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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21213
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LCC INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 54-1807038
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
7925 Jones Branch Drive
McLean, VA 22102
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (703) 873-2000
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Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
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(Title of Class)
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Securities registered pursuant to Section 12(g) of the Act: Not Applicable
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
No Yes X
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Based upon the closing price of the registrant's common stock as of April 11,
1997, the aggregate market value of the common stock held by non-affiliates of
the registrant is $55,046,261.-
As of April 11, 1997, the registrant had outstanding 6,082,405 shares of Class A
Common Stock, par value $.01 per share, (the "Class A Common Stock") and
8,460,984 shares of Class B Common Stock, par value $.01 per share, (the "Class
B Common Stock").
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by
reference and the Part of the Form 10-K into which the document is incorporated:
(1) Portions of the definitive Proxy Statement for the Annual Meeting of
the Stockholders to be held on May 20, 1997 (the "Proxy Statement") to
be filed within 120 days after the end of the registrant's fiscal year
are incorporated by reference into Part III, Items 10 - 13 of this Form
10-K.
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- - Solely for purposes of this calculation, all executive officers and
directors of the registrant and all shareholders reporting beneficial
ownership of more than 5% of the registrant's common stock are considered
to be affiliates.
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This Annual Report on Form 10-K ("Form 10-K") contains certain
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth elsewhere in this Form 10-K. Unless the context indicates or requires
otherwise, references in this Form 10-K to 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 Delaware corporation formed in June 1996 ("LCC
International"), as described below (the "Merger") and (2) LCC International and
its subsidiaries, after the Merger. Definitions of technical and other terms are
set forth in the Glossary appearing elsewhere herein. References herein to
wireless telecommunications or similar terms are not intended to include
satellite transmission, which some consider to be a "wireless" technology.
PART I
ITEM 1. BUSINESS
GENERAL
The Company is one of the world's largest independent providers 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 and Mannesmann; companies building or
proposing to build PCS systems, including AT&T Wireless Services and Pacific
Bell Mobile Services; operators of ESMR systems, including Nextel
Communications; and operators of two-way messaging systems. The customers listed
above each contributed 5% or more of the Company's consolidated revenues (10% or
more in the case of Nextel) during one or more of fiscal years 1991 through
1996. 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.
The Company believes that its 27% 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 30.0% in 1996). 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; the Company 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.
The Company's approximately 446 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. The Company 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.
The Company provides services and/or 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
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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.
BACKGROUND
The Company's business commenced in 1983 in a corporation named LCC,
Incorporated (presently named Cherrywood Holdings, Inc. ("Cherrywood")), a
Kansas corporation organized in 1983 and wholly owned by Dr. Rajendra and Neera
Singh and certain Singh family trusts. In 1994 Cherrywood transferred the
business to Telcom Ventures, L.L.C. ("Telcom Ventures"), a Delaware limited
liability company, for a 75% interest in Telcom Ventures. At the same time,
certain entities formed by The Carlyle Group, a Washington, D.C.-based
investment group (the "Carlyle Investors"), acquired a 25% interest in Telcom
Ventures in consideration of a cash contribution. Telcom Ventures then formed
the Limited Liability Company and transferred the business to the Limited
Liability Company in exchange for a 99% interest in the Limited Liability
Company. Cherrywood and TC Group, L.L.C. ("TC Group"), an affiliate of the
Carlyle Investors, received direct interests of 0.75% and 0.25%, respectively,
in the Limited Liability Company. LCC International was formed in June 1996 for
the purpose of effecting an initial public offering of equity interests in the
Limited Liability Company, which was accomplished in September 1996 by the
Merger in connection with completion at that time of the initial public offering
of the Class A Common Stock (the "Offering"). Prior to the Merger, Telcom
Ventures transferred its interest in the Limited Liability Company to RF
Investors, L.L.C. ("RF Investors"), a Delaware limited liability company of
which Telcom Ventures owns 99% and Cherrywood and TC Group own .75% and .25%,
respectively. Since the Offering, Cherrywood and TC Group have transferred to RF
Investors the shares of the Company which they received as a result of the
Merger.
In June 1994 the Limited Liability Company and Telcom Ventures entered
into a Note Purchase Agreement with a then unrelated third party, MCI
Telecommunications Corporation ("MCI"), which provided for the issuance of a $20
million subordinated note by the Limited Liability Company and of a $30 million
subordinated note by Telcom Ventures (the "Telcom Ventures Note") to MCI in
return for cash in such amounts. These notes are convertible, under certain
circumstances, into 2,841,099 shares of Class A Common Stock (see note 13 to the
Consolidated Financial Statements). Immediately prior to the Merger in September
1996, the Telcom Ventures Note was assumed by the Limited Liability Company (the
"MCI Note Assumption") and the $30 million principal repayment obligation and
interest thereon became the sole obligation of the Limited Liability Company
and, following the Merger, the sole obligation of the Company. Immediately
following the Offering, the Company made a loan of $3.5 million to Telcom
Ventures to assist Telcom Ventures in paying certain taxes due in connection
with the MCI Note Assumption. The loan is repayable over five-years, with equal
annual principal payments over the term of the loan. Interest accrues at the
rate of LIBOR plus 1.75% and is payable annually.
The Company issued 3,162,500 shares of Class A Common Stock in the
Offering at an initial public offering price of $16.00 per share. The total
proceeds of the Offering, net of underwriting discounts and offering expenses,
were approximately $44.8 million. The Company used approximately $16.2 million
of the proceeds for repayment of outstanding amounts under the Credit Facility
(defined below), $3.5 million to fund the loan to Telcom Ventures, approximately
$6.85 million for vendor financing and approximately $11.85 million to fund the
portion of the ETP Acquisition (defined below) purchase price due at closing.
The balance of such proceeds, approximately $6.4 million, has been invested in
various short term investments pending use for other acquisitions, strategic
financing or investments in customers and equipment vendors, working capital and
general corporate purposes.
In December 1996, the Company, through its newly formed wholly-owned
subsidiary LCC International AS ("LCCI AS"), a Norwegian limited liability
company, acquired the business of European Technology Partner AS ("ETP"), a
Norwegian limited liability company (the "ETP Acquisition"). ETP designs,
develops, manufactures and sells and licenses hardware and software products for
the testing, monitoring and management of the operations of wireless
telecommunications networks. As consideration for the ETP Acquisition, LCCI AS
paid $13.075 million (including acquisition costs) and assumed substantially all
of the liabilities of the ETP business.
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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. A cellular network is a telephone system based on a grid of
"cells" deployed primarily at 800 MHz. Each cell contains transmitters,
receivers and antennas, and is connected to switching gear and control
equipment. 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 countries, the cellular network provides
significantly improved access to the local and international wireline telephone
network compared to existing wireline telephone service.
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. 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 1996 (the C-block, which involved licenses for smaller metropolitan
and rural areas known as BTAs); additional licenses shall be awarded through
auctions concluded in early 1997 (the D-block, E-block and F-block, which also
involved licenses for BTAs).
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.
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.
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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 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 a 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.
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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
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:
Phase 1.................. pursuit of the licenses necessary to build
and operate the system
Phase 2.................. design and 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
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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 the Company, 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. The
Company believes that the number of RF engineers is limited.
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 the Company, 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, the Company (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, the Company
gathered significant amounts of data on various system configurations, improving
the ability of its engineering models to predict system coverage. The Company
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, the Company created its own field
measurement and analysis 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
The Company 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. The Company's engineers help prepare applications for
network system operators seeking licenses in formal government license grant
processes. The Company 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. The Company'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
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Phase 3 Services. The Company's services are used by existing system
operators to plan system expansions to accommodate subscriber growth (the
Company estimates that operators of wireless networks operating at capacity
require a new cell site for approximately each additional 1,500 subscribers),
incorporate improvements in technology, improve system performance and achieve
efficient use of available radio spectrum. The Company 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
- measurement of network performance
- optimization of system
- technology migration analysis and implementation
Phase 4 Services. Although to date the Company has not offered any
significant quantity of services 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 446 RF
engineers (as of December 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. The Company is one of the world's largest
independent providers 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 the Company 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.
The Company 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 18% of
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revenues from engineering services for 1996). Revenues from engineering services
represents the largest portion of the Company's revenues, representing
approximately 54.2% of revenues for 1996.
SOFTWARE TOOLS
The Company's software tools are used by the Company'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 15.8%
of revenues for 1996. Approximately one-third of the Company's revenues from
software tools is generated by the Company'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 the
Company'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 approximately
two-thirds of the Company'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 offerings include:
<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
</TABLE>
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<TABLE>
<S> <C>
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 70.5%
of software revenues for 1996.
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, 1996, the
Company had software license agreements in effect with over 80 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 approximately 200, with an average of 14. The Company 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.
FIELD MEASUREMENT AND ANALYSIS PRODUCTS
The Company's field measurement and analysis products are used by both
by the Company'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 (which does
not include any ETP revenue) represented approximately 18.4% of revenues for
1996. The Company'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.
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
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.
Cell AD.................. Autonomous collection and analysis tool that
is installed in taxis, delivery and other
fleet vehicles and roams a wireless network
collecting statistics regarding system
quality, including call success rate, call
completion rate, call set up time and
billing accuracy.
Champ.................... Collection and analysis tool installed at a
mobile switching center to continuously
monitor and report on the quality and
performance of a wireless 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 69.0% of field measurement and analysis products revenues for 1996
(excluding ETP revenues). To support the RSAT-2000(R), EXP-2001(R) and
LL-2000(R) products, the Company 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. The
Company is designing a series of products consistent with this objective. The
Company also offers Phase 4 products that can simultaneously analyze system
quality of several different competing technologies and intends to offer new
products that will allow data from several different systems in one geographic
area to be collected and analyzed simultaneously.
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<PAGE> 14
The Company provides its field measurement and analysis products to
customers primarily through sales and to a lesser extent through monthly
rentals. The Company 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.
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, the Company 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 may increase revenues from RF engineering services in
addition to providing revenues from new services. Revenues from program
management services, which were commenced in 1995, represented approximately
11.6% of revenues for 1996.
The Company 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. The Company 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 and Pacific Bell Mobile Services; 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 1996, Nextel Communications and Lucent Technologies accounted for
approximately 10.8% and 10.0%, respectively, of the Company's revenues and were
the only customers 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 October 1999 for the
purchase of RF engineering services in connection with the design and operation
of its digital mobile telephone systems in the United States (including Alaska
and Hawaii), Puerto Rico and/or the U.S. Virgin Islands. The Company has an
agreement with Lucent Technologies pursuant to which Lucent Technologies is
committed to engage not fewer than 87 of the Company's RF engineers over a
period of 18 months commencing in February 1997.
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. The
Company's experience includes the following projects:
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<PAGE> 15
- The Company has designed analog cellular systems throughout the U.S.,
including substantially all of the largest MSAs, as well as in several other
countries.
- The Company 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).
- 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 has designed, or is currently designing, 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 December 31, 1996, the
Company had a total backlog of $64.5 million, consisting of $30.0 million
relating to engineering services, $17.1 million relating to software licenses,
$16.2 million for field measurement and analysis products and $1.2 million
relating to program management services. The foregoing amounts do not include
any remaining commitments from Pocket Communications, Inc. ("Pocket," formerly
known as DCR Communications, Inc.) and NextWave Telecom, Inc. ("NextWave"),
which were $62.8 million and $40.2 million, respectively, at December 31, 1996.
The Company has recorded a special charge of $30.1 million at December 31, 1996
with respect to these customers (see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Cash Flows"). 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 principal portion of the Company's present backlog arises from a
contract with Nextel Communications. This contract represents approximately
$21.5 million (or 33.3%) of the overall backlog. In addition, it represents
approximately $16.1 million (or 53.6%), $5.2 million (or 30.1%), and $0.2
million (or 1.2%), respectively, of the portions of the total backlog relating
to engineering services, software licenses and field measurement and analysis
products. Since the Company's backlog is subject to significant timing
uncertainties, the Company cannot accurately predict the portion of the backlog
that will be filled within the current year, but expects that it will not fill
at least $23.7 million of its overall backlog in 1997. 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.
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 28 member direct sales force based at its headquarters
in Arlington, Virginia and its eight member direct sales force in Oslo, Norway.
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 the offices of its
Brazilian subsidiary to supplement its Latin American sales efforts and intends
to establish a regional sales office in the Asia Pacific region.
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
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<PAGE> 16
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 follow-on business.
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.
In 1996 the Company made two significant strategic investments in customers in
exchange for large contracts.
In addition to obtaining business directly from wireless network
operators, the Company has also established working relationships with two 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 the Company's
services and products involve lengthy selling cycles, often as long as nine
months.
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. In
December 1996 the Company acquired the business of ETP and currently sells
products specifically for use in connection with Phase 4, and is engaged in the
further development of the technological capabilities of these products. 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.
MANUFACTURING AND PRODUCT ASSEMBLY
The Company assembles field measurement and analysis products by
obtaining standard parts and components 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 and
Oslo, Norway facilities. The Company currently has ten employees conducting
manufacturing and product assembly and 18 employees involved in supporting
activities, including quality control,
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<PAGE> 17
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 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
The Company'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, its databases for
many geographic areas, its technological tools, and its 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
The Company'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 the
Company 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 consists of (i) full service companies and equipment vendors,
particularly those specializing in field measurement and analysis products,
principally Safeco Technologies, Inc., Comarco, Inc. and Erisoft 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
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<PAGE> 18
functionality, price product performance, reputation and compatibility with
software tools. The Company is designing a series of products to make the
Company's field measurement and analysis tools compatible with software products
from other companies.
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, (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.
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.
RISK FACTORS
CHANGES ADVERSELY IMPACTING DEMAND FOR THE COMPANY'S PRODUCTS AND SERVICES
The wireless telecommunications industry is undergoing a number of
significant changes that are adversely 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 the Company and
have replaced such services with those provided by their own engineers. The
Company 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
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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.
Difficulties in Deployment of PCS Networks
The Company believes that demand for its services and products has been
and will continue to be affected by difficulties in 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. To date, the pace
of PCS network deployment has been slower than expected, due in significant part
to various levels of difficulty experienced by holders of PCS licenses in
raising the necessary financing. The Company is a party to two agreements with
Pocket and NextWave, the two top bidders in the C-block broadband PCS auction,
pursuant to which the Company is to provide services and products aggregating
$115 million over a five-year period beginning in 1996. Both of these customers
have failed to pay substantial amounts owing with respect to services and
products provided by the Company and, on April 1, 1997, Pocket announced that it
had voluntarily sought court protection under Chapter 11 of the U.S. Bankruptcy
Code. The Company has suspended all work with respect to Pocket and has
decreased the level of work performed for NextWave to that for which NextWave
has agreed to prepay. (See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Cash Flows"). Accordingly,
orders for network design and deployment from PCS licensees are subject to
uncertainty. See "-- 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 the Company. See "-- Changes Adversely Impacting 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.
SUBSTANTIAL LEVERAGE
The Company had $50.0 million of debt obligations as of December 31,
1996, consisting of the notes held by MCI. The two MCI notes, which are due in
2000, are exchangeable for Common Stock of the Company, and the Company intends
to require this exchange in August 1997. However, if there is a default under
such MCI notes prior to this exchange, or if there is a default under the Credit
Facility, there would be a material adverse effect on
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the Company. The Credit Facility prohibits the Company from incurring additional
debt and contains numerous other restrictive covenants. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Existing Indebtedness."
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 four 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. 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.
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 446 RF engineers. The success of the Company's business therefore
depends on its ability to retain its existing staff and replace 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 the Company and by wireless network operators.
Competition for such personnel is intense, which has at times caused the Company
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 60.2% of its revenues from its ten
largest customers in the year ended December 31, 1996 (approximately 8.7%
represents revenues from NextWave; see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Cash Flows").
Nextel Communications, the Company's largest customer in the year ended December
31, 1996, accounted for approximately 10.8% of its revenues. Lucent Technologies
accounted for an additional 10.0% of the Company's 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. In addition, the Company's contracts
typically have provisions that permit customers to
20
<PAGE> 21
terminate their respective contracts under various circumstances, which include
nonperformance or unsatisfactory performance by the Company. There can be no
assurance that customers under any of the Company's long-term contracts will not
attempt to cancel or renegotiate their contracts with the Company.
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 the
Company's services and products involve lengthy selling cycles, resulting in a
relatively high cost of new business generation. See " -- Sales and Marketing."
SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS; 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. The Company's
backlog has been reduced recently as a result of the exclusion of Pocket and
NextWave backlog (see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Cash Flows"). 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 generally declined from
1993 through December 31, 1995. There can be no assurances that this trend will
not continue.
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. There can be no assurance 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.
TRADE ACCOUNT RECEIVABLES
The Company is subject to credit risk in the form of trade account
receivables. As of December 31, 1996, the Company had trade account receivables,
net of allowances for doubtful accounts, of $35.6 million. As part of the
special charge of $30.1 million recorded by the Company at December 31, 1996
(see Item 7 "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Cash Flows"), the Company fully reserved for its
aggregate $12.4 million receivable exposure from Pocket and NextWave. The
Company frequently is unable to enforce a policy of receiving payment within 30
days of issuing bills, especially in the case of customers who are in the early
phases of business development. In addition, many of the Company's foreign
customers are not accustomed to paying their suppliers on terms as attractive as
those typically existing in the United States. See
21
<PAGE> 22
"Risk Factors -- Risks of International Operations." Generally, the Company does
not require collateral or other security to support customer receivables.
RISKS OF INTERNATIONAL OPERATIONS
Approximately 30.0% of the Company's revenues for 1996 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 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 were Pocket and NextWave, the
two top bidders in the recently-concluded C-block auction for broadband PCS
licenses, as part of arrangements involving the Company receiving contracts for
new business over a five-year period. Both of these companies have experienced
delays in obtaining adequate financing for the capital intensive build-out
of their systems and have failed to pay substantial amounts owing with respect
to services and products provided by the Company. On April 1, 1997, Pocket
announced that it had voluntarily sought court protection under Chapter 11 of
the U.S. Bankruptcy Code. The Company has suspended all work with respect to
Pocket and has decreased the level of work performed for NextWave to that for
which NextWave has agreed to prepay. In addition, the Company recorded a special
charge of $30.1 million pre-tax ($24.5 million after tax) to fully reserve for
its exposure with Pocket and NextWave. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Cash Flows."
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.
22
<PAGE> 23
RESTRICTIONS AFFECTING THE COMPANY'S ABILITY TO ENGAGE IN STRATEGIC
FINANCINGS OR ACQUISITIONS
There are several restrictions and other factors affecting the
Company's ability to engage in strategic financings or acquisitions. Although
the Company presently intends to engage in such transactions only to the extent
that the net proceeds from the Offering, together with amounts that will be
available under the Credit Facility, are sufficient to fund such opportunistic
investments and acquisitions, there can be no assurance that additional capital
will not 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 contains 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 Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Existing Indebtedness." The
Carlyle Group Investors also have certain rights that limit the ability of the
Company to incur debt above specified ratios or amounts. See "-- Control of the
Company by RF Investors." 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
Dependence on Key Personnel
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 executive officers has an employment agreement with the Company, other
than an agreement terminable at will. 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.
Management of Growth
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.
CONTROL OF THE COMPANY BY RF INVESTORS
RF Investors owns all (except for a small number of shares held by
Cherrywood, indirectly an equity holder of RF Investors) of the outstanding
shares of Class B Common Stock, which represents 93.3% of the combined voting
power of both classes of Common Stock. Accordingly, RF Investors and its equity
holders are 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 58.2% 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 March 22, 1997) 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 (collectively, 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 and RF Investors limited liability
company agreements provide that, for as long as the Carlyle Investors
collectively own at least 5% of the total
23
<PAGE> 24
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 up to two persons recommended by the Carlyle Investors upon the request
of the Carlyle Investors, and (ii) not to 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.
The RF Investors and Telcom Ventures limited liability company agreements
provide for certain rights of the Carlyle Investors to cause the distribution to
the Carlyle Investors, beginning three years after the Offering, of up to 25% of
the Common Stock held by RF Investors. Such a distribution would still leave RF
Investors with voting control of 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. The Company, RF Investors, Telcom Ventures,
and Telcom Ventures' owners (Cherrywood, the Singh Family Group and the Carlyle
Investors) (in each case as defined herein and collectively, the "Telcom
Ventures Group") have entered into an agreement (the "Intercompany Agreement"),
effective with the Offering, whereby, among other things, (i) the Singh Family
Group is limited in its ability to compete with the Company in its traditional
lines of business and (ii) Telcom Ventures is 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 until the earlier of (i) the date on
which the Telcom Ventures Group no longer possesses 51% or more of the
outstanding voting power of the Company or (ii) the occurrence of certain
termination events specified in the Formation Agreement among the Telcom
Ventures Group. Each of the Carlyle Investors (but not its affiliates) is
limited in its ability to invest in entities whose primary business is to
compete with the Company in its traditional line of business (excluding the
program management business) until the earlier of (i) the date on which such
Carlyle Investor no longer owns, directly or indirectly, an interest in the
Company or (ii) the occurrence of certain termination events specified in the
Formation Agreement among the Telcom Ventures Group. The Company is free to
pursue investment opportunities on its own, but is 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, the Company 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.
EMPLOYEES
As of December 31, 1996, the Company employed 887 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.
24
<PAGE> 25
ITEM 2. PROPERTIES
At December 31, 1996 the Company leased approximately 144,000 square
feet of office space in Arlington, Virginia. In November 1995 and December 1996
the Company exercised early termination options with respect to approximately
55,000 square feet and 65,000 square feet of such office space, respectively. In
connection with such terminations, the Company has incurred one-time termination
costs totaling approximately $1.4 million. In May 1996 the Company entered into
a lease with an annual rent beginning at approximately $2.9 million for
approximately 155,339 square feet of office space in McLean, Virginia for phased
occupancy beginning 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
25
<PAGE> 26
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Since completion of the Offering in September 1996, the Class A Common
Stock has been quoted on the Nasdaq National Market under the trading symbol
"LCCI." As of April 11, 1997, there were 21 stockholders of record of the Class
A Common Stock and, in excess of 2,000 beneficial holders thereof, and two
stockholders of record of the Class B Common Stock. The following table
summarizes the high and low closing sale prices of the Class A Common Stock by
fiscal quarter for 1996 as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
QUARTER ENDED: 1996
-------------- ----
<S> <C>
September 30 (from September 25)**............. $18.25 to $20.00
December 31.................................... $13.625 to $19.25
</TABLE>
The Company has never paid any cash dividends on Common Stock and the
Company does not anticipate paying dividends on the Common Stock, cash or
otherwise, in the foreseeable future. In addition, the Credit Facility prohibits
the payment of dividends by the Company without the consent of the lenders
thereunder. 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.
- -------------------
** The Class A Common Stock began trading on the NASDAQ Stock Market on
September 25, 1996. Prior to that time there was no established trading market
for the Class A Common Stock.
26
<PAGE> 27
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are (i) selected consolidated financial data as of and for each
of the years in the five-year period ended December 31, 1996, which have been
derived from the Company's audited Consolidated Financial Statements and (ii)
unaudited pro forma net income (loss) and net income (loss) per share data
prepared as if the Company was treated as a Subchapter C Corporation for
Federal and state income tax purposes from January 1, 1995. The selected
consolidated financial data set forth below should be read in conjunction with
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and related
notes thereto included, or incorporated by reference, elsewhere in this Form
10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues $ 31,053 $ 30,712 $ 41,063 $ 64,016 $ 93,156
Product revenues 23,279 29,595 34,992 40,445 48,414
----------- ----------- ----------- ----------- -----------
Total revenues 54,332 60,307 76,055 104,461 141,570
----------- ----------- ----------- ----------- -----------
Cost of revenues:
Cost of service revenues 21,352 21,087 29,185 45,682 65,801
Cost of product revenues 10,565 16,026 21,299 25,455 32,039
----------- ----------- ----------- ----------- -----------
Total cost of revenues 31,917 37,113 50,484 71,137 97,840
----------- ----------- ----------- ----------- -----------
Gross profit 22,415 23,194 25,571 33,324 43,730
----------- ----------- ----------- ----------- -----------
Operating Expenses:
Sales and marketing 2,372 4,146 4,987 5,823 6,475
General and administrative
5,013 5,799 8,802 10,108 12,462
In-process research and
development - - - - 5,605
Special charge - - - - 30,050
Non-cash compensation - - 3,255 4,646 7,005
Depreciation and
amortization 1,706 1,838 2,020 3,699 5,039
----------- ----------- ----------- ----------- -----------
Total operating expenses 9,091 11,783 19,064 24,276 66,636
----------- ----------- ----------- ----------- -----------
Operating income (loss) 13,324 11,411 6,507 9,048 (22,906)
----------- ----------- ----------- ----------- ------------
Other income (expense)
Interest, net 184 146 (221) (2,193) (2,125)
Other 625 (231) 721 1,027 2,376
----------- ------------ ----------- ----------- -----------
Total other income
(expense) 809 (85) 500 (1,166) 251
----------- ------------ ----------- ------------ -----------
Income (loss) before income 14,133 11,326 7,007 7,882 (22,655)
taxes
Provision (benefit) for income
taxes 528 829 2,037 3,142 (11,371)
----------- ----------- ----------- ----------- ------------
Net income (loss) $ 13,605 $ 10,497 $ 4,970 $ 4,740 $ (11,284)
=========== =========== =========== =========== ============
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C> <C>
Unaudited Pro Forma Data:
Pro forma net income $ 4,729 (1) $ (20,769) (1)
(loss) =========== ===========
Pro forma net income
(loss) per share $ 0.36 (1) $ (1.19) (1)
=========== ===========
Consolidated Balance Sheet
Data:
Working capital $ 5,020 $ 4,682 $ 31,503 $ 17,649 $ 37,237
Licenses and other
intangibles, net 0 0 1,797 3,745 10,540
Total assets 21,211 55,417 58,586 62,041 114,947
Long term obligations 754 655 23,930 28,627 51,860
Equity (deficit) 9,431 12,270 13,938 (244) 8,477
</TABLE>
(1) Pro forma net income (loss) has been adjusted to reflect the pro
forma effects as if the Company was a Subchapter C Corporation in 1995.
Pro forma net income (loss) is net of a provision (benefit) for
income taxes at an assumed effective tax rate of 40% for its U.S.
operations and 28%, beginning in 1996, for its Norwegian subsidiary.
The amount of the pro forma provision (benefit) for income taxes was
$3,153,000 and ($1,886,000) for the years ended December 31, 1995 and
1996, respectively. Weighted average shares used in the computation
of pro forma net income per share was 15.6 million and 16.5 million
for 1995 and 1996, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements and the notes
thereto and the other financial data appearing elsewhere in this Form 10-K.
OVERVIEW
The Company is one of the world's largest independent providers 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 is the successor to the business formerly conducted by the Limited
Liability Company. Effective September 27, 1996, in connection with the
Offering, the Limited Liability Company merged with and into LCC International.
The Company is the surviving company in the Merger, and owns all of the assets
and rights and is subject to all of the obligations and liabilities of the
Limited Liability Company.
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. The
Company provides engineering design services on a contract basis, usually in a
customized plan for each client and generally charges for engineering design
services on a time and materials basis, although projects of a short duration
may involve a fixed price or success fee. The Company generally provides
program management services on a time and materials or fixed price basis. The
Company's revenues also include reimbursement for expenses, including the living
expenses of engineers on customer sites. The software tools used by the
Company'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 consists 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
28
<PAGE> 29
portion of the revenues from licensing software to customers, apart from those
associated with engineering design 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 are some periodic rental payments
and there may be additional charges for equipment maintenance and upgrades.
Service revenue consists of revenues from engineering design services
(approximately 54.2% of 1996 revenues) and program management services
(approximately 11.6% of 1996 revenues). Product revenue consists of revenue
from software tools (approximately 15.8% of 1996 revenues) and revenue from
field measurement and analysis products (approximately 18.4% of 1996 revenues).
The Company derives a significant portion of its revenues from its
international customers (approximately 30.0% in 1996). Since almost all of the
Company's contracts are denominated in U.S. dollars, the Company 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 of field measurement and analysis equipment, licensing of software
and related maintenance costs. Sales and marketing expenses consist of salaries,
sales commissions, bonuses, 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 and office and occupancy costs required to
manage the Company's business. Non-cash compensation consists of awards under
a program for key employees adopted in 1994. Such plan was accounted for as a
variable plan, and therefore, to the extent that the deemed fair market value
of the Company increased, compensation expense increased accordingly. In
connection with the Offering, the Company granted stock options to replace the
awards granted under this plan. (See note 15 to the Consolidated Financial
Statements).
The key drivers of the Company'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 operators, 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, the Company expects that there will continue to be
significant investment by network system operators over the next few years in
design services, software tools and field measurement 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.
RESULTS OF OPERATIONS
The following table sets forth certain items as a percentage of
revenues from the Company's audited consolidated statement of operations for the
years ended December 31, 1994, 1995, and 1996. The table and discussion which
follows provides information which management believes is relevant to an
assessment and understanding of the Company's consolidated results of operations
and financial condition. The discussion should be read in conjunction with the
consolidated financial statements and accompanying notes thereto included
elsewhere herein.
29
<PAGE> 30
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Service revenues........................ 54.0 % 61.3 % 65.8 %
Product revenues........................ 46.0 38.7 34.2
-------- -------- ------
Total revenues...................... 100.0 100.0 100.0
Cost of revenues............................. 66.4 68.1 69.1
-------- -------- --------
Gross profit 33.6 31.9 30.9
-------- -------- --------
Operating expenses:
Sales and marketing..................... 6.6 5.6 4.6
General and administrative.............. 11.6 9.7 8.8
In-process research and development..... - - 4.0
Special charge - - 21.2
Non-cash compensation................... 4.3 4.4 4.9
Depreciation and amortization........... 2.6 3.5 3.6
--------- --------- ---------
Total operating expenses............ 25.1 23.2 47.1
-------- -------- --------
Operating income (loss)...................... 8.5 8.7 (16.2)
--------- --------- -----------
Other income (expense):
Interest income......................... 0.7 0.6 0.7
Interest expense........................ (0.9) (2.7) (2.2)
Other 0.9 0.9 1.7
--------- --------- ---------
Total other income (expense)........ 0.7 (1.2) 0.2
--------- --------- ---------
Income (loss) before income taxes............ 9.2 7.5 (16.0)
Provision (benefit) for income taxes......... 2.7 3.0 (8.0)
--------- --------- ---------
Net income (loss)............................ 6.5 % 4.5 % (8.0)%
========= ========= ==========
</TABLE>
30
<PAGE> 31
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues for 1996 were $141.6 million, compared to $104.5
million for 1995, an increase of $37.1 million or 35.5%. Service revenues were
$93.2 million, compared to $64.0 million for the prior year, an increase of
$29.2 million, or 45.5%. The increase was primarily the result of an $18.0
million or 30.6% increase in engineering design services revenue due to the
generation of additional chargeable hours in 1996, in part due to demand from
the PCS market. Program management services revenues increased $11.2 million or
213.5%. Calendar 1996 was the first full year of contract work for program
management, which initiated operations in 1995. Product revenues were $48.4
million, compared to $40.4 million the prior year, an increase of $8.0 million
or 19.7%. The increase was primarily the result of a $5.0 million or 23.7%
increase in field measurement and network analysis product revenues due to
strong sales in North America and an increase of $3.0 million or 15.3% in
software licensing revenue as a result of several large sales in 1996.
Cost of Revenues. Cost of revenues were $97.8 million for 1996,
compared to $71.1 million for 1995, an increase of $26.7 million or 37.5%. As a
percentage of total revenues, cost of revenues was 69.1% and 68.1% for 1996 and
1995, respectively. Total cost of service revenues as a percentage of service
revenues decreased to 70.6%, as compared to 71.4% for the prior year. The
decrease was primarily due to start-up costs incurred by the program management
division in 1995, the year operations were initiated. Total cost of product
revenues as a percentage of product revenues increased to 66.2%, compared to
62.9% for the prior year. The increase was primarily due to increased investment
in future software products. Software cost of revenues increased to 62.1% of
software sales, compared to 56.7% in 1995.
Gross Profit. Gross profit was $43.7 million, compared to $33.3 million
for the prior year, an increase of $10.4 million or 31.2%. As a percentage of
total revenues, gross profit was 30.9% and 31.9% for 1996 and 1995,
respectively. Service gross profit increased to $27.3 million, compared to $18.3
million for the prior year, an increase of $9.0 million or 49.2%. As a
percentage of service revenues, service gross profit was 29.4% and 28.6% for
1996 and 1995, respectively. Engineering design services gross profit increased
$5.6 million or 28.7% and program management services gross profit increased
$3.4 million or 296.6%. The increase in engineering design services gross profit
was primarily due to revenue growth. The increase in program management services
gross profit was the result of the start-up of the business in 1995 and
accompanying investment in business development. Product gross profit increased
to $16.4 million, compared to $15.0 million for the prior year, an increase of
$1.4 million or 9.2%. As a percentage of product revenue, product gross profit
was 33.8% and 37.1% in 1996 and 1995, respectively. Software gross profit
decreased to 37.9% of software sales, compared to 43.3% the prior year, as the
result of the investment in product development.
