been duly executed and delivered by each of the Guarantors, in their
capacity as guarantors pursuant to Section 14, and is the valid and binding
obligation of each Guarantor enforceable in accordance with its terms, except
as enforcement thereof may be limited by or with respect to the following: (i)
applicable insolvency, moratorium, bankruptcy, fraudulent conveyance and other
similar laws of general application relating to or affecting the rights and
remedies of creditors; (ii) application of equitable principles (whether
enforcement is sought in proceedings in equity or at law); and (iii) provided
the remedy of specific enforcement or of injunctive relief is subject to the
discretion of the court before which any proceeding therefore may be brought.
(c) Non-Contravention. The execution, delivery and performance of
-----------------
this Agreement by the Vendor and the Guarantors and the consummation of the
transactions
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contemplated hereby do not and will not contravene the partnership arrangements
governing the conduct of the partners in the Vendor or corporate arrangements
governing each of the Guarantors and do not and will not conflict with or
result in (i) a breach of or default under any material indenture, mortgage,
instrument, judgment, decree, order or ruling to which the Vendor or any of the
Guarantors are a party or by which it or any of its properties is bound or
affected, or (ii) a breach of any Applicable Law.
(d) Regulatory Approvals. All material authorizations by, approvals
--------------------
or orders by, consents of, notices to, filings with or other acts by or in
respect of any Governmental Entity or any other Person required in connection
with the execution, delivery and performance of this Agreement by the Vendor
and the Guarantors have been obtained or will be obtained in due course.
(e) Non-Infringement. Except as set forth on Schedule 7, the Vendor
----------------
and the Guarantors each represent and warrant that as of the Effective Date
there are no threatened or actual claims or threatened or actual suits in
connection with patents and other intellectual property matters that would or
could materially adversely affect the Vendor's or the Guarantors' ability to
perform their obligations under this Agreement.
(f) Requisite Knowledge. The Vendor has or will obtain all
-------------------
requisite knowledge, know-how, skill, expertise and experience to perform its
obligations in accordance with the terms of this Agreement.
(g) Financial Capacity. The Vendor has the financial, management
------------------
and manufacturing capacity and capabilities to do the work in a timely manner
in accordance with the terms of this Agreement.
13.2 Representations and Warranties of the Owner. The Owner hereby
-------------------------------------------
represents and warrants to the Vendor and each Guarantor as follows:
(a) Due Organization of the Owner. The Owner is a limited
-----------------------------
partnership, validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to own and operate its
business and properties and to carry on its business as such business is now
being conducted and is duly qualified to do business in Delaware and in any
other jurisdiction in which the transaction of its business makes such
qualification necessary or required.
(b) Due Authorization of the Owner; Binding Obligation. The Owner
--------------------------------------------------
has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, and the execution, delivery and performance
of this Agreement by each of the Owner have been duly authorized by all
necessary partnership action on the part of the Owner; this Agreement has been
duly executed and delivered by the Owner and is the valid and binding
obligation of the Owner enforceable in accordance with its terms, except as
enforcement thereof may be limited by or with respect to the following: (i)
applicable insolvency, moratorium, bankruptcy, fraudulent conveyance and other
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similar laws of general application relating to or affecting the rights and
remedies of creditors; (ii) application of equitable principles (whether
enforcement is sought in proceedings in equity or at law); and (iii) provided
the remedy of specific enforcement or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
(c) Non-Contravention. The execution, delivery and performance of
-----------------
this Agreement by the Owner and the consummation of the transactions
contemplated hereby do not and will not contravene the partnership arrangements
governing the conduct of the Partners in the Owner and do not and will not
conflict with or result in (i) a breach of or default under any material
indenture, agreement, instrument, judgment, decree, order or ruling to which
the Owner is a Party or by which it or any of its properties is bound or
affected, or (ii) a breach of any Applicable Law.
(d) Regulatory Approvals. All material authorizations by, approvals
--------------------
or orders by, consents of, notices to, filings with or other acts by or in
respect of any Governmental Entity or any other Person required in connection
with the execution, delivery and performance of this Agreement by the Owner
have been obtained or will be obtained in due course.
(e) Requisite Knowledge. The Owner has all requisite knowledge,
-------------------
know-how, skill, expertise and experience to perform its obligations under this
Agreement.
SECTION 14. GUARANTY
14.1 Guaranty. Each of the Guarantors hereby irrevocably and
---------
unconditionally, severally but not jointly, guarantees the punctual payment and
performance of each and every obligation of the Vendor under this Agreement
and agrees that if for any reason whatsoever the Vendor will fail or be unable
duly, punctually and fully to perform any such obligation under this Agreement,
either of the Guarantors will forthwith perform each and every such obligation,
or cause each such obligation to be performed, without regard to any exercise
or nonexercise by the Owner of any right, remedy, power or privilege under or
in respect of the Agreement against the Vendor. The obligations of each of the
Guarantors will be subject to the Owner providing each of the Guarantors
written notice (unless the giving of such notice is prevented by Applicable Law
or court order) of any default of the Vendor in performing any obligation for
which the Owner is seeking the guaranty of either Guarantor. The Guarantors
will cure such default within fifteen (15) Business Days after receipt by the
Guarantors of written notice thereof specifying the nature of such default. In
addition, the Guarantors agree to reimburse the Owner on demand for any and all
expenses (including counsel fees and expenses) reasonably incurred by the Owner
in enforcing or attempting to enforce any rights under this guaranty.
Notwithstanding anything to the contrary stated in this Section 14, QUALCOMM
will only be liable for up to fifty one percent (51%) of the obligations under
this Section 14, including, but not limited, to all payment obligations under
this Section 14 and Sony will only be liable for up to forty
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nine percent (49%) of the obligations under this Section 14, including, but not
limited to, all payment obligations under this Section 14.
14.2 Guaranty Absolute. The liability of each of the
-----------------
Guarantors under this Guaranty with respect to the guaranteed obligations will
be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of this Agreement or any
other agreement or instrument relating thereto;
(b) any amendment to, waiver of or consent to departure from, or
failure to exercise any right, remedy, power or privilege under or
in respect of, this Agreement, unless the Owner, and any assignee
of Owner pursuant to Subsection 11.1, shall expressly agree
otherwise in writing, and then only to the extent that such
liability is released in such written agreement;
(c) any exchange, release or nonperfection of any collateral, or any
release or amendment or waiver of or consent to departure from any
other guaranty of or security for the performance of all or any of
the obligations of the Vendor under the Agreement;
(d) the insolvency of the Vendor or any other guarantor or any
proceeding, voluntary or involuntary, involving the bankruptcy,
insolvency, receivership, reorganization, arrangement, dissolution
or liquidation of the Vendor or any other guarantor or any defense
which the Vendor or any other guarantor may have by reason of the
order, decree or decision of any court or administrative body
resulting from any such proceeding;
(e) any change in ownership of the Vendor or any change, whether direct
or indirect, in the relationship of either of the Guarantors to the
Vendor, including, without limitation, any such change by reason of
any merger or any sale, transfer, issuance, or other disposition of
any stock of the Vendor, each of the Guarantors or any other
entity; and
(f) any other circumstance of a similar or different nature that might
otherwise constitute a defense available to either of the
Guarantors as a guarantor.
Except as provided above in this subsection 14.2, in no event shall
the obligations of the Guarantors hereunder exceed the obligations the
Guarantors would have had if either were itself a party to this Agreement, and
each of the Guarantors shall have all rights and defenses of the "Vendor" under
the terms of this Agreement. This Guaranty shall continue to be effective, or
be reinstated, as the case may be, if at any time any payment made, or any
part thereof, to the Owner by the Vendor under this Agreement or by either of
the Guarantors hereunder is ordered rescinded or must otherwise be returned by
the Owner to the Vendor or its representative for any reason,
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including, without limitation, upon the insolvency, bankruptcy, reorganization,
dissolution or liquidation of the Vendor or otherwise, all as though such
payment had not been made.
14.3 Waiver. Each of the Guarantors hereby waives promptness,
------
diligence, notice of acceptance and any other notice with respect to this
guaranty and any requirement that the Owner exhaust any right or take any
action against or with respect to the Vendor or any other person or entity or
any property.
14.4 No Subrogation. Notwithstanding any payment or payments
--------------
made by either of the Guarantors under or pursuant to this Section 14 or any
set-off or application of funds of either of the Guarantors by the Owner,
neither of the Guarantors shall, until all of the Vendor's obligations under
this Agreement (including warranty obligations) shall have been fulfilled, (a)
be entitled to be subrogated to any of the rights of Owner against the Vendor
or any other guarantor or in any collateral security or guaranty or right of
offset held by the Owner for the performance and payment of all of the
obligations of the Vendor under this Agreement, or (b) seek any reimbursement
or contribution from the Vendor or any other guarantor in respect of any
payment, set-off or application of funds made by either of the Guarantors under
or pursuant to this Section 14.
14.5 No Petition. Neither of the Guarantors will, without the
-----------
prior consent of Owner, voluntarily commence, or join with or solicit any other
person or entity in commencing, any case or other proceeding seeking
liquidation, reorganization or other relief with respect to the Vendor or its
debts under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of the Vendor.
14.6 Continuing Guaranty: Assignments. The Guaranty set forth
--------------------------------
in this Section 14 will be construed as a continuing, absolute and
unconditional guaranty of payment and performance, and, except as specifically
provided in subsection 14.1 above, the obligations of the Guarantors hereunder
will not be conditioned or contingent upon the pursuit by Owner at any time of
any right or remedy against the Vendor or against any other person or entity
which may be or become liable in respect of all or any part of the obligations
of the Vendor under this Agreement or against any collateral security or
guaranty therefor. The Guaranty set forth in this Section 14 will (i) remain
in full force and effect until satisfaction in full of all the Vendor's
obligations under this Agreement, (ii) be binding upon each of the Guarantors
and their respective successors and (iii) inure to the benefit of and be
enforceable by the Owner and its successors, transferees and assigns. Except
as may be necessary to fulfill its obligations hereunder in a timely manner,
and with the consent of Owner, not to be unreasonably withheld or delayed,
neither of the Guarantors will have any right, power or authority to delegate
all or any of its obligations hereunder; provided that upon any such
-------- ----
delegation permitted hereunder, each of the Guarantors will nevertheless remain
liable for the performance of any obligations so delegated.
-68-
<PAGE>
14.7 Other Terms. Subsections 11.1, 11.2, 11.3, 11.4, 11.5,
-----------
11.7, 11.8, 11.9, 11.10, 11.11 and 11.12 will apply to and be binding upon each
of the Guarantors to the same extent as such provisions apply to and are
binding upon the Vendor. In executing this Agreement, each of QUALCOMM and
Sony are directly bound by the provisions of subsection 3.3 applicable to them,
in addition to their obligations as Guarantors hereunder. For purposes of this
Agreement, any breach by either Guarantor of any representation or warranty in
this Agreement shall be deemed to only be a breach of such representation and
warranty by the Vendor, and not such Guarantor; provided that this
-------- ----
sentence will in no way limit the Guarantors' obligations under Section 14.
SECTION 15. OTHER
15.1 Owner Liabilities. The Parties understand and agree that
-----------------
none of the Partners, nor any of their affiliates (other than the Owner), have
guaranteed or otherwise are now in any way liable with respect to any
obligations or liabilities of the Owner or any of its subsidiaries pursuant to
or in connection with this Agreement. The Parties further understand and agree
that neither the Owner nor any of its subsidiaries will guarantee or otherwise
be in any way liable for any obligations or liabilities of any of the Partners
or any affiliate of the Owner pursuant to this Agreement unless, and only to
the extent the Owner or any one of its subsidiaries expressly agrees in writing
to guarantee or otherwise be liable for such liability.
15.2 Counterparts. This Agreement may be executed by one or
------------
more of the Guarantors and the Parties to this Agreement on any number of
separate counterparts, and all of said counterparts taken together will be
deemed to constitute one and the same instrument.
-69-
<PAGE>
THE OWNER, THE VENDOR AND EACH OF THE GUARANTORS HAVE READ THIS
AGREEMENT INCLUDING ALL APPENDICES, EXHIBITS AND SCHEDULES HERETO AND AGREE TO
BE BOUND BY ALL THE TERMS AND CONDITIONS HEREOF AND THEREOF.
IN WITNESS WHEREOF, the Parties hereto and each of the Guarantors
have caused their authorized representatives to execute this Agreement
effective as of the date first set forth above.
SPRINT SPECTRUM L.P.,
Owner
/s/ Bernie Bianchino
By: _______________________________________
Name: Bernie Bianchino
Title: Chief Business Development Officer
QUALCOMM Personal Electronics,
Vendor
/s/ Stephen Burke
By: _______________________________________
Name: Stephen Burke
Title: Vice President and General Manager
QUALCOMM Incorporated,
Guarantor
/s/ Paul E. Jacobs
By: _______________________________________
Name: Paul E. Jacobs
Title: Vice President and General Manager
Subscriber Products
SONY ELECTRONICS INC.,
Guarantor
/s/ Yutaka Sato
By: _______________________________________
Name: Yutaka Sato
Title: President WTC
-70-
<PAGE>
APPENDIX 1
----------
[ ]
[ ]
Appendix 1 -- Page 1
<PAGE>
SCHEDULE 2
- - ----------
Initial Affiliates
(a) Each of the Partners and their Operating Subsidiaries.
(b) APC and its Operating Subsidiaries.
(c) PhillieCo and its Operating Subsidiaries.
(d) TCG and its Operating Subsidiaries.
(e) NewTelCo. And its operating Subsidiaries.
<PAGE>
SCHEDULE 7
----------
[ ]
Schedule 7 -- Page 1
<PAGE>
[ ]
<PAGE>
SCHEDULE 8
[ ]
Schedule 8 -- Page 1
<PAGE>
[ ]
[ ]
Schedule 8 -- Page 2
<PAGE>
[ ]
[ ]
Schedule 8 -- Page 3
<PAGE>
[ ]
[ ]
Schedule 8 -- Page 4
<PAGE>
[ ]
[ ]
Schedule 8 -- Page 5
<PAGE>
[ ]
[ ]
Schedule 8 -- Page 6
<PAGE>
[ ]
[ ]
Schedule 8 -- Page 7
<PAGE>
[ ]
Schedule 8 -- Page 8
<PAGE>
[ ]
Schedule 8 -- Page 9
<PAGE>
EXHIBIT 10.8
Northern Telecom Inc. Tel: (615) 734-4000
Northern Telecom Plaza
200 Athens Way
Nashville, Tennessee
U.S.A. 37228-1397
[LOGO]
NORTHERN TELECOM
June 11, 1996
Sprint Spectrum L.P.
4717 Grand Avenue
Kansas City, Missouri 64114
Attention: Bob Neumeister
Ladies and Gentlemen:
Sprint Spectrum L.P., a Delaware limited partnership (the "Borrower" or "you"),
has advised Northern Telecom Inc. (the "Vendor" or "we") that the Borrower has
need for a credit facility in the amount of up to $1,300,000,000 in connection
with the purchase of goods and services to be provided by or through the Vendor
in connection with the build-out of the Borrower's national wireless network
(the "Project"). You have requested that the Vendor provide such credit facility
(the "Credit Facility"), and you and we have engaged in extensive negotiations
concerning the principal terms of such a Credit Facility.
Attached hereto as Exhibit A to this letter is a Statement of Terms and
---------
Conditions (the "Term Sheet") setting forth, as negotiated, the principal terms
and conditions on and subject to which the Vendor is willing to make the Credit
Facility available and the Borrower is willing to incur, secure and repay the
financing described therein. Capitalized terms used but not defined herein shall
have the meanings given to them in the Term Sheet.
In agreeing to provide the Credit Facility, we have assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information provided to us by the Borrower and its advisors. We have
further assumed that the Sprint Spectrum Business Plan Overview, dated March
1996, has been approved by the Partnership Board of Sprint Spectrum Holding
Company, L.P. With respect to financial forecasts and projections, we have
assumed that such financial forecasts and projections have been reasonably
prepared using the best currently available estimates and judgments of the
Borrower and its advisors.
In addition to the conditions to the availability of the Credit Facility set
forth in the Term Sheet, the Vendor's commitment to enter into the Credit
Facility is subject to (a) completion of the Vendor's ongoing due diligence
investigation relating to the Borrower and the Project and the results of such
due diligence investigation being satisfactory to the Vendor; (b) there not
having occurred any material adverse change (as defined in the Term Sheet); and
(c) the negotiation, execution and delivery of definitive documentation relating
to the Credit Facility and the security therefore satisfactorv in form and
substance to the Vendor and its counsel.
* The omitted portions, represented by brackets, have been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 406.
<PAGE>
By executing this letter, you and we acknowledge that this letter, the side
letters, dated the date hereof, and the Term Sheet are the only agreements
between you and the undersigned with respect to the Credit Facility and set
forth the principal terms and conditions thereof, and that any additional terms
and conditions will not be inconsistent with the terms and conditions set forth
herein, in the side letter and in the Term Sheet. This letter may not be amended
except pursuant to a writing signed by each of the parties hereto. This letter
shall be governed by, and construed in accordance with, the laws of the State of
New York.
You agree that this commitment letter is for your confidential use only and
neither this commitment letter nor the Term Sheet, nor the contents thereof,
will he disclosed by you without the prior written consent of the Vendor to any
person other than your accountants, attorneys and other advisors and each of the
Parents and their respective accountants, attorneys and other advisors, in each
case only in connection with the transactions contemplated hereby and on a
confidential hasis.
If you are in agreement with the foregoing, please sign and return to the
undersigned the enclosed copies of this letter. The commitment evidenced by
this letter will expire if we have not received a signed counterpart of this
letter by June 21, 1996.
We look forward to working with you on this transaction.
Very truly yours,
NORTHERN TELECOM INC.
By: /s/ D.A. Twyver
-----------------------
Title: Vice President
--------------------
Accepted and agreed to as of the date
first above written.
SPRINT SPECTRUM L.P.
By: /s/ Ronald T. LeMay
-----------------------
Title: CEO
---------------------
<PAGE>
SPRINT SPECTRUM L.P.
VENDOR CREDIT FACILITY
(NORTHERN TELECOM INC.)
Summary of Terms and Conditions
June 11, 1996
--------------------
I. Parties
-------
Borrower: Sprint Spectrum L.P. (the "Borrower").
--------
Lenders: Northern Telecom Inc. or any affiliate of Northern
Telecom Inc. the obligations of which shall have been
guaranteed by Northern Telecom Inc. (the "Vendor"). At
------
or subsequent to the Closing Date (as defined below) the
Vendor may assign (in accordance with the provisions of
"Assignments and Participations" below) portions of the
credit facility described herein (the "Credit Facility")
---------------
to one or more Eligible Lenders (as defined below)
(together with the Vendor, the "Lenders").
-------
II. The Credit Facility
-------------------
Vendor's Commitment; The Vendor will commit (the "Commitment") to
Type and Amount of provide a multiple drawdown term loan facility in the
Facility: amount set forth on Annex A hereto (the loans
thereunder, the "Loans").
-----
<PAGE>
2
Purpose: As set forth on Annex A hereto.
Availability: The Loans shall be made on not more than one drawdown
date per month during the period commencing on the date
of the initial drawdown and ending on the fifth
anniversary of such date (but in no event later than
December 31, 2000). The Credit Facility will terminate
if no Loans are drawn by March 31, 1997.
III. General Payment Provisions
--------------------------
Amortization: The Loans made during each of the five consecutive one-
year periods following the date of the initial drawdown
(each, a "Borrowing Year") shall be repayable in 20
consecutive quarterly installments, commencing on the
date which is 39 months after the last day of such
Borrowing Year and ending on the date which is eight
years after such last day, in an aggregate amount for
each year following such last day set forth below equal
to the percentage set forth opposite such year
multiplied by the aggregate principal amount of the
Loans made during such Borrowing Year (with the
installments during each such year being equal in
amount):
Year Percentage
---- ----------
4 10%
5 15
6 20
7 25
8 30
Interest Rates and As set forth on Annex A hereto:
Interest Payment
Dates:
Capitalization Interest will accrue on each Loan from the date of
of Interest: drawdown thereof. No interest will be payable in cash on
the Loans made during any Borrowing Year until the first
applicable interest payment date following the first
anniversary of the last day of such Borrowing Year.
Prior to such first anniversary, accrued interest will
be capitalized quarterly and will bear interest at the
rate applicable to the related Loan.
<PAGE>
3
Optional Prepayments: Loans may be prepaid by the Borrower in minimum amounts
of $10,000,000. Optional prepayments of the Loans shall
be applied pro rata to the then remaining installments
--- ----
thereof.
Mandatory Prepayments: 100% of the net cash proceeds of any sale or other
disposition by the Borrower or any of its Restricted
Subsidiaries (as defined below) of any material assets
that are not reinvested in the Borrower's business
within 270 days after receipt thereof shall be used to
prepay ratably the Loans and (to the extent required by
such other indebtedness or the Borrower determines to do
so) all other indebtedness secured by such assets. The
Credit Documentation (as defined below) will contain
provisions requiring the Borrower to give notice to the
Lenders, at the time of any such asset sale or other
disposition, if it intends to reinvest the proceeds
thereof in its business, and to provide evidence that
such reinvestment has been accomplished within 270 days
after receipt of such proceeds. To the extent the net
cash proceeds of such sale or other disposition exceed
$100,000,000, such excess shall be deposited in a cash
collateral account with the Trustee (as defined below),
to be disbursed therefrom as and when such reinvestments
are made or, as the case may be, such prepayment is
required.
If the Borrower shall make any voluntary prepayment of
the other Vendor Financing (as defined below) or a
voluntary prepayment of term loans under the Bank
Credit Facilities (as defined below) or a voluntary
reduction of the revolving credit commitments under the
Bank Credit Facilities (except to the extent that the
amount of such reduction does not exceed the amount, if
any, by which the commitments in effect immediately
prior to such reduction exceeds the then outstanding
revolving credit loans), it shall (unless the same shall
have been made in connection with a Permitted
Refinancing (as defined below)) make a mandatory
prepayment of the Loans in a ratable amount. A
"Permitted Refinancing" shall mean (a) a refinancing of
---------------------
any Vendor Financing other than the Credit Facility,
provided that the Vendor is given the option to have its
--------
Loans repaid pro rata with the lenders under such other
--- ----
Vendor Financing on substantially equivalent terms and
conditions and (b)
<PAGE>
4
any refinancing of the Bank Credit Facilities.
Each such prepayment of the Loans shall be applied pro
---
rata to the then remaining installments thereof.
----
Waiver of Set-Off: The Borrower will not be entitled to set off any amount
owing to it by the Vendor under the procurement
agreement between the Vendor and the Borrower against
any amount payable by the Borrower under the Credit
Facility.
IV. Collateral; Capital Contribution Agreement; Guarantees
------------------------------------------------------
Collateral: The assets of the Borrower and its Restricted
Subsidiaries related to the wireless business shall, for
collateral purposes, be allocated to one of the four
following categories: (i) PCS FCC licenses ("FCC
---
Licenses"), (ii) non-real property assets (the
--------
"Direct-Lien Assets") on which a lien can be perfected
------------------
by a limited number of UCC and/or Federal filings and
deliveries of pledged instruments (such as accounts,
patents, trademarks, the Capital Contribution Agreement
(as defined below) and other general intangibles), (iii)
substantially all other personal property (which will
include equipment) ("Personal Propertv Assets") and (iv)
------------------------
all real estate interests other than Mortgaged
Properties (as defined below) ("Real Estate Assets").
------------------
All FCC Licenses, Personal Property Assets and Real
Estate Assets will be acquired in or transferred to
separate, wholly owned, single purpose partnership
subsidiaries of the Borrower ("License Subsidiary",
------------------
"Equipment Subsidiary," and "Real Estate Subsidiary",
-------------------- ----------------------
respectively). The Direct-Lien Assets and the Mortgaged
Properties will remain with the Borrower. Assets that
are acquired with purchase-money indebtedness permitted
by clause 1.(e) under "Negative Covenants" below
("Permitted Purchase Money Indebtedness") will be owned
-------------------------------------
by the Borrower but will not constitute Collateral (as
defined below).
