<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1996
REGISTRATION NO. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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LCC INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 4812 54-1807038
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation Classification Number)
or organization) Code Number)
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ARLINGTON COURTHOUSE PLAZA II
2300 CLARENDON BOULEVARD, SUITE 800
ARLINGTON, VIRGINIA 22201
(703) 351-6666
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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PIYUSH SODHA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LCC INTERNATIONAL, INC.
ARLINGTON COURTHOUSE PLAZA II
2300 CLARENDON BOULEVARD, SUITE 800
ARLINGTON, VIRGINIA 22201
(703) 351-6666
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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STEVEN M. KAUFMAN, ESQ. JUDITH R. THOYER, ESQ.
LORRAINE SOSTOWSKI, ESQ. PAUL, WEISS, RIFKIND, WHARTON & GARRISON
HOGAN & HARTSON L.L.P. 1285 AVENUE OF THE AMERICAS
555 THIRTEENTH STREET, N.W. NEW YORK, NEW YORK 10019-6064
WASHINGTON, D.C. 20004-1109 (212) 373-3000
(202) 637-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following effectiveness of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, as amended (the "Securities Act") other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
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Class A Common Stock, par
value $0.01 per share.... 4,255,000 $16.00 $68,080,000 $23,476
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(1) Includes 555,000 shares which may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT 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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LCC INTERNATIONAL, INC.
CROSS-REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(b)
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FORM S-1
ITEM NUMBER LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. Principal and Selling Stockholders
8. Plan of Distribution...................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered.............................. Outside Front Cover Page; Prospectus
Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel.... Not Applicable
11. Information with Respect to the
Registrant.............................. Outside Front Cover Page; Prospectus
Summary; Risk Factors; The Company; The
Merger; The MCI Conversion; Use of
Proceeds; Dividend Policy; Dilution;
Capitalization; Selected Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal and Selling Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY 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, DATED JUNE 14, 1996
PROSPECTUS
, 1996
[LOGO] 3,700,000 SHARES
LCC INTERNATIONAL, INC.
CLASS A COMMON STOCK
Of the 3,700,000 shares of Class A Common Stock offered hereby, 2,400,000
shares are being sold by the Company and 1,300,000 shares are being sold by the
Selling Stockholder. See "Principal and Selling Stockholders." The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholder.
The Company has two classes of authorized Common Stock, Class A Common
Stock and Class B Common Stock. The rights of the Class A Common Stock and the
Class B Common Stock are substantially identical, except that holders of the
Class A Common Stock are entitled to one vote per share and holders of the Class
B Common Stock are entitled to ten votes per share. Both classes will vote
together as one class on all matters generally submitted to a vote of
stockholders, including the election of directors. See "Description of Capital
Stock." Upon completion of the Offering and the Merger, RF Investors, L.L.C., a
company controlled by the Company's founders, will own all of the outstanding
shares of Class B Common Stock, which will represent approximately 94% of the
combined voting power of the Common Stock. As a result, RF Investors, L.L.C.
will have the ability to elect all of the Company's directors and will continue
to control the Company. See "Risk Factors -- Control of the Company by RF
Investors" and "Description of Capital Stock -- Common Stock."
Prior to the Offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial offering price will be
between $14.00 and $16.00 per share. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price.
Application has been made to have the Class A Common Stock offered hereby
approved for trading on the Nasdaq National Market under the symbol "LCCI."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
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Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $ , which will be paid by
the Company.
(3) The Company and the Selling Stockholder have granted to the Underwriters a
30 day option (the "Over-Allotment Option") to purchase up to 555,000
additional shares (360,000 shares from the Company and 195,000 shares from
the Selling Stockholder) at the Price to the Public less Underwriting
Discounts and Commissions, solely to cover over-allotments, if any. If the
Over-Allotment Option is exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions, Proceeds to the Company and
Proceeds to the Selling Stockholder will be $ , $ ,
$ , and $ , respectively. See "Underwriting."
The shares are being offered by the several Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to various prior conditions including their right to
reject orders in whole or in part. It is expected that delivery of the shares
will be made in New York, New York on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS
INCORPORATED
OPPENHEIMER & CO., INC.
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[GRAPHICS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S CLASS
A COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information, pro forma
financial information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus Summary and elsewhere in this Prospectus assumes no exercise of
the Over-Allotment Option. Unless the context indicates or requires otherwise,
references in this Prospectus to "LCC" or the "Company" are to (1) the combined
operations of the Company's predecessor, LCC, L.L.C., a Delaware limited
liability company, and its subsidiaries (the "Limited Liability Company") prior
to the date of the merger of the Limited Liability Company into LCC
International, Inc., a recently-formed Delaware corporation ("LCC
International"), as described below (the "Merger") and (2) LCC International and
its subsidiaries, after the Merger. Each prospective investor is urged to read
this Prospectus in its entirety. Definitions of technical and other terms are
set forth in the Glossary starting at page G-1. References herein to wireless
telecommunications or similar terms are not intended to include satellite
transmission, which some consider to be a "wireless" technology.
GENERAL
LCC is the world's largest independent provider of radio frequency ("RF")
engineering and network design services and products to the wireless
telecommunications industry. The Company has provided these services, along with
related proprietary software tools and field measurement and analysis equipment,
to operators of more than 200 wireless systems in more than 40 countries. The
Company intends to leverage its leadership position and its relationships with
major wireless customers to benefit from the expected significant growth in
wireless networks worldwide.
The Company has provided services and products to seven of the ten largest
U.S. cellular system operators; large international cellular operators,
including British Telecommunications plc ("British Telecom"), France Telecom,
Mannesmann Mobilfunk GmbH, Germany ("Mannesmann") and Korea Mobile
Telecommunications Corp. ("Korea Mobile Telecom"); companies building or
proposing to build personal communications services ("PCS") systems, including
AT&T Wireless Services, Pacific Bell Mobile Services, NextWave Telecom, Inc.
("NextWave Telecom") and DCR PCS, Inc. ("DCR"); operators of enhanced
specialized mobile radio ("ESMR") systems, including Nextel Communications, Inc.
("Nextel Communications"); and operators of two-way messaging systems. Many of
the Company's major customers have entered into partnerships with international
wireless operators, which has enabled the Company to obtain significant new
business from such operators. The Company also has established working
relationships with two major telecommunications equipment vendors, pursuant to
which the Company provides services and products on a subcontract basis.
LCC believes that its 26.9% compound annual growth in revenues over the
past five years has been fueled primarily by the growth of the wireless
telecommunications industry. The Company derives a significant portion of its
revenues from its international customers (approximately 39% in 1995). A
substantial number of new wireless network licenses have been awarded worldwide
over the last five years, and the Company expects a significant number of
additional wireless licenses to be awarded in the next few years. Construction
of new networks, and optimization of existing networks, require substantial
amounts of RF engineering services and products. In addition, many existing
systems are continuing to grow; LCC estimates that operators of wireless
networks operating at capacity add a new cell site, requiring additional RF
engineering services, for every approximately 1,500 new subscribers added.
LCC's approximately 325 RF engineers provide engineering solutions to
operators of a wide range of wireless networks, incorporating all major wireless
technologies available today, including TDMA (which includes GSM, DCS and
IS-136), CDMA, iDEN, AMPS and ETACS. LCC believes that it is the largest
independent employer of RF engineers in the world and believes that this is a
substantial competitive advantage, especially with respect to large customers.
LCC provides (or, in the case of Phase 4, is developing) services and products
for operators involved in all four phases of wireless system development: (i)
Phase 1 --
3
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bidding for the licenses necessary to build and operate the system; (ii) Phase
2 -- build-out of the system; (iii) Phase 3 -- optimization and enhancement of
the system to meet the requirements of an increasing subscriber base and to
provide increased quality and coverage; and (iv) Phase 4 -- achievement of
greater efficiencies in providing service in order to compete in areas where
there are multiple system operators.
The Company's services consist of (i) RF Engineering and Design Services
and (ii) Program Management, which involves the procurement and management, on a
turnkey basis, of a range of services and products for wireless networks. The
Company's products consist of (i) Software Tools and (ii) Field Measurement and
Analysis Equipment, both of which are used to design wireless networks and
optimize the performance of existing networks.
BUSINESS STRATEGY
The Company's objective is to maintain its position as the world's largest
independent provider of RF engineering and network design services and products
to the wireless telecommunications industry, and to increase its market share by
pursuing multiple growth paths. The key elements in the Company's strategy are
to:
- Maintain Technological Leadership. LCC believes that it has the most
sophisticated and diversified technological capabilities (incorporating
all major wireless technologies available today) in the wireless network
design industry and intends to maintain its technological leadership.
- Leverage Large Installed Customer Base. The Company believes that its
large customer base gives it a significant advantage in obtaining
additional business for its existing and new services and products.
Typically, a substantial portion of the Company's revenues in a given
year are generated by customers for which the Company has previously
performed services or provided products.
- Pursue International Growth. The Company believes that the growth of the
international wireless industry over the next several years will be
substantial. The Company is devoting significant efforts to increasing
its market share of international business, and is particularly focused
on providing planning services to companies that are participating in
government tender processes for new license grants. The Company has found
that provision of such services often results in engineering contracts if
such companies receive licenses.
- Pursue New Markets
PCS. According to the FCC, over $17.9 billion has been spent or
committed to acquire new PCS licenses in the U.S. over the past two
years, and each of the licensed areas must be built out over the five
years following the date of the license grant. The Company expects that
such new licensees will account for a significant portion of the demand
for the Company's services and products over the next several years.
New Wireless Networks and Technologies. The development of new types of
wireless networks and new wireless technologies, including private
corporate networks, wireless cable (LMDS and MMDS) services, wireless
local loop and wireless high speed data services, is expected to result
in additional potential customers for the Company's services and
products.
Analog to Digital Conversion. The Company expects that many cellular
operators will convert from an analog to a digital format in the next
several years, and that this conversion will result in additional demand
for the Company's services and products.
- Offer and Develop New Types of Services and Products
Program Management Services. Program management involves the procurement
and management, on a turnkey basis, of a range of services and products
relating to deployment or expansion of wireless networks, including
systems integration, site acquisition, site engineering, procurement
management, construction management, installation and commissioning, and
customer training.
4
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These management services are often packaged with the Company's
traditional RF and network engineering services, software tools and
field measurement and analysis equipment. The Company believes that an
increasing number of wireless system operators are attracted to this
approach, and that program management will increase revenues from RF
engineering services in addition to providing revenues from new
services.
Phase 4 System Efficiency Services and Products. The Company is
developing new RF engineering services and products to increase system
efficiency and manage costs in the multiple-operator environment
expected to develop in the next few years.
- Establish Strategic Relationships with Carriers and Equipment Vendors.
The Company has entered into strategic relationships with new wireless
carriers and major equipment vendors as a means of obtaining new business
opportunities. The Company intends to pursue additional relationships,
including using proceeds from this initial public offering (the
"Offering") for financing and investment arrangements, as a means of
obtaining new business.
- Pursue Strategic Acquisitions. The Company intends to pursue acquisitions
of companies that have developed, or are developing, complementary
products and services. LCC believes that such acquisitions will
accelerate the development of products and enhance the recruitment of
technical staff.
5
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THE OFFERING
Class A Common Shares Offered(1)
By the Company................. 2,400,000 shares
By the Selling Stockholder..... 1,300,000 shares
Total.................. 3,700,000 shares
Common Stock to be Outstanding
after the Offering(1)
Class A Common Stock........... 6,563,807 shares
Class B Common Stock........... 10,155,227 shares
Total.................. 16,719,034 shares
Use of Proceeds.................. Repayment of amounts outstanding under a
Credit Agreement among the Company, certain
of its subsidiaries and The Chase Manhattan
Bank (National Association) ("Chase"), as
Administrative Agent, and the lenders
signatory thereto (the "Credit Facility")
to be entered into in connection with the
refinancing of amounts outstanding under a
Credit Agreement, dated as of March 1996,
among the Company, Chase, and the lenders
(the "Lenders") signatory thereto (the
"Existing Facility"); strategic financing
for customers as incentives for new
business; acquisitions; working capital;
and general corporate purposes. See "Use of
Proceeds."
Voting Rights.................... The shares of Class A common stock, par
value $0.01 per share ("Class A Common
Stock"), have one vote per share, while the
shares of Class B common stock, par value
$0.01 per share ("Class B Common Stock"),
have ten votes per share (the Class A
Common Stock and Class B Common Stock are
collectively referred to herein as "Common
Stock"). The Class B Common Stock, which
has effective control of the Company and is
wholly-owned by RF Investors, L.L.C. ("RF
Investors"), is not being offered by this
Prospectus. Class B Common Stock is
convertible into Class A Common Stock on a
share-for-share basis. See "Risk
Factors -- Control of the Company by RF
Investors" and "Description of Capital
Stock -- Common Stock."
Proposed Nasdaq National Market
symbol........................... LCCI
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(1) In connection with the Offering, it is anticipated that the board of
directors of the Company (the "Board of Directors") will grant pursuant to
(i) the Company's 1996 Employee Stock Option Plan (the "Employee Plan")
options to purchase (a) approximately 550,000 shares of Class A Common
Stock to 120 employees of the Company at an exercise price per share equal
to the Offering price and (b) approximately 2,065,000 shares of Class A
Common Stock to approximately 40 employees of the Company as conversion of
interests held under the Limited Liability Company's Employee Option Plan
(the "LLC Option Plan") and Phantom Membership Plan (the "LLC Membership
Plan") at exercise prices per share ranging from approximately $3.75 to
$9.70, and (ii) approximately 20,000 shares of Class A Common Stock to two
outside directors under the Company's to-be-adopted Directors' Plan (the
"Directors Plan"). In addition, in connection with the Offering, the Board
of Directors will reserve (i) approximately 360,000 shares of Class A
Common Stock for purchase by eligible employees of the Company or any of
its subsidiaries pursuant to the Company's to-be-adopted Employee Stock
Purchase Plan, (ii) approximately 360,000 shares of Class A Common Stock
for future grants of options under the
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Employee Plan, and (iii) approximately 20,000 shares of Class A Common
Stock for future grants of options under the Directors Plan. See
"Management -- Stock Plans" and "Certain Transactions -- Conversion of
Interests Under LLC Option Plan and LLC Membership Plan into Stock
Options."
RISK FACTORS
Prospective investors should carefully consider the factors discussed in
detail elsewhere in this Prospectus under the caption "Risk Factors."
7
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SUMMARY CONSOLIDATED FINANCIAL DATA
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ ---------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PRO FORMA PER SHARE INFORMATION)
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $40,307 $54,332 $60,307 $76,055 $104,461 $21,140 $27,088
Operating income(1)............................... 3,352.. 13,324 11,411 6,507 9,048 1,118 2,561
Net income(1)..................................... 3,860.. 13,605 10,497 4,970 4,740 536 2,479
PRO FORMA DATA:(2)
Pro forma net income(1)(3)........................ $ 6,124 $ 2,311
Pro forma net income per share(1)(4).............. $ 0.34 $ 0.13
Pro forma weighted average shares
outstanding(4).................................. 17,900 17,900
OTHER DATA:
Non-cash compensation............................. -- -- -- $ 3,255 $ 4,646 $ 1,191 $ 466
EBITDA(1)(5)...................................... $ 4,863 $15,030 $13,249 8,527 12,747 1,658 3,774
Depreciation and amortization..................... 1,511 1,706 1,838 2,020 3,699 540 1,213
Capital expenditures.............................. 2,455 1,625 1,882 2,403 4,222 1,121 415
</TABLE>
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AS OF
DECEMBER 31, AS OF MARCH 31,
------------ --------------------------
1995 1996 1996
PRO FORMA(2)
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CONSOLIDATED BALANCE SHEET DATA:
Cash................................. $ 6,571 $ 8,599 $ 21,016
Working capital...................... 17,649 9,924 43,924
Property, plant, and equipment,
net................................ 5,440 5,167 5,167
Licenses and other intangibles,
net................................ 3,745 3,960 3,960
Total assets......................... 62,041 75,352 94,469
Total debt........................... 30,000 40,000 0
Equity (deficit)..................... (244) (960) 57,140(6)
</TABLE>
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(1) Net of non-cash compensation.
(2) Adjusted to reflect the pro forma effects, as applicable, of the Offering
(including the application of estimated net proceeds of the Offering to
repay amounts outstanding under the Credit Facility and related interest
expense), the refinancing of the Existing Facility with the proceeds of the
Credit Facility the MCI Conversion (as defined below) and the Merger
(assuming such offering, conversion and merger occurred on January 1, 1995,
except for consolidated balance sheet data, which assumes such transactions
occurred on March 31, 1996).
(3) In connection with the Offering and the Merger, the Company will be
converting to a Subchapter C corporation under the Internal Revenue Code of
1986, as amended (the "Code"). Prior to conversion, the Company had been a
limited liability company for Federal and certain state income tax purposes.
As such, income of the Company was taxable to the individual members rather
than to the Company. Accordingly, the provision for income taxes for the
years ended December 31, 1991 to 1995, and the three months ended March 31,
1995 and 1996 represents state income taxes on earned income in those states
that do not recognize the flow-through nature of the limited liability
company and foreign taxes. Pro forma net income is net of a provision for
income taxes as if the Company were a Subchapter C corporation at an assumed
effective income tax rate of approximately 40%.
(4) Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average number of common shares and common
share equivalents outstanding.
(5) EBITDA represents earnings before interest income, interest expense, other
income, income taxes, depreciation and amortization. EBITDA is commonly used
in the telecommunications industry to analyze companies on the basis of
operating performance, leverage and liquidity. EBITDA is not intended to
represent cash flows for periods, nor has it been presented as an
alternative to operating income or as an indicator of operating performance
and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. See the Company's Consolidated Statements of Cash Flows in the
Company's Consolidated Financial Statements contained elsewhere in this
Prospectus.
(6) Includes non-recurring payment of compensation expense of $1.8 million (net
of applicable taxes) resulting from the assumption of the Telcom Ventures
Note (as defined below). Also includes a non-recurring deferred tax benefit
from conversion from a limited liability company to a Subchapter C
corporation for income tax purposes, estimated to be approximately $6.7
million.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the Class A Common Stock offered hereby.
CHANGING DEMAND FOR THE COMPANY'S PRODUCTS AND SERVICES
The wireless telecommunications industry is undergoing a number of
significant changes that are impacting demand for the Company's RF engineering
and related services and products. Such changes include (i) increased use of
in-house engineers by operators of mature wireless networks, (ii) increasing
dependence of wireless network operators on equipment vendors for design
services and (iii) delays in deployment of PCS networks.
INCREASED USE OF IN-HOUSE ENGINEERS BY OPERATORS OF MATURE WIRELESS NETWORKS
Over the last few years, operators of several mature wireless networks have
reduced the amount of engineering services purchased from LCC and have replaced
such services with those provided by their own engineers. LCC expects this trend
to continue and to affect other types of wireless networks both within the U.S.
and internationally.
INCREASING DEPENDENCE OF WIRELESS NETWORK OPERATORS ON EQUIPMENT VENDORS FOR
DESIGN SERVICES
Wireless network operators, particularly PCS operators and new
international licensees, are increasingly dependent on equipment vendors to
provide turnkey solutions for the design and deployment of wireless networks and
to provide vendor financing for the entire project. Vendors of wireless
telecommunications equipment have been conditioning the availability of
financing for services or products, other than those principally offered by the
vendor, on being granted the right to select the providers of such services and
products, including RF engineering and network design. The Company believes that
the need of PCS and other wireless operators for vendor financing and the
packaging of services by equipment vendors is making the vendor a competitor of
the Company (since the vendor is providing engineering services, generally
through a subcontract arrangement) and is causing the vendor to replace the
wireless operator as a customer of the Company. While the Company has
established relationships with major telecommunications equipment vendors
pursuant to which the Company provides services and products for the wireless
telecommunications projects for which such vendors act as prime contractors,
such arrangements often are less profitable for the Company than direct sales to
the end user since the vendor often submits a comparatively lower bid for the
engineering work to secure or increase its profits on equipment sales. In
addition, working through a prime contractor weakens the relationship with the
network operator and may reduce the Company's ability to obtain continuing
business.
DELAYS IN DEPLOYMENT OF PCS NETWORKS
The Company believes that demand for its services and products may be
affected by future delays in the pace of deployment of PCS networks in the U.S.
A significant portion of the Company's revenues is generated from new licensees
for designing and building out their networks. Furthermore, a significant
portion of the Company's backlog consists of services and products to be
provided under two five-year contracts for services and products aggregating
$115 million with the two top bidders in the recently concluded C-block
broadband PCS auction. See "Business -- Customers and Backlog." Finally, the
Company anticipates that additional future revenues will be generated from
successful bidders in the D-, E- and F-block broadband PCS auctions expected to
be held within the next two to three years. To date, the pace of PCS network
deployment has been slower than expected, due in part to difficulty experienced
by holders of MTA licenses in raising the necessary financing and there can be
no assurance that bidders for BTA licenses will not experience similar
difficulties. In addition, the C-block bidders have been hampered by delays in
the auction process and by subsequent challenges to the issuance of licenses to
successful bidders, and there can be no assurance as to when the D-, E- and
F-block auctions will occur, nor to when licenses will be granted. Accordingly,
orders for network
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design and deployment from PCS licensees, including a significant portion of the
Company's backlog, are subject to uncertainty. See "Risk Factors -- Risks
Associated with Strategic Relationships, Strategic Financing and Acquisitions."
RISKS FROM COMPETITION
The current market for wireless network design services, related software
tools, field measurement and analysis equipment and program management services
is highly competitive. Many companies offer such services and products, and the
Company believes that the number of other independent firms providing a
combination of these services and products to wireless network operators
throughout the world is increasing. Wireless operators themselves and system
equipment vendors are also developing capabilities competitive with those
provided by LCC. See "Risk Factors -- Changing Demand for the Company's Products
and Services -- Increased Use of In-House Engineers by Operators of Mature
Wireless Networks" and "-- Increasing Dependence of Wireless Network Operators
on Equipment Vendors for Design Services." Some of the Company's competitors are
part of large corporate groups or alliances with greater resources and broader
technology bases than those of the Company. In addition, some of the Company's
competitors have been founded by or have recruited senior engineering executives
from current or potential Company customers and may have better relationships
with those current or potential customers than are available to the Company.
Recently, as a result of increased competition, the Company has experienced a
decline in the prices it can charge for its software tools and field measurement
and analysis equipment. There can be no assurance that competitive factors will
not have an adverse effect on the Company's business.
RAPID TECHNOLOGICAL CHANGES
The market for wireless network system design services and tools is
characterized by rapid change and improvements in technology. The Company's
future success will depend in part on its ability to enhance its current
products, to introduce new products that keep pace with technological
developments and to address the increasingly sophisticated needs of its
customers. There can be no assurance that the Company will be successful in
developing and marketing in a timely manner product enhancements or new products
that respond to the technological advances by others, or that its products and
services will adequately and competitively address the needs of the changing
marketplace. Technological changes with respect to software tools and field
measurement and analysis equipment have resulted in the shortening of product
cycles, and if the Company is not ready to introduce new competitive products,
the Company's operating results could be adversely affected. In the past, the
Company's operating revenues from sales of software tools and field measurement
and analysis equipment have been adversely affected by this trend. In
particular, approximately two years ago, customer requirements for UNIX-based
products emerged at a time when the Company's UNIX-based products were still
being developed, and the Company's revenues from software tools for 1994 were
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Year Ended
December 31, 1994 Compared to Year Ended December 31, 1993." In order to remain
competitive, the Company may be required to expend a greater percentage of its
revenues on product innovation and research and development or technology
acquisition than historically has been the case. See Note 1 to the Consolidated
Financial Statements.
In addition, the Company believes that, as the number of wireless networks
in the U.S. increases with the addition of PCS license holders and other
competitors (Phase 4), operators will experience greater price competition and
place greater emphasis on containing costs and system efficiency. The Company's
customers will require new network engineering services and products to increase
system efficiency and manage costs in the Phase 4 multiple-operator environment.
Although the Company is developing such services and products and believes that
none of its existing competitors presently offer such services or products,
there can be no assurance that the Company will be able to offer such services
and products in a timely manner.
DEPENDENCE ON PROFESSIONAL STAFF; NEED FOR ADDITIONAL QUALIFIED TECHNICAL
PERSONNEL
The Company receives the majority of its revenues from the efforts of
approximately 325 RF engineers. The success of the Company's business therefore
depends on its ability to retain its existing staff and replace
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departing engineers. Moreover, to continue its growth at its current rate, the
Company needs to attract additional RF engineers and other technical
professionals, and a number of professionals with skills in the program
management area. There are a limited number of RF engineers, and such
individuals are sought both by RF engineering companies such as LCC and by
wireless network operators. Competition for such personnel is intense, which has
at times caused LCC to experience difficulty in recruiting and retaining
qualified technical personnel. In the program management area, although the
number of available professionals is greater, the Company has less experience in
hiring such professionals. There can be no assurance that the Company will not
experience difficulties in retaining and augmenting its professional staff.
DEPENDENCE ON SIGNIFICANT CUSTOMERS AND LARGE CONTRACTS
The Company derived approximately 50% of its revenues from its ten largest
customers in the year ended December 31, 1995. Nextel Communications, the
Company's largest customer in the year ended December 31, 1995, accounted for
approximately 14% of its revenues. Although such major customers generally have
differed from year to year as work under existing contracts is completed and
services under new contracts are commenced, the Company depends on having large
contracts from some customers each year to meet its expected revenues. There can
be no assurance that the Company will continue to receive large contracts from
customers.
LENGTHY SALES CYCLE
Purchases of the Company's products or services by customers often entail
an extended decision-making process for the customer because of the substantial
costs and strategic implications associated with selecting wireless network
deployment services and products. Senior management of the customer is often
involved in this process, given the importance of the decision as well as the
risks faced by the customer if the Company's services and products do not meet
the customer's particular needs. Therefore, large procurements of LCC services
and products involve lengthy selling cycles, resulting in a relatively high cost
of new business generation. See "Business -- Sales and Marketing."
SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS; TIMING UNCERTAINTIES RELATING TO
BACKLOG
The Company's quarterly revenues and operating results have varied
considerably in the past and are likely to vary considerably from quarter to
quarter in the future. Fluctuations in the Company's revenues depend on a number
of factors, some of which are beyond the Company's control. These factors
include, among others, the timing of issuance of new licenses by governmental
agencies, the length of sales cycles, changes in pricing policy by the Company
or its competitors, the timing of contracts and customer budget changes. In
addition, even after contracts are entered into, the timing of delivery of
services and products depends in part on the customer's readiness to receive the
services and the pace of the build-out of the customer's network, which in turn
depend on a number of business decisions by the customer and provision of
services and equipment by providers other than the Company. A large portion
($115 million, or approximately 64.0%) of the Company's current backlog consists
of services and products to be provided under two five year contracts with
holders of PCS licenses, and the customers have flexibility within such
five-year periods regarding the timing of ordering and mix of services and
products to be purchased from the Company. See "Business -- Customers and
Backlog." The timing of orders under such contracts is also subject to
uncertainties relating to PCS network deployment generally. See "Risk
Factors -- Changing Demand for the Company's Products and Services -- Delays in
Deployment of PCS Networks." The Company establishes its expenditure levels for
product development and other operating expenses in large part on its expected
future revenues. As a result, should revenues fall below expectations, operating
results are likely to be adversely affected. Gross profit as a percent of total
revenues declined from 1993 through March 31, 1996. There can be no assurances
that this trend will not continue. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
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DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of copyrights, trademarks, trade
secrets, non-disclosure and other contractual agreements and technical measures
to protect its proprietary rights in its products. There can be no assurance
that others will not independently develop similar products or duplicate the
Company's products. There can also be no assurance that the steps taken by the
Company will prevent misappropriation of this technology. In addition, effective
copyright, trademark or trade secret protection may be unavailable or limited in
certain circumstances. The Company believes that its products and trademarks do
not infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the future or that any such claims will not require the
Company to enter into royalty arrangements or result in costly litigation
involving the imposition of damages or injunctive relief against the Company,
any of which could adversely affect the Company's business.
RISKS OF INTERNATIONAL OPERATIONS
Approximately 39% of the Company's revenues for 1995 were generated outside
of the United States, and the Company expects this segment of its business to
continue to account for a material part of its revenues. Licensing software and
selling other products and services in foreign countries is subject to various
risks inherent in international business activities. Risks include those
presented by general economic and political conditions in each country, the
effect of applicable foreign tax structures, tariff and trade regulations,
difficulties in obtaining local business licenses, the need to manage a
geographically diverse organization and difficulties in complying with a variety
of foreign laws and regulations. In addition, adverse changes in the regulatory
environments in foreign countries, including delays in deregulation or
privatization affecting the pace at which licenses are awarded to wireless
network system operators, affect the level and timing of the demand for the
Company's services and products. Providing products and services outside the
United States carries the additional risk of currency fluctuations and foreign
exchange controls imposed by certain countries. Foreign customers may be
accustomed to paying their suppliers, including the Company, on terms and
conditions less attractive than is typical in the United States, and collection
of accounts receivable due from foreign customers can be more difficult than
from domestic customers.
RISKS ASSOCIATED WITH STRATEGIC RELATIONSHIPS, STRATEGIC FINANCING, AND
ACQUISITIONS
RISKS ASSOCIATED WITH STRATEGIC RELATIONSHIPS AND STRATEGIC FINANCING
There are a number of risks associated with the Company's plans to pursue
opportunities to enter into strategic relationships with new wireless operators
or to extend financing to customers as a means of obtaining new business.
Although the Company intends to enter into such arrangements only in return for
new business opportunities, there can be no assurance that the Company will
receive the anticipated business, that the business will be of the anticipated
level or that profits from the new business will offset any possible losses on
the investment made or financing extended by the Company to enter into such
relationship. A loan to or investment in a customer will be subject to many of
the same risks to which the customer is subject in seeking to operate and grow
its businesses, and there can be no assurance that the customer will be able to
repay or return the Company's investment within an acceptable period. The
Company's first two arrangements with customers under this strategy involved
financing aggregating $11.5 million to the two top bidders in the
recently-concluded C-block auction for broadband PCS licenses as part of
arrangements involving the Company receiving contracts aggregating $115 million
for new business over a five year period. The Company's investments in, and
expectation of future orders from, these two C-block bidders could be adversely
affected to the extent that the financial viability of these two C-block bidders
is affected by any (or a combination) of: the possibility that the FCC will find
either entity ineligible for the licenses for which they were the top bidders;
the head start enjoyed by A- and B-block licensees (which may be exacerbated by
delays in the issuance of C-block licenses caused by challenges to such issuance
filed by rival bidders); the relatively large amounts owed by the C-block
bidders to the U.S. Government as a result of the C-block auction; and the
entrepreneurial or "start-up" status of the C-block bidders and related
difficulties in obtaining adequate
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financing for the capital intensive build-out of their systems and to cover
operating losses during the early months of operation.
RISKS RELATING TO ACQUISITIONS
The Company's intention to engage in acquisitions to acquire companies that
have developed or are developing complementary products and services is subject
to the risks that the assets being acquired or additional professional staff
being recruited to perform services will not perform as expected, that the
acquired entity will have unanticipated liabilities and that the returns
realized by the Company ultimately will not support the investments made or
indebtedness incurred in such acquisitions.
RESTRICTIONS AND OTHER FACTORS
There are several restrictions and other factors affecting the Company's
ability to engage in strategic financings or acquisitions. Although the Company
believes that the net proceeds from the Offering, together with amounts that
will be available under the Credit Facility, will be sufficient to fund such
opportunistic investments and acquisitions, additional capital may be required
for such purposes. The Company cannot predict the extent to which additional
capital may be required, and there can be no assurance that the Company will be
able to obtain such additional capital on terms acceptable to the Company. In
addition, the Credit Facility will contain certain restrictions with regard to,
among other things, acquisitions, capital expenditures and incurrence of
additional indebtedness that may limit the ability of the Company to complete
certain acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity, Capital Resources and Other
Financial Data -- Existing Indebtedness." Certain entities formed by The Carlyle
Group, a Washington, D.C.-based investment group (the "Carlyle Investors") also
have certain rights that limit the ability of the Company to incur debt above
specified ratios or amounts. See "Description of Capital Stock -- Certain
Relationships Between the Founder Corporation and the Carlyle Investors
Affecting the Company." Moreover, in seeking to make investments in wireless
operators or acquire other companies, the Company will be competing with
organizations that are larger, have access to more substantial capital resources
or are pursuing other strategic goals. There can be no assurance that the
Company will be successful in completing these transactions.
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH
The success of the Company depends to a significant degree upon the
contribution of its executive officers and other key personnel. None of the
Company's employees has employment agreements with the Company, other than
agreements terminable at will, with the exception of its President and Chief
Executive Officer whose agreement is terminable upon 90 days' notice. There can
be no assurance that the Company will be able to retain its key managerial and
other key personnel or to attract suitable replacements or additional personnel
if required. To manage its growth effectively, the Company must continue to
strengthen its operational, financial and management information systems, and
expand, train and manage its work force. Failure to do so effectively and on a
timely basis would have an adverse effect upon the Company's business.
CONCERNS ABOUT MOBILE COMMUNICATIONS HEALTH RISK MAY AFFECT PROSPECTS OF LCC
Allegations have been made that serious health risks have resulted from the
use of portable mobile communications devices. The Cellular Telecommunications
Industry Association ("CTIA") has undertaken studies concerning the health risks
from using mobile communications devices and has publicly announced its belief
that no such risk to ordinary users exists. Other studies have found some
instances of interference with hearing aids and other medical devices caused
principally by digital wireless handsets. The actual or perceived health risks
of mobile communications devices could adversely affect LCC through a reduction
in the number of systems deployed worldwide or a reduction in the number of
sites constructed in those systems that are deployed.
