<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1996
REGISTRATION NO. 333-11083
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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POCKET COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
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Maryland 4812 52-1872888
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
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2550 M Street, NW
Suite 200
Washington, DC 20037
(202) 496-4300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
Daniel C. Riker
Chairman of the Board and Chief Executive Officer
Pocket Communications, Inc.
2550 M Street, NW
Suite 200
Washington, DC 20037
(202) 496-4300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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RONALD S. SCHIMEL, ESQ. ROGER H. KIMMEL, ESQ. GARY P. CULLEN, ESQ.
Miles & Stockbridge, P.C. Latham & Watkins Skadden, Arps, Slate, Meagher & Flom
Woodmere I, Suite 400 885 Third Avenue 333 West Wacker Drive
9881 Broken Land Parkway New York, NY 10022 Chicago, IL 60606
Columbia, MD 21046-1153
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES OFFERING REGISTRATION
TO BE REGISTERED PRICE(1)(2) FEE(3)
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<S> <C> <C>
Class B Common Stock,
$.01 par value per share.......................................... $172,500,000 $59,483
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</TABLE>
(1) Includes $22,500,000 relating to shares of Class B Common Stock that the
Underwriters have options to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
(3) Previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 17, 1996
PROSPECTUS
, 1996
SHARES
[LOGO]
POCKET COMMUNICATIONS, INC.
CLASS B COMMON STOCK
All of the shares of Class B Common Stock offered hereby (the "Offering")
are being sold by Pocket Communications, Inc. Prior to the Offering, there has
been no public market for the Class B Common Stock. It is currently estimated
that the initial public offering price will be between $ and $ per
share. See "Underwriting" for information relating to the factors considered in
determining the initial public offering price.
After the Offering, the Company's issued and outstanding capital stock will
consist of Class A Common Stock and Class B Common Stock. Initially, each holder
of Class A Common Stock is entitled to five votes per share, and each holder of
Class B Common Stock is entitled to one vote per share on all matters submitted
to a vote of stockholders. Except as required by law and the Company's Articles
of Incorporation, holders of the Class A Common Stock and the Class B Common
Stock vote together as a single class. The holders of Class A Common Stock vote
as a separate class for the election of a majority of the directors, and the
holders of Class B Common Stock vote as a separate class for the election of the
remainder of the directors. Shares of Class A Common Stock will be convertible
into shares of Class B Common Stock on a 1-to-1 basis under certain
circumstances and subject to certain limitations, including compliance with FCC
requirements. Each share of Class A Common Stock and Class B Common Stock will
share ratably in any dividends or other distributions, including upon the
liquidation, dissolution or winding up of the Company. See
"Description of Capital Stock."
Concurrently with the Offering, the Company is offering $ million gross
proceeds of % Senior Discount Notes due 2007 (the "Notes") to the public
(the "Debt Offering" and, together with the Offering, the "Offerings"). The
Offering is not conditioned upon completion of the Debt Offering, but the Debt
Offering is conditioned upon completion of the Offering.
Application has been made to have the Class B Common Stock quoted on the
Nasdaq National Market under the symbol "PCKT."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION CONCERNING CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share................................... $ $ $
Total(3).................................... $ $ $
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses, estimated at $ , which will be paid by
the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Class B Common Stock at the Price to the
Public less Underwriting Discounts and Commissions solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions, and Proceeds to
the Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the share certificates will be made in New York, New
York on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
GOLDMAN, SACHS & CO.
<PAGE> 3
[MAP OF POCKET MARKETS APPEARS HERE]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS B COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
THIS PROSPECTUS IS SUBJECT TO COMPLETION OR AMENDMENT. AS OF THE DATE
HEREOF, THE COMPANY IS IN NEGOTIATION WITH CERTAIN VENDORS AND OTHER THIRD
PARTIES CONCERNING VARIOUS OF THE AGREEMENTS AND RELATED ARRANGEMENTS DESCRIBED
HEREIN. SUCH AGREEMENTS ARE SUBJECT TO THE EXECUTION OF DEFINITIVE
DOCUMENTATION, WHICH DOCUMENTATION MAY CONTAIN ADDITIONAL OR DIFFERENT TERMS
FROM THE DESCRIPTIONS CURRENTLY SET FORTH HEREIN.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, including the Consolidated
Financial Statements and the notes thereto, set forth elsewhere in this
Prospectus. As used herein, the terms "Company" and "Pocket," unless otherwise
indicated, refer to Pocket Communications, Inc., a Maryland corporation, and its
subsidiaries. The term population equivalents ("POPs") means the Paul Kagan
Associates 1995 PCS Atlas & Databook estimate of the 1995 population of a
particular Major Trading Area ("MTA") or Basic Trading Area ("BTA") of the U.S.
In addition, certain terms used in this Prospectus are defined in the Glossary
of Terms. Unless otherwise indicated, all information in this Prospectus
reflects (a) the reclassification prior to the Offering of the outstanding
securities of the Company into shares of the Company's Class A Common Stock, par
value $0.01 per share (the "Class A Common Stock"), and Class B Common Stock,
par value $0.01 per share (the "Class B Common Stock" and together with the
Class A Common Stock, the "Common Stock") and (b) the simultaneous
reverse stock split (collectively, the "Recapitalization"), to become effective
upon consummation of the Offering and subject to any necessary FCC approvals.
See "Description of Capital Stock." Except as otherwise specified, the
information in this Prospectus assumes no exercise of the Underwriters' option
to purchase up to additional shares of Class B Common Stock from the
Company to cover over-allotments, if any.
THE COMPANY
Pocket intends to be a leading provider of full-service wireless
telecommunications services in its markets, which cover approximately 35.5
million POPs. The Company currently is the sixth largest Personal Communications
Services ("PCS") licensee in the United States in terms of POPs, having acquired
43 BTA licenses, each consisting of 30 MHz of spectrum, in the FCC C Block
auction, which ended on May 6, 1996. Major markets covered by the Company's PCS
licenses include Chicago, Dallas-Ft. Worth, Detroit, St. Louis, New Orleans, Las
Vegas, and Honolulu. More than 85% of the Company's POPs are in substantially
contiguous markets located in the central region of the U.S. The Company intends
to build out its PCS networks (each a "network" and collectively the "Network")
rapidly using commercially established Global System for Mobile Communications
("GSM") technology, and anticipates commencing service in Las Vegas and Honolulu
in the third quarter of 1997.
The Company successfully bid $1.43 billion, net of a 25% bidding credit,
for 43 BTA licenses in the FCC C Block auction. To date, the Company has paid
$143 million, representing 10% of this total net bid, as a down payment (the
"Downpayment"). The government financing terms for the balance of $1.28 billion
include a below-market interest rate of 6.5% fixed for the 10-year term of the
financing (the "Government Financing"). This Government Financing allows the
Company to pay interest only on the principal balance for the first six years of
the license term with payments of interest and principal amortized over the
remaining four years of the license term. This favorable Government Financing
significantly reduces the effective cost of these licenses to the Company on a
net present value basis.
The Company intends to position its PCS service as a "new category" of
wireless telephone service aimed primarily at that segment of the mass consumer
market that has not previously purchased cellular service. The Company has
developed an initial marketing and advertising plan that is designed to create a
new identity for the service. The Company plans to offer the mobility features
of cellular, the calling features of landline and a pricing plan more similar to
current local telephone service than to existing cellular. The Company will be
using GSM, which is an advanced digital technology that is superior to
traditional analog cellular systems in terms of voice quality, reliability,
functionality and privacy while providing substantially greater capacity. The
Company's marketing and distribution strategy will be based on the use of
custom-designed user-friendly handsets, brand name development and unique
packaging. With the increased number of wireless telecommunications services and
the anticipated decrease in service rates, the Company believes that there will
be a growing demand for wireless services. The Company will focus its marketing
efforts to target the estimated more than 80% of the POPs in its markets who
currently are not using cellular services and to attract cellular users who may
be dissatisfied with the quality or cost of their existing service.
<PAGE> 5
The Company has selected GSM technology, with established commercial
performance and multiple equipment suppliers, to position it to rapidly build
out its PCS networks at competitive costs. Based on the announced intentions of
other PCS licensees to date, the Company will be the second largest PCS licensee
in the U.S. (in terms of POPs) using GSM technology. GSM permits enhanced
features such as secure calling, text messaging and data and fax services. In
addition, GSM permits the networking of equipment from a number of different
manufacturers. The Company believes that, given the global predominance of GSM
usage, the cost of GSM equipment will decrease as economies of scale in
production of network equipment are realized and competition among equipment
suppliers intensifies.
Although GSM technology has only been commercially available in the United
States on a limited basis, GSM is the predominant digital wireless technology in
the world, serving over 26 million customers in 100 countries as of November
1996. GSM technology has been chosen by a number of other companies in the
United States, which, together with Pocket's markets, are licensed to cover over
200 million POPs, or over 76% of the United States population, based on
currently announced intentions. Pocket is negotiating or intends to negotiate
roaming agreements with all North American GSM carriers including Pacific Bell
Mobile Services Inc. ("Pacific Bell"), BellSouth Mobility DCS ("BellSouth"),
Omnipoint Corporation ("Omnipoint"), InterCel, Inc. ("InterCel"), Aerial
Communications, Inc. ("Aerial"), Western Wireless Corporation ("Western
Wireless"), American PCS, L.P. ("APC") and Microcell Telecommunications, Inc.
("Microcell") of Canada. As of November 1996, APC, BellSouth, InterCel,
Omnipoint, Pacific Bell and Western Wireless have commenced offering services
utilizing GSM technology in 26 markets across the U.S. The ongoing FCC D, E and
F Block PCS auctions may result in GSM technology being chosen by licensees in
areas currently not having a declared GSM operator. See "Risk Factors -- GSM
Technical Standard and Implications for Roaming Services."
The Company has strategic relationships with Ericsson, Inc. ("Ericsson"),
Siemens Stromberg-Carlson ("Siemens"), Northern Telecom Inc. ("Nortel"),
Mitsubishi Corporation (together with certain of its affiliates, "Mitsubishi"),
LCC, L.L.C. ("LCC"), Booz - Allen & Hamilton, Inc. ("Booz - Allen") and
Brightpoint, Inc. ("Brightpoint"). The Company has arranged vendor financing
with Ericsson and Nortel totaling $481 million for the supply of equipment and
services in connection with the buildout of several of the Company's networks.
In addition, the Company has reached an agreement with Siemens on the terms of
additional vendor financing totaling $165 million. Under the terms of these
vendor financing arrangements, Ericsson, Siemens or Nortel will be the primary
network equipment supplier in their respective markets. The Company and
Mitsubishi are developing a custom-designed handset and are negotiating a
handset supply agreement. LCC is providing radio network design, program
management (including site acquisition and construction management) and network
optimization services. Booz - Allen is providing product design, information
system deployment, systems integration services and management consulting.
Brightpoint will provide a variety of services to the Company, including
wholesale inventory management, warehousing and fulfillment. In addition,
Dominion Fund IV ("Dominion Fund") will provide the Company financing for the
purchase of telephone switch equipment and services in certain markets. See
"Business -- Strategic Relationships."
The key elements of the Company's business strategy are to target its
products and services primarily to the mass consumer market, offer wireless
products and services with superior voice quality, reliability, functionality
and privacy, implement proven GSM technology, operate its business in clusters
to provide a regional market focus and achieve economies of scale, and expand
its market coverage through the establishment of strategic alliances with other
GSM licensees and the possible acquisition of additional PCS licenses.
- Target Mass Consumer Market. The Company's marketing strategy is to
focus on the mass consumer market, targeting the estimated more than 80%
of the POPs in its markets who currently are not using cellular services
as well as cellular service users who may be dissatisfied with the
quality or cost of their existing service. In order to attract
subscribers from this potential market, the Company plans to offer
service packages priced significantly below current cellular rates on a
per minute basis. The Company also plans to simplify the products and
services it will offer by not requiring service contracts, providing
immediate service activation, offering 24-hour customer service,
streamlining the customer's bill and
2
<PAGE> 6
providing user-friendly handsets. The Company plans to distribute its
products and services through a variety of distribution channels,
including Company-owned stores, direct marketing and retail electronics
stores as well as through non-traditional channels such as supermarkets,
kiosks and vending machines. Prior to launching its services, the Company
plans to begin aggressively developing and marketing its brand in order to
establish it in the consumer marketplace.
- Provide Superior Products and Services. The Company plans to offer
wireless products and services with superior voice quality, reliability,
functionality and privacy. The Company plans to offer PCS service that
will include one-way paging, voice mail, call waiting, call forwarding,
conference calling and caller ID, with two-way text messaging as an
option. Existing GSM technology will also enable the Company to offer
personalized services such as call screening, rejection, routing and
forwarding, enhanced voice mail and data transmission services such as
electronic mail, facsimile and Internet access. In addition, the Company
and Mitsubishi are developing a custom-designed handset that incorporates
an ergonomic design with easy-to-use menus and large screens to manage
handset functions and significantly longer battery life than is currently
available for cellular handsets. The existing and planned GSM systems
worldwide will enable the Company to offer national and international
roaming in conjunction with other GSM operators.
- Implement Proven GSM Technology. The Company believes that by building
its PCS Network using commercially established GSM technology, it will
minimize many risks associated with using new technology. The Company has
made significant progress towards the completion of the detailed
engineering and site acquisition work to build out its Las Vegas and
Honolulu networks and has begun the preliminary network design and site
acquisition processes in certain other service areas, including Chicago.
The Company plans to begin offering services in Las Vegas and Honolulu in
the third quarter of 1997, and its remaining markets in 1998, with
Chicago and Detroit as the first of such markets to begin offering
services. The Company plans to build out PCS networks that will be able
to offer service to at least 80% of the POPs within its service areas by
the end of 1998.
- Operate in Market Clusters. The Company has organized its 43 BTAs into
nine clusters to provide a regional market focus while allowing it to
achieve operational efficiencies and lower infrastructure costs. The
Company plans to establish management and operational teams in each of
its clusters to support all of the BTAs in such clusters. Emphasis on
operations at the regional market level will allow the Company to serve
its customers more effectively and to build a loyal customer base. The
Company also believes that this approach will allow it to customize its
marketing efforts and maintain high levels of customer satisfaction. This
clustering strategy is designed to facilitate network switch-sharing,
allow the Company to benefit from shared resources and coordinated
management and provide efficiencies in advertising, marketing and
distribution within a region.
- Expand Market Coverage. The Company currently is negotiating strategic
alliances with other PCS licensees to broaden its markets. The Company
also may seek to expand its markets by entering into additional strategic
alliances or acquiring other PCS licenses.
FINANCING PLAN
The Company estimates that the aggregate funds required for the
development, construction and deployment of PCS networks in its markets through
December 31, 1997 will total approximately $805 million. This figure consists of
(i) approximately $520 million for capital expenditures, (ii) approximately $165
million in debt service requirements and (iii) approximately $120 million for
operating losses and working capital needs. In addition, in conjunction with the
award of its licenses, the Company has incurred the Government Financing for the
balance due for its licenses. See "Description of Certain Indebtedness."
The Company is offering shares of Class B Common Stock in the
Offering and $ million in gross proceeds of the Notes in the concurrent Debt
Offering for estimated aggregate net proceeds to the Company of $ million
($ million if the Underwriters' over-allotment option is exercised in full).
The Company believes that the net proceeds of the Offerings in combination with
available borrowings under the
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vendor financing, will be sufficient (i) to fund operating losses and working
capital requirements, (ii) to complete the initial buildout of PCS networks and
commence service in the Chicago, Las Vegas and Honolulu BTAs, (iii) to complete
a significant portion of the detailed engineering and site acquisition work in
Detroit, Dallas, and St. Louis, and (iv) to repay certain of the Company's debt
and satisfy the Company's debt service requirements, including interest payments
on the Government Financing, through 1997.
To complete the buildout of its PCS Network and implement the Company's
business strategy, the Company will require substantial additional capital, both
during and after 1997, beyond amounts raised in the Offerings. The exact amount
of the Company's future requirements will depend upon many factors, including
the cost of development of PCS networks in each of its clusters, the extent of
completion and pricing of wireless services in these clusters, the acceptance of
the Company's services and the development of new consumer products. See "Risk
Factors -- Significant Capital Requirements and Uncertainty of Additional
Financing."
The Company was incorporated in Maryland in 1994. The Company's principal
executive offices are located at 2550 M Street NW, Suite 200, Washington, DC
20037, and its telephone number is (202) 496-4300.
4
<PAGE> 8
THE OFFERINGS
Class B Common Stock Offered
by the Company................ shares
Class B Common Stock to be
Outstanding after the
Offering..................... shares (1)
Class A Common Stock to be
Outstanding after the
Offering..................... shares
Total Common Stock to be
Outstanding after the
Offering..................... shares (1)
Concurrent Debt Offering...... Concurrently with the Offering, the Company is
offering $ million gross proceeds of %
Senior Discount Notes due 2007. Under the terms
of the indenture relating to the Notes (the
"Indenture"), the Company generally may not pay
any dividend or make any distribution on its
Common Stock unless and until the Company meets
certain requirements that the Company does not
expect to meet for the foreseeable future. See
"Dividend Policy." The Indenture also contains
covenants relating to preservation of the
Company's assets, limitation on the scope of
the Company's business, limitations on debt
incurrence, limitations on mergers,
consolidations and sales of assets of the
Company, and restrictions on transactions with
affiliates. The Offering is not conditioned on
the consummation of the Debt Offering, but the
Debt Offering is conditioned on the
consummation of the Offering.
Use of Proceeds............... The net proceeds to the Company from the
Offering are estimated to be approximately
$ million after deducting estimated
underwriting discounts and commissions and
offering expenses. This figure assumes an
initial public offering price of $ per
share, the midpoint of the range set forth on
the cover page hereof. The Company expects to
use the net proceeds of the Offering, together
with the net proceeds from the Debt Offering,
(i) for principal and interest payments on
indebtedness (approximately $130 million), and
(ii) for capital contributions to its operating
subsidiaries for the buildout and operation of
the PCS networks in several of its license
areas, and for general corporate purposes
(approximately $155 million).
Nasdaq National Market
Symbol........................ "PCKT"
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(1) Includes 9,937,500 shares of Class B Common Stock assumed to be issued to
holders of $72.3 million of convertible debt and term loans convertible into
convertible debt, of which $7.3 million is expected to convert immediately
following the consummation of the Offering and $65.0 million of which is
expected to convert into convertible debt and subsequently into Class B
Common Stock within 15 days following the consummation of the Offering,
subject, in each case, to compliance with FCC requirements. Excludes
shares reserved for issuance under the Company's stock option plans
and grants for employees and directors, including shares issuable
upon exercise of outstanding options (the "Reserved Option Shares")
shares reserved for issuance under certain circumstances to members
of the Control Group to comply with certain FCC requirements (the "Control
Group Option Shares") and shares issuable upon the exercise of
warrants. See "Management -- Stock Option Plans" and "-- Compensation of
Directors," "Regulation of the Wireless Telecommunications Industry,"
"Description of Certain Indebtedness," and "Description of Capital Stock."
RISK FACTORS
Prior to making an investment in the Class B Common Stock offered hereby,
prospective purchasers of the Class B Common Stock should take into account the
specific considerations set forth under "Risk Factors" as well as the other
information set forth in this Prospectus.
5
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical financial information and
operating data of the Company for the period from April 20, 1994 (inception) to
December 31, 1994, the fiscal year ended December 31, 1995 and the nine-month
periods ended September 30, 1995 and 1996. The information set forth below was
derived from, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the audited
consolidated financial statements of the Company (the "Consolidated Financial
Statements") and notes thereto included elsewhere in this Prospectus. The
financial information and operating data for the nine-month periods ended
September 30, 1995 and 1996 were derived from the unaudited consolidated
financial statements of the Company and, in the opinion of management, include
all adjustments necessary for a fair presentation of such data. Interim results
are not necessarily indicative of results to be expected for the full fiscal
year.
<TABLE>
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NINE MONTHS
FOR THE PERIOD ENDED SEPTEMBER 30,
APRIL 20, 1994 YEAR ENDED --------------------
TO DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996
<S> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ -- $ -- $ -- $ --
Operating expenses.................... 1,039 7,172 4,469 8,752
-------- -------- --------
Operating loss........................ (1,039) (7,172) (4,469) (8,752)
Interest income (expense)............. -- (221) 50 (3,921)
-------- -------- --------
Net loss.............................. $ (1,039) $(7,393) $(4,419) $(12,673)
======== ======== ========
Pro forma net loss per common
share(1)........................... $ $
Pro forma weighted average number of
common shares outstanding(1).......
Ratio of pro forma as adjusted
earnings to pro forma as adjusted
fixed charges(2)...................
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------------------
AS OF PRO FORMA
DECEMBER 31, 1995 ACTUAL PRO FORMA(3) AS ADJUSTED(4)
(IN THOUSANDS)
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BALANCE SHEET DATA
Working capital (deficit)............... $(2,905) $(15,971) $(57,655) $
License costs........................... 40,050 71,338 966,594
Total assets............................ 44,333 110,785 993,946
Short-term borrowings................... 1,500 1,031 42,906
Government Financing, net of discount... -- -- 823,918
Long-term debt, including deferred
interest............................. 40,400 98,847 50,214
Total stockholders' equity (deficit).... (2,116) (13,526) 57,476
</TABLE>
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(1) See Note 3 of the Notes to Consolidated Financial Statements for an
explanation of the pro forma loss per share and the shares used in computing
pro forma loss per share.
(2) The Company's pro forma as adjusted earnings for the year ended December 31,
1995 and for the nine month period ended September 30, 1996 are insufficient
to cover pro forma as adjusted fixed charges by $7.4 million and $13.2
million, respectively.
(3) Gives effect to certain events and transactions which occurred subsequent to
September 30, 1996, including (i) the $57.6 million of additional borrowings
under certain loan agreements and credit facilities to satisfy the balance
of the Downpayment, (ii) the issuance of an $8 million promissory note as a
fee in securing certain financing to satisfy the Downpayment, (iii) the
conversion of approximately $72.3 million of convertible debt and term loans
convertible into convertible debt into 9,937,500 shares of Class B Common
Stock, of which $7.3 million is expected to convert immediately following
the consummation of the Offering and $65.0 million of which is expected to
convert into convertible debt and subsequently into Class B Common Stock
within 15 days following the consummation of the Offering, subject, in each
case, to compliance with FCC requirements, (iv) the capitalization as an
intangible asset of the FCC licenses awarded to the Company and the
recognition of the resulting net indebtedness to the FCC of $823.9 million
and (v) the utilization of escrow funds of $15.0 million, which was applied
towards the Downpayment, including $5.0 million, which was received for
625,000 shares of Class B Common Stock issued on November 8, 1996.
(4) Gives effect to the events and transactions referred to in note 3 above and
(i) the sale by the Company of shares of Class B Common Stock
pursuant to the Offering (at an assumed initial public offering price of
$ per share, the midpoint of the range stated on the cover page hereof),
resulting in estimated aggregate net proceeds of approximately $ million,
(ii) the Debt Offering, resulting in estimated aggregate net proceeds of
approximately $ million and (iii) the application of the net proceeds
therefrom to repay $ million of borrowings under certain loan and credit
facilities.
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RISK FACTORS
Purchasers of shares of Class B Common Stock should carefully consider and
evaluate all of the information set forth in this Prospectus, including the risk
factors listed below. In addition to the historical information contained
herein, this Prospectus contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly from
those discussed in such forward looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as those discussed elsewhere in this Prospectus.
DEVELOPMENT STAGE COMPANY; HISTORICAL AND EXPECTED FUTURE OPERATING LOSSES
The Company was incorporated in April 1994 for the purposes of (i)
acquiring broadband PCS licenses in the FCC C Block auctions, (ii) constructing
and operating PCS networks in its markets and (iii) offering wireless
communications services in these areas. The Company has no significant operating
history and no significant operations. The Company is subject to all the risks
typically associated with start-up entities, including, but not limited to, its
potential inability to obtain sufficient financing, implement the Company's
strategic plan and attract and retain qualified individuals. The Company has
incurred net losses from inception to September 30, 1996 of approximately $21.1
million. The Company will be incurring further significant expenses in advance
of generating revenues and is expected to realize net operating losses in its
initial stages of operations while it develops and constructs its PCS networks
and builds a customer base. Although the Company intends to commence PCS service
in its Las Vegas and Honolulu markets in the third quarter of 1997, there can be
no assurance that it will be able to generate revenues during that period. In
addition, there can be no assurance that the Company will achieve or sustain
profitability or positive cash flow from operating activities in the future, in
which case it may not be able to meet its debt service or working capital
requirements and the shares of Class B Common Stock may have little or no value.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
HIGH LEVERAGE; RESTRICTIVE COVENANTS; ABILITY TO SERVICE DEBT
The Company is, and will continue to be, highly leveraged and subject to
significant financial restrictions and limitations. As of September 30, 1996, on
an as adjusted basis after giving effect to the Offerings and the Government
Financing, the Company's total indebtedness would have been $ billion. In
addition, the Company has entered into two vendor financing agreements, and
currently is negotiating an additional vendor financing agreement, pursuant to
which the Company will be entitled to draw down up to $646 million, subject to
certain conditions. See "Dependence On Vendor Agreements." The Company also is
entitled, subject to the restrictions in the Indenture and certain loan
agreements, to incur substantial additional indebtedness. See "Description of
Certain Indebtedness."
The Company's obligations to the U.S. Government pursuant to the Government
Financing is approximately $1.28 billion. Although the Company's obligation
under the Government Financing is recorded on the Company's financial statements
at its estimated fair market value of $823.9 million, the amount that would be
owed to the U.S. Government if the Government Financing were declared
immediately due and payable would be $1.28 billion plus accrued interest. The
initial annual interest payments on the Government Financing will be
approximately $83.5 million (at a fixed interest rate of 6.5% per annum),
payable in quarterly installments commencing February 28, 1997. The Company may
incur substantial financial penalties, license revocation or other enforcement
measures at the FCC's discretion in the event that the Company becomes unable to
make timely payments on its Government Financing. Payments are deemed untimely
for such purposes if not made within 90 days after they become due. The FCC has
indicated that, in the event that a C Block licensee anticipates an inability to
make any required payment based upon bankruptcy, foreclosure or financial
distress, there will be a presumption in favor of granting the licensee's
request for a further three-month grace period before the FCC cancels its
license. In the event of default by the Company, the FCC could reclaim the
licenses, reauction them, and subject the Company to a penalty, which may be
comprised of the difference between the price at which the Company acquired its
license and the amount of the winning bid at the reauction, plus an additional
penalty of 3% of the lesser of the subsequent
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winning bid and the defaulting bid. There can be no assurance that the Company
will be able to submit all of the required payments pursuant to the Government
Financing in a timely manner, or that the FCC will not require immediate
repayment of all amounts due under the Government Financing or revoke the
Company's licenses, if it fails to meet such obligations. In either such event,
the Company will likely be unable to meet its obligations to other creditors.
The current payment terms of the Government Financing for the PCS licenses
are conditioned upon the continued compliance by the Company with certain equity
ownership requirements and restrictions promulgated by the FCC for the C Block
auction, which are new and have not yet been interpreted. Although the Company
intends to conform its ownership structure to such requirements and
restrictions, there can be no assurance that it will succeed in doing so.
Failure to maintain such compliance may result in imposition of less favorable
schedules for or acceleration of payments due under the license acquisition,
imposition of fines or revocation of the licenses. See "-- Control Group
Requirement" and "Regulation of the Wireless Telecommunications Industry."
The Indenture for the Notes and certain vendor financing agreements will
contain, and any additional financing agreements may contain, certain
restrictive covenants. The Indenture and such vendor financing agreements will
require the Company to comply with certain financial and operational performance
covenants. Although the Company expects to remain in compliance with such
covenants, there can be no assurance to that effect. The restrictions in the
vendor financing agreements and the Indenture will affect, and, in some cases,
will significantly limit or prohibit, among other things, the ability of the
Company to incur indebtedness, make prepayments of certain indebtedness, pay
dividends, make investments, create liens, sell assets and engage in mergers and
consolidations. In addition to such covenants, the Indenture and the vendor
financing agreements will require the Company to maintain certain financial
ratios. See "Description of Certain Indebtedness" for a more detailed
description of the restrictive covenants and other terms of the vendor financing
agreements and the Indenture. An event of default under the vendor financing
agreements and the Indenture would allow the lenders thereunder to accelerate
the maturity of the indebtedness. In such event, it is likely that substantially
all of the Company's indebtedness, excluding the Government Financing, would
become immediately due and payable. The Company is in compliance with the debt
covenants contained in its financing agreements.
For the year ended December 31, 1995 and for the nine months ended
September 30, 1996, the Company's pro forma as adjusted earnings would have been
insufficient to cover pro forma as adjusted fixed charges by approximately $7.4
million and $13.2 million, respectively. The successful implementation of the
Company's business strategy is necessary for the Company to be able to meet its
debt service requirements. The buildout of the PCS Network will require
substantial additional capital beyond those funds raised in the Offerings. See
"-- Significant Capital Requirements and Uncertainty of Additional Financing."
In addition, the Company's ability to satisfy its obligations once the PCS
Network is deployed will depend upon the Company's future performance, which is
subject to a number of factors, many of which are beyond the Company's control.
There can be no assurance that the Company can complete the PCS Network or that,
once the PCS Network is completed, the Company will generate sufficient cash
flow from operating activities to meet its debt service and working capital
requirements. In such event, the Company may need to seek additional financing
and if in default on any covenants of its financing agreements, seek waivers
from its lenders or vendors of which there can be no assurance that such waivers
will be granted. In addition, the indebtedness under vendor financing agreements
and the Notes may need to be refinanced at their maturity. There can be no
assurance that any such financing or refinancing could be obtained on terms that
are acceptable to the Company. In the absence of such financing or refinancing,
the Company could be materially limited in its ability to build out its PCS
networks or be forced to dispose of its assets under circumstances that might
not result in the realization of the highest price in order to make up for any
shortfall in the payments due on its indebtedness. Given that a substantial
portion of the Company's assets are intangible, principally licenses granted by
the FCC, the value of which depends upon a variety of factors (including the
success of the Company's PCS business and the wireless telecommunications
industry in general), and the transfer of which requires prior FCC approval and
is subject to specific C Block transfer restrictions, there can be no assurance
that the Company's assets could be sold expeditiously or for sufficient amounts
to enable the
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Company to meet its obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Certain Indebtedness."
SIGNIFICANT CAPITAL REQUIREMENTS AND UNCERTAINTY OF ADDITIONAL FINANCING
The Company will require substantial capital to fund the development,
construction, debt service and operating costs of its PCS Network. Through
December 31, 1997, the majority of the Company's requirements are expected to be
met through a combination of the net proceeds from the Offerings and vendor
financing. In the event that the Company completes its buildout of the PCS
networks more quickly than expected, the costs are greater than anticipated or
the Company takes advantage of acquisition opportunities, including those that
may arise through future FCC auctions, the Company will require additional
funding prior to December 31, 1997. In all circumstances, the Company will
require substantial additional funding to complete the buildout and implement
the Company's business strategy after December 31, 1997.