The obligations of the Borrower in respect of the Credit
Facility shall be secured by a perfected first priority
lien (the "Shared Lien") on (a) all the partnership
interests in the Equipment Subsidiary, the
<PAGE>
5
License Subsidiary and the Real Estate Subsidiary, (b)
the Direct-Lien Assets and (c) any Mortgaged Properties.
All assets that are subject to the Shared Lien are
herein called the "Collateral".
----------
The Shared Lien will secure equally and ratably the
following indebtedness (the "Secured Debt"): (i) the
------------
Bank Credit Facilities, (ii) all Vendor Financing, (iii)
other indebtedness of the Borrower for borrowed money
and interest rate swaps, (iv) indebtedness of the
Borrower (other than for borrowed money, but including
handset financing and refinancings of all indebtedness
referred to in this clause) in an aggregate amount not
to exceed $500,000,000 and (v) any refinancings of any
of the indebtedness described in clauses (i), (ii) and
(iii) above; provided that the Shared Lien will not
--------
secure any (a) Permitted Purchase Money Indebtedness or
(b) indebtedness of the Borrower (other than the Credit
Facility) which is guaranteed by any of the Parents or
any other affiliate of the Borrower or which is the
beneficiary of any other credit enhancement provided
directly or indirectly by any of the Parents or any
other affiliate of the Borrower unless such indebtedness
refinances, or constitutes, (1) any Vendor Financing
other than the Credit Facility or (2) the Bank Credit
Facilities, and, in each case, the Vendor or its
assignee under the Credit Facility is given the option
to receive a guarantee or other credit enhancement on
substantially identical terms and conditions.
Capital Contribution The four ultimate partners of the Borrower (the
Agreement: "Parents") will enter into a capital contribution
-------
agreement substantially in form and substance
satisfactory to the Borrower and the Vendor (the
"Capital Contribution Agreement"). The Parents shall
------------------------------
have entered into the Capital Contribution Agreement as
a condition precedent to the signing of the Credit
Agreement.
Guarantees: The Equipment Subsidiary, the License Subsidiary and the
Real Estate Subsidiary will each guarantee the Secured
Debt on a joint and several, pari passu basis (the
---- -----
"Guarantees").
----------
<PAGE>
6
V. Certain Conditions
------------------
Initial Conditions: The availability of the Credit Facility shall be
conditioned upon satisfaction of, among other things,
the following conditions precedent (the date upon which
all such conditions precedent shall be satisfied, the
"Closing Date"):
------------
1. The Borrower, the License Subsidiary, the
Equipment Subsidiary, the Real Estate Subsidiary and
each of the Parents (collectively, the "Credit Parties")
--------------
shall have executed and delivered definitive financing
documentation with respect to the Credit Facility
consistent with this Summary of Terms and Conditions
(the "Credit Documentation").
--------------------
2. All 29 of the FCC Licenses acquired by a
subsidiary of the Borrower for the Borrower's use shall
have been paid for in full and shall have been
transferred to the License Subsidiary.
3. The Borrower shall have (i) entered into a
satisfactory collateral trust agreement pursuant to
which an independent trustee appointed by the Borrower
(the "Trustee") shall act as collateral trustee to hold
-------
all of the Collateral and the Guarantees for the benefit
of the holders of the indebtedness secured thereby in
accordance with the provisions described above, (ii)
executed and delivered to the Trustee satisfactory
security documents to create the liens on the Collateral
described above, (iii) completed all such filings and
other actions as is necessary to perfect such liens,
(iv) provided to the Trustee results of lien searches in
each of the offices where liens on the Collateral would
be recorded, revealing no liens on any of the Collateral
and (v) provided to the Vendor satisfactory evidence
that the Vendor and the Lenders are entitled to the
benefit of said collateral trust agreement.
4. The Vendor shall have received a satisfactory
business plan of the Borrower that shall have been
approved by the Parents.
5. The Vendor shall have received such legal
opinions (including FCC counsel to the Borrower),
<PAGE>
7
documents and other instruments as are customary or
reasonably requested by the Vendor for transactions of
this type.
6. The amount of Contributed Capital (as defined
below) shall be at least $2.2 billion.
7. The Vendor shall have received audited financial
statements of the Borrower for the fiscal year ended
December 31, 1995.
8. The Vendor shall have received copies of all
documentation evidencing all Vendor Financing (other
than the Credit Facility) and the Bank Credit
Facilities; provided that the provisions thereof
--------
relating to those matters covered by Annex A hereto
shall not be required to be delivered by the Borrower.
On-Going Conditions: The making of each Loan shall be conditioned upon (i)
all representations and warranties by the Credit Parties
in the Credit Documentation (including, without
limitation, the material adverse change and litigation
representations) being true and correct in all material
respects, (ii) there being no default or event of
default in existence at the time of, or after giving
effect to the making of, such Loan and (iii) the
Borrower not having terminated the Vendor's procurement
agreement with the Borrower with respect to future
orders unless prior to such termination the Borrower
shall have placed equipment orders with the Vendor in an
aggregate amount of at least the amount set forth on
Annex A hereto. As used herein and in the Credit
Documentation a "material adverse change" shall mean any
event, development or circumstance that has had or could
reasonably be expected to have a material adverse effect
on (a) the business, assets, results of operations or
financial condition of the Borrower and its Restricted
Subsidiaries taken as a whole, (b) the ability of the
Borrower to perform its obligations under the Credit
Documentation or (c) the validity or enforceability of
any of the Credit Documentation or the rights and
remedies of the Vendor and the Lenders thereunder.
<PAGE>
8
VI. Representations, Warranties,
Covenants and Events of Default
-------------------------------
The Credit Documentation shall contain representations,
warranties, covenants and events of default customary
for financings of this type, including the following and
others reasonably satisfactory to the Borrower and the
Vendor (all of which will be substantially identical in
the documentation relating to each Vendor Financing):
Representations and Accuracy of financial statements; material adverse
Warranties: change; partnership existence; compliance with law;
partnership power and authority; ownership of the
Borrower, the License Subsidiary, the Equipment
Subsidiary and the Real Estate Subsidiary; absence of
any material obligations or liabilities of the License
Subsidiary, the Equipment Subsidiary and the Real Estate
Subsidiary (other than the Guarantees); enforceability
of Credit Documentation; no conflict with law or
contractual obligations; no material litigation; no
default; ownership of property; liens; intellectual
property; no burdensome restrictions; taxes; FCC
compliance; existence and validity of all material
governmental consents and permits; Federal Reserve
regulations; ERISA; Investment Company Act;
subsidiaries; environmental matters; accuracy of
disclosure; and creation and perfection of security
interests. The foregoing representations and warranties
shall contain such materiality and other exceptions as
shall be reasonably satisfactory to the Borrower and the
Vendor.
Affirmative Covenants: Delivery of financial statements (including annual
audited financial statements, quarterly unaudited
statements, quarterly operating budgets with comparisons
to actual for the current quarter and year-to-date and
the annual business plans prepared pursuant to the
Borrower's partnership agreement (in the case of the
annual business plans, the Borrower shall provide
personnel of the Borrower reasonably necessary to
discuss such business plans with the Lenders on a
reasonably timely basis)), reports, officers'
certificates (including, without limitation, a quarterly
officer's certificate certifying compliance with the
covenant relating to affiliate transactions
<PAGE>
9
below) and other information reasonably requested by the
Lenders; payment of other obligations; continuation of
business and maintenance of existence and material
rights and privileges (provided that the Borrower will
--------
be permitted to convert to corporate form if (a) after
giving effect to such conversion, (i) the Borrower shall
be in pro forma compliance with the financial covenants
--- -----
contained in the Credit Documentation (calculated as if
such conversion had occurred at the end of the then most
recently ended fiscal quarter for which financial
statements shall then have been delivered to the
Lenders), (ii) no Event of Default shall have occurred
and be continuing, and (iii) no material adverse change
shall have resulted from such conversion (it being
agreed that the fact that the Borrower would then be
subject to the payment of income taxes as a corporation
shall not, in and of itself, be deemed to constitute a
material adverse change) and (b) the following other
conditions shall be satisfied: (i) in the case the
resultant corporate Borrower is not a public company,
the Parents shall have entered into an agreement in
favor of the Trustee pursuant to which they will agree
that, so long as the Borrower remains a non-public
corporation, they will make capital contributions to the
Borrower in amounts equal to the excess, if any, of the
amount of income taxes payable by the Borrower (as a
corporation) over the amount of distributions that could
have been made to the Parents during the period (the
"Relevant Period") from the date of such conversion
---------------
through the final maturity of the Loans pursuant to
6.(a) under "Negative Covenants" below if the Borrower
had remained a partnership during such period, (ii) in
the case the resultant corporate Borrower is a public
company, the Borrower shall have delivered to the
Lenders a certificate to the effect that the amount of
Federal, state and local income and franchise taxes
based upon income reasonably projected to be payable by
the Borrower as a corporation after such conversion will
not be materially greater than the sum of (x) the
aggregate amount of distributions that could be made to
the Parents during the Relevant Period pursuant to
paragraph 6.(a) under "Negative Covenants" below if the
Borrower had remained a partnership during the Relevant
Period (based on reasonable projections but
<PAGE>
10
without regard to clause (ii) of paragraph 6.(a)) and
(y) the aggregate amount of taxes based upon income that
would have been payable by the Borrower during the
Relevant Period if the Borrower had remained a
partnership during the Relevant Period, (iii) any
write-offs and other deductions which shall have been
made in connection with any tax returns filed by the
Borrower prior to such conversion shall have been
consistent with past practice and (iv) neither the
Borrower nor its Parents shall have taken any
unreasonable action with the effect of decreasing the
income of the Borrower prior to such conversion and
increasing the future income of the Borrower after such
conversion); compliance with laws and material
contractual obligations (including obligations under FCC
Licenses); maintenance by the Borrower and its
Restricted Subsidiaries of property and liability
insurance in accordance with prevailing standards in the
industry; maintenance of books and records; notices of
defaults, litigation and other material events;
compliance with environmental laws; and agreement to
transfer any after-acquired FCC Licenses to the License
Subsidiary, to transfer any after-acquired Personal
Property Assets to the Equipment Subsidiary, to transfer
any after-acquired Real Estate Assets to the Real Estate
Subsidiary, to grant security interests in after-
acquired Direct-Lien Assets and to create a mortgage in
favor of the Trustee on any real property having a value
greater than $15,000,000 (a "Mortgaged Property"). The
------------------
foregoing affirmative covenants shall contain such
materiality and other exceptions as shall be reasonably
satisfactory to the Borrower and the Vendor.
Financial Covenants: The Borrower and its Restricted Subsidiaries shall not
(see Section VIII below for certain definitions used
herein):
(a) Total Debt to Total Capitalization. Permit the
----------------------------------
ratio of (i) Total Debt outstanding on any of the
dates set forth below to (ii) Total Capitalization
on such date to exceed the ratio set forth opposite
such date:
<PAGE>
11
Date Ratio
---- -----
12/31/96 .50 to 1
3/31/97 .55 to 1
6/30/97 .55 to 1
9/30/97 .57 to 1
12/31/97 .57 to 1
3/31/98 .60 to 1
6/30/98 .61 to 1
9/30/98 .61 to 1
12/31/98 .61 to 1
3/31/99 .62 to 1
6/30/99 .64 to 1
9/30/99 .66 to 1
12/31/99 .68 to 1
3/31/00 .69 to 1
6/30/00 .69 to 1
9/30/00 .70 to 1
12/31/00 .70 to 1
3/31/01 .70 to 1
6/30/01 .70 to 1
9/30/01 .70 to 1
12/3l/01 .70 to 1
(b) Total Debt to Annualized Adjusted EBITDA. Permit
----------------------------------------
the ratio of (i) Total Debt outstanding on any of
the dates set forth below to (ii) Annualized
Adjusted EBITDA for the period ending on such date
to be more than the ratio set forth opposite such
date:
Date Ratio
---- -----
12/31/98 23.0 to 1
3/31/99 14.0 to 1
6/30/99 10.0 to 1
9/30/99 8.0 to 1
12/31/99 6.0 to 1
3/31/00 5.0 to 1
6/30/00 4.5 to 1
9/30/00 4.0 to 1
12/31/00 4.0 to 1
(c) Total Debt to Annualized EBITDA. Permit the ratio of (i) Total Debt
--------------------------------
outstanding on the last day of any fiscal quarter set forth below to (ii)
<PAGE>
12
Annualized EBITDA for the period ending on such date
to exceed the ratio set forth opposite such date:
Date Ratio
---- -----
12/31/00 11.0 to 1
3/31/01 8.5 to 1
6/30/01 7.5 to 1
9/30/01 7.0 to 1
12/31/01 6.0 to 1
Thereafter 5.0 to 1
(d) Annualized EBITDA to Interest Expense.
-------------------------------------
Permit the ratio of (i) Annualized EBITDA for the
period ending on any date set forth below to (ii)
Interest Expense for the four consecutive fiscal
quarters ending on such date to be less than the
ratio set forth below opposite such date:
Date Ratio
---- -----
3/31/01 1.25 to 1
6/30/01 1.25 to 1
9/30/01 1.50 to 1
12/31/01 2.00 to 1
3/31/02 2.25 to 1
6/30/02 2.25 to 1
Thereafter 2.50 to 1
(e) Capital Expenditures. Permit Capital
--------------------
Expenditures for any of the periods set forth below
to exceed the amount set forth opposite such
period:
Period Amount
------ ------
Date of formation of the
Borrower through 12/31/98 $4,500,000,000
1/1/99 through 12/31/99 1,000,000,000
1/1/00 through 12/31/00 1,000,000,000
1/1/01 through 12/31/01 1,000,000,000;
<PAGE>
13
provided that any permitted amount which is not
--------
expended in any of the periods specified above may
be carried over for expenditure in any subsequent
period.
(f) Covered POPS. Incur any indebtedness at any time
------------
after any of the dates set forth below if the number
of Covered POPS on the last of such dates prior to
the date of such incurrence is less than the number
set forth opposite such date:
Date Number
---- ------
12/31/97 80,000,000
12/31/98 95,000,000
12/31/99 105,000,000
12/31/00 110,000,000
(g) Wireless Subscribers. Incur any indebtedness at any
--------------------
time after any of the dates set forth below if the
average of the numbers of Wireless Subscribers in
existence on the last of such dates prior to the
date of such incurrence and on the last day of each
of the three previous calendar quarters is less than
the number set forth opposite such date:
Date Number
---- ------
12/31/97 450,000
6/30/98 850,000
12/31/98 1,350,000
6/30/99 2,300,000
12/31/99 3,500,000;
provided that each relevant number set forth above
--------
shall be reduced by a proportion equal to the ratio
of (A) the number of POPS described in clause (b) of
the definition of "Covered POPS" to (B) the
aggregate number of POPS which the Borrower then has
the right to serve.
<PAGE>
14
Negative Covenants: Limitations, imposed on the Borrower and its
Restricted Subsidiaries, as appropriate, on (it
being understood that, where appropriate, the
exceptions described below to such limitations will
be subject to mutually agreeable limits):
1. indebtedness, other than:
(a) indebtedness of the Borrower in respect of
the Loans,
(b) indebtedness of the Borrower in respect of
bank credit facilities (the "Bank Credit
-----------
Facilities"),
----------
(c) indebtedness of the Borrower in respect of
other vendor financing for vendors which
supply PCS equipment and services to the
Borrower and its Restricted Subsidiaries in
a material amount (excluding handsets)
(together with the Credit Facility, the
"Vendor Financing"),
------ --------
(d) indebtedness of the Borrower in respect of
interest rate swaps,
(e) indebtedness of the Borrower in respect of
other purchase money indebtedness (including
capital leases); provided that the assets
--------
acquired therewith shall not be integral to
the infrastructure of the Borrower's
national wireless network (and shall in no
extent include any FCC License) and that the
aggregate amount thereof at any one time
outstanding does not exceed an amount to be
agreed upon,
(f) indebtedness of the Borrower in respect of
handset financing,
(g) indebtedness of any acquired entity
outstanding at the time of acquisition,
(h) subordinated indebtedness of the Borrower
(having subordination terms to
<PAGE>
15
be approved by the Lenders in the Credit
Documentation),
(i) capital lease obligations of the Borrower
arising out of sale-leaseback transactions,
(j) Permitted Refinancings and refinancings of
indebtedness permitted under (a) and (d)
through (i) above and (k) below, and
(k) other indebtedness of the Borrower; provided
--------
that the incurrence of such other
indebtedness shall be permitted only if the
Borrower would be in compliance on a pro
---
forma basis with the covenants set forth in
-----
paragraphs (a) through (d) under "Financial
Covenants" above (on the basis of Total Debt
and Total Capitalization then outstanding
and Annualized Adjusted EBITDA and
Annualized EBITDA as projected as at the end
of the then current fiscal quarter);
2. liens, other than
(a) the Shared Liens,
(b) customary permitted liens,
(c) liens on assets acquired with Permitted
Purchase Money Indebtedness to secure
such Indebtedness,
(d) liens on assets that are the subject of
sale-leaseback transactions securing the
related capital leases, and
(e) others to be agreed upon;
3. guarantee obligations, with exceptions to be agreed
upon; provided that the incurrence of any guarantee
--------
obligations other than the Guarantees shall be
permitted only if the Borrower would be in
compliance on a pro forma basis with the covenants
---------
set forth in paragraphs (a) through (d) under
"Financial Covenants" above (on the basis
<PAGE>
16
of Total Debt and Total Capitalization then
outstanding and Annualized Adjusted EBITDA and
Annualized EBITDA as projected as at the end of the
then current fiscal quarter);
4. mergers, consolidations, liquidations and
dissolutions, other than, so long as no default or
event of default is in existence or would result
therefrom:
(a) liquidations of subsidiaries (other than
License Subsidiary, Equipment Subsidiary and
Real Estate Subsidiary),
(b) mergers in which the Borrower or a
subsidiary of the Borrower is the surviving
entity (including mergers among the Borrower
and its subsidiaries but excluding any such
merger involving License Subsidiary,
Equipment Subsidiary or Real Estate
Subsidiary (in which it is not the surviving
entity or in which it acquires any material
indebtedness or obligations)), and
(c) others to be agreed upon;
5. sales of assets, other than (in each case, for cash,
cash equivalents and an aggregate amount to be
agreed upon of promissory notes or other deferred
payment obligations):
(a) in the ordinary course of business (it being
agreed that no sale of a FCC License and the
related assets and business shall be
considered to be in the ordinary course of
business),
(b) sales of immaterial assets; provided that if
--------
the aggregate amount of assets sold pursuant
to this clause during any period of two
consecutive calendar years exceeds
$100,000,000, such excess shall be applied
as described in the first paragraph under
"Mandatory Prepayments" above,
<PAGE>
17
(c) so long as no default or event of default is
in existence or would result therefrom,
sales of material assets (including, without
limitation, pursuant to sale-leaseback
transactions) the net cash proceeds of which
are applied as described under "Mandatory
Prepayments" above, provided that the
--------
consent of the Requisite Aggregate Lenders
(as defined below) will be required in the
case of a sale or series of related sales
which includes or include FCC Licenses if,
after giving effect thereto, the aggregate
number of POPS which the Borrower then has
the right to serve would be less than 120
million, and
(d) others to be agreed upon;
6. distributions to partners and repurchases of equity,
other than, so long as no default or event of
default is in existence or would result therefrom:
(a) to the extent necessary to pay current tax
liabilities payable in respect of the income
of the Borrower; provided that (i) nothing
--------
in this clause shall be deemed to permit any
such distribution or repurchase to pay any
tax liabilities of the Parents resulting
from the conversion of the Borrower from
partnership to corporate form and (ii) no
distributions or repurchases shall be
permitted under this clause unless after
giving effect to such distributions or
repurchases, the ratio of Total Debt to
Annualized EBITDA is not greater than 5.0 to
1 and the ratio of Annualized EBITDA to
Interest Expense is not less than 2.5 to 1,
(b) to the extent necessary to service Specified
Affiliate Debt, if at the time such
distribution is made, the Borrower is in pro
---
forma compliance with the covenants in the
-----
Credit Documentation,
<PAGE>
18
and
(c) distributions and repurchases of equity to
the extent that (i) after giving effect to
such distributions or repurchases, the ratio
of Total Debt to Annualized EBITDA is not
greater than 5.0 to 1 and the ratio of
Annualized EBITDA to Interest Expense is not
less than 2.5 to 1 and (ii) the Borrower
applies an equal amount toward prepayment of
indebtedness secured by the Collateral;
7. acquisitions, other investments, loans and
advances, other than:
(a) among the Borrower and its Restricted
Subsidiaries,
(b) acquisitions of entities engaged in the
telecommunications business and
businesses related thereto,
(c) acquisitions of entities engaged in other
businesses subject to a limit to be agreed
upon, and
(d) others to be agreed upon;
8. transactions with affiliates except on terms no less
favorable to the Borrower than as could be obtained
on an arm's length basis from a third party;
9. engaging in any business other than the
telecommunications business and businesses related
thereto; and
10. the ability of the License Subsidiary, the Equipment
Subsidiary or the Real Estate Subsidiary to incur
any liabilities or to engage in any business or
activities other than the holding of FCC Licenses,
Personal Property Assets or Real Estate Assets,
respectively.
<PAGE>
19
Events of Default: Nonpayment of principal; nonpayment of interest or other
amounts after a 3 business day grace period; material
inaccuracy of representations and warranties (subject to
a 30-day grace period); violation of covenants (subject
to a 30-day grace period); cross-default to the Bank
Credit Facilities and to any other indebtedness of the
Borrower in an amount greater than the lesser of (i)
$50,000,000 and (ii) 10% of the aggregate then
outstanding principal amount of indebtedness of the
Borrower; the commencement by the Trustee of foreclosure
proceedings with respect to any of the Collateral;
bankruptcy of the Borrower, a Restricted Subsidiary or
any other material subsidiary; bankruptcy of any of the
partners of the Borrower; bankruptcy of any Parent prior
to the time when the entire capital contribution amount
has been contributed under the Capital Contribution
Agreement, unless within 30 days after such bankruptcy
one or more of the other Parents shall have assumed the
obligations of such bankrupt Parent under the Capital
Contribution Agreement; the failure of the full amount
of any required capital contribution to be made under
the Capital Contribution Agreement for a period of more
than 30 days after the date when due; certain ERISA
events; unpaid judgments in an amount greater than the
lesser of (i) $50,000,000 and (ii) 10% of the aggregate
then outstanding principal amount of indebtedness of the
Borrower; invalidity or termination of any guarantee,
security document or the Capital Contribution Agreement;
termination of the Borrower's right to use the "Sprint"
trademark prior to the time at which the Borrower has an
actual or implied long-term debt rating of at least BBB-
from S&P or at least Baa3 from Moody's ("Investment
----------
Grade Status"); termination, revocation or non-renewal
------------
by the FCC of FCC Licenses if, after giving effect
thereto, the aggregate number of POPS which the Borrower
then has the right to serve is less than 120 million;
and a change in control (to be defined as (i) prior to
the time at which the Borrower has Investment Grade
Status, the amount of Committed Capital and Contributed
Capital held, directly or indirectly, by Sprint
Corporation is reduced to an amount less than
$500,000,000 or (ii) prior to the date (the "Public
------
Offering Date") on which there has been a public
-------------
offering of equity interests of the
<PAGE>
20
Borrower (or of any partner of the Borrower formed for
the purpose of effecting a public offering), Sprint
Corporation shall cease to own, directly or indirectly,
at least 25% of the equity interests in the Borrower).