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CONTROL OF THE COMPANY BY RF INVESTORS
Upon completion of the Merger and the Offering, RF Investors, a recently
formed subsidiary of Telcom Ventures, L.L.C. ("Telcom Ventures"), will own all
of the outstanding shares of Class B Common Stock, which will represent 93.9% of
the combined voting power of both classes of Common Stock. See "Principal and
Selling Stockholders." Accordingly, RF Investors and its equity holders will be
able, without the approval of the Company's public stockholders, to (i) elect
all of the Company's directors, (ii) amend the Company's certificate of
incorporation (the "Certificate of Incorporation") with respect to most matters
or effect a merger, sale of assets, or other major corporate transaction, (iii)
defeat any non-negotiated takeover attempt, (iv) sell RF Investors' shares of
Common Stock without participation in such sale by the Company's public
stockholders, (v) determine the amount and timing of dividends paid, if any,
with respect to Common Stock and (vi) otherwise control the management and
operations of the Company and the outcome of virtually all matters submitted for
a stockholder vote. RF Investors may also, by converting its shares of Class B
Common Stock into shares of Class A Common Stock, obtain a sufficient number of
shares of Class A Common Stock (60.7% of the total outstanding shares of Class A
Common Stock based upon the number of shares of Class B Common Stock held by RF
Investors on the date of the Offering) to determine the outcome of any vote with
respect to any matter on which the holders of Class A Common Stock are entitled
to vote together as a class. Dr. Rajendra and Neera Singh, who with certain
Singh family trusts indirectly own 75% of Telcom Ventures (the "Singh Family
Group"), are also directors or executive officers of the Company, and Mark Ein,
a designee of the Carlyle Investors, who are the 25% indirect owners of Telcom
Ventures, also is a director of the Company. The Telcom Ventures Limited
Liability Agreement provides that, for as long as the Carlyle Investors
collectively own at least 5% of the total membership interests of Telcom
Ventures, Telcom Ventures shall vote any and all shares of the Company held by
it, and shall cause RF Investors to vote any and all shares held by it, from
time to time: (i) to elect as directors of the Company two persons recommended
by the Carlyle Investors and (ii) not take any of the following actions without
the consent of the Carlyle Investors: (a) approve any amendment to the
Certificate of Incorporation or the Bylaws of the Company; (b) approve the
incurrence by the Company of any debt (or the granting of security relating to
the incurrence of debt) if as a result of such incurrence, the debt to equity
ratio of the Company exceeds 6:1 or, if as a result of such debt incurrence, the
total outstanding debt of the Company exceeds $50 million plus or minus, as the
case may be, the cumulative net income or the net losses of the Company after
January 1994; (c) approve any new affiliated party transactions in excess of
$150,000 or modifications to existing transactions, subject to certain limited
exceptions; (d) approve the appointment as independent accountants of the
Company of a firm other than one of the "big six" accounting firms; or (e)
approve certain events relating to the bankruptcy or insolvency of the Company.
See "Description of Capital Stock -- Certain Relationships Between the Founder
Corporation and Carlyle Investors Affecting the Company."
RELATIONSHIP WITH TELCOM VENTURES; POTENTIAL CONFLICTS OF INTEREST
Telcom Ventures, RF Investors' parent, is principally engaged in making
investments in wireless system operators and emerging wireless technologies.
Directors of Telcom Ventures and its subsidiaries who are also directors or
officers of the Company have certain fiduciary obligations to each organization.
Telcom Ventures and directors of Telcom Ventures and its subsidiaries who are
also directors and officers of the Company are in positions involving the
possibility of conflicts of interest with respect to certain transactions
concerning the Company. In addition, the Company and Telcom Ventures and certain
of Telcom Ventures' subsidiaries have entered and will enter into arrangements
which provide for certain transactions and relationships between the parties or
which otherwise affect the Company. In an effort to reduce the potential for
certain conflicts of interest, the Company, RF Investors, Telcom Ventures, and
Telcom Ventures' owners (the Founder Corporation, the Singh Family Group and the
Carlyle Investors (collectively, the "Telcom Ventures Group") will enter into an
agreement (the "Intercompany Agreement"), effective with the Offering, whereby,
among other things, (i) the Singh Family Group will be limited in their ability
to compete with the Company in its traditional lines of business and (ii)
Telecom Ventures will be limited in its ability to invest in entities whose
primary business is to compete with the Company in its traditional lines of
business, in each case for as long as any one or more of them possesses 51% or
more of the outstanding voting power of the Company. The Carlyle Investors will
be limited in their ability to invest in entities whose primary business is to
compete with the
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Company in its traditional line of business (excluding the program management
business) for as long as any of the Carlyle Entities own, directly or
indirectly, an interest in the Company. The Company will be free to pursue
investment opportunities on its own, but will be obligated to refer to Telcom
Ventures investment opportunities prior to offering such opportunities to any
other third party. If Telcom Ventures does not elect to pursue the investment
opportunity within five days, LCC will be free to offer the opportunity to third
parties. There can be no assurance that the Intercompany Agreement will
eliminate or reduce conflicts of interest or inconsistent fiduciary obligations.
See "Certain Transactions -- Corporate Opportunity" and "-- Future Transactions
with Officers, Directors and Principal Stockholders."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future, but instead intends to retain all working
capital and earnings, if any, for use in the Company's business operations and
in the expansion of its business. Certain covenants in the Credit Facility will
prohibit the payment of cash dividends without the consent of the lenders. See
"Dividend Policy."
NEGATIVE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, 16,719,034 shares of Common Stock will be
outstanding (assuming no exercise of the Over-Allotment Option), none of which
will be freely transferable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), other than the
3,700,000 shares of Class A Common Stock offered hereby. As of the completion of
the Offering, the Company's existing stockholders will continue to own an
aggregate of 13,019,034 shares of Common Stock, assuming no exercise of the
Over-Allotment Option. All of such shares of Common Stock are deemed to be
"restricted securities" as that term is defined in Rule 144, promulgated under
the Securities Act.
In general, under Rule 144, a person (or persons whose shares are
aggregated with shares held by another person) who is not an affiliate of the
Company and who has satisfied a two-year holding period may, under certain
circumstances, sell within any three-month period a number of restricted
securities which does not exceed the greater of one percent of the shares
outstanding or the average weekly trading volume during the four calendar weeks
preceding the notice of sale required by Rule 144. In addition, Rule 144
permits, under certain circumstances, the sale of restricted securities, without
any quantity limitations, by a person who is not an affiliate of the Company and
who has satisfied a three-year holding period. Under Rule 144, RF Investors and
MCI Telecommunications Corporation ("MCI") will be deemed, at the time of the
Offering, to have held the Class A Common Stock and Class B Common Stock owned
by them for more than two years and, accordingly, they will be able to commence
public sale of any of their currently held Class A Common Stock or any Class A
Common Stock issued upon conversion of their currently held Class B Common Stock
pursuant to Rule 144 beginning 90 days after the Offering, except as provided by
any "lock-up" agreements with the Underwriters.
The Underwriters have requested that the Selling Stockholder and the other
stockholder and executive officers and directors of the Company agree, not to
sell, transfer or otherwise dispose of any of their shares of Common Stock for a
period of 180 days from the date of this Prospectus, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
notwithstanding any Rule 144 exemption which may be available to such person.
Subject to such "lock-up" arrangements, which may be terminated earlier at the
discretion of DLJ, commencing 180 days after the date of this Prospectus there
will be 13,019,034 restricted shares of Common Stock available for sale pursuant
to Rule 144. The Company intends to file a registration statement under the
Securities Act with respect to the approximately 3,375,000 shares of Class A
Common Stock available upon exercise of options under the Employee Plan, the
Employee Stock Purchase Plan and the Company's 1996 Directors Stock Option Plan.
Finally, RF Investors and MCI have or will have certain "demand" rights to
require the Company to register their Common Stock for sale and may register
shares on a "piggyback" basis in connection with most registered public
offerings of securities of the Company. Upon the exchange of the promissory
notes issued by the Limited Liability Company and Telcom Ventures for equity in
the Company, MCI is entitled to registration rights that would, among other
things, permit MCI to submit three demand registration requests to the Company.
Generally, the Company is required to use "best efforts" to file a registration
statement with the Securities and Exchange Commission
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(the "Commission") within 90 days of receiving such a request. However, once a
year, the Company may defer MCI's registration request for a period of up to 90
days if the Board of Directors makes a good faith determination that it would be
"seriously detrimental" to the Company to file a registration statement within
the time period otherwise required. Any sales of such securities by stockholders
pursuant to Rule 144 or pursuant to a registration statement may have an adverse
effect on the market price of the Class A Common Stock and on the ability of the
Company to obtain additional equity financing. See "Shares Eligible For Future
Sale," "Principal and Selling Stockholder" and "Certain
Transactions -- Registration Rights."
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF CERTIFICATE OF
INCORPORATION, BY-LAWS AND THE CREDIT FACILITY
The Certificate of Incorporation and Bylaws include provisions that may
discourage or prevent certain types of transactions involving an actual or
potential change in control of the Company. In addition, the Board of Directors
has the authority to fix the rights and preferences of and issue shares of
preferred stock, which may have the effect of delaying or preventing a change in
control of the Company without action by the stockholders. See "Description of
Capital Stock -- Preferred Stock" and "-- Advance Notice Provisions for
Stockholder Proposals and Stockholder Nominations of Directors."
In addition, there are various measures that will be included in the Credit
Facility that may have the effect of discouraging non-negotiated takeover
attempts of the Company. In particular, the Credit Facility will provide for an
event of default if the Company, without the prior written consent of the
Lenders (i) sells, leases, assigns, transfers or otherwise disposes of any of
its assets, other than in the ordinary course of business and in other limited
circumstances or (ii) merges with another corporation other than a wholly-owned
subsidiary. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity, Capital Resources and Other Financial Data."
DILUTION
Investors participating in this Offering will incur immediate and
substantial dilution of approximately $11.82 per share in the pro forma net
tangible book value per share of the Class A Common Stock from the assumed
initial public offering price. See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the stock of
the Company and there can be no assurance that an active public market will
develop or be sustained after the Offering. The Offering price was determined by
negotiations among the Company, the Selling Stockholder and DLJ, Alex. Brown &
Sons Incorporated and Oppenheimer & Co., Inc., acting as representatives for the
Underwriters (the "Representatives"). Factors such as the announcement of the
introduction of new products or services by the Company or its competitors, the
award or termination of significant customer contracts, quarter to quarter
variations in the Company's operating results and changes in earnings estimates
by analysts, as well as market conditions in the technology and emerging growth
company sectors may have a significant impact on the market price of the Class A
Common Stock. Further, the stock market has on occasion experienced extreme
price and volume fluctuations, which have particularly affected market prices of
the equity securities of many technology companies and which have often been
unrelated to the operating performance of such companies. These broad market
fluctuations may materially and adversely affect the market price of the Class A
Common Stock.
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THE COMPANY
LCC International is the successor to the Limited Liability Company.
Immediately prior to the closing of the Offering, the Limited Liability Company
will merge with and into LCC International and, in connection therewith, shares
of Common Stock will be issued to the members of the Limited Liability Company.
See "The Merger." The Limited Liability Company in turn is the successor to LCC,
Incorporated (soon to be renamed Cherrywood Holdings, Inc.), a Kansas
corporation organized in 1983 and wholly owned by the Singh Family Group (the
"Founder Corporation"). The Limited Liability Company was capitalized in January
1994, in connection with a transaction in which the Founder Corporation and
affiliates contributed substantially all of their assets and liabilities to
Telcom Ventures in consideration of a 75% interest in Telcom Ventures and in
which the Carlyle Investors acquired a 25% interest in Telcom Ventures in
consideration of a cash contribution. Telcom Ventures immediately made a capital
contribution in the form of assets and cash in exchange for a 99% interest in
the Limited Liability Company. The Founder Corporation and TC Group, L.L.C., an
affiliate of the Carlyle Investors ("TC Group"), received 0.75% and 0.25%
interests in the Limited Liability Company, respectively. See "Management's
Decision and Analysis of Financial Condition and Results of
Operations--Liquidity, Capital Resources and Other Financial Data--Capital
Raised to Date" and Note 2 to the Consolidated Financial Statements.
The Company's executive offices are located at 2300 Clarendon Boulevard,
Suite 800, Arlington, VA 22201, and its telephone number is 703-351-6666.
THE MERGER
Immediately prior to the consummation of the Offering, the Limited
Liability Company will be merged with and into LCC International. In connection
with the Merger, (i) 2,863,807 shares of Class A Common Stock will be issued to
MCI (which, immediately following the MCI Conversion (defined below) and prior
to the Merger, will own 20% of the membership interests in the Limited Liability
Company), and (ii) 11,455,227 shares of Class B Common Stock will be issued to
RF Investors, (to which, immediately following the MCI Conversion and prior to
the Merger, Telcom Ventures, the Founder Corporation and TC Group will transfer
their respective membership interests in the Limited Liability Company, in
return for membership interests in RF Investors of 99%, 0.75% and 0.25%
respectively). As a result of the Merger, RF Investors will own all of the
outstanding shares of Class B Common Stock, which will represent upon
consummation of the Offering 93.9% of the combined voting power of both classes
of Common Stock. See "Risk Factors--Control of the Company by RF Investors" and
"Description of Capital Stock." As a result of the Merger, LCC International
will be subject to the obligations, liabilities, liens and encumbrances of the
Limited Liability Company, including those that will be incurred and exist under
the Credit Facility. Additionally, because the Merger is intended to qualify as
tax-free under Section 351 of the Code, the tax basis of the assets held by LCC
International after the Merger will be the same as the tax basis of the assets
in the hands of the Limited Liability Company immediately before the Merger, and
LCC International will add to its holding period for certain assets the period
for which the Limited Liability Company held such assets.
Pursuant to the Merger, LCC International will be required to indemnify the
members of the Limited Liability Company against all of the obligations and
liabilities associated with the Limited Liability Company's operations. In
addition, LCC International will be required to bear all of the costs incurred
by the Limited Liability Company and its members, and all transfer taxes and
related fees, in connection with the Merger.
THE MCI CONVERSION
In June 1994 the Limited Liability Company and Telcom Ventures entered into
a Note Purchase Agreement with a then unrelated third party, MCI, which provided
for the issuance of a $20 million subordinated note by the Limited Liability
Company (the "LCC Note") and of a $30 million subordinated note by Telcom
Ventures (the "Telcom Ventures Note") to MCI in return for cash in such amounts.
When MCI entered into this transaction, it advised the Company that MCI intended
the transaction to facilitate its
17
<PAGE> 20
plans, at that time, to acquire licenses to build-out and operate a national PCS
system. In connection therewith, it was contemplated that MCI would utilize the
services and products of a separate division of the Company. MCI has not pursued
acquisition of licenses for a national PCS network, has not entered into any
service arrangements with the Company and, as a result, MCI's role regarding the
Limited Liability Company has been limited to that of a passive financial
investor.
The LCC Note and the Telcom Ventures Note (collectively, the "Exchangeable
Notes") are both due June 28, 2000 and bear interest at a rate equal to the
higher of 6.8% per annum, payable semiannually, or an amount which approximates
the return had they converted into a membership interest in the Limited
Liability Company from the date when the Exchangeable Notes were issued. The
Telcom Ventures Note is exchangeable into a 12% interest in the Limited
Liability Company and the LCC Note is exchangeable into an 8% interest in the
Limited Liability Company; any exchange of one note must include the exchange of
the other note. The Telcom Ventures Note is guaranteed by the Limited Liability
Company.
The Exchangeable Notes are exchangeable upon certain specified events,
including at the Company's option, upon an initial public offering of the
Company. Immediately prior to the Offering, the Limited Liability Company will
assume the Telcom Ventures Note. The Company presently intends to exercise its
exchange option to cause the Exchangeable Notes to be exchanged into 2,863,807
shares of Class A Common Stock contemporaneously with the Offering as part of
the Merger (Such assumption and conversion are herein referred to as the "MCI
Conversion").
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $32.5 million, assuming a public offering price of $15.00 per
share (approximately $37.5 million if the Over-Allotment Option is exercised in
full), after deducting the estimated underwriting discount and estimated
transaction fees and expenses payable by the Company. The net proceeds of the
Offering will be used (i) to repay entirely the amount outstanding under the
Credit Facility (approximately $20 million) and (ii) for strategic financing or
investments in customers and equipment vendors, acquisitions of companies with
complementary products and services, and working capital and general corporate
purposes.
The terms of the Credit Facility, which are expected to continue in place
after the Offering and the application of net proceeds therefrom, are described
below in more detail under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity, Capital Resources
and Other Financial Data." The maximum amount that the Company may borrow under
the Credit Facility is $20 million ($12.5 million as a revolving loan and $7.5
million as a term loan). Interest under the Credit Facility is expected to
accrue at the Company's election (subject to certain restrictions and
limitations contained in the Credit Agreement), at either (i) a variable rate
(the "Variable Rate") determined with reference to the higher of (a) the Federal
Funds Rate plus 0.5%, and (b) the announced prime commercial lending rate of
Chase, or (ii) a fixed rate (the "Fixed Rate") for a designated period of time
(1, 2, 3 or 6 months) determined with reference to the rate at which U.S. dollar
deposits are offered to leading banks in the London interbank market. The actual
rate at which interest accrues will be determined by adding to the Variable Rate
or to the Fixed Rate (as applicable) an interest margin based upon the Company's
cash flow leverage ratio, as periodically determined. Such interest margin will
vary (i) from 0% to 0.25% with respect to Variable Rate revolving loans; (ii)
from 1.00% to 1.75% with respect to Fixed Rate revolving loans; (iii) from 0% to
0.50% with respect to that portion of the term loan to which the Variable Rate
applies; and (iv) from 1.25% to 2.00% with respect to that portion of the term
loan to which the Fixed Rate applies. If not prepaid, (i) the term loan is
expected to amortize in 20 equal quarterly installments over five years and (ii)
the revolving loan commitment is expected to expire four years from the closing
thereof. Subject to certain restrictions on the minimum permitted amount of any
prepayment and the requirement that certain notices of prepayment be given to
Chase, the principal of the revolving loans and the term loan would be
prepayable without penalty or premium, so long as the Lenders are compensated
for losses, costs and expenses attributable to any prepayment of any loan
accruing interest at the Fixed Rate on a date other than the last day of the
applicable interest period. The proceeds of the Credit Facility were used to
refinance the Existing
18
<PAGE> 21
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity, Capital Resources and Other Financial
Data -- Existing Indebtedness."
The Company periodically reviews acquisition and strategic investment
opportunities that are related to the Company's business and believes that it is
desirable to have funds on hand so as to be able to make acquisitions and
strategic investments promptly. As of the date of this Prospectus, the Company
has no specific agreements, understandings, commitments, or arrangements with
regard to any particular future acquisition or strategic investment, and no
assurances can be given that the Company will be able to consummate any
acquisitions or strategic investments or that, if consummated, such acquisitions
would be on terms that are favorable to the Company.
The Company's proposed use of proceeds is subject to changes in general,
economic and competitive conditions, timing and management discretion, each of
which may change the amount of proceeds expended for the purposes intended. The
proposed application of proceeds is also subject to changes in market conditions
and the Company's financial condition in general.
Pending such uses, the net proceeds will be invested in short-term
investment grade, interest bearing obligations. The Company will not receive any
proceeds from the sale of Class A Common Stock by the Selling Stockholder.
DIVIDEND POLICY
The Company does not anticipate paying dividends on the Common Stock, cash
or otherwise, in the foreseeable future. In addition, the Credit Facility will
prohibit the payment of dividends by the Company without consent of the Lenders.
Future dividends, if any, will be at the discretion of the Board of Directors
and will depend upon, among other things, the Company's operations, capital
requirements and surplus, general financial condition, contractual restrictions
and such other factors as the Board of Directors may deem relevant.
DILUTION
The pro forma net tangible book value of the Company on March 31, 1996
(determined as if the Merger and the MCI Conversion but not the Offering had
occurred on March 31, 1996), was $20.7 million, or a pro forma per share amount
of approximately $1.45. Pro forma net tangible book value per share represents
the amount of total tangible assets less the amount of total liabilities divided
by the total number of pro forma shares of Common Stock outstanding. After
giving effect to the receipt of approximately $32.5 million of estimated net
proceeds of the sale by the Company of 2.4 million shares of Class A Common
Stock pursuant to the Offering, the pro forma net tangible book value of the
Company at March 31, 1996 would have been approximately $53.2 million or $3.18
per share. This change represents an immediate increase in pro forma net
tangible book value of $1.73 per share to the existing stockholders and an
immediate dilution of $11.82 per share to new investors purchasing shares of
Class A Common Stock in the Offering. The following table illustrates the
substantial and immediate dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed Offering price per share.................................... $15.00
Pro forma net tangible book value per share before Offering....... $1.45
Increase per share attributable to new investors(1)............... 1.73
-----
Pro forma net tangible book value per share after Offering(1)....... 3.18
------
Dilution per share to new investors(2)(3)........................... $11.82
======
</TABLE>
- ---------------
(1) After deducting underwriting discounts and estimated transaction fees and
expenses of $1.0 million to be paid by the Company in connection with the
Offering.
(2) Dilution is determined by adding net tangible book value per share after the
Offering to the amount assumed paid by a new investor for a share of Class A
Common Stock.
19
<PAGE> 22
(3) Assuming the Over-Allotment Option is exercised in full, pro forma net
tangible book value of the Company after the Offering would be $3.41 per
share and the immediate dilution to new investors would be $11.59 per share.
The following table summarizes the difference between existing stockholders
(determined as if the Merger and the MCI Conversion had occurred on March 31,
1996) and new investors with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company by the
purchasers of shares of Class A Common Stock in the Offering and by the existing
stockholders, and the average price paid per share on an as-adjusted basis.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
<S> <C> <C> <C> <C> <C>
New Investors..................... 2,400,000 14.4% $36,000,000 37.3% $ 15.00
Existing Stockholders(1).......... 14,319,034 85.6 60,423,000 62.7 4.22
---------- ----- ----------- -----
Total................... 16,719,034(2) 100.0% $96,423,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) The existing stockholders are RF Investors and MCI. See "Principal and
Selling Stockholder." Other than 10 shares of Class A Common Stock purchased
by these existing stockholders in connection with the formation of LCC
International, the Common Stock reflected in this table as being owned by
these existing stockholders will be issued to them in the Merger or the MCI
Conversion. See "The Merger" and "The MCI Conversion."
(2) Does not include 555,000 shares of Class A Common Stock issuable upon
exercise of the Over-Allotment Option that the Underwriters have the option
to purchase from the Company to cover over-allotments, if any, or 3,375,000
shares of Class A Common Stock reserved or to be reserved for issuance under
the Company's stock option or stock purchase plans. See "Management -- Stock
Plans" and "Underwriting."
20
<PAGE> 23
CAPITALIZATION
The following table sets forth at March 31, 1996 (i) the combined
capitalization of LCC International and the Limited Liability Company and (ii)
the pro forma combined capitalization of the Company as adjusted for the
refinancing of the Existing Facility with the proceeds of the Credit Facility,
the Merger, the MCI Conversion and the Offering, including the application of
$20 million of the estimated net proceeds of the Offering to pay off amounts
outstanding under the Credit Facility. See "Use of Proceeds." This table should
be read in conjunction with the Consolidated Financial Statements and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
--------------------------
ACTUAL(1) PRO FORMA(2)
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current installments of long-term
debt(3)............................................................ $20,000 $ --
======= =======
Long-term debt:
Convertible Subordinated Debt...................................... $20,000 $ --
Purchase obligations............................................... -- --
------- -------
Total long-term debt....................................... 20,000 --
------- -------
Limited Liability Company equity (deficit)........................... (960) --
------- -------
Stockholders' equity:
Class A Common Stock, $0.01 par value:
70,000,000 shares authorized; -0- and 6,563,807 shares issued
and outstanding, respectively................................... -- 66
Class B Common Stock, $0.01 par value:
20,000,000 shares authorized; -0- and 10,155,227 shares issued
and outstanding, respectively................................... -- 101
Preferred Stock:
10,000,000 shares authorized; -0- shares issued and
outstanding..................................................... -- --
Paid-in capital.................................................... -- 52,313
Retained earnings.................................................. -- 4,660(4)
------- -------
Total stockholders' equity......................................... -- 57,140
------- -------
Total capitalization................................................. $19,040 $ 57,140
======= =======
</TABLE>
- ---------------
(1) Combined capitalization of LCC International and the Limited Liability
Company as of March 31, 1996.
(2) Gives effect to the refinancing of the Existing Facility with the proceeds
of the Credit Facility, the Merger, MCI Conversion and the Offering
(including the application of $20 million of the estimated net proceeds of
the Offering to pay off amounts outstanding under the Credit Facility) as if
they had occurred as of March 31, 1996.
(3) Represents amounts outstanding under the Existing Facility. As of March 31,
1996, the full $20 million was outstanding under the Existing Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity, Capital Resources and Other Financial Data --
Existing Indebtedness."
(4) Includes non-recurring payment of compensation expense of $1.8 million (net
of applicable taxes) resulting from assumption of the Telcom Ventures Note.
Also includes a non-recurring deferred tax benefit from conversion from a
limited liability company to a Subchapter C corporation for income tax
purposes, estimated to be approximately $6.7 million.
21
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are (i) selected consolidated financial data as of and for
the five years ended December 31, 1991 through 1995, which data have been
derived from the Company's Consolidated Financial Statements that have been
audited by KPMG Peat Marwick LLP, (ii) selected financial data for the three
months ended March 31, 1995 and 1996, which data have been derived from the
Company's unaudited financial statements, and (iii) selected pro forma
consolidated summary of operations data for the year ended December 31, 1995,
and selected pro forma consolidated balance sheet data as of December 31, 1995,
which data give effect to the refinancing of the Existing Facility with the
proceeds of the Credit Facility, the MCI Conversion, the Merger and the Offering
(including the application of $20 million of the estimated net proceeds of the
Offering to pay entirely the amount outstanding under the Credit Facility) as if
each had occurred as of the beginning of the respective pro forma periods. In
the opinion of the Company, the unaudited data for the three month periods
include all adjustments necessary for a fair presentation of such information.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be achieved for any interim periods during
the year ending December 31, 1996 or any future periods. The selected
consolidated financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- --------------------------------
1991 1992 1993 1994 1995 1995 1995 1996 1996
PRO FORMA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA) PRO FORMA(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Service revenues............ $25,872 $31,053 $30,712 $41,063 $64,016 $ 64,016 $12,687 $17,457 $ 17,457
Product revenues............ 14,435 23,279 29,595 34,992 40,445 40,445 8,453 9,631 9,631
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues............ 40,307 54,332 60,307 76,055 104,461 104,461 21,140 27,088 27,088
------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Cost of service revenues.... 20,466.. 21,352 21,087 29,185 45,682 45,682 8,931 11,352 11,352
Cost of product revenues.... 9,046 10,565 16,026 21,299 25,455 25,455 5,486 7,358 7,358
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.... 29,512 31,917 37,113 50,484 71,137 71,137 14,417 18,710 18,710
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................. 10,795 22,415 23,194 25,571 33,324 33,324 6,723 8,378 8,378
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing......... 776 2,372 4,146 4,987 5,823 5,823 1,508 1,432 1,432
General and
administrative............ 5,156 5,013 5,799 8,802 10,108 10,108 2,366 2,706 2,706
Non-cash compensation....... -- -- -- 3,255 4,646 4,646 1,191 466 466
Depreciation and
amortization.............. 1,511 1,706 1,838 2,020 3,699 3,699 540 1,213 1,213
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses................ 7,443 9,091 11,783 19,064 24,276 24,276 5,605 5,817 5,817
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income.............. 3,352 13,324 11,411 6,507 9,048 9,048 1,118 2,561 2,561
------- ------- ------- ------- ------- ------- ------- ------- -------
Other income (expense):
Interest, net............... 614 184 146 (221) (2,193) 131 (66) (538) 127
Other....................... 231 625 (231) 721 1,027 1,027 (146) 1,164 1,164
------- ------- ------- ------- ------- ------- ------- ------- -------
Total other income
(expense)............... 845 809 (85) 500 (1,166) 1,158 (212) 626 1,291
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes.... 4,197 14,133 11,326 7,007 7,882 10,206 906 3,187 3,852
Provision for income taxes.... 337 528 829 2,037 3,142 4,082 370 708 1,541
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.................... $ 3,860 $13,605 $10,497 $ 4,970 $ 4,740 $ 6,124 $ 536 $ 2,479 $ 2,311
======= ======= ======= ======= ======= ======= ======= ======= =======
PRO FORMA DATA:
Net income.................... $ 4,740 $ 2,479
Pro forma adjustment for
interest expense(1)......... 2,324 665
Pro forma adjustment for
income taxes(2)............. (940) (833)
------- -------
Pro forma net income(2)....... $ 6,124 $ 2,311
======= =======
Pro forma net income per
share(3).................... $ 0.34 $ 0.13
======= =======
Pro forma weighted average
number of common shares and
common share
equivalents(3).............. 17,900 17,900
OTHER DATA:
EBITDA(4)..................... $ 4,863 $15,030 $13,249 $ 8,527 $12,747 $ 1,658 $ 3,774
Capital Expenditures.......... 2,455 1,625 1,882 2,403 4,222 1,121 415
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AT MARCH 31,
----------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1996 1996
(IN THOUSANDS) PRO FORMA(1)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash................................................... $ 4,317 $ 9,369 $ 9,170 $18,469 $ 6,571 $ 8,599 $ 21,016
Working capital........................................ 7,674 5,020 4,682 31,503 17,649 9,924 43,924
Property, plant, and equipment, net.................... 3,949 3,861 3,905 4,019 5,440 5,167 5,167
Licenses and other intangibles, net.................... 0 0 0 1,797 3,745 3,960 3,960
Total assets........................................... 19,717 21,211 55,417 58,586 62,041 75,352 94,469
Total debt............................................. 302 43 30,442 20,000 30,000 40,000 0
Equity (deficit)....................................... 9,857 9,431 12,270 13,938 (244) (960) 57,140(5)
</TABLE>
- ---------------
(1) Adjusted to reflect the pro forma effects, as applicable, of the Offering
(including the application of estimated net proceeds of the Offering to
repay amounts outstanding under the Credit Facility and related interest
expense), the refinancing of the Existing Facility with the proceeds of the
Credit Facility, the MCI Conversion and the Merger (assuming such offering,
conversion and merger occurred on January 1, 1995, except for consolidated
balance sheet data, which assumes such transactions occurred on March 31,
1996).
(2) In connection with the Offering and the Merger, the Company will be
converting to a Subchapter C corporation under the Code. Prior to
conversion, the Company has been a limited liability company for Federal and
certain state income tax purposes. As such, income of the Company was
taxable to the individual members rather than to the Company. Accordingly,
the provision for income taxes for the years ended December 31, 1991 to
1995, and the three months ended March 31, 1995 and 1996 represents state
income taxes on earned income in those states that do not recognize the
flow-through nature of the limited liability company and foreign taxes. Pro
forma net income is net of a provision for income taxes as if the Company
were a Subchapter C corporation at an assumed effective income tax rate of
approximately 40%.
(3) Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average number of common shares and common
share equivalents outstanding.
(4) EBITDA represents earnings before interest income, interest expense, other
income, income taxes, depreciation and amortization. EBITDA is commonly used
in the telecommunications industry to analyze companies on the basis of
operating performance, leverage and liquidity. EBITDA is not intended to
represent cash flows for periods, nor has it been presented as an
alternative to operating income or as an indicator of operating performance
and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. See the Company's Consolidated Statements of Cash Flows in the
Company's Consolidated Financial Statements contained elsewhere in this
Prospectus.
(5) Includes non-recurring payment of compensation expense of $1.8 million (net
of applicable taxes) from assumption of the Telcom Ventures Note. Also
includes a non-recurring deferred tax benefit from conversion from a limited
liability company to a Subchapter C corporation for income tax purposes,
estimated to be approximately $6.7 million.
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
LCC is the world's largest independent provider of RF engineering and
network design services to the wireless telecommunications industry. The Company
has provided these services, along with related proprietary software tools and
field measurement and analysis equipment, to operators of more than 200 wireless
systems in more than 40 countries.
The Company's revenues are generated through contracts for RF engineering
and program management services, licenses of the Company's software products and
sales of the Company's field measurement and analysis products. LCC provides
engineering services on a contract basis, usually in a customized plan for each
client. The Company generally charges for engineering services on a time and
materials basis, although Phase 1 services or other projects of short duration
may involve a fixed price or success fee. The Company generally provides program
management services on a time and materials basis; such contracts often have
ceilings on cost per cell site. The Company's revenues also include
reimbursement for expenses, including the living expenses of engineers on
customer sites (approximately 15% of revenues from RF engineering services for
1995). The software tools used by LCC's engineers, which are used as part of the
customer's system after completion of the project pursuant to a license, are
recorded as product, not service revenues. Revenues from software tools are
earned under license arrangements, which in the U.S. often consist of an annual
fee per workstation or per cell site and which are for a fixed term that
requires renewal by the customer to retain the software. The Company charges an
up-front fee in many cases outside the U.S. where customers are not accustomed
to paying annual licensing fees for software. A portion of the revenues from
licensing software to customers, apart from those associated with engineering
services contracts, consists of upgrades or additional software modules
developed by the Company following the initial licensing. Revenues from field
measurement and analysis equipment consist primarily of one-time payments,
although there may be additional charges for equipment maintenance and upgrades.
Service revenue consists of revenues from engineering services
(approximately 56.3% of 1995 revenues) and program management services
(approximately 5.0% of 1995 revenues), which the Company commenced providing in
1995. Product revenue consists of revenue from software tools (approximately
18.5% of 1995 revenues) and revenue from field measurement and analysis products
(approximately 20.2% of 1995 revenues). The Company derives a significant
proportion of its revenues from its international customers (approximately 39%
in 1995). Since almost all of the Company's contracts are denominated in U.S.
dollars, the Company generally does not maintain currency hedge agreements.
Cost of revenues consists of costs associated with engineering design
services and program management services as well as costs associated with the
production and design of field measurement and analysis equipment, licensing of
software and related maintenance costs. Sales and marketing expenses consist of
salaries, sales commissions, travel and other expenses required to implement the
Company's marketing, sales and customer support plans. General and
administrative expenses consist of the compensation, finance, information
systems, professional services, office and occupancy costs required to manage
the Company's business. Non-cash compensation consists of awards under a program
for key executives adopted in 1994. Such plan is accounted for as a variable
plan and, therefore, to the extent that the deemed fair market value of the
Company increases, compensation expense will increase accordingly. It is
anticipated that, in connection with the Offering, the Company will grant
options to replace the awards granted under this plan. It is expected that such
options will be granted with exercise prices substantially below the initial
public offering price.