Sales and Marketing. Sales and marketing expenses were $6.5 million,
compared to $5.8 million for the prior year, an increase of $0.7 million or
11.2%. The increase was primarily attributable to sales commissions paid to
agents due to an increasing level of sales in Asia-Pacific where the Company
makes extensive use of agents. As a percentage of total revenues, sales and
marketing expenses decreased to 4.6%, compared to 5.6% for the prior year,
primarily 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 were
$12.5 million, compared to $10.1 million for the prior year, an increase of $2.4
million or 23.3%. The increase was primarily the result of an increase in the
allowance for doubtful accounts due to higher revenues and due to the aging of
outstanding receivables.
In-Process Research and Development. In-process research and
development expenses of $5.6 million were incurred by the Company in 1996 as the
result of the purchase of substantially all of the assets and liabilities of ETP
on December 30, 1996. Based upon an independent appraisal of the fair market
value of certain of the assets acquired and liabilities assumed, approximately
$5.6 million of the purchase price of $13.1 million was allocated to
in-process research and development expenses resulting in a one-time,
non-recurring charge to 1996 earnings. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity, Capital Resources
and Other Financial Data" and note 4 to the Company's consolidated financial
statements. Management believes that the acquisition of ETP will enhance the
Company's ability to provide wireless operators with quality measurement systems
which provide automated quality monitoring and benchmarking. ETP's software
portfolio assists operators in the monitoring, analysis, maintenance and
optimization of their wireless networks.
Special Charge. The Company recorded a special charge of $30.1 million
pre-tax ($24.5 million after tax) to fully reserve for its exposure with Pocket
and NextWave. The $30.1 million special charge consists of a reserve against the
Company's aggregate receivable exposure at December 31, 1996 of $12.4 million,
recognition of the other
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<PAGE> 32
than temporary impairment of the Company's investments of $11.5 million and
accruals of approximately $6.2 million related to loss contracts under which the
Company was obligated to perform at December 31, 1996. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Cash
Flows.")
Non-Cash Compensation. Non-cash compensation was $7.0 million, compared
to $4.6 million for the prior year, and increase of $2.4 million or 50.8%. The
increase was primarily the result of vesting of certain portions of the awards
of non-cash compensation under the program for key executives adopted in 1994
and an increase in the deemed fair market value of the Company.
Depreciation and Amortization. Depreciation and amortization expense
was $5.0 million, compared to $3.7 million for the prior year, an increase of
$1.3 million or 36.2%. The increase was primarily the result of increased
depreciation expense ($0.5 million) resulting from increased capital additions
and additional amortization ($0.8 million) resulting from decreased deferred
software costs related to the development of software tools and field
measurement and analysis products.
Other income (expense). Interest income was $0.9 million in 1996,
compared to $0.6 million in 1995, an increase of $0.3 million or 48.0%. The
increase was due primarily to the investment of funds received in connection
with the Offering in September 1996. Interest expense was $3.1 million, compared
to $2.8 million in the prior year, an increase of $0.3 million or 8.2%. The
increase was the result of the assumption of $30.0 million of convertible
subordinated debt from Telcom Ventures in September 1996 in connection with the
Merger (see notes 2 and 13 to the Consolidated Financial Statements). Other
income was $2.4 million in 1996, compared to $1.0 million in 1995, an increase
of $1.4 million or 131.4%. The increase resulted from the gain on sale of the
Company's 50.0% interest in Telemate S.A. ($0.5 million) and recognition of
income related to distribution rights for the Company's hardware and software
products granted with the sale ($1.2 million - see note 10 to the Consolidated
Financial Statements).
Net income (loss). Net income was $(11.3) million for 1996, compared to
$4.7 million for 1995, a decrease of $16.0 million. As a percentage of total
revenues, net income decreased to (8.0)% from 4.5% in the prior year. In
addition to the items discussed above, the changes in net income (loss)
included the impact of a one-time deferred tax benefit of $8.7 million related
to the conversion of the Company to a Subchapter C Corporation in connection
with the Offering (see note 2 to the Consolidated Financial Statements).
Adjusting net income (loss) for non-cash compensation, in-process research and
development and the special charge recorded by the Company, net income would
have been $7.7 million as compared to $7.5 million for 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues for 1995 were $104.5 million, compared to $76.1
million for 1994, an increase of $28.4 million or 37.3%. Service revenues were
$64.0 million in 1995, compared to $41.1 million for the prior year, 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 revenues
were $40.5 million for 1995, compared to $35.0 million for the prior year, an
increase of $5.5 million or 15.6%. An increase in software licensing revenue was
offset by a slight decline in field measurement and analysis products sales. The
increase in software licensing revenue was largely due to increased
international revenues. The Company experienced a stagnant 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 relying upon third parties for such development.
Cost of Revenues. Cost of revenues were $71.1 million for 1995,
compared to $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. The increase in costs of revenues as a percentage of total
revenues was 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.
Gross Profit. Gross profit was $33.3 million, compared to $25.6 million
for the prior year, an increase of $7.7 million or 30.3%. As a percentage of
total revenues, gross profit was 31.9% and 33.6% for 1995 and 1994,
respectively. The $7.7 million increase in gross profit largely resulted from
revenue growth. The decline in gross profit as a percentage of total revenues
was due, in part, to the Company's build-up of staff to serve the PCS business
and the slower than anticipated development of that business, competitive
pressures with respect to field
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<PAGE> 33
measurement and analysis products and software tools, and costs associated with
the program management division.
Sales and Marketing. Sales and marketing expenses were $5.8 million,
compared to $5.0 million for the prior year, an increase of $0.8 million, or
16.8%. The increase was primarily attributable to growth in the Company's
marketing personnel to generate the increase in revenues. As a percentage of
total revenues, sales and marketing expenses decreased to 5.6%, compared to 6.6%
for the prior year, primarily 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 were
$10.1 million for 1995, compared to $8.8 million for the prior year, 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. As a percentage of
total revenues, general and administrative expenses were 9.7% and 11.6% for 1995
and 1994, respectively, due to the fixed nature of certain overhead costs.
Non-Cash Compensation. Non-cash compensation was $4.6 million, compared
to $3.3 million for the prior year, an increase of $1.3 million or 42.7%. The
increase was the result of an increase in the vesting of the awards of non-cash
compensation under the program for key executives adopted in 1994 and an
increase in the deemed fair market value of the Company.
Depreciation and Amortization. Depreciation and amortization expense
was $3.7 million, compared to $2.0 million for the prior year, an increase of
$1.7 million or 83.1%. The increase was the result of the capitalization and
amortization of external costs incurred by the Company in connection with the
upgrade of its financial information systems.
Other income (expense). Interest expense was $2.8 million, compared to
$0.7 million in the prior year, an increase of $2.1 million or 293.0%. The
increase is the result of additional borrowings under the Nomura Facility (see
note 12 to the Consolidated Financial Statements) which were used to dividend
and loan funds to Telcom Ventures. Other income was $1.0 million in 1995,
compared to $0.7 million in 1994, an increase of $0.3 million or 42.4%. The
increase resulted from increased earnings from the Company's investment in
Telemate S.A.
Net Income. Net income was $4.7 million for 1995, compared to $5.0
million for 1994, a decrease of $0.3 million or 4.6%. As a percentage of total
revenues, net income decreased to 4.5% from 6.5% in the prior year. In addition
to the items discussed above, the decrease in net income of $0.3 million was the
result of an increase of $1.1 million or 54.2% in the provision for income taxes
due to an increase in the absolute amount of international pre-tax income.
Adjusting for non-cash compensation, net income would have been $7.5 million
compared to $6.2 million for 1994.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
Additions to property and equipment were $3.3 million for 1996,
compared to $4.2 million for 1995 and $2.4 million for 1994. Approximately $0.2
million of the $0.9 million decrease from 1995 to 1996 was due to a decrease in
expenditures related to the ongoing upgrade of the Company's financial
information systems software ($0.9 million in 1995, and $0.7 million in 1996).
The remainder of the decrease from 1995 to 1996 and approximately $0.9 million
of the increase from 1994 to 1995 represented changes in the amount of ongoing
additions to office furniture and computer equipment, largely in support of the
Company's revenue base. In May 1996, the Company entered into 10-year and
5-year facility lease agreements effective March 1, 1997 and July 1, 1997,
respectively, and will be moving into new office space during the first and
second quarter of 1997. This move will result in a consolidation of the
Company's headquarter operations and is anticipated to result in decreased
office facilities administration costs, but an increase in property and
equipment additions in 1997 as compared to 1996. Additions to investments in
joint ventures were $0.8 million for 1996, compared to $0.4 million for 1995
and $0.2 million for 1994. The $0.4 million increase in investments in joint
ventures from 1995 to 1996 was primarily the result of additional contributions
by the Company to Koll Telecommunications Services, L.L.C. ("Koll"). Koll
provides site acquisition and construction management services to operators of
wireless communications systems (see note 10 to the Consolidated Financial
Statements). Software development costs are primarily wages and contractor fees
which are capitalized after establishing the commercial and technological
feasibility of the product.
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<TABLE>
<CAPTION>
1994 1995 1996
(in millions)
<S> <C> <C> <C>
Additions to property and equipment........... $2.4 $4.2 $3.3
Investments in joint ventures................. 0.2 0.4 0.8
Software development costs.................... 1.9 2.9 3.2
---- --------- ---------
$4.5 $7.5 $7.3
==== ========= =========
</TABLE>
CASH FLOWS
Cash and cash equivalents were $13.7 million at December 31, 1996, an
increase of $7.2 million from December 31, 1995. The increase was due primarily
to the completion of the Offering. The Company issued 3,162,500 shares of Class
A Common Stock at an initial public offering price of $16.00 per share. The net
proceeds to the Company (after deducting discounts, commissions and other
expenses of the offering) were approximately $44.8 million. As of December 31,
1996, approximately $16.2 million of this amount was used to pay all remaining
amounts outstanding under the Credit Facility (as defined below), $3.5 million
was advanced to Telcom Ventures to assist in paying certain taxes due in
connection with the assumption by the Company of the Telcom Ventures Note,
approximately $6.85 million was used for vendor financing and approximately
$11.85 million was being held to fund the portion of the ETP Acquisition
purchase price due at closing. The balance of approximately $6.4 million was
invested in various short-term investments and cash equivalents as of December
31, 1996.
In December 1996, the Company, through its newly formed subsidiary,
Microcell Management, Inc. ("Microcell"), acquired certain of the assets and
liabilities of Microcell Management, LLC. Microcell provides consulting services
to the wireless telecommunications industry and offers a package to finance the
construction of telecommunications towers on a sale-leaseback or build-to-suit
basis. Assets acquired included contracts rights of $393,000, which will be
amortized on a straight-line basis over the 10 year life of the related
contract.
In December 1996, the Company, through its wholly-owned subsidiary LCCI
AS, acquired the business of ETP for $13.1 million, including $250,000 of
acquisition costs. ETP designs, develops, manufactures and sells and licenses
hardware and software products for the testing, monitoring and management of the
operations of wireless telecommunications networks. Exclusive of the acquisition
costs, (i) $10.45 million was paid in January 1997 in satisfaction of a note
agreement dated December 30, 1996, (ii) $1.4 million is being held in escrow for
two years as security for ETP's indemnity obligations under the asset purchase
agreement, and (iii) $667,000 and $308,000 will be paid in January 1998 and
1999, respectively. Payments under (i) and (ii) above were made in January 1997
from the remaining net proceeds of the Offering.
Net cash used in operations was $3.1 million for 1996. Net cash used in
investing activities was $15.2 million, consisting primarily of cash paid for
additions to property and equipment ($3.3 million), increase in capitalized
software ($3.2 million), increase in short-term investments ($6.1 million), and
loans convertible into shares of common stock ($5.6 million), partially offset
by the proceeds of the sale of the Company's interest in Telemate S.A. and
certain distribution rights ($3.8 million). Net cash provided by financing
activities was $25.5 million, primarily representing net proceeds from the
Offering of $44.9 million, partially offset by a $20.0 million reduction in
short-term debt under the Credit Facility.
Dividends paid during 1996 were $16.9 million, all by the Limited
Liability Company. In September 1996, the Limited Liability Company received
$16.9 million as repayment of its loans to Telcom Ventures. Also in September
1996, the Company advanced $3.5 million to Telcom Ventures to assist in the
payment of taxes due in connection with the assumption by the Company of $30.0
million of convertible subordinated debt from Telcom Ventures (see notes 2 and
13 to the Consolidated Financial Statements).
In November 1996, the Company entered into master service, convertible
note and stock option agreements with Communication Consulting Services, Inc.
("CCS"), a provider of radio frequency engineering services in connection with
the design, optimization and operation of wireless systems. Under the
convertible note agreement,
34
<PAGE> 35
the Company loaned CCS a total of approximately $0.6 million. Interest accrues
on the loan at a variable rate equal to the prime rate plus 1.5%. The loan is
convertible, at the Company's option, into shares representing 50.0% of the
capital stock of CCS. The stock option agreement gives the Company an option to
purchase an additional 10%, for a total purchase price of $0.15 million. On
April 7, 1997 the Company provided CCS with notice of its intention to exercise
both the conversion right in the convertible note and the 10% purchase right set
forth in the stock option agreement.
In March 1996, the Company made investments in Pocket and NextWave of
$6.5 million and $5.0 million, respectively. The $6.5 million investment in
Pocket consists of loans convertible into shares of non-voting common stock upon
the satisfaction of certain conditions. In connection with this investment, the
Company obtained a commitment from Pocket for the purchase of services and
products aggregating $65.0 million over the subsequent five-year period. The
$5.0 million investment in NextWave consists of an equity investment. In
connection with this investment, the Company obtained a commitment from
NextWave for the purchase of services and products aggregating $50.0 million
over the subsequent five-year period. Through December 31, 1996, revenues
recognized under the commitments with Pocket and NextWave were approximately
$2.2 million and $12.5 million, respectively, and related amounts receivable
were approximately $2.2 million and $10.6 million, respectively. Included in
the amounts receivable are notes receivable from Pocket and NextWave of
approximately $950,000 and $5.9 million, respectively. The notes bear interest
at prime plus 2%, and were payable upon maturity of the notes on March 31,
1997. Both customers are development stage enterprises pursuing the buildout
and operation of networks obtained in the auction of C-Block licenses by the
FCC and subject to risks typically associated with start-up entities, such as
(i) the uncertainty of securing sufficient financing, (ii) competition from
other providers of telecommunications services, (iii) dependence on key
vendors and strategic operation of its PCS networks and (iv) delays
encountered in the development and successful operation of their PCS networks.
On March 31, 1997, Pocket failed to pay interest due the Company under
the $6.5 million convertible loan agreement and failed to pay principal and
interest due the Company under the $950,000 note agreement. Also on March 31,
1997, NextWave failed to pay principal and interest due under the $5.9 million
note agreement. In addition, on April 1, 1997, Pocket announced that it had
voluntarily sought court protection under Chapter 11 of the U.S. Bankruptcy
Code. Given these developments and the uncertainty related to Pocket's and
NextWave's ability to meet their future obligations under the agreements
outlined above, the Company has decided to fully reserve for its exposure with
these customers and has consequently recorded a special charge of $30.1
million pre-tax ($24.5 million after tax or $1.49 per share) at December 31,
1996. The $30.1 million special charge consists of a reserve against the
Company's aggregate receivable exposure at December 31, 1996 of $12.4 million
(net of payments of $0.4 million received in January 1997), the recognition of
an other than temporary impairment of the Company's investments of $11.5
million and accruals of approximately $6.2 million related to loss contracts
under which the Company was obligated to perform at December 31, 1996. The
Company suspended all work performed for Pocket and has significantly
decreased the level of work performed for NextWave. Any work performed beyond
March 31, 1997 for NextWave is being done solely on a prepayment basis. The
Company anticipates lower than historical margins in the first two quarters of
calendar year 1997 as a result of the decision to suspend or decrease work
performed for these two customers. Included in 1996 revenues and gross profit
was $16.2 million and $6.5 million, respectively, related to Pocket and
NextWave.
Working capital was $37.2 million at December 31, 1996, compared to
$17.6 million at December 31, 1995, an increase of $19.6 million or 111.0%. The
increase was primarily due to the net proceeds of the Offering, increase in
receivables and recognition of deferred tax assets as a result of (i) the
conversion of the Company to a Subchapter C Corporation effective September 27,
1996 in connection with the Offering, (ii) the allocation of approximately $5.6
million of the purchase price for the ETP Acquisition to in-process research and
development expenses and (iii) the special charge of $30.1 million related to
Pocket and NextWave, all offset by an increase in accrued expenses and the
establishment of a note payable for the purchase of ETP (see notes 2, 4, 9 and
11 to the Consolidated Financial Statements).
Working capital was $17.6 million at December 31, 1995, compared to
$31.5 million at December 31, 1994, a decrease of $13.9 million or 44.0%. The
decrease was primarily due to the use of $10.0 million under the Company's
financing facility (the "Nomura Facility") with Nomura Holding America, Inc.
("Nomura") during 1995 to pay dividends to Telcom Ventures, its then-parent
company.
EXISTING INDEBTEDNESS
In June 1994, the Company and Telcom Ventures sold $20 million and $30
million, respectively, of notes to MCI (the "Exchangeable Notes"), which notes
are exchangeable, at certain times, consisting of 45 day periods commencing in
June and August of 1997, 1998, and 1999, into 2,841,099 shares of Class A Common
Stock. The Company distributed the proceeds of its loan to Telcom Ventures, for
use by Telcom Ventures in its investment activities. The $30 million owed by
Telcom Ventures was assumed by the Company immediately prior to the Merger
35
<PAGE> 36
(see notes 2 and 13 to the Consolidated Financial Statements). The Company
presently intends to exercise its option in August in 1977 to cause the
Exchangeable Notes to be exchanged into Class A Common Stock. The events of
default under the Exchangeable Notes (which would cause such notes to become
due and payable) include non-payment and bankruptcy.
Effective May 30, 1995, the Company entered into a credit facility with
Nomura under which Nomura agreed to purchase from the Company up to $15.0
million of variable rate guaranteed senior secured notes (the "Nomura Notes"),
$10.0 million of which were issued on June 5, 1995. The Nomura Notes were
secured by substantially all the assets of the Company and a pledge of all of
Telcom Ventures' membership interest in the Company. Chase Manhattan Bank Co.,
N.A. ("Chase") purchased the Nomura Notes in March 1996, and became the lender
under these notes. Also in March 1996, the Company borrowed an additional $10.0
million from Chase (the "March 1996 Facility"), resulting in a total outstanding
balance of $20.0 million.
In June 1996, the Company entered into a new credit facility with
Chase, as Administrative Agent, (the "Credit Facility") which replaced the March
1996 Facility. The Credit Facility consists of a revolving loan and letter of
credit facility in an aggregate principal amount not to exceed $20.0 million.
The revolving loan commitment will expire in September 1999. 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 is 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. Interest under the Credit
Facility accrues at the Company's election (subject to certain restrictions and
limitations contained in the credit agreement), at either (i) the variable rate
equal to the higher of (a) the Federal Funds Rate plus 0.50%, and (b) the
announced prime commercial lending rate of Chase, or (ii) the fixed rate for a
designated period of time (1, 2, 3 or 6 months) equal to the rate at which U.S.
dollar deposits are offered to leading banks in the London interbank market plus
1.25%.
The payment and performance of the obligations of the Company under the
Credit Facility are secured by substantially all of the assets of the Company,
including the stock and membership interests of its subsidiaries. The Credit
Facility requires 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 Credit Facility also contains 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 Credit
Facility provides 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 the bankruptcy or solvency of the Company. In addition,
the Credit Facility provides for an event of default if, without the prior
written consent of the lenders, (i) the Company 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, (ii) the Company merges
with another corporation other than a wholly-owned subsidiary, (iii) any person
or two or more persons acting in concert (other than Dr. Rajendra Singh, Neera
Singh, any trusts for their benefit or for the benefit of their family members,
and any of their respective affiliates which are controlled by any one or more
of them) acquire beneficial ownership of more than 25% of the voting stock of
the Company, or (iv) during any period of 12 consecutive months, individuals who
at the beginning of such 12-month period were directors of the Company (or other
persons nominated by such individuals) cease for any reason to constitute a
majority of the Board of Directors of the Company.
In September 1996 in connection with the Merger, the Credit Facility
was transferred from the Limited Liability Company to LCC International and
amended and restated. Also in September 1996, approximately $16.2 million of the
proceeds of the Offering was used to pay all amounts outstanding under the
Credit Facility. No amounts were outstanding under the Credit Facility at
December 31, 1996. Effective December 30, 1996 the Credit Facility was amended
to revise the financial ratios and certain other covenants contained therein
for the effect of the special charge recorded by the Company (see notes 9 and
12 to the Consolidated Financial Statements).
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<PAGE> 37
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.
37
<PAGE> 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
LCC International, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of LCC
International, Inc. and Subsidiaries (the "Company") as of December 31, 1995 and
1996, and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for each of the years in the three
year period ended December 31, 1996. In connection with our audits of the
consolidated financial statements, we have also audited the related financial
statement schedule. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule 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
International, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1996 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
Washington, D.C.
April 15, 1997
KPMG PEAT MARWICK LLP
38
<PAGE> 39
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Revenues (notes 6 and 9):
Service revenues....................... $ 41,063 $ 64,016 $ 93,156
Product revenues....................... 34,992 40,445 48,414
----------- --------- ---------
Total revenues 76,055 104,461 141,570
----------- --------- ---------
Cost of revenues:
Cost of service revenues............... 29,185 45,682 65,801
Cost of product revenues............... 21,299 25,455 32,039
----------- --------- ---------
Total cost of revenues................ 50,484 71,137 97,840
----------- --------- ---------
Gross profit 25,571 33,324 43,730
----------- --------- ---------
Operating expenses:
Sales and marketing.................... 4,987 5,823 6,475
General and administrative............. 8,802 10,108 12,462
In-process research & development (note 4) - - 5,605
Special charge (note 9)................ - - 30,050
Non-cash compensation (note 15)........ 3,255 4,646 7,005
Depreciation and amortization.......... 2,020 3,699 5,039
----------- --------- ---------
Total operating expenses.............. 19,064 24,276 66,636
----------- --------- ---------
Operating income (loss)..................... 6,507 9,048 (22,906)
----------- --------- ----------
Other income (expense):
Interest income........................ 496 625 925
Interest expense....................... (717) (2,818) (3,050)
Other 721 1,027 2,376
----------- --------- ---------
Total other income (expense).......... 500 (1,166) 251
----------- --------- ---------
Income (loss) before income taxes........... 7,007 7,882 (22,655)
Provision (benefit) for income taxes (note 11) 2,037 3,142 (11,371)
----------- --------- ---------
Net income (loss) $ 4,970 $ 4,740 $ (11,284)
=========== ========= =========
Pro forma income (loss) data (unaudited) (note 3):
Income (loss) before income taxes...... $ 7,882 $ (22,655)
Pro forma provision (benefit) for income taxes
(note 11) 3,153 (1,886)
--------- ---------
Pro forma net income (loss) (unaudited) $ 4,729 (20,769)
========= =========
Pro forma net income (loss) per share (unaudited): $ 0.36 $ (1.19)
========== =========
Weighted average number of common shares and
common share equivalents (unaudited):..... 15,579 16,509
</TABLE>
The accompanying notes are an integral part of the Consolidated
Financial Statements.
39
<PAGE> 40
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents (note 5)............................. $ 6,571 $ 13,732
Short-term investments (note 3)................................ 778 6,934
Receivables, net of allowance for doubtful accounts of
$3,131, and $17,942 at December 31, 1995 and 1996
Trade accounts receivable (note 9)........................ 28,293 35,563
Due from related parties and affiliates (notes 6 and 10) 2,938 2,244
Notes receivable (notes 6 and 9).......................... 1,382 -
Unbilled receivables (note 9)............................. 6,096 9,819
Inventory (note 7) 4,949 6,387
Deferred income taxes, net (note 11)........................... - 12,755
Prepaid expenses and other current assets...................... 300 4,413
----------- -----------
Total current assets...................................... 51,307 91,847
Property and equipment, net (note 8)................................ 5,440 5,952
Software development costs, net of accumulated amortization
of $1,058 and $2,676 at December 31, 1995 and 1996 3,745 5,069
Notes receivable (notes 9 and 10)................................... - 602
Investments in joint ventures (note 10)............................. 1,403 1,650
Deferred income taxes, net (note 11)................................ - 4,584
Other assets (notes 4 and 9)........................................ 146 5,243
----------- -----------
$ 62,041 $ 114,947
=========== ===========
Liabilities and Shareholders' Equity:
Current liabilities:
Note payable (notes 4 and 12).................................. $ 10,000 $ 10,445
Accounts payable............................................... 2,243 6,218
Accrued expenses (notes 9 and 15).............................. 11,137 23,296
Deferred revenue............................................... 3,137 4,951
Income taxes payable (note 11)................................. 6,312 7,446
Obligations under Incentive Plans (note 15).................... - 448
Other current liabilities (note 4)............................. 829 1,806
----------- -----------
Total current liabilities............................... 33,658 54,610
Convertible subordinated debt (note 13)............................. 20,000 50,000
Obligations under Incentive Plans, net of current portion (note 15) 8,623 807
Other liabilities (note 4).......................................... 4 1,053
----------- -----------
Total liabilities......................................... 62,285 106,470
Commitments and contingencies (notes 1, 10, 11, 14, 15, 16
and 17)
Preferred Stock:
10,000 shares authorized; -0- shares issued and outstanding - -
Class A common stock; $.01 par value:
70,000 shares authorized; -0- shares and 6,066 shares
issued and outstanding at December 31, 1995 and 1996,
respectively................................................... - 61
Class B common stock; $.01 par value:
20,000 shares authorized; -0- shares and 8,461 shares
issued and outstanding at December 31, 1995 and 1996,
respectively................................................... - 85
Paid-in capital .............................................. - 28,353
Retained earnings (deficit)......................................... - (16,422)
Cumulative foreign currency translation adjustment.................. (79) (100)
Note receivable from shareholder (note 6)........................... (9,382) (3,500)
Members' capital.................................................... 9,217 -
----------- -----------
Total shareholders' (deficit) equity........................ (244) 8,477
----------- -----------
$ 62,041 $ 114,947
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Consolidated
Financial Statements.
40
<PAGE> 41
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
PREFERRED ------------ PAID-IN EARNINGS
STOCK CLASS A CLASS B CAPITAL (DEFICIT)
------------ ------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993......................... $ -- $ 13 $ -- $ 71 $ 12,186
Net assets retained by LCC, Incorporated by
Telcom Ventures upon its formation................ (13) (71) (4,233)
Capital contributed to LCC, L.L.C. by Telcom
Ventures upon its formation, net................... -- (6,351)
Dividends paid........................................ -- -- --
Net income (note 2)................................... -- -- (1,602)
Cumulative foreign currency translation
adjustment......................................... -- -- --
-------- --------- --------- --------- ---------
Balances at December 31, 1994......................... -- -- -- -- --
Loan to member (note 6)............................... -- -- --
Dividends paid........................................ -- -- --
Net income............................................ -- -- --
Cumulative foreign currency
translation adjustment............................. -- -- --
-------- --------- --------- --------- ---------
Balances at December 31, 1995......................... -- -- --
Dividends paid........................................ -- -- -- -- --
Net income - pre-merger (note 2)...................... -- -- -- -- --
Cumulative foreign currency translation
adjustment......................................... -- -- -- -- --
Loan to member........................................ -- -- -- 1,640 --
Repayment of loan to member........................... -- -- -- -- --
Assumption of subordinated debt
(notes 2 and 13)................................... -- -- -- (30,000) --
Merger of LCC, L.L.C. into LCC International, -- -- 114 (2,920) --
Inc. (note 2)......................................
Net proceeds of initial public offering -- 61 (29) 44,725 --
(note 2)...........................................
Loan to shareholder (notes 2 and 6)................... -- -- -- -- --
Issuance of stock options (note 15)................... -- -- -- 14,908 --
Net (loss) - post merger.............................. -- -- -- -- (16,422)
Cumulative foreign currency translation
adjustment......................................... -- -- -- -- --
-------- --------- --------- --------- ---------
Balances at December 31, 1996........................ $ -- $ 61 $ 85 $ 28,353 $ (16,422)
======== ========= ========= ========= ==========
<CAPTION>
CUMULATIVE NOTES
FOREIGN RECEIVABLE
CURRENCY FROM
TRANSLATION SHAREHOLDER MEMBERS'
ADJUSTMENT (NOTE 6) CAPITAL TOTAL
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Balances at December 31, 1993......................... $ $ -- $ -- $ 12,270
Net assets retained by LCC, Incorporated by
Telcom Ventures upon its formation................ -- -- (4,317)
Capital contributed to LCC, L.L.C. by Telcom
Ventures upon its formation, net................... -- 16,690 10,339
Dividends paid........................................ -- (9,285) (9,285)
Net income (note 2)................................... -- 6,572 4,970
Cumulative foreign currency translation
adjustment......................................... (39) -- (39)
--------- --------- --------- ---------
Balances at December 31, 1994......................... (39) -- 13,977 13,938
Loan to member (note 6)............................... (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......................... (79) (9,382) 9,217 (244)
Dividends paid........................................ -- -- (16,950) (16,950)
Net income - pre-merger (note 2)...................... -- -- 5,138 5,138
Cumulative foreign currency translation
adjustment......................................... (132) -- -- (132)
Loan to member........................................ -- (7,568) -- (5,928)
Repayment of loan to member........................... -- 16,950 -- 16,950
Assumption of subordinated debt
(notes 2 and 13)................................... -- -- -- (30,000)
Merger of LCC, L.L.C. into LCC International, 211 -- 2,595 --
Inc. (note 2)......................................
Net proceeds of initial public offering -- -- -- 44,757
(note 2)...........................................
Loan to shareholder (notes 2 and 6)................... -- (3,500) -- (3,500)
Issuance of stock options (note 15)................... -- -- -- 14,908
Net (loss) - post merger.............................. -- -- -- (16,422)
Cumulative foreign currency translation
adjustment......................................... (100) -- -- (100)
---------- ---------- --------- ---------
Balances at December 31, 1996........................ $ (100) $ (3,500) $ -- $ 8,477
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated
Financial Statements.
41
<PAGE> 42
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 4,970 $ 4,740 $ (11,284)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................ 2,020 3,699 5,039
Provision for doubtful accounts.............. 2,083 622 2,937
Non-cash compensation........................ 3,255 4,646 7,005
In-process research & development............ -- -- 5,605
Special charge............................... -- -- 30,050
Income from investments in joint ventures, net (181) (732) (346)
Gain on disposition of joint venture, net.... -- -- (514)
Changes in operating assets and liabilities:
Trade, unbilled, and other
receivables............................ (9,513) (12,260) (23,378)
Accounts payable and accrued expenses.... 6,309 (2,411) 8,809
Inventory................................ (2,245) (377) (1,154)
Other current assets and liabilities..... 1,287 6,704 (14,359)
Other noncurrent assets and
liabilities............................ 18 126 (11,538)
---------- ---------- -----------
Net cash provided by (used in) operating activities... 8,003 4,757 (3,128)
---------- ---------- -----------
Cash flows from investing activities:
Proceeds from sales of investment securities...... 19 357 558
Purchase of investment securities................. (108) (682) (6,714)
Purchases of property and equipment............... (2,403) (4,222) (3,263)
Increase in capitalized software.................. (1,927) (2,876) (3,177)
Investment in joint ventures...................... (150) (350) (787)
Issuance of notes receivable...................... -- -- (5,602)
Proceeds from sale of investment in joint venture -- -- 3,800
---------- ---------- -----------
Net cash used in investing activities................. (4,569) (7,773) (15,185)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net -- -- 44,902
Proceeds from line of credit/note................. -- 10,000 10,000
Payments on line of credit/note................... -- -- (20,000)
Proceeds from subordinated debt................... 20,000 -- --
Distributions and loans to member................. (4,850) (9,382) (5,928)
Repayment of loans to member...................... -- -- 16,950
Payments of dividends............................. (9,285) (9,500) (16,950)
Loan to shareholder............................... -- -- (3,500)
---------- ---------- -----------
Net cash provided by (used in) financing
activities.......................................... 5,865 (8,882) 25,474
---------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... 9,299 (11,898) 7,161
Cash and cash equivalents at beginning of period...... 9,170 18,469 6,571
---------- ---------- -----------
Cash and cash equivalents at end of period............ $ 18,469 $ 6,571 $ 13,732
========== ========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest..................................... $ 717 $ 2,372 $ 3,749
Income taxes................................. 261 506 3,535
Supplemental schedule of non-cash investing and
financing activities:
Assumption of convertible debt (notes 2 and 13)... $ -- $ -- $ 30,000
</TABLE>
In December 1996, the Company purchased substantially all of the assets and
liabilities of European Technology Partner AS, for a note payable of $10,445
and certain future obligations, including acquisition costs, of
approximately $2,630. Assets of $9,800, including cash of $150 and
liabilities of $2,300 were assumed in conjunction with the acquisition (see
note 4).