Sources for future financing may include additional vendor financing, debt
financing and equity offerings. The Company currently has no sources of revenue.
There can be no assurance that such future financing will be available to the
Company or, if available, that it can be obtained on terms acceptable to the
Company and consistent with any limitations that may be contained in the vendor
financing, other financing arrangements then existing or FCC regulations.
Inability to obtain such financing could result in delay or reduction of the
Company's development and construction plans, cause its development and
construction to fall behind its competitors in providing PCS services, and
result in failure to meet the FCC buildout requirements and its debt service
obligations, which, individually or in the aggregate, could have a material
adverse effect on the Company's financial condition and results of operation. In
addition, failure to meet the buildout requirements could result in the
imposition of fines by the FCC or the revocation of the Company's PCS licenses.
Any future financing may also have an adverse effect on the price of the shares
of Class B Common Stock. In addition, compliance with certain FCC regulations
regarding equity ownership of C Block licenses may limit the Company's
flexibility in obtaining additional financing.
COMPETITION
In each of its PCS markets, the Company will potentially compete with up to
five other PCS providers. A and B Block PCS licensees in the Company's service
areas include, among others, AT&T Wireless Services, Inc. ("AT&T Wireless"),
PrimeCo Personal Communications L.P. ("PrimeCo") and Sprint PCS ("Sprint
Spectrum"). In addition, such competitors are implementing PCS networks based on
a standard other than GSM, and, as a result, the Company faces competition with
respect to which PCS standard will achieve greater market success in the United
States. See "-- GSM Technical Standard and Implications for Roaming Services."
These companies received their PCS licenses in June 1995 and have had
significant lead time for the buildout of their networks, and some have begun to
provide service. The FCC's auction of broadband D, E and F Block licenses began
on August 26, 1996, and, accordingly, there will be additional PCS competitors
in the Company's PCS markets.
The PCS Network to be deployed by the Company will compete, directly or
indirectly, with all market segments in telecommunications, including cellular,
as well as landline, specialized mobile radio ("SMR") service, enhanced SMR
("ESMR") service, paging (including two-way paging) and mobile satellite
systems. The principal cellular providers in the Company's PCS markets are AT&T
Wireless, SBC Communications, Inc. ("SBC"), Ameritech Cellular Systems
("Ameritech") and AirTouch Communications, Inc. ("AirTouch"). PCS may also face
competition for users from cable operators who expand into offering traditional
communications services over their cable systems in the future. Energy utilities
and local multipoint distribution service ("LMDS") providers may also seek to
offer communications services over their infrastructure in the future. The
Company also expects that existing cellular providers servicing the Company's
PCS markets will seek to improve their networks and upgrade their technologies
to provide comparable services in competition with those of the Company.
Moreover, the FCC recently relaxed its limitation on cellular cross-ownership of
PCS licenses in the same area, permitting existing cellular licensees to acquire
up to 20 MHz of broadband PCS spectrum in overlapping markets, and certain
cellular companies have sought judicial review of this 20 MHz limitation in
proceedings that, if successful, could permit them to
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acquire 30 MHz PCS licenses in such markets. Such competition from traditional
cellular providers entering the PCS industry in overlapping markets could
adversely affect the Company's competitive position. Competition in
telecommunications services generally, including landline services, is expected
to result in declining prices that could affect the prices that the Company may
be able to charge for its services. In addition, the FCC has proposed or adopted
rules authorizing additional spectrum for communications services including
spectrum in the 2300 MHz band which may be available for several wireless
communications services that compete with PCS. Finally, the Company may face
competition from technologies that may be introduced in the future. See
"Business -- Competition."
All of such competition is expected to be intense. Many of the Company's
existing and potential competitors have substantially greater access than the
Company to capital, experienced personnel and technical and marketing resources.
There can be no assurance that the Company will be able to compete in this
environment. The Company's strategy for competing against its direct competitors
includes the rapid buildout of its Network infrastructure and the development of
a subscriber base by implementing proven GSM technology. There can be no
guarantee that the Company's strategy will be successful.
DEPENDENCE ON VENDOR AGREEMENTS
The Company's future financial condition is highly dependent upon its
ability to build out rapidly and then operate a PCS network in the markets for
which it has received licenses. To do so effectively will require the timely
delivery of infrastructure equipment for use in the Company's base stations and
switching offices and of handsets for subscriber use. To date, the Company has
entered into agreements with Ericsson and Nortel for the supply of network
equipment and services. The Company and Siemens have agreed on the terms for
pricing of equipment to be provided by Siemens, and a definitive agreement is
being negotiated. Agreements have been entered into with Nortel and Ericsson for
related vendor financing totaling $481 million. In addition, the Company has
agreed with Siemens on terms for $165 million of vendor financing, with a
definitive agreement to be executed. The agreements governing the vendor
financing contain a number of customary representations, warranties, covenants
and conditions. In addition, such agreements require the Company's subsidiaries
to receive certain minimum capital contributions prior to drawing down funds
under the facilities. The Company expects to satisfy a portion of such minimum
capital contributions through the Offerings. Moreover, additional significant
capital contributions will be required in order to access the total commitments
under the vendor financing. The Company also has a letter of intent from
Mitsubishi for the supply of handsets and expects to enter into additional
agreements with other vendors to ensure the availability of handsets in
sufficient volumes and at acceptable prices. There can be no assurance that
definitive agreements will be executed with potential vendors. See
"Business -- Strategic Relationships."
Although the Company chose its vendors based upon their experience,
manufacturing expertise and servicing abilities, there can be no assurance that
such vendors will be able to provide the Company with the equipment and services
required to build out the Company's PCS Network in a timely and cost effective
manner and for the Company to operate it at a high level of performance and
subscriber satisfaction. The termination of any of the described supply
agreements or the failure of any of the vendors to perform under the supply
agreements could have a material adverse effect on the Company's financial
condition and results of operations.
EMERGING MARKET FOR PCS SERVICE
PCS systems have no significant operating history in the United States and
there can be no assurance that these businesses will become profitable. In
addition, the extent of potential demand for PCS in the Company's markets cannot
be estimated with any degree of certainty. The inability of the Company to
establish PCS services or to obtain appropriate equipment for its PCS business
would have a material adverse effect on the Company. In addition, the Company's
success in the implementation and operation of its PCS Network is subject to
certain factors beyond the Company's control, including changes in general and
local economic conditions, availability of equipment, communications service
rates charged by others, the supply and demand for PCS and for other wireless
communications services, the commercial viability of PCS networks as a result of
competition from wireline and wireless operators in the same geographic region,
the federal and state
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regulatory environment affecting the operation of PCS networks (including the
enactment of new statutes and the promulgation of new rules and regulations and
changes in the interpretation or enforcement of existing rules and regulations)
and technology that may potentially render obsolete the PCS Network the Company
plans to deploy. There can be no assurance that one or more of these factors
will not have an adverse effect on the Company's financial condition and results
of operations. See "-- Government Regulation."
GSM TECHNICAL STANDARD AND IMPLICATIONS FOR ROAMING SERVICES
The Company has chosen the GSM technical standard for deployment in its PCS
markets. Although GSM has been in commercial use outside the U.S. since the
beginning of 1992, it was adapted to the 1900 MHz band and commercially deployed
in the U.S. approximately one year ago. There can be no assurance that the
Company will not experience technical problems in the deployment of GSM.
Additionally, there is no assurance that equipment manufacturers will continue
to produce products compatible with GSM-based technology if other digital
technologies become more widely used or products for such other technologies
become more cost effective to build. Furthermore, at least two other PCS
technologies are competing for acceptance in the U.S., Code Division Multiple
Access ("CDMA") and Time Division Multiple Access ("TDMA"), and alternative
technological and service advancements could materialize in the future, none of
which is required to be compatible with GSM. Such existing and potential
technologies could prove both viable and competitive to the GSM-based technology
chosen by the Company. Until all competing technologies, including CDMA, TDMA
and GSM, are commercially deployed and operational, it is not certain which
technology, or combination of technologies, will be preeminent and gain
marketwide acceptance. Additionally, if in the future the PCS industry agrees to
adopt a technology standard that is not compatible with GSM, the Company's GSM
technology might be rendered obsolete and the Company's financial condition and
results of operations would be materially adversely affected.
The Company's selection of the GSM technology may limit its ability to
provide and obtain roaming service in other, non-GSM markets in the future. Due
to the current incompatibility of the various digital protocols, customers using
one PCS technology can only roam in other service areas having at least one PCS
provider using the same technology. Dual mode phones, which would allow users to
switch between PCS technologies or between PCS and cellular services, as used in
the U.S., are not yet available. Although such phones are currently in
development, there is no certainty as to whether such phones would be
commercially accepted on a wide scale. Therefore, the scope of roaming coverage
available to GSM system users will depend on, among other things, the selection
of GSM technology by certain other PCS licensees and the availability of dual
mode phones. To date, 14 PCS licensees, including the Company, have announced
that they intend to deploy, or have deployed, GSM-based PCS networks in the U.S.
Together, these licensees represent markets with a population of over 200
million, or 76% of the U.S. population. Several major PCS providers, including
PrimeCo and Sprint Spectrum, have publicly announced that they intend to deploy,
or have deployed, CDMA-based PCS networks. AT&T Wireless and SBC have selected
the TDMA standard. Successful bidders in the D, E and F Block auctions of PCS
licenses may or may not select GSM technology. It is anticipated that together,
CDMA-based PCS providers, including competitors in several of the Company's
markets, will own licenses covering approximately 91% of the U.S. population
(based on 1990 U.S. Census Bureau figures) and AT&T Wireless and SBC, using the
TDMA standard, own PCS licenses covering approximately 45% of the U.S.
population (based on 1990 U.S. Census Bureau figures). To the extent that there
will be service areas with no GSM system, the roaming options of GSM system
users may be limited until dual mode phones become available. Such roaming
limitations may adversely affect the Company's ability to establish a PCS
customer base and to compete successfully in the PCS business with those PCS
operators offering greater roaming capabilities.
PCS NETWORK BUILDOUT
The Company's proposed development and operation of its PCS Network
involves a high degree of risk. The Company's PCS licenses are subject to a
requirement that the Company construct network facilities that offer coverage to
at least one-third of the population in each of the relevant BTAs within five
years from the grant of the licenses (the "Five-Year Buildout Requirement"), and
to at least two-thirds of the population
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within 10 years from the grant of the licenses (the "Ten-Year Buildout
Requirement"). Should the Company fail to meet these coverage requirements, it
may be subject to forfeiture of its licenses or the imposition of fines by the
FCC. See "Regulation of the Wireless Telecommunications Industry." The PCS
buildout in each BTA is subject to the successful completion of network design,
site and facility acquisitions, the purchase and installation of the network
equipment, network testing and the satisfactory accommodation of microwave users
currently using the spectrum. There can be no assurance that the Company will be
able to implement its PCS network in any particular market in accordance with
its current buildout plan and schedule. It is possible that failure by the
Company to meet the buildout requirement in one of its service areas might
result in forfeiture or risk of forfeiture of all of the Company's PCS licenses.
Accordingly, the Company must be committed to building out each of its service
areas regardless of the expected return from any one service area. Delays in any
of these areas or other unanticipated setbacks could have a material adverse
effect on the Company's ability to complete the buildout in a timely manner.
The successful buildout of the Company's PCS networks will depend, to a
significant degree, upon the Company's ability to lease or acquire appropriate
sites for the location of its base station equipment. While the Company has made
significant progress in the site selection and acquisition processes in Las
Vegas and Honolulu, the completion of such processes will require the successful
negotiation of agreements for the use or acquisition of numerous sites and may
require the Company to obtain zoning variances or other governmental or local
regulatory approvals, the granting of which is beyond the Company's control.
Delays in the site acquisition process, as well as construction delays and other
related factors, could adversely affect the commencement of commercial service
of the Company's PCS networks. See "-- Relocation of Fixed Microwave Licensees"
and "Regulation of the Wireless Telecommunications Industry."
In addition, the implementation of the PCS buildout plan is subject to the
availability of the infrastructure equipment and handsets that the Company plans
to use. Accordingly, there are risks associated with the completion of
development, the timely manufacture and the successful deployment of this
equipment in the buildout of the Company's PCS networks. The Company has entered
into agreements for the supply of equipment with Ericsson and Nortel and is
negotiating a similar agreement with Siemens. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Business -- Strategic Relationships" and "Description of
Certain Indebtedness."
RISKS ASSOCIATED WITH RAPID EXPANSION
The Company's growth may cause a significant strain on its operational and
financial resources. To manage its growth effectively, the Company will be
required to continue to implement and improve its operational and financial
systems. The Company's success will depend in large part on a limited number of
key technical, marketing and sales employees and on the Company's ability to
attract and retain highly talented personnel. Competition for qualified
personnel in the PCS equipment and service industries is intense. The demands of
rapid expansion will require the addition of new management personnel and the
development of additional expertise by existing management. The failure of the
Company's management team to effectively manage growth could have a material
adverse effect on the Company's financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN FUTURE RESULTS
The Company believes that its future operating results over both the short
and long term will be subject to annual and quarterly fluctuations due to
several factors, some of which are outside the Company's control. These factors
include, among others, the buildout cost of PCS networks for all of its service
areas (including any unanticipated costs associated therewith), variations in
market demand for the Company's products and services, establishment of a market
for PCS, competition over pricing and services, changes in the regulatory
environment, and general and local economic conditions. In addition, the extent
of the potential demand for PCS cannot be estimated with certainty. Moreover, no
assurance can be given that the nationwide churn rate in the existing cellular
subscriber base of approximately 25% per year will not translate into a similar
churn rate in the Company's targeted PCS subscriber base. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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RAPID CHANGE IN WIRELESS TELECOMMUNICATIONS INDUSTRY
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of digital upgrades of
existing analog wireless networks, evolving industry standards, ongoing
improvements in the capacity and quality of digital technology, shorter
development cycles for new products and enhancements, and changes in end-user
requirements and preferences. Also, there is uncertainty as to the extent of
customer demand as well as the extent to which airtime and monthly access rates
may continue to decline. As a result, the future prospects of the industry and
the Company as well as the success of PCS and other competitive services are
uncertain. There can be no assurance that new technologies or products that are
superior in quality and services or that are more commercially effective than
the Company's technology or products will not be developed.
CONTROL GROUP REQUIREMENT
The Company qualified as an Entrepreneur and a Small Business, as such
terms are defined by the FCC rules and regulations, for participation in the C
Block auction and payment for its C Block PCS licenses. To retain its C Block
PCS licenses and its favorable Government Financing, the Company must maintain
such status (the "Designated Entity Status"). Alternatively, it may assign or
transfer its licenses to another entity qualifying for Designated Entity Status,
subject to prior FCC approval. To maintain all of the benefits of its Designated
Entity Status, the Company's Control Group and Qualifying Investors (each, as
defined in "Regulation of the Wireless Telecommunications Industry") must retain
certain minimum stock ownership and voting stock of the Company as well as de
jure and de facto control of the Company for 10 years from the date of grant of
its PCS licenses. In addition, no non-Control Group investor or group of
affiliated investors can exceed certain maximum levels of equity or voting
control without potentially affecting the Company's Designated Entity Status.
The FCC has indicated that it will not rely solely on de jure control in
determining whether the Control Group and its Qualifying Investors are truly in
control of an entity. Even if the Control Group (and the Qualifying Investors)
holds the requisite percentages of equity and voting control, the FCC will still
engage in a fact-specific inquiry to determine whether actual control exists.
Factors indicating control include whether the Control Group members manage the
day-to-day activities of the entity, elect a majority of the board of directors,
constitute some of the entity's officers and directors, appoint, promote, demote
and dismiss senior executives and otherwise exercise actual control. See
"Regulation of the Wireless Telecommunications Industry."
The Company believes it has taken steps to comply with and prevent
violation of such regulatory requirements, including the adoption of certain
charter provisions and certain agreements among the Company and its Control
Group members that ensure adherence to such requirements. However, the FCC
requirements are new and have not been interpreted and there can be no assurance
that the Company's ownership and control structure will not be challenged. See
"Business -- Legal Proceedings" and "Description of Capital Stock." If such
challenges are successful, the Company could be required to restructure or
recapitalize, or possibly forfeit its PCS licenses. Failure by the Company to
maintain its Designated Entity Status could result in the imposition of less
favorable schedules for or the acceleration of payments due under the Government
Financing or revocation of its licenses. The inability of non-Control Group
stockholders to gain control of the Company could negatively impact the price of
the shares of Class B Common Stock and the Company's ability to attract
additional capital. This control requirement may also discourage certain
transactions involving an actual or potential change of control of the Company,
including transactions in which the holders of Class B Common Stock might
receive a takeover premium for their shares over the then-prevailing market
price. The control requirement may also necessitate the issuance of additional
equity to the Control Group stockholders as discussed under "Description of
Capital Stock" to ensure that the Control Group maintains the requisite minimum
equity ownership mandated under the FCC rules to maintain the Company's
Designated Entity Status. The Company's Articles of Incorporation (the "Articles
of Incorporation") also provide for the right to cancel transfers, redeem shares
or adjust the voting control of shares to maintain the Company's Designated
Entity Status in the event a non-Control Group member holds more than certain
maximum levels of equity or voting control, and the Board of Directors does not
conclude that such
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ownership is consistent with the Company's Designated Entity Status. See
"Control by Principal Stockholders."
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon consummation of the Recapitalization, holders of Class A Common Stock
(who will be the only members of the Control Group) will be entitled to five
votes per share and holders of Class B Common Stock will be entitled to one vote
per share. Immediately after the Offering, the Control Group, consisting of
Daniel C. Riker, the Company's Chairman of the Board and Chief Executive
Officer, Janis A. Riker, the Company's President, and Teleconsult, Incorporated
("Teleconsult"), a telecommunications consulting and systems integration company
of which Eduardo Paz, a director of the Company, is President and sole director,
will beneficially own all of the issued and outstanding Class A Common Stock,
representing approximately % of the outstanding shares of Common Stock and
% of the combined voting power of the Common Stock (the "Voting Power"). The
Control Group, collectively, will also beneficially own in the aggregate
shares of issued and outstanding Class B Common Stock, which, combined with
their shares of Class A Common Stock, will represent approximately % of the
outstanding shares of Common Stock and % of the Voting Power. To maintain
its Designated Entity Status, the number of votes per share of Class A Common
Stock may be adjusted as needed to ensure that the total number of votes of the
issued and outstanding shares of Class A Common Stock is not less than 50.1% of
the Voting Power. The Company would also have the right to adjust the voting
rights of non-Control Group members who exceed their allowed voting threshold.
As sole owners of the Class A Common Stock, the Control Group members have the
right to elect, as a separate class, a majority of the Board of Directors of the
Company (the "Board of Directors" or the "Company Board"). With respect to
certain extraordinary corporate actions, however, the affirmative vote of
66 2/3% or 75% of the entire Board of Directors is required. The concentration
of Voting Power in a small group of investors may adversely affect the price of
the Class B Common Stock. See "Description of Capital Stock."
In order to maintain all of the benefits of the Designated Entity Status,
the Control Group and Qualifying Investors must maintain certain minimum equity
interest levels for periods of three and ten years, respectively, from the date
of grant of the PCS licenses. To ensure compliance with such requirements, the
Articles of Incorporation and the Control Group Shareholders' Agreement (the
"Control Group Agreement") limit transfers or issuances of capital stock of the
Company that, if effective, would result in violation of such requirements. In
the event that the Company issues additional equity or takes other action that
would otherwise result in violation of such requirements, the members of the
Control Group will be granted options to purchase shares of Class A Common Stock
and Class B Common Stock at 90% of the fair market price at the time of exercise
or, if necessary to maintain the Qualifying Investors' equity requirements, with
options to purchase shares of Class A Common Stock and Class B Common Stock at
the fair market price at the time of grant to the extent necessary to comply
with such requirements pursuant to the terms of a Control Group Stock Option
Plan (the "Control Group Option Plan.") Such issuance would cause
disproportional dilution of other stockholders' interests and may negatively
impact the Company's ability to attract additional capital. See "Principal
Stockholders," "Regulation of the Wireless Telecommunications Industry" and
"Description of Capital Stock."
FOREIGN OWNERSHIP LIMITATIONS
As of December 6, 1996, the Company had approximately 21.45% of its capital
stock owned, directly or indirectly, by stockholders which are foreign entities
or are owned or partially owned by foreign entities. Such stockholders include
Teleconsult, Incorporated, MTI BVI, Inc. and Booz-Allen. The Company holds all
of its PCS licenses indirectly through one or more subsidiaries. Under existing
law, if the parent entity of a licensee has more than 25% of its capital stock
owned or voted, directly or indirectly, by a foreign entity, the FCC can revoke
or refuse to renew a license if it finds that the public interest will be served
by its refusal to renew or revocation. In addition, no more than 20% of the
capital stock of an FCC licensee may be owned or voted, directly or indirectly,
by a foreign entity. The Company intends to structure all investments in the
Company so as to comply with these guidelines. These restrictions could
adversely affect the ability of the Company to
14
<PAGE> 18
obtain additional equity financing from foreign companies. The FCC staff has
suggested in recent inquiries to other C Block applicants whose licenses have
not yet been granted that in certain circumstances debt may be considered as
capital stock for purposes of these requirements. The Company believes that the
debt held by its foreign lenders should not qualify as capital stock for such
purposes, and the FCC staff recently rejected a challenge to the Company's
compliance with these requirements, which was based in part upon its borrowings
from foreign entities. However, the FCC has not yet definitively interpreted
these statutory requirements in the context of the C Block auction and there is
no assurance that it would agree with the staff's conclusion. If the FCC deems
that the Company has exceeded the foreign ownership or control limits, it could
revoke or deny the renewal of the Company's licenses or require the Company to
restructure. See "-- Finality of C Block License Awards at License Grant Date,"
"Business -- Legal Proceedings" and "Regulation of the Wireless
Telecommunications Industry."
GOVERNMENT REGULATION
The licensing, construction, operation, acquisition and sale of PCS
networks, as well as the number of PCS, cellular and other wireless licensees
permitted in each market, are regulated by the FCC. Changes in the regulation of
such activities could have a material adverse effect on the Company's
operations. To the extent not otherwise preempted by federal law, the states are
permitted to regulate any other terms and conditions of wireless services (other
than rates), such as but not limited to customer billing information and
practices; consumer protection matters; bundling of service and equipment;
availability of wholesale capacity; and facilities siting issues. There can be
no assurance that state agencies having jurisdiction over the Company's business
will not adopt regulations, impose taxes on PCS licenses or take other actions
that would adversely affect the business of the Company. Federal and state
regulators will also determine important aspects of the Company's operations,
such as technical aspects of and payments for interconnections with landline and
other wireless networks.
The Telecommunications Act of 1996, enacted on February 8, 1996 (the
"Telecommunications Act of 1996"), mandated significant changes in the
regulation of the telecommunications industry to promote the competitive
development of new service offerings, to expand the public availability of
telecommunications services and to streamline regulation of the industry. The
implementation of these mandates by the FCC and state authorities potentially
involves numerous changes in established rules and policies which could
adversely affect the Company's financial condition or results of operations. See
"Regulation of the Wireless Telecommunications Industry."
On July 26, 1996, the FCC released a report and order establishing
timetables for making emergency 911 services available by PCS and other mobile
services providers, including "enhanced 911" services that provide the caller's
telephone number, location and other useful information. Pending petitions for
reconsideration by the FCC include requests for the FCC to eliminate the
requirement to process non-code identification calls, and to establish
guidelines for resolving carrier liability issues. Many wireless providers
believe that the current timetables contemplated by the FCC for provision of
enhanced 911 services are unrealistic and contemplate substantial technical
challenges, enormous costs for wireless providers, and increased potential for
fraud, abuse and other illegal activities. By late 1997, PCS providers must be
able to process and transmit 911 calls (without call validation), including
those from callers with speech or hearing disabilities. Assuming a cost recovery
mechanism is in place, by mid-1998 such providers must have completed actions
enabling them to relay a caller's automatic number identification and cell site,
and by 2001 they must be able to identify the location of a 911 caller within
125 meters in 67% of all cases. Various parties have petitioned the FCC to
reconsider certain requirements imposed in the order.
On August 8, 1996, the FCC released its decision implementing the
interconnection provisions of the Telecommunications Act of 1996. The FCC's
decision is lengthy and complex and is the subject of both petitions for
reconsideration and judicial review. As a result of these proceedings, the
precise contours and effects of the FCC's interconnection order are difficult to
predict with certainty. However, the FCC's decision concludes that CMRS
providers are entitled to reciprocal compensation arrangements with local
exchange carriers ("LECs") and prohibits LECs from charging CMRS providers for
terminating LEC-originated traffic. While the FCC has noted the potential for
asserting federal jurisdiction over certain aspects of CMRS
15
<PAGE> 19
interconnection, it has so far determined to defer primarily to the states in
implementing interconnection policies pursuant to general guidelines established
by the FCC. Under these guidelines, states must set arbitrated rates for
interconnection and access to unbundled elements based upon LECs' long run
incremental costs, plus a reasonable share of forward-looking joint and common
costs. In lieu of such cost-based rates, the FCC has also established for use by
states a benchmark range of 0.2-0.4 cents per minute for end office termination
pending further cost-based studies, and subject to a possible "true-up" payment
later. The FCC has also permitted states to impose "bill and keep" arrangements,
under which CMRS providers would make no payments for LEC termination of calls
where LECs and CMRS providers have symmetrical termination costs and roughly
balanced traffic flows. However, the FCC has found no evidence that these
conditions presently exist. The relationship of these charges to the payment of
access charges and universal service contributions has not yet been resolved by
the FCC.
Several parties have sought reconsideration of the order by the FCC, and a
number of parties also have petitioned for review of the order in several
federal courts of appeal. Those petitions have been consolidated before the
United States Court of Appeals for the Eighth Circuit, which on October 15, 1996
stayed substantial portions of the FCC's order pending judicial review. On
November 1, 1996, the Eighth Circuit modified the stay to exclude certain
non-pricing portions of the rules that primarily relate to wireless
telecommunications providers. On November 12, 1996, the U.S. Supreme Court
denied applications to lift the stay.
All PCS licenses are granted for a ten-year period, at the end of which
period the licensee may apply for renewal. Licenses may be revoked by the FCC at
any time for cause. All 30 MHz broadband PCS licenses, including those of the
Company, are subject to the Five-Year Buildout Requirement and the Ten-Year
Buildout Requirement. PCS licenses generally will be renewed based upon FCC
rules and policies establishing a presumption in favor of licensees that have
provided "substantial" service during the past license term and have
substantially complied with their regulatory obligations during the initial
license period, but there can be no assurance that any or all of the Company's
PCS licenses will be so renewed. See "-- PCS Network Buildout."
The Company must obtain a number of approvals, licenses and permits for the
operation of its business, including land use regulatory approvals and licenses
from the Federal Aviation Administration (the "FAA") in connection with its PCS
towers. There is no assurance that the various federal, state and local agencies
responsible for granting such licenses, approvals and permits will do so or
that, once granted, those agencies will not revoke or fail to renew them.
Failure to obtain such licenses, approvals and permits could adversely affect,
delay commencement of or prohibit certain business operations proposed by the
Company. See "Regulation of the Wireless Telecommunications Industry."
Regulation of the wireless telecommunications industry is subject to
constant change. There are a number of issues on which regulation has been or
may be suggested, including the effect of wireless communications equipment on
medical equipment and devices as well as interference between types of wireless
systems. As new regulations are promulgated on these or other subjects, the
Company may be required to modify its business plans or operations in order to
comply with any such regulations. There can be no assurance that the Company
will be able to do so in a cost effective manner, if at all. See "-- Radio
Frequency Emission Concerns; Medical Device Interference" and "Regulation of the
Wireless Telecommunications Industry."
Along with the broadband PCS auctions, future auctions and the subsequent
regulation of the licensees will be administered by the FCC. The FCC has created
eligibility requirements and conditions to be met for a company to be awarded
and to retain a license in the Entrepreneurs (C and F) Block auctions and to
qualify for preferential payment options. Although the Company believes that it
meets the appropriate eligibility requirements and that its ownership structure,
network design, buildout plans and financing plans will satisfy the FCC
conditions, there is no certainty that subsequent actions by the Company or its
subsidiaries, unanticipated delays, difficulties in the deployment of the system
or future regulatory changes or interpretations will not result in the violation
of one or more such requirements or in the failure of the Company to meet such
conditions. Any changes in the law and regulations or interpretations thereof
affecting the PCS industry
16
<PAGE> 20
could have a significant adverse impact on the Company and its plans. The
Company's business may be adversely affected by the adoption of restrictive
government regulation, which is beyond the Company's control. The failure to
comply, on an ongoing basis, with all applicable current and future FCC
regulations could result in revocation of its licenses or otherwise prove
detrimental to the Company.
FINALITY OF C BLOCK LICENSE AWARDS AT LICENSE GRANT DATE
The grant of a C Block license by the FCC becomes final after a 30- to
40-day reconsideration period following the license grant date, provided that
such order of license grant is not subject to FCC reconsideration, a petition
for reconsideration, an application for review, or judicial appeal. On November
4, 1996, the license grant date (the "License Grant Date"), the Company was
authorized to commence construction of its PCS Network for the licensed service
area. Any preparation for PCS network construction prior to the grant becoming
final (e.g., negotiation with incumbent microwave licensees, site acquisition
activities and equipment procurement and construction) will be performed at the
Company's risk and expense. As of October 31, 1996, the Company's total network
development expenditures were approximately $14.8 million including costs for
site acquisition, engineering and billing and customer management system. The
FCC's grants of the Company's applications for its PCS licenses were the subject
of certain challenges by two third parties. The FCC denied such challenges and
one of these third parties has filed an application for review of the FCC's
decision. See "Business -- Legal Proceedings."
DEPENDENCE UPON KEY PERSONNEL
The Company will be dependent, to a large degree, on the services of
certain key members of management. Loss of the services of such members of
management could have a material adverse effect on the business of the Company
and qualified replacements may be difficult or impossible to find or retain. See
"Management -- Employment Agreements."
UNCERTAINTY OF PROTECTION OF INTELLECTUAL PROPERTY RIGHTS AND BRANDING
The Company's business strategy relies on a combination of trademarks and
non-disclosure and development agreements in order to establish and protect its
proprietary rights. As the Company expects to be a retail provider of PCS, the
success of its marketing strategy will depend in part on its ability to create
value in its brand name. The Company has applied for registration of the name
"Pocket Communications" and certain derivatives thereof. The Company has been
informed by a seller of long distance calling cards that such party may object
to the use of the term Pocket as a mark for certain types of goods and services.
The Company has responded to this objection. To date, no formal opposition to
the grant of the Company's registrations has been filed. Another party which
markets certain telecommunications products has informed the Company that the
Company's use of "Pocket Communications" may infringe on its unregistered use of
a similar name for a business product. The Company has responded to said party
requesting additional information, and said party has filed no formal opposition
to the Company's registration.