The key drivers of LCC's growth have historically been (i) the issuances of
new or additional wireless telecommunications licenses by governmental
authorities to wireless operators, (ii) increases in the number of cell sites
operated and the number of subscribers served by wireless network operators,
(iii) the introduction of new services or technologies, (iv) the increasing
complexity of the systems deployed by wireless network operations and (v) the
expansion and optimization of existing systems by wireless network operators. To
keep pace with the subscriber growth currently anticipated by most industry
analysts, LCC expects that there will
24
<PAGE> 27
continue to be significant investment by network system operators over the next
few years in design services, software tools and field measurement and analysis
equipment. The Company expects that as system build-out is completed and areas
(particularly in the U.S.) begin to have multiple network operators, the demand
for RF engineering services will change. See "Business -- The LCC Strategy Offer
and Develop New Types of Services and Products -- Phase 4 System Efficiency
Services and Products." From 1991 to 1995, the average operating gross margins
of the Company were approximately 34.4% of total revenue and the compound annual
growth rate of its operating gross profit was approximately 34.0%. Gross profits
as a percent of total revenues declined from 1993 through March 31, 1996 due to
the factors described below. There can be no assurance as to the effect of
market changes impacting the Company. See "Risk Factors -- Changing Demand for
the Company's Products and Services" and "-- Risks From Competition."
RESULTS OF OPERATIONS
The following table sets forth certain items as a percentage of revenue
from the Company's audited consolidated statements of operations for the years
ended December 31, 1993, 1994, and 1995 and the unaudited statements for the
three months ended March 31, 1995 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues.................................. 50.9% 54.0% 61.3% 60.0% 64.4%
Product revenues.................................. 49.1 46.0 38.7 40.0 35.6
----- ----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
Cost of revenues.................................... 61.5 66.4 68.1 68.2 69.1
----- ----- ----- ----- -----
Gross profit........................................ 38.5 33.6 31.9 31.8 30.9
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing............................... 6.9 6.6 5.6 7.1 5.3
General and administrative........................ 9.6 11.6 9.7 11.2 10.0
Non-cash compensation............................. 0.0 4.3 4.4 5.6 1.7
Depreciation and amortization..................... 3.1 2.6 3.5 2.6 4.4
----- ----- ----- ----- -----
Total operating expenses.................. 19.6 25.1 23.2 26.5 21.4
----- ----- ----- ----- -----
Operating income:................................... 18.9 8.5 8.7 5.3 9.5
----- ----- ----- ----- -----
Other income (expense):
Interest income................................... 0.4 0.7 0.6 0.0 0.5
Interest expense.................................. (0.1) (0.9) (2.7) (0.3) (2.5)
Other............................................. (0.4) 0.9 0.9 (0.7) 4.3
----- ----- ----- ----- -----
Total other income (expense).............. (0.1) 0.7 (1.2) (1.0) 2.3
----- ----- ----- ----- -----
Income before income taxes.......................... 18.8 9.2 7.5 4.3 11.8
Provision for income taxes.......................... 1.4 2.7 3.0 1.8 2.6
----- ----- ----- ----- -----
Net income.......................................... 17.4% 6.5% 4.5% 2.5% 9.2%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Revenues. Revenues for the three months ended March 31, 1996 were $27.1
million versus $21.1 million for the three months ended March 31, 1995, an
increase of $6.0 million or 28.1%. Services and products each experienced an
increase in revenues for the three months ended March 31, 1996. Service revenues
were $17.5 million for the three months ended March 31, 1996 compared to $12.7
million for the three months ended March 31, 1995, an increase of $4.8 million
or 37.6%. The increase was due to new demand for design services from the PCS
market and revenues generated by the program management division, which
commenced operations in 1995. Product revenues were $9.6 million for the three
months ended March 31, 1996 compared to $8.5 million for the three months ended
March 31, 1995, an increase of $1.1 million or
25
<PAGE> 28
13.9%. The increase was due primarily to growth in software sales which
increased $1.1 million or 26.8% between years.
Cost of Revenues and Gross Profit. Cost of revenues increased to $18.7
million for the three months ended March 31, 1996 compared to $14.4 million for
the three months ended March 31, 1995, an increase of $4.3 million or 29.8%. As
a percentage of total revenues, cost of revenues was 69.1% and 68.2% for the
three months ended March 31, 1996 and 1995, respectively. Gross profit increased
to $8.4 million for the three months ended March 31, 1996 from $6.7 million for
the three months ended March 31, 1995, an increase of $1.7 million or 24.6%. As
a percentage of total revenues, gross profit decreased to 30.9% for the three
month period ended March 31, 1996 versus 31.8% for the same period in 1995. The
$1.7 million increase in gross profit largely resulted from corresponding
revenue growth. The increase in cost of revenues and the decline in gross profit
as a percentage of total revenues were due, in part, to the Company's build-up
of engineering and related staff to serve the PCS market, particularly in the
program management division.
Sales and Marketing. Sales and marketing expenses decreased to $1.4 million
for the three months ended March 31, 1996 from $1.5 million for the three months
ended March 31, 1995, a decrease of $0.1 million or 5.0%. As a percentage of
total revenues, sales and marketing expense decreased to 5.3% of revenues for
the three months ended March 31, 1996 compared to 7.1% of revenues for the three
months ended March 31, 1995. The decrease was primarily the result of a
reduction in labor costs associated with sales and marketing.
General and Administrative. General and administrative expenses increased
to $2.7 million for the three months ended March 31, 1996 from $2.4 million for
the three months ended March 31, 1995, an increase of $0.3 million or 14.4%. The
increase was primarily the result of the expensing of certain costs incurred by
the Company in connection with the upgrade of its financial information systems.
General and administrative expenses decreased as a percentage of total revenues
to 10.0% for the three months ended March 31, 1996 from 11.2% for the three
months ended March 31, 1995, as the increase in revenues outpaced growth in
general and administrative expenses.
Non-Cash Compensation. Non-cash compensation decreased to $0.5 million for
the three months ended March 31, 1996 from $1.2 million at March 31, 1995, a
decrease of $0.7 million or 60.9%. The decrease is the result of the vesting of
certain portions of the award of non-cash compensation under the LLC Membership
Plan between years.
Net Income. Net income increased to $2.5 million for the three months ended
March 31, 1996 from $0.5 million for the three months ended March 31, 1995, an
increase of $2.0 million or 362.5%. The increase was the result of an increase
in gross profit from corresponding revenue growth, an increase in other income
due to the sale of the Company's 50% interest in Telemate, S.A. for $3.8 million
and a decrease in non-cash compensation offset by an increase in interest
expense, an increase in income taxes and an increase in general and
administrative and depreciation and amortization expense. Interest expense
increased $0.6 million to $0.7 million for the three months ended March 31, 1996
primarily as a result of borrowings under a Note Purchase Agreement dated as of
May 30, 1995 between Nomura Holding America, Inc. ("Nomura") and the Company
(the "Nomura Facility") and costs associated with the purchase of the Nomura
Facility by Chase. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity, Capital Resources and Other
Financial Data -- Existing Indebtedness." No amounts were outstanding under the
Nomura Facility at March 31, 1995. Income taxes increased $0.3 million, or
91.4%, to $0.7 million for the three months ended March 31, 1996 primarily as a
result of revenue growth. Depreciation and amortization expense increased $0.7
million to $1.2 million for the three months ended March 31, 1996 as a result of
the increased amount of amortization of capitalized software development costs.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues for 1995 were $104.5 million versus $76.1 million for
1994, an increase of $28.4 million or 37.3%. Service revenues were $64.0 million
in 1995 versus $41.1 million in 1994, an increase of $22.9 million or 55.9%. The
increase in service revenues was primarily due to new business in the PCS market
combined with an increase in revenues from domestic cellular and ESMR operators.
Further, the program management division commenced operations in 1995 and had
revenues of $5.2 million. Product
26
<PAGE> 29
revenues were $40.5 million for 1995 compared to $35.0 million for 1994, an
increase of $5.5 million or 15.6%. An increase in software sales was offset
slightly by a decline in field measurement and analysis product sales. The
increase in software sales was largely due to increased international revenues.
The decline in revenues from field measurement and analysis equipment resulted
from the Company devoting its resources to creating the intrastructure to
develop and assemble its own products, instead of outsourcing.
Cost of Revenues and Gross Profit. Cost of revenues increased to $71.1
million for 1995 from $50.5 million for 1994, an increase of $20.6 million or
40.9%. As a percentage of total revenues, cost of revenues was 68.1% and 66.4%
for 1995 and 1994, respectively. Gross profit increased to $33.3 million for
1995 from $25.6 million for 1994, an increase of $7.7 million or 30.3%. As a
percentage of total revenues, gross profit decreased to 31.9% for 1995 from
33.6% for 1994. The $7.7 million increase in gross profit largely resulted from
corresponding revenue growth. The increase in costs of revenues and the decline
in gross profit as a percentage of total revenues were due, in part, to the
Company's build-up of staff to serve the PCS business which was followed by the
slower than anticipated development of that business, competitive pressures with
respect to field measurement and analysis products and software tools, and costs
associated with the start-up of the program management division.
Sales and Marketing. Sales and marketing expenses increased to $5.8 million
for 1995 from $5.0 million for 1994, an increase of $0.8 million, or 16.8%. The
increase was primarily attributable to growth in the Company's marketing
personnel to support the increase in revenues. Sales and marketing expenses
decreased as a percentage of total revenues to 5.6% for 1995 from 6.6% for 1994
as a result of a greater rate of increase in revenues relative to the growth in
sales and marketing expenses.
General and Administrative. General and administrative expenses increased
to $10.1 million for 1995 from $8.8 million for 1994, an increase of $1.3
million or 14.8%. The increase was primarily the result of increases in the
Company's administrative personnel to support growth. General and administrative
expenses decreased as a percentage of total revenues to 9.7% for 1995 from 11.6%
for 1994 due to the fixed nature of certain overhead costs.
Non-Cash Compensation. Non-cash compensation increased to $4.6 million for
1995 from $3.3 million for 1994, an increase of $1.3 million or 42.7%. The
increase was the result of an increase in the vesting of the awards under the
LLC Membership Plan and an increase in the deemed fair market value of the
Company.
Net Income. Net income decreased to $4.7 million for 1995 from $5.0 million
for 1994, a decrease of $0.3 million or 4.6%. As a percent of total revenues,
net income decreased to 4.5% for 1995 from 6.5% for 1994. The decrease in net
income of $0.3 million was the result of an increase in operating expenses, an
increase in interest expense, and an increased provision for income taxes.
Interest expense increased $2.1 million or 293.0% for 1995 as a result of
additional borrowings under the Nomura Facility which was used to dividend and
loan funds to Telcom Ventures. Depreciation and amortization expense increased
as a result of the capitalization and amortization of external costs incurred by
the Company in connection with the upgrade of its financial information systems.
Income taxes increased $1.1 million or 54.2% for 1995 as a result of an increase
in the absolute amount of international revenues.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues. Revenues for 1994 increased to $76.1 million for 1994 from $60.3
million for 1993, an increase of $15.8 million or 26.1%. Service revenues were
$41.1 million for 1994 versus $30.7 million for 1993, an increase of $10.4
million or 33.7%. Engineering design services accounted for the entire increase
as the program management services did not commence until 1995. The increase in
engineering design services revenues was primarily due to significantly
increased revenues from domestic cellular and ESMR operators. International
engineering design service revenues grew at a slower rate in 1994 due to the
completion of several major European projects, which was offset by a broadening
of the Company s international client base. Product revenues were $35.0 million
for 1994 compared to $29.6 million for 1993, an increase of $5.4 million or
18.2%. A significant increase in field measurement and analysis product sales
was offset by a decline in software licensing revenue. The significant increase
in field measurement and analysis product sales during 1994 was primarily due to
increases in European sales and sales to ESMR operators. In addition, sales to
27
<PAGE> 30
domestic cellular operators and to systems operators in Asia and South America
increased. The decline in software licensing revenues was a result of increased
customer requirements for UNIX-based products at a time when the Company's
UNIX-based products were still being developed, as well as increased competition
in software products.
Cost of Revenues and Gross Profit. Cost of revenues increased to $50.5
million for 1994 from $37.1 million for 1993, an increase of $13.4 million or
36.0%. As a percentage of total revenues, cost of revenues was 66.4% and 61.5%
for 1994 and 1993, respectively. Gross profit increased to $25.6 million for
1994 from $23.2 million for 1993, an increase of $2.4 million or 10.2%. As a
percentage of total revenues, gross profit decreased to 33.6% for 1994 from
38.5% for 1993. The $2.4 million increase in gross profit resulted primarily
from corresponding revenue growth. The increase in the cost of revenues and the
decline in gross profit as a percentage of total revenues were due, in part, to
an investment in training and process development for PCS capabilities by the
design services division and increased cost of software products relative to
licensing revenues as a result of technical issues associated with the
development of UNIX-based products.
Sales and Marketing. Sales and marketing expenses increased to $5.0 million
for 1994 from $4.1 million for 1993, an increase of $0.9 million or 20.3%. As a
percentage of total revenues, sales and marketing expenses declined slightly to
6.6% for 1994 as compared to 6.9% for 1993. The increase of $0.9 million was
primarily due to an increase in commissions paid to agents.
General and Administrative. General and administrative expenses increased
to $8.8 million for 1994 from $5.8 million for 1993, an increase of $3.0 million
or 51.8%. As a percentage of total revenues, general and administrative expenses
increased to 11.6% for 1994 from 9.6% for 1993. The increase was primarily due
to an increase in administrative labor costs as a result of revenue growth.
Non-Cash Compensation. During 1994 the Company established the LLC
Membership Plan for certain of the Company's key executives whose
responsibilities and decisions affect the long-term growth and profitability of
the Company. Expense is recognized over the vesting period of the award and is
based on a percentage of the deemed fair market value of the Company. Non-cash
compensation under the LLC Membership Plan was $3.3 million for 1994.
Net Income. Net income fell to $5.0 million for 1994 from $10.5 million for
1993, a decrease of $5.5 million or 52.7%. As a percent of total revenues, net
income declined to 6.5% for 1994 from 17.4% for 1993. The decrease in net income
was primarily due to an increase in general and administrative expenses,
establishment of the LLC Membership Plan and an increase in income taxes of $1.2
million or 145.7%. The increase in income taxes was due to an increased amount
of foreign income taxes as a result of an expanding international presence.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
Additions to property and equipment were $4.2 million for 1995, compared to
$2.4 million for 1994 and $1.9 million for 1993. Approximately $1.0 million of
the $1.8 million increase from 1994 to 1995 related to an upgrade of the
Company's financial information systems software. The remainder of the increase
from 1994 to 1995 and the $0.5 million increase from 1993 to 1994 represented
ongoing additions to office furniture and computer equipment, largely in support
of the Company's expanding revenue base. Software development costs are
primarily wages and contractor fees which are capitalized after establishing the
commercial and technological feasibility of the product.
<TABLE>
<CAPTION>
1993 1994 1995
(IN MILLIONS)
<S> <C> <C> <C>
Additions to property and equipment............................. $1.9 $2.4 $4.2
Investments in joint ventures................................... -- 0.2 0.4
Software development costs...................................... -- 1.9 2.9
---- ---- ----
Total................................................. $1.9 $4.5 $7.5
==== ==== ====
</TABLE>
28
<PAGE> 31
CASH FLOWS
The Company has generally maintained a positive cash flow and has generally
funded its operating requirements with cash generated from operations. Cash and
cash equivalents were $8.6 million at March 31, 1996, an increase of $2.0
million or 30.9% from December 31, 1995. The increase is due primarily to
additional borrowings under the Existing Facility. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity,
Capital Resources and Other Financial Data -- Existing Indebtedness." No
dividends were paid during the three months ended March 31, 1996. Dividends paid
during the three months ended March 31, 1995 were $6.5 million. During the three
months ended March 31, 1996, the Company advanced approximately $3.2 million to
its parent, Telcom Ventures, under a revolving promissory note. Total advances
of $12.6 million at March 31, 1996 are reflected as a reduction of members'
capital in the statement of members' capital in the accompanying unaudited
Consolidated Financial Statements.
Net cash generated from operations was $4.8 million in 1995 and $8.0
million in 1994. Net cash used in operations was $4.2 million in 1993. Dividends
paid were $9.5 million in 1995, $9.3 million in 1994 and $7.7 million in 1993.
In addition, during 1995 the Company loaned approximately $9.4 million to Telcom
Ventures under a revolving promissory note, classified as a reduction of
members' capital in the statement of members' capital in the accompanying
Consolidated Financial Statements.
Cash and cash equivalents were $6.6 million at December 31, 1995, a
decrease of $11.9 million or 64.4% from 1994. The decrease was due primarily to
the $9.4 million loan to Telcom Ventures, additional purchases of equipment and
increased software development costs. Cash and cash equivalents were $18.5
million at December 31, 1994, an increase of $9.3 million or 101.4% from
December 31, 1993. The increase was primarily due to proceeds from the issuance
of convertible subordinated debt in June 1994 (see Note 11 to the Consolidated
Financial Statements).
Working capital (excluding cash and cash equivalents and note payable) was
$21.3 million at March 31, 1996 versus $21.1 million at December 31, 1995, an
increase of $0.2 million or 1.2%. The increase is primarily the result of an
increase in unbilled receivables offset by an increase in deferred revenue as a
result of the deferral of a portion of the gain from the sale of the Company's
50% interest in Telemate, S.A. (see Note 19 to the Consolidated Financial
Statements).
Working capital (excluding cash and cash equivalents) was $21.1 million at
December 31, 1995 versus $13.0 million at December 31, 1994, an increase of $8.1
million or 61.7%. The increase was primarily due to an increase in trade
receivables as a result of higher overall sales activity, higher export sales
and a generally slower collection of receivables.
Working capital (excluding cash and cash equivalents and current portion of
note payable) was $13.0 million at December 31, 1994 versus $26.0 million at
December 31, 1993, a decrease of $13.0 million or 49.8%. The decrease was
primarily the result of the transfer to Telcom Ventures of certain investments
during the formation of the Limited Liability Company in 1994.
CAPITAL RAISED TO DATE
The Limited Liability Company was capitalized in January 1994 with a
contribution of $16.7 million from Telcom Ventures in exchange for a 99%
interest in the Limited Liability Company. Telcom Ventures' capital contribution
consisted of $6.4 million in the form of assets, net of liabilities assumed,
formerly employed by the Founder Corporation and affiliates in the Company's
business, which were transferred to the Limited Liability Company at their
respective carrying values, and $10.3 million in cash received by Telcom
Ventures from the Carlyle Investors. The Founder Corporation and TC Group (on
behalf of the Carlyle Investors) received 0.75% and 0.25% interests in the
Limited Liability Company.
The Company has raised capital on several occasions since the beginning of
1994, but on most occasions has used such capital to make distributions to the
Limited Liability Company's owner, Telcom Ventures, for use by Telcom Ventures
in its investment activities, which consist of investments in wireless license
of the LCC Note holders in Asia and Latin America. Such distributions have
included (i) a dividend of the proceeds
29
<PAGE> 32
of and the guarantee by the Company of the Telcom Ventures Note (see below);
(ii) the loan to Telcom Ventures of approximately $9.4 million of the proceeds
of the issuance of $10 million of Variable Rate Guaranteed Senior Secured Notes
to Nomura in June 1995; and (iii) advances to Telcom Ventures of approximately
$3.1 million in January 1996 of certain proceeds from the sale of the Company's
interest in Telemate, S.A. In March 1996, the Company borrowed $10 million from
Chase to fund two investments in customers, aggregating $11.5 million, as part
of arrangements involving contracts aggregating $115 million in orders for
services and products over the next five years. See Note 19 to the Consolidated
Financial Statements.
EXISTING INDEBTEDNESS
In June 1994, the Company and Telcom Ventures sold $20 million and $30
million, respectively, of notes to MCI, which notes are exchangeable, under
circumstances including an initial public offering of the Company's securities,
into an aggregate 20% equity interest in the Company. The Company distributed
the proceeds of its loan to Telcom Ventures, for use by Telcom Ventures in its
investment activities, as discussed in more detail above. In connection with the
Offering, the $30 million owed by Telcom Ventures, which had been guaranteed by
the Company, will be assumed by the Company. Contemporaneously with the
Offering, the Exchangeable Notes will be exchanged into Class A Common Stock.
See "The MCI Conversion."
Effective May 30, 1995, the Company entered into the Nomura Facility under
which Nomura agreed to purchase from LLC up to $15 million of Variable Rate
Guaranteed Senior Secured Notes (the "Nomura Notes"), $10 million of which were
issued on June 5, 1995. The Nomura Notes were secured by substantially all the
assets of the Limited Liability Company and a pledge of all of Telcom Ventures'
membership interest in the Limited Liability Company. Chase purchased the Nomura
Notes in March 1996 and became the lender under these notes as the Existing
Facility. Also in March 1996, the Company borrowed an additional $10 million
from Chase under the Existing Facility, as amended, to fund two investments in
customers, aggregating $11.5 million, as part of arrangements involving
contracts aggregating $115 million in orders for services and products over the
next five years. Interest on the Existing Facility accrues at a variable rate
determined with reference to the prime rate plus 0.25%. Subject to certain
restrictions on the minimum permitted amount of any prepayment and the
requirement that certain notices of prepayment be given to Chase, the principal
of the Existing Facility may be prepaid without penalty or premium. See
"Business -- The LCC Strategy -- Establish Strategic Relationships with Carriers
and Equipment Vendors."
Immediately prior to the Offering, the Limited Liability Company and its
subsidiaries will enter into the Credit Facility with Chase, as Administrative
Agent, and the Lenders, which Credit Facility will be transferred to LCC
International and amended and restated to reflect the transactions contemplated
by the Merger immediately prior to the closing of the Offering. The Credit
Facility is expected to include (i) a revolving loan and letter of credit
facility in an aggregate principal amount not to exceed the lesser of $12.5
million or 80% of the Limited Liability Company's receivables which are deemed
"eligible" as a basis for obtaining credit, and (ii) a term loan in the
principal amount of $7.5 million. The term loan is expected to amortize in 20
equal quarterly installments over five years. The revolving loan commitment is
expected to expire four years from the closing thereof. Subject to certain
restrictions on the minimum permitted amount of any prepayment and the
requirement that certain notices of prepayment be given to Chase, the principal
of the revolving loans and the term loan would be prepayable without penalty or
premium, so long as the Lenders are compensated for losses, costs and expenses
attributable to any prepayment of any loan accruing interest at the Fixed Rate
on a date other than the last day of the applicable interest period.
Under the Credit Facility, interest on the revolving loans and on the term
loan is expected to accrue, at the Company's election (subject to certain
restrictions and limitations contained in the Credit Agreement), at either (i)
the Variable Rate or (ii) the Fixed Rate. of time (1, 2, 3 or 6 months). The
actual rate at which interest will accrue on the revolving loans and on the term
loan will be determined by adding to the Variable Rate or to the Fixed Rate (as
applicable) an interest margin based upon the Company's cash flow leverage
ratio, as periodically determined. Such interest margin will vary (i) from 0% to
0.25% with respect to Variable Rate revolving loans; (ii) from 1.00% to 1.75%
with respect to Fixed Rate revolving loans; (iii) from 0% to
30
<PAGE> 33
0.50% with respect to that portion of the term loan to which the Variable Rate
applies; and (iv) from 1.25% to 2.00% with respect to that portion of the term
loan to which the Fixed Rate applies.
The payment and performance of the obligations of the Company under the
Existing Facility and the Credit Facility are and will be secured by
substantially all of the assets of the Company. The Existing Facility and the
Credit Facility require and will require that the Company satisfy certain
financial tests, including the maintenance of certain leverage, debt service and
other financial ratios, and that the Company meet certain minimum quarterly
operating cash flow requirements. The Existing Facility and the Credit Facility
also contain and will contain certain restrictive covenants which impose
restrictions and/or limitations on the operations and activities of the Company
including, among other things: the incurrence of indebtedness and the terms
thereof, the creation or incurrence of liens, investments and acquisitions,
sales of assets, declaration or payment of dividends on or other payments or
distributions to stockholders and capital expenditures. The Existing Facility
and the Credit Facility provide and will provide for various events of default,
including interest or principal payments defaults, breach of any condition or
covenant that (in certain cases) continues unremedied for 30 days, materially
adverse events, the rendering of one or more material judgments against the
Company or any subsidiary thereof which is not vacated, satisfied, discharged,
or stayed within 30 days, and certain events relating to the bankruptcy or
insolvency of the Company. The Existing Facility is, and the Credit Facility
will be, guaranteed by Telcom Ventures, provided that the guarantee of the
Credit Facility will terminate upon consummation of the Offering assuming that
no event of default is then existing thereunder. The Company intends to repay
all amounts that will be outstanding under the Credit Facility (approximately
$20 million) with proceeds of the Offering.
TAXES
Prior to the Merger, the Company has generally not been liable for U.S.
Federal and state income taxes. States that do not recognize the limited
liability company as a flow-through entity require the Limited Liability Company
to be taxed as if it were a corporation. Where this is the case, the Company has
established a provision for these income taxes. The Company has been and will
continue to be subject, however, to taxation on income in certain countries in
North America, Latin America, Europe, the Middle East and the Far East, where
the Company has either established branch offices or has performed significant
services which constitute a permanent establishment for tax reporting purposes.
Following the Merger, the Company will not be a flow-through entity and will be
liable for applicable income taxes.
INFLATION
The financial statements are presented on a historical cost basis and do
not fully reflect the impact of prior years' inflation. It is estimated that the
cost of replacing equipment today is greater than its historical cost.
Accordingly, depreciation expense would be greater if the expense were stated on
a current cost basis.
31
<PAGE> 34
BUSINESS
LCC is the world's largest independent provider of RF engineering and
network design services and products to the wireless telecommunications
industry. The Company has provided these services, along with related
proprietary software tools and field measurement and analysis equipment, to
operators of more than 200 wireless systems in more than 40 countries. The
Company intends to leverage its leadership position and its relationships with
major wireless customers to benefit from the expected significant growth in
wireless networks worldwide.
The Company has provided services and products to seven of the ten largest
U.S. cellular system operators; large international cellular operators,
including British Telecom, France Telecom, Mannesmann and Korea Mobile Telecom;
companies building or proposing to build PCS systems, including AT&T Wireless
Services, Pacific Bell Mobile Services, NextWave Telecom and DCR; operators of
ESMR systems, including Nextel Communications; and operators of two-way
messaging systems. Many of the Company's major customers have entered into
partnerships with international wireless operators, which has enabled the
Company to obtain significant new business from such operators. The Company also
has established working relationships with two major telecommunications
equipment vendors, pursuant to which the Company provides services and products
on a subcontract basis.
LCC believes that its 26.9% compound annual growth in revenues over the
past five years has been fueled primarily by the growth of the wireless
telecommunications industry. The Company derives a significant portion of its
revenues from its international customers (approximately 39% in 1995). A
substantial number of new wireless network licenses have been awarded worldwide
over the last five years, and the Company expects a significant number of
additional wireless licenses to be awarded in the next few years. Construction
of new networks, and optimization of existing networks, require substantial
amounts of RF engineering services and products. In addition, many existing
systems are continuing to grow; LCC estimates that operators of wireless
networks operating at capacity add a new cell site, requiring additional RF
engineering services, for every approximately 1,500 new subscribers added.
LCC's approximately 325 RF engineers provide engineering solutions to
operators of a wide range of wireless networks, incorporating all major wireless
technologies available today, including TDMA (which includes GSM, DCS and
IS-136), CDMA, iDEN, AMPS and ETACS. LCC believes that it is the largest
employer of RF engineers in the world and believes that this is a substantial
competitive advantage, especially with respect to large customers. LCC provides
(or, in the case of Phase 4, is developing) services and products for operators
involved in all four phases of wireless system development: (i) Phase
1 -- bidding for the licenses necessary to build and operate the system; (ii)
Phase 2 -- build-out of the system; (iii) Phase 3 -- optimization and
enhancement of the system to meet the requirements of an increasing subscriber
base and to provide increased quality and coverage; and (iii) Phase
4 -- achievement of greater efficiencies in providing service in order to
compete in areas where there are multiple system operators.
THE LCC STRATEGY
The Company's objective is to maintain its position as the world's largest
independent provider of RF engineering and network design services and products
to the wireless telecommunications industry, and to increase its market share by
pursuing multiple growth paths. The key elements in the Company's strategy are
to:
MAINTAIN TECHNOLOGICAL LEADERSHIP
LCC believes that it has the most sophisticated and diversified
technological capabilities (incorporating all major wireless technologies
available today) in the wireless network design industry and intends to maintain
its technological leadership. The Company is continuously working on new
software releases and field measurement and analysis product upgrades to keep
its products technologically equal or superior to those of its competitors. One
of LCC's principal assets is its staff of approximately 325 highly trained and
experienced RF engineers, which the Company believes is considerably larger than
the engineering staff of any other independent company in its field. LCC's
engineers have experience working in, and have prepared
32
<PAGE> 35
wireless design databases for, many of the world's metropolitan areas, which the
Company believes gives LCC a significant advantage in pursuing new business in
these areas.
LEVERAGE LARGE INSTALLED CUSTOMER BASE
LCC has a substantial customer base among major wireless network system
operators worldwide. Its services and products have been used in virtually every
major market in the U.S. and in more than 40 foreign countries. The Company
believes that its large customer base gives it a significant advantage in
obtaining additional business for its existing and new products and services.
LCC believes that if it provides the original network design services to a
customer, it has an advantage over competitors in offering follow-on services
relating to expansion or optimization of that customer's network. In addition,
many of the Company's major customers have entered into partnerships with
international wireless operators, from which the Company has received
significant business. Typically, a substantial portion of the Company's revenues
in a given year are generated by customers for which the Company has previously
performed services or provided products.
PURSUE INTERNATIONAL GROWTH
Approximately 39% of the Company's revenues during 1995 was derived from
international customers. The Company believes that the growth of the
international wireless industry over the next several years will be substantial.
In particular, foreign governments have been awarding, and are expected to
continue to award, a large number of new wireless system licenses. The Company
is devoting significant efforts to increasing its market share of international
business, and is particularly focused on providing planning services to
companies that are participating in government tender processes for new license
grants. The Company has found that the provision of such services often result
in engineering contracts if such companies receive licenses.
PURSUE NEW MARKETS
The Company is pursuing growth in several new areas, as follows:
PCS. According to the FCC, over $17.9 billion has been spent or
committed to acquire new PCS licenses in the U.S. over the past two years,
and each of the licensed areas must be built out over the five years
following the date of the license grant. The Company expects that such new
licensees will account for a significant portion of the demand for the
Company's services and products over the next several years. The Company's
efforts in this area include working with new or potential licensees in the
initial designs of their systems and making investments in new PCS entities
in return for significant contracts to be implemented over the next several
years.
New Wireless Networks and Technologies. The development of new types
of wireless networks and new wireless technologies, including private
corporate networks, wireless cable (LMDS and MMDS) services, wireless local
loop and wireless high speed data services, is expected to result in
additional potential customers for the Company's services and products.
Analog to Digital Conversion. The Company expects that many cellular
operators will convert from an analog to a digital format in the next
several years, and that this conversion will result in additional demand
for the Company's services and products. LCC currently offers products and
services to operators of wireless systems utilizing both existing analog
technologies and virtually all forms of digital technology.
OFFER AND DEVELOP NEW TYPES OF SERVICES AND PRODUCTS
The Company is seeking new business by offering or developing new types of
services and products, including the following:
Program Management Services. Program management involves the
procurement and management, on a turnkey basis, of a range of services and
products relating to deployment or expansion of wireless networks,
including systems integration, site acquisition, site engineering,
procurement management, construction management, installation and
commissioning, and customer training. These management services are often
packaged with the Company's traditional RF and network engineering
services,
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software tools and field measurement and analysis equipment. To provide
program management, LCC has affiliated with commercial real estate firms
(for site acquisition), architectural engineering firms and contracting and
construction firms. The Company believes that an increasing number of
wireless system operators are attracted to this approach, and that program
management will increase revenues from RF engineering services in addition
to providing revenues from new services.
Phase 4 System Efficiency Services and Products. The Company believes
that wireless network operators will experience greater price competition
and will place greater emphasis on containing costs and system efficiency.
The Company is developing new RF network engineering services and products
to increase system efficiency and manage costs in the multiple-operator
environment expected to develop in the next few years.
ESTABLISH STRATEGIC RELATIONSHIPS WITH CARRIERS AND EQUIPMENT VENDORS
The Company has entered into strategic relationships with new wireless
carriers and major equipment vendors as a means of obtaining new business
opportunities. For example, LCC has helped applicants seeking licenses in formal
foreign government license grant processes. LCC's involvement in successful
license tenders has generally led to contracts with winning applicants as they
implement new systems. The Company has provided financing aggregating $11.5
million, to NextWave Telecom and DCR, the two top bidders in the
recently-concluded C-band auctions for broadband PCS licenses. See Note 19 to
the Consolidated Financial Statements. The Company intends to pursue additional
relationships, including financing and investment arrangements, using proceeds
from the Offering, as a means of obtaining new business. The Company also has
established working relationships with two major telecommunications equipment
vendors, pursuant to which the Company provides services and products on a
subcontract basis. The Company intends to pursue similar relationships with
other equipment vendors.
PURSUE STRATEGIC ACQUISITIONS
The Company intends to pursue acquisitions of companies that have
developed, or are developing, complementary products and services, particularly
systems efficiency products, that could be bundled with the Company's services
or that the Company would otherwise develop over the next few years. LCC
believes that such acquisitions will move LCC ahead more quickly in the
development of products or the recruiting of technical staff.
INDUSTRY BACKGROUND
OVERVIEW
Wireless telecommunications networks use a variety of radio frequencies to
transmit voice and data. Wireless telecommunications networks include two-way
radio applications, such as cellular, wide band and narrow band PCS and ESMR
networks, and one-way radio applications, such as paging services. Each
application operates within a distinct radio frequency block. Although cellular
represents the largest segment of the wireless communications industry, other
wireless technologies are expected to grow significantly.
TYPES OF WIRELESS COMMUNICATIONS
Cellular. Demand for commercial cellular services has grown dramatically
since its introduction in the early 1980's. According to the CTIA, in the U.S.
alone, service revenues have grown from $482 million in 1985 to over $19 billion
in 1995 and the number of cellular users in the U.S. grew from 340,000 at the
end of 1985 to over 30 million at December 1995, a compound annual growth rate
of 57.2%. According to Mobile Communications the number of cellular users in
Western Europe grew from 270,000 in 1985 to 22.6 million in 1995 (a compound
annual growth rate of 55.7%).