The accompanying notes are an integral part of the Consolidated
Financial Statements.
- 42 -
<PAGE> 43
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(1) DESCRIPTION OF OPERATIONS
LCC International, Inc. and subsidiaries (also referred to herein as
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.
Program management services -- The Company provides construction
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 and network analysis tools 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, the introduction of new
technologies and the retention of existing professional staff. 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.
(2) MERGER AND INITIAL PUBLIC OFFERING
The Company is the successor to the business formerly conducted by LCC,
L.L.C. ("LCC"). Effective September 27, 1996, in connection with the Company's
initial public offering of Class A Common Stock, LCC merged with and into LCC
International, Inc. The Company is the surviving company in the merger, and owns
all of the assets and rights and is subject to all of the obligations and
liabilities of LCC. Immediately prior to the merger, LCC assumed $30.0 million
of convertible subordinated debt from Telcom Ventures, L.L.C. ("Telcom
Ventures"), its parent company. The repayment obligation for principal and
interest became the sole obligation of LCC and, following the merger, the sole
obligation of the Company. The $30.0 million of convertible subordinated debt
assumed from Telcom Ventures and the $20.0 million of existing convertible
subordinated debt (see note 13) are due to a third party investor and are
convertible at certain specified times, including during the 45 day period
commencing on June 27, 1997 (Investor conversion right), the 45 day period
commencing on August 27, 1997 (Company conversion right), and the respective
periods in 1998 and 1999, and including upon certain extraordinary events, such
as merger or sale of all assets of the Company, tender offer for more than 25%
of the Common Stock or distribution of assets representing 5% or more of the
total assets of the Company. Any conversion of one note must include the
conversion of the other. The Company presently intends to exercise its
conversion option in August
- 43 -
<PAGE> 44
1997 to cause the convertible subordinated debt to be converted into 2,841,099
shares of Class A Common Stock.
Effective with the merger, the Company converted to a Subchapter C
Corporation under the Internal Revenue Code of 1986, as amended. As of September
30, 1996, the Company recorded a one-time deferred income tax benefit of $8.7
million as a result of the change in its tax status from a Limited Liability
Corporation to a Subchapter C Corporation. The income tax benefit has been
recorded as a reduction of income tax expense in the accompanying consolidated
statement of operations (see note 11).
On September 30, 1996, the Company completed its initial public offering,
which involved the sale of 6,037,500 shares (3,162,500 shares were sold by the
Company and 2,875,000 shares were sold by the selling shareholder) of Class A
Common Stock at $16.00 per share. Net proceeds to the Company, after deducting
underwriting discounts, commissions and other expenses of the offering were
approximately $44.8 million.
(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, as well as municipal bonds of various maturities. The portfolio
of municipal bonds held by the Company of $6.9 million at December 31, 1996 has
been classified based on management's intentions as to future investment
activity. Such investments are not intended to be held to maturity and are
classified as "available for sale" and carried at market value with temporary
unrealized gains (losses) charged directly to shareholders' equity. At December
31, 1996, the market value of the municipal bonds held by the Company
approximated its cost. Other short-term investments are carried at cost plus
accrued interest which approximates their market value. All short-term
investments have maturity dates of one year or less.
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, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Latin America....... $ 5,293 $ 3,482
Europe.............. 3,070 5,009
Middle East......... 1,550 931
Asia Pacific........ 5,644 8,950
</TABLE>
- 44 -
<PAGE> 45
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 has historically minimized 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 (see notes 9 and 18).
Revenues generated from one customer were approximately $14.0 million, $14.7
million, and $15.2 million, or 18.0%, 14.0%, and 10.8% of total revenues for
1994, 1995, and 1996, respectively. In addition, revenues from another customer
were approximately $14.2 million or 10.0% of total 1996 revenues.
INVENTORY
Inventory, net of allowance for obsolete and slow moving inventory, consists
of parts and accessories, and field measurement and network analysis tools 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 eighteen months 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.
GOODWILL AND RECOVERY OF LONG-LIVED ASSETS
Cost in excess of the fair value of net assets acquired is amortized on a
straight line basis over ten years.
The Company's policy is to review its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company recognizes an impairment loss when
the sum of the expected future cash flows is less than the carrying amount of
the asset.
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 1994, 1995, and 1996
the company recognized software amortization costs of approximately $131,000 and
$927,000, and $1.9 million, 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 1994 or in 1996. Approximately $130,000 of software
development costs were written off in 1995.
- 45 -
<PAGE> 46
All other research and development expenditures are expensed in the period
incurred. The amount of other research and development costs was approximately
$477,000, $479,000 and $500,000 in 1994, 1995 and 1996, respectively.
INVESTMENTS IN JOINT VENTURES
The Company uses the equity method of accounting for its investments in,
advances to and equity in 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 network
analysis tools 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.
Generally, revenue on sales of field measurement and network analysis tools 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
performed. Revenue earned but not yet billed is reflected as unbilled
receivables in the accompanying consolidated balance sheets. The Company expects
substantially all unbilled and billed receivables to be collected in one year.
INCOME TAXES
Deferred income taxes are determined on the asset and liability method in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this statement, temporary differences arise as a result of the differences
between the reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
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 subsidiaries or 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 11). The foreign taxes
paid or accrued by the Company represent a potential credit for the Company
against its federal income taxes.
PRO FORMA INCOME (LOSS) DATA (UNAUDITED)
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 net income (loss) per share information has been computed by
dividing pro forma net income (loss) by the pro forma weighted average number of
common shares outstanding and common share equivalents. Common share equivalents
include all outstanding stock options after applying the treasury stock method
and the assumed conversion of the Company's convertible subordinated debt.
- 46 -
<PAGE> 47
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 shareholders' equity. Foreign
currency transaction gains and losses are recognized currently in the
consolidated statements of operations.
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 estimates.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, which establishes financial
accounting and reporting standards for stock-based compensation plans. This
statement establishes a fair value based method of accounting for stock based
compensation plans.
The Corporation will continue to account for stock-based compensation plans
using the method of accounting prescribed by APB Opinion No. 25, Accounting for
Stock Issued to Employees. The Corporation will make pro-forma disclosures of
net income as if the fair value based method of accounting as defined in SFAS
No. 123 had been applied (see note 15).
RECLASSIFICATION OF PRIOR-YEARS' BALANCES
Prior-years' balances have been reclassified to conform with the
current-year presentation.
(4) ACQUISITION OF EUROPEAN TECHNOLOGY PARTNER AS
On December 30, 1996, the Company acquired the business of European
Technology Partner AS ("ETP"), a Norwegian limited liability company, pursuant
to the terms of an Asset Purchase Agreement, dated as of December 30, 1996,
between ETP and LCC International AS ("LCCI AS"), a Norwegian limited liability
company and a wholly-owned subsidiary of the Company. Pursuant to the Asset
Purchase Agreement, ETP transferred substantially all of its assets and
liabilities to LCCI AS.
As consideration for the acquisition of ETP's business, LCCI AS paid $13.1
million, including $250,000 of acquisition costs. Exclusive of the acquisition
costs, (i) $10.5 million was paid in January 1997 in satisfaction of a note
agreement dated December 30, 1996, (ii) $1.4 million is being held in escrow for
two years as security for ETP's indemnity obligations under the Asset Purchase
Agreement, and (iii) $667,000 and $308,000 will be paid in January 1998 and
January 1999, respectively.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon their fair values at the
date of acquisition as determined by a preliminary independent appraisal. The
preliminary appraisal allocated $3.0 million to the tangible and identifiable
intangible assets net of liabilities assumed, $4.5 million to the cost in excess
of net assets acquired ("goodwill") and $5.6 million to in-process research and
development. Such in-process research and development represents a non-recurring
charge to 1996 earnings. Goodwill is included in other assets in the
accompanying consolidated balance sheet at December 31, 1996.
- 47 -
<PAGE> 48
The Company assumed ETP's rights and obligations under a credit facility
with a Norwegian Bank in the total principal amount of approximately $1.1
million. Under the facility, the bank has a first priority security interest in
accounts receivable and other assets up to the amount of the facility. At
December 31, 1996, approximately $109,000 was outstanding under the facility at
an interest rate of 7.5%. The facility is cancelable upon 14 days notice by the
bank.
If the acquisition of ETP had occurred on January 1, 1995, management
estimates the Company's results of operations for the years ended December 31,
1995 and 1996 would have been as follows:
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
1995 1996
------------ ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA - UNAUDITED)
<S> <C> <C>
Revenues $108,609 $147,970
Net income (loss) 3,384 (17,248)
Net income (loss) per share 0.27 (1.02)
</TABLE>
The unaudited pro forma data above has been prepared based on assumptions
management deems appropriate, and the results are not necessarily indicative of
those that might have occurred had the transactions become effective at the
beginning of the respective years. Pro forma net income (loss) and pro forma
net income (loss) per share does not include the $5.6 million non-recurring
in-process research and development charge described above, and for purposes of
computing pro forma net income (loss) per share, assumes effective tax rates of
40% and 28% for U.S. and Norwegian activity, respectively.
(5) CASH AND CASH EQUIVALENTS
At December 31, cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash in banks.................... $ 1,402 $ 593
Overnight repurchase agreements.. 1,158 5,639
Short-term commercial paper...... 4,011 --
Short-term money market funds.... -- 7,500
-------- ---------
$ 6,571 $ 13,732
======== =========
</TABLE>
The fair value of overnight repurchase agreements, short-term commercial
paper and short-term money market funds approximate their carrying value.
(6) RELATED PARTY TRANSACTIONS
During 1995 and 1996, the Company provided services and products to Telcom
Ventures and various other companies owned, in part, by Telcom Ventures or its
members, as well as the Telemate joint venture until its sale in January 1996
(see note 10). Revenues earned during 1995 and 1996 for services and products
provided to these customers were approximately $3.5 million and $2.0 million,
respectively. Trade accounts receivables from these related parties were $1.9
million and $819,000 at December 31, 1995 and 1996, respectively, and are
included in due from related parties and affiliates in the accompanying
consolidated balance sheets. Also included in due from related parties and
affiliates is unbilled receivables and advances to employees aggregating
approximately $727,000 and $614,000 at December 31, 1995 and 1996, respectively.
During calendar 1995 and 1996, program management services were provided to the
Company by a joint venture with Koll Telecommunications Services L.L.C. ("Koll")
(see note 10).
During 1995 and 1996, 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, interest and
foreign tax payments. At December 31, 1995 and 1996, outstanding amounts
associated with these payments totaling $311,000 and $811,000, respectively,
- 48 -
<PAGE> 49
are included in due from related parties and affiliates within the accompanying
consolidated balance sheets.
At December 31, 1995, notes receivable of approximately $1.4 million
consisted 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 carried interest at
approximately 16.5 percent and were payable monthly. Late payments were subject
to an additional charge of 2.0 percent on the entire unpaid principal balance
and any outstanding interest. The notes and all outstanding interest were paid
in September 1996.
In May 1995, the Company entered into a revolving promissory note with
Telcom Ventures under which it had advanced approximately $9.4 million to Telcom
Ventures as of December 31, 1995. The note carried 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 had an
interest rate of prime plus 3.25 percent or 11.75 percent. Outstanding principal
together with all accrued interest was due May 30, 2001. The outstanding note
balance and associated accrued interest (total of $16.9 million) was paid in
September 1996.
In September 1996, the Company loaned $3.5 million to Telcom Ventures to
assist in the payment of taxes due in connection with the assumption by the
Company of $30 million of convertible subordinated debt from Telcom Ventures
(see note 2). The note is payable over five-years with equal annual principal
payments over the term. Interest will accrue at the rate of LIBOR plus 1.75% and
will be payable annually. The note is reflected as a reduction of shareholders'
equity in the accompanying statement of shareholders' equity.
On January 30, 1997, a customer of the Company acquired 81% of the
outstanding shares of Wireless Ventures of Brazil, Inc. ("WVB"), an operator of
specialized mobile radio systems in Brazil, for $186 million in the customer's
stock. WVB was principally owned by Telcom Ventures.
(7) INVENTORY
At December 31, 1995 and 1996, inventory consisted of the following:
<TABLE>
<CAPTION>
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Field measurement and network analysis tools......... $4,450 $ 1,641
Parts and accessories................................ 840 5,488
5,290 7,129
Less reserve for obsolete and slow moving inventory.. (341) (742)
------- -------
$4,949 $ 6,387
======= =======
</TABLE>
- 49 -
<PAGE> 50
(8) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
1995 1996
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment................... $ 9,760 $ 11,544
Furniture and office equipment....... 3,145 3,505
Purchased computer software.......... 2,174 3,272
Leasehold improvements............... 1,003 1,301
Vehicles............................. 235 163
------------ ------------
16,317 19,785
Less accumulated depreciation and (10,877) (13,833)
------------ ------------
amortization.........................
$ 5,440 $ 5,952
============ ============
</TABLE>
Beginning in 1995, purchased computer software includes the external costs
of the conversion of the Company's financial information system.
(9) SPECIAL CHARGE
In March 1996, the Company made investments in Pocket Communications, Inc.
(Pocket, formerly known as DCR Communications, Inc.) and NextWave Telecom, Inc.
(NextWave) of $6.5 million and $5.0 million, respectively. The $6.5 million
investment in Pocket consists of loans convertible into shares of non-voting
common stock upon the satisfaction of certain conditions. In connection with
this investment, the Company obtained a commitment from Pocket for the purchase
of services and products aggregating $65.0 million over the subsequent five-year
period. The $5.0 million investment in NextWave consists of an equity
investment. In connection with this investment, the Company obtained a
commitment from NextWave for the purchase of services and products aggregating
$50.0 million over the subsequent five-year period. Through December 31, 1996,
revenues recognized under the commitments with Pocket and NextWave were
approximately $2.2 million and $12.5 million, respectively, and related amounts
receivable were approximately $2.2 million and $10.6 million, respectively.
Included in the amounts receivable are notes receivable from Pocket and
NextWave of approximately $950,000 and $5.9 million, respectively. The notes
bear interest at prime plus 2%, and were payable upon maturity of the notes on
March 31, 1997. Both customers are development stage enterprises pursuing the
buildout and operation of networks obtained in the auction of C-Block licenses
by the FCC and are subject to risks typically associated with start-up
entities, such as (i) the uncertainty of securing sufficient financing, (ii)
competition from other providers of telecommunications services, (iii)
dependence on key vendors and strategic partners, and (iv) delays encountered
in the development and successful operation of their PCS networks.
On March 31, 1997, Pocket failed to pay interest due the Company under the
$6.5 million convertible loan agreement and failed to pay principal and
interest due the Company under the $950,000 note agreement. Also on March 31,
1997, NextWave failed to pay principal and interest due under the $5.9 million
note agreement. In addition, on April 1, 1997, Pocket announced that it had
voluntarily sought court protection under Chapter 11 of the U.S. Bankruptcy
Code. Given these developments and the uncertainty related to Pocket's and
NextWave's ability to meet their future obligations under the agreements
outlined above, the Company has decided to fully reserve for its exposure with
these customers and has consequently recorded a special charge of $30.1 million
pre-tax ($24.5 million after tax or $1.49 per share) at December 31, 1996. The
$30.1 million special charge consists of a reserve against the Company's
aggregate receivable exposure at December 31, 1996 of $12.4 million (net of
payments of $0.4 million received in January 1997), the recognition of an other
than temporary impairment of the Company's investments of $11.5 million and
accruals of approximately $6.2 million related to loss contracts under which
the Company was obligated to perform at December 31, 1996. The Company
suspended all work performed for Pocket and has significantly decreased the
level of work performed for NextWave. Any work performed beyond March 31, 1997
for NextWave is being done solely on a prepayment basis. The Company
anticipates lower than historical margins in the first two quarters of calendar
year 1997 as a result of the decision to suspend or decrease work performed for
these two customers.
- 50 -
<PAGE> 51
Included in 1996 revenues and gross profit was $16.2 million and $6.5
million respectively, related to Pocket and NextWave.
(10) INVESTMENTS IN JOINT VENTURES
The Company's investments in joint ventures at December 31, 1995 and 1996,
consisted of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Telemate S.A.............................. $ 886 $ -
Koll Telecommunications Services, L.L.C.. 517 1,650
---------- ----------
$ 1,403 $ 1,650
========== ==========
</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 provided design engineering services and software products
to Telemate. Revenues earned related to these services were approximately $4.4
million, and $1.8 million in 1994 and 1995, respectively. Due from related
parties and affiliates included approximately $554,000 due from Telemate as of
December 31, 1995.
The unaudited condensed financial statements of Telemate as of and for the
years ended December 31, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
1994 1995
--------- -------
(IN THOUSANDS)
<S> <C> <C>
CONDENSED STATEMENTS OF
OPERATIONS $ 11,623 $ 16,567
Revenues..............................
Cost and expenses..................... 11,165 15,255
--------------- ---------------
Net income $ 458 $ 1,312
=============== ===============
CONDENSED BALANCE SHEETS
Current assets........................ $ 6,398 $ 8,220
Noncurrent assets..................... 2,916 3,376
Current liabilities................... 5,261 5,334
Noncurrent liabilities................ -- 369
Stockholders' equity.................. 4,053 5,893
</TABLE>
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 $3.8 million. Approximately $1.4 million 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 and included in
other income in its calendar 1996 first quarter results. The remaining proceeds
of $2.4 million were recorded as deferred revenue and are being amortized to
other income over the 24 month life of the distribution agreement.
The Company's investments also include a 33 1/3 percent interest in 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 in the United States. The Company's interest in
Koll was received in exchange for a cash investment of $150,000. During 1995 and
1996, the Company contributed an additional $350,000 and $587,000, respectively.
Operating costs and expenses of the Company include services provided by Koll,
in the amount of $537,000 and $206,000 in 1995 and 1996, respectively.
- 51 -
<PAGE> 52
The unaudited condensed financial statements of Koll as of and for the years
ended December 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Revenues................................... $ 3,017 $ 20,143
Cost and expenses.......................... 2,908 18,287
------------- ---------------
Net income................................. $ 109 $ 1,856
============= ===============
CONDENSED BALANCE SHEETS
Current assets............................. $ 1,841 $ 6,969
Noncurrent assets.......................... 82 329
Current liabilities........................ 726 2,487
Stockholders' equity....................... 1,197 4,811
</TABLE>
During 1996, the Company entered into master service, convertible note and stock
option agreements with Communication Consulting Services, Inc. ("CCS"), a
provider of radio frequency engineering services in connection with the design,
optimization and operation of wireless systems. Under the master service
agreement, CCS will provide the Company with radio frequency engineers effective
November 1, 1996. The agreement has an initial term of two years, and is
automatically renewable for successive one-year terms unless terminated by the
Company or CCS. Under the convertible note agreement, the Company loaned CCS a
total of approximately $602,000 which is included in long-term notes receivable
in the accompanying consolidated balance sheet. Interest accrues on the loan at
a variable rate equal to the prime rate plus 1.5%. Interest is payable in
arrears on the last day each of March 1997, June 1997, September 1997, and
December 1997. The entire principal balance, together with any unpaid interest,
is due January 2, 1998. The loan is convertible, at the Company's option, into
shares representing 50% of the authorized capital stock and/or equity securities
of CCS. The stock option agreement gives the Company an option to purchase an
additional 10% of the common stock of CCS for a total purchase price of
$150,000. On April 7, 1997, the Company provided CCS with notice of its
intention to exercise both the conversion right in the convertible note and the
10% purchase right set forth in the stock option agreement.
(11) INCOME TAXES
Effective September 27, 1996, the Company converted to a Subchapter C
Corporation under the Internal Revenue Code of 1986, as amended ("IRC"). As a
result, the Company recorded a one-time deferred income tax benefit of $8.7
million due to the change in tax status. The benefit is reflected in net income
for the year ended December 31, 1996 as a reduction of the provision for income
taxes. In conjunction with the acquisition of the assets of ETP, the Company
recorded a deferred income tax benefit of approximately $1.6 million as a
result of the allocation of approximately $5.6 million of the purchase price to
in-process research and development expenses (see note 4). The benefit is
recorded as a reduction of the provision for income taxes for the year ended
December 31, 1996. Also, as a result of the reserves recorded related to the
Company's receivables from, investments in and contract costs associated with
Pocket and NextWave, the Company recorded a deferred income tax benefit of $5.5
million, net of a valuation allowance of $5.8 million (see note 9). The net
benefit of $5.5 million is recorded as a reduction of the provision for income
taxes for the year ended December 31, 1996. Prior to September 27, 1996, the
Company was a Limited Liability Company and was not directly subject to U.S.
Federal income taxes and certain state income taxes. Rather, the members were
responsible for Federal income taxes and certain state income taxes on their
proportionate share of taxable income. U.S. state and local income tax expense
was generated from activities conducted in the several states that did not
recognize the limited liability company as a flow-through entity and,
therefore, required 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 subsidiaries or has established branch offices or has
performed significant services that constitute a "permanent establishment" for
tax reporting purposes.
- 52 -
<PAGE> 53
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................... $ -- $ -- $ 2,052
State and local............. -- 345 292
Foreign..................... 2,037 2,797 3,624
-------------- -------------- -----
2,037 3,142 5,968
-------------- -------------- -----
Deferred:
Federal..................... -- -- (14,024))
State and local............. -- -- (1,746)
Foreign..................... -- -- (1,569)
-------------- -------------- -------
-- -- (17,339)
-------------- -------------- --------
Total........................... $ 2,037 $ 3,142 $ (11,371)
============== ============== ==============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 are presented below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance $ 1,941
for doubtful accounts..........................
In-process research and development.............. 1,569
Special charge:
Receivables 4,653
Investment 4,334
Accruals 2,339......... 11,326
-----
Inventory valuation method....................... 886
Property and equipment........................... 509
Non-cash compensation............................ 5,767
Accruals:
Vacation 398
Incentive compensation 229
Accrued expenses 896......... 1,523
---
Telemate S.A. sale, principally due to
differences in recognition of income on sale of
distribution rights............................ 452
Foreign tax credit deferral...................... 1,118
Other............................................ 295
---
Total gross deferred tax assets....................... 25,386
Less valuation allowance.............................. (5,809)
------
Net deferred tax assets............................... 19,577
------
Deferred tax liabilities:
Software development costs....................... (2,085)
Other............................................ (153)
----
Total gross deferred liabilities...................... (2,238)
------
Net deferred tax assets............................... $17,339
=======
</TABLE>
The components giving rise to the net deferred tax assets described above
have been included in the accompanying balance sheet as of December 31, 1996 as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current asset.......... $ 12,755
Noncurrent asset....... 4,584
----------
$ 17,339
==========
</TABLE>
In addressing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. A valuation allowance has
been provided for the portion of the
- 53 -
<PAGE> 54
special charge (see note 9) which generated a capital loss and the portion of
the special charge which may ultimately limit the realization of foreign tax
credits.
The unaudited pro forma provisions (benefits) for income taxes presented in
the consolidated statements of operations for the years ended December 31, 1995
and 1996, represent an estimate of the taxes that would have been recorded had
the Company been a Subchapter C corporation as of January 1, 1995. The unaudited
pro forma provisions (benefits) for income taxes for the years ended December
31, 1995 and 1996, consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Pro forma (unaudited):
Federal........... $ 736 $ (2,140)
State............. 604 (232)
Foreign........... 1,813 486
----------------- ------------------
Total pro forma........ $ 3,153 $ (1,886)
================= ==================
</TABLE>
A reconciliation of the statutory Federal income tax rate and the
unaudited pro forma effective rate for the years ended December 31, 1995
and 1996, follows.
<TABLE>
<CAPTION>
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 5.0 (0.6)
benefit.............................
Foreign................................. 23.0 9.5
Tax credits, net........................ (23.0) (9.0)
Valuation Allowance..................... - 26.8
------- ----
Effective tax rate........................... 40.0% (8.3)%
========= ======
</TABLE>
(12) NOTE PAYABLE
In May 1995, the Company entered into a $15.0 million financing facility
with Nomura Holding America Inc. ("Nomura"). At December 31, 1995, $10.0 million
had been drawn against the facility. Under the terms of the facility, at each
six-month anniversary of issuance while the facility remained outstanding, the
original interest rate of prime plus 3.0 percent increased 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 was 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. In
March 1996, LCC's financing facility with Nomura was purchased by Chase
Manhattan Bank, N.A. (Chase). Also in March, additional draws aggregating $10.0
million were made by LCC, resulting in a total outstanding balance under the
facility of $20.0 million.
In June 1996, LCC entered into a new credit facility with Chase which
replaced the March 1996 Facility. Under the new credit facility, Chase extended
(1) 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 LCC's receivables
which are deemed "eligible" as a basis for obtaining credit, minus the aggregate
amount of letter of credit obligations outstanding at such time, and (2) a term
loan in the principal amount of $7.5 million. The availability of revolving
loans and letters of credit was scheduled to expire on May 15, 1999. The term
loan was scheduled to amortize in 20 equal quarterly installments with the final
principal installment due on May 15, 2001. Interest on the loans was to accrue
at LCC's election at either (1) a variable rate determined with reference to the
higher of (a) the Federal funds rate plus one-half of one percent and (b) the
announced prime commercial lending rate of Chase; or (2) a fixed rate determined
with reference to the London Interbank Market. The payment and performance of
the obligations of LCC under the credit facility were secured by substantially
all the assets of LCC. The credit facility contained certain covenants which
include the maintenance of debt service and
- 54 -
<PAGE> 55
other financial ratios as well as a restriction in the declaration or payment of
dividends. The credit facility was guaranteed by Telcom Ventures. The guarantee
terminated upon consummation of the Company's initial public offering (see note
2).
In September 1996, the credit facility with Chase was transferred from LCC
to the Company and was amended and restated to reflect the transactions
contemplated by the merger of LCC with and into the Company immediately prior to
the closing of the Company's initial public offering (see note 2). The credit
facility consists of a revolving loan and letter of credit facility in an
aggregate principal amount not to exceed $20.0 million. The limitation on the
amount of outstanding principal based on a calculation of "eligible" receivables
as required in the May 1996 credit facility was eliminated. The revolving loan
commitment expires in September 1999. Interest under the credit facility accrues
at the Company's election (subject to certain restrictions and limitations) at
either (i) the variable rate equal to the greater of (a) the Federal funds rate
plus one-half of one percent, and (b) the announced prime commercial lending
rate of Chase, or (c) a fixed rate for a designated period of time determined by
reference to the London Interbank Market. The credit facility contains certain
covenants which include the maintenance of financial ratios as well as a
restriction in the declaration or payment of dividends. In September 1996,
approximately $16.2 million of the proceeds of the Company's initial public
offering was used to pay all amounts outstanding under the Company's credit
facility with Chase. No amounts were outstanding under the credit facility at
December 31, 1996. Effective December 30, 1996, the Credit Facility was amended
to revise the financial ratios and certain other covenants contained therein
for the effect of the special charge recorded by the Company (see note 9).
(13) CONVERTIBLE SUBORDINATED DEBT
In June 1994, the Company issued to MCI Telecommunications Corporation
("MCI") a $20.0 million 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. 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 1,136,440 shares of the Company's Class A
Common Stock. In addition, the investor has the right to exchange the
Subordinated Note for 1,136,440 shares of the Company's Class A Common Stock:
(1) at any time during the 45-day period commencing on the third through fifth
anniversaries of the issuance of the Subordinated Note; and (2) upon the
occurrence of certain other specified events. The Company has the right to
exchange the Subordinated Note for 1,136,440 shares of the Company's Class A
Common Stock: (1) 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 (2) upon the occurrence of certain
other specified events.
In June 1994, Telcom Ventures issued a $30.0 million 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 1,704,659 shares of the Company's Class A Common Stock. In
addition, the investor has the right to exchange the Telcom Ventures
Subordinated Note for 1,704,659 shares of the Company's Class A Common Stock:
(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; and (2)
upon the occurrence of certain other specified events. Telcom Ventures had the
right to exchange the Telcom Ventures Subordinated Note for a 12.0 percent
membership interest in the Company: (1) 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 (2) upon the occurrence of certain other specified
events. The Company fully and unconditionally guaranteed the obligations of
Telcom Ventures under the Telcom Ventures Subordinated Note.
- 55 -
<PAGE> 56
Effective September 27, 1996, in connection with the Company's initial
public offering of Class A Common Stock, the Company assumed the $30.0 million
Telecom Ventures Subordinated Note from Telcom Ventures. As a result of this
assumption the Company has the exclusive right to exercise all Telecom Ventures'
rights under the Telecom Ventures Subordinated Note and is solely responsible
for the payment of interest and principal thereunder (see note 2).
(14) 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 $383,000, $419,000 and
$454,000 for the years ended December 31, 1994, 1995, and 1996, respectively.
The Company is self-insured for group health life, and short and
long-term disability claims up to certain stop losses.
(15) INCENTIVE PLANS
At December 31, 1996, the Company had three stock-based incentive plans and
an incentive compensation plan, which are described below. The Company applies
APB Opinion No. 25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans. Had compensation cost for the Company's stock-based compensation plans
been determined on the fair value at the grant dates for awards under those
plans, consistent with FASB Statement No. 123, the Company's net income (loss)
and net income (loss) per share would have been reduced to the pro-forma
amounts indicated below.
<TABLE>
<CAPTION>
1995 1996
---- ----
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Pro forma net income As reported........ $4,740 $(20,769)
(loss)
Pro forma.......... $4,740 $(21,099)
Pro forma net income As reported........ $0.36 $(1.19)
(loss) per share
Pro forma.......... $0.36 $(1.21)
</TABLE>
Pro forma net income (loss) reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above as compensation cost is reflected over the options' vesting
period of up to five-years and compensation cost for options granted prior to
January 1, 1995 is not considered.
The per share weighted-average fair value of stock options granted during
1996 was $4.25 on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: expected dividend yield 0%,
risk-free interest rate of 6.4%, an expected life of 2 to 6 years and volatility
of 48.0%.
In April 1994, the Company adopted the Phantom Membership Plan (the Phantom
Membership Plan). Under the Phantom Membership Plan, the Members Committee was
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 entitled the recipient thereof to receive, no
later than May 1 of each year, an annual award based on a specified percentage
of the
- 56 -
<PAGE> 57
Company's net income for the preceding fiscal year. The Phantom Membership
Plan also included a long-term award. Under the long-term award, once a Phantom
Membership Award was fully vested, the recipient had the right to require the
Company to purchase, and the Company had the right to require such recipient to
sell, all or any portion of the recipient's Phantom Membership Award based on
the fair market value of the Company as defined under the Phantom Membership
Plan. In connection with the Company's initial public offering, all long-term
awards granted under the Phantom Membership Plan were replaced with options
granted under the 1996 Employee Stock Option Plan and the annual award feature
of the Phantom Membership Plan was terminated. The options vest over the
original vesting period of the Phantom Membership Plan awards, generally the
third or fifth anniversary of the date of grant.
Compensation expense related to the annual award feature of the Phantom
Membership Plan was $530,000, $608,000, and $764,000 for 1994, 1995, and 1996,
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, including compensation
expense for membership awards converted to stock options under the 1996 Employee
Stock Option Plan, was $3.3 million $4.6 million, and $7.0 million for 1994,
1995, and 1996, respectively, the liability for which was included in obligation
under incentive plans at December 31, 1995 and paid-in capital at December 31,
1996 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 changed the method of accounting for
the awards in 1995 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.
In March 1996, LCC adopted an Employee Option Plan for certain key
executives under which the Members' Committee granted options for up to an
aggregate six percent interest in the Company. Options representing
approximately a 6.0% interest were outstanding as of March 15, 1996. The Options
were granted at an exercise price equal to fair market value at time of grant,
and generally became exercisable at 20% a year over a five-year period.
Unexercised options generally expire 10 years after issuance.