The Company has proceeded with registration of a number of brand designs,
slogans and service marks. There can be no assurance, however, that such
registration, if granted, will provide any meaningful benefit to the Company.
The Company's competitors may develop branding with significantly greater name
recognition than that of the Company. Failure by the Company to develop value in
a brand name or to develop suitable alternatives thereto would have a material
adverse effect on the Company's ability to market its products and services and
could require the Company to invest significant additional funds to develop or
license alternatives. Furthermore, the Company will need to develop, register
and promote a trade name for its mass market phones. There can be no assurance
that a brand name chosen by the Company will be granted registration or that if
granted registration will provide any meaningful benefit to the Company or will
not be challenged by owners of similar trade names. The Company's failure to
obtain federal registration or other suitable protection of its trademark or
brand name could have a material adverse effect on the Company. See
"Business -- Products and Services" and "-- Marketing and Distribution
Strategy."
17
<PAGE> 21
FINALIZATION OF TERMS OF GOVERNMENT FINANCING
The Government Financing available to the Company is evidenced by an FCC
installment payment plan note for each BTA license acquired in the Auction
(collectively, the "FCC Notes") with terms and conditions, all of which have not
yet been definitively interpreted. Significant provisions of the FCC Notes,
which are currently under review and interpretation, include, among others, the
terms of the FCC Notes, the underlying Security Agreement, matters involving
collateral including whether the FCC licenses will be cross collateralized where
the Company holds or controls licenses for multiple PCS markets, and the
assignment of the FCC licenses by the licensee. The success of the Company's
financing plan is dependent upon the ability to secure adequate vendor financing
to allow for the timely delivery of infrastructure equipment to be used in the
buildout of the Company's PCS Network. If subordinated security arrangements
with the Company's vendors are not acceptable to the FCC, the Company may have
to seek to amend its vendor financing agreements.
MINORITY INTERESTS IN CERTAIN SUBSIDIARIES
The Company holds an indirect 73.1% interest in a limited partnership
(including a 1% general partner interest) formed to build and operate the
Company's PCS network in the Las Vegas BTA and expects to hold an indirect 95%
interest in an entity it expects to form to build and operate the Company's PCS
network in the Honolulu and Hilo BTAs. The Company intends to transfer certain
of its PCS licenses to wholly owned subsidiaries of such partially owned
subsidiaries, subject to receipt of necessary FCC approvals. See
"Business -- Minority Interests in Certain Subsidiaries." The Company plans to
structure certain of its partially owned subsidiaries and their respective
wholly owned subsidiaries with the requisite Control Group structure. Transfers
of the licenses pursuant to such plans will be subject to FCC approval. Although
the Company believes that such structure would allow it to comply with the
Control Group requirements, both at the subsidiary level and at the Company
level, there can be no assurance that the Company's ownership and control
structure will not be challenged. If such challenges are successful, the Company
could be required to restructure or recapitalize some of its subsidiaries or the
entire Company or forfeit some of its PCS licenses. Failure on the part of the
Company to maintain its Designated Entity Status could result in the imposition
of less favorable schedules for or acceleration of payments due under the
Government Financing or revocation of some of its licenses. See "-- Control
Group Requirement."
RELOCATION OF FIXED MICROWAVE LICENSEES
A PCS licensee will be required to share a portion of its spectrum with
existing licensees that operate certain fixed microwave systems within each of
its BTAs. These licensees will initially have priority use of their portion of
the spectrum. To secure a sufficient amount of unencumbered spectrum to operate
its PCS networks efficiently, the Company may need to negotiate agreements to
pay for the relocation of many of these existing licensees. In such places where
relocation is necessary to permit operation of the Company's PCS networks, any
delay in the relocation of such licensees may adversely affect the Company's
ability to commence timely commercial operation of its PCS networks. There can
be no assurance that the Company will be successful in reaching timely
agreements with the existing microwave licensees or that any such agreements
will be on terms favorable to the Company. The Company also may be required to
contribute to the costs of relocation under agreements reached by other PCS
licensees if such relocation benefits the Company's license areas. Depending on
the terms of such agreements, the Company's ability to operate its PCS networks
profitably may be adversely affected. See "Regulation of the Wireless
Telecommunications Industry."
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Allegations have been raised that certain RF emissions from wireless
handsets may be linked to various health concerns, including cancer, and may
interfere with various electronic medical devices, including hearing aids and
pacemakers. In August 1996, the FCC released a report and order adopting new and
generally more restrictive standards for evaluating the environmental effects of
RF emissions from FCC-regulated transmitters, including wireless handsets. These
standards generally follow the criteria
18
<PAGE> 22
established by the National Council on Radiation Protection and Measurements and
endorsed by the Environmental Protection Agency, and are, in certain respects,
similar to existing standards developed by the American National Standards
Institute. Environmental assessments are required for RF radiation levels in
excess of those established by these criteria, which assessments could
significantly impede the grant of FCC authorizations necessary for commencing
service. The new standards include specific absorption rate limits for low power
devices such as PCS handsets designed for use within 20 centimeters of the body
of the user and separate maximum permissible exposure limits for controlled and
uncontrolled environments for PCS mobile devices with at least 1.5 watts
effective radiated power that are normally maintained at greater distances from
the body. In a petition for reconsideration of the FCC's report and order filed
in September 1996, the Electromagnetic Energy Association ("EEA") urged the FCC
to preempt state and local regulations for RF exposure, arguing that existing
rules are "inconsistent with FCC regulations." EEA also asked the FCC to
reconsider adoption of a hybrid RF exposure standard and to select the American
National Standards Institute version instead. In accordance with the
Telecommunications Act of 1996, the FCC has preempted state and local regulation
of PCS facilities on the basis of RF environmental effects, but only to the
extent such facilities comply with these new federal standards. Although the
Company's selected handsets comply with applicable standards, concerns over RF
emissions may have the effect of discouraging the use of wireless handsets,
which could have an adverse effect upon the Company's financial condition and
results of operations.
Certain interest groups have requested that the FCC investigate claims that
digital wireless handsets pose health concerns and cause interference with
hearing aids and other medical devices. The Center for the Study of
Electromagnetic Compatibility at the University of Oklahoma (the "Center"),
which was founded in 1994 with funds from the wireless industry, is studying
this issue. The Center recently released results from the first phase of its
study, which focused on the operation of handsets at maximum power. This study
indicated that the three wireless technologies tested, including GSM, caused
interference with hearing aids in some instances. In addition, the Personal
Communications Industry Association (the "PCIA") announced in July 1995 that it
was undertaking an industry-wide study to gather information on possible PCS
interference with medical devices for all PCS standards. There can be no
assurance that the findings of such studies will not have an adverse effect on
the Company's business (including its use of GSM technology) or that such
findings will not lead to government regulations that will have an adverse
effect on the Company's business.
Results from researchers working under the guidance of Wireless Technology
Research LLC indicate that digital wireless handsets may cause interference with
some pacemakers, although those results show that GSM handsets cause only
minimal interference. These researchers have recommended preliminarily that
patients dependent on pacemakers avoid using digital telephones and that
nondependent patients keep such telephones away from their implanted devices.
There can be no assurance that such recommendations will not lead to
governmental regulation or that such recommendations will not have a material
adverse effect on the Company. See "Regulation of the Wireless
Telecommunications Industry."
DILUTION
Investors participating in the Offering will incur immediate and
substantial dilution. To the extent outstanding options and warrants to purchase
the Common Stock are exercised or indebtedness convertible into Common Stock is
converted, there will be further dilution. Dilution may also result from future
stock option grants and equity issuances. In connection with such grants and
issuances, stock options may have to be granted to Control Group members
including Qualifying Investors to maintain FCC required equity ownership levels,
thereby increasing such dilutive effect. See "Dilution," "Regulation of the
Wireless Telecommunications Industry" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
After consummation of the Offering, stockholders of the Company prior to
the Offering will own approximately % of the outstanding Class B Common Stock
( % if the Underwriters over-allotment option is exercised in full). Sales of
substantial amounts of Class B Common Stock in the public market after the
Offering could adversely affect the market price for the Class B Common Stock
and the Company's ability to raise additional capital. See "Shares Eligible for
Future Sale."
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<PAGE> 23
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Class B
Common Stock. Although application has been made to have the Class B Common
Stock quoted on the Nasdaq National Market ("Nasdaq"), there can be no assurance
that an active public market for the Class B Common Stock will develop or will
be sustained. The initial public offering price will be determined through
negotiations between the Company and the Underwriters. See "Underwriting." There
can be no assurance that the price at which the Class B Common Stock will trade
in the public market after the Offering will not be lower than the initial
public offering price. In addition, the stock market has experienced volatility
that has particularly affected the market prices of equity securities of many
telecommunications companies. Broad market fluctuations may adversely affect the
market price of the Class B Common Stock.
BENEFITS OF THE OFFERING TO CURRENT SHAREHOLDERS
This Offering will provide substantial benefits to current equity
stockholders of the Company. Consummation of this Offering is expected to create
a public market for the Class B Common Stock held by some of the Company's
current stockholders, including directors and executive officers of the Company.
As of September 30, 1996, stockholders have contributed an aggregate of
approximately $8.8 million for the 29,124,069 shares of Common Stock outstanding
at September 30, 1996. Based on an assumed initial public offering price of
$ per share (the midpoint of the range on the cover page hereof), this
Offering will result in an unrealized gain to such stockholders in the aggregate
of approximately $ million. The Company's Control Group, which will continue
to hold Class A Common Stock after the consummation of the Offering, will not
receive any immediate economic benefits with respect to such Class A Common
Stock, other than the ability to convert Class A Common Stock into Class B
Common Stock over time, subject to certain restrictions. Based upon an assumed
initial public offering price of $ per share (the midpoint of the range on
the cover page hereof), this Offering will result in an unrealized gain to such
Control Group stockholders in the aggregate of approximately $ . See "-- No
Prior Market; Possible Volatility of Stock Price," "-- Dilution," and
"Description of Capital Stock -- Common Stock."
20
<PAGE> 24
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $ million after deducting estimated underwriting discounts and
commissions and offering expenses. This figure assumes an initial public
offering price of $ per share, the midpoint of the range set forth on the
cover page hereof. The Company expects to use the net proceeds of the Offering,
together with the net proceeds from the Debt Offering (estimated to be $
million), (i) for principal and interest payments on indebtedness (approximately
$130 million, including $41.7 million of borrowings under the Short-Term
Facility (as defined herein) maturing on November 8, 1997 and bearing interest
at 11.25% per annum, payable quarterly, which borrowings were used for the
Downpayment), and (ii) for capital contributions to its operating subsidiaries
for the buildout and operation of the PCS networks in its license areas, and for
general corporate purposes (approximately $155 million). Pending such uses, the
net proceeds of the Offering will be invested in short-term, interest-bearing,
investment grade marketable securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Certain Indebtedness."
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its Common
Stock. The Company presently intends to retain future earnings to support the
growth of its business and, therefore, does not anticipate paying cash dividends
in the near future. The payment of any future dividends on the Common Stock will
be determined by the Board of Directors in light of conditions then existing,
including the Company's earnings, financial condition, capital requirements,
restrictions in financing arrangements, business conditions, regulations
relating to the Control Group ownership requirements and other factors. Under
the provisions of the Articles of Incorporation, the declaration of dividends on
Common Stock requires the approval of at least two-thirds of the entire Board of
Directors. In addition, the Indenture and certain vendor financing agreements
are expected to contain provisions that will restrict the ability of the Company
to pay cash dividends on the Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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<PAGE> 25
DILUTION
The pro forma net tangible book value (deficit) of the Company at September
30, 1996 was approximately $( ) million or $( ) per share of Common Stock.
Pro forma net tangible book value per share represents the amount of the
Company's tangible assets less total liabilities, divided by the number of
shares of Common Stock outstanding, after the anticipated conversion of $72.3
million principal amount of certain convertible debt and term loans convertible
into convertible debt into shares of Class B Common Stock. After giving effect
to the sale by the Company of shares of the Class B Common Stock
offered hereby at an assumed initial public offering price of $ , the
midpoint of the range stated on the cover page hereof, resulting in estimated
aggregate net proceeds of approximately $ million, the pro forma net
tangible book value of the Company at September 30, 1996 would have been
approximately $ per share. This represents an immediate increase of $
per share to existing stockholders and stockholders resulting from the
anticipated conversion, subject to FCC requirements, of approximately $72.3
million of convertible debt and term loans convertible into convertible debt
(together, the "Current Stockholders") and an immediate dilution of $ to
new investors purchasing Class B Common Stock in the Offering. The following
table illustrates this per share dilution as of September 30, 1996.
<TABLE>
<S> <C> <C>
Initial public offering price per share.......................... $
Pro forma net tangible book value (deficit) per share before
the Offering................................................ $
Increase per share attributable to the Offering................
-------
Pro forma net tangible book value (deficit) per share after the
Offering.......................................................
-------
Dilution per share to new investors.............................. $
=======
</TABLE>
If the Underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share of Common Stock after giving effect to
the Offering would be $( ) per share, the increase in net tangible book
value per share would be $ and the dilution to persons who purchase shares
of Class B Common Stock would be $ per share.
The following table summarizes, on a pro forma basis as of September 30,
1996, the differences between the Current Stockholders and the investors in the
Offering with respect to the number of shares of Common Stock acquired from the
Company, the total consideration paid therefor and the average price per share
paid by the Current Stockholders and the investors in the Offering, at the
assumed initial public offering price of $ per share, the midpoint of the
range stated on the cover page hereof.
<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Current Stockholders............... % $ % $
Investors in Offering.............. % $ % $ --
---------- ------- ------------ ------- ---------
Total......................... 100.0% $ 100.0%
</TABLE>
The foregoing computations in this Dilution section exclude the Reserved
Option Shares, the Control Group Option Shares and shares reserved for issuance
upon exercise of certain warrants. See "Management -- Stock Option Plans,"
"-- Compensation of Directors," "Regulation of the Wireless Telecommunications
Industry," "Description of Certain Indebtedness" and "Description of Capital
Stock."
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<PAGE> 26
CAPITALIZATION
The following table sets forth the actual, pro forma and pro forma as
adjusted capitalization of the Company as of September 30, 1996. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and the notes thereto appearing elsewhere in this
Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA(2) AS ADJUSTED(3)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents........................................ $ 288 $ 479 $
======= ======= =======
Short-term borrowings............................................ $ 1,031 $ 42,906 $
======= ======= =======
Long-term debt:
Senior Discount Notes.......................................... $ -- $ -- $
Government Financing, net of discount of $460.2 million(4)..... -- 823,918
Other including deferred interest.............................. 98,847 50,214
------- ------- -------
Total long-term debt.................................... 98,847 874,132
Minority interest................................................ 1,420 1,420
Redeemable Class B Common Stock.................................. 1,500 1,500
Stockholders' equity (deficit)(5):
Preferred Stock, par value $.01 per share, 100,000,000 shares
authorized; no shares issued and outstanding.................
Common Stock, par value $.01 per share,
Class A Common Stock, 100,000,000 shares authorized,
19,700,000 shares issued and outstanding actual;
pro forma shares issued and outstanding; and
shares issued and outstanding pro forma as adjusted........ 197 197
Class B Common Stock, 500,000,000 shares authorized,
7,623,340 shares issued and outstanding actual; 18,185,840
pro forma shares issued and outstanding; and shares
outstanding pro forma as adjusted(6)....................... 76 182
Additional paid-in capital..................................... 15,573 81,378
Subscription receivable........................................ (6,750) (1,750)
Deferred compensation.......................................... (1,517) (1,517)
Deficit accumulated during the development stage............... (21,105) (21,014)
------- ------- -------
Total stockholders' equity (deficit).................... (13,526) 57,476
------- ------- -------
Total capitalization........................................... $ 88,241 $934,528 $
======= ======= =======
</TABLE>
- ---------------
(1) Gives effect to the Recapitalization, effected prior to the consummation of
the Offering.
(2) Gives effect to certain events and transactions which occurred subsequent to
September 30, 1996, including (i) the $57.6 million of additional borrowings
under certain loan agreements and credit facilities to satisfy the balance
of the Downpayment, (ii) the issuance of an $8.0 million promissory note as
a fee in securing certain financing to satisfy the Downpayment, (iii) the
conversion of approximately $72.3 million of convertible debt and term loans
convertible into convertible debt convertible into 9,937,500 shares of Class
B Common Stock, of which $7.3 million is expected to convert immediately
following the consummation of the Offering and $65.0 million of which is
expected to convert into convertible debt and subsequently into Class B
Common Stock within 15 days following the consummation of the Offering,
subject, in each case, to compliance with FCC requirements, (iv) the
capitalization as an intangible asset of the FCC licenses awarded to the
Company and the recognition of the resulting net indebtedness to the FCC of
$823.9 million and (v) the utilization of escrow funds of $15.0 million,
which was applied towards the Downpayment, including $5.0 million, which was
received for 625,000 shares of Class B Common Stock issued on November 8,
1996.
(3) Gives effect to the events and transactions referred to in note 2 above and
(i) the sale by the Company of shares of Class B Common Stock pursuant
to the Offering (at an assumed initial public offering price of $ per
share, the midpoint of the range stated on the cover page hereof), resulting
in estimated aggregate net proceeds of approximately $ million, (ii) the
Debt Offering resulting in estimated aggregate net proceeds of approximately
$ million, and (iii) the application of the net proceeds therefrom to
repay $ million of borrowings under certain loan and credit facilities.
(4) Recorded at its estimated fair market value at November 4, 1996, the date at
which the FCC licenses were awarded to the Company.
(5) Excludes the Reserved Option Shares, the Control Group Option Shares and
shares issuable upon the exercise of warrants. See "Management -- Stock
Option Plans" and "-- Compensation of Directors," "Regulation of the
Wireless Telecommunications Industry," "Description of Certain Indebtedness"
and "Description of Capital Stock." The Company expects that the number of
authorized shares of capital stock will be adjusted as part of the
Recapitalization.
(6) Excludes 843,750 shares, 218,750 shares and shares subscribed and not
issued and outstanding at September 30, 1996, Actual, Pro Forma and Pro
Forma As Adjusted, respectively.
23
<PAGE> 27
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the
Company, which should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
The consolidated statement of operations data set forth below for the year ended
December 31, 1995 and the period April 20, 1994 (date of inception) to December
31, 1994 and the consolidated balance sheet data as of December 31, 1995 and
1994 are derived from the Consolidated Financial Statements and the notes
thereto included elsewhere in this Prospectus. The selected consolidated
financial data for the nine-month periods ended September 30, 1995 and 1996 has
been derived from the unaudited consolidated financial statements of the
Company, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein. The results for the nine-month periods ended
September 30, 1995 and 1996 are not necessarily indicative of the results that
may be expected for the full year or for any future period.
<TABLE>
<CAPTION>
NINE MONTHS
FOR THE PERIOD ENDED SEPTEMBER 30,
APRIL 20, 1994 YEAR ENDED --------------------
TO DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996
(UNAUDITED)
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues..................................... $ -- $ -- $ -- $ --
Operating expenses:
General and administrative................. 198 4,348 2,469 6,919
Business development....................... 841 2,257 1,538 1,266
Sales and marketing........................ -- 567 462 567
------ ------ ------ ------
Operating loss............................... (1,039) (7,172) (4,469) (8,752)
Interest income (expense).................... -- (221) 50 (3,921)
------ ------ ------ ------
Net loss..................................... $ (1,039) $(7,393) $(4,419) $(12,673)
====== ====== ====== ======
PRO FORMA:
Pro forma net loss per common share(1)....... $ $
Pro forma weighted average number of common
shares outstanding(1)......................
Ratio of pro forma as adjusted earnings to
pro forma as adjusted fixed charges(2).....
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER AS OF SEPTEMBER 30, 1996
31, ----------------------------------------
----------------- PRO FORMA
1994 1995 ACTUAL PRO FORMA(3) AS ADJUSTED(4)
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital (deficit)................... $(113) $(2,905) $(15,971) $(57,655) $
License costs............................... -- 40,050 71,338 966,594
Total assets................................ 23 44,333 110,785 993,946
Short-term borrowings....................... -- 1,500 1,031 42,906
Government Financing, net of discount....... -- -- -- 823,918 --
Long-term debt, including deferred -- 40,400 98,847 50,214
interest..................................
Minority interest........................... -- 76 1,420 1,420
Total stockholders' equity (deficit)........ (100) (2,116) (13,526) 57,476
</TABLE>
- ---------------
(1) See Note 3 of the Notes to Consolidated Financial Statements for an
explanation of the pro forma loss per share and the shares used in computing
pro forma loss per share.
(2) The Company's pro forma as adjusted earnings for the year ended December 31,
1995 and for the nine month period ended September 30, 1996 are insufficient
to cover pro forma as adjusted fixed charges by $7.4 million and $13.2
million, respectively.
(3) Gives effect to certain events and transactions which occurred subsequent to
September 30, 1996, including (i) the $57.6 million of additional borrowings
under certain loan agreements and credit facilities to satisfy the balance
of the Downpayment, (ii) the issuance of an $8 million promissory note as a
fee in securing certain financing to satisfy the Downpayment, (iii) the
conversion of approximately $72.3 million of convertible debt and term loans
convertible into convertible debt convertible into 9,937,500 shares of Class
B Common Stock, of which $7.3 million is expected to convert immediately
following the consummation of the Offering and $65.0 million of which is
expected to convert into convertible debt and subsequently into Class B
Common Stock within 15 days following the consummation of the Offering,
subject, in each case, to compliance with FCC requirements, (iv) the
capitalization as an intangible asset of the FCC licenses awarded to the
Company and the recognition of the resulting net indebtedness to the FCC of
$823.9 million and (v) the utilization of escrow funds of $15.0 million,
which was applied towards the Downpayment, including $5.0 million, which was
received for 625,000 shares of Class B Common Stock issued on November 8,
1996.
(4) Gives effect to the events and transactions referred to in note 3 above and
(i) the sale by the Company of shares of Class B Common Stock pursuant
to the Offering (at an assumed initial public offering price of $
per share, the midpoint of the range stated on the cover page hereof),
resulting in estimated aggregate net proceeds of approximately $ million,
(ii) the Debt Offering resulting in estimated aggregate net proceeds of
approximately $ million, and (iii) the application of the net proceeds
therefrom to repay $ million of borrowings under certain loan and
credit facilities.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in April 1994 for the purposes of (i)
acquiring PCS licenses from the FCC, (ii) constructing and operating PCS
networks in its markets and (iii) offering wireless communications services in
these areas. The Company is currently the sixth largest PCS licensee in the U.S.
in terms of POPs, having acquired 43 BTA licenses in the C Block auction which
ended on May 6, 1996. More than 85% of the Company's POPs are in substantially
contiguous markets located in the central region of the United States. The
Company intends to build out its PCS networks rapidly using commercially proven
GSM technology and intends to offer commercial services in Las Vegas and
Honolulu in the third quarter of 1997.
Since formation, the Company has been focusing on developing its business
and has not generated any operating revenues. The Company has been devoting its
efforts to establishing its business, including recruiting its management team,
conducting market research, participating in the C Block auction, arranging
financing and performing initial activities relating to the development and
construction of its PCS networks including detailed engineering and site
acquisition work to build out its Las Vegas and Honolulu networks and has begun
the preliminary network design and site acquisition processes in certain other
service areas, including Chicago.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Total operating expenses increased $4.3 million to $8.8 million for the
nine-month period ended September 30, 1996, compared with $4.5 million for the
comparable period in 1995. General and administrative expenses were $6.9 million
and $2.5 million, representing approximately 78% and 56% of operating expenses
for each of the nine-month periods ended September 30, 1996 and 1995,
respectively. The increase in general and administrative expenses is primarily
attributable to (i) a $3.6 million increase in headcount and personnel related
costs, including $1.8 million of compensation expense in connection with stock
options committed to employees and directors at an exercise price below the fair
market value of the Common Stock, and (ii) an increase of $531,000 in occupancy
related costs, including equipment rental, both of which reflect the Company's
growth in connection with efforts to prepare for the C Block auction and to
arrange financing. Business development expenses were $1.3 million and $1.5
million, representing approximately 15% and 33% of operating expenses for the
nine-month periods ended September 30, 1996 and 1995, respectively. The decrease
in business development expenses is primarily attributable to increased
consulting and professional services during 1995 in preparation of the
commencement of the C Block auction in the fourth quarter of 1995. Sales and
marketing expenses were $567,000 and $462,000, representing 7% and 11% of
operating expenses for the nine-month periods ended September 30, 1996 and 1995,
respectively. The increase in sales and marketing expenses was primarily
attributable to initial efforts in marketing the Company's products and
services, which the Company expects to begin offering in the third quarter of
1997.
Net interest expense was $3.9 million for the nine-month period ended
September 30, 1996, as compared to $50,000 of interest income for the nine-month
period ended September 30, 1995. The increase in net interest expense is a
result of financing agreements undertaken in 1995 to fund both working capital
requirements and the Downpayment for the PCS licenses. See "Description of
Certain Indebtedness."
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE PERIOD FROM APRIL 20, 1994
(INCEPTION) TO DECEMBER 31, 1994
Total operating expenses increased $6.2 million to $7.2 million for 1995,
compared with $1.0 million for the period April 20, 1994 to December 31, 1994.
General and administrative expenses were $4.3 million and $198,000, representing
approximately 60% and 19% of operating expenses for 1995 and the period from
April 20, 1994 to December 31, 1994, respectively. The increase in general and
administrative expenses is primarily attributable to (i) a $3.5 million increase
in headcount and personnel related costs and (ii) an increase of $367,000 in
occupancy related costs, including equipment rental, both of which reflect the
Company's growth in connection with efforts to prepare for the C Block auction
and to arrange financing. Business development expenses were $2.3 million and
$841,000, representing 32% and 81% of operating expenses in 1995 and the period
April 20, 1994 to December 31, 1994, respectively. The increase in business
25
<PAGE> 29
development expenses was primarily attributable to professional fees related to
services during the C Block auction and to the development of the Company's
corporate structure. The decrease in business development expenses as a
percentage of operating expenses was due to certain one-time development efforts
incurred in 1994. Sales and marketing expenses were $567,000 in 1995,
representing 8% of operating expenses and reflecting the initial costs in
marketing the Company's products and services, which the Company expects to
begin offering in the third quarter of 1997.
Net interest expense was $221,000 for the year ended December 31, 1995
compared to no interest expense or income in the period April 20, 1994 to
December 31, 1994. The increase in net interest expense is a result of financing
agreements undertaken in 1995 to fund both working capital requirements and the
Downpayment. See "Description of Certain Indebtedness."
LIQUIDITY AND CAPITAL RESOURCES
As set forth in its consolidated statements of cash flows, since inception
through September 30, 1996, the primary source of cash has been $6.8 million
from the sale of Common Stock and $78.1 million of proceeds from the issuance of
debt, $61.6 million of which is convertible into Class B Common Stock or
convertible debentures convertible into Class B Common Stock, subject to
compliance with FCC requirements. These sources of cash have (i) financed
operating activities of $12.2 million including personnel related costs and
consulting and legal fees through September 30, 1996, (ii) funded capital
expenditure requirements of $2.1 million, including $1.6 million in connection
with the design and development of certain PCS networks and (iii) partially
funded the Company's initial FCC license deposit. At September 30, 1996, the
Company had $288,000 of cash and cash equivalents and negative working capital
of $16.0 million. Subsequent to September 30, 1996, the Company arranged for
borrowing facilities of $57.4 million applied to the Downpayment and vendor and
bridge financing facilities aggregating $15.2 million to meet short-term
requirements.
FINANCING PLAN
To date, sources of financing arranged by the Company total approximately
$2.1 billion primarily from (i) the issuance of $14.3 million in Common Stock,
(ii) $646 million of committed vendor financing (the "Existing Financing") for
the construction and buildout of certain of its markets and for working capital
purposes, (iii) debt issuances of $162.2 million and (iv) $1.28 billion in
Government Financing to finance the balance due for its licenses.
For the period from the effective date of the Offering through December 31,
1997, the Company estimates that the aggregate funds required for the
development, construction and deployment of its PCS networks in certain of its
markets will total approximately $805 million. This figure consists of (i)
approximately $520 million for capital expenditures, (ii) approximately $165
million in debt service requirements and (iii) approximately $120 million for
operating losses and working capital needs. The Company believes that the net
proceeds of the Offerings, in combination with available borrowings under the
vendor financing, will be sufficient (i) to fund operating losses and working
capital requirements, (ii) to complete the initial buildout of PCS networks and
commence service in the Chicago, Las Vegas and Honolulu BTAs, (iii) to complete
a significant portion of the detailed engineering and site acquisition work in
Detroit, Dallas and St. Louis and (iv) to repay certain of the Company's debt
and satisfy certain of the Company's debt service requirements, including
interest payments on the Government Financing, through 1997.
To complete the buildout of its PCS Network and implement the Company's
business strategy, the Company will require substantial additional capital, both
during and after 1997, beyond amounts raised in the Offerings. The exact amount
of the Company's future requirements will depend upon many factors, including
the cost of development of PCS networks in each of its clusters, the extent of
completion and pricing of wireless services in these clusters, the acceptance of
the Company's services and the development of new consumer products. See "Risk
Factors -- Significant Capital Requirements and Uncertainty of Additional
Financing."
The agreements governing the vendor financings contain a number of
customary representations, warranties, covenants and conditions. In addition,
such agreements require the Company's operating
26
<PAGE> 30
subsidiaries to receive certain minimum capital contributions prior to drawing
down funds under the facilities. The Company expects to satisfy a portion of
such minimum capital contributions through the Offerings. See "Use of Proceeds."
Moreover, additional significant capital contributions will be required in order
to access the total commitments under the vendor financing. In addition, the
Company is required to make certain repayments of borrowings under these
agreements from certain asset sales and excess cash flow. These agreements also
contain restrictive covenants which impose restrictions and/or limitations on
the operations and activities of the Company and certain of its subsidiaries,
including, among others, the incurrence of indebtedness, the creation or
incurrence of liens, the sale of assets, investments and acquisitions, mergers,
declaration or payment of dividends on or other payments or distributions to
shareholders or material transactions with an affiliate on terms less favorable
than those obtainable from a nonaffiliate. These agreements also limit the total
investment by the Company in its subsidiaries owning PCS licenses (exclusive of
license acquisition costs and proceeds of the agreements themselves until the
PCS licenses are final).
The repayment of these financings is secured by, among other things, the
grant of a security interest in all of the assets of the Company including,
among other things, the capital stock and assets of the indirect subsidiaries of
the Company that hold the PCS licenses for a given market, which are pledged to
the vendors pursuant to their respective facilities.
Sources for future financing may include additional vendor financing, debt
financing and equity offerings. The Company currently has no sources of revenue.
There can be no assurance that additional financing will be available to the
Company or, if available, that it can be obtained on terms acceptable to the
Company and consistent with any limitations that may be contained in the vendor
financing, other financing arrangements then existing or FCC regulations.