The cellular industry is well established in the developed world. Cellular
is growing rapidly in developing countries because of the generally poor quality
of the existing phone service, the unsatisfied demand for basic telephone
service and the increasing demand from mobile users who want the convenience of
cellular. In some
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countries, the cellular network provides significantly improved access to the
local and international wireline telephone network compared to existing wireline
telephone service. According to the U.S. Department of Commerce, at the end of
1995, there were approximately 87 million cellular subscribers worldwide.
PCS. In 1993, the FCC allocated a portion of the radio spectrum for the
provision of a new wireless communications service, commonly known as PCS. In
the U.S., PCS differs from traditional cellular service principally in that PCS
systems will operate at a higher frequency range and employ different digital
technologies. PCS is expected to offer greater feature functionality resulting
in lower cost service options, lighter handsets with longer battery lives and
new and enhanced service offerings such as the provision of all services to one
mobile number, medium-speed data transmissions to and from portable computers,
advanced paging services and facsimile services. Economic and Management
Consultants International, Inc. ("EMCI") estimates that, of the approximately 71
million wireless subscribers expected by the year 2000 in the U.S., 20 million,
or 28%, will be PCS users. Licenses to operate PCS networks were awarded in the
United States through auctions conducted during 1995 (the A- and B-blocks, which
involved licenses for large areas known as MTAs) and are expected to be granted
during 1996 (the C-block, which involved licenses for smaller metropolitan and
rural areas known as BTAs). According to the FCC, over $17.9 billion has been
spent or committed to acquire new PCS licenses (for MTAs and BTAs) in the U.S.
over the past two years, and each of the licensed areas must be built out over
the five years from the respective license grant dates.
ESMR. Enhanced Specialized Mobile Radio is a mobile communication service
that relies on specialized mobile radio frequencies that have been historically
limited to two-way voice communications in small local networks (such as for
taxi or messenger dispatch). As a result of advances in digital technology, ESMR
operators have begun to design and deploy digital mobile networks that increase
the frequency 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. Companies such as Nextel Communications (in the
U.S.), Clearnet Communications (in Canada) and Tricom (in Mexico) have acquired
licenses for ESMR two-way radio channels in their respective operating areas and
are beginning to offer wireless voice services over their networks.
Paging. Paging is a method of wireless telecommunications that uses an
assigned radio frequency to contact a paging subscriber anywhere within a
service area. Each paging subscriber is assigned a distinct telephone number
which a caller dials to activate a subscriber's pager (a pocket-size radio
carried by the subscriber). The radio signal causes the pager to emit a beep or
vibrate and to provide the subscriber with information from the caller in the
form of a voice, time, numeric or alphanumeric message. EMCI estimates that the
number of pagers in service in the U.S. increased at a compound annual growth
rate of approximately 26.5% to approximately 27.3 million units from 1984 to
1994 and that the total number of paging devices in use worldwide by the year
1999 will exceed 130 million.
Other. Wireless cable (LMDS, MMDS), wireless local loop (a system that
eliminates the need for a wire loop connecting users to the public switched
telephone network) and wireless high speed data services represent other areas
of the wireless communications industry being developed by operators in the U.S.
and abroad.
WIRELESS TECHNOLOGIES
Most cellular and other 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 (discussed below), allows digital-based
wireless technologies to offer new and enhanced services, such as greater call
privacy and single number (or "find me") service, and more data transmission
features, such as "mobile office" applications (including facsimile, electronic
mail and connecting notebook computers with computer/data networks).
Digital signal transmission is accomplished through the use of frequency
management technologies, or "protocols." Two common protocols used in cellular
and other networks "manage" the radio channel either by
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dividing it into distinct time slots (a method known as Time Division Multiple
Access, or "TDMA") or by assigning specific coding instructions to each packet
of digitized data that comprises a signal (a method known as Code Division
Multiple Access, or "CDMA"). In the U.S., the FCC has intentionally avoided
mandating a universal digital signaling protocol, and three principal digital
signal protocols (which are incompatible with each other) are currently being
used in the U.S. for PCS networks: GSM, CDMA and IS-136. European Union
countries generally have agreed to adopt GSM as a common standard protocol for
cellular and PCS transmission and approximately 60 countries, including
virtually all countries in Western Europe, have issued or propose to issue GSM
900 MHz licenses. The universal GSM standard is designed to allow subscribers to
roam throughout Europe and wherever else GSM technology has been adopted. Other
wireless technologies are also presently in use for a variety of different types
of transmission. The Company has expertise in all these technologies.
Existing analog cellular networks are gradually converting to digital
technology. This conversion has occurred in many of the largest cellular service
areas, such as Los Angeles, New York and Chicago, due in part to capacity
constraints. As carriers reach limited capacity levels, certain calls may be
unable to be completed, especially during peak hours. The conversion from analog
to digital technology is expected to be an industry-wide process in the U.S.
that will take several years. PCS providers, which do not have the existing
analog-based plant and equipment, are expected to move directly to digital
technology.
OPERATION OF TWO-WAY WIRELESS SYSTEMS
Two-way wireless service areas are divided into multiple regions called
"cells," each of which contains a base station consisting of a low-power
transmitter, a receiver and signaling equipment. The cells are typically
configured on a grid 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. Since each cell site requires engineering
services, growth in the number of cell sites is one of the key drivers of demand
for the Company's products and services. The base station in each cell is
connected by microwave, fiber optic cable or telephone wires to a switch, which
uses computers and specially developed software to control the operation of the
wireless telephone system for its entire service area. The switch controls the
transfer of calls from cells within the system and connects calls to the local
landline telephone system or to a long distance telephone carrier.
Wireless transmission requires a certain signal strength for the parties to
hear each other or for data to be received. The signal strength of a
transmission between handset and a base station declines as the handset moves
away from the base station, so the switch 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 switch may "hand off" the call to another
base station that can establish a stronger signal with the handset. Hand-off to
an adjacent system must be effected through an appropriate technical interface
when a handset leaves the service area of the wireless service provider. The
quality of wireless transmission depends in part on signal strength, limitations
imposed by the terrain and interference from other uses of radio signals.
Transmission quality is measured in the field at various locations so that
adjustments can be made to enhance quality.
Each wireless network is planned and laid out to meet a certain level of
subscriber density and traffic demand and to provide a certain geographic
coverage. Each transmission over the wireless network requires a certain amount
of radio frequency, so a system's capacity is limited by the amount of frequency
that is available. The same frequency can be reused by each separate
transmitter, subject to certain interference limitations. The design of each
wireless system involves placement of transmission equipment in locations that
will make optimal use of available frequency based upon projected subscriber
usage patterns, subject to availability of such locations and ability to use
them for wireless transmissions under applicable zoning requirements.
After a wireless system has been installed, the system's capacity can be
increased in various ways, by (i) adding available frequency capacity to cells
as required, if such capacity is available, (ii) using directional
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antennae to divide a cell into discrete multiple sectors or coverage areas,
thereby reducing the required distance between cells using the same frequency,
or (iii) "cell splitting" (i.e., dividing a single cell into a number of smaller
cells served by lower-power transmitters, thereby increasing the ability to
reuse radio frequencies and increasing the number of calls that can be handled
in a given area). Additional solutions are being designed to increase network
capacity and coverage, including (i) the introduction of microcells, which can
be placed very close together to increase frequency reuse and the total capacity
of the cellular network and which can be placed within buildings, train stations
and other structures to provide coverage where none was available before and
(ii) the introduction of digital technologies, which increase the number of
conversations which can be transported on a single radio carrier from two to
potentially more than ten times, depending on the type of digital technology
deployed.
ENGINEERING SERVICES AND PRODUCTS FOR THE WIRELESS INDUSTRY
The planning, geographic layout, build out and operation of a wireless
network requires significant RF engineering work. The RF engineer must design
the wireless network to meet the operator's requirements for transmission over
the wireless network, which requirements are based upon a projected level of
subscriber density and traffic demand and the coverage area specified by the
operator's license or cost-benefit decisions. In addition to meeting basic
transmission requirements, the RF network design must make optimal use of
available radio frequency and result in the highest possible signal quality for
the greatest portion of projected subscriber usage within existing constraints.
These constraints may be imposed by cost parameters, terrain, limitations in the
license, interference with other operators, availability of cells, applicable
zoning requirements and other factors. The complexity of network design and
large number of variables requires the RF engineer to rely on advanced
technology including specially-developed software design tools. As the design is
implemented and the network is built out, the system's performance must be
tested in the field with field measurement and analysis equipment so that
optimization adjustments can be made.
Set forth below is a description of the life cycle of a typical wireless
system:
<TABLE>
<CAPTION>
<S> <C>
Phase 1.............................. pursuit of the licenses necessary to build and
operate the system
Phase 2.............................. build-out of the system
Phase 3.............................. optimization and enhancement of the system to
meet the requirements of an increasing
subscriber base and to provide increased
quality and coverage
Phase 4.............................. achievement of greater efficiencies in
providing service in order to compete in areas
where there are multiple system operators
</TABLE>
Phase 1. In Phase 1, the pursuit of the licenses necessary to build and
operate the system, a rough engineering design is often required to determine
construction costs and revenue generating ability of the system.
Phase 2. A substantial amount of engineering services are required for
Phase 2, the actual design and build-out of the wireless system. Detailed site
location designs are prepared, interference to or from co-located antennae is
checked, site performance is measured after completing construction and,
finally, the site is optimized to work with neighboring sites. Wireless network
operators (even the few which have sizable internal engineering staffs)
typically rely on outside RF engineering companies, such as LCC, for Phase 2.
Depending on the size of the system, this phase can involve from four RF
engineers for a typical small system, to 15 RF engineers for a typical
medium-sized system to up to 100 RF engineers for a nationwide deployment (all
of whom require software design tools) over a period of 12 to 24 months. LCC
believes that the number of RF engineers is limited (the Company estimates that
there are only approximately 2,000 RF engineers in the U.S.).
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Phase 3. As the number of subscribers handled by the wireless system
increases, the system enters Phase 3, in which RF engineering services are
necessary to expand the system by adding cell sites or using other techniques to
increase system coverage and capacity. The system must also be optimized to meet
the increased subscriber usage from the new cell cites and to provide increased
quality and coverage. In network expansions, the operator typically continues to
rely on the RF engineering company, such as LCC, to design the expansion and
make optimization adjustments to the existing system. Although the network
software and system databases included therein are already in place from the
design phase, the software license obtained from the RF engineering company
generally only allows the operator to use the software. Since the cost of
obtaining replacement software and generating a separate database through a new
provider of RF engineering services is substantial, the original RF engineering
firm has a significant competitive advantage in follow-on work with existing
customers. Since each new cell site requires additional RF engineering, the
increase in cell sites is a key driver of the demand for RF engineering services
and products.
Phase 4. Eventually the system will enter Phase 4, in which the operator
must achieve greater efficiencies in service provision in order to compete in
areas where there are multiple system operators. In various European countries
and Australia, certain systems have recently entered Phase 4. In the U.S., since
cellular service arose in a duopoly environment, it is only with the
construction of new PCS systems that wireless networks will reach Phase 4.
SERVICES AND PRODUCTS
BACKGROUND
In the early 1980's, when the FCC began to issue licenses for cellular
systems, wireless system design was an unsophisticated process. Since minimal
data had been collected on system performance and limited engineering had been
done, LCC (following its formation in 1983) worked to develop a standard method
of applying design engineering principles to wireless system design. The method
included the development of software to accelerate and automate the design
process, and use of such software with digitized system coverage maps, enabling
the engineer to measure the effect of changes to various system parameters or
use of different locations for cell sites. Over time, LCC gathered significant
amounts of data on various system configurations, improving the ability of its
engineering models to predict system coverage. LCC also developed a large staff
of RF engineers experienced in conducting the design analysis. Moreover, because
the field measurement and analysis equipment required for verification and
measurement of wireless system performance in the field was generally
unsophisticated, LCC created its own field measurement and testing equipment.
Originally, RF engineering focused principally on the cellular industry.
Although the services provided by various wireless technologies may be similar,
the engineering requirements of each system are different. As new wireless
technologies were introduced, the Company developed engineering solutions for
the different forms of wireless transmissions, and modified its field
measurement and analysis equipment and software products to function with
differing wireless technologies.
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ENGINEERING SERVICES
LCC provides a variety of RF engineering services over three phases of the
life cycle of a wireless telecommunications system, and intends to provide such
services over the fourth phase as follows:
Phase 1 Services. LCC engineers help prepare applications for network
system operators seeking licenses in formal government license grant processes.
LCC also has assisted foreign governments in preparing Requests for Proposals
("RFPs") and analyzing responses thereto. Phase 1 services include the
following:
- preparation of the technical response to a government tender
- preliminary design
- coverage parameters
- propagation maps
- technical requirements
- advice on strategic issues relating to license tender responses
- preparation of RFPs and analysis of responses
- refinement of system objectives and translation into technical
requirements
- evaluation of responses on technical, cost and regulatory compliance
grounds
The Company has assisted in preparing winning applications in several
(approximately eight) license tender processes worldwide, including the second
nationwide cellular license in Germany and the first cellular license in Bombay,
India. LCC's involvement in successful tenders has generally led to follow-on
contracts with winning applicants as they implement new systems.
Phase 2 Services. Services in Phase 2, which constitute the largest number
of billed engineering hours for the Company, include some or all of the
following:
- analysis of customer expectations for network coverage, capacity and
other requirements
- development of necessary databases for network design, including
digitized maps of terrain and buildings
- use of software tools to prepare network design, including analysis of
interference and other technical factors affecting coverage, capacity and
performance
- identification and rank of desirable cell sites
- preparation of regulatory filings (FCC, Federal Aviation Administration
and others) required for system deployment
- assistance with systems deployment
- measurement of network performance
- optimization of system
Phase 3 Services. LCC's services are used by existing system operators to
plan system expansions to accommodate subscriber growth (the Company estimates
that a new cell site is required for approximately each additional 1,500
subscribers), incorporate improvements in technology, improve system performance
and achieve efficient use of available radio spectrum. LCC also assists in
capacity expansion planning and technology changeovers, such as conversion from
analog to digital technology. In Phase 3 the Company provides some or all of the
following:
- identification of additional cell sites
- integration of new cell sites with existing cell sites
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- measurement of network performance
- optimization of system
- technology migration analysis and implementation
Phase 4 Services. Although to date the Company has not offered any services
or products for Phase 4, the Company anticipates that, as wireless systems
mature and as multiple service providers offer competing services in the same
service area, network operators will require additional engineering services
focusing on the achievement of cost savings and quality enhancements within the
existing coverage area. These services may include the following:
- system analysis and network management, including redistribution or
elimination of cell sites
- cost management
- measurement of network performance
- technology and network upgrades
The Company is currently working with several existing customers to further
define the types of services that such customers will require during Phase 4,
although there can be no assurance that the Company will provide any such
services.
The Company performs engineering services using approximately 325 RF
engineers (as of March 31, 1996). Most of such engineers are based in Arlington,
Virginia, but spend significant periods (approximately one to nine months per
year) at customer sites. LCC is the world's largest independent provider of RF
engineering and wireless network design services. The Company believes that its
large number of RF engineers enables it to respond quickly to customers who may
require the Company to staff a major project on a timely basis. In addition, the
Company believes that the wide-ranging experience of its RF engineers, including
exposure to and participation in the standards-setting process for new digital
technologies, helps the Company understand the changing marketplace for wireless
communications and for engineering services and products to support the wireless
industry. Since a large number of its RF engineers work on customer sites, the
Company is able to develop an understanding of many of the issues of importance
to its customers and uses this information in planning. The Company also
believes that the various nationalities of its RF engineers provides LCC with an
understanding of different practices in business and wireless telephony in many
countries around the world that will assist the Company in continuing to pursue
international opportunities. See "Risk Factors -- Dependence on Professional
Staff."
LCC provides engineering services on a contract basis, usually in a
customized plan for each client. The Company generally charges for engineering
services on a time and materials basis, although Phase 1 services or other
projects of short duration may involve a fixed price or success fee. The
Company's revenues also include reimbursement for expenses, including the living
expenses of engineers on customer sites (approximately 15% of revenues from
engineering services for 1995). Revenues from engineering services represents
the largest portion of LCC's revenues, representing approximately 56.3% of
revenues for 1995.
SOFTWARE TOOLS
LCC's software tools are used by LCC's engineers and by customers to design
wireless networks, optimize the performance of an existing network, adapt
networks to demand growth and environmental changes and migrate networks to new
technologies. Software revenue represented approximately 18.5% of revenues for
1995. Approximately one-third of LCC's revenues from software tools is generated
by LCC's use of the tools (which are typically charged to customers separately
from engineering services) in conjunction with engineering service projects,
particularly large build-outs or enhancements during Phase 2 or Phase 3. As
these software tools are used by LCC's engineers, a database for the customer
network is generated based upon the actual design. The software and database are
used by the customer pursuant to a license following implementation of the
network, become the foundation of the customer's design environment and record
of network design, and are critical to subsequent expansion or enhancement of
the system. The other
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approximately two-thirds of LCC's software revenues is generated by licensing of
the software to customers, which use the tools in network design and generate
their own design specific databases.
The Company's software products are as follows:
<TABLE>
<S> <C>
ANET(TM).................... DOS-based software for network design. Allows users to
locate, move and configure cell sites on computer
screens, run propagation analyses, change frequency or
power settings, analyze cell hand-offs, conduct
interference analysis, manipulate other variables and
run analysis of system parameters under varying
conditions. Accepts input from the Company's field
measurement products.
CellCAD(R).................. UNIX-based software for network design with same
functionality as ANET(TM) plus microcell and CDMA
design capability.
CellSIGHT(R)................ Allows user to generate a series of customized
spreadsheet programs to organize and display statistics
and other data, to generate and store reports, and to
filter data and information into a database. Interfaces
with ANET(TM) and CellCAD(R) products.
Design Check(TM)............ Combines features of CellCAD(R) and CellSIGHT(R).
CellManager(TM)............. An information management and automated work-flow
processing tool designed for wireless system
deployment, including separate modules for (i) RF
planning, site positioning and site acquisition, (ii)
construction preparation, (iii) management of
construction and equipment delivery timetables, (iv)
management of network integration and acceptance
testing, and (v) management of purchasing and human
resources. (The Company did not develop
CellManager(TM), but has obtained exclusive perpetual
distribution rights and software development and
enhancement rights for CellManager in North, Central
and South America, and non-exclusive distribution
rights in the remainder of the world.)
</TABLE>
Revenues from ANET(TM) and CellCAD(R) represented approximately 90% of
software revenues for 1995.
Another component of the Company's software offerings is its database
services. Databases are maintained for virtually all of the U.S. and many other
parts of the world and include data useful in designing and implementing
wireless networks, including data regarding terrain, building heights, land-use,
highways and secondary roads, traffic volume, political boundaries, demographics
and other parameters. Customers use a combination of these data sources in
designing their wireless networks. The Company believes that as the need for
more efficient system design becomes more important in the wireless industry,
databases with precise information will become more important.
The Company provides its software tools to customers under license
agreements that call for license fees on a per user basis or, under certain
limited circumstances, on a per cell site basis. As of December 31, 1995, the
Company had software license agreements in effect with over 70 customers.
Typically, customers license the software for between one to five years, with
the right to annual renewals thereafter. In some cases, the Company will grant a
perpetual license to software for a fixed fee payable at the commencement of the
licenses. The number of work stations licensed by LCC's current customers range
up to 150, with an average of 14. LCC generally warrants that the software will
perform substantially in the manner specified in its documentation. Many
customers purchase maintenance support following expiration of the warranty
period as well as contract for installation and training services.
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FIELD MEASUREMENT AND ANALYSIS PRODUCTS
LCC's field measurement and analysis products are used by both by LCC's
engineers and by customers in connection with system design and build out and
the maintenance and improvement of operational systems. Revenues from sales and
rentals of field measurement and analysis products represented approximately
20.2% of revenues for 1995. LCC's revenues from field measurement and analysis
products are generated from sales or monthly rentals to customers and associated
maintenance and upgrade fees.
The Company's field measurement and analysis products lines are as follows:
<TABLE>
<S> <C>
EXP-2001(R)................. Modular vehicle mounted measurement system used to
measure RF system parameters for field diagnostics,
troubleshooting and RF analysis. Linked to Global
Positioning System receivers, permitting identification
of changes in system performance based on time and
location. Information captured into laptop computer for
subsequent analysis.
RSAT-2000(R)................ Performs the same functions as EXP-2001(R), but also
provides real-time data for on-site troubleshooting.
MSAT-2000(TM)............... Performs similar functions as the EXP-2001(R) and
RSAT-2000(R) but is lightweight and portable for use
inside buildings.
PENCAT(TM).................. Five pound pen-based collection and analysis tool used
with the MSAT-2000(TM) for real-time display and
post-processing analysis.
TX-1500(TM)................. Continuous wave test transmitter used to simulate cell
sites from which test transmissions are emitted,
allowing validation of predicted coverage.
LL-2000(R).................. Analysis tool used to measure the quality of the
"uplink" from the wireless network to the Public
Switched Telephone Network.
</TABLE>
Each of the EXP-2001(R), RSAT-2000(R) and MSAT-2000(TM) are designed for
use in wireless systems employing any of the major access technologies
(cellular, PCS, ESMR, etc.) and may be utilized by network operators to measure
the performance of other wireless systems. These three products represented
approximately 83% of field measurement and analysis products revenues for 1995.
To support the RSAT-2000(R), EXP-2001(R) and LL-2000(R) products, LCC offers a
DOS-based software package called Cellular Measurement Analyst and a
corresponding UNIX-based product called CellQUEST, which provide comprehensive
data analysis functions for coverage, interference, calls-in-progress and call
quality. These programs organize, edit and analyze RF and navigation data for
both digital and analog measurements. They provide detailed reports,
multi-colored graphs and high resolution on-screen graphic displays which can be
generated on a laptop computer for immediate field analysis.
The Company believes that in the future, customers will expect field
measurement and analysis products from one company to be compatible with
software design products from other companies, so that measurements taken from
field measurement and analysis products can be analyzed using the software. LCC
is designing a series of products consistent with this objective. Currently,
wireless operators must separately analyze the coverage of their competitors'
systems. The Company intends to develop Phase 4 products that can simultaneously
analyze system quality of several different competing technologies. LCC intends
to offer new products that will allow data from several different systems in one
geographic area to be collected and analyzed simultaneously.
The Company provides its field measurement and analysis products to
customers primarily through sales and to a lesser extent through long-term
leases and monthly rentals. LCC generally warrants that the field measurement
and analysis products will perform substantially in the manner specified in
their documentation for a period of 12 months following delivery thereof. The
Company offers various extended maintenance and support programs to customers.
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<PAGE> 45
PROGRAM MANAGEMENT SERVICES
Program management involves the procurement and management, on a turnkey
basis, of a range of services and products relating to deployment or expansion
of wireless networks, including systems integration, site acquisition, site
engineering, procurement management, construction management, installation and
commissioning, and customer training services. These management services are
often packaged with the Company's traditional RF and network engineering
services, software tools and field measurement and analysis equipment. To
provide program management, LCC has affiliated with commercial real estate firms
(for site acquisition), architectural engineering firms and contracting and
construction firms. The Company believes that an increasing number of wireless
system operators are attracted to this approach, and that program management
will increase revenues from RF engineering services in addition to providing
revenues from new services. Fees from program management services, which were
commenced in 1995, represented approximately 5% of revenues for 1995.
LCC offers its customers a "one stop shopping" approach to Phase 1 system
build-out and Phase 2 network expansions by packaging services together in a
customized plan for each client. LCC provides these services on a contract
basis, in most cases on a time and materials basis but occasionally on an
overall cost per cell site.
In connection with its program management services, the Company uses and
licenses a software tool called CellManager(TM), which can help network system
operators manage their deployment and construction activities cost effectively,
as discussed in more detail in "Software Tools" above.
CUSTOMERS AND BACKLOG
CUSTOMERS
The Company has provided services and products to seven of the ten largest
U.S. cellular system operators; large international cellular operators,
including British Telecom, France Telecom, Mannesmann and Korea Mobile Telecom;
companies building or proposing to build PCS systems, including AT&T Wireless
Services, Pacific Bell Mobile Services, NextWave Telecom and DCR; operators of
ESMR systems, including Nextel Communications; and operators of two-way
messaging systems. Many of the Company's major customers have entered into
partnerships with international wireless operators, which has enabled the
Company to receive significant new business from such international wireless
operators. The Company also has established working relationships with two major
telecommunications equipment vendors, pursuant to which the Company provides
services and products on a subcontract basis.
In 1995, Nextel Communications accounted for approximately 14% of LCC's
revenue and was the only customer accounting for 10% or more of the Company's
revenues. The Company has an agreement with Nextel Communications pursuant to
which Nextel Communications is committed to pay a minimum amount until June 2000
for the purchase of RF engineering services and field measurement and analysis
products and to license software products and obtain related maintenance and
other services in connection with the design and operation of its digital mobile
telephone systems in North America, Puerto Rico and the U.S. Virgin Islands.
The Company's existing and targeted customer base includes operators of all
forms of wireless communications services, operating a variety of different
network platforms and access technologies in diverse geographic markets. LCC's
experience includes the following projects:
- LCC has designed analog cellular systems throughout the U.S., including
substantially all of the largest MSAs, as well as in several other
countries.
- LCC has designed TACS/ETACS analog cellular systems in the United Kingdom
and Spain.
- In the U.S., the Company is assisting its cellular customers in
implementing the emerging North American digital cellular standards (i.e.,
TDMA, CDMA and others).
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<PAGE> 46
- The Company has designed, or is currently designing, GSM digital cellular
networks in the U.S., Germany, France, Italy, Spain, Portugal, Malaysia
and other nations.
- The Company is supporting the design and implementation of ESMR systems
throughout the U.S. and in Brazil, Canada, Mexico and China.
- In the U.S., the Company is supporting narrowband PCS clients with
INFLEXION(TM) and REFLEX(TM) standards.
BACKLOG
The Company has entered into long-term contracts with customers for the
provision of the Company's services and products. As of March 31, 1996, the
Company had a total backlog of $179.6 million, consisting of $66.4 million
relating to engineering services, $25.1 million relating to software licenses,
$3.6 million for field measurement and analysis product purchases and $84.5
million relating to program management services. The Company includes in its
backlog only committed fees or purchase prices specified in contracts which have
been executed by the Company to the extent that the Company contemplates
recognition of the related revenue. The Company believes that its substantial
backlog is relatively unique in the industry and is due to its position as the
world's largest independent provider of RF engineering and network design
services and products to the wireless telecommunications industry.
The principal portion of the Company's present backlog arise from contracts
with Nextel Communications, NextWave Telecom and DCR. These contracts represent
approximately $145.6 million (or 81.1%) of the overall backlog. In addition,
they represented $59.5 million (or 89.1%), $6.5 million (or 25.7%), and $80.0
million (or 94.7%), respectively, of the portions of the total backlog relating
to engineering services, software licenses and program management services. The
timing and mix of orders for the NextWave Telecom and DCR contracts is subject
to flexibility within five-year periods and to uncertainties relating to PCS
network deployment generally. See "Risk Factors -- Changing Demand for the
Company's Products and Services -- Delays in Deployment of PCS Networks" and
Note 19 to the Consolidated Financial Statements. There can be no assurance that
the contracts included in the backlog will actually generate the specified
revenues or that the actual revenues will be generated within any particular
period. See "Risk Factors -- Significant Fluctuations in Quarterly Results;
Timing Uncertainties Relating to Backlog."
SALES AND MARKETING
The Company markets its services and products to operators of wireless
telecommunications networks in North America, Europe, Asia, the Middle East and
Latin America through its 23 member direct sales force based at its headquarters
in Arlington, Virginia. The members of the sales force are compensated based on
factors such as revenues generated compared to revenues forecasted, receivables
collected and the blend of products and services sold. The Company also utilizes
independent distributors and sales agents to supplement its direct sales force
outside the U.S. where business practices or customs make it most effective to
proceed through local companies. The Company utilizes the offices of its German
subsidiary to supplement its European sales efforts and intends to establish
regional sales offices in Brazil and Korea.
The Company's RF engineers and other technical professional staff support
the efforts of the sales force, particularly in connection with the marketing of
engineering services and software products. Customers generally have engineers
involved in their procurement decisions, and the Company's engineers work
closely with the customer's engineers to help them understand the Company's
services and products and their advantages compared to those of the competition.
Additional business from existing customers is pursued through the joint efforts
of both the sales force member primarily responsible for sale (who monitors the
customer's satisfaction as work progresses and makes periodic contact with the
customer following completion of work) and of the engineers and other technical
staff who have developed a relationship and worked closely with the customer's
engineers, and understand the customers' needs. This combination gives the
Company an advantage in pursuing the follow-on business.
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The Company generates sales leads for new customers through referrals from
existing customers (including referrals to international wireless operators with
which such customers have entered into partnership arrangements) and other
industry suppliers, its reputation in the industry, contacts with bidders for
new wireless licenses and others in the industry and other sources, which
include advertising, use of explanatory literature and publications and
participation in conferences and trade shows. The Company utilizes various
strategies to attract business from new customers, particularly various
arrangements in which Phase 1 services are provided for a reduced fee or with a
success-based contingent arrangement, coupled with a commitment from, or
understanding with, the customer to retain the Company in connection with Phase
2 services and products should the customer be awarded the applicable licenses.
Recently the Company has made two significant strategic investments in customers
in exchange for large contracts, and expects to continue this strategy in the
future. See "Risk Factors -- Risks Associated with Strategic Relationships,
Vendor Financing, and Acquisitions" and Note 19 to the Consolidated Financial
Statements.
In addition to obtaining business directly from wireless network operators,
the Company has also established working relationships with four major
telecommunications equipment vendors, pursuant to which the Company provides RF
engineering services and related products, on a subcontract basis. The Company
is seeking to establish additional relationships with telecommunications
equipment vendors.
Purchases of the Company's services or products by customers often entails
an extended decision-making process for the customer because of the substantial
costs and strategic implications associated with selecting the Company's
services and products. Senior management of the customer is often involved in
this process, given the importance of the decision as well as the risks faced by
the customer if the Company's services and products do not meet the customer's
particular needs. Therefore, large procurements of LCC's services and products
involve lengthy selling cycles, often as long as nine months. See "Risk
Factors -- Dependence on Significant Customers and Large Contracts" and
"-- Lengthy Sales Cycle."
RESEARCH AND DEVELOPMENT
The Company intends to continue developing new services and products and
enhance existing ones to maintain its position as a leader in RF engineering and
wireless network design. The Company is presently developing a number of new
products, including software tools and upgrades of field measurement and
analysis products. The Company's research and development efforts are focused on
making its existing products easier to use, adding functionality, making the
products compatible with different technologies and enabling the products to
interface with other products offered by the Company or other parties. The
Company is in the process of establishing a team of RF engineers, other
technical personnel, management consultants and other specialists who have been
asked to develop services and products specifically for use in connection with
Phase 4. The Company believes that its experience in providing a range of
engineering and wireless network services gives it an advantage in developing
products for use by engineers providing wireless network design services. See
"Risk Factors -- Rapid Technological Changes."
MANUFACTURING AND PRODUCT ASSEMBLY
The Company assembles field measurement and analysis products by obtaining
standard parts and components obtained from a variety of computer and electronic
vendors and specially configuring these components to produce the field
measurement and analysis products. It also engages third party contractors to
assemble certain of these products based on the Company's design specifications.
The proprietary aspects of the Company's systems are primarily in the product
design, the software provided with the equipment and the specific applications
development designed for the customer. Equipment assembly, testing and quality
control are performed by the Company at its Arlington, Virginia facility. The
Company currently has six employees conducting manufacturing and product
assembly and ten employees involved in supporting activities, including quality
control, inventory control, shipping and receiving and purchasing. Certain
components used in the Company's products are presently available from limited
sources. To date, the Company generally has been able to obtain supplies of
these components in a timely manner from these sources. The Company began the
development and assembly of its own field measurement and analysis products in
early 1992 and took over performance of the bulk of its development and assembly
in 1994. The Company experienced a stagnant
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<PAGE> 48
demand for its field measurement and analysis products during 1994 (reflected in
revenues from field measurement and analysis products for 1995) when it devoted
its resources to enhancing its own field measurement and analysis product
development capabilities rather than developing new products.
COMPETITION
The current market for wireless network design services, related software
tools and field measurement and analysis equipment and program management
services is highly competitive. Many companies offer such services and products,
and the Company believes that the number of other independent firms providing a
combination of these services and products to wireless network operators
throughout the world is increasing.
ENGINEERING SERVICES
LCC's competition in the provision of RF engineering services consists of
(i) companies such as Mobile Systems International, Inc., Moffett, Larson &
Johnson P.C. and Comsearch, Inc., which provide a full range of RF engineering
services (as well as related software), (ii) companies that provide only a
portion of the engineering services, which generally act as a supplement to a
wireless operator's in-house engineering staff, (iii) telecommunications
equipment vendors, which provide RF engineering services through subcontractors
as part of larger turnkey projects, and (iv) the internal staffs of wireless
network operators. The Company believes that it is able to compete effectively
against its competitors based upon its leadership position, pricing, reputation,
experience, ability to provide its customers "one-stop-shopping" ability to
deploy quickly a large number of RF engineers to a project, databases for many
geographic areas, technological tools, and relationships with major wireless
operators. In particular, the Company believes that its existing customer base
gives it a significant advantage in obtaining additional business for its
existing and new products and services.
SOFTWARE TOOLS
LCC's competition for the provision of software tools consists of (i) the
companies that provide the full range of RF engineering services along with
related software, particularly Mobile Systems International, Inc. and Comsearch,
Inc., which compete vigorously with the Company in this area, (ii) a limited
number of companies that have developed software tools but generally do not
provide engineering services and (iii) the internal staffs of wireless network
operators. The Company believes that its experience in providing a range of
engineering and network services gives it an advantage in developing software
tools for use by engineers providing network design services, particularly
because of the experience it receives as a result of the use of the products by
its own engineers. The Company believes that competition depends on such factors
as functionality, price product performance and reputation. The most successful
of the Company's competitors in this area have been European companies, and LCC
has been enhancing the functionality of its software tools in the GSM area to
compete more effectively for European customers. In pursuing international
business the Company has been flexible with the terms of its software licenses
in markets where standard license terms differ from those used in the U.S.