In connection with its initial public offering, the Company established the
1996 Employee Stock Option Plan, which authorized the issuance of up to
3,224,000 shares of Class A Common Stock pursuant to options granted under the
plan. Options to purchase approximately 580,000 shares of Class A Common Stock
at the offering price of $16 were granted to approximately 260 employees of the
Company under the Company's 1996 Employee Stock Option Plan. The options vest
with respect to one-third of the shares subject to option on each of the first
three anniversaries of the date of grant. Unexercised options generally expire
10 years after issuance. In addition, options to purchase up to an aggregate of
approximately 2,160,000 shares of Class A Common Stock were issued under the
1996 Employee Stock Option Plan to certain employees of the Company to replace
the options granted by LCC in connection with the Employee Option Plan (see
above) and the Phantom Membership Awards under the LCC Membership Plan adopted
in 1994 (see above). The exercise price and number of options granted were
intended to maintain a comparable value with the options/awards under the
previous plans.
Also in connection with the Company's initial public offering, the Company
established the 1996 Director's Stock Option Plan and the Employee Stock
Purchase Plan. The Director's Plan provides for the "formula" grant of options,
and authorizes the issuance of up to 60,000 shares of Class A Common Stock and
250,000 shares of Class B Common Stock. The option exercise price for options
granted under the Director's Plan is 100% of the fair value of the shares on the
date of grant. Each eligible director who is not eligible to hold shares of
Class B Common Stock was granted an initial option to purchase 10,000 shares of
Class A Common Stock in connection with the offering. Each eligible director who
is eligible to hold shares of Class B Common Stock and who was a director as of
the offering was granted an initial option to purchase 35,000 shares of Class B
Common Stock in connection with the offering, and will be granted additional
options to purchase 22,500 shares of
- 57 -
<PAGE> 58
Class B Common Stock as of each of the next four annual meetings of the
stockholders of the Company if the director continues to be an eligible
director. Options granted with respect to Class A Common Stock will become
immediately exercisable with respect to directors who were directors of the
Company prior to July 1, 1996, and 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 with respect to directors who
became directors of the Company after July 1, 1996.
The Company has reserved 85,000 shares of Class A Common Stock for issuance
pursuant to options to be granted to a person or entity designated by one of the
investors in the Company. The option exercise price for these options will be
100% of the fair market value of the Class A Common Stock that was granted in
connection with the Offering, and an additional option will be granted to
purchase 15,000 shares of Class A Common Stock on the date of grant of the
option. An initial option to purchase 25,000 shares of Class A Common Stock was
granted in connection with the Offering, and an additional 15,000 shares of
Class A Common Stock on each of the next four anniversaries of the initial date
of grant. Options granted will vest immediately. The options will expire no
later than the fifth anniversary of the date of grant.
Changes in stock options outstanding were as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
(IN THOUSANDS) (PER SHARE)
----------------------------------
<S> <C> <C>
Balance as of December 31, 1995....... - $ -
Granted............................... 2,825 8.57
Exercised............................. - -
Terminated............................ (12) 16.00
----
Balance as of December 31, 1996....... 2,813 8.54
=====
</TABLE>
The following table summarizes information about options at December 31,
1996.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------ ----------------------------------------
WEIGHTED AVG.
RANGE OF NUMBER AT REMAINING WEIGHTED AVG. NUMBER AT WEIGHTED AVG.
EXERCISE PRICES DECEMBER 31,1996 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1996 EXERCISE PRICE
--------------- ---------------- ----------------- -------------- ------------------ --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$4.00 1,337 9.75 years $ 4.00 848 $ 4.00
$9.16 - $12.00 818 9.21 9.97 31 9.70
$16.00 658 9.20 16.00 80 16.00
--- ---
2,813 9.50 8.54 959 5.19
===== ===
</TABLE>
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
beginning in 1997. Rights to purchase shares will be deemed granted to
participating employees as of the beginning of each applicable period, as
specified by the Compensation and Stock Option Committee of the Company's Board
of Directors. The purchase price for each share will not be less than 85% of the
fair market value of the share of Class A Common Stock on the first or last
trading day of such period, whichever is lower.
In September 1994, the Company adopted an Incentive Compensation Plan (the
Incentive Compensation Plan). Under the Incentive Compensation Plan, the Members
Committee was authorized to grant awards (Incentive Awards) to those employees
of the Company whose
- 58 -
<PAGE> 59
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. No new
grants were made in 1996. Compensation expense accrued in connection with the
distribution of the value of vested Incentive Awards was $87,000, $635,000, and
$541,000 for the years ended December 31, 1994, 1995, and 1996, respectively,
which has been included in obligations under incentive plans, net of current
portion in the accompanying consolidated balance sheets.
(16) 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 ten 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. For leases which have been terminated (see below), the applicable portion
of the benefit has been offset against the lease termination penalty. The total
deferred rent benefit was approximately $1.4 million and $351,000 at December
31, 1995 and 1996, respectively.
In November 1995, and December 1996, the Company gave notice of early lease
termination to two of its landlords and recorded the lease termination penalties
thereon in its calendar 1995 and 1996 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.
Future minimum rental payments under non-cancelable operating leases,
excluding executory costs, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997....... $ 3,892
1998....... 3,287
1999....... 3,227
2000....... 3,240
2001....... 3,303
Thereafter 18,591
---------------
$ 35,540
===============
</TABLE>
Rent expense under operating leases was approximately $2.8 million,
$3.5 million and $5.0 million for the years ended December 31, 1994,
1995, and 1996, respectively.
(17) 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.
- 59 -
<PAGE> 60
(18) GEOGRAPHIC DATA
The Company maintains subsidiaries in France, Germany, Brazil, Norway and
the United Kingdom. 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.
Export sales by geographic region are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
North America....... $ 1,260 $ 3,330 $ 2,965
Latin America....... 5,990 8,200 10,588
Europe.............. 17,400 9,290 9,715
Middle East-Africa.. 850 3,310 1,473
Asia-Pacific........ 5,570 16,730 17,598
-------------- --------------- ----------------
Total export sales.. $ 31,070 $ 40,860 $ 42,339
============== =============== ================
</TABLE>
(19) QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995
----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................ $ 21,140 $ 25,420 $ 25,137 $ 32,764
Operating income .............. 1,118 827 1,310 5,793
Income before income taxes...... 906 594 897 5,485
Net income...................... 536 206 376 3,622
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues....................... $ 27,088 $ 33,276 $ 37,856 $ 43,350
Operating income (loss) ....... 2,561 1,854 2,644 (29,965)
Income (loss) before
income taxes ................ 3,187 1,603 2,569 (30,014)
Net income (loss).............. 2,479 542 10,881 (25,184)
</TABLE>
See note 9 with respect to the special charge recorded by the Company in
December 1996.
(20) 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>
1995 1996
-------------------------------------------
CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR
AMOUNT VALUE AMOUNT VALUE
------ ---------- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Notes receivable - short term......... $ 1,382 $ 1,382 $ - $ -
Notes receivable - long term.......... - - 602 602
Notes receivable from shareholder..... 9,382 9,382 3,500 3,500
Liabilities:
Note payable 10,000 10,000 10,445 10,445
Convertible subordinated debt......... 20,000 20,000 50,000 52,560
Off balance sheet -- letters of credit... - 450 - 76
</TABLE>
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts and notes receivable, the note payable as of December 31,
1996 and accounts payable approximated
- 60 -
<PAGE> 61
fair value as of December 31, 1995 and 1996 because of the relatively short
duration of these instruments.
NOTES RECEIVABLE FROM SHAREHOLDER -- the carrying value of the note
receivable approximated the fair value as the receivable is treated as a deemed
dividend.
CONVERTIBLE SUBORDINATED DEBT -- the carrying value of the convertible
subordinated debt approximated fair value as of December 31, 1995 based upon the
Company's borrowing activities and assessment of then current prices offered for
similar loans. The fair value at December 31, 1996 is based upon the conversion
of the notes into 2,841,099 shares of the Company's Class A Common Stock.
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, 1995 one such guarantee was outstanding, which was issued to
support a borrowing arrangement (see note 13). The Company's exposure for this
guarantee was equal to the contractual amount of the guarantee of $30,000,000.
No such guarantees were outstanding at December 31, 1996.
- 61 -
<PAGE> 62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information set forth under the
caption "Election of Directors" appearing in the Proxy Statement to be filed
within 120 days after the end of the Company's fiscal year, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the
caption "Election of Directors -- Executive Compensation" appearing in the Proxy
Statement to be filed within 120 days after the end of the Company's fiscal
year, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the
caption "Beneficial Ownership of Common Stock" appearing in the Proxy Statement
to be filed within 120 days after the end of the Company's fiscal year, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth under the
caption "Election of Directors -- Compensation Committee Interlocks and Insider
Participation" and -- "Certain Relationships and Related Transactions" appearing
in the Proxy Statement to be filed within 120 days after the end of the
Company's fiscal year, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) The following consolidated financial statements of
registrant and its subsidiaries and report of independent
auditors are included in Item 8 hereof.
Report of Independent Auditors.
Consolidated Statements of Operations - Years Ended
December 31, 1994, 1995, and 1996.
Consolidated Balance Sheets as of December 31, 1995 and
1996.
Consolidated Statements of Shareholders' Equity
(Deficit) - Years Ended December 31, 1994, 1995 and
1996.
Consolidated Statements of Cash Flows - Years Ended
December 31, 1994, 1995 and 1996.
Notes to Consolidated Financial Statements.
- 62 -
<PAGE> 63
(a)(2) Except as provided below, all schedules for which
provision is made in the applicable accounting regulations of
the Securities and Exchange Commission either have been
included in the Consolidated Financial Statements or are not
required under the related instructions, or are inapplicable
and therefore have been omitted.
Schedule II - Valuation and Qualifying Accounts
(a)(3) The following exhibits are either provided with this
Report or are incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Company.*
3.2 -- Amended and Restated Bylaws of the Company.*
4.1 -- Form of Class A and Class B Common Stock certificates.*
4.2 -- LCC International, Inc. 1996 Directors Stock Option Plan.*
4.3 -- LCC International, Inc. 1996 Employee Stock Option Plan.*
4.4 -- LCC International, Inc. 1996 Employee Stock Purchase Plan.*
4.5 -- Amendment No. 1 to LCC International, Inc. Employee Stock Purchase Plan**
10.1 -- Lease Agreement dated July 23, 1990 between LCC, Incorporated and Second
Courthouse Plaza Association Limited Partnership, assigned to Telcom
Ventures, L.L.C. by agreement dated December 31, 1993, and further assigned
to LCC, L.L.C. by agreement dated May 25, 1995, and Lease Extension
Agreement thereto, dated March 19, 1996.*
10.2 -- Lease Agreement dated January 28, 1991 between Second Courthouse Plaza
Associates Limited Partnership and LCC, Incorporated and Lease Extension
Agreement thereto, dated March 19, 1996.*
10.3 -- 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., as further assigned to LCC, L.L.C.
by agreement dated May 25, 1995.*
10.4 -- Lease Extension Agreement dated December 31, 1993 by and among Second
Courthouse Plaza Associates Limited Partnership and Telcom Ventures, L.L.C.*
10.5 -- 1994 LCC, L.L.C. Incentive Compensation Plan.*
10.6 -- Sublease Agreement dated May 7, 1994 between LCC, L.L.C. and Minirth-Meier
Byrd Clinic, P.A.*
10.7 -- Lease Agreement dated May 9, 1994 between Colonial Village Center Associates
and LCC, L.L.C. and First Amendment thereto, dated May 1, 1995.*
10.8 -- Subordinated Note due 2000 by Telcom Ventures, L.L.C. payable to MCI
Telecommunications Corporation dated June 28, 1994.*
10.9 -- Subordinated Note due 2000 by LCC, L.L.C. payable to MCI Telecommunications
Corporation dated June 28, 1994.*
+10.10 -- Agreement dated November 15, 1994 by and between LCC, L.L.C. and Pacific Bell
Mobile Services.*
++10.11 -- Amended and Restated Service Agreement, dated as of
October 1, 1996, by and between TSI, a division of LCC
International, Inc., and Nextel Communications, Inc.
++10.12 Amended and Restated Software License Agreement, dated as of
October 1, 1996 by and between LCC, a division of LCC
International, Inc., and Nextel Communications, Inc.
10.13 -- Amended and Restated Shareholders' Rights Agreement dated February , 1996
between NextWave Telecom Inc. and LCC, L.L.C.*
</TABLE>
- 63 -
<PAGE> 64
<TABLE>
<S> <C>
10.14 -- Letter Agreement dated March , 1996 between NextWave Telecom, Inc. and
LCC, L.L.C.*
+10.15 -- Letter Agreement dated March 12, 1996 between NextWave Telecom, Inc. and
LCC, L.L.C.*
10.16 -- Subscription Agreement dated March , 1996 between NextWave Telecom, Inc.
and LCC, L.L.C.*
10.17 -- Office Building Lease dated March 19, 1996 between Second
Courthouse Associates Limited Partnership and LCC, L.L.C.*
10.18 -- Convertible Loan and Investment Agreement dated March 20, 1996 by and
between LCC, L.L.C. and DCR Communications, Inc.*
+10.19 -- Letter Agreement dated March 20, 1996 by and between LCC, L.L.C. and DCR
Communications, Inc.*
10.20 -- 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.*
10.21 -- 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.*
10.22 -- Letter Agreement dated May 31, 1996 between LCC International, Inc. and Arno
Penzias.*
10.23 -- Credit Agreement dated June 14, 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).*
10.24 -- Security Agreement dated June 14, 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).*
10.25 -- Intellectual Property Security Agreement dated June 14, 1996 by LCC, L.L.C. in
favor of The Chase Manhattan Bank (National Association).*
10.26 -- Pledge Agreement dated June 14, 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 -- Intercompany Agreement dated as of August 27, 1996 among Telcom Ventures,
L.L.C., LCC, L.L.C., LCC International, Inc., Cherrywood Holdings, Inc.,
Rajendra Singh, Neera Singh, certain trusts for the benefit of members of the
Singh family, Carlyle-LCC Investors I, L.P., Carlyle-LCC Investors II, L.P.,
Carlyle-LCC Investors III, L.P., Carlyle-LCC IV (E), L.P., MDLCC, L.L.C. and
TC Group, L.L.C.*
10.28 -- Registration Rights Agreement dated July 25, 1996 among LCC International, Inc.,
RF Investors, L.L.C. and MCI Telecommunications Corporation.*
10.29 -- Form of Indemnity Agreement between LCC International, Inc. and each of
Rajendra Singh, Neera Singh, Piyush Sodha, Mark D. Ein, Arno A. Penzias, J.
Michael Bonin, Kathryn M. Condello, Peter A. Deliso, Richard Hozik, Frank F.
Navarrete, Donald R. Rose, Gerard L. Vincent and Louis R. Olsen.*
10.30 -- Overhead and Administrative Services Agreement dated August 27, 1996 between
LCC International, Inc. and Telcom Ventures, L.L.C.*
10.31 -- Agreement of Merger dated September 15, 1996 between LCC, L.L.C. and LCC
International, Inc.*
10.32 -- Form of LCC International, Inc. Directors Stock Option Plan stock option
agreement for directors who will receive Class B Common Stock.*
10.33 -- Amended and Restated Securityholders Agreement dated July 25,
1996 among Telcom Ventures, L.L.C., LCC, Incorporated, TC Group,
L.L.C., LCC, L.L.C. and MCI Telecommunications Corporation.*
10.34 -- Amendment to Subordinated Note due 2000 by Telcom Ventures, L.L.C. payable to
MCI Telecommunications Corporation dated July 25, 1996.*
10.35 -- Amendment to Subordinated Note due 2000 by LCC, L.L.C. payable to MCI
</TABLE>
- 64 -
<PAGE> 65
<TABLE>
<S> <C>
Telecommunications Corporation dated July 25, 1996.*
10.36 -- Form of Promissory Note by Telcom Ventures, L.L.C. to LCC International, Inc.*
10.37 -- Form of Stock Option Agreement between LCC International, Inc. and the Carlyle
Option Designees.*
10.38 -- Form of LCC International, Inc. 1996 Employee Stock Option Plan incentive stock
option agreement.*
10.39 -- Form of LCC International, Inc. 1996 Employee Stock Option Plan non-incentive
stock option agreement.*
10.40 -- Form of LCC International, Inc. 1996 Employee Stock Option Plan non-incentive
stock option agreement (for employees who had been eligible to participate in
the LCC, L.L.C. 1994 Phantom Membership Plan or the LCC, L.L.C. 1996
Employee Option Plan).*
10.41 -- Form of LCC International, Inc. Directors Stock Option Plan stock option
agreement for directors who will receive Class A Common Stock (other than
Mark D. Ein).*
10.42 -- Form of LCC International, Inc. Directors Stock Option Plan stock option
agreement for Mark D. Ein.*
10.43 -- Form of Phantom Membership Plan Exchange Agreement.*
10.44 -- Revolving Credit Note dated June 14, 1996 by LCC, L.L.C. to The Chase
Manhattan Bank (National Association) in the amount of $12,500,000.*
10.45 -- Term Note dated June 14, 1996 by LCC, L.L.C. to The Chase Manhattan Bank
(National Association) in the amount of $7,500,000.*
10.46 -- Letter Agreement dated August 22, 1996 between LCC International, Inc. and Arno
Penzias.*
10.47 -- Lease Agreement dated July 17, 1992 between Colonial Village Center Associates
and Telecom Solutions, Inc., assigned to Telcom Ventures, L.L.C. by
agreement dated December 30, 1993, amended by Amendment to Lease
dated June 10, 1994, and further assigned to LCC, L.L.C. by agreement dated
September , 1996.*
10.48 -- Form of Notice of Assignment of Subordinated Note Due 2000 from Telcom
Ventures, L.L.C. and LCC International, Inc. to MCI Telecommunications
Corporation.*
10.49 -- Form of Second Amendment to Subordinated Note Due 2000 by Telcom Ventures,
L.L.C. and LCC International, Inc. payable to MCI Telecommunications
Corporation.*
10.50 -- Form of Third Amendment to Subordinated Note Due 2000 by Telcom Ventures,
L.L.C. and LCC International, Inc. payable to MCI Telecommunications
Corporation.*
10.51 -- Amendment to Amended and Restated Securityholders
Agreement dated September 19, 1996 among Telcom Ventures,
L.L.C., LCC, Incorporated, TC Group, L.L.C., LCC, L.L.C. and
MCI Telecommunications Corporation.*
10.52 -- Series D Convertible Debenture Due March 27, 2001 by DCR Communications,
Inc. dated March 27, 1996.*
10.53 -- Series D Convertible Debenture Due May 10, 2001 by DCR Communications, Inc.
dated May 10, 1996.*
10.54 -- Form of Amended and Restated Credit Agreement dated as September , 1996
among LCC International, Inc., LCC Design Services, L.L.C.,
LCC Development Company, L.L.C., The Lenders Signatory hereto
and The Chase Manhattan Bank as Administrative Agent.*
10.55 -- Form of $20 Million Revolving Credit Note of LCC, International, Inc. to The
Chase Manhattan Bank dated September , 1996.*
10.56 -- Form of Subordination and Intercreditor Agreement dated as of September , 1996
by and among The Chase Manhattan Bank, as administrative agent, MCI
Telecommunications Corporation and LCC International, Inc.*
10.57 -- Asset Purchase Agreement, dated as of December 30, 1996,
between European
</TABLE>
- 65 -
<PAGE> 66
<TABLE>
<S> <C>
Technology Partner AS and LCC International AS ***
10.58 -- First Amendment Agreement, dated as of December 30, 1996, among LCC International,
Inc., LCC Design Services, L.L.C., LCC Development Company, L.L.C., The Lenders
Signatory Hereto and The Chase Manhattan Bank as Administrative Agent.
11 -- Computation of Earnings Per Common Shares.
21 -- Subsidiaries of the Company.
23.1 -- Consent of KPMG Peat Marwick LLP.
27 -- Financial Data Schedule.
* Incorporated by reference to the Exhibits on the Company's Registration Statement on Form S-1
(Registration No. 333-6067)
** Incorporated by reference to the Exhibits to the Company's Registration Statement on Form S-8
(File No. 333-17803) which was filed with the Securities and Exchange Commission on December 13, 1996.
*** Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K which was filed with the Securities and Exchange Commission on
January 14, 1997.
+ Confidential treatment has been granted for certain portions of this
document. The copy filed as an exhibit omits the information subject to the
confidential treatment request.
++ Confidential treatment has been requested for certain portions of this
document. The copy filed as an exhibit omits the information subject to the
confidential treatment request.
</TABLE>
(b) Financial Statement Schedules.
Schedule II -- 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.
(b) None.
(c) Exhibits to this Form 10-K are attached or incorporated
by reference as stated above.
(d) None.
- 66 -
<PAGE> 67
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 were
awarded in late 1996 and early 1997.
"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
primarily 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.
- 67 -
<PAGE> 68
"channel" -- A single path, either RF or voice, for transmitting electrical
signals.
"D-block auction" -- An auction held by the FCC to award 10 MHz PCS licenses
for 493 BTAs. The D-block auction, held in conjunction with the E-block and
F-block auctions, was concluded on January 14, 1997. Licenses have not yet been
awarded.
"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 technologies 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 held by the FCC to award 10 MHz PCS licenses
for 493 BTAs. The E-block auction, held in conjunction with the D-block and
F-block auctions, was concluded on January 14, 1997. Licenses have not yet been
awarded.
"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 held by the FCC to award 10 MHz PCS licenses
for 493 BTAs. The F-block auction, held in conjunction with the D-block and
E-block auctions, was concluded on January 14, 1997. Licenses have not yet been
awarded.
"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
- 68 -
<PAGE> 69
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.
"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 two-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.
- 69 -
<PAGE> 70
"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.
- 70 -
<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized as of the
15th day of April, 1997.
LLC INTERNATIONAL, INC.
By /s/ Rajendra Singh
------------------
Rajendra Singh
Chairperson of the Board
of Directors
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Rajendra Singh
- -------------------------
Rajendra Singh Chairperson of the Board April 15, 1997
of Directors
(Principal Executive Officer)
/s/ Neera Singh
- -------------------------
Neera Singh Director April 15, 1997
/s/ Piyush Sodha
- -------------------------
Piyush Sodha Director, President and April 15, 1997
Chief Executive Officer
(Principal Executive Officer)
/s/ Richard Hozik
- -------------------------
Richard Hozik Senior Vice President, April 15, 1997
Treasurer and Chief Financial
Officer and (Principal
Financial Officer and Principal
Accounting Officer)
</TABLE>
- 71 -
<PAGE> 72
SCHEDULE II
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- --------------------------------- ----------------- ---------------------------------------- ---------------- ------------
Additions
---------------------------------------
Balance at Charged to Charges to Balance at
Description beginning of costs and other accounts Deductions (1) end of period
- --------------------------------- ------------- ---------- -------------- -------------- -------------
period expenses
------ --------
<S> <C> <C> <C> <C> <C>
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
Year ended December 31,
1996
Allowance for doubtful
accounts 3,131 15,942 - 1,131 17,942
</TABLE>
(1) Deduction for write-off of receivables to allowance account.
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Company.*
3.2 -- Amended and Restated Bylaws of the Company.*
4.1 -- Form of Class A and Class B Common Stock certificates.*
4.2 -- LCC International, Inc. 1996 Directors Stock Option Plan.*
4.3 -- LCC International, Inc. 1996 Employee Stock Option Plan.*
4.4 -- LCC International, Inc. 1996 Employee Stock Purchase Plan.*
4.5 -- Amendment No. 1 to LCC International, Inc. Employee Stock Purchase Plan**
10.1 -- Lease Agreement dated July 23, 1990 between LCC, Incorporated and Second
Courthouse Plaza Association Limited Partnership, assigned to Telcom
Ventures, L.L.C. by agreement dated December 31, 1993, and further assigned
to LCC, L.L.C. by agreement dated May 25, 1995, and Lease Extension
Agreement thereto, dated March 19, 1996.*
10.2 -- Lease Agreement dated January 28, 1991 between Second Courthouse Plaza
Associates Limited Partnership and LCC, Incorporated and Lease Extension
Agreement thereto, dated March 19, 1996.*
10.3 -- 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., as further assigned to LCC, L.L.C.
by agreement dated May 25, 1995.*
10.4 -- Lease Extension Agreement dated December 31, 1993 by and among Second
Courthouse Plaza Associates Limited Partnership and Telcom Ventures, L.L.C.*
10.5 -- 1994 LCC, L.L.C. Incentive Compensation Plan.*
10.6 -- Sublease Agreement dated May 7, 1994 between LCC, L.L.C. and Minirth-Meier
Byrd Clinic, P.A.*
10.7 -- Lease Agreement dated May 9, 1994 between Colonial Village Center Associates
and LCC, L.L.C. and First Amendment thereto, dated May 1, 1995.*
10.8 -- Subordinated Note due 2000 by Telcom Ventures, L.L.C. payable to MCI
Telecommunications Corporation dated June 28, 1994.*
10.9 -- Subordinated Note due 2000 by LCC, L.L.C. payable to MCI Telecommunications
Corporation dated June 28, 1994.*
+10.10 -- Agreement dated November 15, 1994 by and between LCC, L.L.C. and Pacific Bell
Mobile Services.*
++10.11 -- Amended and Restated Services Agreement, dated as of
October 1, 1996, by and between TSI, a division of LCC
International, Inc., and Nextel Communications, Inc.
++10.12 Amended and Restated Software License Agreement, dated as of
October 1, 1996 by and between LCC, a division of LCC
International, Inc., and Nextel Communications, Inc.
10.13 -- Amended and Restated Shareholders' Rights Agreement dated February , 1996
between NextWave Telecom Inc. and LCC, L.L.C.*
10.14 -- Letter Agreement dated March , 1996 between NextWave Telecom, Inc. and
LCC, L.L.C.*
+10.15 -- Letter Agreement dated March 12, 1996 between NextWave Telecom, Inc. and
LCC, L.L.C.*
10.16 -- Subscription Agreement dated March , 1996 between NextWave Telecom, Inc.
and LCC, L.L.C.*
10.17 -- Office Building Lease dated March 19, 1996 between Second
Courthouse Associates Limited Partnership and LCC, L.L.C.*
10.18 -- Convertible Loan and Investment Agreement dated March 20, 1996 by and
between LCC, L.L.C. and DCR Communications, Inc.*
+10.19 -- Letter Agreement dated March 20, 1996 by and between LCC, L.L.C. and DCR
</TABLE>
<PAGE> 74
<TABLE>
<S> <C>
Communications, Inc.*
10.20 -- 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.*
10.21 -- 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.*
10.22 -- Letter Agreement dated May 31, 1996 between LCC International, Inc. and Arno
Penzias.*
10.23 -- Credit Agreement dated June 14, 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).*
10.24 -- Security Agreement dated June 14, 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).*
10.25 -- Intellectual Property Security Agreement dated June 14, 1996 by LCC, L.L.C. in
favor of The Chase Manhattan Bank (National Association).*
10.26 -- Pledge Agreement dated June 14, 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 -- Intercompany Agreement dated as of August 27, 1996 among Telcom Ventures,
L.L.C., LCC, L.L.C., LCC International, Inc., Cherrywood Holdings, Inc.,
Rajendra Singh, Neera Singh, certain trusts for the benefit of members of the
Singh family, Carlyle-LCC Investors I, L.P., Carlyle-LCC Investors II, L.P.,
Carlyle-LCC Investors III, L.P., Carlyle-LCC IV (E), L.P., MDLCC, L.L.C. and
TC Group, L.L.C.*
10.28 -- Registration Rights Agreement dated July 25, 1996 among LCC International, Inc.,
RF Investors, L.L.C. and MCI Telecommunications Corporation.*
10.29 -- Form of Indemnity Agreement between LCC International, Inc. and each of
Rajendra Singh, Neera Singh, Piyush Sodha, Mark D. Ein, Arno A. Penzias, J.
Michael Bonin, Kathryn M. Condello, Peter A. Deliso, Richard Hozik, Frank F.
Navarrete, Donald R. Rose, Gerard L. Vincent and Louis R. Olsen.*
10.30 -- Overhead and Administrative Services Agreement dated August 27, 1996 between
LCC International, Inc. and Telcom Ventures, L.L.C.*
10.31 -- Agreement of Merger dated September 15, 1996 between LCC, L.L.C. and LCC
International, Inc.*
10.32 -- Form of LCC International, Inc. Directors Stock Option Plan stock option
agreement for directors who will receive Class B Common Stock.*
10.33 -- Amended and Restated Securityholders Agreement dated July 25,
1996 among Telcom Ventures, L.L.C., LCC, Incorporated, TC Group,
L.L.C., LCC, L.L.C. and MCI Telecommunications Corporation.*
10.34 -- Amendment to Subordinated Note due 2000 by Telcom Ventures, L.L.C. payable to
MCI Telecommunications Corporation dated July 25, 1996.*
10.35 -- Amendment to Subordinated Note due 2000 by LCC, L.L.C. payable to MCI
Telecommunications Corporation dated July 25, 1996.*
10.36 -- Form of Promissory Note by Telcom Ventures, L.L.C. to LCC International, Inc.*
10.37 -- Form of Stock Option Agreement between LCC International, Inc. and the Carlyle
Option Designees.*
10.38 -- Form of LCC International, Inc. 1996 Employee Stock Option Plan incentive stock
option agreement.*
10.39 -- Form of LCC International, Inc. 1996 Employee Stock Option Plan non-incentive
stock option agreement.*
10.40 -- Form of LCC International, Inc. 1996 Employee Stock Option Plan non-incentive
stock option agreement (for employees who had been eligible to participate in
the LCC, L.L.C. 1994 Phantom Membership Plan or the LCC,
</TABLE>
<PAGE> 75
<TABLE>
<S> <C>
L.L.C. 1996 Employee Option Plan).*
10.41 -- Form of LCC International, Inc. Directors Stock Option Plan stock option
agreement for directors who will receive Class A Common Stock (other than
Mark D. Ein).*
10.42 -- Form of LCC International, Inc. Directors Stock Option Plan stock option
agreement for Mark D. Ein.*
10.43 -- Form of Phantom Membership Plan Exchange Agreement.*
10.44 -- Revolving Credit Note dated June 14, 1996 by LCC, L.L.C. to The Chase
Manhattan Bank (National Association) in the amount of $12,500,000.*
10.45 -- Term Note dated June 14, 1996 by LCC, L.L.C. to The Chase Manhattan Bank
(National Association) in the amount of $7,500,000.*
10.46 -- Letter Agreement dated August 22, 1996 between LCC International, Inc. and Arno
Penzias.*
10.47 -- Lease Agreement dated July 17, 1992 between Colonial Village Center Associates
and Telecom Solutions, Inc., assigned to Telcom Ventures, L.L.C. by
agreement dated December 30, 1993, amended by Amendment to Lease
dated June 10, 1994, and further assigned to LCC, L.L.C. by agreement dated
September , 1996.*
10.48 -- Form of Notice of Assignment of Subordinated Note Due 2000 from Telcom
Ventures, L.L.C. and LCC International, Inc. to MCI Telecommunications
Corporation.*
10.49 -- Form of Second Amendment to Subordinated Note Due 2000 by Telcom Ventures,
L.L.C. and LCC International, Inc. payable to MCI Telecommunications
Corporation.*
10.50 -- Form of Third Amendment to Subordinated Note Due 2000 by Telcom Ventures,
L.L.C. and LCC International, Inc. payable to MCI Telecommunications
Corporation.*
10.51 -- Amendment to Amended and Restated Securityholders
Agreement dated September 19, 1996 among Telcom Ventures,
L.L.C., LCC, Incorporated, TC Group, L.L.C., LCC, L.L.C. and
MCI Telecommunications Corporation.*
10.52 -- Series D Convertible Debenture Due March 27, 2001 by DCR Communications,
Inc. dated March 27, 1996.*
10.53 -- Series D Convertible Debenture Due May 10, 2001 by DCR Communications, Inc.
dated May 10, 1996.*
10.54 -- Form of Amended and Restated Credit Agreement dated as
September , 1996 among LCC International, Inc., LCC Design
Services, L.L.C., LCC Development Company, L.L.C., The
Lenders Signatory hereto and The Chase Manhattan Bank as
Administrative Agent.*
10.55 -- Form of $20 Million Revolving Credit Note of LCC, International, Inc. to The
Chase Manhattan Bank dated September , 1996.*
10.56 -- Form of Subordination and Intercreditor Agreement dated as of September , 1996
by and among The Chase Manhattan Bank, as administrative agent, MCI
Telecommunications Corporation and LCC International, Inc.*
10.57 -- Asset Purchase Agreement, dated as of December 30, 1996,
between European Technology Partner AS and LCC International
AS ***
10.58 -- First Amendment Agreement, dated as of December 30, 1996, among LCC International,
Inc., LCC Design Services, L.L.C., LCC Development Company L.L.C., The Lenders
Signatory Hereto and The Chase Manhattan Bank as Administrative Agent.