VII. Certain Other Terms
-------------------
Voting: Amendments and waivers with respect to representations,
warranties, covenants and events of default which are
common to the Credit Documentation and to the
documentation regarding the other Vendor Financing shall
require the approval of lenders (the "Requisite
---------
Aggregate Lenders") holding (a) during the period when
-----------------
either vendor holds more than 50% of the aggregate
amount of the outstanding loans under its Vendor
Financing, a majority of the outstanding loans under
each Vendor Financing and (b) after the date on which
neither vendor holds more than 50% of the aggregate
amount of the outstanding loans under its Vendor
Financing, a majority of the outstanding loans under all
Vendor Financing.
Amendments and waivers with respect to other matters
shall require the approval of a majority of the
outstanding Loans, except that (a) the consent of each
Lender directly affected thereby shall be required with
respect to (i) reductions in the amount or extensions of
the scheduled date of any installment of any Loan, (ii)
reductions in the rate of interest or fees or extensions
of any due date thereof and (iii) increases in the
amount or extensions of the expiry date of any Lender's
commitment, and (b) the consent of 100% of the Lenders
shall be required with respect to modifications to any
of the voting percentages described in this section.
To accelerate any Vendor Financing, (a) if there is a
payment default under such Vendor Financing, the
approval of a majority of the outstanding loans under
such Vendor Financing will be required, (b) if there is
a bankruptcy default, acceleration will be automatic,
and (c) for all other events of default, the approval of
the Requisite Aggregate Lenders will be required.
<PAGE>
21
To foreclose on any Collateral or enforce any Guarantee,
the approval of a majority of all amounts secured by the
Collateral will be required. To release any Collateral
or Guarantee, the approval of 75% of the Loans will be
required.
Assignments Each of the Vendor and other Lenders shall be permitted,
and Participations: in accordance with applicable law, to assign its Loans
and sell participations in its Loans and commitments
(i) at any time, to a person, subject to the consent of
the Borrower (which consent shall not be unreasonably
withheld), which is neither a bank, insurance company or
mutual fund nor an entity, affiliate or investment
vehicle described in the proviso to the definition of
the term "Eligible Lender" (provided that prior to the
date which is 90 days from the date of the initial Loan,
no such assignment or sale may be made pursuant to this
clause (i) to any person other than those three the
names of which have been disclosed to the Borrower prior
to the date of this Term Sheet, (ii) at any time after
the date which is 90 days from the date of the initial
Loan, to one or more Eligible Lenders and (iii) at any
time, to an Eligible Lender (provided that such Eligible
Lender shall be the beneficiary of an unconditional
guarantee by the Vendor or QUALCOMM Incorporated for the
full term of the affected Loan and that such guarantee
shall have been included as part of the original offer
of such assignment or sale to such Eligible Lender);
provided that the Borrower shall have received notice
--------
(a) in the case such assignment shall be made in a
situation in which the Vendor or such other Lender shall
have offered to assign more than $100,000,000 of Loans
to more than one other person, at least 60 days prior to
the date of such offers or (b) in all other cases, prior
to the date of such assignment. In the case of partial
assignments, the minimum assignment amount shall be
$10,000,000 (or such lesser amount as constitutes the
assigning Lender's entire Loans), and, after giving
effect thereto, the assigning Lender (unless it shall
have assigned 100% of its Loans) shall have Loans
aggregating at least $10,000,000. Subject to the proviso
to the second succeeding sentence, voting rights of
participants and other holders of indirect interests in
the Loans shall be limited to those matters
<PAGE>
22
with respect to which the affirmative vote of the Lender
from which it purchased its participation would be
required as described in "Voting" above. Pledges of
Loans in accordance with applicable law shall be
permitted without restriction. "Eligible Lenders" means
(i) banks, insurance companies and other financial
institutions and (ii) other entities whose primary
business is to extend credit or invest in extensions of
credit; provided, that (a) any entity engaged in, and,
--------
in the case of clause (ii) of this sentence, affiliates
of any entity engaged in, the telecommunications
business and businesses related thereto shall not be
Eligible Lenders and (b) in the case of any investment
vehicle that becomes a Lender and sells direct or
indirect beneficial interests in such entity's rights
under the Credit Facility, (x) any voting rights of the
holders of such beneficial interests shall be limited so
that the required percentage vote of such holders with
respect to actions to be taken by such entity under the
Credit Documentation shall be based on the same
percentage as the required vote of the Lenders under the
Credit Documentation with respect to such action and (y)
the only financial statements and other reports that
such entity and holders shall be entitled to receive
shall be the annual audited and quarterly unaudited
financial statements referred to under Affirmative
Covenants above. Notwithstanding any of the foregoing
restrictions contained in this "Assignments and
Participations" section, the Vendor shall be entitled to
assign Loans and sell participations in its Loans and
commitments to QUALCOMM Incorporated at any time and
from time to time without any restriction.
The Borrower and its Restricted Subsidiaries will
cooperate with the Vendor and its lead agents in each
syndication of the Loans undertaken by the Vendor and
such lead agents; provided that the Vendor and its lead
--------
agents shall give the Borrower prior written notice of
their intent to commence each such syndication and,
provided, further, that the Borrower and its Restricted
-------- -------
Subsidiaries shall not be required to take the actions
described in this paragraph in connection with more than
two such syndication commencement notices in any twelve-
month period and no more than three such syndication
<PAGE>
23
commencement notices during the term of the Credit
Facility. Such cooperation will include (a) making
senior officers of the Borrower and its Restricted
Subsidiaries available for a meeting with prospective
assignees and the Vendor and its lead agents (provided
that the Borrower shall have received at least 60 days'
notice of such meeting), and (b) providing such other
assistance as may be reasonably requested by the Vendor
and such lead agents (including providing information
to, and responding to questions from, prospective
assignees with respect to the operations, business
plans, results and other matters relating to the
Borrower's business on a timely basis and in any manner
reasonably requested by the Vendor or such lead agents).
Customary representations and restrictions designed to
preserve the private placement status of the Credit
Facilities will be included in the Credit Documentation.
Yield Protection: The Credit Documentation shall contain customary
provisions indemnifying the Lenders for "breakage costs"
incurred in connection with prepayment of a Eurodollar
Loan (as defined in Annex A hereto) on a day other than
the last day of an interest period with respect thereto.
The Credit Documentation shall also contain customary
increased costs and illegality provisions.
Expenses: The Vendor will bear all its own costs and expenses in
connection with the Credit Facility, except that the
Borrower shall pay all reasonable out-of-pocket expenses
of the administrative agent under the Credit Facility
in connection with the enforcement of the Credit
Documentation (including the reasonable fees and the
reasonable disbursements and other charges of one
counsel to the administrative agent and the Lenders).
Confidentiality: The Credit Documentation will contain a customary
confidentiality provision.
Non-Recourse: Except (i) as expressly provided above under the
provisions of "Capital Contribution Agreement" above and
(ii) in the case of fraud or of misrepresentation
<PAGE>
24
by the Parents in the Capital Contribution Agreement,
the Credit Facility shall be non-recourse to the
partners of the Borrower, the Parents or any
intermediate partnerships.
Governing Law and State of New York.
Forum:
Preparation of Credit The Credit Documentation will be prepared by
Documentation: Simpson Thacher & Bartlett, counsel to the Borrower,
at the expense of the Borrower.
VIII. Certain Definitions
-------------------
"Adjusted EBITDA": for any fiscal period, the sum of (a) EBITDA for such
--------------- period plus (b) the aggregate amount deducted in
----
determining Net Income or Net Loss for such period in
respect of sales, marketing and advertising expenses and
consumer-related equipment subsidy expenses.
"Annualized Adjusted for the period ending on any date, the product of (a)
------------------- Adjusted EBITDA for the two consecutive fiscal quarters
EBITDA": ending on such date multiplied by (b) two.
- - ------ -------------
"Annualized EBITDA": for the period ending on any date, the product of (a)
----------------- EBITDA for the two consecutive fiscal quarters ending on
such date multiplied by (b) two.
-------------
"Capital expenditures made by the Borrower and its Restricted
------- Subsidiaries for the purpose of acquiring or
Expenditures": constructing fixed assets, real property or equipment
- - ------------ and all systems and development expenditures related to
the build-out of the Borrower's and its Restricted
Subsidiaries' networks to provide Wireless Services in
accordance with GAAP, provided that no expenditure
--------
related to the acquisition of FCC Licenses and no amount
of capitalized interest shall be considered to be a
Capital Expenditure.
<PAGE>
25
"Committed Capital": at any time, the aggregate amount of cash
----------------- contributions then available to be made by the Parents
or their affiliates pursuant to the Capital Contribution
Agreement.
"Contributed Capital": at any time, the aggregate amount of equity contributed
------------------- to the Borrower and, without duplication, its Restricted
Subsidiaries.
"Covered POPS": at any time, the aggregate number of POPS within
------------ each geographic area for which facilities providing
service to that geographical area either (a) have
achieved "substantial completion" pursuant to the
terms of the applicable vendor procurement agreement
or (b) have not achieved "substantial completion"
pursuant to the terms of the Vendor's procurement
agreement as a result of a failure by the Vendor to
perform its obligations thereunder.
"EBITDA": for any fiscal period, the Net Income or Net Loss, as
------ the case may be, for such fiscal period, after restoring
thereto amounts deducted for, without duplication,
(a) interest expense of the Borrower and its Restricted
Subsidiaries paid or accrued in respect of Total Debt
for such fiscal period determined in conformity with
GMP (including, to the extent such amounts would
be included as interest expense in conformity with
GAAP, the interest component of payments made
under capitalized leases and any fees associated with
Total Debt), (b) taxes based upon Net Income, (c)
depreciation and amortization and (d) other non-cash
charges.
"Interest Expense": for any fiscal period, the amount of (a) interest
---------------- expense of the Borrower and its Restricted Subsidiaries
paid or accrued in respect of Total Debt for such
fiscal period determined in conformity with
GAAP (including, to the extent such amounts would
be included as interest expense in conformity with
GAAP, the interest component of payments made
under capitalized leases and any fees associated with
Total Debt) plus (b) interest expense in respect of
----
Specified Affiliate Debt for such fiscal period
determined in conformity with GAAP.
<PAGE>
26
"Net Income" or for any fiscal period, the amount which, in conformity
---------- with GAAP, would constitute the net income or net loss,
"Net Loss": as the case may be, of the Borrower and its Restricted
-------- Subsidiaries for such fiscal period; provided that Net
--------
Income or Net Loss shall exclude gains and losses on the
sales of assets (other than in the ordinary course of
business) and extraordinary gains and losses.
"POPS": the population of a geographic area based upon the 1990
---- U.S. census.
"Restricted any Subsidiary of the Borrower that is not an
---------- Unrestricted Subsidiary.
Subsidiary":
- - ----------
"Specified Affiliate indebtedness of affiliates of the Borrower the proceeds
------------------- of which was advanced to the Borrower and the Borrower
Debt": has identified such indebtedness as Specified Affiliate
- - ---- Debt.
"Total at any date, the sum of (a) Total Debt outstanding on
----- such date plus (b) Contributed Capital on such date
Capitalization": ----
- - --------------
plus (c) Committed Capital on such date less (d) the
----
amount of restricted payments made to Partners through
such date.
"Total Debt": at any time, the sum of (a) the aggregate amount of
---------- consolidated indebtedness (including capitalized
leases) of the Borrower and its Restricted Subsidiaries
then outstanding (including capitalized and accreted
interest) plus (b) the aggregate amount of Specified
----
Affiliate Debt then outstanding (including capitalized
and accreted interest) minus (c) the aggregate amount
-----
of cash and cash equivalents then owned by the
Borrower and its Restricted Subsidiaries to the extent
such amount exceeds $25,000,000.
"Unrestricted any of Teleport, APC, PhillieCo, PioneerCo and
------------ NewTelCo.
Subsidiary":
- - -----------
"Wireless Service": the provision of broadband personal communications
---------------- services.
<PAGE>
27
"Wireless at any time, all customers then receiving Wireless
-------- Services from the Borrower or any of its Restricted
Subscribers": Subsidiaries.
- - -----------
<PAGE>
ANNEX A
-------
MISCELLANEOUS PROVISIONS
Vendor's
Commitment: $1.3 billion (in accordance with the provisions of
"Commitment Availability" below).
Commitment Availability: Stage I. $800 million of the total Commitment (the
-------
"Stage I Commitment") shall become available when the
------------------
Borrower shall have obtained commitments or funding
from financing sources in an aggregate amount of $4.075
billion (including the Stage l Commitment), provided
--------
that at least $1 billion of such commitments or funding
shall have been obtained from the Partners under the
Capital Contribution Agreement or in the form of cash
equity contributions to the Borrower, and provided,
--------
further, that at least an additional $1 billion of such
-------
commitments or funding shall have been obtained from
Lucent Technologies Inc. under its Vendor Financing the
terms of which shall be governed by a credit facility
substantially identical in form and substance to the
Credit Facility (except for matters covered by this
Annex A), and provided, further, that at least a
-------- -------
further $1.075 billion of such commitments or funding
shall have been obtained from other entities a primary
business of which is to extend credit or to invest.
Stage II. $400 million of the total Commitment
--------
(together with the $100 million described in the second
sentence of this paragraph, the "Stage II Commitment")
-------------------
shall only become available when the Borrower shall
have (a) obtained additional commitments or funding
from financing sources in an aggregate amount of at
least $2.3 billion (including the Stage II Commitment)
above the Stage I Commitment, provided that $400
--------
million of such commitments or funding shall have been
obtained in the form of cash equity contributions or
subordinated unsecured loans to the Borrower or
commitments by the Partners or third parties to make
such contributions or loans and provided, further, that
-------- -------
at least an additional $800 million of such commitments
or funding shall have been obtained from Lucent
Technologies Inc. under its Vendor Financing the terms
of which shall be governed
<PAGE>
2
by a credit facility substantially identical in form
and substance to the Credit Facility (except for
matters covered by this Annex A) and provided, further,
-------- -------
that at least a further $600 million of such
commitments or funding shall have been obtained from
other entities a primary business of which is to extend
credit or to invest, (b) has drawn or utilized
substantially all commitments required to be made under
Stage I (including, in particular, the Stage I Lucent
Technologies Inc. funding but excluding any portion of
the Bank Credit Facilities or any other such commitment
which is not utilized because of the actual utilization
of other sources of funding); and (c) 80 million
Covered POPS. The final $100 million of the total
Commitment shall only become available when the
Borrower shall have obtained an additional $150 million
of commitments or funding from Lucent Technologies Inc.
under its Vendor Financing.
If any requirement above that the Borrower have
obtained commitments or funding in specified amounts is
to be satisfied by the Borrower obtaining commitments,
such commitments must be to provide funding in the
relevant amounts subject only to the satisfaction of
conditions reasonably expected to be satisfied during
the period over which the Stage I Commitment or the
Stage II Commitment, as the case may be, is expected to
be drawn.
[ ]
<PAGE>
3
[ ]
"Hard Costs" shall mean all "Products," "Services"
----------
(including project management but excluding
construction management), "Installation" and
"Engineering" (as each such term is defined in the
Vendor's procurement agreement). "Soft Costs" shall
----------
mean all goods and services provided by the Vendor
under the Vendor's procurement agreement (including
construction management) other than Hard Costs.
Definitive definitions for Hard Costs and Soft Costs
shall be included in the Credit Documentation.
Purpose: The proceeds of the Loans shall be used to finance the
purchase price of goods and services provided by the
Vendor associated with the build-out of the Borrower's
national wireless network.
Interest Rate Options: The Borrower may elect that all or a portion of the
Loans bear interest at a rate per annum equal to:
(i) the ABR plus the Applicable Margin; or
(ii) the Eurodollar Rate plus the
Applicable Margin.
As used herein:
"ABR" means the highest of (i) the rate of interest
---
publicly announced by a bank to be agreed as its prime
rate in effect at its principal office in New York
City, and (ii) the federal funds effective rate from
time to time plus 0.5%.
----
<PAGE>
4
"Applicable Margin" means (a) with respect to Loans
-----------------
made under the Stage I Commitment, (i) 2.00%, in the
case of ABR Loans (as defined below) and (ii) 3.00%, in
the case of Eurodollar Loans (as defined below) and (b)
with respect to Loans made under the Stage II
Commitment, (i) 1.50%, in the case of ABR Loans and
(ii) 2.50%, in the case of Eurodollar Loans.
"Eurodollar Rate" means the London Interbank offered
---------------
rate for deposits in U.S. Dollars for interest periods
of one, two, three or six months or, subject to
availability, nine or twelve months (as selected by
the Borrower) as set forth on Telerate Page 3750 at
the funding time for such interest period.
Default Interest Rate: Amounts in default will bear interest at a rate which
is 2% per annum above the rate otherwise applicable
thereto.
Interest Payment Dates: Subject to the matters discussed under "Capitalization
of Interest" above, (i) interest on Loans bearing
interest based upon the ABR ("ABR Loans") shall be
---------
payable quarterly in arrears, and (ii) interest on
Loans bearing interest based upon the Eurodollar Rate
("Eurodollar Loans") shall be payable on the last day
----------------
of each relevant interest period and, in the case of
any interest period longer than three months, on each
successive date three months after the first day of
such interest period.
Rate Calculation Basis: All interest rates shall be calculated on the basis
of a year of 360 days (or 365/366 days, in the case of
ABR Loans) for actual days elapsed.
Fees: The Borrower shall pay to the Vendor the following fees
in connection with the Credit Facility:
(i) an origination fee of [ ] of the Stage I
Commitment, payable on the date the initial Loans are
made;
(ii) an origination fee of [ ] of the Stage
II Commitment, payable on the date Loans in excess of
$800 million are made; and
(iii) a commitment fee of 0.25% per annum on the
--- -----
available and undrawn Commitments (such fee to
<PAGE>
5
commence accruing on the date the initial Loans are
made), payable quarterly in arrears.
The Borrower and the Vendor shall agree on a third
party administrative agent with respect to the Credit
Facility, and the Borrower shall pay such fees, costs
and expenses as agreed with such third party
administrative agent.
Minimum Order $500,000,000, provided that such amount shall increase
Amount: to $1,000,000,000 with the Stage II Commitment becoming
available.
<PAGE>
EXHIBIT 10.9
CHASE SECURITIES INC.
June 7, 1996
Sprint Spectrum L.P.
--------------------
Senior Secured Revolving Credit Facilities
------------------------------------------
Commitment Letter
-----------------
Sprint Spectrum L.P.
4717 Grand Avenue
Kansas City, Missouri 64114
Attention: Mr. Robert Sleet
Ladies and Gentlemen:
You have advised Chemical Bank ("Chemical") and Chase Securities Inc.
("CSI") that Sprint Spectrum L.P. (the "Borrower"), intends to develop and
operate a national wireless telephone system. You have requested that CSI agree
to structure, arrange and syndicate senior secured revolving credit facilities
in an aggregate principal amount of up to $2,000,000,000 (the "Facilities") to
be used to finance working capital needs, subscriber acquisition costs and
capital expenditures of the Borrower and its subsidiaries and for general
partnership purposes and that Chemical commit to provide the entire principal
amount of and to serve as administrative agent for the Facilities. The terms of
the Facilities will be as set forth in the Summary of Terms and Conditions
attached hereto as Exhibit A (the "Term Sheet").
You hereby appoint CSI, and CSI agrees to act, as advisor and arranger
for the Facilities. You hereby appoint Chemical, and Chemical agrees to act,
as administrative agent for the Facilities. Chemical is pleased to advise you
of its commitment to provide the entire amount of the Facilities upon the terms
and subject to the conditions set forth or referred to in this Commitment Letter
and in the Term Sheet.
It is agreed that Chemical will act as the sole Administrative Agent and
that CSI will act as the sole advisor and lead arranger for the Facilities and
that each will perform the duties and exercise the authority customarily
performed and exercised by it in its respective role or roles. It is agreed
that the titles and roles to be awarded to other financial institutions and any
related compensation (other than that expressly
<PAGE>
2
contemplated by the Term Sheet and the Fee Letter referred to below) will be
subject to the agreement of the Borrower, CSI and Chemical.
CSI intends to syndicate the Facilities to a group of financial
institutions (together with Chemical, the "Lenders") identified by us in
consultation with you. CSI intends to commence syndication efforts promptly
upon the execution of this Commitment Letter, and you agree actively to assist
CSI in completing a syndication satisfactory to it. Such assistance shall
include (a) your using, and endeavoring in good faith to cause the Parents (as
defined in the Term Sheet) to use, your and their best efforts to ensure that
the syndication benefits materially from your and their existing lending
relationships, (b) direct contact between senior management and advisors of the
Borrower and the proposed Lenders, (c) assistance in the preparation of a
Confidential Information Memorandum and other marketing materials to be used in
connection with the syndication and (d) the hosting, with CSI, of one or more
meetings of prospective Lenders.
CSI, in consultation with the Borrower, will manage all aspects of the
syndication, including decisions as to the selection of institutions to be
approached and when they will be approached, when their commitments will be
accepted, which institutions will participate, the allocations of the
commitments among the Lenders and the amount and distribution of fees among the
Lenders. To assist CSI in its syndication efforts, you agree promptly to
prepare and provide to CSI and Chemical all information with respect to the
Borrower, including all financial information and projections (the
"Projections"), as we may reasonably request in connection with the arrangement
and syndication of the Facilities. You hereby represent and covenant that (a)
all information other than the Projections (the "Information") that has been or
will be made available to Chemical or CSI by you or any of your representatives
is and will be, when furnished, complete and correct in all material respects
and does not and will not, when furnished, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein not materially misleading in light of the
circumstances under which such statements are made and (b) the Projections made
available to Chemical or CSI by you or any of your representatives have been and
will be prepared in good faith based upon reasonable assumptions. You
understand that in arranging and syndicating the Facilities we may use and rely
on the Information and Projections without independent verification thereof.
As consideration for Chemical's commitment hereunder and CSI's agreement
to perform the services described herein, you agree to pay to Chemical the
nonrefundable fees set forth in Annex I to the Term Sheet and in the Fee Letter
dated the date hereof and delivered herewith (the "Fee Letter").
Chemical's commitment hereunder and CSI's agreement to perform the
services described herein are subject to (a) there not occurring or becoming
known to us
<PAGE>
3
any condition or change that affects or would be likely to affect in any
material and adverse respect the business, operations, financial condition or
contractual arrangements of the Borrower and its subsidiaries taken as a whole,
(b) our not becoming aware after the date hereof of any event or circumstance
affecting the Borrower or the transactions contemplated hereby that is
inconsistent in a material and adverse manner with information disclosed to us
by the Borrower prior to the date hereof, (c) there not having occurred a
material disruption of or material adverse change in financial, banking or
capital market conditions generally that, in our judgment, could reasonably be
expected materially to impair the syndication of the Facilities, (d) our
satisfaction that prior to and during the syndication of the Facilities there
shall be no competing offering, placement or arrangement of any debt securities
or bank financing by or for the use of the Borrower, except as expressly
contemplated by the Term Sheet or described in Schedule I hereto, (e) the
negotiation, execution and delivery on or before September 30, 1996, of
definitive documentation with respect to the Facilities satisfactory to Chemical
and its counsel and (f) the other conditions set forth or referred to in the
Term Sheet. We wish to advise you that, on the basis of our discussions and due
diligence to date, we are aware of no event or circumstance that would prevent
any of the foregoing conditions from being satisfied. The terms and conditions
of Chemical's commitment hereunder and of the Facilities are not limited to
those set forth herein and in the Term Sheet, and matters not covered by the
provisions hereof and of the Term Sheet are subject to the approval and
agreement of Chemical, CSI and the Borrower.