Inability to obtain such financing could result in delay or reduction of the
Company's development and construction plans, cause its development and
construction to fall behind schedule and result in failure to meet the FCC
buildout requirements and its debt service obligations, which, individually or
in the aggregate, could have a material adverse effect on the Company's
financial condition and results of operation. In addition, failure to meet the
buildout requirements could result in the imposition of fines by the FCC or
revocation of the Company's PCS licenses. Any future financing may also have an
adverse effect on the price of the shares of Class B Common Stock. In addition,
compliance with certain FCC regulations regarding equity ownership of C Block
licenses may limit the Company's flexibility in obtaining additional financing.
Further, the exact amount of the Company's future requirements will depend
upon many factors, including the cost of development of PCS networks in each of
its clusters, the extent of completion and pricing of wireless services in these
clusters, the acceptance of the Company's services, and the development of new
consumer products. Failure to obtain such financing could result in delay or
abandonment of some or all of the Company's development and expansion plans. See
"Risk Factors -- Significant Capital Requirements and Uncertainty of Additional
Financing."
The Company has entered into certain supply agreements with third parties,
pursuant to which the Company may purchase the equipment, services and software
required to construct and deploy its PCS Network. These supply agreements are
subject to various conditions, including, as to some, the availability of
financing by the respective vendor.
The Company's maturities of long-term debt for the next five years and the
Company's future commitments for lease arrangements and anticipated purchases
under supply agreements for equipment and services are discussed in Notes 7 and
10, respectively, to the Consolidated Financial Statements as of September 30,
1996.
Certain of the Company's operating expenses, system expansion efforts
beyond 1998 and debt obligations may be subject to inflation and interest rate
adjustments. There can be no assurance that the Company will be able to raise
rates to customers in order to offset increased expenses caused by such
inflation or interest rate adjustments.
Given the Company's network development activities, certain of its costs,
including interest, have been capitalized. The policy of capitalizing interest
costs will be discontinued when the PCS network is ready for commercial use,
and, thereafter, all interest costs associated with that specific PCS network
will be expensed.
27
<PAGE> 31
Additionally, depreciation of a PCS network will commence when it is available
for commercial use. Future charges to operations for interest cost and
depreciation expense of the PCS networks will be significant. Beginning in the
first quarter of 1997, the Company expects increased advertising, promotion and
personnel costs in connection with the anticipated offering of service in the
Las Vegas and Honolulu markets in the third quarter of 1997. The Company expects
increased capital expenditures and supporting costs, including personnel,
throughout the buildout of additional networks in other markets.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. Entities which elect not to adopt the
fair value method of accounting are required to make pro forma disclosures of
net loss and net loss per share as if the fair value method were adopted. SFAS
No. 123 is required for fiscal years beginning after December 15, 1995.
Management does not intend to adopt the fair value method of accounting.
Accordingly, adoption of SFAS No. 123 in the fiscal year ending December 31,
1996, will only impact the Company's disclosures.
28
<PAGE> 32
BUSINESS
OVERVIEW
Pocket intends to be a leading provider of full-service wireless
telecommunications services in its markets, which cover approximately 35.5
million POPs. The Company currently is the sixth largest PCS licensee in the
United States in terms of POPs, having acquired 43 BTA licenses, each consisting
of 30 MHz of spectrum, in the recently completed FCC C Block auction. Major
markets covered by the Company's PCS licenses include Chicago, Dallas-Ft. Worth,
Detroit, St. Louis, New Orleans, Las Vegas, and Honolulu. More than 85% of the
Company's POPs are in substantially contiguous markets located in the central
region of the U.S. The Company intends to build out its PCS networks rapidly
using commercially established GSM technology, and anticipates commencing
service in Las Vegas and Honolulu in the third quarter of 1997. The Company
believes the Las Vegas and Honolulu markets are appropriate for early deployment
because their smaller size, availability of cell sites, and relatively low
density cell site configuration requirements will allow the Company and its
equipment vendors to establish and refine their market development processes in
an environment where project size is not as significant a risk as other markets.
See "-- Network Buildout and Operations."
The Company successfully bid $1.43 billion, net of a 25% bidding credit,
for 43 BTA licenses in the FCC C Block auction. To date, the Company has paid
$143 million, representing 10% of this total net bid, as the Downpayment. The
Government Financing terms for the balance of $1.28 billion include a
below-market interest rate of 6.5% fixed for the 10-year term of the financing.
This Government Financing allows the Company to pay interest only on the
principal balance for the first six years of the license term with payments of
interest and principal amortized over the remaining four years of the license
term. This favorable Government Financing significantly reduces the effective
cost of these licenses to the Company, on a net present value basis.
The Company intends to position its PCS service as a "new category" of
wireless telephone service aimed primarily at that segment of the mass consumer
market that has not previously purchased cellular service. The Company has
developed an initial marketing and advertising plan that is designed to create a
new identity for the service. The Company plans to offer the mobility features
of cellular, the calling features of landline and a pricing plan more similar to
current local telephone service than to existing cellular. The Company will be
using GSM, which is an advanced digital technology that is superior to
traditional analog cellular systems in terms of voice quality, reliability,
functionality and privacy while providing substantially greater capacity. The
Company's marketing and distribution strategy will be based on the use of
custom-designed user-friendly handsets, brand name development and unique
packaging. With the increased number of wireless telecommunications services and
the anticipated decrease in service rates, the Company believes that there will
be a growing demand for wireless services. The Company will focus its marketing
efforts to target the estimated more than 80% of the POPs in its markets who
currently are not using cellular services and to attract cellular users who may
be dissatisfied with the quality or cost of their existing service.
The Company has selected GSM technology, with established commercial
performance and multiple equipment suppliers, to position it to rapidly build
out its PCS networks at competitive costs. Based on the announced intentions of
other PCS licensees to date, the Company will be the second largest PCS licensee
in the U.S. (in terms of POPs) using GSM technology. Although GSM technology has
only been commercially available in the United States on a limited basis, GSM is
the predominant digital wireless technology in the world, serving over 26
million customers in 100 countries as of November 1996. GSM permits enhanced
features such as secure calling, text messaging and data and fax services. In
addition, GSM permits the networking of equipment from a number of different
manufacturers. The Company believes that, given the global predominance of GSM
usage, the cost of GSM equipment will decrease as economies of scale in
production of network equipment are realized and competition among equipment
suppliers intensifies. See "Risk Factors -- GSM Technical Standard and
Implications for Roaming Services."
The Company has strategic relationships with Ericsson, Siemens, Nortel,
Mitsubishi, LCC, Booz - Allen and Brightpoint. The Company has arranged vendor
financing with Nortel and Ericsson totaling $481 million for the supply of
equipment and services in connection with the buildout of the Company's Las
Vegas,
29
<PAGE> 33
Honolulu, Chicago and Dallas networks. In addition, the Company has reached an
agreement with Siemens on the terms of additional vendor financing totaling $165
million for the buildout of the Detroit network. Under the terms of these vendor
financing arrangements, Ericsson, Siemens or Nortel will be the primary network
equipment supplier in their respective markets. The Company and Mitsubishi are
developing a custom-designed handset and are negotiating a handset supply
agreement. LCC is providing radio network design, program management (including
site acquisition and construction management) and network optimization services.
Booz - Allen is providing product design, information system deployment, systems
integration services and management consulting. Brightpoint will provide a
variety of services to the Company, including wholesale inventory management,
warehousing and fulfillment. In addition, Dominion Fund will provide the Company
financing for the purchase of telephone switch equipment and services in certain
markets. See "-- Strategic Relationships."
POCKET'S STRATEGY
The key elements of the Company's business strategy are to target its
products and services primarily to the mass consumer market, offer wireless
products and services with superior voice quality, reliability, functionality
and privacy, implement proven GSM technology, operate its business in clusters
to provide a regional market focus and achieve economies of scale, and expand
its market coverage through the establishment of strategic alliances with other
GSM licensees and the possible acquisition of additional PCS licenses.
- Target Mass Consumer Market. The Company's marketing strategy is to
focus on the mass consumer market, targeting the estimated more than 80%
of the POPs in its markets who currently are not using cellular services
as well as cellular service users who may be dissatisfied with the
quality or cost of their existing service. In order to attract
subscribers from this potential market, the Company plans to offer
service packages priced significantly below current cellular rates on a
per minute basis. The Company also plans to simplify the products and
services it will offer by not requiring service contracts, providing
immediate service activation, offering 24-hour customer service,
streamlining the customer's bill and providing user-friendly handsets.
The Company plans to distribute its products and services through a
variety of distribution channels, including Company-owned stores, direct
marketing and retail electronics stores as well as through
non-traditional channels such as supermarkets, kiosks and vending
machines. Prior to launching its services, the Company plans to begin
aggressively developing and marketing its proprietary brand in order to
establish it in the consumer marketplace.
- Provide Superior Products and Services. The Company plans to offer
wireless products and services with superior voice quality, reliability,
functionality and privacy. The Company plans to offer PCS service that
will include one-way paging, voice mail, call waiting, call forwarding,
conference calling and caller ID, with two-way text messaging as an
option. Existing GSM technology will also enable the Company to offer
personalized services such as call screening, rejection, routing and
forwarding, enhanced voice mail and data transmission services such as
electronic mail, facsimile and Internet access. In addition, the Company
and Mitsubishi are developing a custom handset that incorporates an
ergonomic design with easy-to-use menus and large screens to manage
handset functions, and significantly longer battery life than is
currently available for cellular handsets. The existing and planned GSM
systems worldwide will enable the Company to offer national and
international roaming in conjunction with other GSM operators.
- Implement Proven GSM Technology. The Company believes that by building
its PCS Network using commercially established GSM technology, it will
minimize many risks associated with using new technology and will achieve
early market entry. The Company has made significant progress towards the
completion of the detailed engineering and site acquisition work to build
out its Las Vegas and Honolulu networks and has begun the preliminary
network design and site acquisition processes in certain other service
areas, including Chicago. The Company plans to begin offering services in
Las Vegas and Honolulu in the third quarter of 1997 and its remaining
markets in 1998, with Chicago and Detroit as the first of such markets to
begin offering services. The Company plans to build out networks that
will be able to offer service to at least 80% of the POPs within its
service areas by the end of 1998.
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<PAGE> 34
- Operate in Market Clusters. The Company has organized its 43 BTAs into
nine clusters to provide a regional market focus while allowing it to
achieve operational efficiencies and lower infrastructure costs. The
Company plans to establish management and operational teams in each of
its clusters to support all of the BTAs in such clusters. Emphasis on
operations at the regional market level will allow the Company to serve
its customers more effectively and to build a loyal customer base. The
Company also believes that this approach will allow it to customize its
marketing efforts and maintain high levels of customer satisfaction. This
clustering strategy is designed to facilitate network switch-sharing,
allow the Company to benefit from shared resources and coordinated
management and provide efficiencies in advertising, marketing and
distribution within a region.
- Expand Market Coverage. The Company currently is negotiating strategic
alliances with other PCS licensees to broaden its markets. The Company
also may seek to expand its markets by entering into additional strategic
alliances or acquiring other PCS licenses.
INDUSTRY OVERVIEW
Since 1985, the wireless telecommunications services industry has
experienced strong growth in demand driven by the increasing availability of
services, the introduction of improved technology, new features, regulatory
changes and more affordable pricing. According to the Cellular
Telecommunications Industry Association ("CTIA"), the number of cellular users
in the United States has grown from approximately 340,000 at the end of 1985 to
over 33.8 million at the end of 1995. During the three years ending December
1995, the compounded annual cellular subscriber growth rate in the United States
has been approximately 45%. Over that same time period, the wireless telephony
penetration rate has grown from approximately 4% to approximately 13%, and is
forecasted by Paul Kagan Associates to reach approximately 48% by 2006.
Current wireless telecommunications service is available using either
analog or digital technology. Analog systems use one continuous electronic
signal which varies in amplitude or frequency over a single radio channel.
Although analog cellular is the most widely deployed service currently
available, it is limited by a number of factors, including inconsistent service
quality, lack of privacy, limited capacity, susceptibility to fraud and
reliability problems in transferring data. Digital systems convert voice or data
signals into a stream of digits and typically use voice compression and other
technologies to allow multiple, simultaneous signal transmissions to be carried
over a single channel. Digital technology offers improved network capacity,
efficiency and flexibility. Digital transmission also allows wireless
telecommunications companies to offer new and enhanced services such as two-way
text messaging, caller ID, improved call privacy and single number ("find me")
service. It also makes possible more robust data transmission features and
"mobile office" applications, such as facsimile, electronic mail and Internet
access. PCS differs from traditional cellular services principally in that PCS
networks operate at a higher frequency band and employ advanced digital
technology.
PCS spectrum differs from existing cellular and SMR spectrum in three basic
ways: frequency, spectrum and geographic division. PCS networks operate in a
higher-frequency range (1850-1990 MHz) compared to the cellular and SMR
frequency (800-900 MHz). PCS licenses consist of 30 or 10 MHz blocks versus 25
MHz for cellular networks. As a result of the improved capacity of the
infrastructure and large allocation of spectrum in the A, B and C Blocks, PCS
will have more capacity for new wireless services such as data and video
transmission. Finally, the geographic areas for PCS licenses are divided
differently than for cellular licenses. PCS is segmented into 51 MTAs comprised
of 493 BTAs, based upon Rand McNally market definitions. Cellular is divided
into 734 mutually exclusive service areas, consisting of 306 metropolitan
statistical areas ("MSAs") and 428 rural statistical areas ("RSAs"), which were
created by the U.S. Census Bureau.
PCS and current digital cellular networks also utilize different signaling
protocols. There are currently three principal, competing and incompatible
signaling protocols that have been proposed for use in PCS networks and/or are
currently in use: GSM; CDMA (Code Division Multiple Access); and TDMA (Time
Division Multiple Access). GSM is the most widely used digital wireless
technology in the world and the only PCS platform commercially available on a
broad scale. Although certain of the Company's competitors have
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<PAGE> 35
selected the CDMA standard, including Sprint and PrimeCo, the CDMA standard for
PCS has only recently been commercially deployed in the U.S. and only on a
limited basis. The TDMA-based PCS standard is an "up-banded" version of the
time-division based digital cellular standard currently in limited use by
cellular operators in the United States. TDMA has been selected by AT&T Wireless
and SBC for certain of their cellular and their PCS properties.
GLOBAL SYSTEM FOR MOBILE COMMUNICATIONS
The Company believes that adopting GSM for its PCS network will provide it
with distinct advantages over other technologies. GSM-based PCS networks are
currently in commercial operation and have demonstrated their reliability and
functionality. There are more GSM-based commercial systems throughout the world
than all other digital platforms combined, with over 208 GSM networks serving
over 26 million customers in 100 countries as of November 1996. By deploying
GSM, the Company believes that it can mitigate many of the risks associated with
developing, testing, installing and operating a new technology platform. GSM
also permits the networking of equipment from a number of different
manufacturers. In addition, specifications for GSM systems have been completed,
and GSM standards have been set for switching centers, location registers, base
station controllers and base station transceiver stations as well as Subscriber
Identity Modules ("SIM" or "Smartcards") and handsets.
One of the design objectives for the GSM-based architecture was to offer
advanced services and functionality from a single network. To meet this goal,
the designers made such services part of the standard and based the architecture
on the Integrated Services Digital Network ("ISDN") platform. GSM-based
operators have the flexibility to offer integrated voice, high speed data, fax
and short message services capabilities from one network. GSM also supports the
Intelligent Network ("IN") functionality required to offer advanced subscriber
features needed for virtual private networks, such as abbreviated dialing,
restrictions on incoming or outgoing calls and call handling procedures based on
location. The versatility and advanced feature functionality of GSM allows
operators to have diverse marketing strategies and service offerings.
The Company believes that a GSM network will initially be less expensive to
build than networks based on other digital platforms because the equipment costs
are lower. The number of available equipment vendors provides the Company with
greater purchasing leverage than would be available with alternative
technologies. Currently, there are several manufacturers of GSM networking
equipment, including Ericsson, Nortel, Siemens and Nokia Corporation ("Nokia"),
and a number of manufacturers of GSM handsets, including Ericsson, Mitsubishi,
Motorola, Inc. ("Motorola"), Nokia, Nortel, Siemens and Sony Corporation. The
Company believes that the availability of off-the-shelf GSM equipment and its
entry into key vendor agreements will allow the Company to pursue its aggressive
buildout program earlier than would be possible were the Company to employ other
PCS technologies.
To date, 14 PCS licensees have announced that they have deployed or intend
to deploy GSM-based PCS networks. As of November 1996, 26 U.S. markets were
being serviced by PCS networks utilizing GSM technology. APC, the first company
to offer PCS services in the U.S., has been operating a GSM system in the
Baltimore/Washington D.C. MTA since November 1995, and was reported to serve
approximately 100,000 subscribers after six months of operation. Together, these
14 PCS licensees, including the Company, have licenses covering markets with
over 200 million POPs, or 76% of the United States population, based on
currently announced intentions. This percentage may increase when additional
successful bidders in the C, D, E and F Blocks select their PCS technology. The
Company is a founding member of the North American Interest Group ("NAIG"),
which was formed to promote GSM in order to expand GSM coverage throughout North
America and to seek to establish standards to address technical and operating
issues. The Company expects to enter into roaming agreements with most or all of
the domestic carriers as well as the foreign carriers who have chosen or choose
to adopt GSM standards for their PCS networks. These agreements are intended to
provide subscribers of either the Company or the participating carrier the
ability to roam in the other's PCS markets.
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<PAGE> 36
PRODUCTS AND SERVICES
The Company intends to position its PCS service as a "new category" of
wireless telephone service aimed primarily at the mass consumer market that has
not previously purchased cellular service. The Company has developed an initial
marketing and advertising plan that is designed to create a new identity for its
service. The Company plans to offer the mobility features of cellular, the
calling features of landline and a pricing plan more similar to current local
telephone service than to cellular. The Company's goal is to stimulate demand
for PCS voice and data services and attract subscribers by providing reliable,
superior service at affordable prices. By implementing a GSM-based digital PCS
network, the Company will be able to offer enhanced products and services that
are not generally available through cellular services today. Several of these
advanced applications and features are described below.
- Mass Market Phone: The Company will offer, as part of its mass marketing
strategy, user-friendly, custom-designed handsets that will replicate the
functionality of traditional landline telephones while offering simple
menus to operate enhanced call functions such as call forwarding and text
messaging.
- Secure Communications: GSM technology provides sophisticated
authentication and encryption functions to verify the user's identity and
to ensure the confidentiality of each call. Digital encryption methods
provide increased call security to protect the confidentiality of voice
and data calls. This increased security may encourage users to make
private calls using PCS that they otherwise would not make with existing
cellular service.
- Excellent Voice Quality: Initially, the Company will use the GSM 13 kbps
full rate vocoder, which provides improved voice quality relative to
existing cellular services. Further enhancement in GSM voice quality is
expected to be implemented with the introduction of the 13 kbps enhanced
full rate ("EFR") vocoder, which will provide voice quality comparable to
existing wireline service and is expected to be available for commercial
service in early 1997.
- Reliable Service: The Company's initial Network will be designed to
support substantial market penetration by building out relatively high
density cell site configurations. The capacity inherent in the Company's
Network will increase the percentage of calls successfully completed on
the first attempt. The Company believes that the relatively high density
cell site configuration within the Company's Network will allow it to
provide higher quality indoor coverage in most key areas of each market.
- Enhanced Battery Performance: The Company's handsets will have a battery
life that is significantly longer than that of the typical battery life
associated with existing cellular handsets. A GSM handset transmits
messages in segments, turning itself off between transmissions. This
switching is not noticed by the user because the handset is turned on and
off hundreds of times per second. As a result, the handset draws
significantly less battery power, thereby extending the length of time a
battery can be used without having to be recharged. GSM handsets are
capable of entering into "sleep" mode when not in use, which also
significantly extends a battery's power life. In addition, because the
Company's system will utilize closely spaced base stations, less power
will be required to transmit calls, thereby further extending battery
life. Mitsubishi is developing an additional battery for use with the
Company's custom-designed mass market phone, which will provide even
longer talk and standby time.
- Custom Calling Features: The Company plans to offer PCS service that
will include one-way paging, voice mail, call waiting, call forwarding,
conference calling and caller ID, with two-way text messaging as an
option. The technology will also enable the Company to offer personalized
services such as call screening, rejection, routing and forwarding,
enhanced voice mail and data transmission services such as electronic
mail, facsimile and Internet access.
- Subscriber Identity Module: The Company's handsets will utilize GSM's
SIM or Smartcard, which will be programmed with the subscriber's personal
identification and service profile information. This will enable
customers to obtain wireless communications services automatically from
any location served by a GSM provider by simply inserting their SIMs into
any compatible PCS handset. SIMs will also allow the Company to use an
authentication function to verify the activation of a SIM and the current
status of an account. If a SIM is reported stolen, the Company simply
deactivates it.
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<PAGE> 37
Sophisticated authentication techniques also guard against cloning of
SIMs, which will protect the Company from certain types of fraud found in
the cellular industry today.
- National and International Roaming Capability: The GSM architecture
supports full-featured roaming between GSM systems in North America and
around the world in 100 countries. This inherent roaming capability
allows operators to easily exchange common services, billing records and
location information. Roaming agreements currently are being established
between the various North American GSM operators. GSM coverage may be
supplemented further through roaming agreements between GSM operators and
current cellular providers once dual-mode phones become available. See
"-- Roaming Agreements."
- Enhanced Data Transmission: Digital networks provide enhanced data
transmission capabilities that will allow the Company to offer a wide
variety of communications and information services such as electronic
mail, facsimile, Internet access and paging through a single handset. The
Company expects that other data applications such as information
services, remote device monitoring and control, image transmission and
point-of-sale device connectivity will become available within the next
few years.
MARKETING AND DISTRIBUTION STRATEGY
Marketing
The Company's marketing objective is to offer the mass consumer market a
comprehensive, differentiated and easy-to-use package of wireless
telecommunications services. Based on management's research into customer
preference and behavior patterns, the Company has developed and adopted a mass
marketing and distribution plan that emphasizes low pricing, quality service,
enhanced features and ease of use. The Company's primary target is the estimated
more than 80% of the POPs in its markets who do not currently utilize cellular
services. To achieve its objective, the Company is developing its proprietary
brand name and custom handset for use as part of a package of services that will
result in an affordable product that is easy to find, easy to buy and easy to
use. The Company believes that this approach will broaden the appeal of its
products and services in the mass market, stimulate usage and discourage
excessive customer churn. The Company plans to generate awareness of its
products and services by spending heavily on introductory advertising prior to
entering a market and maintaining significant advertising expenditures over
time. The Company's marketing plan includes the following:
- Easy-to-Use Mass Market Phone: The Company and Mitsubishi are developing
a custom handset that will be easy to use and that is designed to
replicate the functionality of traditional landline telephones. These
handsets also will offer simple menus to operate enhanced call functions
such as call forwarding and text messaging. The Company will offer these
handsets as part of a pre-packaged bundle of services and equipment
targeted to meet the needs of the mass consumer market. The Company also
plans to simplify the activation process in order to offer immediate
local service upon purchase of the phone. Additionally, the Company
expects to enter into agreements with other vendors to ensure sufficient
availability of handsets in its markets.
- Affordable Pricing: The Company intends to stimulate demand by offering
service packages with a different structure and a significantly lower
price on a per minute basis than existing cellular plans. The Company
believes that its strategy will eliminate the "sticker shock" experienced
by many first-time cellular customers and provide customers with a price
level closer to their landline service, thereby increasing overall usage.
- No Service Contracts: The Company will not require customers to sign
service contracts and does not plan to charge for activation. Subscribers
will have the flexibility to use the Company's services on a month to
month basis and will not be charged for deactivation of service.
- Immediate Activation: Unlike conventional cellular activation, which
requires a lengthy process after the purchase, the Company intends to
sell a product that will be immediately operable, with no complex
instructions or processes to follow before a local call can be made.
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<PAGE> 38
- Encourage Inbound Calls: By offering incentives to receive inbound
calls, the Company believes it will stimulate overall usage and remove
one of the historical barriers to acceptance of wireless services. As a
result, the Company expects to experience an increase in minutes of use
per subscriber, as compared to existing cellular service.
- Simplified Billing: Based on the service package chosen, the Company
plans to provide its subscribers with simplified monthly bills that are
considerably less complex than those used by most existing cellular
operators. By simplifying the bill, the Company expects to minimize
billing inquiries, increase customer satisfaction and build customer
loyalty. The Company plans to make more detailed call information
available to customers upon request at an extra charge.
- Customer Service: The Company intends to offer efficient and responsive
customer service 24 hours a day, 365 days a year through regional
customer service teams using centralized customer information systems. By
focusing its operations on the regional market level, the Company
believes it will be better able to serve its customers, monitor and
maintain customer satisfaction, build customer loyalty, minimize churn
rates and maximize customer retention.
Distribution
In order to achieve rapid market penetration, the Company expects to use a
wide range of direct and indirect distribution channels, including Company-owned
stores and micro stores, indirect mass retailers and other low-cost distribution
channels. The Company believes its initial focus on direct channels will allow
for both a direct relationship with its customers and refinement of its selling
process. Over time, the Company expects its increasing use of indirect and other
channels will provide lower customer acquisition costs.
In each market, the Company plans to open several Company-owned stores in
regional malls and prime downtown locations. Each store will use modular designs
focusing on product familiarization and instructional areas and will be designed
to accommodate retail spaces ranging in size from 620 to 3,000 square feet. The
Company also intends to deploy multiple micro stores, or kiosks, which can be
placed in mall common areas, shopping centers, airports and other high-traffic
areas. Micro stores will be free-standing booths designed to occupy from 24 to
100 square feet of space. Advertising campaigns will encourage direct response
ordering, available through the Company's 24-hour customer service, with next
day delivery of the product.
The Company believes that the straightforward nature of its products (i.e.,
immediate activation, bundled service features, and simplified billing) will
facilitate sales through indirect channels without significant training support
or compensation from the Company. Accordingly, the Company does not intend to
develop or use a network of highly compensated dealers or agents as an indirect
channel. Rather, the Company will seek to complement its store sales by
distributing its products and services through retail outlets such as consumer
electronics chains, department stores, home improvement stores, grocery stores
and specialty chains.
The Company intends to lower customer acquisition costs by increasing the
volume of sales through indirect retail, as well as developing additional
low-cost channels. These channels are expected to include affinity marketing
programs, telemarketing, Internet commerce and self-service vending machines
designed to sell accessories as well as phones.
POCKET'S PCS MARKETS
Bidding Strategy
The Company's bidding strategy in the C Block auction was guided by four
fundamental strategic objectives:
- Achieve Scale: The Company sought to obtain licenses covering a
sufficiently large market area to allow it to achieve economies of scale
in network construction, operations, marketing and financial structure.
The Company also wanted to assume a leadership role within the GSM
alliance in North America. The Company acquired approximately 35.5
million POPs, making it the second largest GSM operator, the sixth
largest PCS operator and the tenth largest wireless operator in the U.S.
(based on POPs).
- Win Several Large, Geographically Diverse Markets: The Company believed
that winning licenses for several large markets would be key to
establishing itself as an attractive partner to investors, equipment
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<PAGE> 39
suppliers and other operators. The Company also believed that geographic
diversity of markets could mitigate adverse consequences resulting from
an economic downturn in any one particular region. The Company won three
of the top seven largest markets -- Chicago, Dallas and Detroit -- as
well as St. Louis, New Orleans, Las Vegas, Honolulu, Omaha and Little
Rock.
- Create Contiguous Clusters: The Company sought to expand coverage around
its large markets by purchasing licenses for smaller, contiguous markets.
The Company believes that contiguous clusters will foster operating
economies of scale and regional marketing opportunities. Thirty-four of
the Company's markets located in the central United States are
substantially contiguous, representing more than 85% of its license area
POPs.
- Expand GSM Footprint: In 37 out of the Company's 43 BTAs, representing
93% of the Company's total POPs, the A and B Block licensees in place
have chosen a non-GSM standard. By focusing on the gaps in the GSM
coverage left by the A and B Block licensees, the Company has created an
opportunity to offer its customers, in conjunction with the GSM PCS
providers in neighboring markets, roaming capabilities in wide areas.
Furthermore, the Company believes that being the only GSM operator in a
service area may result in a lower churn rate. See "Risk
Factors -- Potential Fluctuations in Future Results."
Market Clusters
As part of its operating strategy, the Company has segmented its markets
into clusters to maximize construction and operational efficiencies while
providing for a regional market focus. The Company also believes that this
approach will allow it to customize its marketing efforts and maintain high
levels of customer satisfaction. This clustering strategy is designed to
facilitate switch-sharing, allow the Company to benefit from shared resources
and coordinated management and provide efficiencies in advertising, marketing
and distribution within a region. The BTAs have been organized into clusters,
primarily by major-market MTA, in order to reflect the natural flow of commerce
within each geographic region represented by the MTA and to allow local
management to be closer to the customer and the community.
The Las Vegas and Pacific clusters, although lacking the advantages of
being contiguous with the Company's other markets, offer significant
opportunities. Las Vegas is one of the fastest growing urban areas and is one of
the country's top vacation destinations and convention sites, attracting over 30
million visitors annually. Similarly, Hawaii, Guam and the Northern Mariana
Islands (including Saipan), are prime vacation destinations for both U.S. and
international travelers and are on the edge of the high-growth Pacific Rim
countries. The Company believes that these BTAs offer significant opportunities
to develop a hospitality rental market, capture international and domestic long
distance revenue and expose the Company's products and services to a large
number of people.