FIELD MEASUREMENT AND ANALYSIS EQUIPMENT
The Company's competition for the provision of field measurement and
analysis products consist of (i) full service companies and equipment vendors,
particularly those specializing in field measurement and analysis products,
principally Safeco Corporation and Comarco, Inc. and (ii) small independent
entrepreneurial companies. As is the case with its software tools, the Company
believes that its experience in providing a range of engineering and network
services gives it an advantage in developing field measurement and analysis
tools for use by engineers providing network design services, particularly
because of the feedback it receives as a result of the use of the products by
its own engineers. The Company believes that competition depends on such factors
as functionality, price product performance, reputation and compatibility with
software tools. LCC is designing a series of products to make LCC's field
measurement and analysis tools compatible with software products from other
companies.
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<PAGE> 49
PROGRAM MANAGEMENT SERVICES
Competition for the provision of program management services is highly
fragmented consisting of (i) equipment vendors that provide program management
services as part of larger turnkey projects; (ii) companies with experience in
project management in other industries, and (iii) the internal staffs of
wireless network operators and (iv) small firms that focus on a limited number
of the entire range of activities involved in wireless network deployment and
expansion. The Company believes that competition depends on such factors as
reputation, the ability to perform on schedule and within the customer's budget
and quality expectations, and that its ability to have personnel specifically to
address the requirements of wireless network operations will enable it to
compete effectively in this area.
There can be no assurance that competitive factors will not have an adverse
effect on the Company's business. See "Risk Factors -- Risks from Competition."
SOFTWARE PROTECTION AND TECHNOLOGY LICENSES
The Company regards its software as proprietary and has implemented
protective measures both of a legal and a practical nature to ensure that the
software retains that status. The Company derives protection for its software by
licensing only the object code to customers and keeping the source code
confidential. Like many other companies that license software, the Company does
not have patent protection for its software. It therefore relies upon the
copyright laws to protect against unauthorized copying of the object code of its
software, and upon copyright and trade secret laws for the protection of the
source code of its software. Despite this protection, competitors could copy
certain aspects of the Company's software tools or field measurement and
analysis products, or obtain information which the Company regards as trade
secrets. In addition, the Company enters into confidentiality agreements with
its employees, distributors, and customers, and limits access to and
distribution of its software, documentation, and other proprietary information.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to deter misappropriation of its technology.
Further, there can be no assurance that any patent issued to the Company or the
copyrights registered by the Company can be successfully defended. In any event,
the Company believes that factors such as technological innovation and expertise
and market responsiveness are more important than the legal protections
described above.
EMPLOYEES
As of March 31, 1996, LCC employed 602 full-time employees. The Company
believes that relations with its employees are good. None of its employees is
part of any collective bargaining unit. The Company believes that its future
growth and success will depend upon its ability to attract and retain skilled
and motivated personnel. See "Risk Factors -- Dependence on Key Personnel;
Management of Growth."
FACILITIES
The Company leases approximately 144,000 square feet of office space in
Arlington, Virginia. The Company recently exercised an early termination option
with respect to approximately 55,000 square feet of such office space. In
connection with such termination, the Company incurred a one-time termination
cost of $1.07 million. The Company recently entered into a lease with an annual
rent beginning at approximately $2,951,000 for approximately 155,339 square feet
of office space in McLean, Virginia for occupancy during the first quarter of
1997. The term of this lease is ten years, with two five-year renewal options.
The Company also entered into a lease with an annual rent beginning at
approximately $153,700 for approximately 10,245 square feet of office space in
McLean, Virginia for occupancy during 1997. The term of this lease is five years
with three five-year renewal options. The Company believes that its new
facilities will be adequate for its needs for the foreseeable future.
LEGAL PROCEEDINGS
The Company is party to various legal proceeding and claims incidental to
its business. The Company does not believe that these matters will have a
material adverse effect on the Company.
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<PAGE> 50
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and principal positions of
the members of the Company's Board of Directors and the executive officers of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
Dr. Rajendra Singh................. 41 Chairperson of the Board of Directors
Neera Singh........................ 37 Co-Chairperson of the Board of Directors and
Executive Vice President
Piyush Sodha....................... 37 President, Chief Executive Officer and Director
J. Michael Bonin................... 38 Vice President -- Hardware
Kathryn M. Condello................ 40 Vice President -- Program Management
Peter A. Deliso.................... 35 Vice President -- Corporate Affairs, General Counsel
and Secretary
Richard Hozik...................... 45 Senior Vice President, Treasurer and Chief Financial
Officer
Frank F. Navarette................. 53 Vice President -- Sales and Marketing
Donald R. Rose..................... 41 Senior Vice President -- Engineering
George H. Sampson.................. 53 Senior Vice President -- Software
Mark D. Ein........................ 31 Director
</TABLE>
The Company expects that, prior to the Offering, up to five additional
persons will be elected to the Board of Directors, of which two will be officers
and employees of the Company, one may be affiliated with the Carlyle Investors
and two will be neither officers, employees or stockholders of the Company or
any of its affiliates.
All officers of the Company are elected to serve in such capacities until
the next annual meeting of the Board of Directors and until their successors are
duly elected and qualified. References below to the Company also include its
predecessors, the Founder Corporation and the Limited Liability Company, which
succeeded to the business of the Founder Corporation in January 1994.
Dr. Rajendra Singh. Dr. Rajendra Singh is the Chairperson of the Board of
the Directors and co-founder of LCC. Dr. Singh was President of the Company from
its formation in 1983 until September 1994, and was Chief Executive Officer from
October 1994 until January 1996. Dr. Singh is also Chairman of the Members
Committee of Telcom Ventures and RF Investors. Dr. Singh also established,
developed and directed APPEX Inc., a billing services firm which was sold to
Electronic Data Systems Corporation in October 1990. Dr. Singh is married to
Neera Singh, an executive officer and director of LCC. Dr. Singh is also a
principal owner of the Founder Corporation. See "Principal and Selling
Stockholders."
Neera Singh. Neera Singh is Co-Chairperson of the Board of Directors and
Executive Vice President and a co-founder of LCC. Ms. Singh has served as Vice
President of the Company from its formation in 1983 to October 1991 and
Executive Vice President since January 1994. Ms. Singh also served as
Co-Chairperson of the Company from January 1995 to January 1996. Mrs. Singh is a
member of the Members Committee of Telcom Ventures. Mrs. Singh is married to Dr.
Rajendra Singh, a director and former executive officer of LCC. Mrs. Singh is
also a principal owner of the Founder Corporation. See "Principal and Selling
Stockholders."
Piyush Sodha. Piyush Sodha has been Chief Executive Officer of LCC since
January 1996 and has been President of the Company since September 1994. From
October 1990 through September 1994 he was Chief Operating Officer of the
Company. Mr. Sodha has been a Director since January 1994. Prior to joining LCC,
Mr. Sodha was Director, Product Line Management in the cellular systems division
of Northern Telecom Ltd. from 1987 to 1990. From 1985 to 1987 he was a
consultant in the telecommunications practice at Booz, Allen & Hamilton, and
prior thereto he was Senior Associate Engineer at International Business
Machines Corporation.
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<PAGE> 51
J. Michael Bonin. J. Michael Bonin has been Vice President, Hardware
Products, of LCC since October 1993. From 1989 until 1994 he was Director of
Hardware Products for LCC. Prior to joining LCC in 1989, Mr. Bonin was Vice
President and General Manager of T-Line Services, Inc., a digital microwave
communications firm in San Francisco, California. Prior thereto, from 1985 to
1987, Mr. Bonin was principal and founder of a start-up manufacturing division
for an international optical laser company in Irvine, California.
Kathryn M. Condello. Kathryn M. Condello has been Vice President, Program
Management, for LCC since October 1994. From March 1993 until October 1994, Ms.
Condello was Director of Network Services of MCI Communications Wireless Group.
From March 1990 until March 1993, Ms. Condello was Director, Business
Development for Network Building & Consulting, a network development firm
specializing in the acquisition, construction and deployment of wireless
networks. From March 1987 until July 1988, Ms. Condello was Director of Business
Planning for Cellular One/Washington-Baltimore.
Peter A. Deliso. Peter A. Deliso has been LCC's General Counsel since June
1994 and Vice President, Corporate Affairs, since January 1996. From late 1989
until January 1994, Mr. Deliso served as Corporate Counsel for Mobile
Telecommunication Technologies Corp. ("Mtel") and its various domestic and
international subsidiaries. Prior to his employment with Mtel, Mr. Deliso was
with the law firm of Garvey, Schubert & Barer specializing in international,
corporate and securities law.
Richard Hozik. Richard Hozik has been Senior Vice President and Chief
Financial Officer of the Company since November 1995. From October 1992 to
October 1995, Mr. Hozik was employed by the J.E. Robert Companies, a privately
held real estate investment and management company, where he held the position
of Senior Vice President and Chief Financial Officer. From April 1992 to
September 1992, Mr. Hozik was the Managing Partner of Hozik & Associates, a
management consulting firm. From March 1982 to March 1992, Mr. Hozik was with
GRC International, Inc. (formerly Flow General Inc.) ("GRC"), a publicly traded
international technology-based products and services company, where he served as
Vice President, Treasurer and Chief Financial Officer of GRC and President and
Chief Executive Officer of its Biomedical Group. From 1973 to 1982, Mr. Hozik
was with the international public accounting firm of Arthur Andersen LLP.
Frank F. Navarette. Frank F. Navarette has been Vice President, Sales and
Marketing, of LCC since April, 1994. From 1992 to 1994, he was Vice President
Mexico-Central America for Motorola. From 1988 to 1992 he was Director Domestic
Infrastructure Support-Motorola. From 1986 to 1988 he was OPS Manager for the
North-East Corridor-Motorola. Mr. Navarette was Manager Program Management
North-East Corridor-Motorola. He has been directly involved in the early
development of cellular systems in the Northeastern U.S. and Latin America.
Donald R. Rose. Donald Rose has been the Senior Vice
President -- Engineering of LCC since October 1990. From 1988 until October
1990, Mr. Rose was Vice President -- Engineering of the Company. Before joining
the Company, Mr. Rose was Senior Project Engineer of Los Angeles Cellular
Telephone Co. and a Senior Engineer of Moffet, Larson & Johnson, P.C., a
telecommunications consulting firm.
George H. Sampson. George H. Sampson has been Senior Vice President,
Software, of LCC since August 1994. From September 1990 until July 1994, Mr.
Sampson was Vice President, Development and Technical Operations of Concurrent
Computer Corporation, Inc. ("Concurrent"), a provider of integrated computer
systems. From 1988 to 1990 when he joined Concurrent, Mr. Sampson was sole
proprietor of Evergrowing Solutions, an information systems management firm.
Mark D. Ein. Mark D. Ein has served as a Director of the Company since
January 1994. Mr. Ein is a Vice President of The Carlyle Group, a private
investment firm and an affiliate of the Carlyle Investors. Mr. Ein is currently
a director of Telcom Ventures, RF Investors and HighwayMaster Communications,
Inc. Mr. Ein worked for Brentwood Associates, a private equity investment firm,
from 1989 to 1990, and for Goldman, Sachs & Co. from 1986 to 1989.
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COMMITTEES OF THE BOARD OF DIRECTORS
Prior to the Offering, the Company's Board of Directors expects to
establish an Audit Committee, a majority of whose members shall be comprised of
non-employee directors, and a Compensation and Stock Option Committee, all of
whose members shall be comprised of non-employee directors. Following the
Offering, the Audit Committee will examine and consider matters relating to the
financial affairs of the Company, including reviewing the Company's annual
financial statements, the scope of the independent annual audit and internal
audits and the independent accountant's letter to management concerning the
effectiveness of the Company's internal financial and accounting controls. The
Compensation and Stock Option Committee will consider and make recommendations
to the Company's Board of Directors with respect to programs for human resource
development and management organization and succession, approve changes in
senior executive compensation, consider and make recommendations to the
Company's Board of Directors with respect to compensation matters and policies
and employee benefit and incentive plans and administer the Company's stock
option plans and 401(k) plan, grant stock options under such stock option plans
and exercise all other authority granted to it to administer such plans.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
empowers a corporation to indemnify its directors and officers and to purchase
insurance with respect to liability arising out of their capacity or status as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware Law, or (iv) for any transaction
from which the director derived an improper personal benefit. The Delaware Law
provides further that the indemnification permitted thereunder shall not be
deemed exclusive of any other rights to which the directors and officers may be
entitled under the corporation's bylaws, any agreement, vote of stockholders or
otherwise. The Company's Certificate of Incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the Delaware Law.
The Company intends to enter into separate indemnification agreements with
each of its directors and executive officers pursuant to which the Company shall
agree, among other things, and subject to certain limited exceptions: (i) to
indemnify them to the fullest extent permitted by law against any claims and
expenses (including attorneys' fees) reasonably incurred in connection with any
threatened, pending or completed action or other proceeding arising out of any
Indemnifiable Event, and (ii) to advance funds to cover any such expenses no
later than thirty days after demand. An Indemnifiable Event is expected to be
defined as any event or occurrence related to the fact that the person is or was
a director, officer, employee, agent or fiduciary of the Company, or is or was
serving at the request of the Company as a director, officer, employee, trustee,
agent or fiduciary of another corporation, partnership, joint venture, trust, or
other enterprise, or by reason of anything done or not done by the person in any
such capacity.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Company's Certificate of Incorporation. The
Company is not aware of any threatened litigation or proceeding that may result
in a claim for such indemnification.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he or she reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned by, or
paid to the Chief Executive Officer of the Company and each of the Company's
four most highly compensated executive officers whose salary and bonus exceeded
$100,000 during the fiscal year ended December 31, 1995 (collectively, the
"Named Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(6)
---------------------------------------------------
NAME AND FISCAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(4) COMPENSATION(5)
<S> <C> <C> <C> <C>
Dr. Rajendra Singh...................... 1995 --(2) --(2) --(2)
Chairperson(1)(2)
Piyush Sodha............................ 1995 $213,000 $ 140,000 --
President and Chief Executive
Officer(1)
Neera Singh............................. 1995 $360,000 -- $ 2,000
Co-Chairperson and Executive Vice
President(3)
Donald R. Rose.......................... 1995 $111,000 $1,501,000 $ 5,000
Senior Vice President -- Engineering
J. Michael Bonin........................ 1995 $130,000 $ 55,000 $ 2,000
Vice President -- Hardware
</TABLE>
- ---------------
(1) Dr. Rajendra Singh was the Chairperson of the Board of Directors and Chief
Executive Officer of the Company during 1995 and he currently holds the
position of Chairperson of the Board of Directors. Mr. Piyush Sodha was the
President and Chief Operating Officer of the Company during 1995 and he
currently holds the positions of President and Chief Executive Officer.
(2) Dr. Singh received no compensation from the Company for services rendered to
the Company during fiscal year 1995.
(3) Effective upon the Offering, the Company intends to decrease Ms. Singh's
compensation to a level commensurate with industry norms.
(4) Includes annual distributions in 1995 under the LLC Membership Plan of
approximately $140,000 to Mr. Sodha, $1,448,000 to Mr. Rose (of which
$1,100,000 was deferred in 1995 from a previous year's distribution) and
$5,000 to Mr. Bonin. Upon conversion of the LLC Membership Plan in
connection with the Offering, such distributions will no longer be made.
See "Certain Transactions -- Conversion of Interests Under LLC Option Plan
and LLC Membership Plan into Stock Options."
(5) Includes payments by the Company for life insurance (in all cases less than
$500 per individual) and contributions to the Company's 401(k) Plan.
(6) The amount of perquisites and other personal benefits, securities or other
property has been omitted because the applicable amount of such
compensation is less than $50,000 or 10% of the total annual salary and
bonus reported for each Named Officer.
OPTION GRANTS
No options were granted to the Named Officers during the periods presented.
In connection with this Offering, options will be granted to certain Named
Officers and other executive officers as described below under
"Management -- Stock Plans."
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Piyush Sodha on
October 1, 1990. Pursuant to this agreement, Mr. Sodha served as Chief Operating
Officer since November 1990. Mr. Sodha became President of the Company in
September 1994 and Chief Executive Officer in January 1996. The
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Company may terminate the agreement for cause or for disability. The agreement
is not for a specified term and may be terminated at will by either party with
ninety days' prior written notice. None of the Company's other employees has an
employment agreement with the Company other than agreements terminable at will.
REMUNERATION OF DIRECTORS
All directors are entitled to reimbursement of reasonable travel and
lodging expenses related to attending meetings of the Board of Directors. The
Company expects that directors who are not officers or employees of the Company
and who are not employees or representatives of stockholders directly or
indirectly owning 10% or more of the Company's equity securities, may also
receive compensation in the form of annual fees, fees for attendance at board
meetings and fees for service on Board committees. The Company intends to grant
options to purchase shares of Class A Common Stock to certain of its directors
under the Directors Stock Option Plan. See "Management -- Stock Plans -- 1996
Directors Stock Option Plan."
STOCK PLANS
1996 EMPLOYEE STOCK OPTION PLAN
The Employee Plan provides for the grant of options that are intended to
qualify as "incentive stock options" under Section 422 of the Code, to employees
of the Company or any of its subsidiaries, as well as the grant of
non-qualifying options to employees and any other individuals whose
participation in the Employee Plan is determined to be in the best interests of
the Company. The Employee Plan authorizes the issuance of up to 2,975,000 shares
of Class A Common Stock pursuant to options granted under the Employee Plan
(subject to anti-dilution adjustments in the event of a stock split,
recapitalization or similar transaction). The Compensation and Stock Option
Committee of the Board of Directors will administer the Employee Plan and will
grant options to purchase Class A Common Stock.
The option exercise price for incentive stock options granted under the
Employee Plan may not be less than 100% of the fair market value of the Class A
Common Stock on the date of grant of the option (or 110% in the case of an
incentive stock option granted to an optionee beneficially owning more than 10%
of the outstanding Class A Common Stock). The option exercise price for
non-incentive stock options granted under the Employee Plan may not be less than
par value of the Class A Common Stock on the date of grant of the option. The
maximum option term is 10 years (or five years in the case of an incentive stock
option granted to an optionee beneficially owning more than 10% of the
outstanding Class A Common Stock). Options may be exercised at any time after
grant, except as otherwise provided in the particular option agreement. There is
also a $100,000 limit on the value of Class A Common Stock (determined at the
time of grant) covered by incentive stock options that first become exercisable
by an optionee in any year.
Payment for shares purchased under the Employee Plan may be made either in
cash or, if permitted by the particular option agreement, by exchanging shares
of Class A Common Stock with a fair market value equal to the option exercise
price and cash for any difference. Options may, if permitted by the particular
option agreement, be exercised by directing that certificates for the shares
purchased be delivered to a licensed broker as agent for the optionee, provided
that the broker tenders to the Company cash or cash equivalents equal to the
option exercise price plus the amount of any taxes that the Company may be
required to withhold in connection with the exercise of the option.
Options granted under the Employee Plan are not transferable (other than by
will or the laws of descent and distribution) and may be exercised only by the
optionee during his or her lifetime. If any optionee's employment with the
Company terminates by reason of death or permanent and total disability or the
optionee dies within 30 days after a termination other than for cause, the
optionee's options, whether or not then exercisable, may be exercised within 180
days after such death or disability unless otherwise provided in the option
agreement (but not later than the date the option would otherwise expire). If
the optionee's employment terminates for any reason other than cause, death or
disability, options held by such optionee will terminate 30 days after such
termination unless otherwise provided in the option agreement or approved by the
Compensation and Stock Option Committee (but not later than the date the option
would otherwise expire). If the optionee's employment terminates for cause,
options held by such optionee will terminate on such
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<PAGE> 55
termination unless otherwise provided in the option agreement or approved by the
Compensation and Stock Option Committee (but not later than the date the option
would otherwise expire). If the optionee is not an employee, the Compensation
and Stock Option Committee will provide in the option agreement when the option
will terminate.
The Board of Directors may amend the Employee Plan with respect to shares
of Class A Common Stock as to which options have not been granted. However, the
Company's stockholders must approve any amendment that would (i) materially
change the requirements as to eligibility to receive options; (ii) materially
increase the benefits accruing to participants who are considered "insiders" for
purposes of Rule 16b-3 of the Securities and Exchange Act of 1934; or (iii)
increase the number of shares that may be sold pursuant to options granted under
the Employee Plan (except for adjustments upon changes in capitalization).
It is anticipated that, in connection with the Offering, options to
purchase approximately 550,000 shares of Class A Common Stock at the Offering
price will be granted to approximately 120 employees. Options granted will vest
with respect to one-third of the shares subject to the options on each of the
first three anniversaries of the date of grant. The options will expire no later
than the tenth anniversary of the date of grant.
It is also anticipated that, in connection with the Offering, options to
purchase approximately up to an aggregate of 2,065,000 shares of Class A Common
Stock will be issued to certain employees of the Company and three individuals
employed by Telecom Ventures. These options will replace options granted by the
Limited Liability Company under the LLC Option Plan adopted in March 1996 and
phantom membership awards under the LLC Membership Plan adopted in 1994. The
exercise price for options replacing options under the LLC Option Plan is
intended to be equivalent to the exercise price of the options granted under the
LLC Option Plan (which is estimated to be approximately 65% of the Offering
price) and is intended to be for equivalent equity percentage ownership. The
number of options and option exercise prices for options replacing phantom
membership interests previously granted under the LLC Membership Plan will be
calculated under a conversion formula, intended to maintain comparable value,
generally using 25% of the fair market value of the Class A Common Stock as the
exercise price and adjusting the equity percentage since no payments or exercise
prices were required in connection with phantom membership awards under the LLC
Membership Plan. See "Certain Transactions -- Conversion of Interests under LLC
Option Plan and LLC Membership Plan into Stock Options."
1996 DIRECTORS STOCK OPTION PLAN
The Company's 1996 Directors Stock Option Plan (the "Directors Plan")
provides for the "formula" grant of options that are not intended to qualify as
"incentive stock options" under Section 422 of the Code to directors of the
Company who are not officers or employees of the Company or any subsidiary of
the Company (each an "Eligible Director"). The Directors Plan authorizes the
issuance of up to 40,000 shares of Class A Common Stock pursuant to options
granted under the Directors Plan (subject to anti-dilution adjustments in the
event of a stock split, recapitalization or similar transaction). The option
exercise price for options granted under the Directors Plan will be 100% of the
fair market value of the shares of Class A Common Stock on the date of grant of
the option. Under the Directors Plan, each Eligible Director will be granted an
initial option to purchase 8,000 shares of Class A Common Stock in connection
with the Offering or on later commencement of service. An Eligible Director also
will be granted an additional option to purchase 4,000 shares of Class A Common
Stock as of each annual meeting of the stockholders of the Company if the
Eligible Director continues to be an Eligible Director. Options granted will
become exercisable with respect to one-third of the shares of Class A Common
Stock that are subject to the options on each of the first three anniversaries
of the date of grant subject to acceleration of vesting on a change of control
(as defined in the Directors Plan). The options will expire no later than the
tenth anniversary of the date of grant.
Payment for shares purchased under the Directors Plan may be made either in
cash or by exchanging shares of Class A Common Stock with a fair market value
equal to the option exercise price and cash or certified check for any
difference. Options may be exercised by directing that certificates for the
shares purchased be delivered to a licensed broker as agent for the optionee,
provided that the broker tenders to the
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<PAGE> 56
Company cash or cash equivalents equal to the option exercise price plus the
amount of any taxes that the Company may be required to withhold in connection
with the exercise of the option.
Options granted under the Directors Plan are not transferable (other than
by will or the laws of descent and distribution) and may be exercised only by
the optionee during his or her lifetime. If any optionee's service as a director
with the Company terminates by reason of death or permanent and total
disability, the optionee's options, whether or not then exercisable, may be
exercised within 180 days after such death or disability (but not later than the
date the option would otherwise expire). If the optionee's service as a director
terminates for any reason other than death or disability, options held by such
optionee will terminate 60 days after such termination (but not later than the
date the option would otherwise expire).
The Board of Directors may amend the Directors Plan with respect to shares
of Class A Common Stock as to which options have not been granted but no more
than once in a six month period other than to comport with changes in applicable
Federal laws. However, the Company's stockholders must approve any amendment
that would (i) change the requirements as to eligibility to receive options;
(ii) materially increase the benefits accruing to participants under the
Directors Plan; or (iii) materially increase the number of shares of Class A
Common Stock that may be sold pursuant to options granted under the Directors
Plan (except for adjustments upon changes in capitalization).
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan, 360,000 shares of Class A
Common Stock are available for purchase by eligible employees of the Company or
any of its subsidiaries (subject to anti-dilution adjustments in the event of a
stock split, recapitalization or similar transaction). The Employee Stock
Purchase Plan permits eligible employees to elect to have a portion of their pay
deducted by the Company to purchase shares of Class A Common Stock of the
Company. In the event there is any increase or decrease in shares of Class A
Common Stock without receipt of consideration by the Company (for instance, by a
recapitalization or stock split), there may be a proportionate adjustment to the
number and kinds of shares that may be purchased under the Employee Stock
Purchase Plan. Generally, payroll deductions and other payments will be
accumulated during the period specified by the Compensation and Stock Option
Committee (the "Payroll Deduction Period").
The Employee Stock Purchase Plan will be administered by the Compensation
and Stock Option Committee. The Compensation and Stock Option Committee will
have the authority to interpret the Employee Stock Purchase Plan, to prescribe,
amend and rescind rules relating to it, and to make all other determinations
necessary or advisable in administering the Employee Stock Purchase Plan, all of
which determinations will be final and binding.
Any employee of the Company or any of its subsidiaries may participate in
the Employee Stock Purchase Plan, except the following, who are ineligible to
participate: (i) an employee who has been employed by the Company or a
participating affiliate for less than six months as of the beginning of a
Payroll Deduction Period; (ii) an employee whose customary employment is for
less than five months in any year; (iii) an employee whose customary employment
is 20 hours or less per week; and (iv) an employee who, after exercising his or
her rights to purchase stock under the Employee Stock Purchase Plan, would own
stock (including stock that may be acquired under any outstanding options)
representing five percent or more of the total combined voting power of all
classes of stock of the Company. An employee must be employed on the last day of
the Payroll Deduction Period in order to acquire stock under the Employee Stock
Purchase Plan unless the employee has retired, died or become disabled.
An eligible employee may become a participant in the Employee Stock
Purchase Plan by completing an election to participate in the Employee Stock
Purchase Plan authorizing the Company to have deductions made from pay on each
pay day following enrollment in the Employee Stock Purchase Plan. The deductions
will be credited to the employee's account under the Employee Stock Purchase
Plan. An employee may not during any Payroll Deduction Period change his or her
percentage of payroll deduction for that Payroll Deduction Period, nor may an
employee withdraw any contributed funds other than by terminating participation
in the Employee Stock Purchase Plan (as described below). A participating
employee who is not
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an executive officer subject to Section 16 under the Exchange Act (a "Section 16
officer"), may terminate payroll deductions or contributions for the remainder
of a Payroll Deduction Period.
Rights to purchase shares of Class A Common Stock will be deemed granted to
participating employees as of the first trading day of each Payroll Deduction
Period. The purchase price for each share (the "Purchase Price") will be
established by the Compensation and Stock Option Committee, but will not be less
than 85% of the fair market value of the shares of Class A Common Stock on the
first or last trading day of such Payroll Deduction Period, whichever is lower.
No employee may purchase shares of Class A Common Stock in any year under
the Employee Stock Purchase Plan and all other "employee stock purchase plans"
of the Company and any subsidiary having an aggregate fair market value in
excess of $25,000, determined as of the first trading date of the Payroll
Deduction Period.
On the last trading day of the Payroll Deduction Period, a participating
employee will be credited with the number of whole shares of Class A Common
Stock purchased under the Employee Stock Purchase Plan during such period.
Shares of Class A Common Stock purchased under the Employee Stock Purchase Plan
will be held in the custody of an agent (the "Agent"). The Agent may hold the
shares of Class A Common Stock purchased under the Employee Stock Purchase Plan
in stock certificates in nominee names and may commingle shares held in its
custody in a single account or stock certificate, without identification as to
individual employees. An employee may, however, instruct the Agent to have all
or part of such shares reissued in the employee's own name and have the stock
certificate delivered to the employee.
In the event the total number of shares of Class A Common Stock reserved
for issuance at the conclusion of the Payroll Deduction Period is insufficient
to cover the number of shares to be purchased by all participating employees
during the same Payroll Deduction Period, then each participating employee will
be (i) credited with a pro rata portion of the available shares, and (ii)
refunded all monies in excess of those required to purchase the shares credited
the employee.
A participating employee will be refunded all monies in his or her account,
and his or her participation in the Employee Stock Purchase Plan will be
terminated, if: (i) the employee elects to terminate participation by delivering
a written notice to that effect to the Company; (ii) the employee ceases to be
employed by the Company or a participating affiliate except on account of death,
disability, retirement; (iii) the Board of Directors elects to terminate the
Employee Stock Purchase Plan; or (iv) the employee ceases to be eligible to
participate in the Employee Stock Purchase Plan, provided, however, that a
participating employee who is a Section 16 officer does not have the discretion
to voluntarily terminate participation in the Employee Stock Purchase Plan
during a Payroll Deduction Period. If a participating employee terminates
employment on account of death, disability or retirement, the participating
employee will have the following alternatives: (i) refund of all monies in his
or her account, or (ii) purchase of shares of Class A Common Stock on the last
day of the Payroll Deduction Period with the amounts then accumulated in his or
her account (absent a timely election, the participating employee (or his or her
legal representative) will be deemed to have elected to receive a refund);
provided, however, that a participating employee who is a Section 16 officer
does not have the discretion to receive a refund.
No participating employee (or his or her legal representative in the case
of death) may assign his or her rights to purchase shares of Class A Common
Stock under the Employee Stock Purchase Plan, whether voluntarily, by operation
of law or otherwise.
The Board of Directors may, at any time, amend the Employee Stock Purchase
Plan in any respect; provided, however, that without approval of the
stockholders of the Company no amendment shall be made (i) increasing the number
of shares that may be made available for purchase under the Employee Stock
Purchase Plan, (ii) changing the eligibility requirements for participating in
the Employee Stock Purchase Plan or (iii) impairing the vested rights of
participating employees.
The Board of Directors may terminate the Employee Stock Purchase Plan at
any time and for any reason or for no reason, provided that such termination
shall not impair any rights of participants that have vested at the time of
termination. In any event, the Employee Stock Purchase Plan shall without
further action of the
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Board of Directors, terminate at the earlier of (i) ten years after the adoption
of the Employee Stock Purchase Plan by the Board of Directors and (ii) such time
as all shares of Class A Common Stock that may be made available for purchase
under the Employee Stock Purchase Plan have been issued.
1994 INCENTIVE COMPENSATION PLAN
The Company has adopted the 1994 Incentive Compensation Plan (the
"Compensation Plan"). Under the Compensation Plan, the Compensation and Stock
Option Committee may, from time to time, in its sole discretion, grant awards to
those employees of the Company whose responsibilities and decisions, in the
opinion of the Compensation and Stock Option Committee, affect the long-term
sustained growth and profitability of the Company. Each incentive award entitles
the recipients thereof to receive a cash payment on the date specified in the
corresponding award agreement. To date, all incentive awards granted are payable
on the third anniversary of the grant thereof. At the discretion of the
Compensation and Stock Option Committee, participating employees may borrow a
portion of the total amount of their incentive awards. The Compensation Plan has
no termination date, although the Board of Directors may, in its sole
discretion, terminate the Compensation Plan at any time, provided such
termination does not adversely affect the rights of participants with respect to
awards previously granted.
401(k) plan
The Company maintains a retirement plan (the "401(k) Plan") intended to
qualify under Sections 401(a) and 401(k) of the Code (although it has not
requested a determination letter from the Internal Revenue Service (the "IRS")
as to the tax-qualified status thereof). The 401(k) Plan is a defined
contribution plan that covers employees of the Company at least 21 years of age,
who have been employed by the Company for at least one year. Employees may
contribute up to 15% of their annual wages (subject to an annual limit
prescribed by the Code) as pretax, salary deferral contributions. The Company
may, in its discretion, match employee contributions up to a maximum of 3% of
annual wages. The Company's contributions to the 401(k) Plan for the year ended
December 31, 1995 and the three months ended March 31, 1996 were $419,000 and
$120,000, respectively. As of March 31, 1996, 439 of the Company's current
employees were participants in the 401(k) Plan. In 1994, the Company requested a
compliance statement pursuant to the IRS voluntary compliance resolution program
with respect to the correction of an operational defect in the 401(k) Plan
resulting from the 401(k) Plan's recordkeeper's nondiscrimination tests. The IRS
is currently reviewing the request.
CERTAIN TRANSACTIONS
The following is a summary of certain transactions and relationships among
the Company and its associated entities, and among the directors, executive
officers and stockholders of the Company and its associated entities.
THE MERGER
Immediately prior to Offering, the Limited Liability Company will merge
with and into the Company. As a result of the Merger, MCI will own 2,863,807
shares of Class A Common Stock and RF Investors will own all of the outstanding
shares of Class B Common Stock See "Risk Factors -- Control of the Company by RF
Investors" and "-- Relationship with Telcom Ventures; Potential Conflicts of
Interest." As a result of the Merger, LCC International will be subject to the
obligations, liabilities, liens and encumbrances of the Limited Liability
Company. Additionally, because the Merger is intended to qualify as tax-free
under Section 351 of the Code, the tax basis of the assets held by LCC
International after the Merger will be the same as the tax basis of the assets
in the hands of the Limited Liability Company immediately before the Merger, and
LCC International will add to its holding period for certain assets the period
for which the Limited Liability Company held such assets.
Pursuant to the Merger, LCC International will be required to indemnify the
members of the Limited Liability Company against all of the obligations and
liabilities associated with the Limited Liability
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Company's operations. In addition, LCC International will be required to bear
all of the costs incurred by the Limited Liability Company and its members, and
all transfer taxes and related fees, in connection with the Merger.
CONVERSION OF INTERESTS UNDER LLC OPTION PLAN AND LLC MEMBERSHIP PLAN INTO STOCK
OPTIONS
In March 1996, the Limited Liability Company adopted the LLC Option Plan.
Under the LLC Option Plan, options to purchase membership interests in the
Limited Liability Company were made available for grants to employees at an
exercise price based on the fair market value of the Limited Liability Company
at the time the options were granted, as determined by the Limited Liability
Company. In connection with the Offering, the options granted under the LLC
Option Plan will be replaced by stock options granted under the Employee Plan
which have an option exercise price equivalent to the current exercise price of
the options granted under the LLC Option Plan (which is estimated to be
approximately 65% of the public offering price). 930,000 shares have been
reserved under the Employee Plan to replace options granted under the LLC Option
Plan. See "Management -- Stock Plans."