11 -- Computation of Earnings Per Common Shares.
21 -- Subsidiaries of the Company.
23.1 -- Consent of KPMG Peat Marwick LLP.
27 -- Financial Data Schedule.
</TABLE>
* Incorporated by reference to the Exhibits on the Company's Registration
Statement on Form S-1 (Registration No. 333-6067)
** Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-8 (File No. 333-17803) which was filed with the
Securities and Exchange Commission on December 13, 1996.
<PAGE> 76
*** Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K which was filed with the Securities and Exchange Commission on
January 14, 1997.
+ Confidential treatment has been granted for certain portions of this
document. The copy filed as an exhibit omits the information subject to the
confidential treatment request.
++ Confidential treatment has been requested for certain portions of this
document. The copy filed as an exhibit omits the information subject to the
confidential treatment request.
<PAGE> 1
EXHIBIT 10.11
***Portions of this exhibit marked by brackets ("[__________]") or otherwise
identified have been omitted pursuant to a request for confidential treatment.
The omitted portions have been filed separately with the Securities and
Exchange Commission.***
AMENDED AND RESTATED
SERVICE AGREEMENT
THIS AMENDED AND RESTATED SERVICE AGREEMENT (the "Agreement") is made
and entered into as of October 1, 1996, by and between TSI, a division of LCC
International, Inc., a Delaware corporation having its principal offices at
2111 Wilson Boulevard, Suite 401, Arlington, Virginia 22201 (collectively,
"LCC"), and Nextel Communications, Inc., a Delaware corporation having its
principal offices at 1505 Farm Credit Drive, Suite 100, McLean, Virginia 22102
("Nextel")
WITNESSETH:
WHEREAS, Nextel and LCC are parties to that certain Amended and
Restated Software License and Service Agreement, dated as of July 1, 1995,
as heretofore amended (the "July Agreement"); and
WHEREAS, the parties hereto desire to amend, consolidate and restate
the July Agreement in this Agreement, together with the Amended and Restated
Software License Agreement executed by the parties as of the date hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
are acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have
the following respective meanings:
1.1 Commitment Period. The term "Commitment Period" shall mean
the thirty-six (36) month period commencing on October 1, 1996 and ending
on September 30, 1999, during which Nextel has agreed to pay Minimum Service
Charges and LCC has agreed to make available appropriate staffing to perform
requested services for each month during such period in accordance with the
terms hereof.
1.2 Minimum Service Charge. The term "Minimum Service
Charge" shall mean the dollar amount of radio frequency engineering service
fees (excluding taxes, reimbursable expenses and similar charges) that Nextel
guarantees to pay to LCC each month during the Commitment Period in accordance
with Section 4.2.1 hereof.
1.3 Nextel. For the purposes of this Agreement, except
where the context expressly indicates otherwise, the term Nextel shall be
deemed to include Nextel
<PAGE> 2
Communications, Inc. and each entity that both (i) owns or operates a System
and (ii) is "controlled" by Nextel Communications, Inc., where the term
"control" means the ownership of 50% or more of an entity's capital stock or
voting securities.
1.4 Services. The term "Services" shall mean the services
to be rendered by LCC to Nextel pursuant to Section 2 hereof.
1.5 Systems. The term "Systems" shall mean Nextel's digital
mobile telephone systems in the Territory.
1.6 Territory. The term "Territory" shall mean each geographical
area in the United States (including Alaska and Hawaii), Puerto Rico and/or the
U.S. Virgin Islands in which Nextel operates or plans to operate a System.
1.7 Trademarks. The term "Trademarks" shall mean: (i)
EXP-2001(R), MSAT(TM), LCC(R), and RSAT-2000(R), which are trademarks of LCC,
(ii) LCC(R), which is a service mark of LCC, and (iii) any other trademark,
service mark or logo used by LCC during the term of this Agreement.
2. LCC's SERVICES.
2.1 RF Engineering Services. Nextel hereby engages LCC to
provide, and LCC hereby agrees to provide to Nextel radio frequency engineering
services in connection with the design, optimization and operation of Systems
in the Territory, subject to the following:
2.1.1 Minimum Service Charges.
(a) For any given month, Nextel shall pay LCC for
the provision of radio frequency engineering services in accordance with the
schedule of engineering service fees set forth in Exhibit A attached hereto
(but giving effect to all applicable discounts), based on the number of hours
devoted by LCC's engineers to providing services requested by Nextel hereunder.
For each month during the Commitment Period, if Nextel does not engage LCC to
perform, and LCC does not perform, radio frequency engineering services
resulting in hourly radio frequency engineering service charges totaling the
Minimum Service Charges (as defined in Exhibit A) for the month, after the
application of all applicable discounts, then Nextel shall pay to LCC an amount
equal to the Minimum Service Charges for the month.
(b) At August 1, 1997 and at each August 1 thereafter
during the Commitment Period, Nextel shall have the option to reduce
the Minimum Service Charges for the immediately following twelve (12) month
period by up to ten percent (10%) of the then-current Minimum Service Charges,
provided that: (i) Nextel notifies LCC in writing of Nextel's election to
reduce the Minimum Service Charges at least thirty (30) days prior to the
relevant August l review date, and (ii) LCC's obligation to be available to
provide Nextel with radio frequency engineering
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services shall be reduced in proportion to any reduction in the Minimum Service
Charges. Notwithstanding any provision herein to the contrary, any reduction of
the Minimum Service Charges shall not affect Nextel's obligations under Section
2.1.5 hereof with respect to assignments of two (2) years or more.
(c) The parties agree to reduce the Minimum
Service Charges, on a pro rata basis, if the Federal Communications Commission
revokes any Nextel license to operate any System.
(d) Any reduction in the Minimum Service Charges
under this Section 2.1.1 shall result in a corresponding reduction in the
monthly staffing levels that LCC has agreed to be available to provide radio
frequency engineering services to Nextel under Section 2.1.2 below; and any
increase in the Minimum Service Charges shall result in a corresponding
increase in such staffing levels.
2.1.2 LCC's Availability. For each month during the
Commitment Period, LCC agrees to remain available to provide radio frequency
engineering services to Nextel at the monthly staffing levels set forth in
Exhibit A attached hereto, assuming an allocation between engineering titles of
one (1) Project Theater (or Project Manager) for every two (2) System Engineers
plus two (2) RF Engineers. In the event Nextel desires to engage LCC to provide
more than the number of engineers required under the monthly staffing levels
set forth in Exhibit A attached hereto, then: (i) in the event Nextel provides
LCC with a written request for one or two engineers above the required monthly
staffing levels, then LCC agrees (assuming the foregoing staffing allocation)
to provide the requested staffing within three (3) weeks of its receipt of
Nextel's request (or, if later, on the date stated in Nextel's written
request), (ii) in the event Nextel provides LCC with a written request for
three engineers above the monthly staffing levels, then LCC agrees (assuming
the foregoing staffing allocation) to provide the requested staffing within
eight (8) weeks of its receipt of Nextel's request (or, if later on the date
stated in Nextel's written request), and (iii) in the event Nextel provides LCC
with a written request for four or more engineers above the monthly staffing
levels, then LCC agrees (assuming the foregoing staffing allocation) to use its
best efforts to meet Nextel's requirements subject to the availability of
sufficient qualified personnel. For the purposes of this Agreement, LCC's
Project Managers, Project Leaders, System Engineers and RF Engineers shall have
substantially all of the qualifications set forth in Exhibit B attached hereto.
2.1.3 LCC's Staffing Plan.
(a) For each month during the Commitment Period,
the parties agree to meet on a quarterly basis to develop and agree upon an
engineering personnel staffing plan for the immediately following three
calendar quarters, until the expiration of the Commitment Period, as follows:
(i) the first staffing plan will cover the immediately following three calendar
quarters, and (ii) each subsequent
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staffing plan will carry forward, from the previous staffing plan, the staffing
plan for the remaining two calendar quarters and include a new staffing plan
for the third calendar quarter. Each staffing plan will be jointly prepared by
LCC and Nextel and will provide for LCC's provision of radio frequency
engineering services to Nextel at dollar amounts equaling not less than the
applicable Minimum Service charges during the relevant month(s).
(b) Each staffing plan will specify: (i) the number of
engineers required, by grade level from Project Manager to RF Engineer, (ii)
the respective staffing levels for each Nextel project office (subject to
Section 2.1.3(c) below), and (iii) the number of engineers that will be
required to provide professional services on a long-term (more than two (2)
years) basis. LCC agrees to be available to provide Nextel with radio
frequency engineering services at least equaling the Minimum Service Charges
for the relevant month(s) in accordance with the then-current staffing plan. If
LCC is unable (due to its inability to provide the required staffing) to
provide radio frequency engineering services equaling the Minimum Service
Charges, then: (A) LCC's radio frequency engineering services for the month
will be invoiced based only on the services actually provided, and (B) LCC
agrees to credit Nextel's account an amount equal to Twenty percent (20%) of
the difference between the Minimum Service Charges for the month and the amount
invoiced to Nextel for radio frequency engineering services under the preceding
subsection (A).
(c) Nextel shall have the option to reallocate any
position designated in the then-current staffing plan for any particular
Nextel project office to another Nextel project office, upon not less than
thirty (30) days advance written notice to LCC. Upon its receipt of any such
notice, LCC agrees to use reasonable efforts to provide the requested engineer
in the newly designated project office, provided that, LCC shall not be liable
for any failure to provide the same and the provisions of Section 2.1.3(b)
shall not apply. Upon such reallocation, LCC will cease staffing the designated
position at the original project office location.
(d) If Nextel fails to present to LCC a projection of
its requirements for radio frequency engineering services, assuming the
allocation between engineering titles described in Section 2.1.2 above, for any
calendar quarter, and as a result, the parties fail to develop a staffing plan
for that calendar quarter, then the staffing plan for that quarter shall be
conclusively deemed to require Nextel to engage the minimum number of engineers
indicated with respect to such calendar quarter on Exhibit A hereto, which
engineers shall be deemed allocated between engineering titles as nearly as
practicable in accordance with the staffing ratio specified in Section 2.1.2
above, and such engineers shall be assigned to Nextel project offices in a
manner as nearly as practicable consistent with the project office assignments
in effect for the most recent month for which an agreed staffing plan existed.
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(e) Nextel and LCC hereby confirm that: (i) the
agreed staffing plan for the months of October, November and December 1996 is
attached hereto as Exhibit D-1; (ii) the tentative staffing plan for the first
and second calendar quarters of 1997 is attached hereto as Exhibit D-2, and the
parties intend to finalize those items required to arrive at an agreed staffing
plan for such quarters not later than January 1, 1997; and (iii) such staffing
plans, once agreed upon, shall be subject to further revision or modification
only as provided herein or as Nextel and LCC may otherwise agree in writing.
2.1.4 Key Personnel; Promotions. LCC agrees to notify
Nextel (in the case of promotions or other changes involving rate increases, in
writing at least 30 days prior to any resulting rate increase) before LCC
reassigns, promotes or changes the responsibilities of any radio frequency
engineer who is rendering Services to Nextel. LCC agrees to take into account
Nextel's views regarding the proposed reassignment, promotion or change in
responsibilities, it being understood that LCC shall have sole authority to
make the final decision regarding any such personnel. In the event LCC, on its
own initiative or as a result of the removal of an employee for "just cause"
(as defined in Section 2.1.5(b) below), reassigns any of the foregoing
personnel, then: (a) LCC shall use its best efforts to have the reassigned
engineer spend: (i) three (3) days, for short-term assignments, or (ii) five
(5) days for long-term assignments, at his/her originally assigned project
office and/or location, training his/her replacement without charging Nextel
for the services of the reassigned engineer during the aforementioned training
period, and (b) Nextel will not be obligated to reimburse LCC for any expenses
incurred in relocating and/or moving the reassigned engineer to his/her new
assignment nor will Nextel be obligated to reimburse LCC for any expenses
incurred in moving or otherwise transporting his/her replacement to fill the
vacant staffing position so created.
2.1.5 Long Term Assignments. The parties acknowledge that,
pursuant to Section 2.1.5(a) of the July Agreement, LCC assigned approximately
three (3) engineers to perform services at Nextel project offices for a period
of two (2) years or more. For so long as these engineers remain under their
current 2 year assignment, (a) Nextel agrees not to terminate any such
engineer's assignment before the expiration of the applicable two (2) year
period, or such longer period as may have been requested by Nextel (the
"Engagement Period"), other than for "just cause," and (b) in lieu of the
standard per diem, reimbursable living expenses and income tax equalization
payments paid by Nextel hereunder, for each engineer, Nextel shall reimburse
LCC: (i) for moving expenses incurred by LCC in moving the subject employee to
and back from the relevant market, at a rate of [_____________] per move (where
moving to the market constitutes a single move and moving back from the market
constitutes a second move) plus (ii) a monthly per diem in the amount of
[____________________] per engineer on long term assignment per month. In the
event Nextel terminates any such engineer's assignment before the expiration of
the applicable Engagement Period, other than for "just cause," Nextel also
agrees to pay LCC termination charges equal to the sum of
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[___________________] times the actual number of months remaining in the
Engagement Period. For the purposes of this Section 2.1.5(b), the term "just
cause" shall mean: (i) after an engineer consistently fails to perform his/her
responsibilities in a professional and competent manner, after notice and
reasonable opportunity to cure his/her performance, or (ii) any act of
dishonesty, fraud or deceit.
2.1.6 Nextel Decisions. LCC and Nextel agree that because
Nextel and/or other persons, and not LCC, shall have ultimate decision-making
authority concerning the design, conceptual planning, optimization and/or
expansion of the Systems, LCC shall not, in the performance of any Services for
Nextel under this Agreement, be responsible or have any liability for any
decision made regarding the design, conceptual planning, optimization and/or
expansion of the Systems and/or any other decisions made by Nextel and/or any
person or entity providing services/products to Nextel (that is engaged by
Nextel directly and is not LCC or an employee, agent or a sub-contractor of
LCC) concerning the Systems. Notwithstanding the provisions of this Section
2.1.6: (i) in rendering the Services LCC (and its employees, agents and
sub-contractors providing Services hereunder) shall contribute its best
efforts to Nextel's overall system engineering activities in order to achieve a
system design of high quality, and (ii) nothing in this Section 2.1.6 shall
release LCC from (a) its obligations pursuant to warranties applicable to
Services provided hereunder, as contemplated in Section 6.1 hereunder or (b)
its agreements regarding the provision or Services as set forth herein or in
any staffing plan adopted as provided herein.
2.1.7 Subcontracting. LCC shall have the right to engage
subcontractors on a limited basis to perform any or all of the Services,
subject to Nextel's prior written approval, which shall not be unreasonably
withheld or delayed. Each such subcontractor shall execute a confidentiality
agreement with Nextel that is satisfactory to Nextel in form and substance.
2.1.8 Certain Obligations. The parties hereby acknowledge
that the minimum payments, availability requirements, and staffing provisions
of this Agreement shall remain in effect only during the Commitment Period.
After the expiration of the Commitment Period, Nextel may engage LCC to perform
radio frequency engineering services, and LCC may agree to perform such
services, from time to time. The provision of such services shall be subject to
the terms, conditions and provisions of this Agreement, except as the parties
may otherwise agree.
2.1.9 Sale of System. Nextel agrees that prior to
any sale, transfer or assignment of any System in the Territory to any person
other than a Nextel affiliate or subsidiary: (i) Nextel shall advise LCC in
writing of such sale, transfer or assignment and (ii) Nextel shall use
reasonable efforts to cause the purchaser, transferee or assignee to enter into
a separate services agreement in connection with the transfer of the relevant
System, which separate services agreement shall provide for the provision by
LCC of Services on substantially the same terms as set
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forth herein. In the event that the purchaser, transferee or assignee enters
into such a separate services agreement, then Nextel shall be entitled to a
credit against the Minimum Service Charges paid by such purchaser in such month
under such separate services agreement. Such separate services agreement may
only be assigned to the purchaser, transferee or assignee of such System. In
the event that Nextel's sale, transfer or assignment of such System is not
completed, the parties shall terminate and cancel such separate services
agreement and continue under the terms of this Agreement. In addition, if such
sale, transfer or assignment should include all or substantially all of the
Systems in the Territory, Nextel shall obtain from the relevant purchaser,
assignee or transferee an appropriate written instrument to evidence the
assumption of this Agreement a part of such sale, assignment or transfer
transaction.
2.2 RF Engineering; Exclusivity. Nextel hereby engages
LCC as Nextel's exclusive provider during the Commitment Period of radio
frequency engineering services, of the type offered by LCC, in the Territory,
and agrees not to, without LCC's prior written consent, engage any person,
corporation, company, partnership or entity other than LCC to provide radio
frequency engineering services to Nextel in the Territory during the Commitment
Period. This provision shall not, in any event, limit or restrict Nextel's
ability to: (i) employ radio frequency engineers or other personnel, as Nextel
employees, to perform radio frequency engineering services, or (ii) retain, on
an appropriate basis as other than Nextel employees, radio frequency engineers
or other personnel to periodically audit LCC's performance under the terms of
this Agreement, or (iii) employ replacement engineers as contemplated by
Section 9.2.
3. PROPRIETARY PRODUCTS AND WORKS.
3.1 Works. All right, title and interest in and to any
and all software, know-how, inventions, discoveries, techniques, methodologies,
databases, documentation or other intellectual property used, developed or
conceived of by LCC or its subcontractors in the performance of the Services
shall be and remain the exclusive proprietary property of LCC, provided,
however, that any and all tangible reports, designs, drawings, plot maps or
other materials that are delivered to and paid for by Nextel hereunder shall be
and remain the sole and exclusive property of Nextel, notwithstanding any
termination or expiration of this Agreement.
3.2 Assistance. Each party agrees to notify the other
party immediately of any infringement, unauthorized possession or misuse of any
intellectual property belonging to the other party. Upon one party's request
and at such party's expense, the other party shall render all reasonable
assistance in the prosecution and/or settlement of any lawsuit or other action
instituted to prevent or terminate any such infringement.
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4. FEES AND EXPENSES.
4.1 Service Fees. For each month during the term of this
Agreement, Nextel agrees to pay LCC for RF engineering services in accordance
with the schedule of engineering service fees set forth in Exhibit A attached
hereto (but giving effect to all applicable discounts and credits), provided,
however, that Nextel's total monthly payment for hourly radio frequency
engineering service fees for each month during the Commitment Period shall not
be (except as expressly provided herein) less than the applicable Minimum
Service Charges for the relevant month, as determined in accordance with
Section 2 above.
4.2 Expenses. Nextel agrees to reimburse LCC for all
reasonable expenses (including, without limitation, travel (with airfare at
coach rate), lodging, meal, telephone, facsimile, copying, shipping and other
direct and/or associated expenses and costs) incurred by LCC in the performance
of the Services, plus [___________]. The foregoing expenses shall include any
reasonable amounts paid by LCC to its employees as reimbursement for temporary
living expenses, per diems and income tax equalization expenses, provided,
however, that such payments shall not exceed the payments allowable under any
expense reimbursement guidelines established from time to time by mutual
agreement of the parties. Nextel and LCC agree that certain expense
reimbursement guidelines, for the identified expense categories, as in effect
on October 1, 1996 are set forth on Exhibit E hereto, and shall continue in
effect until changed by agreement of the parties.
4.3 Adjustment in Fees.
(a) On or prior to June 1 in each year, beginning with
June 1, 1997, appropriate senior representatives of LCC and Nextel shall meet
and review the conduct of the Services hereunder and Nextel's suggestions for
improvement. Such review also shall address LCC's and Nextel's views concerning
whether the Services and related arrangements hereunder are competitive, on
price and performance terms, to those then being offered by comparable
providers (in terms of size, qualifications and capabilities) of comparable
services that otherwise would be available to Nextel. If appropriate, the
parties may discuss and implement any changes required to the terms of this
Agreement by reason of competitive conditions then-prevailing in the market
place (which in no event shall require any reduction in the amount of the
Minimum Service Charges during the Commitment Period).
(b) If, as a result of this review process, LCC should
reasonably determine that an increase in the monthly per diem amounts set forth
in Section 2.1.5, or the expense reimbursement amounts set forth in Exhibit E
should be made, LCC shall so notify Nextel in writing on or prior to June 30 in
the relevant year, and thereupon LCC shall have the right to increase such
amounts (with such increase to be effective beginning on August 1 of the
relevant year) by an amount equal to the percentage increase, if any, in the
Consumer Price Index for the twelve (12) month
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period ending two (2) months prior to such effective date, up to a maximum of
six (6%). As used in this Agreement the term "Consumer Price Index" shall mean
the "Index Number" for "All Items" for the "All Urban Consumers" as published
in the Revised Consumer Price Index-U.S. City Average (36 Mo. Avg. 1982-84 =
100) by the Bureau of Labor Statistics of the U.S. Department of Labor.
(c) If, as a result of this review process, LCC should
reasonably determine that an increase in the hourly rates for engineering
services set forth on Exhibit A hereto should be made, LCC shall so notify
Nextel in writing on or prior to June 30 of the relevant year, and thereupon
LCC shall have the right to increase such hourly rates (with such increase to
be effective on August 1 of the relevant year) for each month during the
Commitment Period by an amount equal to the percentage increase in LCC's
standard published rates (subject to Section 4.5 hereof) during the twelve (12)
month period immediately preceding the date of such notice of increase;
provided however, that the increase in engineering service fees on any August 1
shall not, on a weighted average basis based on Nextel's usage of LCC personnel
during the six (6) months prior to such August 1, exceed [________].
4.4 Payment Terms and Interest. All payments of service
fees, reimbursements of expenses, and other fees or charges due and payable
under this Agreement shall be made within thirty (30) days of the date of
Nextel's receipt of LCC's invoice. All past due payments shall bear interest,
until paid in full at the rate of one percent (1%) per month or the highest
rate allowed by applicable law, whichever is lower. Should LCC commence an
action against Nextel to collect any payments due, Nextel agrees to pay all
reasonable costs of collection, together with interest due and reasonable
attorneys' fees.
4.5 Preferred Customer. Notwithstanding anything herein
to the contrary, it is the intent of the parties that: (i) Nextel shall be
treated as a preferred customer; and (ii) LCC's fees and charges for, services
provided hereunder, on an overall basis, shall be the most favorable fees and
charges that LCC makes available to any other customer for such services.
5. HARDWARE PRODUCTS
5.1 LCC Manufactured Products. During the term of this
Agreement, Nextel shall have the right (but no obligation) to purchase from LCC
those LCC manufactured hardware products and associated maintenance programs
generally offered by LCC to its customers at LCC's then-current standard list
price, provided, however, that Nextel shall be entitled to a [_____________]
discount off the standard list price for each product base unit, excluding
accessories and any third party products. Notwithstanding the foregoing, the
prices charged to Nextel by LCC shall be no greater than the prices charged by
LCC for the same products to its other similarly situated customers given the
same volume levels, terms and conditions of the relevant order. Provision by
LCC to Nextel of such hardware products shall be:
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(i) subject to availability; (ii) subject to Nextel's agreement not to sell,
distribute, transfer or assign such products to other persons, and (iii) sold
under LCC's standard terms and conditions of sale (including, without
limitation, warranties and delivery terms) for the item(s) ordered.
5.2 Hardware Development. The parties agree to regularly
consult with each other with respect to the continued development and
availability of LCC's field test measurement equipment products for the iDEN
marketplace. The parties agree to meet periodically throughout the term of this
Agreement to: (i) review and discuss Nextel's needs and requirements for such
products, and (ii) attempt to develop mutually acceptable pricing,
functionality and availability of such products and any upgrade requirements.
In particular, LCC agrees to use reasonable commercial efforts to have the
following functionality available in certain of its products as follows:
(a) On or before December 31, 1996, an LCC manufactured
RSAT-2000 iDEN, which is capable of operating with (i) an ESMR scan receiver,
and either (ii) an iDEN mobile (car mount) radiotelephone, or (iii) an iDEN
portable (handheld) radiotelephone;
(b) On or before March 31, 1997, an LCC manufactured
EXP-2001 iDEN, which is capable of operating with (i) an ESMR scan receiver,
(ii) an iDEN mobile (car mount) radiotelephone, and (iii) an iDEN portable
(handheld) radiotelephone; and
(c) On or before June 30, 1997, an LCC manufactured
MSAT-2000 iDEN, which is capable of operating with (i) an ESMR scan receiver,
and (ii) an iDEN portable (handheld) radiotelephone."
5.3 Maintenance & Support. LCC hereby agrees to make
available to Nextel the LCC manufactured hardware maintenance and support
programs described in Exhibit C attached hereto.
5.4 Discretionary Nature of Purchases. Nextel has not
committed or promised to commit to purchase from LCC any LCC manufactured
hardware products or associated maintenance programs, whether or not the same
are developed or manufactured by LCC independently or as a consequence of
consultations with Nextel as contemplated above. Any such purchases would be
entered into only to the extent Nextel, in its discretion, determines to enter
into such agreements. No Services to be provided hereunder or software licensed
in connection herewith are conditioned on any purchases by Nextel of any LCC
manufactured hardware products or associated maintenance programs.
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6. WARRANTY AND DISCLAIMER.
6.1 LCC's Warranties.
6.1 Warranty. LCC hereby warrants that LCC's radio
frequency engineering services will be performed in accordance with generally
accepted design engineering practices and standards for the wireless
communications industry. LCC's sole and exclusive obligation under the
foregoing warranty shall be to use reasonable efforts to reperform (at LCC's
sole cost and expense) any nonconforming work as soon as practicable after
receiving written notice from Nextel, provided that written notice is received
within twelve (12) months after the work was performed or delivered to Nextel.
6.2 DISCLAIMER. THE WARRANTIES SET FORTH IN SECTION 6.1
ARE THE ONLY WARRANTIES MADE BY LCC UNDER THIS AGREEMENT. SUCH WARRANTIES ARE
IN LIEU OF, AND LCC EXPRESSLY DISCLAIMS, ALL OTHER WARRANTIES AND/OR CONDITIONS
UNDER THIS AGREEMENT, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING BUT
NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY, ANY IMPLIED WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, ANY IMPLIED WARRANTY OF NON- INFRINGEMENT AND
ANY IMPLIED WARRANTY ARISING OUT OF THE COURSE OF DEALING, CUSTOM OR USAGE OF
TRADE. THE WARRANTIES SET FORTH IN SECTION 6.1 MAY NOT BE ENLARGED, DIMINISHED
OR AFFECTED WITHOUT LCC'S AND NEXTEL'S WRITTEN CONSENT.
6.3 LIMITATION OF LIABILITY. IN NO EVENT WILL LCC BE
LIABLE TO NEXTEL OR ANY OTHER PERSON FOR LOSS OF PROFITS, BUSINESS, USE OR DATA
OR SPECIAL, EXEMPLARY, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
OF ANY KIND OR FOR ANY REASON, INCLUDING, WITHOUT LIMITATION, THE BREACH OF
THIS AGREEMENT OR ANY TERMINATION OF THIS AGREEMENT, WHETHER SUCH LIABILITY IS
ASSERTED ON THE BASIS OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT
LIABILITY) OR OTHERWISE, EVEN IF LCC HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. THE ESSENTIAL PURPOSE OF THIS PROVISION IS TO LIMIT THE POTENTIAL
LIABILITY OF LCC ARISING OUT OF THIS AGREEMENT. IN NO EVENT SHALL LCC'S
LIABILITY TO NEXTEL HEREUNDER EXCEED, IN THE AGGREGATE,
[______________________________________________]; PROVIDED, HOWEVER, THAT IN
THE EVENT THAT LCC IS FOUND LIABLE FOR WILLFUL BREACH OF THIS AGREEMENT, THEN
AND ONLY THEN LCC'S LIABILITY HEREUNDER MAY BE INCREASED BEYOND SUCH LIMIT BUT
ONLY TO THE EXTENT THAT SUCH LIABILITY DOES NOT EXCEED THE LESSER OF: (1)
NEXTEL'S ACTUAL (E.G. OUT OF POCKET) DAMAGES RESULTING FROM SUCH WILLFUL
BREACH OR (2) ALL OF-THE SERVICE
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FEES AND SOFTWARE LICENSE FEES PAID BY NEXTEL TO LCC UNDER THIS AGREEMENT
DURING THE TWELVE MONTH PERIOD PRIOR TO THE DATE THE CLAIM WAS MADE.
7. TAXES. DUTIES AND LEVIES.
7.1 Nextel's Obligation to Pay. All fees for Services and
other payments to LCC are exclusive of any and all taxes, duties or levies
assessed by any governmental authority in the United States in respect of such
service fees and other payments. All such taxes, duties and levies (exclusive
of any taxes based upon LCC's net income) shall be assumed by and paid for by
Nextel, irrespective of whether included in any invoice sent to Nextel at any
time by LCC
8. NON-DISCLOSURE AND CONFIDENTIALITY.
8.1 Nondisclosure of Proprietary Information. In the
event either party hereto (the "Receiving Party") obtains from the other party
hereto (the "Disclosing Party") information in whatever form which is
confidential or proprietary ("Proprietary Information") the Receiving Party:
(i) shall treat all such Proprietary Information as confidential; (ii) shall
use such Proprietary Information only for the purposes contemplated in this
Agreement; (iii) shall protect such Proprietary Information, whether in storage
or in use, with the same degree of care as the Receiving Party uses to protect
its own proprietary information against public disclosure, but in no case with
less than reasonable care; and (iv) shall not disclose such Proprietary
Information to any third party except to such employees of the Receiving Party
who need to know such Proprietary Information for the purpose of effectuating
this Agreement, who have been informed of the confidential nature of such
Proprietary Information and who are bound in writing by the provisions of this
Section 8.
8.2 Exclusions. The provisions of this Section 8 shall
not apply to any Proprietary Information which: (i) was in the public domain on
the date hereof or comes into the public domain other than through (a) the
fault or negligence of the Receiving Party or (b) a third party's breach of a
nondisclosure obligation to the Disclosing Party; (ii) was lawfully obtained by
the Receiving Party from a third party without breach of (a) this Agreement by
the Receiving Party or (b) a nondisclosure obligation of any third party to the
Disclosing Party, and otherwise not in violation of the Disclosing Party's
rights; (iii) was known to the Receiving Party at the time of disclosure as
shown by the Receiving Party's records in existence at the time of disclosure;
(iv) was independently developed by the Receiving Party, as shown by written
evidence of the Receiving Party, without making use of any Proprietary
Information of the Disclosing Party; or (v) is required to be disclosed
pursuant to the order of any court or governmental agency.
8.3 Return. Upon the expiration or termination of this
Agreement, and in any event upon the Disclosing Party's request at any time,
the Receiving Party
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shall: (i) return to the Disclosing party all documents (including any copies
thereof) embodying the Disclosing Party's Proprietary Information and (ii)
certify in writing to the Disclosing Party, within ten (10) days following the
Disclosing Party's request, that all such Proprietary Information has been
returned.
8.4 Injunctive Relief. LCC and Nextel acknowledge that
the extent of damages in the event of the breach of any provision of Section
8.1 or 8.3 would be difficult or impossible to ascertain, and that there will
be available no adequate remedy at law in the event of any such breach. Each
party therefore agrees that in the event it breaches any provision of Section
8.1 or 8.3, the other party will be entitled to injunctive or other equitable
relief, in addition to any other relief to which it may be entitled.
8.5 Survival. The provisions of this Section 8 shall
survive the expiration or termination of this Agreement.
9. ADDITIONAL COVENANTS.
9.1 Non-solicitation. During the term of this Agreement
(including renewal terms, if any) and for a period of one (1) year following
the expiration or termination of this Agreement, neither party nor any of its
officers, agents, subsidiaries, successors or assigns shall, directly,
indirectly or in concert with any other person, solicit the services of,
retain, attempt to employ or employ any employee of the other party. In the
event this Agreement is terminated, and either party in such one year
post-termination period desires to hire any radio frequency engineer
then-assigned to perform services in any Nextel project office under this
Agreement, or in the event LCC desires to hire any Nextel employee or Nextel
desires to hire any other LCC employee, then (a) the party seeking to hire (the
"Hiring Party") shall provide the other party (the "Other Party") with written
notice of its desire to hire the relevant engineer prior to entering into any
discussions with, or making any employment offers to the relevant engineer, and
(b) the Other Party shall promptly advise the Hiring Party whether the Other
Party intends to waive, in its sole discretion, the provisions of this Section
9.1. In the event the Other Party elects to waive the provisions of this
Section 9.1, then (i) the parties agree to negotiate, in good faith, for the
Hiring Party's payment to the Other Party of an appropriate finder's fee
sufficient to compensate the Other Party for the investment (including
training) made by the Other Party in the training and professional development
of the relevant engineer or other employee, and (ii) contingent upon the
parties having reached such agreement, the Hiring Party shall be free to
solicit the services of, retain and/or employ the relevant engineer or other
employee.