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The following table lists the Company's market cluster organization:
<TABLE>
<CAPTION>
THE
OWNERSHIP COMPANY'S
MARKET TOTAL PERCENTAGE NET POPS
1995 POPS (THOUSANDS)
(THOUSANDS)
<S> <C> <C> <C>
CHICAGO CLUSTER
Chicago, IL................................................. 8,602 100% 8,602
Rockford, IL................................................ 435 100 435
Springfield, IL............................................. 262 100 262
Decatur - Effingham, IL..................................... 248 100 248
Champaign - Urbana, IL...................................... 228 100 228
Bloomington, IL............................................. 226 100 226
La Salle, IL................................................ 150 100 150
Kankakee, IL................................................ 132 100 132
Michigan City, IN........................................... 111 100 111
------ ------
10,394 10,394
DETROIT CLUSTER
Detroit, MI................................................. 4,802 100% 4,802
Grand Rapids, MI............................................ 991 100 991
Toledo, OH.................................................. 797 100 797
Flint, MI................................................... 502 100 502
Kalamazoo, MI............................................... 364 100 364
Lima, OH.................................................... 256 100 256
Battle Creek, MI............................................ 235 100 235
Muskegon, MI................................................ 215 100 215
Jackson, MI................................................. 200 100 200
Sandusky, OH................................................ 138 100 138
Adrian, MI.................................................. 95 100 95
------ ------
8,595 8,595
DALLAS CLUSTER
Dallas - Ft. Worth, TX...................................... 4,879 100% 4,879
Shreveport, LA.............................................. 582 100 582
Longview - Marshall, TX..................................... 305 100 305
Tyler, TX................................................... 285 100 285
Texarkana, TX/AR............................................ 263 100 263
------ ------
6,314 6,314
ST. LOUIS CLUSTER
St. Louis, MO............................................... 2,834 100% 2,834
Carbondale - Marion, IL..................................... 211 100 211
Columbia, MO................................................ 198 100 198
Poplar Bluff, MO............................................ 151 100 151
Mount Vernon, IL............................................ 118 100 118
------ ------
3,512 3,512
NEW ORLEANS CLUSTER
New Orleans, LA............................................. 1,411 100% 1,411
Houma - Thibodaux, LA....................................... 268 100 268
------ ------
1,679 1,679
LITTLE ROCK CLUSTER
Little Rock, AR............................................. 908 100% 908
Ft. Smith, AR............................................... 303 100 303
Fayetteville, AR............................................ 260 100 260
Jonesboro - Paragould, AR................................... 167 100 167
------ ------
1,638 1,638
PACIFIC CLUSTER
Honolulu, HI................................................ 892 95% 847
Guam........................................................ 149...... 100 149
Hilo, HI.................................................... 143 95 136
Northern Mariana Islands.................................... 70 100 70
------ ------
1,254 1,202
LAS VEGAS CLUSTER
Las Vegas, NV............................................... 1,121 73% 819
------ ------
1,121 819
OMAHA CLUSTER
Omaha, NE................................................... 943 100% 943
Pittsburg-Parsons, KS....................................... 89 100 89
------ ------
1,032 1,032
GRAND TOTAL.......................................... 35,539 35,185
====== ======
</TABLE>
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<PAGE> 41
STRATEGIC RELATIONSHIPS
The Company has arranged vendor financing with Nortel and Ericsson totaling
$481 million for the supply of equipment and services in connection with the
buildout of the Company's Las Vegas, Honolulu, Chicago and Dallas networks. In
addition, the Company has reached an agreement with Siemens on the terms of
additional vendor financing totaling $165 million for the buildout of the
Detroit network. Under the terms of these vendor financing arrangements,
Ericsson, Siemens, or Nortel will be the primary network equipment supplier in
their respective markets. The Company and Mitsubishi are working to develop a
custom handset and are negotiating handset supply agreements. LCC is providing
radio network design, site acquisition, construction management and network
optimization services. Booz - Allen is providing a variety of services,
including the development of management information systems and systems
integration services. Brightpoint will provide a variety of services to the
Company, including wholesale inventory management, warehousing and fulfillment.
In addition, Dominion Fund will provide the Company financing for the purchase
of telephone switch equipment and services in certain markets. The scope of each
vendor agreement is summarized below:
- Nortel. In July 1995, the Company and Nortel entered into a project and
supply agreement pursuant to which Nortel agreed to provide PCS equipment
and services. In November 1996, the Company and Nortel entered into a
loan agreement pursuant to which Nortel agreed to provide up to $59
million in vendor financing for equipment and services to be provided by
Nortel. In addition, a portion of the Nortel vendor financing can be used
for the acquisition of related third-party equipment and services.
Pursuant to these agreements, Nortel will be the primary equipment
supplier and provide network infrastructure equipment, including base
stations and switches, network design services and project management
services for the Las Vegas market.
- Ericsson. In June 1995, the Company and Ericsson entered into an
equipment acquisition agreement (the "Equipment Acquisition Agreement")
for Ericsson to supply the Company with PCS equipment and services for
the buildout of the Company's markets. In December 1996, the Company and
Ericsson entered into a credit agreement providing for up to $422 million
of vendor financing for equipment and services to be provided by Ericsson
in the Chicago, Honolulu and Dallas markets. In addition, a portion of
the Ericsson vendor financing can be used for the acquisition of related
third-party equipment and services. Pursuant to these agreements,
Ericsson will be the primary equipment supplier and provide network
infrastructure equipment, including base stations and switches in certain
market clusters including Chicago, Dallas and Honolulu. In certain
markets, it is anticipated that Ericsson will also provide network design
services, site acquisition services and project management services. In
other markets, these services may be subcontracted by Ericsson to, or
performed directly by, other contractors such as LCC. Honolulu will be
the first of the Company's markets to be deployed using Ericsson
equipment. In 1995 and 1996, Ericsson provided short-term loans to the
Company for as much as $25 million for working capital and general
corporate purposes. See "Description of Certain Indebtedness -- Ericsson
Agreements."
- Siemens. In August, 1996, the Company and Siemens agreed on the terms of
pricing for the provision of PCS equipment and related services by
Siemens for the Detroit market. In December 1996, the Company and Siemens
agreed to a term sheet for the provision by Siemens of up to $165 million
of vendor financing. Under the agreed terms, the Siemens financing will
be available for equipment and services to be provided by Siemens for the
buildout of the Detroit market. In addition, the Siemens vendor financing
facility would provide funds for certain related third-party equipment
and services. The agreed terms for the Siemens vendor financing facility
represent a commitment by Siemens to provide such financing subject to
execution of a definitive agreement. In August 1996, the Company entered
into a short-term loan facility with Siemens whereby Siemens provided $10
million to the Company for use in connection with the Downpayment.
- Booz - Allen. The Company and Booz - Allen have entered into an
agreement for the provision of product design, information system
development, systems integration services and management consulting. In
addition, Booz - Allen has made an equity investment in the Company.
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- LCC. LCC will provide radio network design, program management
(including site acquisition and construction management) and network
optimization services. LCC also may serve as subcontractor to one or more
of the Company's primary equipment vendors to provide these services in
the various market clusters.
- Mitsubishi. Mitsubishi has been working with the Company to develop the
Company's custom handset, and is expected to be the primary supplier of
handsets for the Company's PCS Network.
- Brightpoint. Brightpoint will provide a variety of services to the
Company, including wholesale inventory management, warehousing and
fulfillment.
- Dominion Fund. Dominion Fund will provide the Company financing for the
purchase of telephone switch equipment and services in certain markets.
NETWORK BUILDOUT AND OPERATIONS
The Company is pursuing a three stage buildout plan. In Phase I, the
Company will be constructing the Honolulu and Las Vegas networks. These markets
were chosen for early deployment because their smaller size, availability of
cell sites and relatively low density cell site configuration requirements will
allow the Company and its equipment vendors to establish and refine their market
development processes in an environment where project size is not a significant
risk. In Phase II, the Company will seek to deploy its four largest
markets -- Chicago, Dallas, Detroit and St. Louis -- in order to offer service
in these markets quickly. In Phase III, the Company will build out its remaining
markets.
The Company's initial Network will be designed to support substantial
market penetration by building out relatively high density cell site
configurations in densely populated areas. The capacity inherent in the
Company's Network will increase the percentage of calls successfully completed
on the first attempt. The Company believes that the relatively high density cell
site configuration within the Company's Network will allow it to provide higher
quality indoor coverage in most key areas of each market. As a result, the
Company initially will deploy more base stations than are required for superior
outdoor coverage. When capacity needs exceed the initial buildout, additional
capacity can be added to existing base stations. Extensive additions of new base
stations should not be required unless the Company substantially exceeds its
penetration projections.
Once the initial buildout of each market is complete, the Company's Network
Operations department will have responsibility for in-service network
operations, network management, trouble resolution and technical assistance to
the clusters. Network Operations will be responsible for ensuring the integrity
of the Network and the quality of the service provided by the Network while
minimizing the complexity of managing a multi-vendor network environment.
The Company plans to have a national network management center, to be
located in Dallas, which will provide 24-hour monitoring of the regional
networks as well as manage the signaling, voice and data networks linking the
clusters with each other and with other domestic and foreign networks. While the
systems will be centralized, certain operations will be local or regional to
provide high quality service.
ROAMING AGREEMENTS
Based on the declared technology choices indicated by A, B and C Block
licensees, combined population coverage of GSM is expected to exceed 200 million
people, representing approximately 76% of the U.S. population. This percentage
could increase when additional successful bidders in the C, D, E and F Blocks
select their PCS technology. GSM, through the use of SIMs, allows operators to
easily exchange billing records and location information, thereby facilitating
roaming between markets. The Company expects to negotiate roaming agreements
with all of the companies that have chosen to deploy the GSM standard in their
PCS markets in the United States. These agreements are intended to provide
subscribers of either the Company or the participating carrier the capability to
roam in the other's PCS markets. The Company also will seek reciprocal roaming
agreements with international carriers who have chosen to deploy the GSM
standard to form an international GSM PCS network.
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The Company is working with other PCS licensees that intend to deploy
GSM-based systems to increase GSM coverage in the U.S. and to establish GSM as
the leading PCS standard. The Company is an active participant in the
international GSM MoU Association and a leading member of the NAIG. These
organizations are composed of current and prospective PCS licensees that are
committed to implementing GSM technology and to expanding GSM coverage in the
U.S. The two groups also work closely with manufacturers, standards bodies and
regulatory agencies to establish advanced wireless network technology based on
open standards. Other member companies of the NAIG include: Aerial, APC,
BellSouth, InterCel, Omnipoint, Pacific Bell, Western Wireless, Microcell and
Airadigm Communications.
COMPETITION
PCS will compete directly or indirectly with existing cellular telephone,
paging, mobile radio and landline services. The Company expects competition in
the wireless telecommunications industry and the telecommunications industry
generally to be dynamic and intense as a result of the development of new
technologies, products and services and the entrance of new competitors. The FCC
is also considering providing additional spectrum for use by competitors
offering wireless telecommunications. The Company hopes to attract and retain
subscribers principally on the basis of brand name, high quality and
user-friendly service, simplified and affordable pricing and the coverage of a
large service area (including affiliation agreements to permit roaming).
The Company will compete directly with up to five other PCS providers in
each of its markets. The successful bidders in the FCC's broadband A and B Block
PCS auctions in the Company's markets include, among others, AT&T Wireless,
PrimeCo and Sprint Spectrum. These companies received their PCS licenses in June
1995 and have had significant lead time for the buildout of their networks and
some have begun to provide service. Many of the Company's competitors have been
operating in the telecommunications industry for a number of years and have
greater experience than the Company in testing new telecommunications products
and services and in obtaining regulatory approvals. Furthermore, many of these
competitors have greater financial, technical, marketing and sales resources
than those currently available to the Company. Several of the Company's
competitors have or are planning to enter into affiliation agreements that will
allow them to operate wireless systems that encompass most of the United States.
The FCC auction for the D, E and F Blocks has not been completed. Thus, the
identity of potential additional PCS competitors in the Company's PCS markets
has yet to be determined.
The Company's selection of the GSM technology may limit its ability to
provide and obtain roaming service in other, non-GSM markets in the future. The
FCC released a report and order in August 1996 requiring PCS providers to
provide service to any individual roamer whose handset is technically capable of
accessing their network. However, due to the current incompatibility of the
various digital protocols, customers using one PCS technology can only roam in
other service areas with at least one PCS provider using the same technology.
Dual mode phones, which would allow users to switch between PCS technologies or
between PCS and cellular services, are expected to be available in 1997.
Therefore, the scope of roaming services for GSM users will depend on, among
other things, the selection of GSM technology by certain other PCS licensees and
the willingness of the equipment manufactures to deliver adequate dual mode
phones in sufficient volume and at acceptable prices. To the extent that there
will be service areas with no GSM system, the roaming options of GSM system
users may be limited until dual mode phones become available. See "Risk
Factors -- GSM Technical Standard and Implications for Roaming Services."
In addition to competition from other PCS providers, the Company will
compete for its share of the wireless market with existing cellular providers,
all of whom have infrastructure in place and have been operational for a number
of years. The principal cellular providers in the Company's PCS markets are AT&T
Wireless, SBC, Ameritech and AirTouch. Many of these operators either have
upgraded to digital service or plan to upgrade their systems to digital service
in the future. Moreover, the FCC recently relaxed its limitation on cellular
cross-ownership of PCS licenses in the same area, permitting existing cellular
licensees to acquire up to 20 MHz of broadband PCS spectrum in overlapping
markets, and certain companies have sought judicial review of the 20 MHz
limitation in proceedings that, if successful, would permit them to acquire
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30 MHz PCS licenses in such markets. Such competition from traditional cellular
providers entering the PCS industry in overlapping markets could adversely
affect the Company's competitive position.
In the future, cellular service and PCS also will compete more directly
with traditional landline telephone service providers and with cable operators
who may expand into providing telecommunications services over their cable
networks. Energy utilities and LMDS providers may also seek to offer
communications services over their infrastructure in the future. The Company
also may experience competition from one-way and two-way paging services. The
FCC has licensed SMR dispatch system operators to construct digital mobile
communications systems on existing SMR frequencies, referred to as ESMR, in many
areas throughout the United States, including most of the areas in which the
Company operates. ESMR networks increase the capacity of SMR frequencies to a
level that may be competitive with analog cellular networks. SMR service
providers currently offer or plan to offer fleet dispatch services, short
messaging, data services and interconnected voice telephone services. In
addition, several companies have announced plans to design, construct, deploy
and operate satellite-based mobile telecommunications systems worldwide. Lastly,
the Company may also face competition from new technologies that have yet to be
introduced.
The FCC has proposed to reallocate former federal government spectrum at
the 4 GHz and the 2.3 GHz bands for a broad range of wireless fixed and mobile
services, and is expected to reallocate additional former federal government
spectrum for similar uses in the future.
PERSONNEL
As of December 1, 1996, the Company employed approximately 51 individuals,
all of whom were located in the United States. None of these employees is
represented by unions. The Company expects to hire a significant number of
personnel to meet the various aspects of its business strategy.
FACILITIES
The Company's principal executive offices, located in Washington D.C.,
consist of approximately 23,000 square feet of leased space. The Company intends
to lease a facility in Dallas to house the Company's network management center
and operations division. The Company has leased office space in Las Vegas
(approximately 15,100 square feet) as well as switch space in Las Vegas and
Honolulu (approximately 7,400 and 6,700 square feet, respectively). To implement
its business plan, the Company will need additional offices for its regional
teams of customer service and operations personnel as well as space for its
stores and micro-stores throughout its service areas. The Company believes it
will be able to lease such spaces as needed on acceptable terms. In addition, as
of December 1, 1996, the Company has leased spaces for 70 cell sites. The
Company anticipates leasing, acquiring or otherwise obtaining necessary rights
for up to a total of approximately 2,000 to 2,500 cell sites and at least one
switch site per cluster to complete its buildout plan.
ORGANIZATION
The Company intends to conduct its operations and hold most of its assets
primarily through subsidiaries so that the Company would be effectively a
holding company providing management and administrative support for its
subsidiaries and affiliates. The Company has formed several subsidiaries and
affiliates, most of which have had little or no activity. DCR PCS is a wholly
owned subsidiary of the Company formed to act as the bidding entity in the C
Block auction; it currently holds all of the Company's PCS licenses. Several
subsidiaries of DCR PCS have been or will be formed to conduct operations and
hold licenses. Application for pro forma transfers have been or will be
submitted in the near future to the FCC to transfer licenses from DCR PCS to its
subsidiaries.
In addition to its existing subsidiaries and affiliates, the Company
anticipates forming additional subsidiaries of DCR PCS, including regional
holding companies (the "HCs"), and local or regional operating companies (the
"OCs"). The OCs will be operating subsidiaries formed at the regional (i.e.,
cluster) or local level to operate the network and service the customers for one
or more of the Company's license areas. Each OC will have one or more license
holding companies (the "LHCs") as its wholly owned subsidiaries, and each
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LHC will own one FCC license. The Company anticipates creating HCs as a parent
company to one or more OCs. Any transfer of the DCR PCS licenses pursuant to
these plans would require prior FCC approval.
MINORITY INTERESTS IN CERTAIN SUBSIDIARIES
The Company holds, directly and indirectly through a wholly owned
subsidiary, DCR Nevada, Inc., a 73.1% interest in DCR Pacific PCS Limited
Partnership (the "Limited Partnership") including a 1% general partner interest.
DCR Nevada, Inc. is the sole general partner of the Limited Partnership, which
was formed to own, directly or indirectly, the PCS license covering the Las
Vegas BTA and to build, own and operate a PCS network in the Las Vegas BTA. In
addition to the Company, the other limited partners are Onyx Telecommunications,
L.L.C., Airadigm Communications, Inc., Andrew Molasky, Alan Molasky, Steven
Molasky and the Todd and Vivica Marshall Revocable Trust. The Company indirectly
has an interest in Odin Pocket Corporation, a wholly owned subsidiary of DCR
PCS, which was formed to own indirectly PCS licenses covering the Dallas, Hawaii
and Chicago BTAs and to own, directly or indirectly, and operate PCS networks in
the Dallas, Hawaii and Chicago BTAs.
The Company has entered into a letter of intent with Gloria Borland Hawaii
PCS, Inc. ("GBH"), dated as of September 21, 1995, pursuant to which the Company
has agreed to form an entity to hold its PCS licenses covering the Honolulu and
Hilo BTAs and to build, own and operate a PCS network in these BTAs (the "Hawaii
Company"). Initially, the Company will own 95% and GBH will own an undilutable
5% of the Hawaii Company.
LEGAL PROCEEDINGS
On June 21, 1996, National Telecom PCS, Inc. ("NatTel") filed a petition to
deny all of the applications of the Company for the C Block licenses (the
"NatTel Petition".) NatTel alleged, among other things, that the Company does
not meet all the FCC requirements for a C Block licensee. On July 1, 1996,
Radiofone, Inc. ("Radiofone") filed petitions to dismiss or deny the Company's
applications and reauction the C Block licenses for New Orleans and
Houma-Thibodaux, Louisiana, for each of which DCR PCS was the high bidder (the
"Radiofone Petition"). Radiofone's primary allegation was that the FCC's conduct
of a C Block auction for markets in which Radiofone is a cellular carrier was
unlawful in that it permitted Radiofone to bid only subject to its potential
future disqualification (based upon the outcome of Radiofone's challenge to the
FCC's spectrum cap rules).
On November 4, 1996, the FCC staff decided both these petitions in favor of
DCR PCS and conditionally granted all of DCR PCS's licenses, subject to payment
of the required Downpayment which the Company paid on November 8, 1996. The FCC
staff ruled that NatTel's standing to challenge DCR PCS' licenses was limited to
the Adrian, Michigan, Michigan City, Indiana, Pittsburg, Kansas, and Northern
Marianas Islands markets. The FCC staff further ruled (i) that there was no
support for NatTel's allegations that DCR PCS' percentage of foreign ownership
is inconsistent with FCC limitations; (ii) that DCR PCS' claim of status as a
woman and minority-owned business is no longer relevant to the C Block
preferences but is in any event consistent with the requirements for such
status; (iii) that Westinghouse had neither an attributable interest in DCR PCS
nor de facto control; and (iv) that the only error in DCR PCS' short form
application was not material. The FCC staff did not consider allegations by
NatTel (or the Company's rebuttal thereto) that the Company or one of its
investors had violated the FCC's anti-collusion rules because it ruled that
these allegations had been untimely filed.
The FCC also ruled that Radiofone had failed to raise substantial and
material questions of fact concerning whether the grant of the two Louisiana
licenses to DCR PCS would be inconsistent with the public interest. The FCC
noted that notwithstanding its order denying the Radiofone Petition, DCR PCS may
be affected by the outcome of the ongoing rulemakings or judicial proceedings
with respect to Radiofone's challenge to the FCC's spectrum cap rules.
On November 27, 1996, NatTel filed an application for review of its
petition and sought a stay of the decision granting DCR PCS' licenses. The
appeal restates certain of the claims originally raised by NatTel.
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DCR PCS filed its opposition on December 12, 1996, setting forth its position
that NatTel's claims are without merit. The Company cannot predict the outcome
of this proceeding.
In July 1996, Radiofone also filed a petition for review in the United
States Court of Appeals for the Fifth Circuit, challenging the FCC's
determination not to permit cellular licensees to hold 30MHz PCS licenses in
their home markets; and Cincinnati Bell Telephone Company, Inc. filed a similar
challenge in the United States Court of Appeals for the Sixth Circuit,
challenging the limitations on cellular providers' investments in PCS licensees.
The Radiofone case has been transferred from the Fifth Circuit to the Sixth
Circuit, where both cases are currently being held in abeyance until the FCC
resolves petitions for reconsideration filed with the agency. If these appeals
are successful, they could result in a reauction of C Block licenses. The
Company cannot predict the outcome of this proceeding.
The Company is aware of no other material, pending legal proceedings to
which the Company or any of its subsidiaries or affiliates is a party or of
which any of their property is subject which, if adversely decided, would have a
material adverse effect on the Company.
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REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
The FCC regulates the licensing, construction, operation, acquisition and
sale of cellular and PCS networks in the United States pursuant to the
Communications Act of 1934, as amended (the "Communications Act"), and the
rules, regulations and policies promulgated by the FCC thereunder. In order to
increase competition in wireless communications, promote improved quality and
service, and make available the widest possible range of wireless services,
Congress enacted legislation directing the FCC to allocate radio frequency
spectrum for PCS by competitive bidding. The FCC has allocated 120 MHz of radio
spectrum in the 2 GHz band for licensed broadband PCS services. The FCC
established PCS service areas in the U.S. based upon Rand McNally's market
definition of 51 MTAs comprised of 493 BTAs, which are the geographic
territories for which licenses have been or will be auctioned. The FCC divided
the 120 MHz of spectrum into six individual blocks: two 30 MHz blocks (A and B
Blocks) licensed for each of the 51 MTAs, one 30 MHz block (C Block) licensed
for each of the 493 BTAs, and three 10 MHz blocks (D, E and F Blocks) licensed
for each of the 493 BTAs. A PCS license will be awarded for each MTA or BTA in
every block, for a total of more than 2,000 licenses. The FCC has adopted
comprehensive rules outlining the bidding application, bidding and payment
processes, payment process, establishing penalties for certain bid withdrawals,
default or disqualification and establishing regulatory safeguards. The FCC
reserved two of the six frequency blocks (the C and F Blocks) for Entrepreneurs
and Small Businesses. In March 1995, the FCC completed its first auction, the A
and B Block auction, resulting in the award of two licenses for 30 MHz each of
spectrum in each of 51 MTAs. The C Block auction, for licenses of 30 MHz of
bandwidth in the BTAs, was completed on May 6, 1996, with the exception of
certain licenses whose winning bidder did not submit the required down payment.
The reauction of these licenses began on July 3, 1996 and was completed on July
16, 1996. The C Block auction was followed by D, E and F Block auctions, which
began on August 26, 1996 and have not yet concluded.
FCC rules establish two separate spectrum aggregation limits for broadband
PCS licensees. First, no entity may hold or own an attributable investment in
licenses totalling more than 45 MHz of PCS, cellular and SMR services regulated
as CMRS in any geographic area where there is significant overlap (i.e., where
at least 10% of the population of the entity's PCS service area is within its
cellular and/or SMR service area(s)). Second, a single entity may win no more
than 10% of the licenses available in the C and F Block auctions.
The C and F Block licenses are for adjacent frequency bands and have been
reserved for Entrepreneurs. Generally, an Entrepreneur is an applicant with
gross revenues of less than $125 million in each of the last two relevant years
and total assets of less than $500 million at the time the initial application
for participation in the auction is filed. Each eligible Entrepreneur may pay
90% of the purchase price of a C Block license and 80% of the purchase price of
an F Block license in installments over ten years. The FCC also established
bidding credits and more favorable installment payment plans for C and F Block
applicants qualifying as Small Businesses or (for the F Block) as Very Small
Businesses (as defined by the rules and regulations promulgated by the FCC (the
"Entrepreneurs' Block Regulations")). Generally, a Small Business is an entity
that has average annual gross revenues of not more than $40 million for the
preceding three relevant years, while a Very Small Business has average annual
gross revenues of not more than $15 million for the preceding three relevant
years.
In determining whether a license applicant meets the financial caps for
qualification as an Entrepreneur or a Small Business, the FCC will examine,
individually and cumulatively, the assets and revenues of the applicant, its
affiliates, investors with more than 25% or 49.9% (depending on which Control
Group equity structure is utilized), of the applicant's fully-diluted equity or
voting stock (the "attributable investor") and its Control Group members. The
holdings of investors with affiliated interests (including spouses or companies
that have an identity of interest) will be consolidated, and all ownership
interests will be calculated on a fully-diluted basis in order to determine
attribution levels.
Applicants seeking to qualify either as an Entrepreneur or a Small Business
must be controlled by a Control Group made up principally of individuals or
entities who meet the Entrepreneur financial qualifications or the Small
Business financial qualifications, as the case may be (such group is a "Control
Group," and such qualifying investor a "Qualifying Investor"). Only certain
non-qualifying investors may be in the Control Group, such as members of the
entity's management team or qualifying institutional investors. However, the
applicant must be able to demonstrate that the Qualifying Investors control the
Control Group. The analysis is
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fact-specific; however, the entity must at minimum meet certain structural
requirements. The Control Group must hold at least 25% or 50.1% of the
applicant's total equity (depending on which Control Group equity structure is
utilized) during the first three years and 50.1% of the applicant's voting
stock. Control Group members must be entitled to receive 100% of the value of
each share of stock they hold in the event of a sale and must receive 50.1% of
the annual distribution of dividends on their voting stock, if any. Members of
the Control Group must either constitute or appoint more than 50% of the board
of directors of the applicant, have authority over the senior executives in
control of the applicant's day-to-day activities and play an integral role in
management decisions of the applicant. The Qualifying Investors in the Control
Group must own at least 50.1% of the Control Group's voting stock and at least
15% or 30% of the applicant's total equity (depending on which Control Group
equity structure is utilized). No non-Control Group investor or group of
affiliated investors can exceed certain maximum levels of equity or voting
control without potentially affecting the Company's Designated Entity Status.
All PCS licenses will be granted for a 10-year period, at the end of which
they may be renewed. Under its standards, the FCC will award renewal expectancy
to a PCS licensee that has provided substantial service during its past license
term and has substantially complied with applicable FCC rules and policies and
the Communications Act. Each 30 MHz PCS license is subject to a requirement that
the licensee provide network facilities offering coverage to at least one-third
of the population in the applicable market within five years of the grant of the
license and to at least two-thirds of such population within 10 years of the
grant of the license. Licensees that fail to meet such coverage requirements may
be subject to forfeiture of their licenses.
The Communications Act and the FCC rules promulgated thereunder require the
FCC's prior approval of the assignment or transfer of control of a PCS license.
The Entrepreneurs' Block Regulations further restrict voluntary assignments or
transfers of control of C or F Block licenses. During the first five years of
the initial license term, any proposed assignee or transferee of C or F Block
licenses, at the time the application for assignment or transfer of control is
filed, must meet the eligibility criteria for participation in the
Entrepreneurs' Block auction or such proposed assignee or transferee must hold
other C and F Block licenses and, at the time of receipt of such licenses, must
have met the same eligibility criteria. Any transfers or assignments during the
10-year initial license term are subject to unjust enrichment penalties,
including the forfeiture of any bidding credits and/or the acceleration of any
installment payment plans if the assignee or transferee does not qualify for the
same benefits. The FCC will conduct random audits to ensure that licensees are
in compliance with the Entrepreneurs' Block Regulations.
In addition, the FCC has established transfer disclosure requirements that
require all licensees receiving licenses from FCC auctions who transfer control
of or assign a PCS license within the first three years of their license term to
file with the FCC associated contracts for sale, option agreements, management
agreements or other documents disclosing the total consideration that the
licensee is to receive in return for the transfer or assignment of its license.
Non-controlling interests in an entity that holds a PCS license or a PCS network
generally may be bought or sold without FCC approval, subject to compliance with
the Entrepreneurs' Block Regulations relating to Control Group ownership
requirements for C or F Block licenses and foreign ownership requirements. Any
acquisition or sale by the Company of PCS interests may also require the prior
filing of a Premerger Notification form with the Federal Trade Commission and
the Department of Justice if over a certain size as well as with state or local
regulatory authorities having competent jurisdiction. Violations of the
Communications Act or the rules promulgated thereunder, including the
Entrepreneurs' Block Regulations, could result in license revocations,
forfeitures or fines.
Over time, C and F Block licensees (as well as their affiliates and
investors) may exceed the gross revenue caps through equity investment by
non-attributable investors, debt financing, revenue from operations, business
development and expanded service. Furthermore, after three years from the date
of the license grant, Qualifying Investors in the Control Group will be required
to hold only 10% or 20% of the total equity (depending on which Control Group
equity structure is utilized) and there will be no minimum equity ownership
requirement for the Control Group as a whole. The Control Group's ownership of
voting stock, however, must remain at least 50.1%.
Under existing law, no more than 20% of an FCC licensee's capital stock may
be owned or voted, directly or indirectly, by non-U.S. citizens or their
representatives, by a foreign government or its representatives or by a foreign
corporation. The FCC can refuse to renew or revoke a license if the parent
entity of a licensee has more than 25% of its capital stock owned or voted,
directly or indirectly, by a foreign entity upon a finding by the FCC that the
public interest will be served by its refusal to renew or revocation. The
Company intends to
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structure all investments in the Company so as to comply with these guidelines.
As of December 6, 1996, the Company, as parent entity of a licensee, had
approximately 21.45% of its capital stock owned, directly or indirectly, by a
foreign entity and holds all of its PCS licenses indirectly through
subsidiaries. These restrictions could adversely affect the ability of the
Company to attract additional equity financing from foreign companies. The FCC
staff has suggested in recent inquiries to other C Block applicants whose
licenses have not yet been granted that in certain circumstances debt may be
considered as capital stock for purposes of these requirements. The Company
believes that the debt held by its foreign lenders should not qualify as capital
stock for such purposes, and the FCC staff's recent grant of licenses to the
Company's subsidiary rejected a challenge to the Company's compliance with these
requirements, which was based in part upon its borrowings from foreign entities.
However, the FCC has not yet definitively interpreted these statutory
requirements in the context of the C Block auction, and there is no assurance
that it would agree with the staff's conclusion. If the FCC deems that the
Company has exceeded the foreign ownership or control limits, it could revoke or
deny the renewal of the Company's licenses or require the Company to
restructure.