You agree (a) to indemnify and hold harmless Chemical, CSI, their
affiliates and the respective officers, directors, employees, advisors, and
agents of such persons (each, an "indemnified person") from and against any and
all losses, claims, damages and liabilities to which any such indemnified person
may become subject arising out of or in connection with this Commitment Letter,
the Facilities, the use of the proceeds thereof, the transactions contemplated
hereby or any claim, litigation, investigation or proceeding relating to any of
the foregoing, regardless of whether any indemnified person is a party thereto,
and to reimburse each indemnified person upon demand for any legal or other
expenses incurred in connection with investigating or defending any of the
foregoing, provided that the foregoing indemnity will not, as to any indemnified
--------
person, apply to losses, claims, damages, liabilities or related expenses to the
extent they arise from the willful misconduct or gross negligence of such
indemnified person, and (b) to reimburse Chemical, CSI and their affiliates on
demand for all reasonable out-of-pocket expenses (including due diligence
expenses, syndication expenses, consultant's fees and expenses, travel expenses,
and reasonable fees, charges and disbursements of counsel) incurred in
connection with the Facilities and any related documentation (including this
Commitment Letter, the Term Sheet, the Fee Letter and the definitive financing
documentation) or the administration, amendment, modification or waiver thereof.
No indemnified person shall be liable for any indirect or consequential damages
in connection with its activities related to the Facilities.
<PAGE>
4
This Commitment Letter shall not be assignable by you without the prior
written consent of Chemical and CSI (and any purported assignment without such
consent shall be null and void), is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This Commitment
Letter may not be amended or waived except by an instrument in writing signed by
you, Chemical and CSI. This Commitment Letter may be executed in any number of
counterparts, each of which shall be an original, and all of which, when taken
together, shall constitute one agreement. Delivery of an executed signature
page of this Commitment Letter by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof. This Commitment Letter and
the Fee Letter are the only agreements that have been entered into among us with
respect to the Facilities and set forth the entire understanding of the parties
with respect thereto. This Commitment Letter shall be governed by, and
construed in accordance with, the laws of the State of New York.
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of
their terms or substance will be disclosed, directly or indirectly, to any other
person except (a) to your officers, agents and advisors, and the officers,
agents and advisors of your Parents, who are directly involved in the
consideration of this matter or (b) as may be compelled in a judicial or
administrative proceeding or otherwise required by law (in which case you agree
to inform us promptly thereof), provided, that the foregoing restrictions shall
--------
cease to apply (except in respect of the Fee Letter and its terms and substance)
after this Commitment Letter has been accepted by you.
The compensation, reimbursement, indemnification and confidentiality
provisions contained herein and in the Fee Letter shall remain in full force and
effect regardless of whether definitive financing documentation shall be
executed and delivered and notwithstanding the termination of this Commitment
Letter or Chemical's commitment hereunder.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to us executed counterparts hereof and of the Fee Letter, not later
than 5:00 p.m., New York City time, on June 14, 1996, failing which Chemical's
commitment and CSI's agreements herein will expire at such time.
<PAGE>
5
Chemical and CSI are pleased to have been given the opportunity to
assist you in connection with this important financing.
Very truly yours,
CHEMICAL BANK
By: /s/ Ann B. Kerns
-----------------------------
Name: Ann B. Kerns
Title: Vice President
CHASE SECURITIES INC.
By: /s/ James L. Stine
-----------------------------
Name: James L. Stine
Title: Managing Director
Accepted and agreed to
as of the date first
written above by:
SPRINT SPECTRUM L.P.
By: /s/ Robert E. Sleet, Jr.
--------------------------
Name: Robert E. Sleet, Jr.
Title: Vice President & Treasurer
<PAGE>
SCHEDULE I
----------
1. Proposed Senior Note Offering.
2. Vendor Financing with Lucent Technologies Inc.
3. Vendor Financing with Northern Telecom Inc.
4. Possible handset financing.
<PAGE>
SPRINT SPECTRUM L.P.
BANK CREDIT FACILITY
Summary of Terms and Conditions
June 7, 1996
--------------------
I. Parties
-------
Borrower: Sprint Spectrum L.P. (the "Borrower").
--------
Lenders: The banks, financial institutions and other entities
selected in the syndication effort (collectively, the
"Lenders").
-------
Arranger: Chase Securities Inc. (in such capacity, the
"Arranger").
--------
Administrative Agent: Chemical Bank (in such capacity, the "Administrative
--------------
Agent").
------
Co-Arrangers and To be determined
Other Roles:
II. The Credit Facility
-------------------
Facilities: Three Senior Secured Revolving Credit Facilities (the
"Credit Facilities") in an aggregate principal amount of
-----------------
$2,000,000,000 (the loans thereunder being referred to
herein as the "Loans"), such aggregate principal amount
-----
to be allocated between (a) a Tranche A Revolving Credit
Facility in an aggregate principal amount of
$750,000,000 (the "Tranche A Facility"), (b) a Tranche B
------------------
Revolving Credit Facility in an aggregate principal
amount of $750,000,000 (the "Tranche B Facility") and
------------------
(c) a Tranche C Revolving Credit Facility in an
aggregate principal amount of $500,000,000 (the "Tranche
-------
C Facility").
----------
Availability: (A) Loans under the Tranche A Facility will be
available during the period commencing on the date
<PAGE>
2
that the Tranche A Conditions (as defined in Annex I
hereto) are satisfied and ending on the Maturity Date
(as defined below).
(B) Loans under the Tranche B Facility will be available
during the period commencing on the date that the
Tranche A Conditions and the Tranche B Conditions (as
defined in Annex I hereto) are satisfied and ending on
the Maturity Date (as defined below).
(C) Loans under the Tranche C Facility will, subject to
the satisfaction of the Tranche C Condition (as defined
in Annex I), be available during the period commencing
on the later of (i) the date that the Tranche A
Conditions and the Tranche B Conditions are satisfied
and (ii) December 31, 1997, and ending on the Maturity
Date (as defined below).
Automatic Reductions The commitments under the Credit Facilities will
of Credit Facilities: automatically reduce in 16 consecutive quarterly
installments, commencing on the date that is five years
and three months after the Closing Date, in an aggregate
amount for each installment equal to the product of (a)
the percentage set forth opposite such installment below
and (b) $2,000,000,000.
Installment Reduction Percentage
----------- --------------------
1-4 3.75%
5-8 5.00%
9-12 7.50%
13-16 8.75%
The amounts of such reductions will be distributed
ratably among the Credit Facilities.
Maturity: The Credit Facilities will mature on the date (the
"Maturity Date") that is nine years after the Closing
-------------
Date (as defined below).
Closing Date: On or before September 30, 1996.
<PAGE>
3
Purpose: The proceeds of the Loans shall be used to finance
working capital needs, subscriber acquisition costs,
capital expenditures and other general partnership
purposes of the Borrower and its Restricted Subsidiaries
(as defined below).
III. General Payment Provisions
--------------------------
Fees, Interest Rates As set forth on Annex I hereto.
and Interest Payment
Dates:
Optional Prepayments Loans may be prepaid and commitments may be reduced by
and Commitment the Borrower in minimum amounts of $10,000,000 or
Reductions: integral multiples of $1,000,000 in excess thereof.
Optional commitment reductions shall be applied ratably
to the remaining "Automatic Reductions of the Credit
Facilities" described above.
Mandatory Prepayments (a) 100% of the net cash proceeds of any sale or
and Commitment other disposition by the Borrower or any of its
Reductions: Restricted Subsidiaries of any material assets (subject
to a basket to be determined) that are not reinvested in
the Borrower's business within 270 days after receipt
thereof shall be applied ratably to reduce the Credit
Facilities and prepay all other indebtedness secured by
such assets. The Credit Documentation (as defined below)
will contain provisions requiring the Borrower to give
notice to the Lenders, at the time of any such asset
sale or other disposition, if it intends to reinvest the
proceeds thereof in its business ("Reinvestment
------------
Proceeds"), and to provide evidence that such
--------
reinvestment has been accomplished within 270 days after
receipt of such proceeds. The Reinvestment Proceeds will
be applied to the temporary prepayment of the Credit
Facilities, and availability under the Credit Facilities
equal to the amount of Reinvestment Proceeds will be
reserved for drawings for such purpose, provided,
--------
however, that to the extent the Reinvestment Proceeds of
-------
any asset sale or other disposition exceed $100,000,000,
such excess shall be deposited in a cash collateral
account with the Trustee (as defined below), to be
disbursed therefrom and when such reinvestment is made
or,
<PAGE>
4
as the case may be, the Credit Facilities reductions and
prepayments described in the first sentence of this
paragraph are required.
(b) Beginning with the fiscal year ended 2000, 50% of
Excess Cash Flow (as defined in Section VIII below)
shall be applied ratably to reduce the Credit
Facilities, prepay the loans under the Vendor Financing
and reduce or prepay, as applicable, all other Secured
Debt outstanding under instruments requiring the
Borrower to do so.
Any reductions of the Credit Facilities pursuant to the
foregoing two paragraphs shall be applied ratably to the
then remaining "Automatic Reductions of the Credit
Facilities" described above and shall be accompanied by
prepayment of the Loans to the extent such Loans exceed
the amount of the Credit Facilities as so reduced.
IV. Collateral; Capital Contribution Agreement; Guarantees
------------------------------------------------------
Collateral: The assets of the Borrower and its Restricted
Subsidiaries shall, for collateral purposes, be
allocated to one of the four following categories: (i)
PCS FCC licenses ("FCC Licenses"), (ii) non-real
------------
property assets (the "Direct-Lien Assets") on which a
------------------
lien can be perfected by a limited number of UCC and/or
Federal filings and deliveries of pledged instruments
(such as accounts, patents, trademarks, the Capital
Contribution Agreement (as defined below) and other
general intangibles), (iii) substantially all other
personal property (which will include equipment)
("Personal Property Assets") and (iv) all real estate
------------------------
interests ("Real Estate Assets"). All FCC Licenses,
------------------
Personal Property Assets and Real Estate Assets will be
acquired in or transferred to separate, wholly owned,
single purpose partnership subsidiaries of the Borrower
("License Subsidiary", "Equipment Subsidiary," and "Real
------------------ -------------------- ----
Estate Subsidiary", respectively). The Direct-Lien
-----------------
Assets and the Mortgaged Properties (as defined below)
will remain with the Borrower. Assets that are acquired
with
<PAGE>
5
purchase-money Indebtedness permitted by clause 1.(d)
under "Negative Covenants" below ("Permitted Purchase
------------------
Money Indebtedness") will be owned by the Borrower but
------------------
will not constitute Collateral (as defined below).
The obligations of the Borrower in respect of the Credit
Facilities shall be secured by a perfected first
priority lien (the "Shared Lien") on (a) all the
-----------
partnership interests in the License Subsidiary, the
Equipment Subsidiary and the Real Estate Subsidiary (the
"Partnership Interests") and all the partnership
---------------------
interests in, and the capital stock of, the other
Restricted Subsidiaries of the Borrower and (b) the
Direct-Lien Assets. All assets that are subject to the
Shared Lien are herein called the "Collateral".
----------
The Shared Lien will secure equally and ratably the
following indebtedness (the "Secured Debt"): (i) the
------------
Credit Facilities, (ii) the Vendor Financing (as defined
below), (iii) specified other indebtedness of the
Borrower for borrowed money, and interest rate swaps
that are (a) provided by the Lenders or the lenders
under the Vendor Financing and (b) related to other
Secured Debt, (iv) indebtedness of the Borrower other
than for borrowed money) in an aggregate amount not
exceeding an amount to be determined at any time
outstanding and (v) any Permitted Refinancing
Indebtedness (as defined in Section VIII below) in
respect of any of the foregoing; provided that the
--------
Shared Lien will not secure any Permitted Purchase Money
Indebtedness.
Capital Contribution The four ultimate partners of the Borrower (the
Agreement: "Parents") will enter into a capital contribution
agreement (the "Capital Contribution Agreement") in form
and substance satisfactory to the Borrower and the
Administrative Agent.
Guarantees: The Equipment Subsidiary, the License Subsidiary,
the Real Estate Subsidiary and each other Subsidiary of
the Borrower that is a Restricted Subsidiary will each
guarantee the Secured Debt on a joint and several, pari
----
passu basis (the "Guarantees").
----- ----------
<PAGE>
6
V. Certain Conditions
------------------
Initial Conditions: The availability of the Credit Facilities shall be
conditioned upon satisfaction of, among other things,
the following conditions precedent (the first date upon
which all such conditions precedent shall be satisfied,
the "Closing Date"):
------------
1. The Borrower, the License Subsidiary, the
Equipment Subsidiary, the Real Estate Subsidiary and
each of the Parents (collectively, the "Credit Parties")
--------------
shall have executed and delivered definitive financing
documentation with respect to the Credit Facilities
consistent with this Summary of Terms and Conditions
(the "Credit Documentation").
--------------------
2. All 29 of the FCC Licenses acquired by a
subsidiary of the Borrower for the Borrower's use shall
have been paid for in full and shall have been
transferred to the License Subsidiary.
3. The Borrower shall have (i) entered into a
satisfactory collateral trust agreement pursuant to
which an independent trustee appointed by the Borrower
(the "Trustee") shall act as collateral trustee to hold
-------
all of the Collateral and the Guarantees for the benefit
of the holders of the indebtedness secured thereby in
accordance with the provisions described above; (ii)
executed and delivered to the Trustee satisfactory
security documents to create the liens on the Collateral
described above; (iii) completed all such filings and
other actions as is necessary to perfect such liens;
(iv) provided to the Trustee results of lien searches in
each of the offices where liens on the Collateral would
be recorded, revealing no liens on any of the
Collateral; and (v) provided to the Administrative Agent
satisfactory evidence that the Administrative Agent and
the Lenders are entitled to the benefit of said
collateral trust agreement.
4. The Lenders shall have received a satisfactory
business plan of the Borrower.
<PAGE>
7
5. The Lenders shall have received such legal
opinions (including FCC counsel to the Borrower),
documents and other instruments as are customary for
transactions of this type.
6. The amount of Contributed Capital (as defined
below) shall be at least $2.2 billion.
7. The Lenders shall have received audited
financial statements of the Borrower for the fiscal year
ended December 31, 1995.
8. The Lenders shall have satisfactorily completed
a due diligence investigation of the Borrower and its
subsidiaries.
9. Each of the partnership agreements for Sprint
Spectrum Holding Company, L.P. and the Borrower and its
subsidiaries, the Capital Contribution Agreement, the
"Sprint" trademark license agreement, the Vendor
procurement agreements, the Vendor Financing and other
agreed upon agreements shall be in full force and effect
and in form and substance satisfactory to the Lenders.
On-Going Conditions The making of each Loan shall be conditioned upon (i)
all representations and warranties by the Credit Parties
in the Credit Documentation (including, without
limitation, the material adverse change and litigation
representations) being true and correct in all material
respects and (ii) there being no default or event of
default in existence at the time of, or after giving
effect to the making of, such Loan .
VI. Representations, Warranties,
Covenants and Events of Default
-------------------------------
The Credit Documentation shall contain representations,
warranties, covenants and events of default customary
for financings of this type, including the following and
others reasonably satisfactory to the Borrower and the
Lenders.
<PAGE>
8
Representations and Accuracy of financial statements; material adverse
Warranties: change; partnership existence; compliance with law;
partnership power and authority; ownership of the
Borrower, the License Subsidiary, the Equipment
Subsidiary, the Real Estate Subsidiary and (so long as
and to the extent owned as permitted under the Credit
Documentation) any other Restricted Subsidiaries;
absence of any material obligations or liabilities of
the License Subsidiary, the Equipment Subsidiary and the
Real Estate Subsidiary (other than the Guarantees);
enforceability of Credit Documentation; no conflict with
law or contractual obligations; no material litigation;
no default; ownership of property; liens; intellectual
property; no burdensome restrictions; taxes; FCC
compliance; existence and validity of all matenal
governmental consents and permits; Federal Reserve
regulations; ERISA; Investment Company Act;
subsidiaries; environmental matters; accuracy of
disclosure and creation, perfection and priority
(subject to customary qualifications) of security
interests. The foregoing representations and warranties
shall contain such materiality and other exceptions as
shall be reasonably satisfactory to the Borrower and the
Lenders.
Affirmative Covenants: Delivery of financial statements (including annual
audited financial statements, quarterly unaudited
statements, quarterly operating budgets with comparisons
to actual for the current quarter and year to-date),
reports, officers' certificates and other information
reasonably requested by the Lenders; payment of other
obligations; continuation of business and maintenance of
existence and material rights and privileges (provided
that the Borrower will be permitted to convert to
corporate form); compliance with laws and material
contractual obligations (including obligations under FCC
Licenses); maintenance by the Borrower and its
Restricted Subsidiaries of property and liability
insurance in accordance with prevailing standards in the
industry; maintenance of books and records; notices of
defaults, litigation and other material events;
compliance with environmental laws; agreement to
transfer any after-acquired FCC Licenses to the License
Subsidiary, to
<PAGE>
9
transfer any afer-acquired Personal Property Assets to
the Equipment Subsidiary, to transfer any after-acquired
Real Estate Assets to the Real Estate Subsidiary and to
grant security interests in after-acquired Direct-Lien
Assets and to create a mortgage in favor of the Trustee
on any real property having a value greater than
$15,000,000 (a "Mortgaged Property") (with certain
--------- --------
exceptions to be agreed upon); agreement that all FCC
Licenses will be held by the License Subsidiary, all
Personal Property Assets will be held by the Equipment
Subsidiary and all Real Estate Assets will be held by
the Real Estate Subsidiary (with certain exceptions to
be agreed upon); agreement to obtain interest rate
protection for a portion of the Loans on satisfactory
terms and conditions; agreement to cause each newly
acquired Restricted Subsidiary to guarantee the Credit
Facilities; and agreement to pledge all the equity
interests in each newly acquired Restricted Subsidiary
as collateral for the Secured Debt. The foregoing
affirmative covenants shall contain such materiality
and other exceptions as shall be reasonably satisfactory
to the Borrower and the Lenders.
Financial Covenants: The Borrower and its Restricted Subsidiaries shall not
(see Section VIII below for certain definitions used
herein):
(a) Total Debt to Total Capitalization. Permit the
----------------------------------
ratio of (i) Total Debt outstanding on the last day
of any fiscal quarter ending during any fiscal year
set forth below to (ii) Total Capitalization on such
last day to exceed the ratio set forth opposite such
fiscal year:
Fiscal Year Ratio
----------- -----
1996 .50 to 1
1997 .60 to 1
1998 .65 to 1
1999 through 2001 .70 to 1
(b) Total Debt to Annualized Adjusted EBITDA. Permit
----------------------------------------
the ratio of (i) Total Debt outstanding at
<PAGE>
10
the end of any fiscal quarter to (ii) Annualized
Adjusted EBITDA for the period ending on such date
to be more than the ratio set forth below opposite
the period during which such quarter ends:
Date Ratio
---- -----
12/31/98 23.0 to 1
03/31/99 20.0 to 1
06/30/99 through 09/30/99 15.0 to 1
12/31/99 through 03/31/00 6.0 to 1
06/30/00 through 09/30/00 5.0 to 1
12/31/00 4.0 to 1
(c) Total Debt to Annualized EBITDA. Permit the ratio
-------------------------------
of (i) Total Debt outstanding on the last day of any
fiscal quarter ending during any period set forth
below to (ii) Annualized EBITDA for the period
ending on such date to exceed the ratio set forth
opposite such period:
Date Ratio
---- -----
12/31/00 11.00 to 1
03/31/01 10.0 to 1
06/30/01 through 09/30/01 8.0 to 1
12/31/01 6.0 to 1
Thereafter 5.0 to 1
(d) Annualized EBITDA to Total Cash Interest Expense.
------------------------------------------------
Permit the ratio of (i) Annualized EBITDA at the
end of any fiscal quarter ending during any period
set forth below to (ii) Total Cash Interest Expense
for the four consecutive fiscal quarters ending on
such date to be less
<PAGE>
11
than the ratio set forth below opposite such period:
Period Ratio
------ -----
03/31/01 through 09/30/01 1.25 to 1
12/31/01 through 09/30/02 2.00 to 1
Thereafter 2.50 to 1
(e) Capital Expenditures. Permit Capital
--------------------
Expenditures for any of the periods set forth below
to exceed the amount set forth opposite such period:
Period Amount
------ ------
Date of formation of the
Borrower through 12/31/98 $4,500,000,000
1/1/99 through 12/31/99 1,000,000,000
1/1/00 through 12/31/00 1,000,000,000
1/1/01 through 12/31/01 1,000,000.000;
provided that any permitted amount which is not
--------
expended in any of the periods specified above may
be carried over for expenditure in any subsequent
period.