In 1994, the Company adopted the LLC Membership Plan. Under the LLC
Membership Plan, the Company has issued awards entitling the holders thereof to
participate in distributable profits of the Limited Liability Company as
determined by its members' committee. In connection with the Offering, all
phantom membership awards will be converted into options under the Employee Plan
and each participant's right to participate in distributable profits will
automatically terminate. The number of options and the option exercise prices
for options replacing phantom membership interests previously granted under the
LLC Membership Plan will be calculated under a conversion formula, intended to
maintain comparable value, generally using 25% of the fair market value of the
shares of Class A Common Stock subject to the options at the time of conversion.
1,135,000 shares have been reserved under the Employee Plan to replace options
granted under the LLC Membership Plan. See Note 13 to the Consolidated Financial
Statements.
CORPORATE OPPORTUNITY
The Company and Telcom Ventures Group will enter into the Intercompany
Agreement, effective upon the Offering. Under the Intercompany Agreement, Telcom
Ventures and the Singh Family Group have agreed that, so long as one or more of
them has voting control of the Company, none of them will, directly or
indirectly, participate or engage, other than through the Company, in any of the
Company's traditional business activities, defined as (i) the provision of
cellular radio frequency engineering and network design services to the wireless
telecommunications industry, (ii) the provision of program management services
or deployment or construction related consulting services to the wireless
telecommunications industry and (iii) the manufacture, sale, license,
distribution or servicing of any radio network planning software tools or drive
test field measurement and analysis equipment which are used by LCC in
connection with LCC services described in the foregoing clauses (i) or (ii). The
foregoing prohibition does not apply to services provided to third parties in
which Telcom Ventures holds or is considering the acquisition of an investment
where the provision of services is incidental to Telcom Ventures' investment.
Under the Intercompany Agreement, the Carlyle Investors have also agreed not to
invest in any entity whose primary business is to compete with the Company in
its traditional business activities (excluding program management) for as long
as any of the Carlyle conditions owns directly or indirectly, an interest in the
Company.
In consideration of the foregoing agreements of the Telcom Ventures Group,
the Company has agreed that, if any opportunity to invest in or acquire a third
party (an "Investment Opportunity") is presented to the Company that it wishes
to refer to a third party, the Company must give written notice to Telcom
Ventures of such Investment Opportunity. Telcom Ventures has five business days
following its receipt of the notice to inform the Company of its desire to
pursue the Investment Opportunity. If Telcom Ventures does not wish to pursue
the Investment Opportunity, or fails to provide timely notice to the Company of
its interest, the Company may refer the Investment Opportunity to any third
party.
The foregoing provisions regarding the Telcom Ventures Group terminate on
the date when the Telcom Ventures Group no longer possesses 51% or more of the
outstanding voting rights of the Company.
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ADVANCES TO AND FROM TELCOM VENTURES AND RELATED PARTIES
The Limited Liability Company was capitalized in January 1994 with a
contribution of $16.7 million from Telcom Ventures in exchange for a 99%
interest in the Limited Liability Company. Telcom Ventures' capital contribution
consisted of $6.4 million in the form of assets, net of liabilities assumed,
formerly employed by the Founder Corporation and affiliates in the Company's
business, which were transferred to the Limited Liability Company at their
respective carrying values, and $10.3 million in cash received by Telcom
Ventures from the Carlyle Investors. The Founder Corporation and TC Group (on
behalf of the Carlyle Investors received 0.75% and 0.25% interests in the
Limited Liability Company.
Since January 1, 1995, the Company made loans totaling $13.0 million to
Telcom Ventures at a variable interest rate of prime plus 3.0%, escalating at
0.25% increments at various intervals over the term of the debt. Prior to the
Offering, the amount of such advances, along with accrued interest thereon, were
converted into a ten year note, bearing interest at 8% per annum, with interest
payments deferred until the fourth year and interest only payable until
maturity.
During 1995, the Company converted outstanding receivables in the amount of
$1.4 million owed by Corporacion Mobilcom S.A. de C.V. (d/b/a Tricom), a company
in which Dr. Rajendra Singh holds an 15.0% indirect interest, and the Carlyle
Investors own through Telcom Ventures approximately 4.5%, into promissory notes.
The notes bear interest at approximately 16.5% per annum, payable monthly. The
principal amount and all accrued interest was due in January 1996 and currently
remain outstanding. The Company expects payments to be made on these notes from
capital contributions to be made by the shareholders of this entity during 1996,
including Telcom Ventures and certain members of Telcom Ventures.
REGISTRATION RIGHTS
It is anticipated that, concurrently with the Offering, the Company, RF
Investors and MCI will enter into registration rights agreements. RF Investors
and MCI have or will have certain "demand" rights to require the Company to
register their Common Stock for sale and may register shares on a "piggyback"
basis in connection with most registered public offerings of securities of the
Company. Upon the exchange of the Exchangeable Notes for equity in the Company,
MCI is entitled to registration rights that would, among other things, permit
MCI to submit three demand registration requests to the Company. Generally, the
Company is required to use "best efforts" to file a registration statement with
the Commission within 90 days of receiving such a request. However, once a year,
the Company may defer MCI's registration request for a period of up to 90 days
if the Board of Directors makes a good faith determination that it would be
"seriously detrimental" to the Company to file a registration statement within
the time period otherwise required. The Company will pay all expenses (other
than underwriters' discounts and commissions) in connection with such
registrations.
The Company intends to file a registration statement under the Securities
Act with respect to the 3,015,000 shares of Class A Common Stock available upon
exercise of options under the Employee Plan, the Directors Plan and the Employee
Stock Purchase Plan.
THE EXCHANGEABLE NOTES
Since January 1, 1995, the Company has paid MCI approximately $1.4 million
in interest under the LCC Note. Immediately prior to the Offering the Company
intends to assume the Telcom Notes. The Exchangeable Notes will be exchanged for
membership interests in the Limited Liability Company; these membership
interests will be converted to Class A Common Stock in connection with the
Merger. See "The MCI Conversion" and "The Merger."
FUTURE TRANSACTIONS WITH OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The Company intends to adopt a policy prior to the Offering pursuant to
which it will not permit future loans or other material transactions between the
Company and its officers, directors or principal stockholders, or affiliates of
any of them, for other than bona fide business purposes or on terms less
favorable than could reasonably be obtained from third parties, other than those
involving the performance or renewal of existing
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<PAGE> 61
arrangements, unless approved by a majority (or all, if there are two or fewer)
of the independent directors of the Company who have no interest in such
transaction.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Piyush Sodha on
October 1, 1990. Pursuant to this agreement, Mr. Sodha served as Chief Operating
Officer since November 1990 Mr. Sodha became President of the Company in
September 1994 and Chief Executive Officer in January 1996. The agreement may
also be terminated at will by either party with ninety days prior written
notice. From January 1, 1995 through March 31, 1996, the Company paid Mr. Sodha
$267,000 as salary under this agreement. None of the Company's other employees
has an employment agreement with the Company, other than agreements terminable
at will.
PROVISION OF SERVICES AND PRODUCTS TO TELCOM VENTURES AND PARTIES RELATED
THERETO
The Company provides engineering services and software products to Telcom
Ventures and various other companies owned, in part, by Telcom Ventures or its
members. Revenues earned since January 1, 1995 for such services and products
were approximately $4.4 million through March 31, 1996. Trade accounts
receivable from these related parties were approximately $1.4 million at March
31, 1996.
ARRANGEMENTS WITH TELCOM VENTURES
The Company has made payments on behalf of Telcom Ventures and its members
consisting primarily of payroll services, fringe benefit payments, facility
related charges, business insurance and foreign tax payments. The amount of such
payments since January 1, 1995 through March 31, 1996 was $3,015,000. As of
March 31, 1996, the Company was owed approximately $341,000 in respect of
reimbursement for such payments.
The Limited Liability Company shares office space and office equipment with
Telcom Ventures. The Limited Liability Company has allocated such costs between
the Limited Liability Company and Telcom Ventures on a usage basis as it has
deemed appropriate. Since January 1, 1995, the aggregate amount of such cost
allocated to Telecom Ventures was approximately $161,000 through March 31, 1996.
The amount of such costs owed to the Company is included as part of the loans
totaling $13.0 million made by the Company to Telecom Ventures. Concurrently
with the Offering, the Company and Telcom Ventures will enter into an overhead
and administrative services agreement. Pursuant to the overhead and
administrative services agreement, certain management personnel and other
employees of the Company will provide certain administrative services,
principally related to human resource management functions, to Telcom Ventures
and Telcom Ventures will sublease office space from the Company until the first
quarter of 1997. Telcom Ventures will be obligated to pay the Company a monthly
fee for such administrative services and office space based on a reasonable
estimate of the Company's cost of providing same. While this agreement is not
the result of arm's length negotiations, it is designed to reimburse the Company
for its costs in providing such services (including costs of personnel), and the
Company believes that the terms of such agreements are reasonable.
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<PAGE> 62
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, (i) as of the date hereof, as adjusted to
reflect the Merger and the MCI Conversion, and (ii) following the sale of Class
A Common Stock by the Selling Stockholder, certain information with respect to
stock ownership of (a) all persons known by the Company to be beneficial owners
of five percent or more of its outstanding Common Stock, (b) each of the
Company's directors, and executive officers and (c) all directors and executive
officers as a group. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
PRE OFFERING POST OFFERING
------------------------- -------------------------
AMOUNT AND PERCENT OF AMOUNT AND PERCENT OF
NATURE OF COMMON NUMBER OF NATURE OF COMMON
NAME AND ADDRESS BENEFICIAL STOCK SHARES BEING BENEFICIAL STOCK
OF BENEFICIAL OWNER(1) OWNERSHIP OUTSTANDING OFFERED OWNERSHIP OUTSTANDING
<S> <C> <C> <C> <C> <C>
RF Investors(2)................... 11,455,227 80.0% 1,300,000 10,155,227 60.7%
c/o 2300 Clarendon Blvd.
Arlington, Virginia 22201
Founder Corporation(2)............ 11,455,227 80.0 1,300,000 10,155,227 60.7
c/o 2300 Clarendon Blvd.
Arlington, Virginia 22201
Rajendra Singh(2)(3).............. 11,455,227 80.0 1,300,000 10,155,227 60.7
c/o 2300 Clarendon Blvd.
Arlington, Virginia 22201
Neera Singh(2)(4)................. 11,455,227 80.0 1,300,000 10,155,227 60.7
c/o 2300 Clarendon Blvd.
Arlington, Virginia 22201
MCI(5)............................ 2,863,807 20.0 -- 2,863,807 17.1
1801 Pennsylvania Ave., NW
Washington, DC 20006
Mark D. Ein(3)(6)................. -- -- -- -- --
c/o The Carlyle Group
1001 Pennsylvania Ave., NW
Washington, DC 20004
Piyush Sodha(7)(8)................ -- -- -- 148,000 0.9
c/o 2300 Clarendon Blvd.
Arlington, Virginia 22201
J. Michael Bonin(7)(8)............ 31,000 0.2 -- 31,000 0.2
c/o 2300 Clarendon Blvd.
Arlington, Virginia 22201
Donald R. Rose(7)(8).............. -- -- -- 372,000 2.2
c/o 2300 Clarendon Blvd.
Arlington, Virginia 22201
All Executive Officers,
Directors, ..................... 11,517,227 80.1 -- 10,737,277 62.1
Director-Nominees and Executive
Officers as a Group (11
Persons)(9)
</TABLE>
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<PAGE> 63
- ---------------
(1) Unless otherwise noted, the Company believes that all of such shares are
owned of record by each individual named as beneficial owner and that such
individual has sole voting and dispositive power with respect to the shares
of Common Stock owned by each of them.
(2) Represents all outstanding shares of the Class B Common Stock. Such shares
are held by RF Investors, a subsidiary of Telcom Ventures. Telcom Ventures
is owned 75% by the Founder Corporation and 25% by the Carlyle Investors.
The Founder Corporation is owned by the Singh Family Group. Rajendra Singh
and Neera Singh are the sole directors and executive officers of the
Founder Corporation.
(3) Director.
(4) Director/Executive Officer.
(5) Represents the shares of Class A Common Stock issuable upon the exchange of
the Exchangeable Notes. See "The MCI Conversion."
(6) Mr. Ein is a Vice President of The Carlyle Group, an affiliate of the
Carlyle Investors. Mr. Ein disclaims beneficial ownership of the shares of
Common Stock owned by the Carlyle Investors, which indirectly collectively
own 25% of RF Investors.
(7) Executive Officer.
(8) Consists entirely of shares issuable upon the exercise of stock options that
will be exercisable within 60 days of consummation of the offering.
(9) Includes the shares held by RF Investors.
As of the date of this Prospectus, there are no agreements or other
arrangements or understandings known to the Company concerning the voting of the
Common Stock or otherwise concerning control of the Company. See "Description of
Capital Stock -- Certain Relationships Between the Founder Corporation and
Carlyle Investors Affecting the Company." There are no pre-emptive rights
applicable to the Common Stock. See "Description of Capital Stock."
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company is
based, in part, on the provisions of the Certificate of Incorporation and
Bylaws. The authorized capital stock of the Company consists of 70 million
shares of Class A Common Stock, 20 million shares of Class B Common Stock, and
10 million shares of preferred stock, par value $0.1 per share (the "Preferred
Stock").
COMMON STOCK
The Company has two classes of authorized Common Stock, Class A Common
Stock, which is being offered hereby, and Class B Common Stock. The Class A
Common Stock has one vote per share. The Class B Common Stock, which may be
owned only by Telcom Ventures and its affiliates or a successor thereof, has ten
votes per share.
All outstanding shares of Class A Common Stock and Class B Common Stock
are, and all shares of Class A Common Stock and Class B Common Stock to be
outstanding upon consummation of the Offering will be, validly issued, fully
paid and nonassessable. Upon consummation of the Merger and the MCI Conversion,
2,863,807 shares of Class A Common Stock will be held by MCI and 11,455,227
shares of Class B Common Stock will be held by RF Investors.
After the Offering and the Merger, RF Investors will own all the
outstanding shares of Class B Common Stock, which will represent 93.9% of the
combined voting power of both classes of Common Stock. As a result, RF Investors
will have the ability to elect all of the Company's directors and will continue
to control the Company. See "Risk Factors -- Control of the Company by RF
Investors." The Class B Common Stock, which has effective control of the
Company, is not being offered by this Prospectus. Except as otherwise required
by law, shares of Class A Common Stock and Class B Common Stock vote together on
all matters, including the election of directors.
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<PAGE> 64
The Company may not issue any Class B Common Stock at any time after the
completion of the Offering. Each outstanding share of Class B Common Stock may,
at the option of the holder thereof, at any time, be converted into one share of
Class A Common Stock. Each share of outstanding Class B Common Stock shall
convert into one share of Class A Common Stock immediately upon transfer to any
holder other than the following (an "Eligible Class B Stockholder"): (i) Telcom
Ventures, one or more subsidiaries thereof or any successor to Telcom Ventures
or one or more subsidiaries thereof, (ii) the Founder Corporation or any
successor thereto, or (iii) any one or more of Dr. Rajendra Singh, Neera Singh,
other members of the immediate family of Dr. Rajendra and Neera Singh or their
lineal descendants, spouses of lineal descendants or lineal descendants of
spouses, or any trusts for the benefit of any of the foregoing. If the shares of
Class B Common Stock held by the Eligible Class B Stockholders in the aggregate
constitute 10% or less of the outstanding shares of Common Stock, each share of
Class B Common Stock shall immediately convert into one share of Class A Common
Stock. Each share of outstanding Class B Common Stock which is held by any
Eligible Class B Stockholder shall immediately convert into one share of Class A
Common Stock at such time as such holder is no longer an Eligible Class B
Stockholder.
Holders of Common Stock will have no cumulative voting rights and no
preemptive, subscription, or sinking fund rights. Subject to preferences that
may be applicable to any then outstanding Preferred Stock, holders of Common
Stock will be entitled to receive ratably such dividends as may be declared by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock will be entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
issue, from time to time and without further stockholder action, one or more
series of Preferred Stock, and to fix the relative rights and preferences of the
shares, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion privileges. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders. Preferred Stock issued with
voting, conversion or redemption rights may adversely affect the voting power of
the holders of Common Stock, and could discourage any attempt to obtain control
of the Company. As of the date of this Prospectus, the Board of Directors has
not authorized any series of Preferred Stock, and there are presently no
agreements or understanding for the issuance of any shares of Preferred Stock.
CERTAIN RELATIONSHIPS BETWEEN THE FOUNDER CORPORATION AND CARLYLE INVESTORS
AFFECTING THE COMPANY
The Telcom Ventures Limited Liability Agreement provides that, for as long
as the Carlyle Investors collectively own at least 5% of the total membership
interests of Telcom Ventures, Telcom Ventures shall vote any and all shares of
the Company held by it, and shall cause RF Investors to vote any and all shares
held by it, from time to time: (i) to elect as directors of the Company two
persons recommended by the Carlyle Investors and (ii) not take any of the
following actions without the consent of the Carlyle Investors: (a) approve any
amendment to the Certificate of Incorporation or the Bylaws of the Company; (b)
approve the incurrence by the Company of any debt (or the granting of security
relating to the incurrence of debt) if as a result of such incurrence, the debt
to equity ratio of the Company exceeds 6:1, or, if as a result of such debt
incurrence, the total outstanding debt of the Company exceeds $50 million plus
or minus, as the case may be, the cumulative net income or net losses of the
Company after January 1994; (c) approve any new affiliated party transactions in
excess of $150,000 or of modifications to existing transactions, subject to
certain limited exceptions; (d) approve appointment of independent accountants
of the Company other than one of the "big six" accounting firms; or (e) approve
certain events relating to bankruptcy or insolvency of the Company.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
The Bylaws establish an advance notice procedure with regard to the
nomination, other than by the Board of Directors, of candidates for election as
directors (the "Nomination Procedure") and with regard to certain
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<PAGE> 65
matters to be brought before an annual meeting of stockholders of the Company
(the "Business Procedure"). The Nomination Procedure requires that a stockholder
give prior written notice, in specified form, of a planned nomination to the
Board of Directors to the Secretary of the Company. Any person who is not so
nominated will not be eligible for election as a director under the Nomination
Procedure. Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual or special meeting must give prior written
notice, in specified form, to the Secretary of the Company. If business is not
properly brought before such meeting in accordance with the Business Procedure,
such business will not be transacted at such meeting. Although the Bylaws do not
give the Board of Directors any power to approve or disapprove stockholder
nominations for the election of directors or any other business desired by
stockholders to be conducted at an annual or special meeting, the Bylaws (i) may
have the effect of precluding a nomination for the election of directors or
precluding the conduct of business at a particular meeting if the proper
procedures are not followed or (ii) may discourage or deter a third party from
conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of the Company, even if the conduct of
such solicitation or such attempt might be beneficial to the Company and its
stockholders.
LIMITATION OF LIABILITY
As permitted by the Delaware Law, the Certificate of Incorporation provides
that no director of the Company will be liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for (i) any breach of the director's duty of loyalty to the
Company or its stockholders; (ii) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law; (iii) approval
of certain unlawful dividends or stock purchases or redemptions; and (iv) any
transaction from which the director derived an improper personal benefit. In
appropriate circumstances, equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware Law.
SECTION 203 OF DELAWARE LAW
The Company will be subject to the provisions of Section 203 of Delaware
Law ("Section 203"). Under Section 203, a Delaware corporation may not engage in
a business combination with an interested stockholder for a period of three
years after the date such person became an interested stockholder, unless (i)
prior to such date, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in such person becoming an interested stockholder, the interested stockholder
owned at least 85% of the corporation's voting stock outstanding at the time the
transaction commenced (excluding the number of outstanding shares owned by (a)
persons who are directors and officers and (b) employees through certain
employee stock plans; or (iii) subsequent to such date, the business combination
is approved by the board of directors and authorized by the affirmative vote of
at least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder. Section 203 defines the term "business combination" to
encompass a wide variety of transactions with or caused by an interested
stockholder, including certain types of mergers, consolidations, asset transfers
and other transactions resulting in a financial benefit to the interested
stockholder. "Interested stockholder" means a person who owns 15% or more of the
corporation's outstanding voting stock, or an affiliate and associate of such
person who has owned 15% or more of the corporation's voting stock within a
three-year period immediately prior to the date of such determination.
LISTING
Application has been made to have the Class A Common Stock offered hereby
approved for trading on Nasdaq under the symbol "LCCI".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is American
Stock Transfer Company.
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<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no established public market for the
Class A Common Stock. After the consummation of the Offering, substantial sales
of Class A Common Stock could adversely affect the price of the Class A Common
Stock in the public market.
Upon completion of the Offering, 16,719,034 shares of Common Stock will be
outstanding (assuming no exercise of the Over-Allotment Option), none of which
will be freely transferable without restriction or further registration under
the Securities Act, other than the 3,700,000 shares of Class A Common Stock
offered hereby. As of the completion of the Offering, the Company's existing
stockholders will continue to own an aggregate of 13,019,034 shares of Common
Stock, assuming no exercise of the Over-Allotment Option. All of such shares of
Common Stock are deemed to be "restricted securities" as that term is defined in
Rule 144, promulgated under the Securities Act.
In general, under Rule 144, a person (or persons whose shares are
aggregated with shares held by another person) who is not an affiliate of the
Company and who has satisfied a two-year holding period may, under certain
circumstances, sell within any three-month period a number of restricted
securities which does not exceed the greater of one percent of the shares
outstanding or the average weekly trading volume during the four calendar weeks
preceding the notice of sale required by Rule 144. In addition, Rule 144
permits, under certain circumstances, the sale of restricted securities, without
any quantity limitations, by a person who is not an affiliate of the Company and
who has satisfied a three-year holding period. Under Rule 144, the Company's
existing stockholders will be deemed to have acquired more than two years ago
the Class A Common Stock and Class B Common Stock held by them and accordingly,
they will be able to commence public sale of any of their currently held Class A
Common Stock or any Class A Common Stock issued upon conversion of their
currently held Class B Common Stock pursuant to Rule 144 beginning 90 days after
the Offering, except as provided by any "lock-up" agreements with the
Underwriters.
The Underwriters have requested that the Selling Stockholder and the other
stockholder and executive officers and directors of the Company agree, and the
Company expects that the foregoing persons shall agree, not to sell, transfer or
otherwise dispose of any of their shares of Common Stock for a period of 180
days from the date of this Prospectus, without the prior written consent of DLJ,
notwithstanding any Rule 144 exemption which may be available to such
stockholder. Subject to such "lock-up" arrangements, which may be terminated
earlier at the discretion of DLJ, commencing 180 days after the date of this
Prospectus there will be 13,019,034 restricted shares of Common Stock available
for sale pursuant to Rule 144. The Company intends to file one or more
registration statements under the Securities Act with respect to the
approximately 3,375,000 shares of Class A Common Stock available upon exercise
of options under the Employee Plan, the Employee Stock Purchase Plan and the
Directors Plan. Finally, RF Investors and MCI have or will have certain "demand"
rights to require the Company to register their Common Stock for sale and may
register shares on a "piggyback" basis in connection with most registered public
offerings of securities of the Company. Upon the exchange of the Exchangeable
Notes for equity in the Company, MCI is entitled to registration rights that
would, among other things, permit MCI to submit three demand registration
requests to the Company. Generally, the Company is required to use "best
efforts" to file a registration statement with the Commission within 90 days of
receiving such a request. However, once a year, the Company may defer MCI's
registration request for a period of up to 90 days if the Company's Board of
Directors makes a good faith determination that it would be "seriously
detrimental" to the Company to file a registration statement within the time
period otherwise required. See "Certain Transactions -- Registration Rights."
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<PAGE> 67
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the Underwriters named below have severally
agreed to purchase from the Company and the Selling Stockholder, and the Company
and the Selling Stockholder have agreed to sell to the Underwriters, an
aggregate of 3,700,000 shares of Class A Common Stock at the Offering price per
share, less the underwriting discounts and commissions set forth on the cover of
this Prospectus. The number of shares of Class A Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Alex. Brown & Sons Incorporated...........................................
Oppenheimer & Co., Inc....................................................
---------
Total........................................................... 3,700,000
</TABLE>
The Underwriting Agreement provides that the obligation of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by their
counsel and to certain other conditions. If any shares of Class A Common Stock
are purchased by the Underwriters pursuant to the Underwriting Agreement, all
such shares (other than shares covered by the Over-Allotment Option) must be
purchased by the Underwriters.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Underwriters have advised the Company that they propose to offer the
shares of Class A Common Stock to the public initially at a price to the public
set forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price, less a concession not to exceed
$ per share. The Underwriters may allow, and such dealers may re-allow,
a concession not in excess of $ per share to any other Underwriter and
certain other dealers. After the Offering, the Offering price and other selling
terms may be changed by the Underwriters.
The Company and the Selling Stockholder have granted to the Underwriters
the Over-Allotment Option to purchase up to an aggregate of 555,000 additional
shares (360,000 shares from the Company and 195,000 shares from the Selling
Stockholder) of Class A Common Stock at the Offering price net of underwriting
discounts and commissions, solely to cover over-allotments. The Over-Allotment
Option may be exercised at any time within 30 days after the date of this
Prospectus. To the extent that the Underwriters exercise the Over-Allotment
Option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table and the
Company and Selling Stockholder will have committed to sell such shares to the
Underwriters. If purchased, the Underwriters will sell such additional 555,000
shares on the same terms on which the 3,700,000 shares are being offered.
The Underwriters have requested that the Selling Stockholder and the other
stockholder and executive officers and directors of the Company agree, not to
sell, transfer, or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) which are substantially similar to the shares of Class A Common
Stock or securities convertible into or exchangeable for, or rights to purchase
or acquire, securities which are substantially similar to the shares of Class A
Common Stock, directly or indirectly, for a period of 180 days after the date of
this Prospectus without prior written consent of DLJ. See "Shares Eligible for
Future Sale."
Application will be made for listing of the Class A Common Stock on the
Nasdaq National Market under the symbol "LCCI," subject to official notice of
issuance.
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<PAGE> 68
Certain Underwriters and their affiliates have engaged in and may in the
future engage in commercial banking and investment banking transactions with the
Company and its affiliates in the ordinary course of business.
The Underwriters have informed the Company that they do not expect sales to
discretionary accounts by the Underwriters to exceed five percent of the total
number of shares of Class A Common Stock offered by them.
Prior to the Offering, there has been no public market for the shares of
Class A Common Stock. The initial price to the public for the shares of Class A
Common Stock will be determined by negotiation among the Company, the Selling
Stockholder and the Representatives. Among the factors considered in determining
the initial price to the public include the history of and the prospects for the
industry in which the Company competes, the past and present operations of the
Company, the historical results of operations of the Company, the prospects for
future earnings of the Company, the recent market prices of securities of
generally comparable companies and the general condition of the securities
markets at the time of the Offering.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby and
certain other legal matters regarding the shares of Class A Common Stock will be
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The consolidated financial statements and Schedule of the Company as of
December 31, 1995 and December 31, 1994, and for each of the years in the three
year period ended December 31, 1995, included in this Prospectus, and in the
Registration Statement have been included herein and in the Registration
Statement in reliance upon the reports by KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and in the Registration
Statement, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of Class A Common Stock being offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules to the Registration Statement. For further information
about the Company and the Class A Common Stock offered hereby, reference is made
to the Registration Statement and to the exhibits and schedules filed therewith.
The statements contained in this Prospectus with respect to the contents of an
agreement or other document referred to herein are not necessarily complete and,
in each instance, reference is made to a copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by reference to the provisions of the relevant documents. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the Public Reference facilities of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the offices of the Commission located at 500 West Madison Street, Room 1400,
Chicago, Illinois 60661, and at 7 World Trade Center, Suite 1300, New York, New
York 10048; and copies of such material can be obtained upon request and payment
of the appropriate fee from the Public Reference Section of the Commission
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549.
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<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Statements of Operations of LCC, L.L.C. and Subsidiaries for the years
ended December 31, 1993, 1994 and 1995 and three months ended March 31, 1995 and
1996................................................................................ F-3
Consolidated Balance Sheets of LCC, L.L.C. and Subsidiaries as of December 31, 1994
and
1995 and March 31, 1996............................................................. F-4
Consolidated Statements of Members' Capital of LCC, L.L.C. and Subsidiaries for the
years
ended December 31, 1993, 1994 and 1995 and three months ended March 31, 1996........ F-5
Consolidated Statements of Cash Flows of LCC, L.L.C. and Subsidiaries for the years
ended December 31, 1993, 1994 and 1995 and three months ended March 31, 1995 and
1996................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
- ---------------
* LCC International, Inc. (LCCI) was formed on June 4, 1996 and was capitalized
on June 13, 1996 with $150. Financial statements of LCCI have not been
presented herein because LCCI has no significant assets, liabilities, or
operations and such financial statements are, therefore, not material to this
Registration Statement or investors' understanding of the Offering.
F-1
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
The Members' Committee
LCC, L.L.C. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of LCC, L.L.C.
and Subsidiaries (the "Company") as of December 31, 1994 and 1995, and the
related consolidated statements of operations, members' capital, and cash flows
as of and for each of the years in the three year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company'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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LCC, L.L.C.
and Subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Washington, DC
March 15, 1996, except for note 19
which is as of May 17, 1996
F-2
<PAGE> 71
LCC, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues.......................... $30,712 $41,063 $64,016 $12,687 $17,457
Product revenues.......................... 29,595 34,992 40,445 8,453 9,631
------- ------- ------- ------- -------
Total revenues................................. 60,307 76,055 104,461 21,140 27,088
------- ------- ------- ------- -------
Cost of revenues:
Cost of service revenues.................. 21,087 29,185 45,682 8,931 11,352
Cost of product revenues.................. 16,026 21,299 25,455 5,486 7,358
------- ------- ------- ------- -------
Total cost of revenues......................... 37,113 50,484 71,137 14,417 18,710
------- ------- ------- ------- -------
Gross profit................................... 23,194 25,571 33,324 6,723 8,378
------- ------- ------- ------- -------
Operating expenses:
Sales and marketing....................... 4,146 4,987 5,823 1,508 1,432
General and administrative................ 5,799 8,802 10,108 2,366 2,706
Non-cash compensation (note 13)........... -- 3,255 4,646 1,191 466
Depreciation and amortization............. 1,838 2,020 3,699 540 1,213
------- ------- ------- ------- -------
Total operating expenses....................... 11,783 19,064 24,276 5,605 5,817
------- ------- ------- ------- -------
Operating income............................... 11,411 6,507 9,048 1,118 2,561
------- ------- ------- ------- -------
Other income (expense):
Interest income........................... 243 496 625 -- 135
Interest expense.......................... (97) (717) (2,818) (66) (673)
Other..................................... (231) 721 1,027 (146) 1,164
------- ------- ------- ------- -------
Total other income (expense)................... (85) 500 (1,166) (212) 626
------- ------- ------- ------- -------
Income before income taxes..................... 11,326 7,007 7,882 906 3,187
Provision for income taxes (note 9)............ 829 2,037 3,142 370 708
------- ------- ------- ------- -------
Net income..................................... $10,497 $ 4,970 $ 4,740 $ 536 $ 2,479
======= ======= ======= ======= =======
Pro forma income data (unaudited) (note 3):
Income before income taxes................ $ 7,882 $ 3,187
Pro forma provision for income taxes (note
9)...................................... 3,153 1,275
------- -------
Pro forma net income (unaudited).......... $ 4,729 $ 1,912
======= =======
Pro forma net income per share (unaudited):.... $ .36 $ .14
======= =======
Weighted average number of common shares and
common share equivalents (unaudited):........ 15,500 15,500
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 72
LCC, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 4)........................ $18,469 $ 6,571 $ 8,599
Short-term investments.................................... 453 778 778
Receivables, net of allowance for doubtful accounts of
$2,796, $3,131, and $3,786 at December 31, 1994 and
1995,
and March 31, 1996, respectively:
Trade accounts receivable............................ 14,363 28,293 29,024
Due from related parties and affiliates (notes 5 and
8)................................................. 5,901 2,938 2,338
Notes receivable from affiliate (note 5)............. -- 1,382 1,379
Unbilled receivables (note 3)........................ 6,807 6,096 8,046
Inventory (note 6)........................................ 4,572 4,949 5,198
Prepaid expenses and other current assets................. 1,656 300 757
-------- -------- ---------
Total current assets........................................... 52,221 51,307 56,119
Property and equipment, net (note 7)........................... 4,019 5,440 5,167
Software development costs, net of accumulated amortization of
$131, $1,058, and $1,347 at December 31, 1994 and 1995 and
March 31, 1996, respectively................................. 1,797 3,745 3,960
Notes receivable (note 19)..................................... -- -- 3,650
Investments in joint ventures (note 8)......................... 321 1,403 1,303
Other assets (note 19)......................................... 228 146 5,153
-------- -------- ---------
$58,586 $62,041 $75,352
========= ========= =========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Note payable (note 10).................................... $ -- $10,000 $20,000
Accounts payable.......................................... 2,308 2,170 2,957
Accrued expenses (note 13)................................ 10,780 11,137 10,631
Deferred revenue.......................................... 1,706 3,137 4,833
Income taxes payable (note 9)............................. 2,775 6,312 6,800
Due to related parties and affiliates (notes 2 and 5)..... 2,700 73 125
Other current liabilities................................. 449 829 849
-------- -------- ---------
Total current liabilities...................................... 20,718 33,658 46,195
Convertible subordinated debt (note 11)........................ 20,000 20,000 20,000
Obligations under Incentive Plans, net of current portion (note
13).......................................................... 3,342 8,623 9,197
Other liabilities.............................................. 588 4 920
-------- -------- ---------
Total liabilities.............................................. 44,648 62,285 76,312
Commitments and contingencies (notes 12, 13, 14, and 15).......