Upon the grant of a PCS license, a PCS licensee will be required to share
spectrum with existing licensees that operate certain fixed microwave systems
(that will initially have priority use of the spectrum during this period)
within each of its BTAs. To secure a sufficient amount of unencumbered spectrum
to operate its PCS networks efficiently, the Company may need to negotiate
agreements to pay for the relocation of many of these existing licensees. In
such places where relocation is necessary to permit operation of the Company's
PCS networks, any delay in the relocation of such licensees may adversely affect
the Company's ability to commence timely commercial operation of its PCS
networks. In an effort to balance the competing interests of existing microwave
operators and newly authorized PCS licensees, the FCC has adopted a transition
plan to relocate such microwave operators to other spectrum blocks at the
expense of PCS licensees. This transition plan allows most microwave operators
to use the PCS spectrum for a two-year voluntary negotiation period, beginning
on May 22, 1996, the date on which the Company filed the long-form application
for its PCS licenses, and an additional one-year mandatory negotiation period
thereafter. For public safety entities dedicating a majority of their system
communications for police, fire or emergency medical services operations, the
voluntary negotiation period is three years, with a two-year mandatory
negotiation period. PCS licensees unable to reach agreement within these time
periods may pursue involuntary relocation procedures, but such procedures will
require the construction of comparable equipment facilities for microwave
operators at the expense of the PCS licensee. Incumbent microwave licensees lose
their priority status after April 2005 if they have not relocated by that time
and a PCS licensee provides six months' notice that it intends to turn on a
system within interference range of the incumbent's system. The FCC is currently
considering shortening the voluntary negotiation period and lengthening the
mandatory negotiation period for each class of incumbent. There can be no
assurance that the Company will be successful in reaching timely agreements with
the existing microwave licensees or that any such agreements will be on terms
favorable to the Company. The Company also may be required to contribute to the
costs of relocation under agreements reached by other PCS licensees if such
relocation benefits the Company's license areas. Conversely, the Company may
receive contributions from other PCS licensees towards its relocation costs.
Depending on the terms of such agreements, the Company's ability to operate its
PCS networks profitably may be adversely affected.
The Telecommunications Act of 1996 substantially revised the regulation of
communications. The goal of the Telecommunications Act is to enhance competition
and remove barriers to market entry, while deregulating the communications
industry to the greatest extent possible. To facilitate the entry of new
carriers, the Telecommunications Act of 1996 imposes certain interconnection and
equal access requirements on incumbent carriers. The FCC recently adopted rules
on telephone number portability pursuant to which subscribers will be able to
migrate their landline and cellular telephone numbers to a PCS carrier and from
a PCS carrier to another service provider. On August 8, 1996, the FCC released
its decision implementing the interconnection provisions of the
Telecommunications Act of 1996. The FCC's decision is lengthy and complex and is
the subject of both petitions for reconsideration and judicial review. On
October 15, 1996, the United States Court of Appeals for the Eighth Circuit
granted a stay of parts of the interconnection order pending further proceedings
in that court, which the Supreme Court has declined to vacate. As a result of
these proceedings, the precise contours and effects of the FCC's interconnection
order are difficult to predict with certainty. However, the FCC's decision
concludes that CMRS providers are entitled to reciprocal compensation
arrangements with LECs and prohibits LECs from charging CMRS providers for
terminating
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LEC-originated traffic. While the FCC has noted the potential for asserting
federal jurisdiction over certain aspects of CMRS interconnection, it has so far
determined to defer primarily to the states in implementing interconnection
policies pursuant to general guidelines established by the FCC. Under these
guidelines, states must set arbitrated rates for interconnection and access to
unbundled elements based upon LECs' long-run incremental costs, plus a
reasonable share of forward-looking joint and common costs. In lieu of such
cost-based rates, the FCC has also established for use by states a benchmark
range of 0.2-0.4 cents per minute for end office termination pending further
cost-based studies, and subject to a possible "true-up" payment later. The FCC
has also permitted states to impose "bill and keep" arrangements, under which
CMRS providers would make no payments for LEC termination of calls where LECs
and CMRS providers have symmetrical termination costs and roughly balanced
traffic flows. However, the FCC has found no evidence that these conditions
presently exist. The relationship of these charges to the payment of access
charges and universal service contributions has not yet been resolved by the
FCC.
Additionally, all communications carriers providing interstate
communications services must contribute to the federal universal service support
mechanisms that the FCC will establish. The Company cannot predict the outcome
of the FCC's rulemaking proceedings to promulgate regulations to implement the
new law or the effects of any new regulations on cellular service or PCS, and
there can be no assurance that such regulations will not adversely affect the
Company's business or financial condition.
The Telecommunications Act of 1996 codifies the FCC policy that CMRS
providers shall not currently be required to provide equal access to long
distance carriers. The FCC, however, may require CMRS carriers to offer
unblocked access (implemented through the subscriber's use of a carrier
identification code or other mechanisms at the time of placing a call) to the
long distance provider of a subscriber's choice.
Federal law generally prohibits the states from regulating the rates
charged by CMRS providers (including PCS carriers), although states are
permitted to regulate other terms and conditions. Some states petitioned the FCC
for authority to regulate cellular rates, but thus far no such petition has been
successful. The FCC does not regulate CMRS rates, but does impose various resale
and interconnection requirements on CMRS carriers.
On July 26, 1996, the FCC released a report and order establishing
timetables for making emergency 911 services available by PCS and other mobile
services providers, including "enhanced 911" services that provide the caller's
telephone number, location, and other useful information. By late 1997, PCS
providers must be able to process and transmit 911 calls (without call
validation), including those from callers with speech or hearing disabilities.
Assuming a cost recovery mechanism is in place, by mid-1998 such providers must
have completed actions enabling them to relay a caller's automatic number
identification and cell site, and by 2001 they must be able to identify the
location of a 911 caller within 125 meters in 67% of all cases. State actions
incompatible with these FCC rules are subject to preemption. Various parties
have petitioned the FCC to reconsider certain requirements imposed in the order.
On August 1, 1996, the FCC released a report and order expanding the
flexibility of PCS and other CMRS carriers to provide fixed as well as mobile
services. Such fixed services include, but need not be limited to, "wireless
local loop" services, e.g., to apartment and office buildings, and wireless
backup to PBXs and local area networks, to be used in the event of interruptions
due to weather or other emergencies. A pending petition for partial
reconsideration of this FCC report and order seeks to avoid any obligation to
notify the FCC of what fixed line services the provider intends to provide or to
ensure maintenance of the cost and quality of the provider's other services. The
FCC has not yet responded to this petition or decided whether such fixed
services should be subjected to universal service obligations or how they should
be regulated, although it has proposed a presumption that they be regulated as
CMRS services.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the wireless
telecommunications industry. Other existing federal, state and local regulations
currently are the subject of a variety of judicial proceedings, legislative
hearings and administrative and legislative proposals which could change, in
varying degrees, the manner in which wireless telecommunications providers
operate. Neither the outcome of these proceedings nor their impact on the
wireless telecommunications industry generally or the Company in particular can
be predicted at this time.
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<PAGE> 51
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers as of the date of this Prospectus:
<TABLE>
<CAPTION>
NAME AGE OFFICE
<S> <C> <C>
Daniel C. Riker................ 52 Chairman of the Board and Chief Executive Officer
Janis A. Riker................. 52 Director and President
Thomas L. Leming............... 72 Director
J. Herbert Nunnally............ 54 Director
Eduardo Paz.................... 36 Director, Vice Chairman of the Board
Brion Sasaki................... 52 Director
Ronald S. Schimel.............. 51 Director and Secretary
George S. Wills................ 60 Director
Randall S. Anderson............ 46 Executive Vice President, Corporate Development
Colleen R. Cross............... 35 Senior Vice President and General Counsel
John A. Hoffman................ 39 Chief Operating Officer
Robert A. Kerstein............. 45 Senior Vice President and Chief Financial Officer
Carlos A. Pichardo............. 36 Senior Vice President and General Manager, Network
Services Group
John Samarron.................. 44 Chief Technical Officer
Barry C. Winkle................ 51 Executive Vice President
</TABLE>
DANIEL C. RIKER has been Chairman of the Board and Chief Executive Officer
since he co-founded Pocket in 1994. Previously, Mr. Riker was Director of PCS
Business and Technology Development at MCI Communications Corporation ("MCI")
where he had worked for 13 years. Mr. Riker was responsible for MCI's cellular
business unit until it was sold, and he developed a national network structure
for MCI which was adopted as its early PCS strategy. Prior to 1981, Mr. Riker
had served as News and Sales Executive for United Press International, the
Assistant Director of Public Relations for Johns Hopkins University and the
Assistant Press Secretary to the Governor of Maryland. Mr. Riker received his BA
from The Johns Hopkins University and his JD with honors from the University of
Baltimore Law School. Mr. Riker is married to Janis Riker.
JANIS A. RIKER has been a director since she co-founded Pocket in 1994. She
is currently President and in addition served as Chief Operating Officer prior
to Mr. Hoffman. Previously, she had served as Pocket's Vice President and
General Counsel. Before forming Pocket, Ms. Riker was an attorney in private
practice. Prior to practicing law, she had been employed as Director of Public
Relations for The Johns Hopkins Medical Institutions, the Columbia Medical Plan
(an HMO), and Howard County General Hospital. Ms. Riker received her BA from
Goucher College and her JD with honors from the University of Baltimore Law
School. Ms. Riker is married to Daniel Riker.
THOMAS L. LEMING has been a director of Pocket since 1995. Mr. Leming was
the President of Leming Telecom Consulting from 1986 until 1993, during which
time he was a consultant to, among others, Fujitsu America, Inc., MCI, and
General Electric Company. Previously, from 1971 to 1986, he served as Senior
Vice President at MCI in charge of the planning, design, development and
construction of the MCI telecommunications network. Mr. Leming has also held
positions at Motorola and the Collins Radio Company. Mr. Leming is a veteran of
the United States Navy. He is currently retired.
J. HERBERT NUNNALLY has been a director at Pocket since 1995. From 1986 to
1996, Mr. Nunnally was a Division General Manager with Westinghouse in charge of
commercial communications, networks and products. He is currently retired. He
joined Westinghouse in 1963 and has held a variety of positions during his
tenure. Mr. Nunnally received a BS in Electrical Engineering from Mississippi
State University in 1963 and a Masters of Science degree from George Washington
University in 1971.
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<PAGE> 52
EDUARDO PAZ has been a director at Pocket since 1994 and also serves as
Vice Chairman of the Board. Mr. Paz is President and sole director of
Teleconsult, a position he has held since 1990. Teleconsult is a
telecommunications and systems integration consulting firm which was
incorporated in 1970. Prior to joining Teleconsult, he was President of
Communications Management Inc., providing professional services for
international and government institutions as well as private corporations in the
United States and abroad. Mr. Paz was a Network Planning Engineer with MCI
Communications Corporation from 1984 to 1989. Mr. Paz holds a BS and an MS in
Electrical and Mechanical Engineering from Cornell University.
BRION SASAKI has been a director at Pocket since 1995. He is President of
MASA, Inc. ("MASA"), an international financial consulting firm specializing in
strategic planning and investment advisory services. Prior to forming MASA in
1994, Mr. Sasaki was Executive Director of Multinational Business Services, Inc.
for 10 years, Chief Economist for the American Mining Congress and Senior Policy
Analyst for the Office of Management and Budget. Mr. Sasaki received a BS in
Microbiology and a PhD in Economics from the University of Cincinnati. Mr.
Sasaki serves as director of the Company through designation by Masa Telecom,
Inc. ("MTI") pursuant to a stockholders' agreement, dated as of January 30, 1995
and as amended, by and between the stockholders listed therein.
RONALD S. SCHIMEL has been director and Secretary of Pocket since 1994. He
is a principal and on the Board of Directors at the law firm of Miles &
Stockbridge, P.C. He received a JD from the Columbus School of Law, The Catholic
University of America.
GEORGE S. WILLS has been a director at Pocket since 1995. Since 1978, Mr.
Wills has served as the President of Wills & Associates, a public affairs firm
that provides communications and government relations services to corporations.
In conjunction with his professional practice, Mr. Wills is a trustee and public
affairs advisor to the Aspen Institute, an international public policy
organization, and is a member of the Public Affairs Council in Washington D.C.
Mr. Wills received a BA from Pennsylvania State University in 1958, an MA in
American Government from the University of Virginia and a PhD from the Johns
Hopkins University in 1969.
RANDALL S. ANDERSON has been an Executive Vice President at Pocket since
January 1996. He joined Pocket in December 1994 as Senior Vice President of
Network Systems. Prior to joining Pocket, Mr. Anderson was Director of Business
Development at Nortel, where he worked for approximately 10 years. Prior to
joining Nortel, Mr. Anderson held management positions with each of GTE, Sprint
Communications and Cable TV of Virginia. His 23 years of telecommunications
experience includes working with digital microwave, fiber-optic technology,
cable television, long distance switching & transmission and the local access
market. He received his AS degree in Engineering Technology, cum laude, from New
River College in 1972.
COLLEEN R. CROSS joined the Company as Senior Vice President and General
Counsel, effective January 1997. She previously was a partner with Whiteford,
Taylor & Preston, L.L.P., a Baltimore/Washington, D.C.-based law firm. Ms. Cross
co-chaired the firm's PCS Law Group, with experience in legal issues related to
zoning, technology, venture financing and securities for PCS and other
telecommunications carriers. Her clients included the operator of the first PCS
system in the U.S. Prior professional experience includes the law firms Patton,
Boggs & Blow and Frank, Bernstein, Conaway & Goldman. Ms. Cross was admitted to
practice in Maryland in 1986. She holds a BA from Loyola College and her JD from
the University of Baltimore Law School.
JOHN A. HOFFMAN joined the Company as Chief Operating Officer, effective
January 1, 1997. Prior to joining Pocket, he served as Regional General Manager
for BellSouth Mobility DCS in Charlotte, N.C. and was responsible for directing
the planning, implementation and start-up operations of BellSouth's PCS business
in the Charlotte, N.C. region, which was among the first U.S. PCS service
launches. Since 1986, Mr. Hoffman has held a number of positions with BellSouth
International, including serving as President of Mobined in The Netherlands
where he directed company planning and start-up activities for a planned GSM
commercial PCS service covering 15.5 million people. Other international posts
with BellSouth included Vice President for BellSouth Europe in Brussels,
Belgium; and Chief Operating Officer for SONOFON in Aalborg, Denmark, where he
directed the commercial launch and ongoing operations of a GSM network covering
more
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<PAGE> 53
than 5 million people. From 1989 to 1991, Mr. Hoffman served as Regional Manager
for BellSouth Mobility, Inc. in Jacksonville, Fla. and from 1986 to 1988 he was
a General Manager in Atlanta directing the design and construction of mobile
communications projects in Georgia, Kentucky, Tennessee and Florida. Mr. Hoffman
holds an MBA from the University of Phoenix; a Master of Architecture degree
from the University of Michigan; and a BS of Architecture degree from the
University of Michigan.
ROBERT A. KERSTEIN has been Senior Vice President and Chief Financial
Officer since February 1996. Prior to joining Pocket, Mr. Kerstein was Chief
Information Officer of Orca Bay Sports and Entertainment. From 1990 to 1995, he
was employed at American Mobile Satellite Corporation, a wireless
telecommunications company, where he was Vice President of Operations from 1994
through 1995 and Chief Financial Officer from 1990 through 1993. From 1980 to
1990, Mr. Kerstein held senior management positions at various media and
telecommunications companies, including Controller and Chief Financial Officer
of Falcon Cable TV, Chief Financial Officer of L.A. Cellular, and Senior Vice
President and Cellular Chief Financial Officer of McCaw Cellular Communications,
Inc. He is a C.P.A. and has a BS degree with honors in Business Administration
from California State University, Long Beach.
CARLOS A. PICHARDO has been a Senior Vice President at Pocket since
December 1995. Mr. Pichardo joined Pocket in April 1995 as Vice President in
charge of Vendor Relations. Prior thereto, Mr. Pichardo was a Regional Managing
Director for Network Wireless Systems at AT&T Corp. Mr. Pichardo started his 12-
year AT&T career at Bell Laboratories in 1983. In 1988, he became District
Manager in Business Communications Systems and held several management positions
until 1995. Mr. Pichardo serves as an advisor to Teleconsult where he is a
minority investor. He received a BS with honors in Electrical Engineering and a
Masters of Engineering from Cornell University.
JOHN SAMARRON, JR. has been Chief Technical Officer since December 1996.
Prior to joining Pocket, he served as Executive Vice President and Chief
Technical Officer for Chase Telecommunications, Inc., a wireless start-up
company. From 1990 to 1996, Mr. Samarron worked for AirTouch International
("ATI"), most recently serving as chief technical officer for Airtel Movil, an
ATI subsidiary in Spain. He was responsible for building Airtel Movil's national
GSM network, which covers a population of more than 44 million people. Prior to
his assignment in Spain, Mr. Samarron was managing director of Technical
Services for ATI in Walnut Creek, California. In this capacity, he was
responsible for ATI's development in radio frequency engineering, network
planning and operations and vendor interaction. Mr. Samarron also spent 16 years
with Pacific Bell in engineering and customer service management positions. He
holds a BA degree from the University of Notre Dame.
BARRY C. WINKLE has been an Executive Vice President at Pocket since 1995.
He was a consultant of Teleconsult, a telecommunications consulting firm, from
1993 to 1994. Mr. Winkle was also president of Fountainhead Inc., a printing
company, from 1989 to 1992. In 1992, Fountainhead Inc. filed for protection
under the U.S. Bankruptcy Code. From 1978 to 1989 Mr. Winkle held several
positions with MCI, including Director of Corporate Marketing, Vice President of
MCI Sales, Vice President of Finance for MCI Western Division and Senior Vice
President of Management Information Systems. As Senior Vice President, Mr.
Winkle was responsible for implementing significant billing software system
changes and preparing a strategic plan for fully integrating management
information system functions in the company. He received his BA in Business
Management from the University of Dayton, Ohio.
ANNUAL MEETING
The By-Laws provide that annual meetings of stockholders will be held at
the Company's principal office or at such other place and on such date in May as
may be fixed from time to time by resolution of the Board of Directors. The
first Annual Meeting for which proxies will be solicited from stockholders will
be held in May 1997.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee meets with management to consider the
adequacy of internal controls and the objectivity of financial reporting. The
Audit Committee also meets with the independent
50
<PAGE> 54
auditors and with appropriate financial personnel of the Company regarding these
matters. The Audit Committee recommends to the Company Board the appointment of
the independent auditors, subject to ratification by the stockholders at the
annual meeting. The independent auditors will meet periodically with the Audit
Committee and will have unrestricted access to the Audit Committee. The Audit
Committee reviews the Company's long-term plans and financings and reports its
recommendations to the full Company Board for approval and to authorize action.
The Chief Executive Officer, Daniel C. Riker, and the President, Janis A. Riker,
shall serve as ex officio members and neither will participate in Audit
Committee meetings when audit matters are discussed. The members of the Audit
Committee, all of whom are directors who are not employees of the Company
("Non-Employee Directors"), are Ronald S. Schimel, (who currently serves as
Secretary for the Company) Eduardo Paz and Brion Sasaki.
Compensation Committee. The Compensation Committee's functions include
recommending to the Company Board nominees for election as directors of the
Company, making recommendations from time to time to the Company Board as to
matters of corporate governance, administering management incentive compensation
plan, the Company's stock option plans, and making recommendations to the Board
with respect to the compensation of directors and officers of the Company. The
members of the Compensation Committee, all of whom are Non-Employee Directors,
are George S. Wills, Eduardo Paz and Ronald S. Schimel (who currently serves as
Secretary for the Company).
Finance Committee. The Finance Committee reviews the annual budget prior
to its presentation to the Board of Directors for approval, develops and
recommends to the Board financial goals and objectives for the Company, reviews
all agreements having material financial impact on the Company and shall perform
such other functions as are delegated to it by the Board of Directors. The
members of the Finance Committee are Janis A. Riker, Brion Sasaki, George S.
Wills and Eduardo Paz.
Executive Committee. The Executive Committee is authorized, between
meetings of the Board, to exercise all powers and authority of the Board
regarding the management of the business and affairs of the Company, except for
powers reserved to the full Board under Maryland General Corporation Law. The
members of the Executive Committee are Daniel C. Riker, Janis A. Riker and
Eduardo Paz.
Auction Committee. The Auction Committee helped to formulate an auction
strategy for the Company for its participation in C Block auction and will
continue to formulate strategies in future auctions as needed. The members of
the Auction Committee are Daniel C. Riker, Brion Sasaki and Thomas L. Leming.
COMPENSATION OF DIRECTORS
Several members (Messrs. Leming, Sasaki, Schimel and Wills) of the Board of
Directors each received as director compensation for the 12-month period
beginning May 17, 1995, 20,000 shares of Class B Common Stock, which was issued
by the Company in November 1995, and are entitled to receive cash compensation
for their services during this same period in the amount of $7,000. All
directors are to be reimbursed for out-of-pocket travel expenses in connection
with Company related business. On May 17, 1996, the Board of Directors
authorized the grant of 30,000 stock options each to all directors as further
described in "-- Stock Option Plans." The Company has no other compensation
arrangements for its directors. Concerning compensation received by certain
directors for the performance of services for the Company other than as a
director, see "-- Certain Relationships and Related Transactions."
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<PAGE> 55
EXECUTIVE COMPENSATION
The following information relating to executive compensation gives effect
to the adjustments to be made pursuant to the Recapitalization.
The following table sets forth certain compensation information for the
Chief Executive Officer and the four other executive officers of the Company as
of December 1, 1996 who were the most highly compensated for the year ended
December 31, 1995 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- ----------------------
FISCAL OTHER ANNUAL STOCK
NAME & PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
<S> <C> <C> <C> <C> <C>
Daniel C. Riker........................ 1995 $182,692 $ -- $ -- --
Chairman and Chief Executive Officer
Janis A. Riker......................... 1995 $135,711 $ -- $ -- --
Director, President
Randall S. Anderson.................... 1995 $150,000 $ -- $ -- 1,500,000
Executive Vice President, Corporate
Development
Barry C. Winkle........................ 1995 $118,953 $ -- $ -- 125,000
Executive Vice President, Markets
Carlos A. Pichardo..................... 1995 $ 94,998 $ -- $ -- 70,000
Senior Vice President, and General
Manager, Network Services Group
</TABLE>
Set forth in the table below is information with respect to options to
purchase Class B Common Stock granted to the Named Executive Officers during the
fiscal year ended December 31, 1995. The grants to Messrs. Winkle and Pichardo
were made under the 1995 Plan (as defined herein). The grant to Mr. Anderson was
made outside the 1995 Plan. See "-- Stock Option Plans -- 1995 Non-Qualified
Stock Options."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE PRICE OPTION TERM(2)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE(1) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Daniel C. Riker........... -- -- $ -- -- -- --
Janis A. Riker............ -- -- -- -- -- --
Randall S. Anderson....... 1,500,000 68.3 .83 8-10-05 782,974 1,984,209
Barry C. Winkle........... 125,000 5.7 .83 7-12-05 65,248 165,351
Carlos A. Pichardo........ 70,000 3.2 .83 7-12-05 36,539 92,596
</TABLE>
- ---------------
(1) Under the 1995 Plan, the Board of Directors determines the exercise price,
vesting schedule and exercise periods for option grants made pursuant to the
1995 Plan. Options granted during the fiscal year ended December 31, 1995
become exercisable in three equal, annual installments commencing on July
12, 1996. Each such option expires 10 years from the date of grant.
(2) Potential gains are net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Class B Common Stock, overall
stock market conditions, as well as the option holders' continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
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<PAGE> 56
The following table provides information concerning the exercise of stock
options by the Named Executive Officers during the fiscal year ended December
31, 1995 and the fiscal year-end value of all unexercised options held by such
individuals.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED, IN-THE-
OPTIONS HELD AT FISCAL MONEY OPTIONS AT FISCAL YEAR-
SHARES YEAR END(#) END($)(1)
ACQUIRED ON VALUE ---------------------------- ------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Daniel C. Riker..... -- -- -- -- -- --
Janis A. Riker...... -- -- -- -- -- --
Randall S.
Anderson.......... -- -- 500,000 1,000,000
Barry C. Winkle..... -- -- -- 125,000
Carlos A.
Pichardo.......... -- -- -- 70,000
</TABLE>
- ---------------
(1) Represents the difference between $ per share, the fair market value of
the Class B Common Stock at December 31, 1995, as determined by the Board of
Directors, and the exercise price per share of the options, and does not
include the federal and state taxes due upon exercise.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with each of Mr. Riker,
Ms. Riker, Mr. Anderson and Mr. Winkle, pursuant to which such individuals serve
as executive officers of the Company. These agreements provide for annual base
salaries of $250,000, $160,000, $150,000 and $150,000, respectively. Although
Mr. Riker's employment contract entitles him to $250,000 per year in base
salary, Mr. Riker took a voluntary reduction in salary in 1995 (which reduction
is still in effect) to $170,000.
Each such employment agreement also provides that such employee's base
salary is subject to other increases at the discretion of the Board of
Directors. Mr. Riker is entitled to an annual cash incentive bonus targeted at
50% of his base salary, based solely on the Company's performance, as approved
by the Board of Directors. Each such employee other than Mr. Riker is entitled
to an annual cash incentive bonus, targeted at 50% of his or her base salary,
based on the Company's performance, as approved by the Board of Directors, as
well as to additional cash and stock based bonuses in accordance with such
employees performance as evaluated in accordance with policies as may be
established by the Board of Directors.
Each such employment agreement provides that the Company may terminate such
person's employment with the Company at any time, with or without good cause (as
such term is defined in the agreements). In the event of termination by the
Company other than for good cause, however, such executive will be entitled to
receive a lump sum payment equal to the amount of salary to which such executive
would have been entitled for the greater of the period of time remaining in the
agreement term and two years. For that same time period, such executive will
also continue to receive fringe benefits until he or she begins full-time
employment elsewhere.
Pursuant to each such agreement, each executive officer agrees, that during
the term of such employment agreement and for one year following the termination
of such executive officer's employment with the Company (with or without good
cause), such executive officer will not hire any other individual who was
employed by the Company during the one-year period immediately prior to the
termination of such executive officer's employment; assist, advise or serve, in
any capacity, any third party in an action against or a transaction involving
the Company; engage in the business of selling or providing communication or
telephone services; or otherwise compete for orders, contracts or accounts for
services comparable to those offered by the Company to or from any person or
entity for whom, during the one-year period immediately prior to the termination
of such executive officer's employment, the Company provided telephone or
communication
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<PAGE> 57
services or sold, offered to sell or solicited orders, contracts or accounts for
services comparable to those offered by the Company. Each such agreement also
contains certain confidentiality provisions.
Pursuant to the Control Group Option Plan, Mr. and Mrs. Riker and
Teleconsult, as well as any future members of the Control Group, will receive
certain options to purchase shares of Class A Common Stock or Class B Common
Stock at 90% of the fair market value at the time of exercise or at the fair
market value at the time of grant when and to the extent required for the
Control Group and the Qualifying Investors to maintain the minimum ownership
interests required for the Company's Designated Entity Status.
STOCK OPTION PLANS
The following descriptions of certain stock option plans give effect to the
adjustments to be made pursuant to the Recapitalization. All stock option plans
of the Company are subject to compliance with applicable FCC rules, regulations
and policies regarding the Company's and its subsidiaries' qualifications as PCS
C block licensees.
1995 Incentive Stock Option Plan
In July 1995, the Company adopted and, in July 1996, the Company's
stockholders approved, the Pocket Communications, Inc. 1995 Incentive Stock
Option Plan (the "1995 Plan") originally titled the DCR Communications, Inc.
(the predecessor name of the Company) 1995 Incentive Stock Option Plan. The 1995
Plan is designed to promote the success, and enhance the value, of the Company
by linking the interests of certain employees of the Company (the "1995 Plan
Participants") to those of the Company's stockholders. As determined by the
Board of Directors, Company employees, including employees who are members of
the Board of Directors, are eligible to participate in the 1995 Plan.
Non-employee directors are not eligible to participate in the 1995 Plan. Unless
sooner terminated by the Board of Directors, the 1995 Plan will expire on July
12, 2005. The description below is intended as a summary only and is qualified
in its entirety by reference to the 1995 Plan, a copy of which is filed as an
exhibit to the registration statement of which this Prospectus forms a part.
General. The 1995 Plan will be administered by the Board of Directors or a
designated committee (the "Committee"). Options granted under the 1995 Plan
("1995 Options") are intended to satisfy the requirements of "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
The total number of shares of Class B Common Stock available for grant
under the 1995 Plan may not exceed 1,550,000 shares. Shares of Class B Common
Stock subject to 1995 Options which have terminated unexercised, either in whole
or in part, shall be available for future 1995 Options granted under the 1995
Plan. To date, 1995 Options are outstanding with respect to 672,900 shares of
Class B Common Stock, and 18,100 shares of Class B Common Stock have been issued
pursuant to the exercise of 1995 Options.
In the event of any change in corporate capitalization, such as a stock
split, or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of
the Company, any reorganization or partial or complete liquidation of the
Company, the Board of Directors may make such substitutions or adjustments in
the aggregate number and class of shares reserved for issuance or subject to
outstanding 1995 Options and in the number, kind and price of shares subject to
outstanding 1995 Options as it may determine to be appropriate.
1995 Options. The term of 1995 Options granted under the 1995 Plan may not
exceed 10 years (five years with respect to 1995 Plan Participants who own stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company ("10% Owners"). 1995 Options will become exercisable and
shall expire in accordance with terms set by the Board of Directors or the
Committee, consistent with the terms of the 1995 Plan and the requirements for
qualification of an "incentive stock option" pursuant to Code Section 422. The
exercise price for each 1995 Option granted will be determined by the Board of
Directors; provided that the exercise price may not be less than 100% of the
fair market value (as defined in the 1995 Plan) of a share of Class B Common
Stock on the date of grant (110% of the fair market value with respect to
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<PAGE> 58
10% Owners). A 1995 Plan Participant exercising a 1995 Option is required to pay
the exercise price in full in cash. 1995 Options are non-transferable other than
by will or the laws of descent and distribution, and, during the 1995 Plan
Participant's lifetime, may be exercised only by the 1995 Plan Participant or
his legal representative.
Amendments. The Board of Directors may at any time terminate, amend, or
modify the 1995 Plan; provided that, to the extent required by law, no such
amendment will be made without the approval of the Company's stockholders.
1995 Non-Qualified Stock Options
The Company authorized the grant of non-qualified stock options to certain
employees in 1995 (the "1995 Non-Qualified Options"). The 1995 Non-Qualified
Options were designed to promote the success and enhance the value of the
Company by linking the interests of certain employees of the Company (the "1995
Grantees") to those of the Company's stockholders. 3,000,000 shares of Class B
Common Stock were authorized for issuance pursuant to the 1995 Non-Qualified
Options. To date, the Company, under such authorization, has granted to Randall
Anderson a 1995 Non-Qualified Option to purchase 1,500,000 shares of Class B
Common Stock (the "Anderson Option"). To date, 60,240 shares of Class B Common
Stock have been issued pursuant to the exercise of Anderson Options.
In the event of any change in corporate capitalization, such as a stock
split, or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of
the Company, any reorganization or partial or complete liquidation of the
Company, the Board of Directors may make such substitutions or adjustments in
the aggregate number and class of shares reserved for issuance or subject to the
1995 Non-Qualified Options and in the number, kind and price of shares subject
to the 1995 Non-Qualified Options as it may determine to be appropriate.
The term of the Anderson Option is 10 years, commencing in 1995. The
exercise price for the Anderson Option is $.83 per share of Class B Common
Stock. Upon exercise of the Anderson Option, the optionholder is required to pay
the exercise price in full in cash. The Anderson Option is non-transferable and
may be exercised only by Mr. Anderson or his legal representative.