(f) Covered POPS. Incur any indebtedness at any
------------
time after any of the dates set forth below if the
number of Covered POPS on the last of such dates
prior to the date of such incurrence is less than
the number set forth opposite such date:
Date Number
---- ------
12/31/97 80,000,000
12/31/98 95,000,000
12/31/99 105,000,000
12/31/00 110,000,000
<PAGE>
12
(g) EBITDA to Fixed Charges. Permit the ratio of (a)
-----------------------
EBITDA for the four consecutive fiscal quarter
period ending on the last day of each fiscal
quarter during any period set forth below to (b)
Fixed Charges for such four consecutive quarter
periods to be less than the ratio set forth
opposite such period:
Period Ratio
------ -----
03/31/01 through 12/31/01 1.05 to 1
Thereafter 1.10 to 1
(h) Secured Debt to Total Capitalization. Permit (i)
------------------------------------
Secured Debt on the last day of any fiscal quarter
during any fiscal year set forth below divided by
(ii) Total Capitalization on such last day to
exceed the ratio opposite such fiscal year:
Fiscal Year Ratio
----------- -----
1996 .45 to 1
1997 .55 to 1
1998 .60 to 1
1999 through 2001 .65 to 1
Negative Covenants: Limitations, imposed on the Borrower and its Restricted
Subsidiaries, as appropriate, on (it being understood
that, where appropriate, the exceptions described below
to such limitations will be subject to mutually
agreeable limits):
1. indebtedness, other than:
(a) indebtedness of the Borrower in respect of
the Loans,
(b) indebtedness of the Borrower in respect of
vendor financing (the "Vendor Financing"),
----------------
(c) indebtedness of the Borrower in respect of
interest rate swaps,
<PAGE>
13
(d) indebtedness of the Borrower in respect of
other purchase money indebtedness (including
capital leases); provided that the assets
--------
acquired therewith shall not be integral to
the infrastructure of the Borrower's
national wireless network (and shall in no
event include any FCC License) and that the
aggregate amount thereof at any one time
outstanding does not exceed an amount to be
agreed upon,
(e) indebtedness of the Borrower in respect of
handset financing in an aggregate principal
amount not exceeding $300,000,000 at any
time outstanding,
(f) indebtedness of any acquired entity
outstanding at the time of acquisition,
provided such indebtedness is not created in
--------
contemplation of such acquisition,
(g) subordinated indebtedness of the Borrower
(having subordination and other material
terms to be approved by the Lenders in the
Credit Documentation) (the "Subordinated
------------
Debt"),
----
(h) capital lease obligations of the Borrower
arising out of sale-leaseback transactions,
(i) Permitted Refinancing Indebtedness (as
defined in Section VIII below), and
(j) additional indebtedness of the Borrower,
provided, however, that (i) the Weighted
-------- -------
Average Life thereof is not shorter than the
Weighted Average Life of the Credit
Facilities, (ii) the terms of such
indebtedness and of any agreement entered
into and of any instrument issued in
connection therewith (including, without
limitation, those relating to collateral (if
any), subordination (if any) and covenant
protection are not, taken as
<PAGE>
14
a whole, in the good faith judgment of the
Borrower's management, materially less
favorable to the Borrower than the terms and
conditions of the Credit Facilities and
(iii) at the time of incurrence of any of
the indebtedness referred to in this clause
(j), both before and after giving effect
thereto, no default or event of default
shall have occurred and be continuing and
the Borrower shall be in pro forma
compliance with the covenants set forth
under "Financial Covenants" above (on the
basis of Total Debt, Total Capitalization
and Secured Debt then outstanding and
Annualized Adjusted EBITDA, Annualized
EBITDA and Debt Service calculated using
such amounts for the most recently ended
fiscal quarter for which financial
statements have been delivered to the
Lenders multiplied by 4) ("Pro Forma
---------
Compliance"); provided, further, that
---------- -------- -------
indebtedness incurred for general
partnership purposes in an aggregate
principal amount equal to not more than
S200,000,000 will not be required to comply
with the requirements set forth in clauses
(i) and (ii) above;
2. liens, other than:
(a) the Shared Liens,
(b) customary permitted liens,
(c) liens on assets acquired with Permitted
Purchase Money Indebtedness to secure such
Indebtedness,
<PAGE>
15
(d) liens on assets that are the subject of
sale-leaseback transactions securing the
related capital leases, and
(e) others to be agreed upon;
3. guarantee obligations, with exceptions to be agreed
upon;
4. mergers, consolidations, liquidations and
dissolutions, other than, so long as, after giving
effect thereto, the Borrower is in Pro Forma
Compliance:
(a) liquidations of subsidiaries (other than
License Subsidiary, Equipment Subsidiary and
Real Estate Subsidiary),
(b) mergers in which a subsidiary of the
Borrower or, if the merger involves the
Borrower, the Borrower, is the surviving
entity (including mergers among the Borrower
and its subsidiaries but excluding any such
merger involving the License Subsidiary,
Equipment Subsidiary or Real Estate
Subsidiary), and
(c) others to be agreed upon;
5. sales, transfers or other dispositions of assets,
other than (in each case, for cash, cash equivalents
and an aggregate amount to be agreed upon of
promissory notes or other debt obligations):
(a) sales of assets (other than FCC Licenses,
Direct Lien Assets, the Partnership
Interests and material Restricted
Subsidiaries) in the ordinary course of
business, provided that the Credit
--------
Documentation will contain exceptions to be
negotiated allowing sales of Direct Lien
Assets, including exemptions for sales of
receivables for collection (and
<PAGE>
16
not for financing purposes) and other sales
of Direct Lien Assets in amounts up to an
amount to be negotiated,
(b) so long as no default or event of default is
in existence or would result therefrom and
after giving effect thereto, the Borrower
would be in Pro Forma Compliance, sales of
material assets (including, without
limitation, pursuant to sale-leaseback
transactions and receivables financing
transactions under terms to be negotiated,
but excluding the Partnership Interests, the
Borrower's right to use the "Sprint"
trademark, the Capital Contribution
Agreement) for cash and for fair value the
net cash proceeds of which (to the extent
they exceed a basket to be determined) are
applied as described under "Mandatory
Prepayments" above, provided that the
--------
consent of the Required Lenders (as defined
below) will be required in the case of a
sale or series of related sales which
includes or include FCC Licenses if, after
giving effect thereto, the aggregate number
of POPS which the Borrower then has the
right to serve would be less than 120
million, and
(c) others to be agreed upon;
6. distributions to partners and repurchases of equity,
other than, so long as no default or event of
default is in existence or would result therefrom:
(a) to the extent necessary to pay current tax
liabilities payable in respect of the income
of the Borrower,
(b) to the extent necessary to service Specified
Affiliate Debt (as defined in Section VIII
below), if at the time such
<PAGE>
17
distribution is made, the Borrower is in Pro
Forma Compliance, and
(c) distributions and repurchases of equity to
the extent that (i) after giving effect to
such distributions or repurchases, the ratio
of Total Debt to Annualized EBITDA is not
greater than 4.75 to 1 and the ratio of
Annualized EBITDA to Interest Expense is not
less than 2.5 to 1 and (ii) the Borrower
applies an equal amount toward prepayment
of indebtedness secured by the Collateral.
7. acquisitions, other investments, loans and
advances, other than:
(a) among the Borrower and its Restricted
Subsidiaries, provided that none of the
--------
License Subsidiary, the Equipment Subsidiary
and the Real Estate Subsidiary may make any
acquisitions, other investments, loans and
advances (other than in or to the Borrower
and certain other specific exceptions to be
agreed upon),
(b) acquisitions of entities engaged in the
telecommunications business and businesses
related thereto, provided that (i) after
--------
giving effect to such acquisition, the
Borrower is in Pro Forma Compliance and (ii)
such entity becomes a Restricted Subsidiary
unless (A) such entity shall be acquired
with (I) proceeds of equity contributed to
the Borrower expressly for such purpose
(which equity shall not be considered for
purposes of determining compliance with the
conditions to availability of Tranche A or
Tranche B) or (II) funds of the Borrower
which the Borrower would be permitted to use
to make distributions pursuant to, and in
accordance with, paragraph 6.(c)
<PAGE>
18
under "Negative Covenants" above and (B) the
Borrower designates such entity an
"Unrestricted Subsidiary",
(c) acquisitions of entities engaged in other
businesses, subject to a limit to be agreed
upon, provided that (i) after giving effect
--------
to such acquisition, the Borrower is in Pro
Forma Compliance and (ii) such entity
becomes a Restricted Subsidiary unless (A)
such entity was acquired with (I) proceeds
of equity contributed to the Borrower
expressly for such purpose (which equity
shall not be considered for purposes of
determining compliance with the conditions
to availability of Tranche A or Tranche B)
or (II) funds of the Borrower which the
Borrower would be permitted to use to make
distributions pursuant to, and in accordance
with, paragraph 6.(c) under "Negative
Covenants" above and (B) the Borrower
designates such entity an "Unrestricted
Subsidiary", and
(d) others to be agreed upon;
8. transactions with affiliates except on terms no less
favorable to the Borrower than as could be obtained
on an arm's length basis from a third party;
9. engaging in any business other than the
telecommunications business and businesses related
thereto, provided that the Borrower may be a
--------
reseller or distributor of products and services of
the Parents;
10. the ability of the License Subsidiary, the Equipment
Subsidiary or the Real Estate Subsidiary to incur
any liabilities or to engage in any business or
activities other than the holding of FCC Licenses,
Personal Property Assets or Real Estate Assets
respectively;
<PAGE>
19
11. prepaying Vendor Financing, Subordinated Debt and
other indebtedness for borrowed money, except with
(a) the proceeds of Permitted Refinancing
Indebtedness, (b) the proceeds of equity contributed
to the Borrower expressly for such purpose (which
equity shall not be considered for purposes of
determining compliance with the conditions to
availability of Tranche A or Tranche B) and (c)
funds of the Borrower which the Borrower would be
permitted to use to make distributions pursuant to,
and in accordance with, paragraph 6.(c) under
"Negative Covenants" above; and
12. amending the Capital Contribution Agreement or
amending provisions to be agreed upon contained in
the Borrower's and Sprint Spectrum Holding Company,
L.P.'s partnership agreements, the "Sprint"
trademark license agreement, the vendor procurement
agreements or other material agreements to be agreed
upon, in each case in any manner that is materially
adverse to the interests of the Lenders.
Events of Default: Nonpayment of principal; nonpayment of interest or
other amounts after a 5-day grace period; material
inaccuracy of representations and warranties; violation
of covenants (subject to a 30-day grace period where
customary and appropriate); cross-default to the Vendor
Financing and to any other indebtedness of the Borrower
in an amount greater than the lesser of (i) $50,000,000
and (ii) 10% of the aggregate then outstanding principal
amount of indebtedness of the Borrower; bankruptcy of
the Borrower, a Restricted Subsidiary or any other
material subsidiary; bankruptcy of any of the partners
of the Borrower; bankruptcy of any Parent prior to the
time when the entire capital contribution amount has
been contributed under the Capital Contribution
Agreement, unless within 30 days after such bankruptcy
one or more of the other Parents shall have assumed the
obligations of such bankrupt Parent under the Capital
Contribution Agreement; certain ERISA events; unpaid
judgments in an amount greater than the lesser
<PAGE>
20
of (i) $50,000,000 and (ii) 10% of the aggregate then
outstanding principal amount of indebtedness of the
Borrower; invalidity or termination of any guarantee,
security document or the Capital Contribution Agreement;
termination of the Borrower's right to use the "Sprint"
trademark; termination, revocation or non-renewal by the
FCC of FCC Licenses, if after giving effect thereto, the
aggregate number of POPS which the Borrower then has the
right to serve is less than 120 million; and a change in
control (to be defined as one or more of the Parents
failing to hold in the aggregate over 50% of the equity
interests in the Borrower).
VII. Certain Other Terms
-------------------
Voting: Amendments and waivers with respect to the Credit
Documentation shall require the approval of Lenders (the
"Required Lenders") holding Loans and commitments
----------------
representing more than 50% of the aggregate amount of
the Loans and commitments under the Credit Facility,
except that (a) the consent of each Lender directly
affected thereby shall be required with respect to (i)
reductions in the amount or extensions of the scheduled
date of any installment of any Loan, (ii) reductions in
the rate of interest or the amount of any fees or
extensions of any due date thereof and (iii) increases
in the amount or extensions of the expiry date of any
Lender's commitment, and (b) the consent of 100% of
the Lenders shall be required with respect to
modifications to any of the voting percentages
described in this section.
To accelerate the Credit Facility, (i) if there is a
bankruptcy default, acceleration will be automatic and
(ii) for all other events of default, the approval of
the Required Lenders will be required.
<PAGE>
21
To foreclose on any Collateral or enforce any
Guarantee, the approval of a majority of all amounts
secured by the Collateral will be required. To release
any Collateral or Guarantee, the approval of 75% of
the Loans and commitments under the Credit Facility
will be required.
Assignments and The Lenders shall be permitted to assign their Loans
Participations: sell participations in their Loans and commitments
subject, in the case of assignments (other than to
another Lender or to an affiliate of the assigning
Lender), with the consent of the Borrower and the
Administrative Agent (which consent shall not be
unreasonably withheld). In the case of partial
assignments, the minimum assignment amount shall be
$10,000,000, and, after giving effect thereto, the
assigning Lender (unless it shall have assigned 100%
of its Loans and commitments) shall have Loans and
unused commitment aggregating at least $10,000,000.
Assignments will require the payment of a service fee
(to be determined) by the Assignor to the
Administrative Agent. Voting rights of participants
shall be limited to those matters with respect to
which the affirmative vote of the Lender from which it
purchased its participation would be required as
described in "Voting" above. Pledges of Loans in
accordance with applicable law shall be permitted
without restriction. Promissory notes shall be issued
under the Credit Facility.
Clear Market Agreement: Any commitment issued with respect to the Credit
Facility will be conditioned on a "clear market" in
the bank loan syndication market with respect to
syndication of the Vendor Financing for a period not
to exceed 60 days after the Closing Date; provided
--------
that such condition shall not apply after September
30, 1996.
Yield Protection, etc.: The Credit Documentation shall contain customary
provisions indemnifying the Lenders for "breakage
costs" incurred in connection with prepayment of a
Eurodollar Loan (as defined in Annex A hereto) on a
day other than the last day of an interest period with
respect thereto. The Credit Documentation shall also
<PAGE>
22
contain customary indemnification, increased costs,
capital adequacy, illegality and unavailability of
Eurodollar funding provisions.
Expenses: The Borrower shall, to the extent agreed upon in a
letter agreement among them, reimburse the Arrangers for
their reasonable out-of-pocket expenses (including
reasonable fees and expenses of Cravath, Swaine & Moore,
as counsel to the Arranger and the Administrative Agent,
and of trademark counsel to the Arranger) incurred by
them in the negotiation, syndication and execution of
the Credit Facility. The Borrower shall also reimburse
(a) the Administrative Agent for all reasonable out-of-
pocket expenses (including reasonable fees and expenses
of counsel) in connection with its administration of
the Credit Documentation and (b) the Lenders for their
reasonable out-of-pocket expenses incurred in enforcing
the Credit Documentation; provided that the Borrower
--------
shall only reimburse the reasonable fees and reasonable
disbursements and other charges of one counsel to the
Arrangers, the Administrative Agent and the Lenders in
connection with any amendment, restructuring or work-out
of the Credit Facility.
Confidentiality: The Credit Documentation will contain a customary
confidentiality provision.
Non-Recourse: Except (i) as expressly provided above under the
provisions of "Capital Contribution Agreement" above
and (ii) in the case of fraud or of misrepresentation
by the Parents in the Capital Contribution Agreement,
the Credit Facility shall be non-recourse to the
partners of the Borrower, the Parents or any
intermediate partnerships.
Governing Law and State of New York.
Forum:
Counsel to Arranger Cravath, Swaine & Moore.
and Administrative
Agent:
Preparation of Credit The Credit Documentation will be prepared by Simpson
Documentation: Thacher & Bartlett, counsel to the Borrower, at the
expense of the Borrower.
<PAGE>
23
VIII. Certain Definitions
-------------------
"Adjusted EBITDA": for any fiscal period, the sum of (a) EBITDA for such
--------------- period plus (b) the aggregate amount deducted in
----
determining Net Income or Net Loss for such period
in respect of sales, marketing and advertising
expenses and equipment subsidy expenses.
"Annualized Adjusted for the period ending on the last day of any fiscal
------------------- quarter, the product of (a) Adjusted EBITDA for the
EBITDA": two consecutive fiscal quarters ending on such date
------ multiplied by (b) two.
-------------
"Annualized EBITDA": for the period ending on the last day of any fiscal
----------------- quarter, the product of (a) EBITDA for the two
consecutive fiscal quarters ending on such date
multiplied by (b) two.
-------------
"Capital Expenditures":expenditures made by the Borrower and its Restricted
-------------------- Subsidiaries for the purpose of acquiring or
constructing fixed assets, real property or equipment
and all systems and development expenditures related to
the build-out of the Borrower's and its Restricted
Subsidiaries' networks to provide Wireless Services in
accordance with GAAP, provided that no expenditure
--------
related to the acquisition of FCC Licenses and no
amount of capitalized interest shall be considered to be
a Capital Expenditure.
"Committed Capital": at any time, the aggregate amount of cash
----------------- contributions then available to be made by the Parents
or their affiliates pursuant to the Capital Contribution
Agreement.
"Contributed Capital": at any time, the aggregate amount of equity
------------------- contributed to the Borrower.
"Covered POPS": at any time, the aggregate number of POPS within
------------ each geographic area for which facilities owned by
the Borrower and its Restricted Subsidiaries that
provide service to such geographic area have achieved
<PAGE>
24
"substantial completion" pursuant to the terms of the
applicable vendor procurement contract.
"EBITDA": for any fiscal period, the Net Income or Net Loss, as
the case may be, for such fiscal period, after restoring
thereto amounts deducted for, without duplication,
(a) interest expense of the Borrower and its Restricted
Subsidiaries for such fiscal period determined in
conformity with GAAP, (b) taxes based upon Net
Income, (c) depreciation and amortization and (d)
other non-cash charges.
"Excess Cash Flow": for any period, the sum of (a) Net Income (or Net
Loss) for such period, plus (b) the aggregate amount
----
of all non-cash charges deducted in arriving at such
Net Income (or Net Loss), less the aggregate amount
----
of all cash Capital Expenditures made by the
Borrower and its Restricted Subsidiaries during such
period, less the aggregate amount of all scheduled
----
repayments and mandatory prepayments of indebtedness
for borrowed money, less the aggregate amount of
----
distributions made by the Borrower for such period
necessary to pay current tax liabilities payable in
respect of income of the Borrower (to the extent such
tax liabilities are not deducted in arriving
at such Net Income), less any net increases in
----
working capital (excluding cash) during such period,
plus any net decreases in working capital (excluding
cash) during such period.
"Fixed Charges" for any period of four fiscal quarters, the sum of (a)
------------- Total Cash Interest Expense for such four fiscal
quarters plus (b) the aggregate amount of all required
permanent principal payments made in respect of
indebtedness of the Borrower during SUCH FOUR FISCAL
quarters plus (c) from and after the date on which the
Borrower becomes a corporation, all PAYMENTS MADE
by the Borrower in respect of taxes during such four
fiscal quarters.
"Interest Expense": for any fiscal period, the sum of (a) interest expense
---------------- of the Borrower and its Restricted Subsidiaries for
such fiscal period determined in conformity with
GAAP plus (b) interest expense in respect of
----
<PAGE>
25
Specified Affiliate Debt for such fiscal period
determined in conformity with GAAP.
"Net Income" or for any fiscal period, the amount which, in
---------- conformity with GAAP, would constitute the net income
"Net Loss": or net loss, as the case may be, of the Borrower and
-------- its Restricted Subsidiaries for such fiscal period;
provided that Net Income or Net Loss shall exclude
--------
extraordinary gains and losses.
"Permitted Refinancing indebtedness of the Borrower to the extent the proceeds
--------------------- thereof are used to refinance existing indebtedness of
Indebtedness": the Borrower; provided that (a) are giving effect to the
------------ --------
incurrence of such indebtedness, the Borrower is in Pro
Forma Compliance, (b) the documents under which such
indebtedness is incurred are not inconsistent with the
Credit Documentation, (c) such indebtedness. if secured,
will not be secured by any assets other than those
securing the indebtedness being refinanced thereby, (d)
such indebtedness, if senior, cannot be used to
refinance existing subordinated indebtedness of the
Borrower if such subordinated indebtedness, when
created, was permitted to be issued only under clause
(g) of paragraph I under "Negative Covenants" above (and
under no other clause under said paragraph), (e) the
final maturity of such indebtedness is no earlier than
the final maturity of the indebtedness being refinanced
thereby and (f) the terms of such indebtedness and of
any agreement entered into and of any instrument issued
in connection therewith (including, without limitation,
those relating to collateral (if any), subordination (if
any) and covenant protection) are not, taken as a whole,
materially less favorable to the Borrower than the terms
and conditions of the indebtedness being refinanced
thereby.
"POPS": the population of a geographic area based upon the 1990
---- U.S. census.
"Restricted any Subsidiary of the Borrower that is not an
---------- Unrestricted Subsidiary.
Subsidiary":
----------
"Specified Affiliate indebtedness of affiliates of the Borrower the
-------------------
Debt":
----
<PAGE>
26
proceeds of which was advanced to the Borrower and the
Borrower has identified such indebtedness as Specified
Affiliate Debt.
"Total Capitalization":at any date, the sum of (a) Total Debt outstanding on
-------------------- such date plus (b) Contributed Capital on such date
----
plus (c) Committed Capital on such date less (d) the
----
amount of restricted payments made to Partners through
such date.
"Total Cash Interest for any fiscal period, Interest Expense for such period
------------------- less the sum of (a) pay-in-kind Interest Expense
Expense" (including accreted interest) and (b) to the extent
------- included in Interest Expense, any portion of up front
fees and other financing expenses in connection with the
Credit Facilities amortized during such fiscal period.
"Total Debt": at any time, the sum of (a) the aggregate amount of
---------- consolidated indebtedness of the Borrower and its
Restricted Subsidiaries for borrowed money then
outstanding (including capitalized and accreted
interest) plus (b) the aggregate amount of Specified
----
Affiliate Debt then outstanding (including capitalized
and accreted interest) minus (c) the aggregate amount
-----
of cash and cash equivalents then owned by the
Borrower and its Restricted Subsidiaries.
"Unrestricted any subsidiary of the Borrower (other than the
------------ License Subsidiary, the Equipment Subsidiary and the
Subsidiary": Real Estate Subsidiary) that the Borrower designates
---------- as an Unrestricted Subsidiary in accordance with the
terms set forth in paragraphs 7.(b) and (c) under
"Negative Covenants" above.
"Wireless Service": the provision of broadband personal communications
---------------- services.
"Wireless Subscribers" at any time, all customers then receiving Wireless
Services from the Borrower or any of its Restricted
Subsidiaries.
<PAGE>
ANNEX I
-------
MISCELLANEOUS PROVISIONS
Tranche
Availability: Tranche A. The Tranche A Facility shall become
---------
available on the date on which the following conditions
(the "Tranche A Conditions") have been met:
--------------------
1. The Borrower shall have delivered the
following, in form, structure and
substance satisfactory to the Lenders:
(a) The Capital Contribution
Agreement, providing for
commitments for $1 billion of
equity capital subsequent to
12/31/95; and
(b) Commitments under the Vendor
Financing in an aggregate amount
equal to $1.6 billion.
Tranche B. The Tranche B Facility shall become
---------
available on the date after the satisfaction of
the Tranche A Conditions on which the following
additional conditions (the "Tranche B Conditions")
--------------------
have been met:
1. The Borrower shall have:
(a) (i) had at least $600 million in
the aggregate of cash
contributed to it subsequent
to 12/31/95 pursuant to the
Capital Contribution
Agreement;
(ii) obtained commitments, in
form, structure and substance
satisfactory to the Lenders,
for $1 billion in additional
cash equity or acceptable
debt financings (in respect
of which the Borrower shall
have
<PAGE>
received net proceeds in an
amount not less that $500
million); and
(iii)obtained loans under the
Vendor Financing of $1.6
billion in the aggregate and
cumulative loans and
commitments under the Vendor
Financing of $2.6 billion in
the aggregate; and
(b) demonstrated that:
(i) it has Covered POPS of at
least 80 million; and
(ii) its Wireless Service system
is performing in accordance
with industry standards.
Tranche C. Each borrowing under the Tranche C
---------
Facility after any date set forth below will be
subject to the condition (the "Tranche C
---------
Condition") that the number of Wireless
Subscribers on the date of such borrowing shall
not be less than the number set forth opposite the
last date below prior to the date of such
borrowing:
Date Number
-------- ---------
12/31/97 450,000
06/30/98 850,000
12/31/98 1,350,000
06/30/99 2,300,000
12/31/99 3,500,000
Interest Rate Options: The Borrower may elect that all or a portion of the
Loans bear interest at a rate per annum equal to:
(i) the ABR plus the Applicable Margin; or
----
(ii) the Eurodollar Rate plus Applicable Margin.
----
As used herein:
2
<PAGE>
"ABR" means the higher of (i) 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 (ii) the federal funds effective rate
from time to time plus 0.5%.
----
"Applicable Margin" means percentages determined in
-----------------
accordance with the pricing grid attached hereto as
Annex I-A.
"Eurodollar Rate" means the London Interbank offered
---------------
rate for deposits in U.S. Dollars for interest periods
of one, two, three or six months or, subject to
availability, nine or twelve months (as selected by the
Borrower) as set forth on Telerate Page 3750 at the
funding time for such interest period.
Commitment Fees: The Borrower shall pay a commitment fee calculated at
the rate determined in accordance with the pricing grid
attached hereto as Annex I-A, on the average daily
unused portion of the Credit Facility, payable
quarterly in arrears.
Default Interest Rate: Amounts in default will bear interest at a rate which
is 2% per annum above the rate otherwise applicable
thereto.
Interest Payment Dates: Interest on Loans bearing interest based upon the ABR
("ABR Loans"), shall be payable quarterly in arrears,
---------
and interest on Loans bearing interest based upon the
Eurodollar Rate ("Eurodollar Loans"), shall be payable
----------------
on the last day of each relevant interest period and,
in the case of any interest period longer than three
months, on each successive date three months after the
first day of such interest period.
Rate and Fee Basis: All per annum rates shall be calculated on the basis of
a year of 360 days (or 365/366 days, in the case of ABR
Loans) for actual days elapsed.