Members' capital............................................... 13,938 (244) (960)
-------- -------- ---------
$58,586 $62,041 $75,352
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 73
LCC, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
AND THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE
COMMON PAID-IN RETAINED MEMBERS' FROM MEMBER
STOCK CAPITAL EARNINGS CAPITAL (NOTE 5) TOTAL
-------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992......... $ 13 $ 71 $ 9,347 $ -- $ -- $ 9,431
Dividends paid........................ -- -- (7,658) -- -- (7,658)
Net income............................ -- -- 10,497 -- -- 10,497
-------- -------- --------- --------- --------- ----------
Balances at December 31, 1993......... 13 71 12,186 -- -- 12,270
Net assets retained by LCC,
Incorporated by Telcom Ventures upon
its formation (note 2).............. (13) (71) (4,233) -- -- (4,317)
Capital contributed to LCC, L.L.C. by
Telcom Ventures upon its formation,
net (note 2)........................ -- -- (6,351) 16,690 -- 10,339
Dividends paid........................ -- -- -- (9,285) -- (9,285)
Net income (note 2)................... -- -- (1,602) 6,572 -- 4,970
Cumulative foreign currency
translation adjustment.............. -- -- -- (39) -- (39)
-------- -------- --------- --------- --------- ----------
Balances at December 31, 1994......... -- -- -- 13,938 -- 13,938
Loan to member (note 5)............... -- -- -- -- (9,382) (9,382)
Dividends paid........................ -- -- -- (9,500) -- (9,500)
Net income............................ -- -- -- 4,740 -- 4,740
Cumulative foreign currency
translation adjustment.............. -- -- -- (40) -- (40)
-------- -------- --------- --------- --------- ----------
Balances at December 31, 1995......... -- -- -- 9,138 (9,382) (244)
Loan to member (unaudited)............ -- -- -- -- (3,184) (3,184)
Net income (unaudited)................ -- -- -- 2,479 -- 2,479
Cumulative foreign currency
translation adjustment
(unaudited)......................... -- -- -- (11) -- (11)
-------- -------- --------- --------- --------- ----------
Balances at March 31, 1996
(unaudited)......................... $ -- $ -- $ -- $ 11,606 $ (12,566) $ (960)
======== ======== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 74
LCC, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
1993 1994 1995 1995 1996
-------- ------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 10,497 $ 4,970 $ 4,740 $ 536 $ 2,479
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization............... 1,838 2,020 3,699 540 1,213
Provision for doubtful accounts............. 556 2,083 622 67 598
Loss (income) from investments in joint
ventures, net............................. 33 (181) (732) (41) (349)
Gain on disposition of joint venture, net... -- -- -- -- (514)
Changes in operating assets and liabilities:
Trade, unbilled, and other
receivables........................... (17,953) (9,513) (12,260) (910) (2,679)
Accounts payable and accrued expenses... 3,522 3,609 216 (3,617) 281
Inventory............................... (955) (2,245) (377) 203 (249)
Other current assets and liabilities.... (1,652) 3,987 4,077 194 (2,098)
Other noncurrent assets and
liabilities........................... (101) 3,273 4,772 1,456 (3,528)
-------- ------- -------- -------- -------
Net cash (used in) provided by operating
activities......................................... (4,215) 8,003 4,757 (1,572) (4,846)
-------- ------- -------- -------- -------
Cash flows from investing activities:
Decrease (increase) in short-term investments,
net............................................ 2,313 (89) (325) (569) --
Purchases of property and equipment.............. (1,882) (2,403) (4,222) (1,121) (415)
Purchase of investment held as agent for
affiliate...................................... (15,253) -- -- -- --
Increase in capitalized software................. -- (1,927) (2,876) (667) (740)
Investment in joint ventures..................... (23) (150) (350) (150) (437)
Issuance of notes receivable from uncombined
affiliate...................................... (3,096) -- -- -- (2,150)
Proceeds from sale of joint venture.............. -- -- -- -- 3,800
Other............................................ 102 -- -- -- --
-------- ------- -------- -------- -------
Net cash (used in) provided by investing
activities......................................... (17,839) (4,569) (7,773) (2,507) 58
-------- ------- -------- -------- -------
Cash flows from financing activities:
Decrease in outstanding checks in excess of bank
balances....................................... (886) -- -- -- --
Borrowing under line of credit/note.............. 30,399 -- 10,000 -- 10,000
Proceeds from subordinated debt.................. -- 20,000 -- -- --
Distributions and loans to member................ -- (4,850) (9,382) -- (3,184)
Payments of dividends............................ (7,658) (9,285) (9,500) (6,500) --
-------- ------- -------- -------- -------
Net cash provided by (used in) financing
activities......................................... 21,855 5,865 (8,882) (6,500) 6,816
-------- ------- -------- -------- -------
Net (decrease) increase in cash and cash
equivalents........................................ (199) 9,299 (11,898) (10,579) 2,028
Cash and cash equivalents at beginning of period..... 9,369 9,170 18,469 18,469 6,571
-------- ------- -------- -------- -------
Cash and cash equivalents at end of period........... $ 9,170 $18,469 $ 6,571 $ 7,890 $ 8,599
======== ======= ======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................... $ 85 $ 717 $ 2,372 $ 338 $ 274
Income taxes................................ 965 261 506 5 220
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 75
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(1) DESCRIPTION OF OPERATIONS
The Company is a leading provider of integrated services and products
relating to the design and engineering of wireless communications systems. The
services and products provided by the Company are as follows:
SERVICES
Engineering and design services -- The Company provides engineering and
design services for cellular phone system operators, personal communication
system (PCS) operators and other wireless communication system providers.
These services are predominately provided on a time-and-material or
fixed-price contract basis.
Program management services -- The Company provides program management
services related to the build-out of wireless communications systems.
PRODUCTS
Software products -- The Company develops and markets proprietary
software and data, which support the design and operation of wireless
communications systems.
Hardware products -- The Company designs, assembles and sells field
measurement equipment used in the implementation, testing and maintenance of
wireless communications systems.
The Company operates in a highly competitive environment subject to rapid
technological change and emergence of new technologies. Future revenues are
dependent upon the re-engineering of existing wireless communications systems,
introduction of existing wireless technologies into new markets, the entrance of
new wireless providers into existing markets and the introduction of new
technologies. Although the Company believes that its services and products are
transferable to emerging technologies, rapid changes in technology could have an
adverse financial impact on the Company.
The Company's existing and potential customer base is diverse and includes
start-up companies and foreign enterprises. Although the Company believes that
the diversity of its customer base minimizes the risk of incurring material
losses due to concentrations of credit risk, it may be exposed to a declining
customer base in periods of market downturns, severe competition, or
international developments.
(2) FORMATION OF LIMITED LIABILITY COMPANY
LCC, L.L.C. is the successor to the business formerly conducted by LCC,
Incorporated and certain of its affiliates. The transactions pursuant to which
LCC, L.L.C. was formed are described below.
On January 3, 1994, LCC, Incorporated and certain of its affiliates,
Telecom Solutions, Incorporated, LCC International Corporation, and Eurofon,
Incorporated (herein collectively referred to as LCC, Incorporated and
affiliates) and their shareholders consummated a transaction pursuant to which
certain affiliates of The Carlyle Group acquired a 25.0 percent interest in
Telcom Ventures, L.L.C. (Telcom Ventures), a newly formed limited liability
company for $38,000,000.
Upon the consummation of this transaction, substantially all the assets and
liabilities of LCC, Incorporated and affiliates were transferred to Telcom
Ventures at their carrying value. LCC, Incorporated and affiliates retained
assets totaling $4,317,000, which consisted of certain related party notes
receivable, investments in certain joint ventures, and a 20.0 percent limited
partnership interest in Eurofon, Incorporated & Co. KG. (EKG).
F-7
<PAGE> 76
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LCC, L.L.C., a Delaware limited liability company, was formed on January 4,
1994, as the successor entity to LCC, Incorporated and affiliates. In
conjunction with the formation of LCC, L.L.C., Telcom Ventures made a capital
contribution of $16,690,000 to LCC, L.L.C. in exchange for a 99.0 percent
interest in LCC, L.L.C. Telcom Ventures' capital contribution consisted of
$6,351,000 of the net assets and liabilities formerly employed by LCC,
Incorporated and affiliates, which were transferred to LCC, L.L.C. at their
carrying values, and $10,339,000 of the Carlyle Group's contribution to Telcom
Ventures. Upon the formation of LCC, L.L.C., Telcom Ventures retained an
investment in Wireless Ventures of Brazil, Inc. totaling $15,253,000 which had
been held by LCC, Incorporated and affiliates on behalf of its shareholders and
the Carlyle Group as of December 31, 1993.
In connection with such transactions, a total of $1,602,000 was required to
be paid to certain employees. LCC, Incorporated recorded this amount as an
expense in 1994 prior to the formation of LCC, L.L.C. This liability was
transferred to LCC, L.L.C. upon its formation. At December 31, 1994, the
remaining unpaid amounts associated with the termination and cancellation of the
Plan of $1,000,000 is included in due to related parties and affiliates within
the accompanying consolidated balance sheet. Such amount was paid in 1995.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents include all highly liquid investments purchased with
original maturities of three months or less.
SHORT-TERM INVESTMENTS
Short-term investments consist of certificates of deposit and other highly
liquid investments with maturity dates of more than three months from the date
of acquisition. Investments are carried at cost plus accrued interest which
approximates their market value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially expose the Company to concentration
of credit risk consist primarily of trade receivables. The Company sells its
services and products globally. Generally, the Company does not require
collateral or other security to support customer receivables. The Company
performs ongoing credit evaluations of its customers' financial condition and
maintains reserves for potential credit losses. The Company had the following
significant concentrations of trade receivables from customers located outside
the United States at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Latin America............................................... $3,049 $5,293
Europe...................................................... 4,802 3,070
Middle East................................................. 279 1,550
Asia Pacific................................................ 2,006 5,644
</TABLE>
F-8
<PAGE> 77
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORY
Inventory, net of allowance for obsolete and slow moving inventory,
consists of parts and accessories for field measurement and test equipment and
is stated at the lower of cost, determined on an average cost basis, or market
value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less an allowance for
depreciation. Replacements and major improvements are capitalized; maintenance
and repairs are charged to expense as incurred.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets which range from three to seven years. The
costs of leasehold improvements are capitalized and amortized using the
straight-line method over the shorter of their useful lives or the terms of the
respective leases.
RESEARCH AND DEVELOPMENT EXPENDITURES
The Company capitalizes software development costs, principally wages and
contractor fees, when incurred, after establishing the commercial and
technological feasibility of the product. These costs are amortized using the
greater of the ratio of current product revenue to total current and anticipated
product revenue or the straight-line method over the software's estimated
economic life, generally ten to forty-eight months. During 1993, 1994, and 1995
the company recognized software amortization costs of approximately $0, $131,000
and $927,000, respectively.
The Company periodically performs an evaluation of the net realizable value
of its capitalized software development costs. This evaluation requires
considerable judgment by management with respect to certain external factors
including, but not limited to, anticipated future revenues, estimated product
economic life, and changes in technology. No capitalized software development
costs were written off in 1993 or 1994. Approximately $130,000 of software
development costs were written off in 1995.
All other research and development expenditures are expensed in the period
incurred. The amount of other research and development costs was $512,000,
$477,000 and $479,000 in 1993, 1994 and 1995, respectively.
INVESTMENTS IN JOINT VENTURES
The Company uses the equity method of accounting for its investments in,
advances to and the earnings and losses of its joint ventures.
REVENUE RECOGNITION
The Company's principal sources of revenue are engineering and design
services, program management services, sales of field measurement and testing
equipment and software license agreements. The Company recognizes revenue from
long-term fixed price contracts using the percentage-of-completion method, based
on individual contract costs incurred to date compared with total estimated
contract costs. Anticipated contract losses are recognized as soon as they
become known and estimable. The Company recognizes revenue from software
licenses either at the time the software is delivered and accepted or ratably
over the contract term depending on the nature of the license arrangement.
Revenue on sales of field measurement and testing equipment is recognized at the
time the merchandise is shipped. Revenue from consulting and other software
related services is recognized as such services are rendered. Revenue from post
contract customer support (maintenance) agreements is recognized ratably over
the period during which the services are to be
F-9
<PAGE> 78
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
performed. Revenue earned but not yet billed is reflected as unbilled
receivables in the accompanying consolidated balance sheets. The Company expects
substantially all unbilled receivables to be billed and collected in one year.
INCOME TAXES
As a limited liability company, the Company is not directly subject to U.S.
Federal income taxes. Instead, the members are responsible for Federal income
taxes on their proportionate share of taxable income. Members are also entitled
to a proportionate share of tax deductions and credits.
Generally, the Company is not subject to U.S. state and local income taxes
as the majority of states recognize the flow-through nature of a limited
liability company. This practice follows the U.S. Federal tax rules and,
accordingly, the members are taxed by the states based upon their allocated
taxable income or loss. States which do not recognize the limited liability
company as a flow-through entity require the Company to be taxed as if it were a
corporation. Where this is the case, the Company has established a provision for
these income taxes.
Certain of the Company's international operations are subject to local
income taxation. Currently, the Company is subject to taxation on income from
certain operations in Europe, Latin America, the Far East, the Middle East and
the non-U.S. portions of North America where the Company has established branch
offices or has performed significant services that constitute a "permanent
establishment" for tax reporting purposes. Foreign taxes account for a
significant portion of the provision for income taxes as reflected in the
Company's consolidated statements of operations (see note 9). The foreign taxes
paid or accrued by the Company represent a potential credit for the members
against their federal income taxes. Where applicable, these credits are
allocated to the members based upon their proportionate membership interests in
the Company.
PRO FORMA INCOME DATA (UNAUDITED)
In connection with the Company's planned initial public offering of Class A
Common Stock, the Company intends to convert to a Subchapter C corporation under
the Internal Revenue Code of 1986, as amended (the IRC). Accordingly, the
accompanying pro forma information has been prepared as if the Company was
treated as a Subchapter C corporation for Federal and state income tax purposes
from January 1, 1995.
Pro forma income per share information has been computed by dividing pro
forma net income by the pro forma weighted average number of common shares and
common share equivalents outstanding. Common share equivalents include all
outstanding stock options after applying the treasury stock method. Common stock
options granted during the 12-month period preceding the date of the Company's
initial public offering have been included in the calculation of weighted
average common shares outstanding for all periods presented based on a per share
price of $15.
In addition, in connection with the Company's initial public offering of
Class A Common Stock, the Company's and Telcom Ventures' convertible
subordinated debt will be converted into shares equal to a 20 percent ownership
interest in the Company, immediately prior to the initial public offering. For
purposes of the computation of pro forma net income per share, the Company has
considered the conversion to have taken place at January 1, 1995.
FOREIGN CURRENCY TRANSLATION
Gains and losses on translation of the accounts of the Company's foreign
operations where the local currency is the functional currency are accumulated
and included in the cumulative foreign currency translation adjustment within
the accompanying consolidated statement of members' capital. Foreign currency
transaction gains and losses are recognized currently in the consolidated
statements of operations.
F-10
<PAGE> 79
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERVASIVENESS OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
UNAUDITED INTERIM INFORMATION
The unaudited interim information for the three months ended March 31, 1995
and 1996, has been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to Article 10
of Regulation S-X. In the opinion of management, such information contains all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation of such periods. The operating results for the
three months ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
RECLASSIFICATION OF PRIOR-YEARS' BALANCES
Prior-years' balances have been reclassified to conform with the
current-year presentation.
(4) CASH AND CASH EQUIVALENTS
At December 31, cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------- ------
(IN THOUSANDS)
<S> <C> <C>
Cash in banks.............................................. $ 2,495 $1,402
Overnight repurchase agreements............................ 7,998 1,158
Short-term commercial paper................................ 7,976 4,011
------- ------
$18,469 $6,571
======= ======
</TABLE>
(5) RELATED PARTY TRANSACTIONS
During 1994 and 1995, the Company provided engineering services and
software products to Telcom Ventures and various other companies owned, in part,
by Telcom Ventures or its members, as well as the Telemate joint venture (see
note 8). Revenues earned during 1994 and 1995 for services and products provided
to these customers were approximately $11.3 million and $3.5 million,
respectively. Trade accounts receivables from these related parties were $5.2
million and $2.2 million at December 31, 1994 and 1995, respectively, and are
included in due from related parties in the accompanying consolidated balance
sheets. Also during calendar 1995, program management services were provided to
the Company by the Koll Joint Venture (see note 8).
During 1994 and 1995, the Company made certain payments on behalf of Telcom
Ventures and its members which consisted primarily of payroll services, fringe
benefit payments, facility related charges, business insurances and foreign tax
payments. At December 31, 1994 and 1995, outstanding amounts associated with
these payments totaling $568,000 and $311,000, respectively, are included in due
from related parties and affiliates within the accompanying consolidated balance
sheets.
At December 31, 1994, due to related parties and affiliates included
certain amounts due to a member of Telcom Ventures as well as approximately
$1,286,000 due to Telcom Ventures for the "excess working capital" transferred
to the Company upon its formation, as defined in the agreement executed between
LCC,
F-11
<PAGE> 80
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Incorporated and its affiliates and the Carlyle Group in January 1994 (see note
2). These balances were paid in 1995.
Notes receivable consists of two promissory notes due from an entity owned
approximately 4.5 percent by a 100 percent-owned subsidiary of Telcom Ventures
and approximately 15.0 percent by a member of Telcom Ventures. The notes bear
interest at approximately 16.5 percent and are payable monthly. Late payments
are subject to an additional charge of 2.0 percent on the entire unpaid
principal balance and any outstanding interest. All outstanding principal is due
in 1996. Interest income recorded on the notes was $104,000 for the year ended
December 31, 1995. The Company expects payment to be made on these notes from
capital contributions to be made by the shareholders of this entity during 1996,
including Telcom Ventures and the member of Telcom Ventures.
In May 1995, the Company entered into a revolving promissory note with
Telcom Ventures under which it had advanced $9,382,000 to Telcom Ventures as of
December 31, 1995. The note bears a variable interest rate of prime plus 3.0
percent, escalating at .25 percent increments at various intervals over the term
of the debt. At December 31, 1995, the note carried an interest rate of prime
plus 3.25 percent or 11.75 percent. Outstanding principal together with all
accrued interest is due May 30, 2001. The note is reflected as a reduction of
members' capital in the accompanying statements of members' capital.
(6) INVENTORY
At December 31, 1994 and 1995, inventory consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Field measurement and test equipment........................ $3,568 $4,450
Parts and accessories....................................... 1,004 840
------ ------
4,572 5,290
Less -- reserve for obsolete and slow moving inventory...... -- 341
------ ------
$4,572 $4,949
====== ======
</TABLE>
(7) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995, consisted of the
following:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment........................................ $ 7,840 $ 9,760
Furniture and office equipment............................ 2,595 3,145
Purchased computer software............................... 802 2,174
Leasehold improvements.................................... 629 1,003
Vehicles.................................................. 229 235
------- -------
12,095 16,317
Less accumulated depreciation and amortization............ 8,076 10,877
------- -------
$ 4,019 $ 5,440
======= =======
</TABLE>
Beginning in 1995, purchased computer software includes the external costs
of the conversion of the Company's financial information system.
F-12
<PAGE> 81
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) INVESTMENTS IN JOINT VENTURES
The Company's investments in joint ventures at December 31, 1994 and 1995,
consisted of the following:
<TABLE>
<CAPTION>
1994 1995
---- ------
(IN THOUSANDS)
<S> <C> <C>
Telemate S.A. ............................................... $102 $ 886
Koll Telecommunications, L.L.C. ............................. 219 517
---- ------
$321 $1,403
==== ======
</TABLE>
The Company had a 50.0 percent interest in Telemate S.A. (Telemate), which
provides consulting services in connection with the implementation and operation
of mobile communications systems in certain countries in Europe, Asia and Latin
America. The Company provides design engineering services and software products
to Telemate. Revenues earned related to these services were approximately
$1,900,000, $4,420,000, and $1,797,000 in 1993, 1994, and 1995, respectively.
Due from related parties and affiliates included approximately $1,221,000 and
$554,000, due from Telemate for the years ended December 31, 1994 and 1995,
respectively.
The unaudited condensed financial statements of Telemate as of and for the
years ended December 31, 1993, 1994, 1995, were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Revenues.......................................... $3,821 $11,623 $16,567
Cost and expenses................................. 3,877 11,165 15,255
------ ------- -------
Net (loss) income................................. $ (56) $ 458 $ 1,312
====== ======= =======
CONDENSED BALANCE SHEETS
Current assets.................................... $3,613 $ 6,398 $ 8,220
Noncurrent assets................................. 748 2,916 3,376
Current liabilities............................... 2,527 5,261 5,334
Noncurrent liabilities............................ 153 -- 369
Stockholders' equity.............................. 1,681 4,053 5,893
</TABLE>
The Company sold its investment in Telemate in January 1996 (see note 19).
The Company's investments also include a 33 1/3 percent interest in Koll
Telecommunications Services, L.L.C. (Koll), which was formed in October 1994
with two other unrelated entities. Koll provides site acquisition and
construction management services to operators of wireless communications
systems. The Company's interest in Koll was received in exchange for a cash
investment of $150,000. During 1995, the Company contributed an additional
$350,000. Operating costs and expenses of the Company include services provided
by Koll, in the amount of $537,000 in 1995.
F-13
<PAGE> 82
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed financial statements of Koll as of and for the
three months ended December 31, 1994 and the 12 months ended December 31, 1995
were as follows:
<TABLE>
<CAPTION>
1994 1995
----- ------
(IN THOUSANDS)
<S> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Revenues.................................................... $ 160 $3,017
Cost and expenses........................................... 216 2,908
----- ------
Net (loss) income........................................... $ (56) $ 109
===== ======
CONDENSED BALANCE SHEETS
Current assets.............................................. $ 297 $1,841
Noncurrent assets........................................... 44 82
Current liabilities......................................... 97 726
Stockholders' equity........................................ 244 1,197
</TABLE>
(9) INCOME TAXES
U.S. state and local income tax expense is generated from activities
conducted in the several states that do not recognize the limited liability
company as a flow-through entity and, therefore, require the Company to be taxed
as if it were a corporation. Foreign income tax expense is generated from
business conducted in countries where the Company has established branch offices
or has performed significant services that constitute a "permanent
establishment" for tax reporting purposes.
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. -- state and local.............................. $ -- $ -- $ 345
---- ------ ------
North America........................................ -- 105 20
Latin America........................................ 29 617 831
Europe............................................... 584 973 481
Middle East.......................................... 87 18 310
Asia Pacific......................................... 129 324 1,155
---- ------ ------
Foreign.............................................. 829 2,037 2,797
---- ------ ------
Total................................................ $829 $2,037 $3,142
==== ====== ======
</TABLE>
The unaudited pro forma provisions for income taxes presented in the
consolidated statements of operations for the year ended December 31, 1995 and
the interim period ended March 31, 1996, represents an estimate of the taxes
that would have been recorded had the Company been a Subchapter C corporation as
of
F-14
<PAGE> 83
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 1, 1995. The unaudited pro forma provisions for income taxes for the
year ended December 31, 1995, and the three month period ended March 31, 1996,
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Pro forma (unaudited):
Federal.......................................... $ 736 $ 362
State............................................ 604 243
Foreign.......................................... 1,813 670
------ ------
Total pro forma....................................... $3,153 $ 1,275
====== ======
</TABLE>
A reconciliation of the statutory Federal income tax rate and the unaudited
pro forma effective rate for the year ended December 31, 1995, and the three
month period ended March 31, 1996, follows.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
PRO FORMA PRO FORMA
------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Statutory federal income tax rate............................ 35.0% 35.0%
Effect of:
State and local income taxes, net of federal tax
benefit................................................. 5.0 5.0
Foreign................................................. 23.0 21.0
Tax credits, net........................................ (23.0) (21.0)
----- -----
Effective tax rate........................................... 40.0% 40.0%
===== =====
</TABLE>
(10) NOTE PAYABLE
In May 1995, the Company entered into a $15,000,000 financing facility with
Nomura Holding America Inc. At December 31, 1995, $10,000,000 had been drawn
against the facility. At each six-month anniversary of issuance while the
facility remains outstanding, the original interest rate of prime plus 3.0
percent will increase by .25 percent. At December 31, 1995, the facility carried
an interest rate of prime plus 3.25 percent or 11.75 percent. All unpaid
principal and interest due under the facility is payable no later than May 30,
1997. The facility was secured by the pledging of substantially all of the
Company's assets and Telcom Ventures' membership interest in the Company and was
guaranteed by Telcom Ventures.
The financing facility contained certain covenants restricting additional
indebtedness and payment of dividends, as well as requiring the maintenance of
certain financial ratios. At December 31, 1995, the Company was in violation of
certain of these covenants. However, subsequent to year-end, the Nomura facility
was purchased by Chase Manhattan Bank, N.A. (Chase) and the obligation to Nomura
was satisfied (see note 19).
(11) CONVERTIBLE SUBORDINATED DEBT
In June 1994, the Company issued to a third-party investor a $20,000,000
convertible Subordinated Note Due 2000 (the Subordinated Note). The Subordinated
Note bears interest at a rate equal to the higher of 6.8 percent, payable
semiannually or an amount which approximates their return had they converted
into a membership interest from the date when the Subordinated Note was issued.
The entire principal amount of the Subordinated Note is due in June 2000. Upon
the occurrence of certain specified events (including any merger of the Company
with another company or any sale of substantially all of the Company's assets),
the Subordinated Note will automatically be exchanged for an 8.0 percent
membership interest in the Company.
F-15
<PAGE> 84
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the investor has the right to exchange the Subordinated Note for an
8.0 percent membership interest in the Company: (1) at any time during the
45-day period commencing on the third through fifth anniversaries of the
issuance of the Subordinated Note; (2) in the event the Company effects a public
offering; and (3) upon the occurrence of certain other specified events. The
Company has the right to exchange the Subordinated Note for an 8.0 percent
membership interest in the Company: (1) in the event the Company effects a
public offering; (2) if the investor does not exchange the Subordinated Note
during the 45-day period commencing on the third through fifth anniversaries of
the issuance of the Subordinated Note; and (3) upon the occurrence of certain
other specified events.
In June 1994, Telcom Ventures issued a $30,000,000 convertible Subordinated
Note Due 2000 (the Telcom Ventures Subordinated Note) to the same investor. Upon
the occurrence of certain specified events (including any merger of the Company
with another company or any sale of substantially all of the Company's assets),
the Telcom Ventures Subordinated Note will automatically be exchanged for a 12.0
percent membership interest in the Company. In addition, the investor has the
right to exchange the Telcom Ventures Subordinated Note for a 12.0 percent
membership interest in the Company: (1) at any time during the 45-day period
commencing on the third through fifth anniversaries of the issuance of the
Telcom Ventures Subordinated Note; (2) in the event the Company effects a public
offering; and (3) upon the occurrence of certain other specified events. Telcom
Ventures has the right to exchange the Telcom Ventures Subordinated Note for a
12.0 percent membership interest in the Company: (1) in the event the Company
effects a public offering; (2) if the investor does not exchange the Telcom
Ventures Subordinated Note during the 45-day period commencing on the third
through fifth anniversaries of the issuance of the Telcom Ventures Subordinated
Note; and (3) upon the occurrence of certain other specified events. The Company
has fully and unconditionally guaranteed the obligations of Telcom Ventures
under the Telcom Ventures Subordinated Note.
(12) HEALTH AND RETIREMENT PLANS
The Company has a defined contribution profit sharing plan under Section
401(k) of the IRC that provides for voluntary employee contributions of 1.0 to
15.0 percent of compensation for substantially all employees. The Company makes
a matching contribution of 50.0 percent of an employee's contribution up to 6.0
percent of each employee's compensation. Company contributions and other
expenses associated with the plan were approximately $194,000, $383,000, and
$419,000 for the years ended December 31, 1993, 1994, and 1995, respectively.
The Company is self-insured for group health, life, and short and long-term
disability claims below certain specified limits.
(13) INCENTIVE PLANS
PHANTOM MEMBERSHIP PLAN
In April 1994, the Company adopted the Phantom Membership Plan (the Phantom
Membership Plan). Under the Phantom Membership Plan, the Members Committee is
authorized to grant awards (Phantom Membership Awards) to those employees of the
Company whose responsibilities and decisions, in the Members Committee's
opinion, affect the long-term sustained growth and profitability of the Company.
Each Phantom Membership Award entitles the recipient thereof to receive, no
later than May 1 of each year, an annual award based on a specified percentage
of the Company's net earnings for the preceding fiscal year. The Phantom
Membership Plan also includes a long-term award. Under the long-term award, once
a Phantom Membership Award is fully vested, the recipient has the right to
require the Company to purchase, and the Company has the right to require such
recipient to sell, all or any portion of the recipient's Phantom Membership
Award. The purchase price is equal to the specified percentage relating to such
Phantom
F-16
<PAGE> 85
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Membership Award multiplied by the portion of the Phantom Membership Award being
purchased, multiplied by the then-current "deemed fair market value" of the
Company or, for certain employees, the fair market value as determined by
appraisal. As defined in the Phantom Membership Plan, "deemed fair market value"
is equal to 14 times the Company's income before interest and taxes for the
calendar year preceding the date of the calculation. In general, Phantom
Membership Awards become fully vested on either the third or fifth anniversary
of the grant thereof, as determined by the recipient in his or her discretion at
the time his or her Phantom Membership Award is granted.
In the event of a public offering of the Company's securities under the
Securities Act of 1933, each fully vested outstanding Phantom Membership Award
is automatically converted into a number of shares of the Company's capital
stock equal to the specified percentage relating to such Phantom Membership
Award, multiplied by the total number of shares of the Company's capital stock
to be issued and outstanding immediately following the closing of the public
offering. In the event of the acquisition by third party of 75 percent or more
of the outstanding membership interest or assets of the Company, each fully
vested and outstanding Phantom Membership Award is converted into a membership
interest equal to the specified percentage relating to such Phantom Membership
Award, multiplied by the total membership interests to be issued and outstanding
immediately prior to the closing of the transaction (assuming conversion in full
of all Phantom Membership Awards which are then outstanding and fully vested).
As of December 31, 1994 and 1995, 44 and 40 employees, respectively, had
been granted Phantom Membership Awards, and the aggregate Applicable Percentage
of all outstanding Phantom Membership Awards was 6.5 percent and 6.4 percent,
respectively. Compensation expense related to the annual award feature of the
Phantom Membership Plan was $530,000 and $608,000 for 1994 and 1995,
respectively, the liability for which is included in accrued expenses in the
accompanying consolidated balance sheets. Non-cash compensation related to the
long-term award feature of the Phantom Membership Plan was $3,255,000 and
$4,646,000 for 1994 and 1995, respectively, the liability for which is included
in obligation under incentive plans in the accompanying consolidated balance
sheets. Prior to 1995, certain Awards under the Phantom Membership Plan were
recognized over the estimated service period of the employee. The Company has
changed the method of accounting for the awards to reflect compensation expense
over the vesting period to better match the expense with the period earned by
the employee. All periods presented have been revised to reflect this change in
accounting.
INCENTIVE COMPENSATION PLAN
In September 1994, the Company adopted an Incentive Compensation Plan (the
Incentive Compensation Plan). Under the Incentive Compensation Plan, the Members
Committee is authorized to grant awards (Incentive Awards) to those employees of
the Company whose responsibilities and decisions, in the Members Committee's
opinion, affect the long-term sustained growth and profitability of the Company.
Each Incentive Award entitles the recipient thereof to receive a cash
payment on the date specified in the corresponding award agreement. To date, all
Incentive Awards granted under the Incentive Compensation Plan are payable on
the third anniversary of the grant thereof. At the discretion of the Members
Committee, participating employees may borrow a portion of the total amount of
their Incentive Awards.
As of December 31, 1994 and 1995, 20 and 60 employees, respectively, had
been granted Incentive Awards under the Incentive Compensation Plan.
Compensation expense accrued in connection with the distribution of the value of
vested Incentive Awards was $87,000 and $635,000 for the years ended December
31, 1994 and 1995, respectively, which has been included in obligations under
incentive plans, net of current portion in the accompanying consolidated balance
sheets.
F-17
<PAGE> 86
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) LEASE COMMITMENTS
The Company leases office facilities and certain equipment, principally in
the United States, under operating leases expiring on various dates over the
next eight years. The lease agreements include renewal options and provisions
for rental escalations based on the Consumer Price Index and require the Company
to pay for executory costs such as taxes and insurance. The lease agreements
also allow the Company to elect an early out provision by giving notice and
paying certain lease termination penalties.
Benefits associated with a rent abatement period and certain lease
incentives for office facilities are reflected ratably over the period of the
lease. The total deferred rent benefit was approximately $1,870,000 and
$1,434,000 at December 31, 1994 and 1995, respectively.
In November 1995, the Company gave notice of early lease termination to one
of its landlords and recorded the lease termination penalty thereon in its
calendar 1995, financial statements. In May 1996, the Company entered into
10-year and 5-year facility lease agreements effective March 1, 1997 and July 1,
1997, respectively. Future minimum rental payments related to these leases, as
well as the termination payments for existing leases, are included in the
balances below (see note 19).
Future minimum rental payments under non-cancelable operating leases,
excluding executory costs, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996........................................................... $ 4,688
1997........................................................... 3,103
1998........................................................... 3,130
1999........................................................... 3,192
2000........................................................... 3,256
Thereafter..................................................... 21,922
--------
$ 39,291
========
</TABLE>
Rent expense under operating leases was approximately $2,035,000,
$2,761,000, and $3,545,000 for the years ended December 31, 1993, 1994, and
1995, respectively.
(15) CONTINGENCIES
The Company is party to various legal proceedings and claims incidental to
their business. Management does not believe that these matters will have a
material adverse effect on the consolidated results of operations or financial
condition of the Company.
The Company has fully and unconditionally guaranteed the obligations of
Telcom Ventures under the Telcom Ventures Subordinated Note (see note 11).
(16) GEOGRAPHIC DATA
The Company maintains subsidiaries in France and Germany. These entities
primarily operate in the country in which they are domiciled. The remaining
sales to Europe and principally all of the export sales to Latin America, Middle
East-Africa and Asia-Pacific are U.S. services and products.
F-18
<PAGE> 87
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Export sales by geographic region are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
North America.................................... $ 231 $ 1,260 $ 3,330
Latin America.................................... 5,229 5,990 8,200
Europe........................................... 23,605 17,400 9,290
Middle East-Africa............................... 667 850 3,310
Asia-Pacific..................................... 5,102 5,570 16,730
------- ------- -------
Total export sales............................... $34,834 $31,070 $40,860
======= ======= =======
</TABLE>
Revenues generated from one customer were approximately $6.6 million, $14.0
million and $14.7 million, or 11.0 percent, 18.0 percent, and 14.0 percent of
total revenues for 1993, 1994, and 1995, respectively.