The registration requirements of any applicable federal or state securities
laws and resale restrictions of Rule 144 under the Securities Act may restrict
the sale of shares of Class B Common Stock acquired pursuant to the exercise of
1995 Non-Qualified Options.
1996 Employee Non-Qualified Stock Option Plan
The Company adopted the Pocket Communications, Inc. 1996 Employee
Non-Qualified Stock Option Plan (the "1996 Employee Plan"). The 1996 Employee
Plan is designed to promote the success, and enhance the value of the Company by
linking the interests of certain employees of the Company (the "1996 Employee
Plan Participants") to those of the Company's stockholders. As determined by the
Committee, Company officers and employees, including both employees who are
members of the Board of Directors and employees of affiliate entities controlled
by the Company, are eligible to be granted options under the 1996 Employee Plan.
Non-employee directors are not eligible to participate in the 1996 Employee
Plan. Unless sooner terminated by the Board of Directors or Committee, the 1996
Employee Plan will expire in December, 2006. The description below is intended
as a summary only and is qualified in its entirety by reference to the 1996
Employee Plan, a copy of which is filed as an exhibit to the registration
statement of which this Prospectus forms a part.
General. The 1996 Employee Plan will be administered by the Committee or
any other committee designated by the Board for such purposes. Members of the
Committee shall qualify as both "non-employee directors" as defined by Rule
16b-3 of the Exchange Act ("Rule 16b-3") and "outside directors" for purposes of
Section 162(m) of the Code. Among other things, the Committee shall have the
authority, subject to the terms of the 1996 Employee Plan, to select the
officers and employees to whom options are granted and the
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terms and conditions of any option. The 1996 Employee Plan provides for the
grant of "non-qualified stock options" ("1996 Non-Qualified Options").
The total number of shares of Class B Common Stock available for grant
under the 1996 Employee Plan may not exceed 2,370,000 shares. Shares of Class B
Common Stock subject to 1996 Non-Qualified Options which have terminated
unexercised, either in whole or in part, shall be available for future 1996
Non-Qualified Options granted under the 1996 Employee Plan. To date, no options
are outstanding and no shares of Class B Common Stock have been issued under the
1996 Employee Plan. The Company has committed to grant 1996 Non-Qualified
Options to purchase up to 1,736,153 shares of Class B Common Stock at $.83 per
share prior to the consummation of the Offering, subject to compliance with FCC
requirements and stockholder approval. These options include "Bonus Options" to
purchase 112,388 shares of Class B Common Stock which will vest immediately at
the date of grant. As to the remaining options aggregating 1,623,765, one-third
of such options will vest on May 17 of each of calendar years 1997, 1998 and
1999, subject to the 1996 Employee Plan Participant's continued employment with
the Company.
In the event of any change in corporate capitalization, such as a stock
split, or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of
the Company, any reorganization or partial or complete liquidation of the
Company, the Board of Directors or Committee may make such substitutions or
adjustments in the aggregate number and class of shares reserved for issuance or
subject to outstanding 1996 Non-Qualified Options and in the number, kind and
price of shares subject to outstanding 1996 Non-Qualified Options as it may
determine to be appropriate.
1996 Non-Qualified Options. The term and the exercise price for each 1996
Non-Qualified Option granted will be determined by the Committee; provided,
however, that the exercise price may not be less than the lesser of (i) the fair
market value (as defined in the 1996 Employee Plan) of a share of Class B Common
Stock on the date of grant and (ii) $.83 per share of Class B Common Stock.
A 1996 Employee Plan Participant exercising a 1996 Non-Qualified Option may
pay the exercise price in full in cash, or, if approved by the Committee, with
previously acquired shares of Class B Common Stock. Additionally, with the
approval of the Committee, the exercise price may be paid in whole or in part by
an assignment of the right to receive the cash proceeds from the sale of Class B
Common Stock subject to the option exercise pursuant to a "cashless exercise"
procedure or by delivery of other property, or by a recourse promissory note
payable to the Company, or by a combination of the foregoing. The fair market
value of any shares of the Company's Class B Common Stock or other non-cash
consideration which may be delivered upon exercise of an option shall be
determined by the Committee.
Options are non-transferable other than by will or the laws of descent and
distribution, or as expressly provided in the option agreement and, during the
1996 Employee Plan Participant's lifetime, may be exercised only by such
participant or his legal representative or a permitted transferee.
Change in Control. In the event of a Change in Control (as defined in the
1996 Employee Plan), any 1996 Non-Qualified Option that is not then exercisable
and vested will become fully exercisable and vested. During the 60-day period
following a Change in Control, any 1996 Employee Plan Participant will have the
right, whether or not the option is fully exercisable to surrender all or part
of any 1996 Non-Qualified Option held by such participant, in lieu of payment of
the exercise price, and to receive cash in an amount equal to the difference
between the (i) Change in Control Price which is (A) the highest reported sales
price of a share of Class B Common Stock in the 60 day period prior to and
including the date of a Change of Control and (B) in the event of a tender or
exchange offer, the highest price per share paid in such tender or exchange
offer and (C) in the event that such option is held by an optionee that is
subject to Section 16(b) of the Exchange Act and was granted within 240 days of
the date of Change of Control, the fair market value, as defined, of the Class B
Common Stock on the date such option is canceled, and (ii) the exercise price
(the difference between (i) and (ii) being referred to as the "Spread")
multiplied by the number of shares of Class B Common Stock granted in connection
with the exercise of such 1996 Non-Qualified Option; provided, that, if the
Change in Control is within six months of the grant date of any such 1996
Non-Qualified Option held by a 1996 Employee Plan Participant subject to Section
16(b) of the Exchange Act, such optionee shall have until the date which is six
months and one day after the grant of such 1996 Non-Qualified Option to exercise
such
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election; provided, further, that such Change in Control transaction would not
thereby be made ineligible for pooling of interests accounting in which case the
Compensation Committee shall have the ability to substitute, for the cash
otherwise payable above, Class B Common Stock with an equivalent market value.
Amendments. The Board of Directors may at any time terminate, amend, or
modify the 1996 Employee Plan; provided that to the extent required by law, no
amendment, alteration or discontinuation will be made without the approval of
the Company's stockholders.
1996 Director Non-Qualified Stock Option Plan
In December 1996, the Company adopted and the Company's stockholders
approved the Pocket Communications, Inc. 1996 Director Non-Qualified Stock
Option Plan (the "1996 Director Plan"). The purposes of the 1996 Director Plan
are to (i) promote a greater identity of the interests of the Company's
directors and of its stockholders, (ii) attract and retain individuals to serve
as directors of the Company and (iii) provide a more direct link between
director compensation and stockholder value. The description below is intended
as a summary only and is qualified in its entirety by reference to the 1996
Director Plan, a copy of which is filed as an exhibit to the registration
statement of which this Prospectus forms a part.
General. The 1996 Director Plan will be administered by the Company Board
or a committee of the Board designated for such purpose (the "Committee"). Among
other things, the Committee shall have the authority, subject to the terms of
the 1996 Director Plan, to select the directors to whom awards are granted and
the terms and conditions of any award; provided, however, that the Committee
shall not have discretion to grant or set the terms of Formula Options described
below.
Pursuant to the terms of the 1996 Director Plan, any director of the
Company serving on the Board of Directors will be eligible to be granted options
under the 1996 Director Plan (the "1996 Director Plan Participants"). A total of
390,000 shares of Class B Common Stock are reserved for issuance and available
for grants of options under the 1996 Director Plan (the "1996 Non-Qualified
Director Options"). To date, no shares of Class B Common Stock have been issued
under the 1996 Director Plan. Subject to compliance with FCC requirements, the
1996 Director Plan provides for automatic one-time grants of (i) an option to
purchase 30,000 shares of Class B Common Stock at an exercise price of $0.83 per
share to each director who was serving on the Board of Directors on June 1, 1996
and who is then serving (or has terminated such service by reason of death or
disability) and (ii) an option to each director elected to the Board of
Directors after June 1, 1996 but on or before May 31, 1997 to purchase that
percentage of 30,000 shares of Class B Common Stock equal to the ratio of (x)
the number of months of the director's service after June 1, 1996 and prior to
May 31, 1997 to (y) 12, at an exercise price of $0.83 per share (but not less
than the fair market value of a share of Class B Common Stock on the date of
such grant for options granted after the Offering) (collectively, the "Formula
Options"); provided, however, that any director who begins service after June 1,
1996 and terminates service prior to May 31, 1997 by reason of death or
disability shall receive an option pursuant to clause (ii). No Formula Options
may be granted after May 31, 1997. Subject to earlier expiration upon the
director's cessation of Board of Directors membership, Formula Options shall
expire on the tenth anniversary of the date of grant. The Company has committed
to grant 1996 Non-Qualified Director Options to purchase up to 232,500 shares of
Class B Common Stock at $0.83 per share prior to the consummation of the
Offering, subject to compliance with FCC requirements and stockholder approval.
Formula Options shall be exercisable upon and after, but not before, the later
to occur of (i) June 1, 1997 and (ii) the occurrence of a Termination Event as
defined in the 1996 Director Plan. Unless sooner terminated by the Board of
Directors or the Committee, the 1996 Director Plan will terminate on June 1,
1997. The termination of the 1996 Director Plan will not affect any 1996
Non-Qualified Director Option outstanding as of the date of such termination.
In the event of any change in corporate capitalization, such as a stock
split, or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of
the Company, any reorganization or partial or complete liquidation of the
Company, the Committee may make such substitutions or adjustments in the
aggregate number and class of shares reserved for issuance or subject to
outstanding 1996 Non-Qualified Director Options and in the number, kind and
price of shares subject to outstanding 1996 Non-Qualified Director Options as it
may determine to be appropriate.
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1996 Non-Qualified Director Options. The term of each 1996 Non-Qualified
Director Options (other than Formula Options) shall be set by the Committee. The
exercise price for each 1996 Non-Qualified Director Option will be $0.83 per
share of Class B Common Stock, provided, that subsequent to the Offering the
exercise price may not be less than the fair market value (as defined in the
1996 Director Plan) of such shares at the date of grant.
A 1996 Director Plan Participant exercising a 1996 Non-Qualified Director
Option may pay the exercise price in full in cash, or, if approved by the
Committee, with previously acquired shares of Class B Common Stock.
Additionally, with the approval of the Committee, the exercise price may be paid
in whole or in part by an assignment of the right to receive the cash proceeds
from the sale of Class B Common Stock subject to the option exercise pursuant to
a "cashless exercise" procedure or by delivery of other property, or by a
recourse promissory note payable to the Company, or by a combination of the
foregoing. The fair market value of any shares of the Company's Class B Common
Stock or other non-cash consideration which may be delivered upon exercise of an
option shall be determined by the Committee.
1996 Non-Qualified Director Options are non-transferable other than by will
or the laws of descent and distribution, or as expressly provided in the option
agreement, and, during the 1996 Director Plan Participant's lifetime, may be
exercised only by such participant or his legal representative or a permitted
transferee.
Change in Control. In the event of a Change in Control (as defined in the
1996 Director Plan), any 1996 Non-Qualified Director Option that is not then
exercisable and vested will become fully exercisable and vested. During the
60-day period following a Change in Control, any 1996 Director Plan Participant
will have the right, whether or not the option is fully exercisable to surrender
all or part of any 1996 Non-Qualified Option held by such participant, in lieu
of payment of the exercise price, and to receive cash in an amount equal to the
Spread (as defined in the 1996 Director Plan) multiplied by the number of shares
of Class B Common Stock granted in connection with the exercise of such 1996
Non-Qualified Director Option; provided, that, if the Change in Control is
within six months of the grant date of any such 1996 Non-Qualified Director
Option held by a 1996 Director Plan Participant subject to Section 16(b) of the
Exchange Act such optionee shall have until the date which is six months and one
day after the grant of such 1996 Non-Qualified Director Option to exercise such
election; provided, further, that such Change in Control transaction would not
thereby be made ineligible for pooling of interests accounting in which case the
Compensation Committee shall have the ability to substitute, for the cash
otherwise payable above, Class B Common Stock with an equivalent market value.
Amendments. The Board of Directors may at any time terminate, amend, or
modify the 1996 Director Plan; provided that, to the extent required by law, no
such amendment will be made without the approval of the Company's stockholders.
1996 Incentive Compensation Plan
In December 1996, the Company adopted and the Company's stockholders
approved the Pocket Communications Inc. 1996 Incentive Compensation Plan (the
"1996 Incentive Compensation Plan"). The 1996 Incentive Compensation Plan is
designed to promote the success and enhance the value of the Company by linking
the interests of certain employees of the Company ("1996 Incentive Compensation
Plan Participants") to those of the Company's stockholders and by providing
employees with an incentive for outstanding performance. The 1996 Incentive
Compensation Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract and retain employees upon whose judgment,
interest and special efforts the Company's successful operation largely is
dependent. As determined by the Compensation Committee of the Board of
Directors, or any other committee designated by the Board of Directors to
administer the 1996 Incentive Compensation Plan (the "Committee"), Company
employees, including employees who are members of the Board of Directors, are
eligible to receive awards under the 1996 Incentive Compensation Plan.
Non-employee directors are not eligible to participate in the 1996 Incentive
Compensation Plan. Unless sooner terminated by the Board of Directors or
Committee, the 1996 Incentive Compensation Plan will expire in December 2006.
The description below is intended as a summary only and is qualified
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in its entirety by reference to the 1996 Incentive Compensation Plan, a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
General. Four types of awards may be granted under the 1996 Incentive
Compensation Plan: (i) stock options (both non-qualified and incentive)
("Options"), (ii) stock appreciation rights ("SARs"), (iii) restricted Common
Stock ("Restricted Stock") and (iv) performance units ("Performance Awards," and
together with the Options, SARs and Restricted Stock, the "Awards").
Additionally, the Committee, in its discretion, may grant a participant a "tax
bonus" to offset all or a portion of such participant's income tax liability in
connection with the grant, vesting, exercise or surrender of any Award.
The 1996 Incentive Compensation Plan provides that the total number of
shares of Class B Common Stock available for grant under the 1996 Incentive
Compensation Plan may not exceed 4,150,000 shares; provided, however, that from
time to time the number of shares of Class B Common Stock available for grants
under the 1996 Incentive Compensation Plan may be reduced based on the number of
shares of Class B Common Stock subject to outstanding options and other awards
under certain of the Company's other equity compensation plans (as specified in
the 1996 Incentive Compensation Plan). No 1996 Incentive Compensation Plan
Participant may be granted Awards covering in excess of 15% of the shares of
Class B Common Stock available for issuance over the life of the 1996 Incentive
Compensation Plan. If any Award is cancelled or forfeited or terminates,
expires, or lapses (other than a termination of a SAR, upon exercise of the
related Option or the termination of a related Option upon exercise of the
corresponding SAR), shares subject to such Award will again be available for the
grant of an Award under the 1996 Incentive Compensation Plan subject to the
requirements of Code Section 162(m). To date, no Awards have been issued under
the 1996 Incentive Compensation Plan. Members of the Committee shall qualify as
both "non-employee directors" as defined by Rule 16b-3 and "outside directors"
for purposes of Section 162(m) of the Code. Awards under the 1996 Incentive
Compensation Plan may, at the Committee's discretion, be designed to qualify as
"performance-based compensation" pursuant to Section 162(m) of the Code.
In the event of any change in corporate capitalization, such as a stock
split, or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of
the Company, any reorganization or partial or complete liquidation of the
Company, the Committee may make such substitutions or adjustments in the
aggregate number and class of shares reserved for issuance or subject to
outstanding Awards and in the number, kind and price of shares subject to
outstanding Options and SARs as it may determine to be appropriate.
Options. The term of Options granted under the 1996 Incentive Compensation
Plan shall be set by the Committee; provided, however, that the term of any
option intended to qualify as an "incentive stock option" may not exceed 10
years; and may not exceed 5 years if granted to a 10% Owner. The term and
exercise price for each Option granted will be determined by the Committee;
provided that the exercise price of options intended to qualify as "incentive
stock options" may not be less than 100% of the fair market value (as defined in
the 1996 Incentive Compensation Plan) of a share of Class B Common Stock on the
date of grant and may not be less than 110% of such fair market value if granted
to a 10% Owner.
A Participant exercising an Option may pay the exercise price in full in
cash, or, if approved by the Committee, with previously acquired shares of Class
B Common Stock. Additionally, with the approval of the Committee, the exercise
price may be paid in whole or in part by an assignment of the right to receive
cash proceeds from the sale of Class B Common Stock subject to the option
exercise pursuant to a "cashless exercise" procedure or by delivery of other
property, or by a recourse promissory note payable to the Company, or by a
combination of the foregoing. The fair market value of any shares of the
Company's Class B Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Committee.
SARs. SARs may be granted by the Committee in connection with all or part
of any Option grant ("Tandem SARs"). A Tandem SAR may be exercised only with
respect to the shares for which its related Option is then exercisable. SARs
permit the Participant to receive in cash or shares of Class B Common Stock (or
a combination of both) an amount equal to the excess of the fair market value of
a share of Class B
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Common Stock on the date the SAR is exercised over the exercise price for the
SAR times the number of shares of Class B Common Stock with respect to which
such SAR is exercised.
The term of SARs granted under the 1996 Incentive Compensation Plan will
equal the term of the related option. The exercise price of a Tandem SAR will
equal the exercise price of the related Option.
Restricted Stock. The Committee may grant Restricted Stock, which may or
may not be performance based, to eligible employees in such amounts as the
Committee determines. At the time of each award of Restricted Stock the
Committee may establish a restricted period (the "Restricted Period") during
which such stock may not be sold, transferred, pledged, assigned or otherwise
alienated. Generally, if a 1996 Incentive Compensation Plan Participant
terminates his employment or is involuntarily terminated for cause during the
Restricted Period, all Restricted Stock held by such 1996 Incentive Compensation
Plan Participant will be forfeited. If a 1996 Incentive Compensation Plan
Participant retires or is involuntarily terminated other than for cause, the
Committee may waive all or part of any remaining restrictions on such 1996
Incentive Compensation Plan Participant's Restricted Stock. After the Restricted
Period has expired, the related Restricted Stock is freely transferable.
The Committee has discretion to determine whether holders of Restricted
Stock will be entitled to dividends or other distributions thereon. If any such
dividends or distributions are in shares of Class B Common Stock, such shares
will be subject to the same restrictions as the related Restricted Stock. In the
event the holder of Restricted Stock on which dividends or distributions are
made is subject to Section 16 of the Exchange Act, the vesting period for such
dividend or distribution will be the longer of (i) the remaining vesting period
on the related Restricted Stock and (ii) six months.
Performance Awards. The Committee may from time to time grant Performance
Awards, which, as determined by the Committee, may include, without limitation,
cash, Class B Common Stock, performance units or any combination thereof. The
Committee will set the performance goals and restrictions applicable to each
Performance Award, including establishing the applicable performance period and
the value of the Performance Award. After the applicable performance period has
ended, the holder of a Performance Award will be entitled to receive the payout
(in cash or Common Stock or both) earned to the extent to which the
corresponding performance goals were satisfied.
Awards under the 1996 Incentive Compensation Plan are nontransferable other
than by will or laws of descent and distribution, or as expressly provided in
the option agreement, and may be exercised only by the Participant or his
guardian or legal representative or a permitted transferee.
Change in Control. In the event of a Change in Control (as defined in the
1996 Incentive Compensation Plan), (i) any Option or SAR that is not then
exercisable and vested will become fully exercisable and vested, (ii) the
restrictions on any Restricted Stock will lapse and (iii) all Performance Awards
will be deemed earned.
During the 60-day period following a Change in Control, any 1996 Incentive
Compensation Plan Participant will have the right to surrender all or part of
any Option held by such Participant, in lieu of payment of the exercise price,
and to receive cash in an amount equal to the Spread as defined in the 1996
Incentive Compensation Plan multiplied by the number of shares of Class B Common
Stock granted in connection with the exercise of such Option; provided that such
Change in Control transaction would not thereby be made ineligible for pooling
of interests accounting; and provided, further, that, if the Change in Control
is within six months of the grant date for any such Option held by a 1996
Incentive Compensation Plan Participant subject to Section 16(b) of the Exchange
Act, such optionee shall have until the date which is six months and one day
after the grant of such Option to exercise such election; and provided, further,
that, if the Option is an "incentive stock option" under Section 422 of the
Code, the Change in Control Price will equal the fair market value of a share of
the Class B Common Stock on the date, if any, that such Option is cancelled.
Amendments. The Board of Directors may at any time terminate, amend, or
modify the 1996 Incentive Compensation Plan; provided that, to the extent
required by law, no such amendment will be made without the approval of the
Company's stockholders.
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RESALE OF SHARES
The registration requirements of any applicable federal and state
securities laws and resale restrictions of Rule 144 under the Securities Act may
restrict the sale of shares of Class B Common Stock acquired under the 1995
Plan, the 1996 Employee Plan, the 1996 Director Plan or the 1996 Incentive
Compensation Plan. Furthermore, shares of Class B Common Stock acquired under
the 1995 Plan, the 1996 Employee Plan, the 1996 Director Plan or the 1996
Incentive Compensation Plan may at the discretion of the Committee be subject to
certain restrictions on resale, including the restriction that Participants may
not resell shares acquired upon exercise of the Options during such lock-up
period as may be agreed to by the Company and the Underwriters.
THE DIRECTOR STOCK COMPENSATION PLAN
The Company has adopted the Pocket Director Stock Compensation Plan (the
"Director Stock Plan"). The purposes of the Director Stock Plan are to (i)
promote a greater identity of interest between the Company's non-employee
directors and its stockholders and (ii) attract and retain qualified individuals
to serve as directors of the Company.
General. The Director Stock Plan will be administered by the Company Board
or a committee of the Company Board designated for such purpose.
Pursuant to the terms of the Director Stock Plan, non-employee directors of
the Company other than those elected or appointed pursuant to a contractual
right to nominate or appoint directors will be eligible to participate in the
Director Stock Plan following the Offering provided he or she was not an
employee of the Company for any part of the fiscal year preceding such
participation (each, an "Eligible Director"). A total of 390,000 shares of Class
B Common Stock will be reserved for issuance and available for grants under the
Director Stock Plan; provided, however, that from time to time the number of
shares of Class B Common Stock available for grants under the Director Stock
Plan may be reduced based on the number of shares of Class B Common Stock
subject to outstanding options and other awards under certain of the Company's
other equity compensation plans (as specified in the Director Stock Plan). To
date, no shares of Class B Common Stock have been issued under the Director
Stock Plan.
In the event of any change in corporate capitalization (such as a stock
split) or a corporate transaction (such as a merger, consolidation, separation
including a spin-off or other distribution of stock or property of the Company,
any reorganization or any complete liquidation of the Company), the Board of
Directors or the designated committee may make such substitution or adjustments
in the aggregate number and class of shares reserved for issuance under the
Director Stock Plan, in the number, kind and option price of shares subject to
outstanding Awards granted under the Director Stock Plan, and/or such other
equitable substitution or adjustments as it may determine to be appropriate in
its sole discretion; provided, however, that the number of shares subject to any
Award must always be a whole number.
Class B Common Stock in Lieu of Cash Retainer. Prior to the first day of
each fiscal year of the Company, each Eligible Director may elect to receive
shares of Class B Common Stock in lieu of all or a part of the annual retainer
that would otherwise be payable to him or her in cash during each quarter of
such fiscal year. For each such quarter, each Eligible Director so electing will
then receive that number of whole shares of Class B Common Stock that may be
purchased with the amount of fees so elected for that quarter at the fair market
value (as defined in the Director Plan) as of the last trading day of such
quarter, and any fractional shares shall be paid in cash. Notwithstanding an
Eligible Director's election, the Committee may determine to pay an Eligible
Director's fees in cash if such the Committee, in its discretion, determines
that such action is necessary or appropriate for the Company's compliance with
the Communication Act of 1934, as amended.
Options. On the first Tuesday following his or her initial election to the
Board of Directors and thereafter on the day after each annual meeting of
stockholders during such director's term, each Eligible Director shall be
granted options ("Director Options") to purchase shares of Class B Common Stock.
The exercise price for the Director Options will be 100% of the fair market
value of Class B Common Stock on the date of the grant of such option. The
number of shares subject to each such Director Option shall be equal to
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twice the average compensation (excluding options) paid to non-employee
directors of the Company during the previous 12-month period divided by the fair
market value (as defined in the Director Stock Plan) of a share of Class B
Common Stock at the date of grant, rounded to the nearest 100 shares. Any
Eligible Director who is elected or appointed other than at an annual meeting of
stockholders shall receive a pro rata percentage of the Director Options to
which he or she would otherwise be entitled, based on his or her number of
months on the Board since the last annual stockholders meeting. Each Director
Options will be vested and exercisable immediately; provided, however, that the
Board of Directors or the Committee may establish performance criteria and
subject shares of Class B Common Stock issued or Director Options issued
pursuant to the Director Stock Plan to restrictions intended to ensure that such
performance criteria are achieved before an Eligible Director receives the
benefit thereof. All Director Options become fully vested and exercisable upon a
Change in Control (as defined in the Director Stock Plan).
Transferability. No Director Option will be transferable by the optionee
other than by will or by laws of descent and distribution or as otherwise
expressly permitted under the applicable option agreement. All Director Options
will be exercisable, subject to the terms of this Plan, only by the optionee,
the guardian or legal representative of the optionee or a permitted transferee.
Amendments. The Director Stock Plan may be amended by the Company Board;
provided that, to the extent required to qualify transactions under the Director
Stock Plan for exemption under Rule 16b-3 promulgated under the Exchange Act, no
amendment to the Director Stock Plan may be adopted without further approval by
the holders of at least a majority of the shares of voting stock present, or
represented, and entitled to vote at a meeting held for such purpose; and
provided, further, that, if and to the extent required for the Director Stock
Plan to comply with Rule 16b-3, no amendment to the Director Stock Plan shall be
made more than once in any six-month period that would change the amount, price
or timing of the grants of awards or Options thereunder other than to comply
with changes in the Code, ERISA, or the regulations thereunder.
Termination. The Director Stock Plan may be terminated at any time by
either the Company Board or by holders of a majority of the shares of the
Company's Voting Stock present and entitled to vote at a duly convened meeting
of stockholders.
Change in Control. In the event of a Change in Control (as defined in the
Director Stock Plan), any outstanding Director Option that is not then
exercisable and vested will become fully exercisable and vested. During the
60-day period following a Change in Control, any Eligible Director will have the
right, whether or not the option is fully exercisable to surrender all or part
of any Director Option or award of Class B Common Stock held by such Eligible
Director, and, in the case of a Director Option, in lieu of payment of the
exercise price, to receive cash in an amount equal to the Spread multiplied by
the number of shares of Class B Common Stock subject to such Option so
surrendered, or, in the case of an award of Class B Common Stock, to receive
cash in an amount equal to the Change in Control Price multiplied by the number
of shares of Class B Common Stock so surrendered; provided, that if the Change
in Control is within six months of the grant date of any such Director Option
held by a Director Stock Plan Participant subject to Section 16(b) of the
Exchange Act, such optionee shall have until the date which is six months and
one day after the grant of such Director Option to exercise such election; and
provided further, that, if any right granted pursuant to this provision would
make a Change in Control transaction ineligible for pooling-of-interests
accounting that but for the nature of such right would otherwise be eligible for
such accounting treatment, the Company Board shall have the ability to
substitute for the cash payable pursuant to such right Class B Common Stock with
a fair market value equal to the cash that would otherwise be payable hereunder.
Resale of Shares. The holders of shares of Class B Common Stock received
upon the exercise of an Option must comply with the resale requirements of the
Securities Act and the rules and regulations promulgated thereunder. Securities
registration requirements under the Securities Act may be applicable to resales
by any Eligible Director. The restrictions imposed by Section 16 of the Exchange
Act upon any Eligible Director and the registration requirements of any
applicable state securities laws may restrict the resales of shares acquired
pursuant to the exercise of Options by an Eligible Director.
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<PAGE> 66
EMPLOYEE STOCK PURCHASE PLAN
The Board intends to adopt the 1997 Employee Stock Purchase Plan (the
"Purchase Plan") immediately prior to the consummation of the Offering. The
Purchase Plan is intended to encourage and facilitate the voluntary purchase of
Class B Common Stock of the Company by employees pursuant to payroll deductions
and to provide them with a personal stake in the Company and a long range
inducement to remain in the employ of the Company. The Purchase Plan is intended
to be an "employee stock purchase plan" within the meaning of Section 423 of the
Code.
The Purchase Plan will permit the purchase of up to 400,000 authorized but
unissued shares of Class B Common Stock subject to adjustment to reflect events
such as stock dividends, stock splits, recapitalizations, mergers or
reorganizations of or by the Company.
The Purchase Plan will be administered by a committee of officers or
employees of the Company appointed by the Board ("Purchase Plan Committee"). The
Purchase Plan Committee is authorized to interpret the Purchase Plan and to make
and adopt rules and regulations not inconsistent with the provisions of the
Purchase Plan. Purchase Plan Committee members may participate in the Purchase
Plan.
The Board without stockholder approval may amend the Purchase Plan at any
time, except that stockholder approval is required to increase the number of
shares reserved under the Purchase Plan, or change the designation of employers
whose employees may be offered purchase rights under the Plan to include an
entity which is not a Subsidiary, as defined in the Plan. Unless sooner
terminated by the Board, the Purchase Plan will terminate in December 2001 or
when all Class B Common Stock subject to the Purchase Plan has been purchased by
employees, whichever shall occur first.
Participation in the Purchase Plan is voluntary. All employees of the
Company and its corporate subsidiaries are eligible to participate in an
offering under the Purchase Plan. The number of shares that a participant may
purchase in any calendar year under the Purchase Plan is limited to that number
of shares having a fair market value (determined at the commencement of the
offering period) of $25,000. The minimum percentage payroll deduction required
for participation in the Purchase Plan is 1%. Rights under the Purchase Plan are
nontransferable otherwise than by will or the laws of descent and distribution.
Except for the first offering under the Purchase Plan ("Initial Offering"),
offerings under the Purchase Plan normally will be made on January 1 and July 1
each year. The Initial Offering will be made shortly after consummation of the
Offering.
An offering affords each eligible employee an opportunity to purchase
shares of Class B Common Stock at a 15% discount from fair market value as
determined in accordance with the terms of the Purchase Plan. Under the Maryland
General Corporation Law, the Company may not issue shares at a price less than
the par value of a share of Class B Common Stock. Purchases under the Purchase
Plan are made by means of payroll deductions, generally over a six-month
offering period. The amount deducted must be a minimum of $5.00 per pay period,
and is credited to a Purchase Plan account established in such employee's name.
For a participating employee, the amount in his or her account on the last day
of the offering period is applied, without interest, to the purchase of that
number of whole shares of Common Stock that such amount will purchase at the
lower price of
(i) 85% of the fair market value of a share of Class B Common Stock on
the first day of the offering period, i.e., generally January 1 or July 1;
or
(ii) 85% of the fair market value of a share of Class B Common Stock
on the last day of the offering period, i.e., the June 30 or December 31
next following the beginning of the offering period.