3
<PAGE>
Annex 1-A
---------
<TABLE>
<CAPTION>
PRICING GRID
===========================================================================================================================
Test (1) Applicable Margin
------------------------------------------------------------------------- ---------------------
Base
Level Leverage Rate Eurodollar Commitment
Ratio (2) Rating (3) Loans Loans Fee
------- ------------------------------------------------------- ------------ ------- ------------ -----------
<S> <C> <C> <C> <C> <C>
I (4) (4) 1.500% 2.500% 0.500%
II (5) (5) 1.250 2.250 0.375
III less than or equal to 10.0 greater than or equal to 8.0 N/A 1.000 2.000 0.375
IV(6) greater than or equal to 6.5 B1/B+ 0.875 1.875 0.375
V less than or equal to 6.5 greater than or equal to 6.0 Ba3/BB- 0.750 1.750 0.375
VI less than or equal to 6.0 greater than or equal to 5.5 Ba2/BB 0.250 1.250 0.250
VII less than or equal to 5.5 greater than or equal to 5.0 Ba1/BB+ 0 1.000 0.250
VIII less than or equal to 5.0 greater than or equal to 4.5 Baa3/BBB- 0 0.625 0.200
IX less than or equal to 4.5 Baa2/BBB 0 0.500 0.150
X (7) Baa1/BBB+ 0 0.400 0.125
===========================================================================================================================
</TABLE>
(1) In case the applicable Leverage Ratio and Rating are not on the same Level,
then the Applicable Margin and commitment fee rate shall be the percentages
opposite the Leverage Ratio or Rating, as the case may be, which is at the
lower Level (Level I being the highest Level and Level X being the lowest).
Rating shall mean the actual or implied rating by S&P and Moody's of the
Borrower's senior unsecured long-term debt.
(2) Leverage Ratio shall mean Total Debt to Annualized EBITDA.
(3) In the case of a split Rating, the Rating at the lower Level shall be the
applicable Rating.
(4) This shall be the initial Applicable Margin and commitment fee rate.
(5) This shall be the Applicable Margin and commitment fee rate once EBITDA
(before marketing expenses) is positive if at such time the Borrower is not
Rated.
(6) Levels IV through X shall only be applicable on and after the earlier of (a)
the date that EBITDA (before marketing expenses) is positive and the
Borrower has a Rating and (b) the twelve month anniversary of the Closing
Date, provided that a minimum of 500,000 Wireless Subscribers have been
--------
obtained (or such date after the twelve month anniversary of the Closing
Date on which a minimum of 500,000 Wireless Subscribers have been obtained).
(7) This shall be the Applicable Margin and commitment fee rate only if the
Borrower's Rating is at Baal or BBB+.
<PAGE>
Annex 1-A
---------
<TABLE>
<CAPTION>
PRICING GRID
===========================================================================================================================
Test (1) Applicable Margin
------------------------------------------------------------------------- ---------------------
Base
Level Leverage Rate Eurodollar Commitment
Ratio (2) Rating (3) Loans Loans Fee
------- ------------------------------------------------------- ------------ ------- ------------ -----------
<S> <C> <C> <C> <C> <C>
I (4) (4) 1.500% 2.500% 0.500%
II (5) (5) 1.250 2.250 0.375
III less than or equal to 10.0 greater than or equal to 8.0 N/A 1.000 2.000 0.375
IV(6) greater than or equal to 6.5 B1/B+ 0.875 1.875 0.375
V less than or equal to 6.5 greater than or equal to 6.0 Ba3/BB- 0.750 1.750 0.375
VI less than or equal to 6.0 greater than or equal to 5.5 Ba2/BB 0.250 1.250 0.250
VII less than or equal to 5.5 greater than or equal to 5.0 Ba1/BB+ 0 1.000 0.250
VIII less than or equal to 5.0 greater than or equal to 4.5 Baa3/BBB- 0 0.625 0.200
IX less than or equal to 4.5 Baa2/BBB 0 0.500 0.150
X (7) Baa1/BBB+ 0 0.400 0.125
===========================================================================================================================
</TABLE>
(1) In case the applicable Leverage Ratio and Rating are not on the same Level,
then the Applicable Margin and commitment fee rate shall be the percentages
opposite the Leverage Ratio or Rating, as the case may be, which is at the
lower Level (Level I being the highest Level and Level X being the lowest).
Rating shall mean the actual or implied rating by S&P and Moody's of the
Borrower's senior unsecured long-term debt.
(2) Leverage Ratio shall mean Total Debt to Annualized EBITDA.
(3) In the case of a split Rating, the Rating at the lower Level shall be the
applicable Rating.
(4) This shall be the initial Applicable Margin and commitment fee rate.
(5) This shall be the Applicable Margin and commitment fee rate once EBITDA
(before marketing expenses) is positive if at such time the Borrower is not
Rated.
(6) Levels IV through X shall only be applicable on and after the earlier of (a)
the date that EBITDA (before marketing expenses) is positive and the
Borrower has a Rating and (b) the twelve month anniversary of the Closing
Date, provided that a minimum of 500,000 Wireless Subscribers have been
--------
obtained (or such date after the twelve month anniversary of the Closing
Date on which a minimum of 500,000 Wireless Subscribers have been obtained).
(7) This shall be the Applicable Margin and commitment fee rate only if the
Borrower's Rating is at Baal or BBB+.
<PAGE>
EXHIBIT 10.10
LUCENT TECHNOLOGIES INC.
June 21, 1996
COMMITMENT LETTER
-----------------
Sprint Spectrum L.P.
4717 Grand Avenue
Kansas City, Missouri 64114
Attention: Bob Neumeister
Ladies and Gentlemen:
Sprint Spectrum L.P., a Delaware limited partnership (the "Borrower"), has
--------
advised Lucent Technologies Inc. (the "Vendor") that the Borrower has need for a
------
credit facility in the amount of $1,800,000,000 to finance the purchase of goods
and services to be provided by the Vendor in connection with the build-out of
the Borrower's national wireless network. You have requested that the Vendor
provide such credit facility (the "Credit Facility"), and the Vendor is pleased
---------------
to advise that it is willing to provide the Credit Facility.
Attached as Exhibit A to this letter is a Summary of Terms and Conditions
---------
(the "Term Sheet") setting forth the principal terms and conditions on and
----------
subject to which the Vendor is willing to make the Credit Facility available.
The Vendor's commitment hereunder is subject to (a) the negotiation,
execution and delivery of definitive documentation with respect to the Credit
Facility satisfactory in form and substance to the Vendor and its counsel and
(b) the absence of a material adverse change with respect to the Borrower.
By executing this letter, you acknowledge that this letter is the only
agreement between you and the undersigned with respect to the Credit Facilities
and sets forth the entire understanding of the parties with respect thereto.
This letter may not be changed except pursuant to a writing signed by each of
the parties hereto. This letter shall be governed by, and construed in
accordance with, the laws of the State of New York.
Our commitment under this letter does not require subsequent approval from
the Board of Directors of the Vendor.
<PAGE>
2
This letter will terminate on December 31, 1996.
If you are in agreement with the foregoing, please sign and return to the
undersigned the enclosed copies of this letter.
We look forward to working with you on this transaction.
Very truly yours,
LUCENT TECHNOLOGIES INC.
By: /s/ Donald K. Peterson
-------------------------------
Title: EVP & CFO
Accepted and agreed to as of
the date first above written.
SPRINT SPECTRUM L.P.
By: /s/ Robert M. Neumeister, Jr.
------------------------------
Title: CFO
<PAGE>
EXHIBIT A
---------
SPRINT SPECTRUM L.P.
VENDOR CREDIT FACILITY
(LUCENT TECHNOLOGIES INC.)
Summary of Terms and Conditions
June 21, 1996
-------------------------------
I. Parties
-------
Borrower: Sprint Spectrum L.P. (the "Borrower").
--------
Lender: Lucent Technologies Inc. (the
"Vendor"). At or subsequent to the
------
Closing Date (as defined below) the
Vendor may assign (in accordance with
the provisions of "Assignments and
Participations" below) portions of
the credit facility described herein
(the "Credit Facility") to one or
---------------
more Eligible Lenders (as defined
below) (together with the Vendor, the
"Lenders"). If the Vendor does make
-------
such assignments to other Lenders,
the Vendor or another Lender
reasonably acceptable to the Borrower
and the Vendor will be appointed to
act as administrative agent for the
Lenders (the Vendor or such other
Lender, in such capacity, the
"Administrative Agent").
--------------------
II. The Credit Facility
-------------------
Vendor's Commitment; The Vendor will commit (the
Type and Amount of "Commitment") to provide a multiple
Facility: ----------
drawdown term loan facility in the
amount set forth on Annex A hereto
(the loans thereunder, the "Loans").
-----
Purpose: As set forth on Annex A hereto.
<PAGE>
2
Availability: The Loans shall be made on not more
than one drawdown date per month
during the period commencing on the
date of the initial drawdown and
ending on the fifth anniversary of
such date (but in no event later than
December 31, 2000).
At the option of the Vendor, the
Credit Facility may be made available
through a newly-formed trust or other
special purpose entity in a manner
and under a structure so as to
preserve the economic terms and
relative rights, obligations and
intercreditor arrangements otherwise
outlined herein, provided that such
--------
manner and structure shall be
reasonably satisfactory to the
Borrower.
III. General Payment Provisions
--------------------------
Amortization: The Loans made during each of the five
consecutive one-year periods following the date
of the initial drawdown (each, a "Borrowing
---------
Year") shall be repayable in 20 consecutive
----
quarterly installments, commencing on the date
which is 39 months after the last day of such
Borrowing Year and ending on the date which is
eight years after such last day, in an aggregate
amount for each year following such last day set
forth below equal to the percentage set forth
opposite such year multiplied by the aggregate
principal amount of the Loans made during such
Borrowing Year (with the installments during each
such year being equal in amount):
Year Percentage
---- ----------
4 10%
5 15
6 20
7 25
8 30
Interest Rates and As set forth on Annex A hereto.
Interest Payment Dates:
Capitalization of Interest: Interest will accrue on each Loan from the date
of drawdown thereof. No interest will be payable
in
<PAGE>
3
cash on the Loans made during any Borrowing Year
until the first applicable interest payment date
following the first anniversary of the last day
of such Borrowing Year. Prior to such first
anniversary, accrued interest will be capitalized
quarterly and will bear interest at the rate
applicable to the related Loan.
Optional Prepayments: Loans may be prepaid by the Borrower in minimum
amounts of $10,000,000, subject to the provisions
of "Refinancing Provisions" set forth on Annex A
hereto. Optional prepayments of the Loans shall
be applied pro rata to the then remaining
--- ----
installments thereof.
Mandatory Prepayments: 100% of the net cash proceeds of any sale or
other disposition by the Borrower or any of its
subsidiaries of any material assets not in the
ordinary course of business (subject to a basket
to be determined) that are not reinvested in the
Borrower's business within 270 days after receipt
thereof shall be used to prepay ratably the Loans
and all other indebtedness secured by such
assets. The Credit Documentation (as defined
below) will contain provisions requiring the
Borrower to give notice to the Lenders, at the
time of any such asset sale or other disposition,
if it intends to reinvest the proceeds thereof in
its business, and to provide evidence that such
reinvestment has been accomplished within 270
days after receipt of such proceeds.
If the Borrower shall make any voluntary
prepayment of the other Vendor Financing (as
defined below) or a voluntary prepayment of term
loans under the Bank Credit Facilities (as
defined below) or a voluntary reduction of the
revolving credit commitments under the Bank
Credit Facilities (except any voluntary reduction
of "excess commitments" under the Bank Credit
Facilities, which will be defined to reflect
outstandings under the Bank Credit Facilities for
the prior six month period), it shall (unless the
same shall have been made in connection with a
Permitted Refinancing (as defined below)) make a
mandatory prepayment of the Loans in a ratable
amount. A "Permitted Refinancing" shall mean (a)
---------------------
a refinancing of any Vendor Financing other than
the Credit Facility, provided that the Vendor is
--------
given the option
<PAGE>
4
to have its Loans repaid pro rata with the
--- ----
lenders under such other Vendor Financing on
substantially equivalent terms and conditions and
(b) any refinancing of the Bank Credit
Facilities.
Each such prepayment of the Loans shall be
applied pro rata to the then remaining
--- ----
installments thereof.
Waiver of Set-Off: The Borrower will not be entitled to set off any
amount owing to it by the Vendor under the
procurement agreement between the Vendor and the
Borrower against any amount payable by the
Borrower under the Credit Facility.
IV. Collateral; Capital Contribution Agreement; Guarantees
------------------------------------------------------
Collateral: The assets of the Borrower and its subsidiaries
related to the wireless business shall, for
collateral purposes, be allocated to one of the
four following categories: (i) PCS FCC licenses
("FCC Licenses"), (ii) non-real property assets
------------
(the "Direct-Lien Assets") on which a lien can be
------------------
perfected by a limited number of UCC and/or
Federal filings and deliveries of pledged
instruments (such as accounts, patents,
trademarks, the Capital Contribution Agreement
(as defined below) and other general
intangibles), (iii) substantially all other
personal property (which will include equipment)
("Personal Property Assets") and (iv) all real
------------------------
estate interests ("Real Estate Assets"). All FCC
------------------
Licenses, Personal Property Assets and Real
Estate Assets will be acquired in or transferred
to separate, wholly owned, single purpose
partnership subsidiaries of the Borrower
("License Subsidiary", "Equipment Subsidiary,"
------------------ --------------------
and "Real Estate Subsidiary", respectively). The
----------------------
Direct-Lien Assets will remain with the Borrower.
Assets that are subject to permitted purchase-
money liens will be owned by the Borrower but
will not constitute Collateral (as defined
below).
The obligations of the Borrower in respect of the
Credit Facility shall be secured by a perfected
first priority lien (the "Shared Lien") on (a)
-----------
all the
<PAGE>
5
partnership interests in the Equipment
Subsidiary, the License Subsidiary and the Real
Estate Subsidiary and (b) the Direct-Lien Assets.
All assets that are subject to the Shared Lien
are herein called the "Collateral".
----------
The Shared Lien will secure equally and ratably
the following indebtedness (the "Secured Debt"):
------------
(i) the Bank Credit Facilities (as defined
below), (ii) all other Vendor Financing (as
defined below), (iii) other indebtedness of the
Borrower for borrowed money and interest rate
swaps, (iv) indebtedness of the Borrower (other
than for borrowed money) in an aggregate amount
to be determined at any time outstanding and (v)
any refinancings of any of the foregoing;
provided that the Shared Lien will not secure (a)
--------
any indebtedness to any affiliate of the Borrower
or (b) any indebtedness which is guaranteed by
any affiliate of the Borrower except (1)
indebtedness which refinances, or constitutes,
(x) any Vendor Financing other than the Credit
Facility or (y) the Bank Credit Facilities, if,
in each case, the Vendor or its assignee under
the Credit Facility is given the option to
receive a guarantee on substantially identical
terms and conditions (provided that to the extent
--------
the Shared Lien secures any indebtedness
referenced in the foregoing clause (1), the
holders of such indebtedness shall have no voting
rights with respect to decisions relating to the
collateral subject to the Shared Lien) and (2)
indebtedness under the Credit Facility.
Capital Contribution The four ultimate partners of the Borrower (the
Agreement: "Parents") will enter into a capital contribution
-------
agreement (the "Capital Contribution Agreement")
------------------------------
in form and substance satisfactory to the
Borrower and the Vendor.
Guarantees: The Equipment Subsidiary, the License Subsidiary
and the Real Estate Subsidiary will each
guarantee the Secured Debt on a joint and
several, pari passu basis (the "Guarantees").
---- ----- ----------
<PAGE>
6
V. Certain Conditions
------------------
Initial Conditions: The availability of the Credit Facility shall be
conditioned upon satisfaction of, among other
things, the following conditions precedent (the
date upon which all such conditions precedent
shall be satisfied, the "Closing Date"):
------------
1. The Borrower, the License Subsidiary, the
Equipment Subsidiary, the Real Estate Subsidiary
and each of the Parents (collectively, the
"Credit Parties") shall have executed and
--------------
delivered definitive financing documentation with
respect to the Credit Facility consistent with
this Summary of Terms and Conditions (the "Credit
------
Documentation").
-------------
2. All 29 of the FCC Licenses acquired by a
subsidiary of the Borrower for the Borrower's use
shall have been paid for in full and shall have
been transferred to the License Subsidiary.
3. The Borrower shall have (i) entered into
a satisfactory collateral trust agreement
pursuant to which an independent trustee
appointed by the Borrower (the "Trustee") shall
-------
act as collateral trustee to hold all of the
Collateral and the Guarantees for the benefit of
the holders of the indebtedness secured thereby
in accordance with the provisions described
above, (ii) executed and delivered to the Trustee
satisfactory security documents to create the
liens on the Collateral described above, (iii)
completed all such filings and other actions as
is necessary to perfect such liens, (iv) provided
to the Trustee results of lien searches in each
of the offices where liens on the Collateral
would be recorded, revealing no liens on any of
the Collateral and (v) provided to the Vendor
satisfactory evidence that the Vendor and the
Lenders are entitled to the benefit of said
collateral trust agreement. The terms and
provisions of such collateral trust agreement
shall contain provisions regarding collateral
sharing, voting rights, amendments and waivers
and other intercreditor matters reasonably
acceptable to the Vendor.
<PAGE>
7
4. The Vendor shall have received a
satisfactory business plan of the Borrower.
5. The Vendor shall have received such
legal opinions (including FCC counsel to the
Borrower), documents and other instruments as are
customary for transactions of this type.
6. The amount of Contributed Capital (as
defined below) shall be at least $2.2 billion.
7. The Vendor shall have received
audited financial statements of the Borrower for
the fiscal year ended December 31, 1995 and
unaudited quarterly financial statements of the
Borrower for all subsequent fiscal quarters for
which such statements are available.
8. The partnership agreements of the
Borrower, the License Subsidiary, the Equipment
Subsidiary and the Real Estate Subsidiary shall
contain provisions reasonably satisfactory to the
Vendor ensuring that any assignee of the
partnership interests will be entitled to the
management and voting rights of the partners
pledging the partnership interests.
On-Going Conditions: The making of each Loan shall be conditioned upon
(i) all representations and warranties by the
Credit Parties in the Credit Documentation
(including, without limitation, the material
adverse change and litigation representations)
being true and correct in all material respects,
(ii) there being no default or event of default
in existence at the time of, or after giving
effect to the making of, such Loan and (iii) the
Borrower not having terminated the Vendor's
procurement agreement with the Borrower with
respect to future orders unless prior to such
termination the Borrower shall have placed
equipment orders with the Vendor in an aggregate
amount of at least the amount set forth on Annex
A hereto. As used herein and in the Credit
Documentation a "material adverse change" shall
mean any event, development or circumstance that
has had or could reasonably be expected to have a
material adverse
<PAGE>
8
effect on (a) the ability of the Borrower to
perform its obligations under the Credit
Documentation, (b) the validity or enforceability
of any of the Credit Documentation or the rights
and remedies of the Administrative Agent and the
Lenders thereunder or (c) the business, assets or
financial condition of the Borrower and its
Restricted Subsidiaries.
VI. Representations, Warranties,
Covenants and Events of Default
-------------------------------
The Credit Documentation shall contain
representations, warranties, covenants and events
of default customary for financings of this type,
including the following and others reasonably
satisfactory to the Borrower and the Vendor (all
of which will be substantially identical in the
documentation relating to each Vendor Financing):
Representations and
Warranties: Accuracy of financial statements; material
adverse change; partnership existence; compliance
with law; partnership power and authority;
ownership of the Borrower, the License
Subsidiary, the Equipment Subsidiary and the Real
Estate Subsidiary; absence of any material
obligations or liabilities of the License
Subsidiary, the Equipment Subsidiary and the Real
Estate Subsidiary (other than the Guarantees);
enforceability of Credit Documentation; no
conflict with law or contractual obligations; no
material litigation; no default; ownership of
property; liens; intellectual property; no
burdensome restrictions; taxes; FCC compliance;
existence and validity of all material
governmental consents and permits; Federal
Reserve regulations; ERISA; Investment Company
Act; subsidiaries; environmental matters;
accuracy of disclosure; and creation and
perfection of security interests. The foregoing
representations and warranties shall contain such
materiality and other exceptions as shall be
reasonably satisfactory to the Borrower and the
Vendor.
Affirmative Covenants: Delivery of financial statements (including
annual audited financial statements, quarterly
unaudited statements, quarterly operating budgets
with
<PAGE>
9
comparisons to actual for the current quarter and
year-to-date), reports, officers' certificates
(including, without limitation, a quarterly
officer's certificate certifying compliance with
the covenant relating to affiliate transactions
below) and other information reasonably requested
by the Lenders; payment of other obligations;
continuation of business and maintenance of
existence and material rights and privileges
(provided that the Borrower will be permitted to
convert to corporate form); compliance with laws
and material contractual obligations (including
obligations under FCC Licenses); maintenance by
the Borrower and its Restricted Subsidiaries of
property and liability insurance in accordance
with prevailing standards in the industry;
maintenance of books and records; notices of
defaults, litigation and other material events;
compliance with environmental laws; and agreement
to transfer any after-acquired FCC Licenses to
the License Subsidiary, to transfer any after-
acquired Personal Property Assets to the
Equipment Subsidiary, to transfer any after-
acquired Real Estate Assets to the Real Estate
Subsidiary and to grant security interests in
after-acquired Direct-Lien Assets. The foregoing
affirmative covenants shall contain such
materiality and other exceptions as shall be
reasonably satisfactory to the Borrower and the
Vendor.
Financial Covenants: The Borrower and its Restricted Subsidiaries (on
a consolidated basis) shall not (see Section VIII
below for certain definitions used herein):
(a) Total Debt to Total Capitalization. Permit
----------------------------------
the ratio of (i) Total Debt outstanding on
any of the dates set forth below to (ii)
Total Capitalization on such date to exceed
the ratio set forth opposite such date:
Date Ratio
---- ------
12/31/96 .50 to 1
3/31/97 .55 to 1
6/30/97 .55 to 1
9/30/97 .57 to 1
12/31/97 .57 to 1
3/31/98 .60 to 1
6/30/98 .62 to 1
<PAGE>
10
9/30/98 .62 to 1
12/31/98 .62 to 1
3/31/99 .64 to 1
6/30/99 .64 to 1
9/30/99 .67 to 1
12/31/99 .70 to 1
3/31/00 .70 to 1
6/30/00 .70 to 1
9/30/00 .70 to 1
(b) Total Debt to Annualized Adjusted EBITDA.
----------------------------------------
Permit the ratio of (i) Total Debt
outstanding on any of the dates set forth
below to (ii) Annualized Adjusted EBITDA for
the period ending on such date to be more
than the ratio set forth opposite such date:
Date Ratio
---- -----
12/31/98 23.0 to 1
3/31/99 14.0 to 1
6/30/99 10.0 to 1
9/30/99 8.0 to 1
12/31/99 6.0 to 1
3/31/00 5.0 to 1
6/30/00 4.5 to 1
9/30/00 4.0 to 1
12/31/00 4.0 to 1
(c) Total Debt to Annualized EBITDA. Permit the
-------------------------------
ratio of (i) Total Debt outstanding on the
last day of any fiscal quarter set forth
below to (ii) Annualized EBITDA for the
period ending on such date to exceed the
ratio set forth opposite such date:
Date Ratio
---- -----
12/31/00 11.0 to 1
3/31/01 9.0 to 1
6/30/01 7.5 to 1
9/30/01 7.0 to 1
12/31/01 6.0 to 1
Thereafter 5.0 to 1
(d) Annualized EBITDA to Interest Expense.
-------------------------------------
Permit the ratio of (i) Annualized EBITDA
for
<PAGE>
11
the period ending on any date set forth
below to (ii) Interest Expense for the four
consecutive fiscal quarters ending on such
date to be less than the ratio set forth
below opposite such date:
Date Ratio
---- -----
3/31/01 1.25 to 1
6/30/01 1.25 to 1
9/30/01 1.50 to 1
12/31/01 1.75 to 1
3/31/02 2.00 to 1
6/30/02 2.25 to 1
Thereafter 2.50 to 1
(e) Capital Expenditures. Permit Capital
--------------------
Expenditures for any of the periods set
forth below to exceed the amount set forth
opposite such period:
Period Amount
------ ------
Date of formation of the
Borrower through 12/31/98 $4,500,000,000
1/1/99 through 12/31/99 1,000,000,000
1/1/00 through 12/31/00 1,000,000,000
1/1/01 through 12/31/01 1,000,000,000;
provided that any permitted amount which is
--------
not expended in any of the periods specified
above may be carried over for expenditure in
any subsequent period.