9.2 Removal of Personnel. In the event LCC assigns any
person to perform Services hereunder, and that individual fails to perform
his/her responsibilities in a processional and competent manner, after notice
and a
- 13 -
<PAGE> 14
reasonable opportunity to cure his/her performance, then: (i) Nextel shall have
the option, upon written request to LCC, to have LCC terminate the individual's
assignment, and (ii) as soon as practicable following LCC's receipt of such a
request from Nextel, LCC agrees to terminate the individual's assignment and
provide Nextel with a suitable replacement for that individual's position. In
the event that any radio frequency engineer as a replacement also fails to
perform his/her responsibilities in a professional and competent manner, after
notice and a reasonable opportunity to cure his/her performance, and in the
event that Nextel gives a written request to have LCC terminate the assignment
of such replacement person and LCC removes the engineer at Nextel's request,
then (i) Nextel shall be free to replace the engineer so removed using any
other vendor or source (notwithstanding the exclusivity provisions hereof) to
fill the position that LCC's engineer was intended to perform, and (ii) the
Minimum Service Charges set forth in Exhibit A shall be reduced by an amount
equal to the amount of base hourly engineering service fees Nextel would have
paid LCC for the replacement engineer to complete his/her scheduled assignment,
and the reduction shall apply over the period of the intended assignment.
10. TERM AND TERMINATION
10.1 Term. This agreement shall commence on the date first
set forth above and shall continue in full force and effect until October 31,
1999, and shall thereafter be automatically renewed for additional and
successive terms of one (1) year, unless sooner terminated as provided herein,
provided, that during such renewal term(s), the exclusivity arrangements
contemplated by section 2.2 shall not apply, the pricing for services shall be
solely as determined in compliance with Section 4.5, and there shall be no
minimum purchase commitments.
10.2 Termination. This agreement may be terminated:
10.2.1 By Nextel or LCC, immediately upon written
notice of terminations in the event of a material breach of this agreement by
the other party- if such breach continues uncured for a period of thirty (30)
days after written notice of such breach;
10.2.2 By Nextel or LCC, immediately upon written
notice of termination to the other party, in the event the other party shall:
(i) become insolvent; (ii) make an assignment for the benefit of creditors;
(iii) file a voluntary bankruptcy petition; (iv) acquiesce to any involuntary
bankruptcy petition; (v) be adjudicated bankrupt; or (vi) cease to do business;
10.2.3 By Nextel or LCC, upon prior written notice
to the other party at least sixty (60) days prior to the conclusion of the
initial term or any annual renewal term thereafter;
10.2.4 By an executed written agreement between
Nextel and LCC.
- 14 -
<PAGE> 15
10.4 Termination of Prior Agreement. Upon the execution of
this Agreement, the July Agreement shall be automatically superseded and
replaced in its entirety by this Agreement. Each of Nextel and LCC, by
executing this Agreement, irrevocably waives and releases any and all claims
either may have against the other for any non-compliance with the terms of the
July agreement by such other party.
11. GENERAL.
11.1 Binding Effect; Assignment Restrictions.
This agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding the
foregoing, neither Nextel nor LCC shall be entitled to assign or transfer any
or all of its respective rights or obligations hereunder without the prior
written consent of the other party; provided, however, that each party shall be
entitled to assign or transfer any or all of its rights to any entity that
controls, is controlled by or is under common control with such party without
the prior written consent of the other party. Any attempted assignment or
transfer which is made in violation of this Section 11.1 shall be null and void
and shall be deemed a material breach of this Agreement.
11.2 Relationship. The relationship between the parties to
this Agreement is and shall be that of independent contractors. It is expressly
agreed that nothing in this Agreement shall be construed to create or imply a
partnership, joint venture, agency relationship or contract of employment.
Neither party shall have the authority to make any statement, representation or
commitment of any kind, or to take any action, that shall be binding on the
other party, except as authorized in writing by the party to be bound.
11.3 Force Majeure. The obligations hereunder of each
party shall be suspended while and to the extent that such party is prevented
from complying herewith in whole or in part by any event beyond the reasonable
control of such party, which for purposes of this Agreement shall include,
without limitation, acts of God, earthquakes, unavoidable accidents, laws,
rules, regulations or orders of government authorities, acts of war (declared
or not), hostilities, blockades, civil disturbances, embargoes, strikes or any
other similar event or cause. If any event described in the preceding sentence
should result in the suspension of either party's performance of its
obligations hereunder, such party shall give written notice of such suspension
to the other party, specifying in reasonable detail the nature of the event
causing such suspension. The party whose performance has been suspended shall:
(i) resume performance of its obligations hereunder as soon as reasonably
practicable after the circumstances preventing such performance as provided
above shall have terminated or ceased to have such effect and (ii) immediately
notify the other party hereto in writing of such resumption.
- 15 -
<PAGE> 16
11.4 Entire Agreement; Amendment. This Agreement
(together with the Exhibits attached hereto) constitutes the entire agreement
between LCC and Nextel, including their respective predecessor entities and
controlled affiliates, regarding the subject matter hereof. All prior or
contemporaneous agreements, proposals, understandings and communications
between LCC and Nextel regarding the subject matter hereof (including, without
limitation, the July Agreement and each of the agreements referenced in
Sections 12.4, 11.2(a) and 11.2(b) of the July Agreement) whether oral or
written, are superseded by and merged into this Agreement. Neither this
Agreement nor any Exhibit hereto may be modified or amended except by a written
instrument executed by both LCC and Nextel. In the event of any inconsistency
between the terms of this Agreement and any purchase order or similar document
issued by Nextel under this Agreement, the terms of this Agreement shall
control. Any additional terms contained in any such purchase order or similar
document shall be of no force or effect, and LCC expressly objects to and
rejects all such additional terms.
11.5 Severability. In the event any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, the remaining provisions of
this Agreement shall be enforceable to the maximum extent possible.
11.6 Notices. All notices- consents and other
communications hereunder shall be provided in writing and shall be delivered
personally, by registered or certified mail (return receipt requested),
overnight courier, facsimile or similar method communication, to the parties at
the following addresses (or such other address as may have been furnished by or
on behalf of such party by like notice):
If to LCC:
TSI, a division
of LCC International, Inc.
2111 Wilson Boulevard
Suite 401
Arlington, VA 22201
Facsimile: (703) 358~0062
Attention: President
With Copy to: General Counsel
- 16 -
<PAGE> 17
If to Nextel:
Nextel Communications, Inc.
1505 Farm Credit Drive, Suite 100
McLean, Virginia 22102
Facsimile: (703) 394-3496
Attention: Chief Technology Officer
With a copy to: General Counsel
Communications sent by facsimile shall be deemed effectively served
upon dispatch. Communications sent by registered or certified mail shall be
deemed effectively served seven (7) calendar days after mailing.
Communications sent by overnight courier shall be deemed effectively served one
(1) business day after dispatch.
11.7 Waiver. No waiver by either party of a breach of any term,
provision or condition of this Agreement by the other party shall constitute a
waiver of any succeeding breach of the same or any other provision hereof. No
such waiver shall be valid unless executed in writing by the party making the
waiver.
11.8 Headings. The section and subsection headings used in this
Agreement are intended for reference purposes only and shall not affect the
interpretation or construction of any provision of this Agreement.
11.9 Limitations. No action, regardless of form, arising out of
this Agreement may be brought by either party more than two (2) years after the
cause of action has arisen.
11.10 Attorney's Fees. In the event it is necessary for either party
to take any legal action to enforce any of the terms, provisions or conditions
of this Agreement, the prevailing party will be entitled to recover from the
other party all reasonable attorneys' fees and all reasonable costs and
expenses relating to such legal action.
11.11 Accrued Rights. The termination or expiration of this
Agreement shall not effect or prejudice either party's accrued rights
hereunder.
11.12 Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the Commonwealth of
Virginia, without regard to principles of conflicts of law. Each party hereby
irrevocably submits to the jurisdiction and venue of the federal and/or state
courts of the Commonwealth of Virginia for the purpose of any legal or
equitable action arising under this Agreement. Each party agrees that service
of process on such party in any such action may be made by certified or
registered mail, return receipt requested, to the address of such party set
forth in Section 11.6.
- 17 -
<PAGE> 18
11.13 Dispute Resolution. If any dispute arises under this Agreement
that is not settled promptly in the ordinary course of business, the parties
shall seek to resolve such dispute between them, first by negotiating promptly
with each other in good faith, face-to-face negotiations. Such face-to-face
negotiations shall be conducted by the respective designated senior management
representatives of each party. If the parties are unable to resolve the dispute
between them within twenty (20) business days (or such other period as the
parties shall mutually agree upon) through such face-to-face negotiations, then
the complaining party may commence legal action in accordance with Sections
11.9 and 11.12 of this Agreement.
11.14 Survival. The respective rights and obligations of the parties
under this Agreement that, by their nature and import, are intended to survive
the termination or expiration of this Agreement shall survive the termination
or expiration of this Agreement.
11.15 Acknowledgment. EACH PARTY ACKNOWLEDGES THAT IT HAS READ THIS
AGREEMENT (INCLUDING THE EXHIBITS HERETO), UNDERSTANDS IT AND AGREES TO BE
BOUND BY ITS TERMS AND CONDITIONS.
IN WITNESS WHEREOF the parties hereto, by their duly authorized
representatives, have executed this Agreement as of the date first set forth
above.
NEXTEL COMMUNICATIONS, INC. LCC INTERNATIONAL, INC.
By: /s/ Barry West By: /s/ Piyush Sodha
------------------------------- -----------------------------
Title: Chief Technology Officer Title: President
---------------------------- --------------------------
- 18 -
<PAGE> 19
EXHIBIT A
SCHEDULE OF ENGINEERING SERVICE FEES
1. Base Rates. Nextel shall pay LCC for the performance of radio
frequency engineering services based on the number of hours devoted to such
services by LCC in accordance with the following schedule of base hourly rates:
<TABLE>
<CAPTION>
Title Hourly Charge
----- -------------
<S> <C>
VP/
Manager of Engineering [_____________]
Project Manager [_____________]
Project Leader [_____________]
System Engineer [_____________]
RF Engineer [_____________]
</TABLE>
Notwithstanding the foregoing, LCC agrees that the radio frequency
engineering service charges for any individual engineer assigned to perform
Services in the United States shall not exceed [____] hours during any given
month.
2. Volume Discounts. LCC agrees to discount the total base hourly
radio frequency engineering service fees charged to Nextel each month during
the Commitment Period by [____].
3. Minimum Service Charges. Nextel guarantees to pay LCC a
minimum monthly service charge (after the application of all applicable
discounts) for each month during the Commitment Period, as adjusted in
accordance with Section 2.2.3 of the Agreement, in accordance with the
following schedule:
- 19 -
<PAGE> 20
<TABLE>
<CAPTION>
Months Minimum Service Charge
- ------ (Monthly Payment Amounts)
-------------------------
<S> <C>
October, 1996 [_____________]
November, 1996 [_____________]
December, 1996
January, 1997 through
December, 1997 [_____________]
January, 1998 through
December, 1998 [_____________]
January, 1999 through [_____________]
July, 1999
August, 1999 [_____________]
September, 1999 [_____________]
</TABLE>
4. LCC's Monthly Staffing Levels. LCC agrees to have the
following number of radio frequency engineers (which the parties anticipate
will result in services approximating the Minimum Service Charge) available to
provide radio frequency engineering services to Nextel each month during the
Commitment Period, assuming an allocation between engineering titles of one
Project Leader (or Project Manager) for every two System Engineers plus two RF
Engineers, in accordance with the following schedule:
<TABLE>
<CAPTION>
Months Total Number
- ------ of Engineers
Available Per Month
-------------------
<S> <C>
October, 1996 [____]
November, 1996 [____]
December, 1996 [____]
January, 1997 through
December, 1997 [____]
January, 1998 through
December, 1998 [____]
January, 1999 through
July, 1999 [____]
August, 1999 [____]
September, 1999 [____]
</TABLE>
- 20 -
<PAGE> 21
EXHIBIT B
DESCRIPTION OF ENGINEERING TITLES
PROJECT MANAGER
Skilled in project management.
Able to make commitments that need the support of LCC in Arlington.
Able to access all technical resources in entire LCC infrastructure.
- - Develop and implement quality control procedures & appropriate standards
- - Oversees the design of each market
- - Sets quarterly goals & objectives for each market
- - Project planning
- - Assures that all commitments to the customer are met
- - Discussions/solutions/negotiations of contractual issues with the Customer
- - Contact person for the customer regarding billings deliverables, concerns,
etc.
- - Regular contact with the customer to assure needs are being met by
responsible engineering team
- - Ability to select vendors and appropriate technologies
- - Quantify resources needed for start-up system
- - Assist in development of corporate market level strategy
- - Ability to initiate new projects
- - One or more markets of responsibility
- - Capable of fulfilling all aspects of the following positions: Project
Leader, System Engineer and RF Engineer
PROJECT LEADER
Skilled in managing all roles in the RF network design and implementation
process.
Mastery in all technical aspects of mobile radio network engineering.
- - Primary client interface in the field
- - Assumes project management responsibility for RF engineering in the market
- - Develops overall project planning and review for the market
- - Monitors progress, provides quality review and technical guidance to LCC
staff as necessary
- - Provides presentations and/or job training for clients
- 21 -
<PAGE> 22
- - Responsible for overall system design
- - Supervises and oversees work efforts of the LCC staff engineers
- - Provides field work support
- - Performs other project related duties (engineering reports, research,
travels, etc.)
- - Provides general technical support to the customer
- - Provides assistance to Project Manager as required
- - Coordination of leasing and zoning issues
- - Attends market level meetings
- - Coordinates LCC workload in market
- - Prepares and presents market level reviews, projects, concerns
- - Delegates work among LCC team
- - Capable of fulfilling all aspects of the following positions: System
Engineer and RF Engineer
SYSTEM ENGINEER
Knowledge of mobile radio network engineering.
Able to make system level design decisions effecting network performance.
- - System related RF design work
- - Frequency planning
- - Expansion planning
- - Ability to develop research oriented reports and documentation
- - System optimization
- - Thorough understanding of RF software design tools
- - Isolation studies
- - Representation of zoning related hearings (zoning support)
- - Interaction with clients to resolve problems
- - Assists Project Leader
- - FCC and FAA filing reviews and system level issues
- - Capable of fulfilling all aspects of an RF Engineer
- 22 -
<PAGE> 23
RF ENGINEER
Knowledge of mobile radio network engineering.
Able to make sit level design decisions.
- - Able to run basic RF software design tools (ANET, CellCAD, etc..)
- - RF design of base sites (design for coverage and handover objectives)
- - Specify antenna and cable types
- - Collect and post process drive test data
- - Evaluation of best candidates
- - Measurement integration
- - Site visits for candidate and RF analysis
- - FCC and FAA filings
- - Site sweeps
- - Assists Project Leader and System Engineers
- 23 -
<PAGE> 24
EXHIBIT C
SCHEDULE FIELD TEST MEASUREMENT EQUIPMENT
MAINTENANCE & SUPPORT
All LCC equipment purchased or upgraded after October 1, 1996, hereof
will receive maintenance and support services under LCC's Platinum Protection
Plan (as described below) for a period of one year from the date of shipment at
no additional charge. Nextel may extend coverage for any one or more unit(s)
under the Platinum Protection Plan after the first year or add existing
equipment to the Platinum Protection Plan at the following prices (prices are
per unit per year of coverage):
<TABLE>
<S> <C>
RSAT2000 iDEN w/o navigation [________]
RSAT2000 iDEN w/navigation [________]
EXP2001 (any configuration) [________]
TX1500 [________]
CM1500 SMR/AMPS [________]
</TABLE>
The foregoing rates are subject to increase in the same manner
as the increases for software maintenance and support fees provided for under
Section 5.5(a) of this Agreement.
The Platinum Protection Plan entitles Nextel to the following
benefits: (i) LCC will use reasonable commercial efforts to repair or replace
equipment that fails to operate in accordance with its specifications within 3
days of LCC's receipt of the subject equipment at its facilities in Arlington,
Virginia, or LCC will send a comparable loaner unit to Nextel; (ii) all parts
and labor for repairs are free of charge; and (iii) LCC will provide "out of
box" failure protection, meaning that LCC will promptly (generally within 1
business day, and prior to LCC's receipt of the failed unit) ship spare unit(s)
to replace any unit(s) that fail to operate in accordance with their
specifications within 10 business days of initial installation in the field.
Units will also be entitled to free factory calibration upon request.
- 24 -
<PAGE> 25
EXHIBIT D1
Staffing Plan for October, November, and December, 1996
- 25 -
<PAGE> 26
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
70 Chicago 0 0 70
- ------------------------------------------------------------------------------------------------------------------------------------
70 Cleveland Tom Swanson DE 2 70 Cleveland Tom Swanson DE 2 70
Liang Li DE Liang Li DE
- ------------------------------------------------------------------------------------------------------------------------------------
70 Denver 0 70 Detroit 0 70
- ------------------------------------------------------------------------------------------------------------------------------------
72 New York Vincente Huaman DE 2 72 New York Vincente Huaman DE 2 72
Sanjay Shenoy AE Sanjay Shenoy
- ------------------------------------------------------------------------------------------------------------------------------------
72 Maryland/ Navid Nawab SE 3 72 Maryland/ Navid Nawab SE 3 72
Philadelphia Shipa Mandavia AE Philadelphia Shipa Mandavia AE
Bernard Stapor (MD) Bernard Stapor (MD) SE
- ------------------------------------------------------------------------------------------------------------------------------------
71 NSC (One requested) PM 1 71 NSC (One requested) PM 1 71
- ------------------------------------------------------------------------------------------------------------------------------------
71 Sacramento Shiyam Sivagurunthan DE 1 71 Sacramento Shiyam Sivagurunthan DE 1 71
- ------------------------------------------------------------------------------------------------------------------------------------
71 Oakland Bahreh Norouzi PM 4 71 Oakland Bahreh Norouzi PM 3 71
Reza Okhavri PM Reza Okhavri PM
Chris Helzer (-20th) PM
Zafar Naqvi DE Zafar Naqvi DE
- ------------------------------------------------------------------------------------------------------------------------------------
71 Lafayette 0 71 Lafayette 0 71
- ------------------------------------------------------------------------------------------------------------------------------------
72 OK/Kansas 0 72 OK/Kansas 0 72
- ------------------------------------------------------------------------------------------------------------------------------------
72 Los Angeles Mohamed Sharif PM 10 72 Los Angeles Mohamed Sharif PM 10 72
Mark Crompton SE Mark Crompton SE
Shehzad Khan DE Shehzad Khan DE
Gordon Graham SE Gordon Graham SE
Clarence Worrell SE Clarence Worrell SE
Jovan Zivkovic SE Jovan Zivkovic SE
Michael Downs SE Michael Downs SE
James Hilyer SE James Hilyer SE
Kamran Afshar DE Kamran Afshar DE
Ben Ghaffari AE Ben Ghaffari AE
- ------------------------------------------------------------------------------------------------------------------------------------
72 San Diego Martin Dossett PM 2 72 San Diego Martin Dossett PM 2 72
Lalaine Berba DE Lalaine Berba DE
- ------------------------------------------------------------------------------------------------------------------------------------
71 Houston 0 71 Houston 0 71
- ------------------------------------------------------------------------------------------------------------------------------------
71 Dallas 5 71 Dallas 5 71
John Wei DE John Wei DE
Bill Callahan DE Bill Callahan DE
Steven Chen AE Steven Chen AE
Sevor Klu AE Sevor Klu AE
Marguerite Leonard DE Marguerite Leonard DE
- ------------------------------------------------------------------------------------------------------------------------------------
72 Atlanta/Gulf Khaled Chehimi PM 8 72 Atlanta/Gulf Khaled Chehimi PM 7 72
Kantesh Ahuja DE Kantesh Ahuja DE
Sean Tayyebi DE Sean Tayyebi DE
Nessar Babiker DE Nessar Babiker DE
Stephen Dye SE Stephen Dye SE
Timothy Farrar AE Timothy Farrar AE
Omar Ksaibati AE Omar Ksaibati AE
Additional for New DE Additional for New DE
Orleans Orleans
- ------------------------------------------------------------------------------------------------------------------------------------
72 Tampa/ Shoaib Yahya SE 2 72 Tampa/ Shoaib Yahya SE 3 72
Orlando Kyle Lee DE Orlando Kyle Lee DE
Farshid Alaee DE Farshid Alaee DE
- ------------------------------------------------------------------------------------------------------------------------------------
72 Raleigh NC Russell Bellamy SE 2 72 Raleigh NC Russell Bellamy SE 2 72
Bob Towery DE Bob Towery DE
In market 41 In market 40
Requested 43 Requested 41
July Contract Projections 36 July Contract Projections 35
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 26 -
<PAGE> 27
EXHIBIT D2
Staffing Plan for the 1st and 2nd Quarter, 1997
- 27 -
<PAGE> 28
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Chicago 0 70 Chicago 0
- ------------------------------------------------------------------------------------------------------------------------------------
Cleveland Tom Swanson DE 2 70 Cleveland Tom Swanson DE 2
Liang Li DE Liang Li DE
- ------------------------------------------------------------------------------------------------------------------------------------
Denver 0 70 Denver 0
- ------------------------------------------------------------------------------------------------------------------------------------
Detroit 0 70 Detroit 0
- ------------------------------------------------------------------------------------------------------------------------------------
New York 0 72 New York One request t.b. made 1
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland/ 2 72 Maryland/ 2
Philadelphia Shipa Mandavia AE Philadelphia Shipa Mandavia AE
Bernard Stapor (MD) SE Bernard Stapor (MD) SE
- ------------------------------------------------------------------------------------------------------------------------------------
NSC (One req. we'll PM 1 71 NSC or Other (One req. we'll PM 4
provide) provide)
(Three additional
requests to be made and
filed)
- ------------------------------------------------------------------------------------------------------------------------------------
Sacramento 0 71 Sacramento 0
- ------------------------------------------------------------------------------------------------------------------------------------
Oakland Bahareh Norouzi PM 2 71 Oakland Bahareh Norouzi PM 1
Raza Okhavri PM
- ------------------------------------------------------------------------------------------------------------------------------------
Lafayette 0 71 Lafayette 0
- ------------------------------------------------------------------------------------------------------------------------------------
OK/Kansas 0 72 OK/Kansas 0
- ------------------------------------------------------------------------------------------------------------------------------------
Los Angeles 8 72 Los Angeles 8
Mark Crompton SE Mark Crompton SE
Shehzad Khan DE Shehzad Khan DE
Gordon Graham SE Gordon Graham SE
Clarence Worrell SE Clarence Worrell SE
- ------------------------------------------------------------------------------------------------------------------------------------
Jovan Zivkovic SE Jovan Zivkovic SE
Michael Downs SE Michael Downs SE
James Hilyer SE James Hilyer SE
- ------------------------------------------------------------------------------------------------------------------------------------
Ben Ghaffari AE Ben Ghaffari AE
- ------------------------------------------------------------------------------------------------------------------------------------
San Diego Marti n Dossett PM 2 72 San Diego Martin Dossett PM 2
Lalaine Berba Lalaine Berba DE
- ------------------------------------------------------------------------------------------------------------------------------------
Houston 0 71 Houston 0
- ------------------------------------------------------------------------------------------------------------------------------------
Dallas 5 71 Dallas 5
John Wei DE John Wei DE
Bill Callahan DE Bill Callahan DE
Steve Chen AE Steve Chen AE
- ------------------------------------------------------------------------------------------------------------------------------------
Sevor Klu AE Sevor Klu AE
Marguerita Leonard DE Marguerita Leonard DE
- ------------------------------------------------------------------------------------------------------------------------------------
Atlanta/Gulf Khaled Chemimi PM 7 72 Atlanta/Gulf Khaled Chemimi PM 7
Kantesh Ahuja DE Kantesh Ahuja DE
Sean Tayyebi DE Sean Tayyebi DE
Nasser Babiker DE Nasser Babiker DE
Stephen Dye SE Stephen Dye SE
Timothy Farrar AE Timothy Farrar AE
Omar Ksaibati AE Omar Ksaibati AE
- ------------------------------------------------------------------------------------------------------------------------------------
Tampa/Orlando Kyle Lee DE 2 72 Tampa/ 2
Farshid Alaee DE Orlando Kyle Lee DE
Farshid Alaee DE
- ------------------------------------------------------------------------------------------------------------------------------------
Raleigh NC Bob Towery DE 1 72 Raleigh NC Bob Towery DE 1
- ------------------------------------------------------------------------------------------------------------------------------------
In market 32 In market 35
Requested 32 Requested 35
Sept Contract Projections 30 Sept Contract Projections 30
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 28 -
<PAGE> 29
EXHIBIT E
Expense Reimbursement Guidelines
1. Employees on short-term assignment (defined as employees intended to
be in a market eleven months or less):
<TABLE>
<S> <C>
Per Diem $90.00/day
Automobile rental $1000/month (maximum; based on actual receipts)
Six-week trips: $300/month (on average basis, based on actual receipts)
</TABLE>
The "Per Diem" listed above is a combination of the customary expenses per diem
(allowable IRA amount for the city involved, generally $34.00/day) plus a
second portion for lodging. The expenses portion is paid only on days the
engineer spends in the Nextel market, including weekends, legal holidays and
sick days contiguous with workdays in the market; it is not paid when the
employee is on vacation. However, the lodging portion continues to be paid for
all days that the engineer is on assignment in the market, including vacation,
since the lodging is usually a monthly contract for an apartment.
This lump-sum expense does not include the costs of the flight beginning and
ending the assignment in the market, or miscellaneous job-related costs such as
photo development fees, parking and travel for site visits, etc. as have
habitually been paid; these costs will continue to be submitted on expense
reports with receipts and will be paid by Nextel.
The cost of automobiles will be billed at actual cost of rental or lease (or
under the agreed Runzheimer plan when applicable; the Runzheimer plan costs
would also include the cost of shipping the vehicle to and from the market), up
to the agreed maximums. LCC / TSI will make all efforts possible to minimize
the costs of rental cars by entering into long-term leases in cases where this
conforms to the length of commitment to TSI engineers in a market.
Finally, for those engineers who continue in a market beyond 12 months and
cannot be committed to a long-term plan, Nextel will continue to be responsible
for additional personal income tax responsibilities incurred by the employee as
a result of being in the market for more than the IRS maximum time allowed.
2. Employees on long-term assignment (intended at beginning to be 12
months or more, and agreed to with market):
If an engineer is expected to be in a market for more than one additional year,
LCC / TSI will encourage the conversion of that engineer's expenses to the
long-term expense plan, as follows:
- 29 -
<PAGE> 30
<TABLE>
<S> <C> <C>
Monthly sum $3500.00 includes housing, per diem, trips to home
office
- --------------------------------------------------------------------------------------------------------
Moving costs:
if already max $3250 to require actual receipts
in market market,
max. $6500 from
if new to market market
max. $6500 to require actual receipts
market,
max. $6500 from
market
Employee income tax no provision Employee is responsible for taxes himself
- --------------------------------------------------------------------------------------------------------
</TABLE>
Again, these costs are in addition to usual reimbursable job- related expenses,
and are also in addition to the cost of the initial and final trip to the
assignment location. However, it does not include the cost of vehicles on
site, which will again be subject to the current policies on rental, lease or
Runzheimers. It will be strongly encouraged to enter into a Runzheimer or
long- term lease for long-term employees, as the costs can be very greatly
reduced in comparison to rental costs. LCC continues to reserve the right to
charge a penalty if Nextel breaks a long-term commitment to an employee, as
described in section 4.2.5 of the previous LCC/Nextel contract.
32
- 30 -
<PAGE> 1
EXHIBIT 10.12
***Portions of this exhibit marked by brackets ("[__________]") or otherwise
identified have been omitted pursuant to a request for confidential treatment.
The omitted portions have been filed separately with the Securities and
Exchange Commission.***
AMENDED AND RESTATED
SOFTWARE LICENSE AGREEMENT
THIS AMENDED AND RESTATED SOFTWARE LICENSE AGREEMENT (the "Agreement")
is made and entered into as of October l, 1996, by and between LCC, a division
of LCC International, Inc., a Delaware corporation having its principal offices
at 2111 Wilson Boulevard, Suite 401, Arlington, Virginia 22201 (collectively,
"LCC"), and Nextel Communications, Inc., a Delaware corporation having its
principal offices at 1505 Farm Credit Drive, Suite 100, McLean, Virginia 22102
("Nextel").
WITNESSETH:
WHEREAS, Nextel and LCC are parties to that certain Amended and
Restated Software License and Service Agreement, dated as of July 1, 1995, as
heretofore amended, (the "July Agreement"); and
WHEREAS, the parties hereto desire to amend, consolidate and restate
the July Agreement in this Agreement, together with the Amended and Restated
Service Agreement executed by the parties as of the date hereof (the "Services
Agreement");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
are acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:
1.1 ANET Software. The term "ANET Software" shall mean LCC's
proprietary ANET network planning software, release 2.0, in machine-readable,
object code form only.
1.2 CellCAD Software. The term "CellCAD(TM) Software" shall mean
LCC's proprietary CellCAD II network planning software, release 3.0, in
machine-readable, object code form only.
1.3 CMA Software. The term "CMA Software" shall mean LCC's
proprietary CMA field test measurement analysis software, in machine readable,
object code form only, which is designed to operate in conjunction with the
ANET Software.
1.4 CellQUEST Software. The term "CellQUEST Software" shall mean
LCC's proprietary CellQUEST field test measurement analysis software in machine
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readable, object code form only, which is designed to operate in conjunction
with the CellCAD Software.
1.5 Defect. The term "Defect" shall mean any material and
reproducible error, problem or defect resulting from an incorrect functioning
of the Software or an incorrect or incomplete identification, statement or
diagram in the Documentation, if such error, problem or defect causes the
Software to fail to perform substantially in the manner specified in the
Documentation (as such Documentation is in effect when such Defect first
manifested itself).
1.6 Documentation. The term "Documentation" shall mean the
designated LCC user manuals and instructions provided to Nextel regarding the
use of the Software which, as of the date hereof, are identified on Exhibit C
hereto.
1.7 Independent Contractor. The term "Independent Contractor"
shall mean an independent contractor of Nextel, excluding any entity or
employee of any entity that provides software in competition with LCC, which
has executed a Confidentiality Agreement with LCC that is reasonably
satisfactory to LCC in form and substance.
1.8 Installation Sites. The term "Installation Sites" shall mean
Nextel's facilities in the Territory, where the Software will be installed and
used in accordance with the provisions of this Agreement.
1.9 Nextel. For the purposes of this Agreement, except where the
context expressly indicates otherwise, the term Nextel shall be deemed to
include Nextel Communications, Inc. and each entity that both (i) owns or
operates a System and (ii) is "controlled" by Nextel Communications, Inc.,
where the term "control" means the ownership of 50% or more of an entity's
capital stock or voting securities.
1.10 Optional Enhancement. The term "Optional Enhancement" shall
mean any improvement, addition or revision to the Software that is: (i)
developed by LCC, and (ii) not part of LCC's normal software release process
and (iii) is not a Standard Enhancement.
1.11 Services. The term "Services" shall mean the services to be
rendered by LCC to Nextel pursuant to Section 4.
1.12 Software. The term "Software" shall mean: (i) the ANET
Software; (ii) the CellCAD Software; (iii) the CMA Software; (iv) the CellQUEST
Software; (v) any Standard Enhancement; and (vi) any Optional Enhancement which
becomes part of this Agreement in accordance with the provisions of Section
2.5.
1.13 Standard Enhancement. The term "Standard Enhancement" shall
mean any improvement, addition or revision to the Software that is: (i)
developed by LCC; and (ii) part of LCC's normal software release process. For
the purposes of this
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Agreement: (a) all future point releases (e.g., versions 2.1, 2.2, 3.0, etc.)
of LCC's proprietary ANET software, and (b) all future point releases (e.g.,
version 3.0, 4.0, 5.0 and 6.0, etc.) of LCC's proprietary CellCAD II software,
shall each be considered Standard Enhancements to the ANET Software and the
CellCAD Software, respectively, and shall be delivered to Nextel when the same
are available for commercial release by LCC.
1.14 Systems. The term "Systems" shall mean each digital mobile
telephone system that: (i) is owned or operated by Nextel in the Territory, or
(ii) Nextel may consider acquiring (including the acquisition by tender of a
license to operate a system) either within the Territory or in nations outside
the Territory, but only for the purpose of supporting Nextel's analysis
regarding such acquisition.