(17) QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1994
----------------------------------------------------
1ST 2ND 3RD 4TH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues...................................... $14,880 $15,940 $20,710 $24,525 $ 76,055
Operating income.............................. 594 543 2,877 2,493 6,507
Income before income taxes.................... 607 513 3,599 2,288 7,007
Net income.................................... 186 135 2,751 1,898 4,970
<CAPTION>
1995
1ST 2ND 3RD 4TH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues...................................... $21,140 $25,420 $25,137 $32,764 $104,461
Operating income.............................. 1,118 827 1,310 5,793 9,048
Income before income taxes.................... 906 594 897 5,485 7,882
Net income.................................... 536 206 376 3,622 4,740
</TABLE>
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amount and estimated fair value
of the Company's financial instruments in accordance with SFAS No. 107
"Disclosure about Fair Value of Financial Instruments".
<TABLE>
<CAPTION>
1994 1995
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Notes receivable from affiliate.................... $ -- $ -- $ 1,382 $ 1,382
Notes receivable from member....................... -- -- 9,382 9,382
Liabilities:
Note payable....................................... -- -- 10,000 10,000
Convertible subordinated debt...................... 20,000 20,000 20,000 20,000
Off balance sheet -- letters of credit.................. 300 303 441 450
</TABLE>
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts and notes receivable and accounts payable approximated
fair value as of December 31, 1994 and 1995, because of the relatively short
duration of these instruments.
F-19
<PAGE> 88
LCC, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES RECEIVABLE FROM MEMBER -- the carrying value of the notes receivable
from member approximated the fair value as the receivable is treated as a deemed
distribution to owners.
CONVERTIBLE SUBORDINATED DEBT -- the carrying value of the convertible
subordinated debt approximated fair value as of December 31, 1994 and 1995,
based upon the Company's borrowing activities and assessment of current prices
offered for similar loans.
LETTERS OF CREDIT -- the fair value of letters of credit was estimated
based on fees currently charged for similar agreements or the estimated cost to
terminate or settle the obligations.
Financial guarantees are conditional commitments issued by the Company to
guarantee the payment of certain liabilities of unconsolidated affiliates. As of
December 31, 1994 and 1995, one such guarantee was outstanding, which was issued
to support a borrowing arrangement (see note 11). The Company's exposure for
this guarantee is equal to the contractual amount of the guarantee of
$30,000,000 at December 31, 1994 and 1995.
(19) SUBSEQUENT EVENTS
In January 1996, the Company sold its 50.0 percent interest in Telemate and
granted certain distribution rights for the Company's software and hardware
products for $3,800,000. Approximately $1,400,000 of the proceeds were received
for the Company's investment in Telemate, resulting in a gain of approximately
$514,000, which was recognized by the Company in its calendar 1996 first quarter
results. The remaining proceeds of $2,400,000 were recorded as deferred revenue
and are being amortized to income over the 24 month life of the distribution
agreement.
In March 1996, the Company adopted an Employee Option Plan for certain key
executives under which the Members' Committee may grant options for up to an
aggregate 6 percent interest in the Company. The options were granted in March
1996 at an exercise price generally equal to fair market value at time of grant
and generally become exercisable at 20.0 percent a year over a five-year period.
Unexercised options generally expire ten years after issuance.
In March 1996, the Nomura Facility (see note 10) was purchased by Chase.
Also in March, additional draws aggregating $10.0 million were made by the
Company, resulting in a total outstanding balance under the facility of $20.0
million. The terms and conditions of the Nomura Facility remained intact with
the exception of interest rate which was subsequently revised such that interest
on the loans will accrue at the announced prime commercial lending rate of Chase
plus .25%. The additional $10.0 million draws were used to fund two investments
in customers. One investment consists of loans aggregating $6.5 million. Total
loans outstanding at March 31, 1996 were $3.5 million and are reflected as notes
receivable in the accompanying unaudited consolidated balance sheet. An
additional loan of $3.0 million will be funded upon the satisfaction of certain
conditions. The loans are convertible into shares of non-voting common stock at
the Company's option, upon the satisfaction of certain conditions. In connection
with this investment, the Company obtained a commitment from the customer to
purchase services and products aggregating $65.0 million over the next five
years. The other investment consists of an equity investment of $5.0 million.
This amount was being held in escrows as of March 31, 1996 and is included in
other assets in the accompanying unaudited consolidated balance sheet. In
connection with this investment, the Company obtained a commitment from the
customer for the purchase of services and products aggregating $55.0 million
over the next five years.
In May 1996, the Company entered into 10-year and 5-year facility lease
agreements effective March 1, 1997 and July 1, 1997, respectively. The lease
agreements contain renewal options for up to three five-year periods. The lease
agreements also provide for the Company to pay real estate taxes and certain
other operating costs of the properties. Lease termination costs associated with
the current facility leases of $1.4 million were recorded in the calendar 1995
financial statements. Future lease payments associated with the new lease are
included in future minimum rental payments in note 14.
F-20
<PAGE> 89
GLOSSARY OF TERMS
"A-block auction" -- An auction held by the FCC to award 30 MHz PCS
licenses for 51 MTAs. The A-block auction, held in conjunction with the B-block
auction, was concluded in March 1995, and licenses were awarded on June 23,
1995.
"alphanumeric" -- A message or other type of readout containing both
letters ("alphas") and numbers ("numerics"). In cellular, "alphanumeric memory
dial" is a special type of dial-from-memory option that displays both the name
of the individual and that individual's phone number on the cellular phone
handset. The name also can be recalled by using the letters on the phone keypad.
By contrast, standard memory dial recalls numbers from number-only locations.
"AMPS" -- Advanced Mobile Phone Service. The United States analog cellular
standard.
"analog" -- A method of storing, processing and transmitting information
through the continuous variation of a signal.
"antenna" -- A device for transmitting and/or receiving signals.
"B-block auction" -- An auction held by the FCC to award 30 MHz PCS
licenses for 51 MTAs. The B-block auction, held in conjunction with the A-block
auction, was concluded in March 1995, and licenses were awarded on June 23,
1995.
"base station" -- A fixed site with network equipment that is used for RF
communications with mobile stations, and is part of a cell, or a sector within a
cell, and is backhauled to an MTSO or other part of a cellular system.
"Broadband PCS" -- High frequency, next generation wireless services.
"BTA" -- Basic Trading Area. A service area designed by Rand McNally and
adopted by the FCC to promote the rapid deployment and ubiquitous coverage of
PCS and providers. There are 493 BTAs in the United States.
"C-block auction" -- An auction held by the FCC to award 30 MHz PCS
licenses for 493 BTAs to entrepreneurial businesses having gross revenues of
less than $125 million in each of the last two years and total assets of less
than $500 million. Bidding credits and installment payment options were granted
to small businesses having average gross revenues for the preceding three years
of less than $40 million. The C-block auction was concluded in May 1996.
Licenses have not yet been awarded.
"CDMA" -- Code Division Multiple Access. A digital wireless transmission
technology for use in cellular telephone communications, PCS and other wireless
communications systems. CDMA is a spread spectrum technology in which calls are
assigned a pseudo random code to encode digital bit streams. The coded signals
are then transmitted over the air on a frequency between the end user and a cell
site, where they are processed by a base station. CDMA allows more than one
wireless user to simultaneously occupy a single RF band.
"cell" -- The basic geographic unit of a cellular system.
"cellular network" -- A telephone system based on a grid of "cells"
deployed at 800 MHz. Each cell contains transmitters, receivers and antennas,
and is connected to switching gear and control equipment.
"cell-splitting" -- Adding a cell to overlap coverage of an existing site,
which adds capacity to the area served by that existing site.
"channel" -- A single path, either RF or voice, for transmitting electrical
signals.
"CTIA" -- Cellular Telecommunications Industry Association. An industry
group in North America comprised primarily of cellular telephone service
companies and, recently, some PCS license holders.
"D-block auction" -- An auction to be held by the FCC to award 10 MHz PCS
licenses for 493 BTAs. In March 1996, the FCC proposed rule changes for the
D-block auction, and final rules have not been announced. The FCC has stated its
intention to commence the D-block auction in the summer of 1996.
"DCS" -- Digital Communications Service. A GSM-based system in the PCS
band.
"digital" -- A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission/switching technolo-
G-1
<PAGE> 90
gies employ a sequence of discrete, distinct pulses to represent information, as
opposed to the continuously variable analog signal.
"digital protocols" -- Methodologies that serve to manage the communication
for digital signal transmission. CDMA and TDMA are examples of high level
digital protocols.
"E-block auction" -- An auction to be held by the FCC to award 10 MHz PCS
licenses for 493 BTAs. In March 1996, the FCC proposed rule changes for the
E-block auction, and final rules have not been announced. The FCC has stated its
intention to commence the E-block auction in the summer of 1996.
"ESMR" -- Enhanced Specialized Mobile Radio is 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.
"ETACS" -- Enhanced Total Access Cellular System. The European analog
cellular standard.
"F-block auction" -- An auction to be held by the FCC to award 10 MHz PCS
licenses for 493 BTAs. Under current rules, the auction would be open only to
entrepreneurial businesses (having gross revenues of less than $125 million in
cash in each of the last two years and total assets of less than $500 million)
or businesses owned by minorities and/or women. In March 1996, the FCC proposed
rule changes for the F-block auction, including making the rules race- and
gender-neutral. Final rules have not been announced. The FCC has stated its
intention to commence the F-block auction in the summer of 1996.
"FCC" -- Federal Communications Commission. The government agency
responsible for regulating telecommunications in the United States.
"frequency" -- The number of cycles per second, measured in hertz, of a
periodic oscillation or wave in radio propagation.
"Global Positioning System" -- A satellite-based network provided by the
U.S. government which allows the user thereof to pinpoint precisely his or her
location at any place in the world.
"GSM" -- Global System for Mobile Communications. A distributed open
networking architecture standard for digital wireless systems world-wide.
"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.
"hertz: -- A measurement of electromagnetic energy, equivalent to one
"wave" or cycle per second.
"iDEN" -- Integrated Dispatch Enhanced Network. iDEN is a technology and a
network solution for providing communications services in the SMR spectrum.
"INFLEXION" -- A technology for providing voice narrowband PCS developed by
Motorola.
"infrastructure equipment" -- Fixed infrastructure equipment consisting of
base stations, base station controllers, antennas, switches, management
information systems and other equipment making up the backbone of the wireless
communication system that receives, transmits and processes signals from and to
subscriber equipment and/or between wireless systems and the public switched
telephone network.
"IS-136" -- North American Interim Standard-digital TDMA system
specification.
"KHz" -- Kilohertz (one thousand hertz).
"LMDS" -- Local Multipoint Distribution System. A system that delivers
video programming services over microwave channels received by subscribers with
a special antenna. Operates at a higher frequency, has more spectrum allocated
to it, and has more channel capacity than MMDS.
"MHz" -- megahertz (millions of hertz).
"microcells" -- Cell sites with small coverage radius. Antenna heights are
generally low, being 40 feet in height or less.
"microcell site" -- comprised of a microcell base station and electrical
and transmission termination equipment. This equipment provides the radio
interface between the PCS network and the customer's handset, and differs from
the mini base station in its reduced physical dimensions and included integrated
antennas. These units are the size of a medium-sized suitcase, allowing mounting
on walls and poles.
G-2
<PAGE> 91
"MMDS" -- Multichannel multipoint distribution system. A system that
delivers video programming services over microwave channels received by
subscribers with a special antenna. Sometimes referred to as "wireless cable
systems".
"MTA" -- Major Trading Area. A PCS area designed by Rand McNally and
adopted by the FCC. There are 51 MTAs in the United States.
"MTSO" -- Mobile Telephone Switching Office. The central computer that
connects a cellular phone call to the public telephone network. The MTSO
controls the entire system's operations, including monitoring calls, billing and
handoffs.
"Narrowband PCS" -- Identifier given by the FCC for PCS spectrum in the 900
Mhz frequency range. 50/50 KHz (paired), 50/12.5 KHz (paired) and 50 KHz
(unpaired) were recently auctioned by the FCC and purchased by companies such as
PageNet, Inc., Mtel, AT&T Corporation, and MobileComm. Narrowband PCS is
expected to provide advanced data and voice communications for devices
traditionally known as radio pagers, including acknowledgment and 2-way paging
capability.
"network equipment" -- The fixed infrastructure consisting of base
stations, base station controllers, mobile switching centers and related
information processing control points that manages communications between the
mobile unit and the public switched telephone network.
"PCS" -- Personal Communications Services. FCC terminology describing
intelligent, digital wireless, personal two-way communications systems.
"PCS 1900" -- 1900 MHz GSM-based digital cellular radio technology.
"Public Switched Telephony Network" -- The wireline telephone network.
"REFLEX(TM)" -- Two way narrowband PCS protocol developed by Motorola.
"RF" -- Radio frequency. Frequencies of the electromagnetic spectrum that
are associated with radio wave propagation.
"SMR" -- Specialized Mobile Radio, referring to systems that serve
non-public special mobile communication markets (for example, taxi cabs). Recent
FCC rulings have permitted these operators to offer cellular-like services to
the public.
"switch" -- A central facility capable of routing calls from one point to
another. Usually a point of connection to the PSTN.
"TDMA" -- Time Division Multiple Access. A digital wireless transmission
technology that converts analog voice signals into digital data and puts more
than one voice channel on a single RF channel by separating the users in time.
"UNIX" -- A multiuser, multitasking operating system.
"uplink" -- The radio path from a handset or mobile user to the cell site.
"wireless" -- A radio-based system allowing transmission of telephone
and/or data signals through the air without a physical connection, such as a
metal wire or fiber optic cable.
"wireless local loop" -- A system that eliminates the need for a wire loop
connecting users to the public switched telephone network, which is used in
conventional wired telephone systems, by transmitting voice messages over radio
waves for the "last mile" connection between the location of the customer's
telephone and a base station connected to the network equipment.
G-3
<PAGE> 92
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Company........................... 17
The Merger............................ 17
The MCI Conversion.................... 17
Use of Proceeds....................... 18
Dividend Policy....................... 19
Dilution.............................. 19
Capitalization........................ 21
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 32
Management............................ 48
Principal and Selling Stockholders.... 60
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 64
Underwriting.......................... 65
Legal Matters......................... 66
Experts............................... 66
Additional Information................ 66
Index to Financial Statements......... F-1
Glossary of Terms..................... G-1
</TABLE>
---------------------
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON
STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,700,000 SHARES
[LCC LOGO]
LCC INTERNATIONAL, INC.
CLASS A
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS
INCORPORATED
OPPENHEIMER & CO., INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 93
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 hereby, other than
underwriting discounts. All amounts are estimated except the Securities and
Exchange Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
<S> <C>
SEC registration fee...................................................... $ 23,476
National Association of Securities Dealers, Inc. filing fee............... 7,308
Nasdaq National Market entry fee..........................................
Blue Sky fees and expenses................................................
Accounting fees and expenses..............................................
Legal fees and expenses...................................................
Printing and engraving expenses...........................................
Registrar and transfer agent's fees.......................................
Miscellaneous fees and expenses...........................................
--------
Total...........................................................
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of 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
capacities with another enterprise, against expenses (including attorneys'
fees), as well as judgments, fines and settlements in nonderivative lawsuits,
actually and reasonably incurred in connection with the defense of any action,
suit or proceeding in which they or any of them were or are made parties or are
threatened to be made parties by reason of their serving or having served in
such capacity. The Delaware Law provides, however, that such person must have
acted in good faith and in a manner he or she reasonably believed to be in (or
not opposed to) the best interests of the corporation and, in the case of a
criminal action, such person must have had no reasonable cause to believe his or
her conduct was unlawful. In addition, the Delaware Law does not permit
indemnification in an action or suit by or in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and only
to the extent that, a court determines that such person fairly and reasonably is
entitled to indemnity for costs the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended.
The Company's Certificate of Incorporation provides for mandatory
indemnification of directors and officers to the fullest extent permitted by the
Delaware Law. Under the Certificate of Incorporation, the Company shall 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 he
or she is not entitled to indemnification. The Company will obtain directors and
officers liability insurance.
The Company will enter into separate indemnification agreements with each
of its directors and executive officers pursuant to which the Company will
agree, among other things, and subject to certain limited exceptions: (i) to
indemnify them to the fullest extent permitted by law against any claims and
expenses (including attorneys fees) reasonably incurred in connection with any
threatened, pending or completed action or other proceeding arising out of any
Indemnifiable Event, and (ii) to advance any such expenses no later than thirty
days after demand. An Indemnifiable Event is any event or occurrence related to
the fact that the person is or was a director, officer, employee, agent or
fiduciary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee, agent or fiduciary of another
corporation,
II-1
<PAGE> 94
partnership, joint venture, trust, or other enterprise, or by reason of anything
done or not done by the person in any such capacity.
The Underwriting Agreement provides for indemnification by the Underwriters
of the directors, officers and controlling persons of the Company against
certain liabilities, including liabilities under the Securities Act under
certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From the Company's inception on June 4, 1996 through the date hereof, the
Company has issued and sold the following securities:
On June 13, 1996, LCC International issued 10 shares of Class A Common
Stock to the Limited Liability Company for a purchase price of $15.00 per
share.
Such issuance of securities described above was made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act
("Section 4(2)") as a transaction by an issuer not involving any public
offering. In addition, in connection with the Merger, the Company intends to
issue 2,863,807 shares of Class A Common Stock to MCI and 11,455,227 shares of
Class B Common Stock to RF Investors. Such transactions will also be exempt from
registration pursuant to Section 4(2).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ----------------------------------------------------------------------------------
<C> <S>
1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation of the Company.*
3.2 -- Bylaws of the Company.*
4.1 -- Form of Common Stock certificate.*
5 -- Opinion regarding legality of shares being registered.*
10.1 -- Lease Agreement dated July 23, 1990 between LCC, Incorporated and Second
Courthouse Plaza Association Limited Partnership.*
10.2 -- Agreement of Lease, dated July 25, 1990, between LCC, Incorporated and Second
Courthouse Plaza Associates Limited Partnership.*
10.3 -- Employment Agreement dated September 14, 1990 between LCC, Incorporated and
Piyush Sodha.*
10.4 -- Lease Agreement dated January 28, 1991 between Second Courthouse Plaza
Associates Limited Partnership and LCC, Incorporated.*
10.5 -- Assignment of Lease and Landlord's Consent to Assignment dated December 31,
1993 by and between Second Courthouse Plaza Associates Limited Partnership,
LCC, Incorporated and Telcom Ventures, L.L.C.*
10.6 -- Lease Extension Agreement dated December 31, 1993 by and among Second
Courthouse Plaza Associates Limited Partnership and Telcom Ventures, L.L.C.*
10.7 -- Sublease Agreement dated May 7, 1994 between LCC, L.L.C. and Minirt-Meier Byrd
Clinic, P.A.*
10.8 -- Lease Agreement dated May 9, 1994 between Colonial Village Center Associates
and LCC, L.L.C. and the First Amendment thereto, dated May 1, 1995.*
10.9 -- Subordinate Notes to MCI Telecommunications Corporation dated June 27, 1994.*
10.10 -- Agreement dated November 15, 1994 by and between LCC, L.L.C. and Pacific Bell
Mobile Services.*
</TABLE>
II-2
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ----------------------------------------------------------------------------------
<C> <S>
10.11 -- Telcom Ventures Revolving Promissory Note dated May 30, 1995 between LCC,
L.L.C. and Telcom Ventures, L.L.C.*
10.12 -- Amended and Restated Software License and Services Agreement dated July 1, 1995
by and between TSI, a division of LCC, and NEXTEL Communications, Inc.*
10.13 -- LCC, L.L.C. 1996 Employee Option Plan.*
10.14 -- LCC International, Inc. 1996 Directors Stock Option Plan.*
10.15 -- LCC International, Inc. 1996 Employee Stock Option Plan.*
10.16 -- LCC International, Inc. 1996 Incentive Compensation Plan.*
10.17 -- Amended and Restated Shareholders Rights Agreement dated February , 1996
between NextWave Telcom Inc. and LCC, L.L.C. [Unsigned].*
10.18 -- Letter Agreement dated March , 1996 between NextWave Telcom, Inc. and LCC,
L.L.C.*
10.19 -- Subscription Agreement dated March , 1996 between NextWave Telcom, Inc. and
LCC, L.L.C.*
10.20 -- Office Building Lease dated March 19, 1996 between Second Courthouse Associates
Limited Partnership and LCC, L.L.C.*
10.21 -- Convertible Loan and Investment Agreement dated March 20, 1996 by and between
LCC, L.L.C. and DCR Communications, Inc.*
10.22 -- Agreement dated May 17, 1996, between LCC, L.L.C. and West*Park Associates
Limited Partnership for office space at 7925 Jones Branch Drive, McLean,
Virginia, 22102. [Unsigned]*
10.23 -- Agreement dated May 17, 1996, between LCC, L.L.C. and West*Park Associates
Limited Partnership for office space at 7927 Jones Branch Drive, McLean,
Virginia, 22102.*
10.24 -- Credit Agreement dated June , 1996 among LCC, L.L.C., LCC Design Services,
L.L.C., LCC Development Company, L.L.C. and The Chase Manhattan Bank (National
Association).*
10.25 -- Security Agreement dated June , 1996 among LCC, L.L.C., LCC Design Services,
L.L.C. and LCC Development Company, L.L.C., in favor of The Chase Manhattan
Bank (National Association).*
10.26 -- Intellectual Property Security Agreement dated June , 1996 among LCC, L.L.C.,
LCC Design Services, L.L.C. and LCC Development Company, L.L.C., in favor of
The Chase Manhattan Bank (National Association).*
10.27 -- Pledge Agreement dated June , 1996 among LCC, L.L.C., LCC Design Services,
L.L.C. and LCC Development Company, L.L.C., in favor of The Chase Manhattan
Bank (National Association).*
10.28 -- Intercompany Agreement dated June , 1996 among LCC International, Inc. and
Telcom Ventures, L.L.C.*
10.29 -- Registration Rights Agreement dated June , 1996 among LCC International,
Inc., and RF Investors, and L.L.C.*
10.30 -- Conversion Documents dated June , 1996 among MCI Telecommunications
Corporation and LCC, L.L.C.*
10.31 -- Indemnity Agreement dated June , 1996 among LCC International, Inc. and
Rajendra Singh.*
10.32 -- Indemnity Agreement dated June , 1996 among LCC International, Inc. and Neera
Singh.*
10.33 -- Indemnity Agreement dated June , 1996 among LCC International, Inc. and Mark
D. Ein.*
</TABLE>
II-3
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ----------------------------------------------------------------------------------
<C> <S>
10.34 -- Indemnity Agreement dated June , 1996 among LCC International, Inc. and
[Director].*
10.35 -- Indemnity Agreement dated June , 1996 among LCC International, Inc. and
[Director]*.
10.36 -- Overhead and Administrative Services Agreement dated June , 1996 among LCC
International, Inc. and Telcom Ventures, L.L.C.*
10.37 -- Agreement and Plan of Merger dated , 1996 between LCC, L.L.C. and
LCC International, Inc.*
11 -- Computation of Earnings Per Common Shares.
21 -- Subsidiaries of the Company*
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)*
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has 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 the Company of expenses incurred or paid by a director, officer
or controlling person of the Company 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 Company 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 undersigned registrant hereby undertakes that:
(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 a
form of prospectus filed by the Company 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> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Arlington, Commonwealth
of Virginia, on the 14th day of June, 1996.
LCC INTERNATIONAL, INC.
By /s/ RAJENDRA SINGH
---------------------------------
Rajendra Singh
Chairperson of the Board of
Directors
POWER OF ATTORNEY
Know all Men by These Presents, that each individual whose signature
appears below constitutes and appoints Rajendra Singh, his true and lawful
attorney-in-fact and agent, with power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement or a Registration Statement filed pursuant to Rule 462 of the
Securities Act of 1933, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, his or her substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<C> <S> <C>
/s/ RAJENDRA SINGH Chairperson of the Board of June 14, 1996
--------------------------------------- Directors
Rajendra Singh
/s/ NEERA SINGH Co-Chairperson of the Board June 14, 1996
--------------------------------------- of Directors and Executive
Neera Singh Vice President
/s/ PIYUSH SODHA Director, President and June 14, 1996
--------------------------------------- Chief Executive Officer
Piyush Sodha (Principal Executive
Officer)
/s/ RICHARD HOZIK Senior Vice President, June 14, 1996
--------------------------------------- Treasurer and Chief
Richard Hozik Financial Officer
(Principal Financial
Officer)
/s/ STUART P. LAWSON Corporate Controller and June 14, 1996
--------------------------------------- Assistant Secretary
Stuart P. Lawson (Principal Accounting
Officer)
/s/ MARK D. EIN Director June 14, 1996
---------------------------------------
Mark D. Ein
</TABLE>
II-5
<PAGE> 98
SCHEDULE ___ - VALUATION AND QUALIFYING ACCOUNTS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------------- ----------------- ---------------------------------- ----------- -----------
Additions
----------------------------------
Balance at Charged to Charges to Balance at
Description Beginning of Period Costs and Expenses Other Accounts Deductions(1) End of Period
------------------- ------------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for doubtful accounts 758 556 -- 231 1,083
Year ended December 31, 1994
Allowance for doubtful accounts 1,083 2,083 -- 370 2,796
Year ended December 31, 1995
Allowance for doubtful accounts 2,796 622 -- 287 3,131
</TABLE>
- ----------------
(1) Deduction for write-off of receivables to allowance account.
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ---------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
1 -- Form of Underwriting Agreement.*....................................
3.1 -- Certificate of Incorporation of the Company.*.......................
3.2 -- Bylaws of the Company.*.............................................
4.1 -- Form of Common Stock certificate.*..................................
5 -- Opinion regarding legality of shares being registered.*.............
10.1 -- Lease Agreement dated July 23, 1990 between LCC, Incorporated and
Second Courthouse Plaza Association Limited Partnership.*...........
10.2 -- Agreement of Lease, dated July 25, 1990, between LCC, Incorporated
and Second Courthouse Plaza Associates Limited Partnership.*........
10.3 -- Employment Agreement dated September 14, 1990 between LCC,
Incorporated and Piyush Sodha.*.....................................
10.4 -- Lease Agreement dated January 28, 1991 between Second Courthouse
Plaza Associates Limited Partnership and LCC, Incorporated.*........
10.5 -- Assignment of Lease and Landlord's Consent to Assignment dated
December 31, 1993 by and between Second Courthouse Plaza Associates
Limited Partnership, LCC, Incorporated and Telcom Ventures,
L.L.C.*.............................................................
10.6 -- Lease Extension Agreement dated December 31, 1993 by and among
Second Courthouse Plaza Associates Limited Partnership and Telcom
Ventures, L.L.C.*...................................................
10.7 -- Sublease Agreement dated May 7, 1994 between LCC, L.L.C. and
Minirt-Meier Byrd Clinic, P.A.*.....................................
10.8 -- Lease Agreement dated May 9, 1994 between Colonial Village Center
Associates and LCC, L.L.C. and the First Amendment thereto, dated
May 1, 1995.*.......................................................
10.9 -- Subordinate Notes to MCI Telecommunications Corporation dated June
27, 1994.*..........................................................
10.10 -- Agreement dated November 15, 1994 by and between LCC, L.L.C. and
Pacific Bell Mobile Services.*......................................
10.11 -- Telcom Ventures Revolving Promissory Note dated May 30, 1995 between
LCC, L.L.C. and Telcom Ventures, L.L.C.*............................
10.12 -- Amended and Restated Software License and Services Agreement dated
July 1, 1995 by and between TSI, a division of LCC, and NEXTEL
Communications, Inc.*...............................................
10.13 -- LCC, L.L.C. 1996 Employee Option Plan.*.............................
10.14 -- LCC International, Inc. 1996 Directors Stock Option Plan.*..........
10.15 -- LCC International, Inc. 1996 Employee Stock Option Plan.*...........
10.16 -- LCC International, Inc. 1996 Incentive Compensation Plan.*..........
10.17 -- Amended and Restated Shareholders Rights Agreement dated February
, 1996 between NextWave Telcom Inc. and LCC, L.L.C.
[Unsigned].*........................................................
10.18 -- Letter Agreement dated March , 1996 between NextWave Telcom, Inc.
and LCC, L.L.C.*....................................................
10.19 -- Subscription Agreement dated March , 1996 between NextWave Telcom,
Inc. and LCC, L.L.C.*...............................................
10.20 -- Office Building Lease dated March 19, 1996 between Second Courthouse
Associates Limited Partnership and LCC, L.L.C.*.....................
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ---------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
10.21 -- Convertible Loan and Investment Agreement dated March 20, 1996 by
and between LCC, L.L.C. and DCR Communications, Inc.*...............
10.22 -- Agreement dated May 17, 1996, between LCC, L.L.C. and West*Park
Associates Limited Partnership for office space at 7925 Jones Branch
Drive, McLean, Virginia, 22102. [Unsigned]*.........................
10.23 -- Agreement dated May 17, 1996, between LCC, L.L.C. and West*Park
Associates Limited Partnership for office space at 7927 Jones Branch
Drive, McLean, Virginia, 22102.*....................................
10.24 -- Credit Agreement dated June , 1996 among LCC, L.L.C., LCC Design
Services, L.L.C., LCC Development Company, L.L.C. and The Chase
Manhattan Bank (National Association).*.............................
10.25 -- Security Agreement dated June , 1996 among LCC, L.L.C., LCC Design
Services, L.L.C. and LCC Development Company, L.L.C., in favor of
The Chase Manhattan Bank (National Association).*...................
10.26 -- Intellectual Property Security Agreement dated June , 1996 among
LCC, L.L.C., LCC Design Services, L.L.C. and LCC Development
Company, L.L.C., in favor of The Chase Manhattan Bank (National
Association).*......................................................
10.27 -- Pledge Agreement dated June , 1996 among LCC, L.L.C., LCC Design
Services, L.L.C. and LCC Development Company, L.L.C., in favor of
The Chase Manhattan Bank (National Association).*...................
10.28 -- Intercompany Agreement dated June , 1996 among LCC International,
Inc. and Telcom Ventures, L.L.C.*...................................
10.29 -- Registration Rights Agreement dated June , 1996 among LCC
International, Inc., and RF Investors, and L.L.C.*..................
10.30 -- Conversion Documents dated June , 1996 among MCI
Telecommunications Corporation and LCC, L.L.C.*.....................
10.31 -- Indemnity Agreement dated June , 1996 among LCC International,
Inc. and Rajendra Singh.*...........................................
10.32 -- Indemnity Agreement dated June , 1996 among LCC International,
Inc. and Neera Singh.*..............................................
10.33 -- Indemnity Agreement dated June , 1996 among LCC International,
Inc. and Mark D. Ein.*..............................................
10.34 -- Indemnity Agreement dated June , 1996 among LCC International,
Inc. and [Director].*................................
10.35 -- Indemnity Agreement dated June , 1996 among LCC International,
Inc. and [Director]*.................................
10.36 -- Overhead and Administrative Services Agreement dated June , 1996
among LCC International, Inc. and Telcom Ventures, L.L.C.*..........
10.37 -- Agreement and Plan of Merger dated , 1996 between LCC,
L.L.C. and LCC International, Inc.*.................................
11 -- Computation of Earnings Per Common Shares...........................
21 -- Subsidiaries of the Company*........................................
23.1 -- Consent of KPMG Peat Marwick LLP....................................
23.2 -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)*..........
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 11
COMPUTATIONS OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Pro Forma Pro Forma Supplemental
Year ended Three Months Year ended Three Months
12/31/95 3/31/96 12/31/95 3/31/96
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding:
Average shares outstanding during the period (1) 11,455,227 11,455,227 11,455,227 11,455,227
Shares issuable under Phantom Membership Plan 850,966 850,966 850,966 850,966
Cheap stock options and issuances (2) 330,000 330,000 330,000 330,000
Common shares issued in the MCI Conversion (3) 2,863,807 2,863,807 2,863,807 2,863,807
Common shares issued in the Offering (3) -- -- 2,400,000 2,400,000
-------------------------------------------------------------------
Total weighted average common shares 15,500,000 15,500,000 17,900,000 17,900,000
===================================================================
Pro forma net income applicable to common shares:
Pro forma net income $4,729,000 $1,912,000 $4,729,000 $1,912,000
Increase in earnings, net of taxes, resulting
from the MCI Conversion (3) 816,000 203,000 816,000 203,000
Increase in earnings, net of taxes, resulting
from the pay down of the credit facility (3) -- -- 578,000 195,000
--------------------------------------------------------------------
Net income applicable to common shares $5,545,000 $2,115,000 $6,123,000 $2,310,000
===================================================================
Earnings per Common Share 0.36 0.14 0.34 0.13
====================================================================
</TABLE>
(1) After considering the Merger in conjunction with the Offering.
(2) Pursuant to Staff Accounting Bulletin Topic 4:D, stock options granted and
stock issued within one year of the initial public offering have been
included in the calculation of weighted average common shares outstanding
using the treasury stock method based on an assumed initial public offering
price of $15.00 and have been treated as outstanding for all reported
periods.
(3) Assumes such transactions occurred on January 1, 1995.
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT AND
REPORT ON SCHEDULES
The Members' Committee
LCC, L.L.C.
The audits referred to in our report dated March 15, 1996, except for Note 19
which is as of May 17, 1996, included the related financial statement schedule
as of December 31, 1995 and 1994, and for each of the years in the three-year
period ended December 31, 1995, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Washington, DC
June 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 MAR-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 6,571 8,599
<SECURITIES> 0 0
<RECEIVABLES> 28,293 29,024
<ALLOWANCES> 3,131 3,786
<INVENTORY> 4,949 5,198
<CURRENT-ASSETS> 51,307 56,119
<PP&E> 5,440 5,167
<DEPRECIATION> 10,877 11,389
<TOTAL-ASSETS> 62,041 75,352
<CURRENT-LIABILITIES> 33,658 46,195
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (244) (960)
<TOTAL-LIABILITY-AND-EQUITY> 62,041 75,352
<SALES> 40,445 9,631
<TOTAL-REVENUES> 104,461 27,088
<CGS> 25,455 7,358
<TOTAL-COSTS> 71,137 18,710
<OTHER-EXPENSES> 24,276 5,817
<LOSS-PROVISION> 622 598
<INTEREST-EXPENSE> 2,818 673
<INCOME-PRETAX> 7,882 3,187
<INCOME-TAX> 3,142 708
<INCOME-CONTINUING> 4,740 2,479
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,740 2,479
<EPS-PRIMARY> .36 .14
<EPS-DILUTED> .36 .14
</TABLE>