(f) Covered POPS. Incur any indebtedness at any
------------
time after any of the dates set forth below
if the number of Covered POPS on the last of
such dates prior to the date of such
incurrence is less than the number set forth
opposite such date:
<PAGE>
12
Date Number
---- ------
12/31/97 80,000,000
12/31/98 95,000,000
12/31/99 105,000,000
12/31/00 110,000,000
(g) Wireless Subscribers. Incur any indebtedness
--------------------
at any time after any of the dates set forth
below if the number of Wireless Subscribers
on the last of such dates prior to the date
of such incurrence is less than the number
set forth opposite such date:
Date Number
---- ------
12/31/97 450,000
6/30/98 850,000
12/31/98 1,350,000
6/30/99 2,300,000
12/31/99 3,500,000;
provided that such covenant shall be
--------
suspended so long as the Borrower would not
be in compliance with the covenant specified
in clause (f) above but for the operation of
clause (b) of the definition of the term
"Covered POPS" and for a period of nine
months thereafter.
Negative Covenants: Limitations, imposed on the Borrower and its
Restricted Subsidiaries, as appropriate, on
(it being understood that, where
appropriate, the exceptions described below
to such limitations will be subject to
mutually agreeable limits):
1. indebtedness, other than:
(a) indebtedness of the Borrower
in respect of the Loans,
(b) indebtedness of the Borrower
in respect of bank credit facilities
(the "Bank Credit Facilities"),
----------------------
<PAGE>
13
(c) indebtedness of the Borrower in
respect of other vendor financing
(together with the Credit Facility,
the "Vendor Financing"),
----------------
(d) indebtedness of the Restricted
Subsidiaries under the Guarantees,
(e) indebtedness of the Borrower in
respect of interest rate swaps,
(f) indebtedness of the Borrower in
respect of other purchase money
indebtedness (including capital
leases),
(g) indebtedness of the Borrower in
respect of handset financing,
(h) indebtedness of any acquired entity
outstanding at the time of
acquisition,
(i) subordinated indebtedness of the
Borrower (having subordination terms
to be approved by the Lenders in the
Credit Documentation),
(j) capital lease obligations of the
Borrower arising out of sale-
leaseback transactions,
(k) refinancing indebtedness, and
(l) other indebtedness of the Borrower;
provided, however, that, at the time
-------- -------
of incurrence of any of the
indebtedness referred to in the
foregoing clauses (a) - (1), after
giving effect thereto, the Borrower
shall be in pro forma compliance with
the covenants set forth in paragraphs
(a) through (d) under "Financial
Covenants" above (on the basis of
Total Debt and Total Capitalization
then outstanding and Annualized
Adjusted EBITDA and Annualized EBITDA
as projected as at the end of the
then current fiscal quarter) and no
Default or Event of Default shall be
in existence ("Pro Forma Compliance").
--------------------
2. liens, other than:
<PAGE>
14
(a) the Shared Liens,
(b) customary permitted liens,
(c) liens on assets acquired with
permitted purchase money
indebtedness to secure such
indebtedness,
(d) liens on assets that are the subject
of sale-leaseback transactions
securing the related capital leases,
and
(e) others to be agreed upon;
3. guarantee obligations, with
exceptions to be agreed upon;
4. mergers, consolidations,
liquidations and dissolutions, other
than, so long as, after giving
effect thereto, the Borrower is in
Pro Forma Compliance:
(a) liquidations of subsidiaries (other
than License Subsidiary, Equipment
Subsidiary and Real Estate
Subsidiary),
(b) mergers in which the Borrower or a
subsidiary of the Borrower is the
surviving entity (including mergers
among the Borrower and its
subsidiaries but excluding any such
merger involving License Subsidiary,
Equipment Subsidiary or Real Estate
Subsidiary), and
(c) others to be agreed upon;
5. sales of assets, other than:
(a) in the ordinary course of business,
(b) so long as after giving effect
thereto, the Borrower is in Pro
Forma Compliance, sales of material
assets (including, without
limitation, pursuant to sale-
leaseback transactions) the net cash
proceeds of which (to the extent
they exceed a basket to be
determined) are
<PAGE>
15
applied as described under
"Mandatory Prepayments" above,
provided that the consent of the
--------
Requisite Aggregate Lenders (as
defined below) will be required in
the case of a sale or series of
related sales which includes or
include FCC Licenses and other
assets that provide the Borrower
with the right to serve 15% of the
aggregate number of POPS which the
Borrower then has the right to
serve, and
(c) others to be agreed upon;
6. distributions to partners and
repurchases of equity, other than,
so long as after giving effect
thereto, the Borrower is in Pro
Forma Compliance:
(a) to the extent necessary to pay
current tax liabilities payable in
respect of the income of the
Borrower,
(b) to the extent necessary to service
Specified Affiliate Debt (as defined
in Section VIII below), if at the
time such distribution is made, the
Borrower is in Pro Forma Compliance,
and
(c) distributions and repurchases of
equity to the extent (i) the
Borrower is, after giving effect to
such distributions or repurchases,
the ratio of Total Debt to
Annualized EBITDA is not greater
than 5.0 to 1 and the ratio of
Annualized EBITDA to Interest
Expense is not less than 2.5 to 1
and (ii) the Borrower applies an
equal amount toward pro rata
prepayment of indebtedness secured
by the Collateral;
7. acquisitions, other investments,
loans and advances, other than so
long as after giving effect thereto,
the Borrower is in Pro Forma
Compliance:
<PAGE>
16
(a) among the Borrower and its
Restricted Subsidiaries,
(b) acquisitions of entities engaged in
the telecommunications business or
businesses related thereto,
(c) acquisitions of entities engaged in
other businesses subject to a limit
to be agreed upon, and
(d) others to be agreed upon;
8. transactions with affiliates except
on terms no less favorable to the
Borrower than as could be obtained
on an arm's length basis from a
third party;
9. engaging in any business other than
the telecommunications business and
businesses related thereto; and
10. the ability of the License
Subsidiary, the Equipment Subsidiary
or the Real Estate Subsidiary to
incur any liabilities (other than
the Guarantees) or to engage in any
business or activities other than
the holding of FCC Licenses,
Personal Property Assets or Real
Estate Assets respectively.
Events of Default: Nonpayment of principal; nonpayment
of interest or other amounts after a
5-day grace period; material
inaccuracy of representations and
warranties (subject to a 30-day grace
period); violation of covenants
(subject to a 30-day grace period);
cross-default to the Bank Credit
Facilities and to any other
indebtedness of the Borrower in an
amount greater than the lesser of (i)
$50,000,000 and (ii) 10% of the
aggregate then outstanding principal
amount of indebtedness of the
Borrower; bankruptcy of the Borrower,
a Restricted Subsidiary or any other
material subsidiary; bankruptcy of
any of the partners of the Borrower;
bankruptcy of any Parent prior to the
time when the entire capital
contribution amount has been
contributed under the Capital
Contribution Agreement, unless within
30 days after such bankruptcy one or
more of the other Parents shall have
assumed the
<PAGE>
17
obligations of such bankrupt Parent
under the Capital Contribution
Agreement; certain ERISA events;
material judgments; invalidity or
termination of any guarantee,
security document or the Capital
Contribution Agreement; termination
or material impairment of the
Borrower's right to use the "Sprint"
trademark; termination, revocation or
non-renewal by the FCC of FCC
Licenses providing the Borrower with
the right to serve 15% of the
aggregate number of POPS which the
Borrower then has the right to serve;
and a change in control (to be
defined as (i) prior to the time at
which the Borrower has an actual or
implied long-term debt rating of at
least BBB-from S&P or at least Baa3
from Moody's, the amount of Committed
Capital and Contributed Capital held,
directly or indirectly, by Sprint
Corporation is reduced to an amount
less than $500,000,000 or (ii) prior
to the date (the "Public Offering
---------------
Date") on which there has been a
----
public offering of equity interests
of the Borrower (or of any partner of
the Borrower formed for the purpose
of effecting a public offering),
Sprint Corporation shall cease to
own, directly or indirectly, at least
25% of the equity interests in the
Borrower).
VII. Certain Other Terms
-------------------
Voting: Amendments and waivers with respect
to representations, warranties,
covenants and events of default which
are common to the Credit
Documentation and to the
documentation regarding the other
Vendor Financing shall require the
approval of lenders (the "Requisite
---------
Aggregate Lenders") holding (a)
-----------------
during the period when either vendor
holds more than 50% of the aggregate
amount of the outstanding loans under
its Vendor Financing, a majority of
the outstanding loans under each
Vendor Financing and (b) after the
date on which neither vendor holds
more than 50% of the aggregate amount
of the outstanding loans under its
Vendor Financing, a majority of the
outstanding loans under all Vendor
Financing.
Amendments and waivers with respect
to other matters shall require the
approval of a majority of the
outstanding Loans under the Credit
Facility, except that (i) the consent
of each Lender directly affected
<PAGE>
18
thereby shall be required with
respect to (a) reductions in the
amount or extensions of the scheduled
date of any installment of any Loan,
(b) reductions in the rate of
interest or extensions of any due
date thereof and (c) increases in the
amount or extensions of the expiry
date of any Lender's commitment, and
(ii) the consent of 100% of the
Lenders shall be required with
respect to modifications to any of
the voting percentages described in
this section.
To accelerate any Vendor Financing,
(i) if there is a payment default
under such Vendor Financing, the
approval of a majority of the
outstanding loans under such Vendor
Financing will be required, (ii) if
there is a bankruptcy default,
acceleration will be automatic, and
(iii) for all other events of
default, the approval of the
Requisite Aggregate Lenders will be
required.
To foreclose on any Collateral or
enforce any Guarantee, the approval
of a majority of all amounts secured
by the Collateral will be required.
To release any Collateral or
Guarantee, the approval of 75% of the
outstanding Loans under the Credit
Facility will be required.
Assignments and Each of the Vendor and other Lenders
Participations: shall be permitted, in accordance
with applicable law, to assign its
Loans and sell participations in its
Loans and commitments to (i) an
Eligible Lender (as defined below)
and (ii) more than one Eligible
Lender in a situation in which the
offer to assign or sell was made to
more than one other person; provided
--------
that the Borrower shall have received
notice (a) in the case such
assignment shall be made in a
situation in which the Vendor or such
other Lender shall have offered to
assign more than $100,000,000 of
Loans to more than one other person,
at least 60 days prior to the date of
such assignment or (b) in all other
cases, prior to the date of such
assignment; and provided, further
-------- -------
that no such assignment or sale may
be offered prior to October 1, 1996.
In the case of partial assignments,
the minimum assignment amount shall
be $10,000,000 (or such lesser amount
as constitutes the Lender's entire
Loans), and, after giving effect
thereto, the assigning Lender (unless
it shall have assigned 100% of its
Loans) shall have Loans aggregating
at least
<PAGE>
19
$10,000,000. Subject to clause (x)
of the proviso to the second
succeeding sentence, voting rights of
participants and other holders of
indirect interests in the Loans shall
be limited to those matters with
respect to which the affirmative vote
of the Lender from which it purchased
its participation would be required
as described in "Voting" above.
Pledges of Loans in accordance with
applicable law shall be permitted
without restriction. "Eligible
Lenders" means (i) banks, insurance
companies and other financial
institutions and (ii) other entities
whose primary business is to extend
credit or invest in extensions of
credit; provided, that (a) any entity
--------
engaged in, and, in the case of
clause (ii) of this sentence,
affiliates of any entity engaged in,
the telecommunications business and
businesses related thereto shall not
be Eligible Lenders and (b) in the
case of any investment vehicle that
becomes a Lender and sells direct or
indirect beneficial interests in such
entity's rights under the Credit
Facility, (x) any voting rights of
the holders of such beneficial
interests shall be limited so that
the required percentage vote of such
holders with respect to actions to be
taken by such entity under the Credit
Documentation shall be based on the
same percentage as the required vote
of the Lenders under the Credit
Documentation with respect to such
action and (y) the only financial
statements and other reports that
such entity and holders shall be
entitled to receive shall be the
annual audited and quarterly
unaudited financial statements (and
such certificates and notices as
shall be agreed upon) referred to
under Affirmative Covenants above.
Customary representations and
restrictions designed to preserve the
private placement status of the
Credit Facilities will be included in
the Credit Documentation.
Yield Protection: The Credit Documentation shall
contain customary provisions
indemnifying the Lenders for
"breakage costs" incurred in
connection with prepayment of a
Eurodollar Loan (as defined in Annex
A hereto) on a day other than the
last day of an interest period with
respect thereto. The Credit
Documentation shall also contain
customary increased costs and
illegality provisions.
<PAGE>
20
Expenses: The Vendor will bear all its own
costs and expenses in connection with
the Credit Facility, except that the
Borrower shall pay all reasonable
out-of-pocket expenses of the
Administrative Agent in connection
with the enforcement of the Credit
Documentation (including the
reasonable fees and the reasonable
disbursements and other charges of
one counsel to the Administrative
Agent and the Lenders).
Confidentiality: The Credit Documentation will contain
a customary confidentiality provision.
Non-Recourse: Except (i) as expressly provided
above under the provisions of
"Capital Contribution Agreement"
above and (ii) in the case of fraud
or of misrepresentation by the
Parents in the Capital Contribution
Agreement, the Credit Facility shall
be non-recourse to the partners of
the Borrower, the Parents or any
intermediate partnerships.
Governing Law and Forum: State of New York.
Preparation of Credit The Credit Documentation will be
Documentation: prepared by Simpson Thacher &
Bartlett, counsel to the Borrower, at
the expense of the Borrower.
VIII. Certain Definitions
-------------------
"Adjusted EBITDA": for any fiscal period, the sum of (a)
--------------- EBITDA for such period plus (b) the
----
aggregate amount deducted in
determining Net Income or Net Loss
for such period in respect of sales,
marketing and advertising expenses
and equipment subsidy expenses.
"Annualized Adjusted EBITDA": for the period ending on any date,
-------------------------- the product of (a) Adjusted EBITDA
for the two consecutive fiscal
quarters ending on such date
multiplied by (b) two.
-------------
"Annualized EBITDA": for the period ending on any date,
----------------- the product of (a) EBITDA for the two
consecutive fiscal quarters ending on
such date multiplied by (b) two.
"Capital Expenditures": expenditures made by the Borrower and
-------------------- its Restricted Subsidiaries for the
purpose of acquiring or constructing
fixed assets, real property or
equipment and all systems and
development expenditures related to
the build-out of the Borrower's and
its Restricted
<PAGE>
21
Subsidiaries' networks to provide
Wireless Services in accordance with
GAAP, provided that no expenditure
--------
related to the acquisition of FCC
Licenses and no amount of capitalized
interest shall be considered to be a
Capital Expenditure.
"Committed Capital": at any time, the aggregate amount of
----------------- cash contributions then available to
be made by the Parents or their
affiliates pursuant to the Capital
Contribution Agreement.
"Contributed Capital": at any time, the aggregate amount of
------------------- equity contributed to the Borrower
and, without duplication, its
Restricted Subsidiaries.
"Covered POPS": at any time, the aggregate number of
------------ POPS within each geographic area for
which facilities providing service to
that geographical area either (a)
have achieved "substantial
completion" pursuant to the terms of
the applicable vendor procurement
agreement or (b) have not achieved
"substantial completion" pursuant to
the terms of the vendor procurement
agreement between the Borrower and
the Vendor as a result of a failure
by the Vendor to perform its
obligations thereunder.
"EBITDA": for any fiscal period, the Net Income
------ or Net Loss, as the case may be, for
such fiscal period, after restoring
thereto amounts deducted for, without
duplication, (a) interest expense of
the Borrower and its Restricted
Subsidiaries for such fiscal period
determined in conformity with GAAP,
(b) taxes based upon Net Income, (c)
depreciation and amortization and (d)
other non-cash charges.
"Interest Expense": for any fiscal period, the amount of
---------------- (a) interest expense of the Borrower
and its Restricted Subsidiaries for
such fiscal period determined in
conformity with GAAP plus (b)
----
interest expense in respect of
Specified Affiliate Debt for such
fiscal period determined in
conformity with GAAP.
"Net Income" or "Net Loss": for any fiscal period, the amount
---------- -------- which, in conformity with GAAP, would
constitute the net income or net
loss, as the case may be, of the
Borrower and its Restricted
Subsidiaries for such fiscal
period;
<PAGE>
22
provided that Net Income or Net Loss
--------
shall exclude extraordinary gains and
losses.
"POPS": the population of a geographic area
---- based upon the 1990 U.S. census.
"Restricted Subsidiary": any Subsidiary of the Borrower that
--------------------- is not an Unrestricted Subsidiary.
"Specified Affiliate Debt": indebtedness of affiliates of the
------------------------ Borrower the proceeds of which was
advanced to the Borrower as equity.
It is understood that the amount of
equity contributed to date plus the
amounts to be contributed pursuant to
the Capital Contribution Agreement
shall not be considered Specified
Affiliate Debt.
"Total Capitalization": at any date, the sum of (a) Total
-------------------- Debt outstanding on such date plus
----
(b) Contributed Capital on such date
plus (c) Committed Capital on such
----
date less (d) the amount of
restricted payments made to Partners
through such date.
"Total Debt": at any time, the sum of (a) the
---------- aggregate amount of consolidated
indebtedness of the Borrower and its
Restricted Subsidiaries for borrowed
money then outstanding (including
capitalized and accreted interest)
plus (b) the aggregate amount of
----
Specified Affiliate Debt then
outstanding (including capitalized
and accreted interest) [minus (c) the
-----
aggregate amount of cash and cash
equivalents then owned by the
Borrower and its Restricted
Subsidiaries].
"Unrestricted Subsidiary": any of Teleport, APC, PhillieCo,
----------------------- PioneerCo and NewTelCo.
"Wireless Service": the provision of broadband personal
---------------- communications services.
"Wireless Subscribers": at any time, all customers then
-------------------- receiving Wireless Services from the
Borrower or any of its Restricted
Subsidiaries.
<PAGE>
ANNEX A
-------
MISCELLANEOUS PROVISIONS
Vendor: Lucent Technologies Inc.
Vendor's
Commitment: $1,800,000,000.
Commitment
Availability: Phase I. $1,000,000,000 of the total Commitment (the
-------
"Phase I Commitment") shall become available on the
-------------------
Closing Date.
Phase II. An additional $800,000,000 of the total
--------
Commitment (the "Phase II Commitment") shall
-------------------
become available on the date and subject to the
conditions set forth in Annex B hereto.
Purpose: The proceeds of the Loans shall be used to finance the
purchase price of goods and services provided by the
Vendor associated with the build-out of the Borrower's
national wireless network.
Interest Rate Options: The Borrower may elect that all or a portion of the
Loans bear interest at a rate per annum equal to:
(i) the ABR plus the Applicable Margin; or
(ii) the Eurodollar Rate plus Applicable
Margin.
As used herein:
"ABR" means the higher of (i) 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 (ii) the
federal funds effective rate from time to time
plus 0.5%.
----
"Applicable Margin" means (i) 2.00%, in the case
-----------------
of ABR Loans (as defined below) and (ii) 3.00%,
in the case of Eurodollar Loans (as defined
below).
"Eurodollar Rate" means the London Interbank
---------------
offered rate for deposits in U.S. Dollars for
interest periods of one, two, three or six months
or, subject to availability,
<PAGE>
2
nine or twelve months (as selected by the Borrower) as
set forth on Telerate Page 3750 at the funding time for
such interest period.
Default Interest Rate: Amounts in default will bear interest at a rate which
is 2% per annum above the rate otherwise applicable
thereto.
Interest Payment Dates: Subject to the matters discussed under
"Capitalization of Interest" above, (i) interest on
Loans bearing interest based upon the ABR ("ABR
---
Loans"), shall be payable quarterly in arrears, and
(ii) interest on Loans bearing interest based upon the
Eurodollar Rate ("Eurodollar Loans"), shall be payable
----------------
on the last day of each relevant interest period and,
in the case of any interest period longer than three
months, on each successive date three months after the
first day of such interest period.
Rate Calculation Basis: All interest rates shall be calculated on the basis
of a year of 360 days (or 365/366 days, in the case of
ABR Loans) for actual days elapsed.
Fees: The Borrower shall pay to the Vendor a facility fee of
1.00% per annum on the outstanding principal amount of
--- -----
Loans under the Credit Facility, payable quarterly in
arrears.
Refinancing Provisions: In the event the Vendor intends to assign Loans
pursuant to a commercial bank syndication (a "Bank
Syndication") or pursuant to an SEC-registered or Rule
144A offering (an "Offering"), the Vendor shall give
the Borrower at least 60 days prior written notice of
its intent to commence such Bank Syndication or
Offering.
The Borrower and its Restricted Subsidiaries will
cooperate with the Vendor and its lead agents in each
Bank Syndication undertaken by the Vendor and such lead
agents; provided that the Borrower and its Restricted
Subsidiaries shall not be required to take the actions
described in this paragraph in connection with more
than two Bank Syndication commencement notices in any
twelve-month period and no more than four such Bank
Syndication commencement notices during the term of the
Credit Facility. Such cooperation will include (a)
making senior officers of the Borrower and its
Restricted Subsidiaries available for a meeting with
prospective assignees and the Vendor and its lead
agents (provided
<PAGE>
3
that the Borrower shall have received at least 60
days' notice of such meeting), and (b) providing
such other assistance as may be reasonably
requested by the Vendor and such lead agents
(including providing information to and responding
to questions from, prospective assignees and with
respect to the operations, business plans, results
and other matters relating to the Borrower's
business on a timely basis and in any manner
reasonably requested by the Vendor or such lead
agents).
In the event the Vendor intends to assign Loans
pursuant to an Offering, the Borrower and its
Restricted Subsidiaries will cooperate with the
Vendor if the Vendor requires (i) the Borrower to
act as co-registrant of such Offering, (ii) senior
officers of the Borrower and its Restricted
Subsidiaries to participate in the road show for
such Offering (provided that the Borrower shall
have received at least 60 days notice prior to
such road show) and/or (iii) appropriate personnel
from the Borrower and its Restricted Subsidiaries
to assist in the drafting of a registration
statement or offering circular used in marketing
such Offering; providing that the Borrower and its
Restricted Subsidiaries shall not be required to
take the actions described in this paragraph in
connection with more than two Offerings in any
twelve month period and no more than four
Offerings during the term of the Credit Facility.
In consideration for taking the actions described
in the two preceding paragraphs, the Vendor will
rebate to the Borrower, in a manner determined by
good faith negotiations between the Borrower and
the Vendor, an amount (to the extent received by
the Vendor) determined by good faith negotiations
of the Borrower and the Vendor to be the sum (the
"Benefit Amount"), if greater than zero, of (a) an
amount equal to 3% per annum of the average annual
amount outstanding of the Loans to be assigned in
the Offering , calculated from the borrowing date
of the assigned Loans until the date of such
assignment, plus (b) any premium over the amount
of outstanding Loans to be assigned realized by
the Vendor upon such assignment (exclusive of any
premium attributable to any credit support
provided by the Vendor), less (c) any discount
under the amount of outstanding Loans to be
assigned realized by the Vendor upon such
assignment, less (d) the Vendor's out-of-pocket
expenses related to such Offering or Bank
<PAGE>
4
Syndication, plus (e) if the Loans assigned in a
Bank Syndication or the securities sold in an
Offering bear interest at a rate lower than the
rate of interest applicable to the Loans prior to
such Offering or Bank Syndication, the difference
between the interest payable on the Loans at the
rate in effect prior to such Bank Syndication or
Offering and the interest payable on such Loans or
securities after such transaction (exclusive of
any such interest rate difference attributable to
any credit support provided by the Vendor). If
the Benefit Amount is positive, but the sum of (a)
plus (b), less (c), less (d) is a negative amount,
the Vendor shall recover such negative amount as
and to the extent the Borrower realizes the
Benefit Amount component contained in (e).