1.16 Territory. The term "Territory" shall mean: (i) each
geographical area in the United States (including Alaska and Hawaii), Puerto
Rico and/or the U.S. Virgin Islands in which Nextel operates or plans to
operate a System, and (ii) each additional geographical area in the world that
is added to the Territory in accordance with the provisions of Section 2.10
hereof.
1.17 Trademarks. The term "Trademarks" shall mean: (i) ANET(TM),
CellCAD(TM), and LCC(R), which are trademarks of LCC, (ii) LCC(R), which is a
service mark of LCC, and (iii) any other trademark, service mark or logo used
by LCC during the term of this Agreement with respect to all or any part of its
corporate organization and/or the Software, provided that LCC generally
designates the trademark, service mark or logo with an appropriate "TM" or "R"
symbol in LCC's marketing or promotional materials.
2. SOFTWARE LICENSE.
2.1 License. LCC hereby grants to Nextel, and Nextel hereby
accepts from LCC, a non-exclusive, non-transferable and restricted right and
license to use the Software and the Documentation in accordance with the terms
of this Agreement.
2.2 Terms and Restrictions. Nextel agrees to the following terms
and restrictions on its use of the Software and the Documentation:
2.2.1 The Software and the Documentation shall be used:
(i) solely at the Installation Sites, by Nextel and its employees and/or
Independent Contractors, provided that the CMA Software and CellQUEST Software
may be used anywhere in the Territory; and (ii) solely for the purpose of
supporting the design and operation of the Systems. In no event shall the
Software or the Documentation be used for the purpose of processing data for or
otherwise supporting any cellular radiotelephone or digital mobile telephone
system which is located outside the Territory or which is operated by any
person other than Nextel. Nextel agrees to operate the Software only as
prescribed in the Documentation.
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2.2.2 The Software and the Documentation may be copied, in
whole or in part, only to the extent required by Nextel to use the Software
and/or the Documentation in accordance with the rights granted hereunder and
for back-up or archival purposes.
2.2.3 LCC shall assure that the Software and the
Documentation provided to Nextel hereunder contains such copyright and other
proprietary rights notices as LCC believes to be appropriate or advisable, and
Nextel shall include all such copyright and other proprietary rights notices
included on the Software or the Documentation on all copies of the Software or
Documentation prepared by or for Nextel. In no event shall Nextel erase or
obliterate any such notices.
2.2.4 Nextel agrees that it shall not: (i) reverse
engineer, disassemble, decompile, interrogate or decode the Software or any
data files created by or associated with the Software; (ii) derive source code,
methodologies or proprietary algorithms from the Software; or (iii) modify the
Software or otherwise create any derivative work from the Software.
2.2.5 Nextel agrees and acknowledges that, as between
Nextel and LCC, the Software and the Documentation are unpublished, licensed
works of LCC which contain trade secrets of LCC
2.2.6 Nextel agrees that it shall not, at any time during
or after the term of this Agreement, sell, assign, lease, sublicense or
otherwise transfer the Software or the Documentation.
2.3 CellCAD Software. Nextel shall have the option, upon written
notice to LCC, to elect to have ANET Software being used in connection with any
Installation Site switched out and replaced with CellCAD Software. As soon as
practicable following its receipt of Nextel's notice of conversion, LCC agrees
to install the CellCAD Software at the relevant Installation Site in accordance
with the provisions of Section 4.1.2(b) hereof.
2.4 Standard Enhancements. LCC shall furnish each Standard
Enhancement to Nextel at no additional charge.
2.5 Optional Enhancements. LCC shall make Optional Enhancements
available to Nextel as they are commercially released by LCC for such
additional fees and/or charges, and upon such other terms, as may be mutually
agreed upon by the parties. The mutually agreed terms upon which additional
Optional Enhancements shall be delivered to Nextel shall be reflected in an
amendment to this Agreement. Upon the execution of any such amendment, the
Optional Enhancement covered thereby shall become a part of the Software for
all purposes of this Agreement, as so amended.
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2.6 Sale of System. Nextel agrees that prior to any sale,
transfer or assignment of any System in the Territory to any person other than
a Nextel affiliate or subsidiary: (i) Nextel shall advise LCC in writing of
such sale, transfer or assignment and (ii) Nextel shall use reasonable efforts
to cause the purchaser, transferee or assignee to enter into a separate
Software license agreement in connection with the transfer of the relevant
System, which separate Software license agreement shall provide for the grant
by LCC of a non-exclusive license for the then remaining term of this Agreement
to use any Software then installed for use with such System on substantially
the same terms as set forth herein. In the event that the purchaser, transferee
or assignee enters into such a separate Software license agreement, then Nextel
shall be entitled to a credit against the monthly Software license fees due for
any month hereunder in an amount equal to any monthly Software license fees
paid by such purchaser in such month under such separate Software license
agreement. Such separate Software license agreement may only be assigned to the
purchaser, transferee or assignee of such System. In the event that Nextel's
sale, transfer or assignment of such System is not completed, the parties shall
terminate and cancel such separate Software license agreement and continue
under the terms of this Agreement. In addition, if such sale, transfer or
assignment should include all or substantially all of the Systems in the
Territory, Nextel shall obtain from the relevant purchaser, assignee or
transferee an appropriate written instrument to evidence the assumption of this
Agreement as part of such sale, assignment or transfer transaction.
2.7 ANET Software Continued Support. The parties agree that,
notwithstanding the commercial release of the CellCAD Software, LCC shall, at
Nextel's request, provide continued support to Nextel on the operation and use
of the ANET Software until the earlier of (i) the date that is six (6) months
after the date on which Nextel issues a conversion request under Section 2.3
above, or (ii) December 31, 1998 (the "Support Period"). It is, however, LCC's
intention to do minimal development of the ANET Software. Instead, LCC will
concentrate on developing the CellCAD Software with the expectation that most
clients will want the increased capabilities of the CellCAD Software in the
future.
2.8 WinMerge Software. LCC hereby grants to Nextel, and Nextel
hereby accepts from LCC, a non-exclusive, non-transferable and restricted right
and license to use LCC's proprietary "WinMerge" software, in machine-readable,
object code form only, in accordance with the terms of this Agreement, which
shall be considered a part of the Software and included in the software license
fees paid by Nextel for all purposes of this Agreement except: (i) the WinMerge
software shall be provided on an "AS IS" basis without any representation or
warranty of any kind or nature, and (ii) LCC shall have no obligation
whatsoever to support, enhance, improve, or correct any defect relating to the
WinMerge software. Accordingly, the provisions of Section 4.1, Section 7.1,
and Section 8 of this Agreement shall not apply to Nextel's use or possession
of the WinMerge software. LCC HEREBY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES
OF WHATEVER KIND
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OR NATURE, EXPRESS OR IMPLIED, RELATING TO THE WinMerge SOFTWARE INCLUDING,
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR USE
OR PURPOSE, AND ANY WARRANTIES OF NON-INFRINGEMENT.
2.9 Additional CellCAD Software Features. LCC agrees to devote
the resources of at least one (1) software developer to developing additional
Software features and/or functionality for Nextel including, without
limitation, the features for CellCAD, version 5, and CellCAD II, version 6,
generally described in Exhibit A attached hereto and such other features and
functionality as Nextel may periodically designate in writing to LCC. LCC may,
however, devote additional resources to such development with the intention of
releasing CellCAD II, version 5 in the second calendar quarter of 1997, and
CellCAD II, version 6 in the third calendar quarter of 1997. The parties
acknowledge and agree that the feature and/or function descriptions set forth
in Exhibit A attached hereto are intended only as a general description of the
features and functionality currently under consideration for the CellCAD
Software, and are subject to further review, change and revision by LCC as its
development efforts progress. Accordingly, the parties agree to use their best
efforts to work together in a timely manner to develop mutually acceptable and
detailed requirements documents and software specifications. The parties
further agree that the devoted software developer provided for above is
intended to address further developments and revisions of the Software to
produce features and functionality specifically requested by Nextel and Nextel
shall be entitled to the dedication of such software developer's time and
services for such objectives during the term of this Agreement without payment
of any additional license fees and maintenance and support fees under Sections
5.1 and 5.2.
2.10 Expansion of the Territory. Nextel shall have the option, at
anytime during the term of this Agreement, to expand the Territory subject to
the terms of this Section 2.10. In the event Nextel desires to expand the
Territory, then: (i) Nextel shall provide LCC with thirty (30) days prior
written notice setting forth the name(s) of any additional nations to be added
to the Territory and the date that Nextel first expects to use the Software in
or for that nation, (ii) the monthly software license fee set forth in Exhibit
B, Section 1 hereto shall be increased, effective on the first day of the month
in which the expansion becomes effective, by an amount equal to [___________]
times the number of computer video display terminals ("Workstations") used by
Nextel in such additional nation(s) during the month prior to each monthly
payment, and (iii) the monthly Support and Maintenance Fees set forth in
Exhibit B, Section 2 shall be increased, effective as set forth above, by an
amount equal to [______] times the number of Workstations over which either the
CellCAD Software or the ANET Software is used by Nextel in such additional
nation(s) during the month prior to said monthly payment.
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2.11 Export Control Compliance. Nothing in this Agreement
(including, without limitation, the provisions of Section 2.10 above) shall
require or permit LCC or Nextel to do any act inconsistent with the
requirements of (i) the regulations of the United States Department of
Commerce, (ii) the foreign assets controls or foreign transactions regulations
of the United States Treasury Department, or (iii) any similar law, rule,
regulation or executive order of the United States as they may be in effect
from time to time. To enable LCC to provide technical data to Nextel, Nextel
hereby warrants and agrees not to export, re-export or otherwise disclose,
directly or indirectly, and Software, Documentation or other "technical data"
received from LCC, nor allow the direct product thereof to be exported or
re-exported, directly or indirectly, to any prescribed or prohibited
destination unless permitted by U.S. law at the time of export. Nextel's
obligations under this Section 2.11 shall survive the termination, expiration
or cancellation of this Agreement.
2.12 Software; Exclusivity.
2.12.1 Exclusivity. During the term of this Agreement and in
the Territory, Nextel hereby agrees to use LCC as Nextel's exclusive provider
of network propagation modeling software, of the type offered by LCC, and
further agrees Nextel shall not purchase, license or acquire any such software
product(s) from any person, corporation, partnership, company or other entity
other than LCC provided, however, that nothing herein shall impair Nextel's
rights under section 2.12.3 hereof.
2.12.2 Quarterly Requests: Annual Review. The parties agree
to meet on an annual basis, on or about July 1 of each year during the term
hereof, to review and discuss LCC's development plans with respect to the
CellCAD Software. Nextel shall have the right, at anytime within the five (5)
business day period immediately following July 1, 1997 and the first day of
each calendar quarter thereafter, to deliver a written request to LCC
specifying any one or more specific features for incorporation in the CellCAD
Software that: (i) is then-available from LCC's competitors in the marketplace,
(ii) if incorporated in the CellCAD Software, would significantly enhance the
utility, efficiency or reliability of the software, and is material to the
conduct, cost or competitive advantage of or associated with Nextel's business
("Major Feature Request"). Nextel's Major Feature Request shall set forth: (i)
a detailed description of the feature requested, (ii) an explanation of the
enhanced utility efficiencies or reliability that Nextel desires to achieve
with the feature(s), and (iii) the price and terms on which Nextel could obtain
software incorporating such requested feature(s) and the increased software
license fees and/or maintenance and support fees that Nextel reasonably
believes LCC would be able to charge Nextel and other customers for the
enhanced features and/or functionality based upon market rates. Within thirty
(30) days after LCC's receipt of any Major Feature Request, the parties shall
meet to negotiate and agree upon, in good faith: (i) detailed design
specifications and requirements documents for the
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requested features, and (ii) any additional software license and/or software
maintenance and support fees that Nextel will be obligated to pay to LCC for
the enhanced features or functionality. In the event that the parties are
unable to reach agreement on such matters before the expiration of such thirty
(30) day period, then (i) the specifications and requirements documents and
(ii) pricing for the enhancements shall be submitted to and determined by
expedited arbitration pursuant to Section 13.13 below; provided that Nextel may
withdraw any Major Feature Request by delivering written notice to that effect
to LCC not later than five (5) business days after Nextel's receipt of the
arbitrator's final written decision.
2.12.3 Termination. In the event that LCC fails to develop
and implement any Major Feature Request within six (6) months after the later
of: (i) the date the parties agree upon the pricing and detailed design
specifications and requirements documents for the requested feature(s), or (ii)
the date the pricing is determined by expedited arbitration pursuant to Section
12.2.2 above (the "Commencement Date"), then Nextel shall have the option to
terminate, upon written notice to LCC provided at anytime within ten (10)
business days after the date that is six (6) months after the Commencement
Date, the exclusivity provisions of Section 2.12.1 hereof. In the event that
LCC fails to implement any Major Feature Request within twelve (12) months
after the Commencement Date, Nextel shall have the option, upon written notice
to LCC provided at anytime within ninety (90) days after the date that is
twelve (12) months after the Commencement Date, to terminate this Agreement
effective thirty (30) days after the date of such termination notice.
3. PROPRIETARY PRODUCTS AND WORKS.
3.1 Proprietary Rights. The license granted pursuant to Section 2
does not constitute a transfer or sale of LCC's ownership rights in or to the
Software or the Documentation. All right, title and interest in and to the
Software and the Documentation (including any copies or subsequent versions
thereof) shall remain the exclusive property of LCC, subject to the rights
expressly granted hereunder. LCC shall be the sole owner of any and all
inventions, discoveries, improvements, updates and enhancements relating to the
Software or the Documentation (whether in written or unwritten form) which are
made, developed, conceived of or reduced to practice by LCC. LCC shall retain
the exclusive right to reproduce, publish, patent, copyright, sell, license and
otherwise make use of: (i) the Software; (ii) the Documentation; and (iii) any
and all inventions, discoveries, improvements, updates and enhancements
relating to the Software or the Documentation which are made, developed
conceived of or first reduced to practice by LCC. Nothing herein shall be
construed as conveying to Nextel any right or interest in or to any of the
Trademarks.
3.2 Works. Nextel shall not obtain any right, title or interest
in the Software, the Documentation or any of the know-how, methodologies,
databases,
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documentation or software used by LCC or its subcontractors in the performance
of the Services. All works authored by LCC or its subcontractors under this
Agreement (including all copyrights and other proprietary rights relating
thereto) shall belong exclusively to LCC, and such works shall not be deemed to
be works made for hire, unless otherwise agreed to in writing by the parties.
Notwithstanding the foregoing, any data provided by Nextel to be used in
connection with the Software, and any resulting work product in tangible or
intangible form produced thereby (such as, by way of illustration and not
limitation, frequency plans, cell site layout or configuration diagrams, d/B
contours and similar items relating to any System) shall be and remain the
exclusive property of Nextel, both during the term hereof and following any
expiration or termination of this Agreement.
3.3 Assistance. Nextel agrees to notify LCC promptly after
becoming aware of any infringement, unauthorized possession or misuse of any
Software, Documentation, data and/or information supplied by LCC under this
Agreement. Upon LCC's request and at LCC's expense, Nextel shall render all
reasonable assistance in the prosecution and/or settlement of any lawsuit or
other action instituted to prevent or terminate any such infringement.
4. LCC's SERVICES.
4.1 Software Services. LCC agrees to provide Nextel with the
following services relating to Nextel's use and operation of the Software:
4.1.1 Telephone and Facsimile Consultation. LCC shall
assign a customer service representative trained on the use of the Software to
answer, at no charge to Nextel, reasonable, limited telephone and/or facsimile
inquiries from Nextel concerning the use, operation and maintenance of the
Software. Such customer service representatives shall be available to Nextel
between the hours of 8:00 a.m. and 8:00 p.m. Eastern time, on LCC's normal
business days. LCC's current technical support telephone number is (703)
516-7390.
4.1.2 Installation and Training.
(a) The parties acknowledge that the ANET
Software has, as of the date hereof, been installed at a variety of Nextel
Installation Sites. For each new installation (except for conversions under
Section 4.1.2(b) below) of the ANET Software or the CellCAD Software, LCC
agrees to: (i) install the relevant Software at the Installation Site, and (ii)
provide up to two (2) days of training on the operation of the relevant
Software to two (2) designated employees of Nextel who will each have a
sufficient technical background (e.g., an experienced RF engineer) to
understand such training.
(b) In the event Nextel desires to convert an
existing Installation Site from the ANET Software to the CellCAD Software, LCC
agrees to: (i) convert Nextel's associated ANET databases into a format
compatible with the
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CellCAD Software, (ii) install the CellCAD Software at the relevant
Installation Site, and (iii) provide, up to two (2) days of training on the
operation of the CellCAD Software to two (2) designated employees of Nextel who
will each have a sufficient technical background (e.g., an experienced RF
engineer) to understand such training. Upon completion of the forgoing
conversion services for any Installation Site, Nextel: (i) shall promptly
return to LCC and/or destroy all copies of the ANET Software and related
Documentation used in connection with the relevant Installation Site, and (ii)
commence paying software support and maintenance fees for the relevant
Installation Site in accordance with Section 5.2 hereof.
(c) All training on the operation of the Software
shall: (i) use a structured, hands-on approach, and (ii) be designed to teach
each major function of the Software, the menu path to access the function, what
it does, when and why it is used and the data steps necessary for its use, all
in accordance with the relevant Documentation, and to teach any aspects of the
Software mutually acceptable to both parties.
(d) All installation and training provided under
this Section 4.1.2 shall: (i) take place at such times as are mutually agreed
upon by LCC and Nextel, (ii) be rendered by LCC in consideration for Nextel's
payment of LCC's then-current standard rates for such installation, training
and conversion services, plus reimbursement by Nextel of [______] of all
reasonable expenses (including travel [with airfare at coach rate], lodging and
meal costs) incurred by LCC in rendering such services, and (iii) be subject to
Nextel's completion of all pre-installation work necessary or required in order
to properly install the Software at any Installation Site including, without
limitation, the purchase, delivery and installation of all third party computer
equipment necessary to operate the Software.
4.1.3 Database Services. LCC agrees to convert and set up
such terrain, morphological, demographic and/or traffic database information
with respect to the Territory as Nextel may request. Such services shall be
rendered: (i) subject to the availability of suitable data, and (ii) in
consideration for Nextel's payment of LCC's then-current standard rates for
such database services, plus reimbursement of [______] of all reasonable
expenses incurred by LCC in rendering such services.
4.1.4 Photogrammetry Services. LCC agrees to provide such
photogrammetry services relating to the Territory as Nextel may request. Such
services shall be rendered: (i) subject to the availability of suitable data in
a format compatible with the software format used by LCC, and (ii) at the rate
of [________________] per 1:24,000 scale map (seven and one-half (7 1/2) minute
U.S.G.S. map). LCC shall have the right to increase the photogrammetry services
fees on July 1, 1997 and each July l thereafter during the term of this
Agreement by up to [___________] of the then-current photogrammetry service fee
rates.
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4.2 Subcontracting. LCC shall have the right to engage
subcontractors to perform any or all of the Services, subject to Nextel's prior
written approval, which shall not be unreasonably withheld or delayed. Each
such subcontractor shall execute a confidentiality agreement with Nextel that
is satisfactory to Nextel in form and substance.
5. FEES AND EXPENSES.
5.1 Software License Fees. On or before the first day of each
month during the term of this Agreement, Nextel agrees to pay to LCC the
Software license fees set forth in Exhibit B attached hereto.
5.2 Software Maintenance & Support Fees. For each computer video
display terminal that the CellCAD Software is used on under this Agreement
(including those terminals owned or leased by Nextel and used by employees of
LCC at Nextel's premises), Nextel agrees to pay LCC the Software maintenance
and support fees set forth in Exhibit B attached hereto. Each calendar quarter,
Nextel shall: (i) audit the total number of computer video display terminals
used by or on behalf of Nextel to operate the CellCAD Software, and (ii)
provide LCC, within fifteen days after the close of each calendar quarter, with
an accurate, complete and up-to-date count of the same. Nextel shall maintain
accurate books and records setting forth the total number of such terminals.
LCC shall have the right, upon reasonable notice to Nextel and at LCC's sole
cost and expense, to periodically audit Nextel's applicable and necessary
books, records and facilities to verify the numbers provided to LCC hereunder.
5.3 Expenses. Nextel agrees to reimburse LCC for all reasonable
expenses (including, without limitation, travel (with airfare at coach rate),
lodging, meal, telephone, facsimile, copying, shipping and other direct and/or
associated expenses and costs) incurred by LCC in the performance of the
Services, plus [_________].
5.4 Increase in Fees. LCC shall have the right to increase the
software license and software maintenance and support fees payable under
Sections 5.1 and 5.2 above on August 1, 1997 and each August 1 thereafter
during the term of this Agreement by an amount equal to
[_____________________________________________
____________________________________________].
5.5 Payment Terms and Interest. All payments of software license
fees under Section 5.1 hereof shall be made on or before the first day of each
month during the term of this Agreement. All payments of service fees,
reimbursements of expenses, software maintenance and support fees, and other
fees or charges due and payable under this Agreement shall be made within
thirty (30) days of the date of Nextel's receipt of LCC's invoice. All past due
payments shall bear interest until paid in full at the rate of one percent (1%)
per month or the highest rate allowed by applicable law, whichever is lower.
Should LCC commence an action against Nextel
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to collect any payments due, Nextel agrees to pay all reasonable costs of
collection, together with interest due and reasonable attorneys' fees.
5.6 Preferred Customer. Notwithstanding anything herein to the
contrary, it is the intent of the parties that: (i) Nextel shall be treated as
a preferred customer; and (ii) LCC's fees and charges for the Software,
services and hardware products, on an overall basis, shall be the most
favorable rates charged by LCC to any other customer for the same software,
services and hardware products.
6. HARDWARE PRODUCTS
6.1 Third Party Products.
6.1.1 Purchase of Third Party Products. In connection with
the installation of the CellCAD Software at any Installation Site under this
Agreement, Nextel shall have the option, in its sole discretion, to purchase
and/or license from LCC, and LCC hereby agrees to sell and/or license to
Nextel, those third party hardware and software products that LCC distributes,
as an authorized distributor, in connection with the CellCAD Software including
computer servers and workstations manufactured by Sun Microsystems, Inc.
("Third Party Products"). Provision by LCC to Nextel of such Third Party
Products shall be: (i) subject to availability, (ii) purchased for use by
Nextel and not with a view toward resale and/or distribution; (iii) sold under
the relevant vendor's standard terms and conditions of sale and/or licensing;
(iv) subject to Section 5.6 hereof, provided at LCC's then-current standard
list price for the item(s) ordered.
6.1.2 Installation of the Third Party Products. In the
event Nextel acquires from LCC the Third Party Products required for
installation of the CellCAD Software at any Installation Site, Nextel shall
have the option, in its sole discretion, to engage LCC to install, and LCC
agrees (upon such request) to install, such Third Party Products at the
relevant Installation Site concurrent with LCC's installation of the CellCAD
Software. LCC agrees to provide such installation services: (i) in substantial
accordance with the installation schedule(s) agreed to between the parties,
(ii) in consideration for Nextel's payment of LCC's then-current third party
equipment and software installation fees (subject to Section 5.6 hereof), and
(iii) subject to Nextel's performance of all pre-installation work (including,
without limitation, pre-wiring for network requirements, installation of
adequate power supplies and environmental controls, and the provision of a
floor plan showing the desired location for each network, machine and access
area) reasonably requested by LCC as necessary, desired or appropriate to
properly install the CellCAD Software and the Third Party Products.
6.1.3 Third Party Software Products. Nextel acknowledges
and agrees that: (i) the Software contains and/or will be used in connection
with certain third party software products consisting of software programs,
data base programs, data files, libraries, graphical user interface modules,
and similar software products
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<PAGE> 13
distributed by LCC in connection with the Software, (ii) the provisions of
Section 2.2 shall apply to the use of such third party software products under
this Agreement, and (iii) the warranties and limits of liability offered by the
relevant licensor to LCC shall be passed through to, and applicable to the use
of all such third party software products as if fully set forth in this
Agreement.
7. WARRANTY AND DISCLAIMER.
7.1 LCC's Warranties.
7.1.1 Subject to the limitations set forth below, LCC
warrants that the Software will perform substantially in the manner specified
in the Documentation. LCC's sole and exclusive obligation under the warranty
set forth in the preceding sentence shall be to use reasonable efforts to cure
any Defect in the Software following receipt of written notice from Nextel of
such Defect. Upon receipt by LCC of written notice of any Defect, LCC shall (i)
promptly start planning and implementing a cure therefor; (ii) provide Nextel
with a solution plan within ten (10) business days; (iii) keep Nextel advised
of LCC's efforts and progress to remedy such Defect; and (iv) cure such Defect
as quickly as reasonably possible, but in no event more than five (5) weeks
following LCC's receipt of written notice of such Defect. Cure of a Defect
shall include, without limitation, modification of the Software and changes and
updates of Documentation page(s). All warranty and cure related expenses shall
be borne solely by LCC and shall not require Nextel to make any payment or
reimbursement. Notwithstanding anything herein to the contrary, it is
expressly understood and agreed that LCC shall have no obligation whatsoever
under this Section 7.1.1: (i) if the Software is not operated in accordance
with LCC's instructions and on the equipment and in the configurations
identified by LCC in the Documentation; (ii) if the Defect arises in whole or
in part from terrain and/or other databases used in conjunction with the
Software unless such databases have been converted and set up by LCC; or (iii)
if the Software has been modified or used in an unauthorized manner by Nextel
or any third party.
7.1.2 LCC hereby represents and warrants that: (i) it has
the right to grant the license of the Software to Nextel and (ii) the Software
does not infringe any United States copyright of a third party.
7.1.3 LCC hereby represents and warrants that the storage
media on which the Software is delivered will be free from defects in material
and workmanship for a period of ninety (90) days from the date of delivery of
the Software by LCC to Nextel.
7.2 DISCLAIMER. THE WARRANTIES SET FORTH IN SECTION 7.1 ARE THE
ONLY WARRANTIES MADE BY LCC UNDER THIS AGREEMENT. SUCH WARRANTIES ARE IN LIEU
OF, AND LCC EXPRESSLY DISCLAIMS, ALL OTHER WARRANTIES AND/OR CONDITIONS UNDER
THIS AGREEMENT, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE,
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<PAGE> 14
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY, ANY
IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, ANY IMPLIED WARRANTY OF
NON- INFRINGEMENT (EXCEPT AS STATED IN SECTION 8) AND ANY IMPLIED WARRANTY
ARISING OUT OF THE COURSE OF DEALING, CUSTOM OR USAGE OF TRADE. LCC DOES NOT
WARRANT THAT THE SOFTWARE WILL: PERFORM OR BE CAPABLE FOR USE WITH ANY COMPUTER
SYSTEM OR EQUIPMENT OTHER THAN THAT RECOMMENDED BY LCC; FUNCTION WITHOUT
INTERRUPTION; AND/OR ACHIEVE ANY INTENDED RESULT. LCC DOES NOT WARRANT THE
QUALITY, ACCURACY AND/OR COMPLETENESS OF THE DATA IN ANY DATABASE TO THE EXTENT
SUCH DATA IS SUPPLIED BY SOURCES OUTSIDE OF LCC's CONTROL. LCC DOES NOT
PROVIDE, AND HEREBY EXPRESSLY DISCLAIMS, ANY AND ALL WARRANTIES WITH RESPECT TO
THIRD PARTY PRODUCTS. THE WARRANTIES SET FORTH IN SECTION 7.1 MAY NOT BE
ENLARGED, DIMINISHED OR AFFECTED WITHOUT LCC'S AND NEXTEL'S WRITTEN CONSENT.
7.3 LIMITATION OF LIABILITY. IN NO EVENT WILL LCC BE LIABLE TO
NEXTEL OR ANY OTHER PERSON FOR LOSS OF PROFITS, BUSINESS, USE OR DATA OR
SPECIAL, EXEMPLARY, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF
ANY KIND OR FOR ANY REASON, INCLUDING, WITHOUT LIMITATION, THE BREACH OF THIS
AGREEMENT OR ANY TERMINATION OF THIS AGREEMENT, WHETHER SUCH LIABILITY IS
ASSERTED ON THE BASIS OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT
LIABILITY) OR OTHERWISE, EVEN IF LCC HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. THE ESSENTIAL PURPOSE OF THIS PROVISION IS TO LIMIT THE POTENTIAL
LIABILITY OF LCC ARISING OUT OF THIS AGREEMENT. IN NO EVENT SHALL LCC'S
LIABILITY TO NEXTEL HEREUNDER EXCEED, IN THE AGGREGATE,
[_____________________________________]; PROVIDED, HOWEVER, THAT IN THE EVENT
THAT LCC IS FOUND LIABLE FOR WILLFUL BREACH OF THIS AGREEMENT, THEN AND ONLY
THEN LCC'S LIABILITY HEREUNDER MAY BE INCREASED BEYOND SUCH AMOUNT BUT ONLY TO
THE EXTENT THAT SUCH LIABILITY DOES NOT EXCEED THE LESSER OF: (1) NEXTEL'S
ACTUAL(e.g. OUT OF POCKET EXPENSES) DAMAGES RESULTING FROM SUCH WILLFUL BREACH
OR (2) ALL OF THE SERVICE AND SOFTWARE LICENSE FEES PAID BY NEXTEL TO LCC UNDER
THIS AGREEMENT PRIOR TO THE DATE THE CLAIM WAS MADE.
8. INFRINGEMENT.
8.1 Indemnity. Subject to the exclusions stated in Section 8.3,
LCC agrees to indemnify Nextel and to hold Nextel harmless from and against any
and all liabilities, damages, costs, charges and expenses (including reasonable
attorneys'
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<PAGE> 15
fees) incurred by Nextel as a result of or arising from any infringement or
alleged infringement of any United States copyright of a third party in
consequence of Nextel's use or possession of the Software in accordance with
the provisions of this Agreement, subject to the following:
8.1.1 Nextel shall notify LCC promptly in writing of any
alleged infringement of which Nextel has actual notice;
8.1.2 Nextel shall not make any admissions, representations
or statements without LCC's prior written consent, unless required by law;
8.1.3 Nextel, at LCC's request and expense, shall allow LCC
to conduct all negotiations, control any litigation and settle any claim; and
8.1.4 Nextel shall provide all reasonable assistance
requested by LCC.
8.2 Additional Obligations. If the Software is, or in the opinion
of LCC is likely to become, the subject of any action for infringement of any
United States copyright, or if the Software is adjudicated to infringe any
United States copyright, or if the use of the Software is enjoined in the
Territory, then LCC shall have the option to: (i) obtain for Nextel, at LCC's
expense, the right to continue using the Software; (ii) replace or modify the
Software so that it becomes non-infringing; or (iii) in the event the parties
mutually agree that (i) and/or (ii) above are not practical or possible, after
LCC's having used its best efforts, terminate this Agreement, without incurring
any further liability to Nextel, by providing written notice thereof to Nextel.
8.3 Exclusions. Notwithstanding the foregoing, LCC shall have no
obligation to indemnify Nextel pursuant to Section 8.1 with respect to any
infringement or alleged infringement resulting from any modification to the
Software made by Nextel or any third party or any unauthorized use of the
Software by Nextel or any third party.
8.4 Indemnification By Nextel. Nextel hereby agrees to indemnify
LCC and to hold LCC harmless from and against any and all liabilities, damages,
costs and expenses (including reasonable attorneys' fees) incurred by LCC as a
result of any unauthorized modification to or use of the Software by Nextel.
8.5 EXCLUSIVE OBLIGATIONS AND REMEDIES. THE FOREGOING ARE LCC'S
SOLE AND EXCLUSIVE OBLIGATIONS, AND NEXTEL'S SOLE AND EXCLUSIVE REMEDIES, WITH
RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT BY THE SOFTWARE OF ANY THIRD
PARTY'S INTELLECTUAL PROPERTY RIGHTS.
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<PAGE> 16
9. TAXES DUTIES AND LEVIES.
9.1 Nextel's Obligation to Pay. All license fees, fees for
Services and other payments to LCC are exclusive of any and all taxes, duties
or levies assessed by any governmental authority in the United States in
respect of such service fees and other payments. All such taxes, duties and
levies (exclusive of any taxes based upon LCC's net income) shall be assumed by
and paid for by Nextel, irrespective of whether included in any invoice sent to
Nextel at any time by LCC. Notwithstanding the foregoing, in the event that
Nextel is required by the laws of any foreign jurisdiction to withhold or
deduct any amounts from the payment of fees hereunder, Nextel agrees to pay to
LCC such additional amounts such that, after all required deductions or
withholdings, LCC receives the same amount that LCC would receive had no
deductions or withholdings been made.