Notwithstanding the foregoing, the Borrower and
its Restricted Subsidiaries will not be required
to cooperate with the Vendor's Bank Syndication
and Offering-related activities, as described in
the preceding paragraphs, more than a total of
four times, or more than two times in any calendar
year, and the Vendor will coordinate such
activities with the Borrower in order to avoid
materially interfering with the Borrower's own
financing activities.
Minimum Order
Amount: $800,000,000.
<PAGE>
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made on the 29th day of July, 1996, by and
between SPRINT SPECTRUM HOLDING COMPANY, L.P. ("Employer") and Andrew Sukawaty
("Executive").
WITNESSETH:
WHEREAS, Employer and its affiliates are engaged in the
telecommunications business;
WHEREAS, Executive has expertise, experience and capability in the
business of employer and the telecommunications business in general;
WHEREAS, Employer desires to enter into this Agreement to provide
severance and other benefits for Executive and obtain Executive's agreements
regarding confidentiality and post-employment restrictive covenants for
Employer; and
WHEREAS, Executive is willing to provide such agreements to Employer.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which consideration are mutually acknowledged by the parties, it
is hereby agreed as follows:
1. Recitals.
--------
The recitals set forth above constitute an integral part of this
Agreement, evidencing the intent of the parties in executing this Agreement, and
describing the circumstances surrounding its execution. Those recitals are made
a part of the covenants of this Agreement, and this Agreement shall be construed
in light thereof.
2. Duties and Responsibilities.
---------------------------
The position is Chief Executive Officer of Sprint Spectrum L.P. and
reports to the Partnership Board of Sprint Spectrum L.P. The duties and
responsibilities of Executive shall be of an executive nature as shall be
required by Employer in the conduct of its business. Executive's powers and
authority shall include such duties and responsibilities as from time to time
may be assigned to him. Executive recognizes that during his employment under
this Agreement he owes an undivided duty of loyalty to Employer, and agrees to
devote his entire business time and attention to the performance of his duties
and responsibilities and to use his best efforts to promote and develop the
business of Employer.
<PAGE>
3. Employment Term.
---------------
This Agreement shall become effective as of ________________ and
continue until Executive's employment is terminated by either party in
accordance with Sections 5, 6, 7, or 8 of this Agreement.
4. Compensation and Benefits.
-------------------------
(a) Executive shall be entitled to receive a base salary in the
amount of $425,000 per year ("Base Salary"), payable in accordance with
Employer's normal payroll procedures in effect from time to time.
Employer may increase or decrease Executive's Base Salary from time to
time, subject to the provisions of Section 7 of this Agreement.
(b) Executive shall be entitled to participate in such long-term
and short-term incentive compensation, life, health, medical, dental,
disability, pension, savings, and retirement plans and other similar
executive compensation and employee benefit plans which may be in effect
from time to time and in which other officers of Employer having
comparable responsibilities are entitled to participate. Executive's
participation in such plans shall be in accordance with the terms of
those plans in effect from time to time. Nothing contained in this
subsection shall be construed to require Employer to establish, or
shall preclude Employer, in its absolute discretion, from changing or
amending, in whole or in part, or revoking, any executive compensation
or employee benefit plan. The Executive shall have the right, however,
to terminate employment under Section 7(b) of the Agreement when
applicable.
(c) Executive shall be reimbursed for reasonable expenses incurred
on behalf of Employer and accounted for in accordance with the policies
and procedures of Employer in effect from time to time.
(d) Executive shall be entitled to paid hours in an amount
equivalent to that provided to employees with 15 years of service as
recognized by Employer's Time Pool Policy or similar practice in effect
from time to time.
5. Termination by Employer: Special Compensation.
---------------------------------------------
At any time, Employer may terminate Executive's employment for any
reason. If Executive's termination by Employer is other than pursuant to
Section 6, Executive shall, subject to the other provisions of this Section 5,
be entitled to the following Special Compensation (as that term is defined in
this Section 5) in lieu of any benefits available under any and all Employer
separation plans or policies, except as noted in Section 17. If Executive is
terminated pursuant to this Section 5, Executive's obligations under Section 11,
12, 13 and 14 hereof shall continue.
For purposes of this Agreement, "Special Compensation" shall entitle
Executive:
(a) to continue to receive for a period of eighteen months from the
date of termination (the "Severance Period") bi-weekly compensation at
the rate equal to the amount
2
<PAGE>
of his biweekly base salary in effect at the date of termination of employment
paid according to Employer's payroll practices;
(b) to receive a bonus, based on actual performance results, up to the
target amount, under any short-term incentive plan maintained by Employer
throughout the Severance Period in which Executive participated prior to the
termination of his employment, provided that the amount, if any, payable under
such plan for the award period including the last day of the Severance Period
shall be prorated based upon the number of months of the Severance Period that
fall within the award period and the total number of months in such award
period;
(c) to receive the greater of (1) any vested award under any long-term
incentive plan in which Executive participated prior to the termination of his
employment, exclusive of any Severance Period, determined in accordance with the
terms of said plan; or (2) an amount equivalent to a 10% vested award under any
such long-term incentive plan should termination of Executive's employment occur
for any reason other than Termination for Cause (as described in Section 6(b))
after 12 months of employment.
(d) to continue to receive throughout the Severance Period any life,
health, medical, dental, and qualified or nonqualified retirement benefits which
the Executive was receiving or was entitled to receive at the time of
termination of his employment, except that any long-term disability and
short-term disability benefits cease on the last day worked; and
(e) to receive outplacement counseling by a firm selected by Employer
to continue for the duration of the Severance Period or until Executive becomes
employed on a full-time basis, whichever is earlier.
Employer shall pay, or cause to be paid, the amounts payable under
paragraph (a) above in equal installments, bi-weekly or otherwise according to
Employer's existing pay practices, and the amount payable under paragraphs (b)
and (c) in accordance with the terms of those plans, if any. All payments
pursuant to this Section shall be subject to applicable income tax, unemployment
insurance and social security withholdings and other deductions required by law.
In addition to the Special Compensation described above, Executive shall
also be entitled to pay for any Time Pool hours accrued by Executive in the
calendar year of termination but not taken at the time of termination.
In the event Executive becomes employed full-time during the Severance
Period, Executive's entitlement to continuation of the benefits described in
paragraph (d) shall immediately cease; however, Executive shall retain any
rights to continue medical insurance coverage (including dental) under the
COBRA continuation provisions of the group medical insurance plan by paying the
applicable premium therefor.
The payments and benefits provided for in this Section shall be in
addition to all other sums then payable and owing to Executive hereunder
and, except as expressly provided herein, shall not be subject to reduction for
any amounts received by Executive for employment or services provided
<PAGE>
after termination of employment hereunder, and shall be in full settlement and
satisfaction of all of Executive's claims and demands.
In all events, Executives' right to receive severance and/or other
benefits pursuant to this Section shall cease immediately in the event (a)
Executive is re-employed by Employer, (b) Executive is employed by any person,
firm, corporation or other entity that has an ownership interest in Employer, or
any of their affiliates, or (c) Executive breaches his Confidential Information
covenant (as defined in Section 11 hereof), or breaches Section 12, 13 or 14
hereof. In all cases, Employer's rights under Section 15 shall continue.
6. Voluntary Resignation by Executive; Termination for Cause; Total
----------------------------------------------------------------
Disability
----------
Upon termination of Executive's employment by either Voluntary
Resignation, Termination for Cause (as those terms are defined in this Section
6), or Total Disability, as that term is defined in Employer's Long-Term
Disability Plan, Executive shall have no right to compensation, severance pay or
other benefits described in this Agreement following the termination of his
employment, but Executive's obligations under Sections 11, 12, 13 and 14 hereof
shall continue.
(a) Voluntary Resignation by Executive. At any time, Executive has the
----------------------------------
right, by written notice to Employer, to terminate his services hereunder
("Voluntary Resignation"), effective as of thirty (30) days after such notice.
(b) Termination for Cause by Employer. At any time, Employer has the
---------------------------------
right to terminate Executive's employment for cause. Termination upon the
occurrence of any of the following shall be deemed termination for cause
("Termination for Cause"):
(i) Conduct by the Executive which reflects adversely on the
Executive's honesty, trustworthiness or fitness as an Executive; or
(ii) Executive's willful engagement in conduct which is
demonstrably and materially injurious to the Employer.
Termination for failure to meet performance expectations, unless
willful, continuing and substantial, shall not be deemed a Termination
for Cause. For Termination for Cause, written notice of the termination
of the Executive's employment by Employer shall be served upon Executive
and shall be effective as of the date of such service. Such notice given
by Employer shall specify the act or acts of Executive underlying such
termination.
(c) Total Disability. Upon the total disability of the Executive, as
----------------
that term is defined in Employer's Long-Term Disability Plan, Executive shall
have no right to compensation or severance pay described in this Agreement, but
shall be entitled to long-term disability and such other benefits afforded under
the applicable policies and plans.
4
<PAGE>
7. Resignation Following Constructive Discharge.
--------------------------------------------
If at any time, except in connection with a termination pursuant to
Section 5 or 6, Executive is Constructively Discharged (as that term is defined
in this Section 7), then Executive shall have the right, by written notice to
Employer within sixty (60) days of the event causing him to be Constructively
Discharged, to terminate his services hereunder, effective as of thirty (30)
days after such notice. Executive shall in such event be entitled to the
compensation and benefits as if such employment were terminated pursuant to
Section 5 of this Agreement. If Executive terminates his employment pursuant to
this Section 7, Executive's obligations under Sections 11, 12, 13, and 14 shall
continue.
For purposes of this Agreement, the Executive shall be "Constructively
Discharged" upon the occurrence of any one of the following events:
(a) Executive is removed from his position with Employer other than
as a result of Executive's appointment to positions of equal or superior
scope and responsibility; or
(b) Executive's targeted total compensation (targeted base salary,
targeted annualized short-term incentive, targeted annualized long-term
incentive) is reduced (other than across-the-board reductions affecting
all executives of Employer having comparable responsibilities).
8. Effect of Change in Control.
In the event that within one year of a Change in Control (as that term
is defined in this Section 8), Executive's employment is terminated:
(a) by Employer other than pursuant to Section 6;
(b) by Executive pursuant to Section 7 hereof;
(c) by Executive if there are any material changes to the
responsibilities or reporting relationship to the Partnership Board,
except as may arise out of the events which are currently unfolding;
(d) by Executive if Executive is required to be based anywhere other
than his location at the time or the Kansas City metropolitan area,
except for required travel on business to an extent substantially
consistent with Executive's business travel obligations immediately
prior to the Change in Control, then Executive shall be entitled to the
Special Compensation described in Section 5 and shall be bound by
Sections 11, 13 and 14, but shall not have any continuing obligations
under Section 12 except as otherwise required by common law or statute.
For purposes of this Agreement, a "Change in Control" shall be deemed to
have occurred if any natural person, corporation, trust, partnership, limited
liability company or other entity (a "Person"), other than (i) a trustee or
other fiduciary holding securities under an employee benefit
5
<PAGE>
plan of Employer or any of its affiliates, or (ii) the current partners of
Employer or any Person that, directly or indirectly, owns or controls, is owned
or controlled by, or is under common ownership of control with, the current
partners of Employer, is or becomes the owner, directly or indirectly, of 50% or
more of the outstanding partnership interests in Employer.
9. Dispute Resolution.
------------------
All disputes arising under this Agreement, other than those disputes
relating to Executive's alleged violations of Sections 11 through 14 herein,
shall be submitted to arbitration by the American Arbitration Association in
Kansas City, Missouri. Costs of arbitration shall be borne equally by the
parties. The decision of the arbitrators shall be final and there shall be no
appeal from any award rendered. Any award rendered may be entered as a judgment
in any court of competent jurisdiction. In any judicial enforcement proceeding,
the losing party shall reimburse the prevailing party for its reasonable costs
and attorneys' fees for enforcing its rights under this Agreement, in addition
to any damages or other relief granted. This Section 9 does not apply to any
action by Employer to enforce Sections 11 through 14 of this Agreement and does
not in any way restrict Employer's rights under Section 15 herein.
10. Enforcement.
-----------
In the event Employer shall fail to pay any amounts due to Executive
under this Agreement as they come due, Employer agrees to pay interest on such
amounts at a rate of prime plus two percent (2%) per annum. Employer agrees
that Executive and any successor shall be entitled to recover all costs of
successfully enforcing any provision of this Agreement, including reasonable
attorneys' fees and costs of litigation.
11. Confidential Information.
------------------------
Executive acknowledges that during the course of his employment he will
learn or develop Confidential Information (as that term is defined in this
Section 11). Executive further acknowledges that unauthorized disclosure or use
of such Confidential Information, other than in discharge of Executive's duties
on behalf of Employer, will cause Employer irreparable harm.
For purposes of this Section, Confidential Information means trade
secrets (such as technical and non-technical data, a formula, pattern,
compilation, program, device, method, technique, drawing, process) and other
proprietary information concerning the products, processes or services of
Employer or its partners, and its or their affiliates, including but not limited
to, computer programs; unpatented inventions, discoveries or improvements;
marketing, manufacturing, or organizational research and development;
business plans; methods of operation; sales forecasts; personnel
information, including the identity of other employees of Employer, their
responsibilities, competence, abilities, and compensation; pricing and financial
information; current and prospective customer and supplier lists and
information on customers, suppliers or their employees; information concerning
planned or pending acquisitions or divestitures; and information concerning
purchases of major equipment or property, which information has not been made
generally available to the public.
<PAGE>
Except in the course of his employment and in the pursuit of the
business of Employer, Executive shall not, during the course of his employment,
or at any time following termination of his employment for any reason, directly
or indirectly, disclose, publish, communicate or use on his behalf or another's
behalf, any Confidential Information of Employer.
Executive acknowledges that Employer operates and competes nationally,
and that Employer will be harmed by unauthorized disclosure or use of
Confidential Information regardless of where such disclosure or use occurs, and
that therefore this confidentiality agreement is not limited to any single state
or other jurisdiction.
12. Non-Competition.
---------------
Executive acknowledges that use or disclosure of Confidential
Information described in Section 11 is likely if Executive were to perform
telecommunications functions relating to wireless services on behalf of a
competitor of Employer. Therefore, Executive shall not, for eighteen (18)
months following termination of employment for any reason (the "Non-Compete
Period"), accept any position where Executive, within any 90-day period,
dedicates his time and efforts principally to managing, controlling,
participating in, investing in, acting as a consultant or advisor to, rendering
services for or otherwise assisting any person, firm, corporation or other
entity in the Wireless Business in competition with the Wireless Business of
Employer, anywhere in the United States of America; provided, however, that the
ownership of less than a 5% interest in the securities of a corporation which
are traded on a national securities exchange or quoted on NASDAQ shall not be
deemed to constitute a violation hereof.
Executive acknowledges that Employer operates and competes nationally,
and that therefore this non-competition agreement appropriately is not limited
to any single state or other jurisdiction.
13. Inducement of Other Employees.
-----------------------------
For an eighteen (18) month period following termination of employment
for any reason, Executive will not directly or indirectly solicit, induce or
encourage any employee or agent of Employer to terminate his relationship with
Employer.
14. Return of Employer's Property.
-----------------------------
All books, records, files, notes, reports, sketches, plans, published
memoranda or other documents, and any other tangible forms of information
(whether stored magnetically, electronically, or otherwise, including, but not
limited to, computer diskettes or compact disks), created, developed, generated
or held by Executive during employment, concerning or related to Employer's
business, and whether containing or relating to Confidential Information or not,
are the property of Employer and will be promptly delivered to Employer upon
termination of Executive's employment for any reason whatsoever. During the
course of employment, Executive shall not remove any of the above property
containing Confidential Information, or reproductions or copies thereof, or any
apparatus from Employer's premises without authorization.
7
<PAGE>
15. Remedies.
--------
Executive acknowledges that the restraints and agreements herein
provided are fair and reasonable, that enforcement of the provisions of Sections
11, 12, 13 and 14 will not cause him undue hardship and that said provisions are
reasonably necessary and commensurate with the need to protect Employer and its
legitimate and proprietary business interests and property from irreparable
harm.
Executive acknowledges that failure to comply with the terms of this
Agreement will cause irreparable damage to Employer. Therefore, Executive
agrees that, in addition to any other remedies at law or in equity available to
Employer for Executive's breach or threatened breach of this Agreement, Employer
is entitled to specific performance or injunctive relief, without bond, against
Executive to prevent such damage or breach, and the existence of any claim or
cause of action Executive may have against Employer will not constitute a
defense thereto. Executive further agrees to pay reasonable attorneys' fees and
costs of litigation incurred by Employer in any proceeding relating to the
enforcement of the Agreement or to any alleged breach thereof in which Employer
shall prevail in whole or those reasonable fees and costs attributable to the
extent that Employer prevails in part.
In the event of a breach or a violation of any of the covenants and
provisions of this Agreement, the running of the Non-Compete Period (but not of
Executive's obligation thereunder), shall be tolled during the period of the
continuance of any actual breach or violation.
16. Confidentiality of Agreement.
----------------------------
As a specific condition to Executive's right to Special Compensation or
other benefits described herein, Executive agrees that he will not disclose or
discuss the existence of this Agreement, the Special Compensation provided
hereunder, or any other terms of the Agreement except: (1) to members of his
immediate family; (2) to his financial advisor or attorney but then only to the
extent necessary for them to assist him; (3) to a potential employer on a
strictly confidential basis and then only to the extent necessary for reasonable
disclosure in the course of serious negotiations; or (4) as required by law or
to enforce legal rights.
17. Entire Understanding.
--------------------
This Agreement constitutes the entire understanding between the parties
relating to Executive's employment hereunder and supersedes and cancels all
prior written and oral understandings and agreements with respect to such
matters, except for the terms and provisions of the employee benefit or other
compensation plans (or any agreements or awards thereunder) referred to in or
contemplated by this Agreement.
8
<PAGE>
18. Binding Effect.
---------------
This Agreement shall be binding upon and inure to the benefit of
Executive's executors, administrators, legal representatives, heirs and legatees
and the successors and assigns of Employer.
19. Partial Invalidity.
------------------
The various provisions of this Agreement are intended to be severable
and to constitute independent and distinct binding obligations. Should any of
this Agreement be determined to be void and unenforceable, in whole or in part,
it shall not be deemed to affect or impair the validity of any other provision
or part thereof, and such provision or part thereof, shall be deemed modified to
the extent required to permit enforcement. Without limiting the generality of
the foregoing, if the scope of any provision contained in this Agreement is too
broad to permit enforcement to its full extent, but may be made enforceable by
limitations thereon, such provision shall be enforced to the maximum extent
permitted by law, and Executive hereby agrees that such scope may be judicially
modified accordingly.
20. Strict Construction.
-------------------
The language used in this Agreement will be deemed to be the language
chosen by Employer and Executive to express their mutual intent and no rule of
strict construction shall be applied against any person.
21. Waiver.
------
The waiver of any party hereto of a breach of any provision of this
Agreement by any other party shall not operate or be construed as a waiver of
any subsequent breach.
22. Notices.
-------
Any notice or other communication required or permitted to be given
hereunder shall be determined to have been duly given to any party (a) upon
delivery to the address of such party specified below if delivered personally or
by courier; (b) upon dispatch if transmitted by telecopy or other means of
facsimile, provided a copy thereof is also sent by regular mail or courier; or
(c) within forty-eight (48) hours after deposit thereof in the U.S. mail,
postage prepaid, for delivery as certified mail, return receipt requested,
addressed, in any case to the party at t he following addresses or telecopy
numbers:
If to Executive:
------------------------
------------------------
------------------------
9
<PAGE>
If to Employer:
Sprint Spectrum
4717 Grand Avenue
Kansas City, MO 64112
Attention: Chief Executive Officer
or other such addresses or telecopy number(s) as any party may designate by
written notice in the aforesaid manner.
23. Governing Law.
-------------
This Agreement shall be governed by, and interpreted, construed and
enforced in accordance with, the laws of the State of Kansas.
24. Gender.
------
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and the
pronouns stated in either the masculine, the feminine or the neuter gender shall
include the masculine, feminine or neuter.
25. Headings.
--------
The headings of the Sections of this Agreement are for reference
purposes only and do not define or limit and shall not be used to interpret or
construe the contents of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date above set forth.
EMPLOYER:
SPRINT SPECTRUM HOLDING COMPANY, L.P.
/s/ Ronald T. LeMay
--------------------------------
By CEO
------------------------------
Authorized Officer
EXECUTIVE:
/s/ Andrew Sukawaty
--------------------------------
10
<PAGE>
EXHIBIT 10.21
FIRST AMENDMENT TO CAPITAL CONTRIBUTION AGREEMENT
FIRST AMENDMENT, dated as of July 29, 1996 (this "Amendment"), to the
---------
Capital Contribution Agreement, dated as July 15, 1996 (the "CCA"), among Sprint
---
Corporation, a Kansas corporation, Tele-Communications, Inc., a Delaware
corporation, Comcast Corporation, a Pennsylvania corporation, Cox
Communications, Inc., a Delaware corporation, and Sprint Spectrum L.P., a
Delaware limited partnership.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties to the CCA desire to amend the CCA;
NOW, THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
1. Amendment. Paragraph 2(a) of the CCA is hereby amended by adding
---------
the phrase "or which are used to fund cash equity contributions or other
investments by the Borrower or its Subsidiaries in any Unrestricted Subsidiary"
immediately following the phrase "which does not become a Restricted Subsidiary
upon such acquisition" contained in the second parenthetical contained in clause
(ii)(A) of such paragraph.
2. Effectiveness. This Amendment shall become effective on the date on
-------------
which all parties to this Amendment have executed and delivered this Amendment.
3. Counterparts. This Amendment may be executed by the parties hereto
------------
in any number of counterparts, and all of such counterparts taken together shall
be deemed to constitute one and the same instrument.
4. Governing Law. This Amendment shall be governed by, and construed
-------------
in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to
be duly executed and delivered by its dully authorized officer as of the day and
year first above written.
SPRINT CORPORATION
By: /s/ Sprint Corporation
-------------------------
Title:
<PAGE>
TELE-COMMUNICATIONS, INC.
By: /s/ Brendan Clouston
------------------------------
Title: Executive Vice President
COMCAST CORPORATION
By: /s/ Comcast Corporation
------------------------------
Title:
COX COMMUNICATIONS, INC.
By: /s/ Cox Communications, Inc.
------------------------------
Title:
SPRINT SPECTRUM, L.P.
By: /s/ Robert M. Nemeister, Jr.
------------------------------
Title:
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-06609 on Form S-1 of Sprint Spectrum L.P. and subsidiary of our report
dated July 8, 1996 relating to the financial statements of Reorganized Sprint
Spectrum L.P. and our subsidiary and our report dated March 29, 1996 (July 8,
1996 as to Note 6) relating to the financial statements of Sprint Spectrum
Holding Company, L.P. and subsidiaries (which reports include an explanatory
paragraph referring to the development stage of Reorganized Sprint Spectrum
L.P. and subsidiary and Sprint Spectrum Holding Company, L.P. and
subsidiaries) 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
August 9, 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.
/s/ Price Waterhouse llp
PRICE WATERHOUSE LLP
August 8, 1996
Washington, DC
<PAGE>
EXHIBIT 23.4
August 12, 1996
We hereby consent to the reference to our firm on page 9 of the Prospectus,
which is a part of this Registration Statement.
SIMPSON THACHER & BARTLETT