10. NON-DISCLOSURE AND CONFIDENTIALITY.
10.1 Nondisclosure of Proprietary Information. In the event either
party hereto (the "Receiving Party") obtains from the other party hereto (the
"Disclosing Party") information in whatever form which is confidential or
proprietary ("Proprietary Information") the Receiving Party: (i) shall treat
all, such Proprietary Information as confidential; (ii) shall use such
Proprietary Information only for the purposes contemplated in this Agreement;
(iii) shall protect such Proprietary Information, whether in storage or in use,
with the same degree of care as the Receiving Party uses to protect its own
proprietary information against public disclosure, but in no case with less
than reasonable care; and (iv) shall not disclose such Proprietary Information
to any third party except to such employees and Independent Contractors of the
Receiving Party who need to know such Proprietary Information for the purpose
of effectuating this Agreement, who have been informed of the confidential
nature of such Proprietary Information and who are bound in writing by the
provisions of this Section 10.
10.2 Exclusions. The provisions of this Section 10 shall not apply
to any Proprietary Information which: (i) was in the public domain on the date
hereof or comes into the public domain other than through (a) the fault or
negligence of the Receiving Party or (b) a third party's breach of a
nondisclosure obligation to the Disclosing Party; (ii) was lawfully obtained by
the Receiving Party from a third party without breach of (a) this Agreement by
the Receiving Party or (b) a nondisclosure obligation of any third party to the
Disclosing Party, and otherwise not in violation of the Disclosing Party's
rights; (iii) was known to the Receiving Party at the time of disclosure as
shown by the Receiving Party's records in existence at the time of disclosure;
(iv) was independently developed by the Receiving Party, as shown by written
evidence of the Receiving Party, without making use of any Proprietary
Information of the Disclosing Party; or (v) is required to be disclosed
pursuant to the order of any court or governmental agency.
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<PAGE> 17
10.3 Return. Upon the expiration or termination of this Agreement,
and in any event upon the Disclosing Party's request at any time, the Receiving
Party shall: (i) return to the Disclosing party all documents (including any
copies thereof) embodying the Disclosing Party's Proprietary Information and
(ii) certify in writing to the Disclosing Party, within ten (10) days following
the Disclosing Party's request, that all such Proprietary Information has been
returned.
10.4 Injunctive Relief. LCC and Nextel acknowledge that the extent
of damages in the event of the breach of many provision of Section 10.1 or 10.3
would be difficult or impossible to ascertain, and that there will be available
no adequate remedy at law in the event of any such breach. Each party therefore
agrees that in the event it breaches any provision of Section 10.1 or 10.3, the
other party will be entitled to injunctive or other equitable relief, in
addition to any other relief to which it may be entitled.
10.5 Survival. The provisions of this Section 10 shall survive the
expiration or termination of this Agreement.
11. ADDITIONAL COVENANTS.
11.1 Non-solicitation. During the term of this Agreement
(including renewal terms, if any) and for a period of one (1) year following
the expiration or termination of this Agreement, neither party nor any of its
officers, agents, subsidiaries, successors or assigns shall, directly,
indirectly or in concert with any other person, solicit the services of,
retain, attempt to employ or employ any employee of the other party.
12. TERM AND TERMINATION.
12.1 Term. This Agreement shall commence on the date first set
forth above and shall continue in full force and effect until September 30,
1999, and shall thereafter be automatically renewed for additional and
successive terms of one (1) year, unless sooner terminated as provided herein.
12.2 Termination. This Agreement may be terminated:
12.2.1 By Nextel or LCC, immediately upon written notice of
termination, in the event of a material breach of this Agreement by the other
party, if such breach continues uncured for a period of thirty (30) days after
written notice of such breach;
12.2.2 By Nextel or LCC, immediately upon written notice of
termination to the other party, in the event the other party shall: (i) become
insolvent; (ii) make an assignment for the benefit of creditors; (iii) file a
voluntary bankruptcy petition; (iv) acquiesce to any involuntary bankruptcy
petition; (v) be adjudicated bankrupt; or (vi) cease to do business;
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<PAGE> 18
12.2.3 By Nextel or LCC, upon prior written notice to the
other party at least sixty (60) days prior to she conclusion of the initial
term or any annual renewal term thereafter;
12.2.4 By an executed written agreement between Nextel and
LCC.
12.2.5 By Nextel, pursuant to the provisions of Section
2.12.3 hereof.
12.3 Return of Software. Immediately following any termination or
expiration of this Agreement, Nextel shall: (i) return the Software, the
Documentation and all materials relating thereto (including all copies thereof)
and (ii) certify in writing to LCC that all such data, materials and copies
have been returned to LCC. Notwithstanding the foregoing, Nextel may retain one
(1) copy of any databases provided to Nextel in connection with LCC's provision
of the Services.
12.4 Termination of Prior Agreement. Upon the execution of this
Agreement, the July Agreement shall be automatically superseded and replaced in
its entirety by this Agreement. Each of Nextel and LCC, by executing this
Agreement, irrevocably waives and releases any and all claims either may have
against the other for any non compliance with the terms of the July Agreement
by such other party.
13. GENERAL.
13.1 Binding Effect; Assignment Restrictions. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Notwithstanding the foregoing, neither
Nextel nor LCC shall be entitled to assign or transfer any or all of its
respective rights or obligations hereunder without the prior written consent of
the other party; provided, however, that each party shall be entitled to assign
or transfer any or all of its rights to any entity that controls, is controlled
by or is under common control with such party without the prior written consent
of the other party. Any attempted assignment or transfer which is made in
violation of this Section 13.1 shall be null and void and shall be deemed a
material breach of this Agreement.
13.2 Relationship. The relationship between the parties to this
Agreement is and shall be that of independent contractors. It is expressly
agreed that nothing in this Agreement shall be construed to create or imply a
partnership, joint venture,. agency relationship or contract of employment.
Neither party shall have the authority to make any statement, representation or
commitment of any kind, or to take any action, that shall be binding on the
other party, except as authorized in writing by the party to be bound.
13.3 Force Majeure. The obligations hereunder of each party shall
be suspended while and to the extent that such party is prevented from
complying
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<PAGE> 19
herewith in whole or in part by any event beyond the reasonable control of such
party, which for purposes of this Agreement shall include, without limitation,
acts of God, earthquakes, unavoidable accidents, laws, rules, regulations or
orders of government authorities, acts of war (declared or not), hostilities,
blockades, civil disturbances, embargoes, strikes or any other similar event or
cause. If any event described in the preceding sentence should result in the
suspension of either party's performance of its obligations hereunder, such
party shall give written notice of such suspension to the other party,
specifying in reasonable detail the nature of the event causing such
suspension. The party whose performance has been suspended shall: (i) resume
performance of its obligations hereunder as soon as reasonably practicable
after the circumstances preventing such performance as provided above shall
have terminated or ceased to have such effect and (ii) immediately notify the
other party hereto in writing of such resumption.
13.4 Entire Agreement; Amendment. This Agreement (together with
the Exhibits attached hereto) constitutes the entire agreement between LCC and
Nextel, including their respective predecessor entities and controlled
affiliates, regarding the subject matter hereof. All prior or contemporaneous
agreements, proposals, understandings and communications between LCC and Nextel
regarding this Agreement and each of the agreements referenced in Sections
12.4, 11.2(a)and 11.2(b) of the July Agreement, whether oral or written, are
superseded by and merged into this Agreement. Neither this Agreement nor any
Exhibit hereto may be modified or amended except by a written instrument
executed by both LCC and Nextel. In the event of any inconsistency between the
terms of this Agreement and any purchase order or similar document issued by
Nextel under this Agreement, the terms of this Agreement shall control. Any
additional terms contained in any such purchase order or similar document shall
be of no force or effect, and LCC expressly objects to and rejects all such
additional terms.
13.5 Severability. In the event any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, the remaining provisions of this Agreement
shall be enforceable to the maximum extent possible.
13.6 Notices. All notices, consents and other communications
hereunder shall be provided in writing and shall be delivered personally, by
registered or certified mail (return receipt requested), overnight courier,
facsimile or similar method of communication, to the parties at the following
addresses (or such other address as may have been furnished by or on behalf of
such party by like notice):
If to LCC:
TSI, a division of
LCC International, Inc.
2111 Wilson Boulevard
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<PAGE> 20
Suite 401
Arlington, VA 22201
Facsimile: (703) 358-0062
Attention: President
With Copy to: General Counsel
If to Nextel:
Nextel Communications, Inc.
1505 Farm Credit Drive, Suite 100
McLean, Virginia 22102
Facsimile: (703) 394-3496
Attention: Chief Technology Officer
CC: General Counsel
Communications sent by facsimile shall be deemed effectively served
upon dispatch. Communications sentby registered or certified mail shall be
deemed effectively served seven (7) calendar days after mailing. Communications
sent by overnight courier shall be deemed effectively served one (1) business
day after dispatch.
13.7 Waiver. No waiver by either party of a breach of any term,
provision or condition of this Agreement by the other party shall constitute a
waiver of any succeeding breach of the same or any other provision hereof. No
such waiver shall be valid unless executed in writing by the party making the
waiver.
13.8 Headings. The section and subsection headings used in this
Agreement are intended for reference purposes only and shall not affect the
interpretation or construction of any provision of this Agreement.
13.9 Limitations. No action, regardless of form, arising out of
this Agreement may be brought by either party more than two (2) years after the
cause of action has arisen.
13.10 Attorney's Fees. In the event it is necessary for either party
to take any legal action to enforce any of the terms, provisions or conditions
of this Agreement, the prevailing party will be entitled to recover from the
other party all reasonable attorneys' fees and all reasonable costs and
expenses relating to such legal action.
13.11 Accrued Rights. The termination or expiration of this
Agreement shall not effect or prejudice either party's accrued rights
hereunder.
13.12 Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the Commonwealth of
Virginia, without regard to principles of conflicts of law. Each party hereby
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<PAGE> 21
irrevocably submits to the jurisdiction and venue of the federal and/or state
courts of the Commonwealth of Virginia for the purpose of any legal or
equitable action arising under this Agreement. Each party agrees that service
of process on such party in any such action maybe made by certified or
registered mail, return receipt requested, to the address of such party set
forth in Section 13.6.
13.13 Dispute Resolution.
13.13.1 Negotiated Resolution. If any dispute arises under
this Agreement that is not settled promptly in the ordinary course of business,
the parties shall seek to resolve such dispute between them, first by
negotiating promptly with each other in good faith, face-to-face negotiations.
Such face-to-face negotiations shall be conducted by the respective designated
senior management representatives of each party. If the parties are unable to
resolve the dispute between them within twenty (20) business days (or such
other period as the parties shall mutually agree upon) through such
face-to-face negotiations, then the complaining party may commence legal action
in accordance with Sections 13.9 and 13.12 of this Agreement.
13.13.2 Expedited Arbitration. Notwithstanding the above, in
the event that the parties are unable to agree upon the pricing, specifications
for, or any other matter relating to any Major Feature Request pursuant to the
provisions of Section 2 above, either party may request that the matter be
submitted to binding arbitration with the American Arbitration Association (the
"AAA") for final and exclusive resolution. The arbitration shall be held in
Washington, D.C. before a sole arbitrator, knowledgeable in the field of
telecommunications related software products, appointed by either: (i) mutual
written agreement of the parties, or (ii) if the parties are unable to agree
within five (5) days of the request for arbitration, by the AAA in accordance
with its rules ("Rules"). The arbitrator shall commence the arbitration within
five (5) days after his/her appointment, and shall issue a final written
decision within ten (10) days after commencement of the arbitration. Each party
agrees to provide the arbitrator, in person or in writing, any and all
information, documents and materials reasonably requested by the arbitrator to
render a decision.
13.14 Survival. The respective rights and obligations of the
parties under this Agreement that, by their nature and import, are intended to
.survive the termination or expiration of this Agreement shall survive the
termination or expiration of this Agreement.
13.15 Acknowledgment. EACH PARTY ACKNOWLEDGES THAT IT HAS
READ THIS AGREEMENT (INCLUDING THE EXHIBITS HERETO), UNDERSTANDS IT AND AGREES
TO BE BOUND BY ITS TERMS AND CONDITIONS.
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<PAGE> 22
IN WITNESS WHEREOF the parties hereto, by their duly authorized
representatives, have executed this Agreement as of the date first set forth
above.
NEXTEL COMMUNICATIONS, INC. LCC INTERNATIONAL, INC.
By: /s/ Barry West By: /s/ Piyush Sodha
--------------------------- ----------------------------------
Title: Chief Technology Officer Title: President
------------------------ ---------------------------------
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<PAGE> 23
EXHIBIT A
DESCRIPTION OF ADDITIONAL CELLCAD SOFTWARE FEATURES
FOR CELLCAD II, VERSION 5, AND CELLCAD II, VERSION 6
SCHEDULED FEATURES FOR CELLCAD II, VERSION 5
1. Data Usage Requirements
- - capability for a central database incorporating data generated by
CellCAD and data imported from Nextel's Operational Management Center
computer(s) ("OMC").
- - such data may include, for example, site name, site number, carrier
number, cell ID, Tx freq, Rx freq, color code, primary dispatch
service area, location area identifier dispatch, primary interconnect
area, BSC assignment, MPS feeder, MPS TI, starting DSO for MPS
assignment, number of DSOs used, Reserved DSOs, Transmit power (dBm),
Desired Pri (dBm), PCC (dBm), default Tx power level (Watts), county,
CHP dispatch telephone number and handoff parameters.
2. SDDI or Import from OMC
- - upgrading the CellCAD function that imports frequency plans & neighbor
lists import from the OMC to meet agreed upon specifications.
3. Frequency Planning
- - modifications to the CellCAD channel tables to meet agreed upon
specifications, e.g., (a) creating a "iDEN friendly" channel table
window instead of the standard CellCAD channel table window including
tracking of color code, and tracking of DCCH and PCCH, (b)
differentiating, by color or other means, between standard control
channels and other channels in the channel table, (c) allowing the
channel tables to be edited by the user, (c) creating a warning notice
to the user if a non control channel is selected as a control channel
- - Reporting of the channel may be in various formats (decimal, hex, or
FCC channel numbers).
4. Handover Class
- - modifications to track the handover class at the station level.
- - modifications to allow for the selection of one of several handover
classes.
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<PAGE> 24
Scheduled Features for CellCAD II, version 6.
1. SQE
- - modifications to include a SQE analysis tool which will be a function
of RSSI and C/I and will meet agreed upon specifications.
- - investigate possible other functions to calculate SQE.
2. 3:1 and 6:1 time slots
- - investigate the possibility of a single channel which is part 3:1 and
part 6:1
3. 3:1 and 6:1 analysis
- - analyze the C/I's & SQE's for 3:1 and 6:1 to determine the desired
level for the different number of time slots
Performance Standard
- - Not more than one major application failure per work station per
month.
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<PAGE> 25
EXHIBIT B
SCHEDULE OF SOFTWARE LICENSE
AND MAINTENANCE AND SUPPORT FEES
1. Software License Fees. In consideration for the software
license granted hereunder, Nextel agrees to pay LCC [_________________________]
per month, on or before the first day of each month during the term of the
Agreement.
2. CellCAD Support & Maintenance Fees. For each computer video
display terminal that the CellCAD Software is used on by or on behalf of Nextel
under this Agreement (including use by LCC at Nextel's premises in performance
of services), Nextel agrees to pay LCC an amount equal to
[______________________] per month. The total number of such terminals will be
calculated quarterly, and will remain fixed until the next proceeding quarterly
statement provided to LCC by Nextel under Section 5.2 of this Agreement. If
Nextel fails to provide LCC with any quarterly statement in accordance with
Section 5.2 of this Agreement, the total number of such terminals shall
automatically be increased by the number of terminals that LCC reasonably
believes are then in use by Nextel in connection with the CellCAD Software. The
automatic increase shall apply until Nextel delivers the applicable quarterly
statement(s) to LCC, provided, however, that no retroactive adjustments shall
be made to the amounts invoiced by LCC unless Nextel's actual quarterly
statement(s) indicate that more terminals were in use than was assumed by the
automatic increase implemented under this paragraph.
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<PAGE> 26
EXHIBIT C
DOCUMENTATION
ANET, Users Guide, V2.0
CellCAD II, Users Guide, VI.0
CellCAD II, Users Guide, V4.0
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<PAGE> 1
EXHIBIT 10.58
FIRST AMENDMENT AGREEMENT
Dated as of December 30, 1996
among
LCC INTERNATIONAL, INC.
LCC DESIGN SERVICES, L.L.C.
LCC DEVELOPMENT COMPANY, L.L.C.
THE LENDERS SIGNATORY HERETO
and
THE CHASE MANHATTAN BANK
as Administrative Agent
<PAGE> 2
FIRST AMENDMENT AGREEMENT
FIRST AMENDMENT AGREEMENT dated as of December 30, 1996 among LCC
INTERNATIONAL, INC., a corporation organized under the laws of Delaware (the
"Borrower"); LCC DESIGN SERVICES, L.L.C., a limited liability company organized
under the laws of Delaware, and LCC DEVELOPMENT COMPANY, L.L.C., a limited
liability company organized under the laws of Delaware (collectively, the
"Subsidiary Guarantors" and, together with the Borrower, the "Obligers"); each
of the financial institutions which is a signatory hereto as a "Lender"
(collectively the "Lenders"); and THE CHASE MANHATTAN BANK, a bank organized
under the laws of New York, as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Administrative
Agent").
WHEREAS, the Borrower, the Subsidiary Guarantors, the Lenders and the
Administrative Agent have entered into that certain Amended and Restated Credit
Agreement dated as of September 30, 1996 (as in effect prior to the
effectiveness of this Agreement, the "Existing Credit Agreement," and, as
amended by this Agreement, the "Amended Credit Agreement") pursuant to which
the Lenders have extended credit to the Obligers evidenced by certain
Promissory Notes dated September 30, 1996 issued by the Borrower and guarantied
by the Subsidiary Guarantors;
WHEREAS, the Borrower, the Subsidiary Guarantors, the Lenders and the
Administrative Agent have agreed to enter into this Agreement to provide for,
among other things, the modification of certain covenants and definitions
contained in the Existing Credit Agreement; and
WHEREAS, the Facility Documents, as amended and supplemented by this
Agreement (including, without limitation, this Agreement and the Amended Credit
Agreement) and as each may be amended or supplemented from time to time, are
referred to herein as the "Amended Facility Documents".
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1. AMENDMENTS TO EXISTING CREDIT AGREEMENT.
Each of the Obligers and, subject to the satisfaction of the
conditions set forth in Article 3, the Administrative Agent and the Lenders
hereby consents and agrees to the amendments to the Existing Credit Agreement
set forth below:
<PAGE> 3
(a) The definition of "Consolidated EBITDA" in Section
1.01 of the Existing Credit Agreement is hereby amended and restated in its
entirety to read as follows:
"Consolidated EBITDA" means, with respect to any fiscal
period, the sum of (a) Consolidated EDIT for such period, plus (b) the
aggregate amount of (i) depreciation and amortization expense, (ii)
non-cash accruals under the Phantom Membership Plan, (iii) in process
research and development expense related to the purchase of all the
assets of European Technology Partner AS up to $5,605,000 and (iv)
reserves taken during the Fiscal Year ending on December 31, 1996
against receivables, promissory notes and investments in DC and
NextWave up to $30,050,000, to the extent that such aggregate amount
was deducted in the computation of Consolidated EDIT for such period.
(b) The definition of "Consolidated Intangible Assets" in
Section 1.01 of the Existing Credit Agreement is hereby amended to insert "but
in any event excluding, for the Fiscal Quarter ending on December 31, 1996, up
to $250,000 of contract rights acquired by Microcell Management, Inc."
immediately subsequent to "other similar intangible assets" in such definition.
(c) The definition of "Consolidated Net Income" in
Section 1.01 of the Existing Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"Consolidated Net Income" means, with respect to any fiscal
period, net income of the Consolidated Entities for such period (but
in any event excluding income resulting from the reversal of reserves
taken against receivables, promissory notes or investments in DC or
NextWave), as determined on a consolidated basis in accordance with
GAP.
(d) The definition of "Fiscal Quarter Net Worth Increase
Amounts" in Section 1.01 of the Existing Credit Agreement is hereby amended to
add "plus (c) 100% of income resulting from the reversal of reserves taken
against receivables, promissory notes or investments in DC or NextWave during
such Fiscal Quarter" immediately prior to the end of such definition.
(e) Section 9.02 of the Existing Credit Agreement is
hereby amended to substitute "(a) $48,000,000" in place of "(a)(i) if such time
is before December 31, 1996, $64,000,000 or (ii) if such time is on or after
December 31, 1996, $69,000,000".
(f) Section 9.03 of the Existing Credit Agreement is
hereby amended to substitute "(a) if such time is before March 31, 1997, 1.65
to 1.00 or (b) if such time is on or after March 31, 1997, 1.75 to 1.00" in
place of "1.75 to 1.00".
2
<PAGE> 4
ARTICLE 2. REPRESENTATIONS AND WARRANTIES.
Each of the Obligers hereby represents and warrants that as of the
Effective Date:
Section 2.1. Existing Representations and Warranties. Each of the
representations and warranties contained in Article 6 of the Existing Credit
Agreement and in each of the other Facility Documents are true and correct.
Section 2.2. No Defaults. No event has occurred and no condition
exists which would constitute a Default or an Event of Default under the
Facility Documents, and no event has occurred and no condition exists which
would constitute a Default or an Event of Default under the Amended Facility
Documents.
Section 2.3. Power and Authority; No Conflicts. The execution,
delivery and performance by each of the Obligers of the Amended Facility
Documents to which it is a party have been duly authorized by all necessary
corporate, partnership and limited liability company action and do not and will
not: (a) require any consent or approval of its members which has not been
obtained; (b) contravene its organizational documents; (c) violate any
provision of, or require any filing (other than the filings required pursuant
to the terms of the Security Documents), registration, consent or approval
under, any law, rule, regulation (including, without limitation, Regulation U),
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to the Parent or any of its Subsidiaries; (d)
result in a breach of or constitute a default or require any consent under any
indenture or loan or credit agreement, or any other agreement, lease or
instrument to which the Parent or any of its Subsidiaries is a party or by
which their respective Properties may be bound or affected; (e) result in, or
require, the creation or imposition of any Lien (other than as created under
the Security Documents), upon or with respect to any of the Properties now
owned or hereafter acquired by the Parent or any of its Subsidiaries; or (f)
cause the Parent or any of its Subsidiaries to be in default under any such
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award or any such indenture, agreement, lease or instrument.
Section 2.4. Legally Enforceable Agreements. Each Amended
Facility Document to which any Obligor is a party has been duly executed and
delivered by such Obligor. Each Amended Facility Document to which any Obligor
is a party a legal, valid and binding obligation of such Obligor enforceable
against such Obligor in accordance with its terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally and general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity).
3
<PAGE> 5
Section 2.5. Financial Statements. The consolidated balance sheets of
the Borrower and its Subsidiaries as at December 31, 1996, 1995 and 1994, and
the related consolidated statements of income, cash flows and shareholders'
equity (or members' capital) of the Borrower and its Subsidiaries, for the
Fiscal Years then ended, and the accompanying footnotes, together with the
opinion on the consolidated statements of KPMG Peat Marwick, independent
certified public accountants, copies of which have been furnished to each of
the Lenders, are complete and correct in all material respects and fairly
present the financial condition of the LCC Consolidated Entities at such dates
and the results of the operations of the LCC Consolidated Entities for the
periods covered by such statements, all in accordance with GAP consistently
applied. There are no liabilities of any LCC Consolidated Entity, fixed or
contingent, which are material but are not reflected in such financial
statements or in such notes and which would be required to be recorded in such
financial statements or notes in accordance with GAP. No information, exhibit
or report furnished by any LCC Consolidated Entity to the Administrative Agent
or any Lender in connection with the negotiation of this Agreement or any other
Amended Facility Document contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statements
contained therein not materially misleading. Since December 31, 1996, there
has been no change which could reasonably be expected to have a Material
Adverse Effect.
ARTICLE 3. CONDITIONS PRECEDENT.
The effectiveness of this Agreement is subject to the condition
precedent that the Administrative Agent shall have received on or before April
15, 1997 (the "Effective Date") each of the following, in form and substance
satisfactory to the Administrative Agent and its counsel:
(a) counterparts of this Agreement executed by each of
the Borrower, the Subsidiary Guarantors, the Lenders and the Administrative
Agent; and
(b) certified complete and correct copies of each of the
financial statements referred to in Section 2.05.
ARTICLE 4. MISCELLANEOUS.
Section 4.1. Defined Terms. The terms used herein and not defined
herein shall have the meanings assigned to such terms in the Amended Credit
Agreement.
4
<PAGE> 6
Section 4.2. Nonwaiver. Except for the foregoing waivers, the
terms of this Agreement shall not operate as a waiver by the Administrative
Agent or any Lender or otherwise prejudice the rights, remedies or powers of
the Administrative Agent or any Lender under the Amended Credit Agreement,
under any other Amended Facility Document or under applicable law. Except as
expressly provided herein: (x) no terms and provisions of the Facility
Documents are modified or changed by this Agreement; and (y) the terms and
provisions of the Facility Documents shall continue in full force and effect.
Section 4.3. Reaffirmation. Each of the Obligers acknowledges
that the Liens granted to the Administrative Agent under the Security Documents
in and to the Collateral secures all of the Obligations. Each of the Obligers
further acknowledges and reaffirms all of its other respective obligations and
duties under the Amended Facility Documents to which it is a party.
Section 4.4. Amendments and Waivers. Any provision of this
Agreement may be amended or modified only by an instrument in writing signed by
the Borrower, the Administrative Agent and the Required Lenders, or by the
Borrower and the Administrative Agent acting with the consent of the Required
Lenders and any provision of this Agreement may be waived by the Required
Lenders or by the Administrative Agent acting with the consent of the Required
Lenders.
Section 4.5. Expenses. The Borrower shall reimburse the
Administrative Agent on demand for all reasonable costs, expenses and charges
(including, without limitation, reasonable fees of counsel to the
Administrative Agent) in connection with the preparation of, and any amendment,
supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any other Amended Facility Document and any other
documents prepared in connection herewith or therewith.
Section 4.6. Notices. Unless the party to be notified otherwise
notifies the other party in writing as provided in this Section, and except as
otherwise provided in this Agreement, notices shall be given in writing to the
Administrative Agent, to the Lenders, to the Borrower and to the Subsidiary
Guarantors by ordinary mail, hand delivery, overnight courier or telecopier
addressed to such party at its address on the signature page of this Agreement.
Notices shall be effective: (a) if given by mail, 72 hours after deposit in the
mails with first class postage prepaid, addressed as aforesaid; and (b) if
given by telecopier, when the telecopy is transmitted to the telecopier number
as aforesaid; provided that notices to the Administrative Agent shall be
effective upon receipt.
5
<PAGE> 7
Section 4.7. Headings. The headings and captions hereunder are
for convenience only and shall not affect the interpretation or construction of
this Agreement.
Section 4.8. Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the
validity or enforceability thereof in any other jurisdiction or the remaining
provisions hereof in any jurisdiction.
Section 4.9. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument, and any party hereto may execute this Agreement by signing
any such counterpart.
Section 4.10. Integration. The Amended Facility Documents set
forth the entire agreement among the parties hereto relating to the
transactions contemplated thereby and supersede any prior oral or written
statements or agreements with respect to such transactions.
SECTION 4.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
BORROWER:
LCC INTERNATIONAL, INC., A DELAWARE
CORPORATION
By /s/ RICHARD HOZIK
----------------------------------------
Name: Richard Hozik
Title: Senior Vice President,
Treasurer and Chief
Operating Officer
Address for Notices:
7925 Jones Branch Drive
McLean, Virginia 22102
Attention: Chief Financial Officer
Telecopier No.: (703) 873-2100
with a copy to:
7925 Jones Branch Drive
McLean, Virginia 22102
Attention: General Counsel
Telecopier No.: (703) 873-2100
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE> 9
SUBSIDIARY GUARANTORS:
LCC DESIGN SERVICES, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY
By /s/ RICHARD HOZIK
-----------------------------------------
Name: Richard Hozik
Title:
LCC DEVELOPMENT COMPANY, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
By /s/ RICHARD HOZIK
----------------------------------------
Name: Richard Hozik
Title:
Address for Notices:
c/o LCC International, Inc.
7925 Jones Branch Drive
McLean, Virginia 22102
Attention: Chief Financial Officer
Telecopier No.: (703) 873-2100
with a copy to:
c/o LCC International, Inc.
7925 Jones Branch Drive
McLean, Virginia 22102
Attention: General Counsel
Telecopier No.: (703) 873-2100
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE> 10
ADMINISTRATIVE AGENT:
THE CHASE MANHATTAN BANK
By /s/ ALAN ARIA
-----------------------------------------
Name: Alan Aria
Title:
Address for Notices:
4 Chase Metrotech Center
13th Floor
Brooklyn, NY 11245
Attention: New York Agency
with a copy to:
999 Broad Street
Bridgeport, Connecticut 06604
Attention: Alan Aria
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE> 11
LENDERS:
THE CHASE MANHATTAN BANK
By /s/ ALAN ARIA
-----------------------------------------
Name: Alan Aria
Title:
Lending Office and Address for
Notices:
999 Broad Street
Bridgeport, Connecticut 06604
Attention: Alan Aria
Telecopier No.: (203) 382-6573
[SIGNATURE PAGE TO FIRST AMENDMENT AGREEMENT]
<PAGE> 1
EXHIBIT 11
PRO FORMA NET INCOME (LOSS) PER SHARE CALCULATION
<TABLE>
<CAPTION>
Pro Forma
---------------------------------
Year ended Year ended
12/31/1995 12/31/1996
---------- ----------
<S> <C> <C>
Weighted average common shares outstanding:
Average shares outstanding during the period (1) 11,364,394 11,364,394
Options issued in place of Phantom Membership Plan 1,007,362 1,052,739
Cheap stock options (2) 366,188 380,973
Common shares issuable to MCI in conversion (3) 2,841,099 2,841,099
Common shares issued in the offering - 846,790
Option Plans - 23,013
----------- --------------
Total weighted average common shares 15,579,043 16,509,008
=========== ==============
Pro forma net income (loss) applicable to common shares:
Pro forma net income (loss) $ 4,729,000 $ (20,769,000)
Increase in earnings, net of taxes, resulting from
the MCI conversion 816,000 1,139,000
----------- --------------
Pro forma net income (loss) $ 5,545,000 $ (19,630,000)
=========== ==============
Pro forma net income (loss) per common share $ 0.36 $ (1.19)
=========== ==============
</TABLE>
(1) After considering the Merger in conjunction with the Company's initial
public 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 shares outstanding using
the treasury stock method based on an assumed initial public offering price
of $16.00 and have been treated as outstanding for all reported periods.
(3) Assumes such transactions occurred on January 1, 1995.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR
NAME ORGANIZATION
---- ------------
<S> <C>
LCC Design Services, L.L.C. Delaware
LCC Development Company, L.L.C. Delaware
Eurofon Incorp. & Co. KG Germany
Eurofon de France S.A.R.L. France
LCC, United Kingdom United Kingdom
Microcell Management, Inc. Delaware
LCC International AS Norway
LCC do Brazil Brazil
</TABLE>
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
LCC International, Inc.
We consent to incorporation by reference in the registration statement (No.
333-17803) on Form S-8 of LCC International, Inc. of our report dated April 15,
1997, relating to the consolidated balance sheets of LCC International, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the years in the three year-period ended December 31, 1996, and
related schedule, which report appears in the December 31, 1996, annual report
on Form 10-K of LCC International, Inc.
Washington, DC /s/ KPMG PEAT MARWICK LLP
April 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,732
<SECURITIES> 0
<RECEIVABLES> 35,563
<ALLOWANCES> 17,942
<INVENTORY> 6,387
<CURRENT-ASSETS> 91,847
<PP&E> 5,952
<DEPRECIATION> 13,833
<TOTAL-ASSETS> 114,947
<CURRENT-LIABILITIES> 54,610
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 8,331
<TOTAL-LIABILITY-AND-EQUITY> 114,947
<SALES> 48,414
<TOTAL-REVENUES> 141,570
<CGS> 32,039
<TOTAL-COSTS> 97,840
<OTHER-EXPENSES> 66,636
<LOSS-PROVISION> 2,937
<INTEREST-EXPENSE> 3,050
<INCOME-PRETAX> (22,655)
<INCOME-TAX> (11,371)
<INCOME-CONTINUING> (11,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,284)
<EPS-PRIMARY> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