In the case of the Initial Offering, the amount determined under (i) above
will be 85% of the Offering Price.
An employee may withdraw from an offering at any time prior to the last day
of the offering period and all accumulated payroll deductions will be refunded.
No interest will be paid on the amount withdrawn from the Purchase Plan. An
employee cannot discontinue payroll deductions without the withdrawal of all
payroll
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<PAGE> 67
deductions previously made during that particular offering period and the
termination of his or her participation in that offering.
A participant will not recognize income at the time of the grant of a
purchase right under the Purchase Plan (that is, on the date of offering). Nor
will a participant recognize income on the exercise of such a purchase right
(that is, on the date of purchase), provided that at no time during the period
beginning with the date of the granting of the purchase right and ending on the
date three months before the date of exercise of such purchase right, the
participant ceased to be an employee of the Company for any reason other than
death ("employment requirement"). Under these circumstances, no deduction will
be allowable to the Company in connection with either the grant of a purchase
right or the issuance of shares upon exercise thereof.
If a participant who satisfies the employment requirement disposes of
shares acquired upon exercise of an option two years or more after the time of
the grant of the purchase right (including a disposition at death), the
participant generally will recognize ordinary income at that time equal to the
lesser of (i) the fair market value of the shares at the time of the disposition
over the amount paid for the shares, or (ii) 15% of the fair market value of the
shares at the time the purchase right was granted. If a participant who
satisfies the employment requirement disposes of shares acquired upon exercise
of a purchase right within two years after the time of the grant of the purchase
right or one year after the purchase of the shares, the participant generally
will recognize ordinary income at the time of the disposition equal to the
excess of the fair market value of the shares at the time of exercise over the
purchase price. Any such ordinary income recognized by a participant will be
added to the participant's basis in the shares. If a disposition described in
this paragraph occurs in a taxable transaction, any gain in excess of ordinary
income recognized on the disposition will be capital gain, and any loss will be
capital loss.
If a participant fails for any reason other than the participant's death or
certain temporary leaves of absence to meet the employment requirements, then,
upon the receipt of shares upon such exercise, the participant generally will
recognize ordinary income.
If a participant recognizes ordinary income as a result of either an
exercise of a purchase right or a disposition of shares, then the Company will
be entitled to a deduction in the same amount, provided the Company satisfies
any applicable federal income tax withholding requirements.
The rules governing employee stock purchase plans are quite technical, so
that the above description of tax consequences is general in nature and does not
purport to be complete. Moreover, statutory provisions are subject to change, as
are their interpretations, and their application may vary in individual
circumstances. Finally, the consequences under applicable state and local income
tax laws may not be the same as under the federal income tax laws.
Control Group Stock Option Plan
The Company has adopted the Control Group Stock Option Plan (the "Control
Group Plan") to assure compliance with certain equity requirements in order to
maintain its Designated Entity Status for so long as required under FCC
Regulations to retain the FCC licenses. Under the Control Group Plan, options
will be issued to Control Members and Qualifying Investors of the Control Group
in order to maintain the Control Group equity requirements. Until the Company is
no longer relying on the 50.1% equity test provided for pursuant to 47 Code of
Federal Regulations 24.709(b) or any successor provision thereof (the "Control
Group 50.1% Equity Test"), options issued pursuant to the Control Group Plan
shall be exercisable for Class A Common Stock. After the Company is no longer
relying on the Control Group 50.1% Equity Test, options issued pursuant to the
Control Group Plan shall be exercisable for Class B Common Stock.
During the first three years after the FCC license grant date, to the
extent permitted under the FCC regulations (i.e. not to exceed 40% of the
Control Group equity), options issued under the Control Group Plan will have an
exercise price equal to 90% of the fair market value of the underlying Common
Stock at the time of the exercise (the "Variable Options"). At any time that 40%
or more of Control Group equity is comprised of Variable Options and at any time
after the third anniversary of the license grant date, the options granted under
the Control Group Plan will have an exercise price equal to the fair market
value of the underlying
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<PAGE> 68
Common Stock at the time of grant (the "Fixed Options" and, together with the
Variable Options, the "Control Group Options").
Control Group Options exercisable for Class A Common Stock expire when the
Control Group determines that it is no longer necessary or appropriate for the
Company to rely on the Control Group 50.1% Equity Test. All other Control Group
Options will expire upon a determination that the Options are no longer required
to maintain the Company's Designated Entity status.
In the event that income tax is assessed to Control Group Members on the
grant of Control Group Options, the Company has agreed to loan such Control
Group Members amounts equal to the aggregate income tax liability assessed (i)
on the grant and (ii) in connection with such loan. Loans to Control Group
Members for the payment of any tax liability will be without recourse to such
Control Group Members and will be secured by the Common Stock underlying such
Control Group Options. Such loans will be evidenced by a non-recourse promissory
note that will accrue interest at the Wall Street Journal prime rate, adjusted
annually, and shall mature on the earlier to occur of (i) the sale by the
Control Group Member of the shares of Common Stock received by the Control Group
Member upon exercise of its Control Group Options, and (ii) December 31, 2006.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Teleconsult, a stockholder and a member of the Control Group of the
Company, provided the Company with professional services and office space and
services worth approximately $167,000 in 1995 in exchange for shares of Class A
Common Stock. Eduardo Paz, a director of the Company, is also the President and
sole director of Teleconsult. See "Certain Transactions."
C.E. Capital Consultants, Inc. ("C.E. Capital") has provided certain
financial consulting services to the Company through January 1996, for which the
Company has paid $250,000 in 1995 and $1,543,000 in 1996. In addition, for such
services, the Company issued to C.E. Capital 150,000 shares of Class B Common
Stock and warrants to purchase 150,000 shares of Class B Common Stock. The
shares issued and the Warrants were recorded at the fair value of the
professional services, which the Company estimated at $123,000. See "Certain
Transactions." MASA, which is 100% owned by Mr. Sasaki, owns less than 1% of and
was a subcontractor to C.E. Capital. As a subcontractor to C.E. Capital, MASA
had an agreement to share consulting fees, which fees include the value of the
equity securities of the Company, that C.E. Capital receives from the Company.
MTI received a $200,000 escrow fee for acting as the escrow agent with
respect to the MTAI Agreement (as defined herein) and Pacific Eagle Agreement
(as defined herein). In addition, the Company has agreed to pay MTI a $5 million
finder's fee for its efforts in obtaining financing for the Company. Mr. Sasaki,
a director of the Company, is also president of MTI. Mr. Sasaki owns 100% of
MASA, which owns 51% of the voting stock of MT Holdings, Inc., which in turn
owns all of the voting stock of MTI.
Pursuant to certain agreements entered into with Westinghouse in 1995, on
December 3, 1996 the Company repurchased the 1,800,729 shares of Class B Common
Stock held by Westinghouse for a total repurchase price of $1.5 million, which
is equal to the price for which such shares were originally issued.
The Company has retained Wills and Associates, Inc. ("Wills") to provide
public relations services to the Company. George S. Wills, a director of the
Company, is the president of Wills. In fiscal year 1995, the Company paid to
Wills a total of $104,679. Under an agreement with Wills, dated as of December
1, 1995, the Company agreed to pay a monthly retainer of $20,000, $5,000 of
which was deferred for the months during which the C Block auction was ongoing.
Such monthly $5,000 portions are still being deferred. As of September 30, 1996,
the Company has paid $104,000 to Wills for professional services including
services under this agreement.
In addition, the Company retained the services of the law firm Levan,
Schimel, Belman & Abramson, P.A. ("Levan, Schimel") and continues to retain the
services of its successor firm Miles & Stockbridge, P.C. of which Ronald S.
Schimel, a director of the Company, is a principal. In fiscal year 1995, the
Company
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<PAGE> 69
paid Levan, Schimel a total of approximately $389,000. From the beginning of
fiscal year 1996 to September 30, 1996, the Company has paid approximately
$234,000 for services rendered.
In April 1996, Carlos Pichardo borrowed and executed a promissory note for
the benefit of the Company in the original principal amount of $32,600, plus
interest at 6% per annum. Mr. Pichardo is an officer of the Company and holds a
minority equity interest in Teleconsult. The entire principal balance of this
promissory note, together with all accrued and unpaid interest, will be payable
on the first anniversary of the date of its execution. The note may be
immediately due and payable upon default or the termination of employment with
the Company. Upon default, the Company has the right to withhold or deduct an
amount equal to the amount due and payable under the note from any wages due to
Mr. Pichardo from the Company. As of November 30, 1996, all such amounts remain
outstanding.
CERTAIN TRANSACTIONS
The following description of certain transactions relating to the
capitalization of the Company to date reflects adjustments for stock
reclassifications and stock splits pursuant to the Recapitalization as well as
prior events. As of September 30, 1996, Mr. Riker owns 4,670,000 shares of Class
A Common Stock; Ms. Riker owns 5,730,000 shares of Class A Common Stock and Mr.
Anderson owns 1,060,240 shares of Class B Common Stock.
In 1994, the Company issued to Teleconsult 9,300,000 shares of Class A
Common Stock for approximately $1.2 million in cash and services. Eduardo Paz, a
director of the Company, is also the President and sole director of Teleconsult.
In addition, Teleconsult has agreed to grant to Ms. Riker an irrevocable proxy
with respect to up to 9% of the outstanding shares of Common Stock held by
Teleconsult. The proxy expires 10 years from the License Grant Date unless
terminated earlier by mutual consent of Ms. Riker and Teleconsult, or unless it
is no longer required for purposes of helping to satisfy FCC Control Group
requirements. The purchase agreements entered into by and between the Company
and Teleconsult include representations by Teleconsult regarding the status of
Teleconsult as a Qualifying Investor and covenants by Teleconsult that it will
not, without the prior written consent of the Company, assign or transfer
control of any ownership interest of Teleconsult to any person or entity unless,
following such assignment or transfer, Teleconsult will continue to be a
Qualifying Investor and that any interest currently owned by Teleconsult shall
continue to be owned by a Qualifying Investor. In addition, such agreements
provide the Company with the right to repurchase shares of Class A Common Stock
of the Company owned by Teleconsult in the event that Teleconsult fails to
maintain its status as a Qualifying Investor or otherwise causes the Company to
lose its Designated Entity Status.
In 1995, MTI acquired 6,000,000 shares of Class B Common Stock at $0.83 a
share. In June of 1996, MTI sold these shares to MTI BVI, Inc., a British Virgin
Islands corporation, which has identical ownership as MTI. See "Management --
Certain Relationships and Related Transactions."
In 1995, the Company entered into certain loan agreements with each of Masa
Telecom Asia Investment Pte. Ltd., a Republic of Singapore corporation ("MTAI")
and Pacific Eagle Investments Ltd., a British Virgin Islands corporation
("Pacific Eagle"), which may be deemed affiliates of MTI. These loan agreements
provided for the Company to borrow up to an aggregate of $65.0 million. The
majority of such borrowings have been used for the down payment of the PCS
licenses. These loans are convertible, no sooner than 15 days following a public
offering or a private placement sale of securities with gross proceeds of at
least $172.5 million, subject to compliance with FCC regulations and certain
other conditions, into convertible debentures which are convertible into shares
of Class B Common Stock. In addition, in 1995, the Company entered into a
purchase agreement with Multinational Technology and Business Limited, a
Republic of Hong Kong corporation ("MTB") for the purchase by MTB of convertible
debentures for $833,000. The debentures are convertible into 1,000,000 shares of
Class B Common Stock, subject to compliance with FCC regulations and certain
other conditions. In 1995, MTB assigned its rights under the MTB Agreement and
its convertible debentures to Pacific Eagle. See "Description of Certain
Indebtedness."
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<PAGE> 70
MTB has also entered into an agreement pursuant to which it has the right
to acquire options or warrants for nonvoting common stock of Teleconsult in
connection with a three-year term loan to Teleconsult. MTB's right to acquire
such interest is conditioned upon, among other things, such acquisition not
resulting in the violation by the Company of the FCC's foreign ownership
restrictions.
The members of the Control Group have entered into the Control Group
Agreement which provides for, among other things, (i) certain rights to convert
shares of Class A Common Stock into shares of Class B Common Stock; (ii) certain
restrictions on the right to transfer stock held by Control Group members; (iii)
the right of first refusal of the Company and non-selling Control Group members
for shares which a Control Group member desires to sell; (iv) the repurchase by
the Company of shares of Common Stock upon the occurrence of certain "repurchase
events"; and (v) a covenant by each Control Group member not to take any action
that would jeopardize the Company's compliance with applicable FCC regulations.
The Company arranged with certain affiliated entities, including Pacific
Eagle and MTI, for short-term borrowings of approximately $41.7 million the
proceeds of which were used to meet a portion of the second half of the
Downpayment and associated fees. Such borrowings are anticipated to be repaid in
whole or in part from the proceeds of this Offering. In connection with this
financing, the Company has also issued a note with a principal amount of $8.0
million and 1,000,000 non-detachable warrants to purchase Class B Common Stock
at an exercise price of $8.00 per share, subject to FCC requirements.
The Company has arranged with certain affiliated entities, including Masa
Telecom, Inc., for short-term borrowings of approximately $3.2 million to meet
working capital requirements. Certain of these borrowings are anticipated to be
repaid in whole or in part from the proceeds of the Offering. In connection with
this financing, the Company has issued a note with a principal amount of
$240,000 and 30,000 non-detachable warrants to purchase Class B Common Stock at
an exercise price of $8.00 per share, subject to FCC requirements.
REGISTRATION RIGHTS
The Company implemented a registration rights program (the "Registration
Rights Program") to provide certain of its stockholders with piggyback and
demand registration rights with respect to their shares of Common Stock.
Participants in the Registration Rights Program consist of three tiers: tier 1
participants include certain founding and strategic stockholders identified in
the Registration Rights Program ("Tier 1 participants"); tier 2 participants
include Nortel, Ericsson and Siemens ("Tier 2 participants"); and tier 3
participants include the Control Group members ("Tier 3 participants"). The
Registration Rights Program provides that for the first year after the Offering,
Tier 1 participants will have piggyback registration rights; for the six months
thereafter, Tier 1 and Tier 3 participants will have piggyback registration
rights; and thereafter, Tier 1, Tier 2 and Tier 3 participants will have
piggyback registration rights, in each case, subject to certain lockups,
holdbacks and other customary provisions to be applied on a pro rata basis when
applied. There is no time limit on the period during which a participant may
exercise its piggyback registration rights.
The Registration Rights Program also provides the Tier 1, Tier 2 and Tier 3
participants demand registration rights. At the time of the Offering, a
determination will be made of the number of unregistered shares of Class B
Common Stock owned by Tier 1 and Tier 2, the number of shares of Class B Common
Stock that the Tier 1 and Tier 2 participants will have the right to acquire
during the next five years pursuant to options, warrants, conversion rights and
other contractual rights in existence at the Offering and the Tier 3
participants shares eligible for sale during the first three years following the
Offering (such shares are collectively the "Share Pool"). Tier 1, Tier 2 and
Tier 3 participants holding at least 10% of the Share Pool may give notice of a
demand for registration any time 18 months after the Offering, subject to
certain restrictions. To be considered by the Company, all demands must have an
aggregate number of shares (including shares from any piggyback registration)
not less than 15% of the Share Pool and an aggregate market value of at least
$10.0 million. The Share Pool will increase with the corresponding increase in
the number of shares that, over time, the Tier 3 participants can sell, in
compliance with the FCC ownership requirements. The demand registration rights
are also subject to certain holdbacks, cutbacks and other customary provisions
to be applied on a pro rata basis when applied.
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<PAGE> 71
The Tier 1 and Tier 2 demand registration rights expire on the first to
occur of (i) five years from the closing of the Offering and (ii) Tier 1 and
Tier 2 participants owning a number of shares of Class B Common Stock that is
less than 20% of the shares of Class B Common Stock and rights to acquire such
stock that were included in the Share Pool. The Tier 3 demand registration
rights will expire five years from the date of expiration of the Tier 1 and Tier
2 demand registration rights. See "Shares Eligible For Future Sale."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Class A Common Stock and Class B Common Stock as of December
20, 1996, after giving effect to the Recapitalization, (i) immediately prior to
and conditioned upon the Offering, and subject to any necessary FCC approvals,
and (ii) as adjusted to reflect the sale of shares of Class B Common Stock in
the Offering (assuming the Underwriters' over-allotment option is not
exercised), by (a) each person who is known by the Company to own beneficially
more than 5% of either the Class A Common Stock or the Class B Common Stock; (b)
each of the Company's directors; (c) each of the Named Executive Officers; and
(d) all current Executive Officers and directors as a group. Unless otherwise
indicated, each person has sole voting power and investment power with respect
to the shares attributed to them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
----------------------------------------------------------------------------------------------------------------
NAME AND PRIOR TO OFFERING AFTER OFFERING
ADDRESS OF ----------------------------------------------- --------------------------------------------------------------
BENEFICIAL NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF % OF TOTAL
OWNER(2) A SHARES A SHARES B SHARES B SHARES A SHARES A SHARES B SHARES B SHARES VOTING POWER
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel C.
Riker(3)..... % % % % %
Janis A.
Riker(4).....
Teleconsult,
Incorporated(5)...
2715 M
Street, NW
Suite 100
Washington,
DC 20007
MTI BVI,
Inc.(6)......
P.O. Box
3944, Road
Town
Tortola,
British
Virgin
Islands
Booz-Allen &
Hamilton,
Inc. ........
101 Park
Avenue
New York, New
York 10178
Dr. Dong-Hoon
Choi.........
14th Shouson
Hill Road
West
Hong Kong,
Hong Kong
C.E. Capital
Consultants,
Inc. ........
704 South
Pitt Street
Alexandria,
VA 22314
Thomas L.
Leming.......
J. Herbert
Nunnally.....
Eduardo
Paz(7).......
Brion
Sasaki(8)....
Ronald S.
Schimel......
George S.
Wills........
Randall S.
Anderson(9)...
Barry C.
Winkle(10)...
Carlos A.
Pichardo(11)...
All Officers
and Directors
as a Group
(15
individuals)(12)...
</TABLE>
- ---------------
* Less than 1%.
(1) Under the rules of the Commission, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which
includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be the beneficial
owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules, more than one
person may be deemed to be a beneficial owner of the same securities and a
person may be deemed to be a beneficial owner of securities as to which
that person has no beneficial interest.
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<PAGE> 72
(2) Unless otherwise indicated, the address of the beneficial owner is c/o
Pocket Communications, Inc., 2550 M St., N.W., Washington, D.C. 20037.
(3) Excludes 5,730,000 shares of Class A Common Stock held by Ms. Riker, of
which beneficial ownership is disclaimed.
(4) Excludes 4,670,000 shares of Class A Common Stock held by Mr. Riker, of
which beneficial ownership is disclaimed. Ms. Riker may be deemed to be the
owner of up to 837,000 shares of Class A Common Stock held by Teleconsult
over which she may have sole voting control pursuant to an Agreement to
Execute Irrevocable Proxy, dated as of May 14, 1996, by and between Ms.
Riker and Teleconsult (the "Teleconsult Voting Agreement").
(5) Includes 837,000 shares held by Teleconsult over which Ms. Riker may have
sole voting control pursuant to the Teleconsult Voting Agreement.
(6) Includes shares issuable upon any conversion of the term loans
held by Pacific Eagle, which may be deemed to be an affiliate of MTI BVI,
Inc., subject to compliance with FCC requirements, but does not include
shares held by Mr. Sasaki.
(7) Mr. Paz may be deemed to be the owner of the 9,300,000 shares of Class A
Common Stock held by Teleconsult as he is President, sole director and
majority owner of Teleconsult. This number includes 837,000 shares held by
Teleconsult over which Ms. Riker may have sole voting control pursuant to
the Teleconsult Voting Agreement.
(8) Includes 6,000,000 shares, held by MTI BVI, Inc., of which Mr. Sasaki may
be deemed to be the owner because he owns 100% of MASA, which owns 51% of
the voting stock of MT Holdings, Inc., which, in turn, owns all of the
voting stock of MTI BVI, Inc. Mr. Sasaki is also president of MTI BVI, Inc.
Includes 75,000 shares and warrants to purchase 75,000 shares of Class B
Common Stock held by C.E. Capital.
(9) Does not include unvested options to purchase shares of Class B
Common Stock.
(10) Does not include unvested options to purchase shares of Class B
Common Stock.
(11) Does not include unvested options to purchase shares of Class B
Common Stock.
(12) Does not include unvested options to purchase shares of Class B
Common Stock.
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<PAGE> 73
DESCRIPTION OF CERTAIN INDEBTEDNESS
For presentation purposes, the Company has categorized its certain
indebtedness into four categories: Vendor Financing; Senior Discount Notes;
Government Financing for FCC Licenses; and Convertible Loans and Convertible
Debenture Series.
VENDOR FINANCING
Ericsson Agreements
In November 1995, the Company entered into a loan agreement with Ericsson
pursuant to which the Company received $2.0 million for working capital purposes
(the "Working Capital Loan"). Borrowings under the Working Capital Loan accrue
interest at a rate of 11% per annum compounded quarterly with interest and
principal due on the earlier of (i) January 30, 1997, and (ii) the date upon
which the Company enters into another loan facility with Ericsson that permits
the proceeds thereof to be used for working capital purposes.
In May 1996, the Company entered into a second loan agreement (the "1996
Ericsson Loan") with Ericsson pursuant to which the Company may potentially draw
up to $23.0 million, which is divided into two parts as follows:
(i) An advance of up to $20.0 million to be used for general corporate
purposes, which bears interest at the prime rate plus 3% per annum to be
determined quarterly. In May 1996, the Company borrowed $15.0 million under
the 1996 Ericsson Loan. In November 1996, the Company borrowed the balance
of $5.0 million.
(ii) An advance of up to $3.0 million for deferred interest costs
incurred on the 1996 Ericsson Loan.
All amounts financed under the 1996 Ericsson Loan mature on the earlier of
(i) May 13, 1997 and (ii) the date on which the Company enters into another
credit facility with Ericsson that permits the proceeds thereof to be used to
repay the 1996 Ericsson Loan. The 1996 Ericsson Loan was not a loan facility
triggering repayment of the Working Capital Loan.
The Working Capital Loan and the 1996 Ericsson Loan contain certain
financial and non-financial covenants. These covenants impose restrictions and
limitations on transactions by the Company other than in the ordinary course of
its business, including, among others, (i) restrictions on the use of proceeds
from the Working Capital Loan and the 1996 Ericsson Loan (ii) compliance with
the Company's prior commitment to use GSM technology in each BTA located in the
continental United States and in Hawaii for which it or a subsidiary purchased a
license in the C Block auction and (iii) the commitment to use Ericsson
equipment and related services in certain BTAs, including those in which
Ericsson or its affiliates will be providing vendor financing.
In connection with the Equipment Acquisition Agreement for the supply by
Ericsson to the Company of PCS equipment and services, the Company and Ericsson
entered into a credit agreement in December 1996 pursuant to which Ericsson will
provide up to $422 million of vendor financing (the "Credit Agreement"). The
funds available under the Credit Agreement may be drawn upon by a subsidiary of
the Company that will be the holding company for indirect subsidiaries of the
Company to be formed in each of the Honolulu, Chicago and Dallas markets for the
buildout and operation of the Company's PCS network in such markets. A portion
of the available funds may be used for related third-party costs.
Advances under the Credit Agreement will bear interest at a rate of prime
plus 3% per annum. At the Company's option, advances may be converted into
Eurodollar loans, bearing interest at a rate of LIBOR plus 5.75%. The Credit
Agreement makes funds available to the Company for a period of four years,
subject to the Company's satisfaction of certain equity and borrowing base
requirements. In particular, before borrowings are available under the Credit
Agreement, the Company's operating subsidiaries must receive certain minimum
capital contributions. The Company expects to satisfy a portion of such minimal
capital contributions through the Offerings.
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The principal amount due on advances made under the Credit Agreement is
repayable in quarterly installments during calendar years 2001 through 2004,
with the amount of the installments ranging from 3.75% of the then-outstanding
principal amount of the advances in 2001 to 8.75% in 2004. Accrued interest will
be payable quarterly or, in the case of Eurodollar loans, at the end of interest
periods (as defined in the Credit Agreement).
As additional consideration to Ericsson for its provision of up to $422
million of vendor financing, Ericsson has the right to receive warrants to
purchase shares of the Company's Class B Common Stock, subject to compliance
with FCC requirements only to the extent of draws made under the Credit
Agreement. The warrants can be exercised at an exercise price equal to $8.00 per
share. Any such warrants issued shall not be exercisable until December 31,
1998.
Advances under the Ericsson Credit Agreement will be secured by a security
interest in all of the assets of the Company's operating subsidiaries that will
be developing and operating the PCS Network in the Honolulu, Chicago and Dallas
markets, and by a pledge of all the stock of the license-holding subsidiaries to
which the licenses for each of the markets will be assigned. In addition, the
Company provided a guaranty of the repayment obligations of its operating
subsidiaries under the Credit Agreement.
Nortel Agreement
In July 1995, the Company and Nortel entered into a project and supply
agreement (the "Nortel Project and Supply Agreement") pursuant to which Nortel
agreed to provide PCS equipment and services. The Company and Nortel entered
into a loan agreement in November 1996 (the "Nortel Agreement") pursuant to
which Nortel agreed to provide up to $59 million of vendor financing in
connection with the buildout of the Las Vegas market. The funds available under
the Nortel Agreement may be drawn upon by DCR Pacific PCS Limited Partnership, a
majority-owned subsidiary of the Company ("DCR Pacific"). A portion of the total
credit provided by the Nortel Agreement ("Tranche B") is available for the
payment of certain Nortel equipment and services not provided under the Nortel
Supply Agreement and for certain other third-party related costs.
Advances under the Nortel Agreement will bear interest at a rate of LIBOR
plus 4.5% per annum. The Nortel Agreement makes funds available to the Company
until October 31, 2000, subject to the Company's satisfaction of certain equity
requirements. The Nortel Agreement contains a number of customary
representations, warranties, covenants and conditions. In addition, the Nortel
Agreement requires DCR Pacific to receive certain minimum capital contributions
prior to drawing down funds under the facility. The Company expects to satisfy a
portion of such minimum capital contributions through the Offerings. See "Use of
Proceeds." Moreover, additional significant capital contributions will be
required in order to access the total commitments under the Nortel Agreement.
The principal amount due on the advances made under the Nortel Agreement is
repayable in 16 consecutive quarterly installments following the fourth
anniversary of the Nortel Agreement. Prior to such date, only interest is
payable.
The Nortel Agreement provides for the right to convert any advances under
Tranche B into shares of Class B Common Stock of the Company after July 1, 1998,
subject to compliance with FCC requirements. The exchange rate for conversion
shall be equal to $8.00 per share. Shares received pursuant to such conversion
may not be sold for a period of eighteen months from the effective date of the
Offering, subject to certain exceptions in the event of certain prior stock
sales by members of the Control Group. In addition, holders of shares received
by conversion of the warrants will be entitled to certain registration rights
for the public sale of such shares.
Advances under the Nortel Agreement will be secured by a security interest
in all of the assets of DCR Pacific, and by a pledge of the partnership
interests of DCR PCS of Las Vegas Limited Partnership, a wholly-owned subsidiary
of DCR Pacific, to which the license for the Las Vegas market will be assigned,
subject to FCC approval. In addition, the Company provided a guaranty of the
repayment obligations of its operating subsidiary under the Nortel Agreement.
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Siemens Agreement
In August 1996, the Company entered into an agreement with Siemens pursuant
to which Siemens agreed to loan the Company $10.0 million for use in connection
with the Downpayment (the "Siemens Loan"). In November 1996, the Company
borrowed $10.0 million of the funds available under the Siemens Loan. Borrowings
under the Siemens Loan accrue interest at a rate of 10.74% per annum. Under
terms currently anticipated, borrowings under the Siemens Loan will be
refinanced as part of the long-term vendor financing to be provided by Siemens.
In December 1996, the Company and Siemens agreed on the essential terms for
$165.0 million of such long-term vendor financing (the "Siemens Finance
Facility") in connection with the buildout of the Detroit market. Funds will be
available under the Siemens Finance Facility to a subsidiary of the Company to
be formed to operate the Company's PCS network in the Detroit market. Advances
under the Siemens Finance Facility will bear interest at prime plus 4% per annum
or LIBOR plus 5%. Siemens will also have the right to be issued warrants for the
Company's Class B Common Stock as and to the extent that the Siemens Finance
Facility is drawn down, subject to compliance with FCC requirements. A
definitive agreement for financing is to be executed.
Brightpoint, Inc.
On December 12, 1996, the Company and Brightpoint entered into a services
agreement and a financing agreement whereby (i) Brightpoint was appointed the
Company's nationwide wholesale distributor of PCS handsets and (ii) Brightpoint
purchased, and the Company sold, $5.0 million of Series E Convertible Debentures
(the "Series E Convertible Debentures"). The Series E Convertible Debentures are
due December 12, 1998 (the "Maturity Date"), unless previously converted into
Class B Common Stock, by either Brightpoint or the Company, or redeemed by the
Company at face value. Borrowings bear interest at the prime rate, adjusted
quarterly, plus two and one-half percent. Interest at prime plus one-half
percent per annum shall be payable quarterly in arrears and two percent per
annum shall accrue and be due at maturity or upon the conversion of the
principal. In the event of conversion of the principal, the accrued portion of
interest will be payable in shares of Class B Common Stock at the conversion
rate of $8.00 per share, subject to compliance with FCC requirements. The Series
E Convertible Debentures are not convertible by Brightpoint until June 1998 at
which time Brightpoint can convert such obligations, subject to compliance with
FCC requirements, into Class B Common Stock at $8.00 per share. At Maturity
Date, if the price per share of Class B Common Stock equals or exceeds $10.00,
the Company can convert any outstanding Series E Convertible Debentures into
Class B Common Stock, subject to compliance with FCC requirements. Additionally,
at the Maturity Date, if the price per share of Class B Common Stock is less
than $10.00, Brightpoint at its election may convert the Series E Convertible
Debentures into Class B Common Stock, subject to compliance with FCC
requirements, or require repayment in cash. Additional shares of Class B Common
Stock may be issued by the Company to Brightpoint, subject to compliance with
FCC requirements, to adjust for the lowest per share price paid to the Company
for certain sales of Class B Common Stock after December 12, 1996. Such
adjustments are only available until such time as the Company secures at least
$150 million in aggregate additional financing.
Dominion Fund IV
In December 1996, the Company entered into a financing agreement with
Dominion Fund pursuant to which Dominion Fund agreed to provide an $8.0 million
short-term loan for the purchase of telephone switching equipment for use in the
Las Vegas and Honolulu BTA's. Simultaneously with the closing of this short-term
loan, the Company and Dominion Fund entered into an $8.0 million master lease
line with a term of 36 months for the leasing of telephone switching equipment
and office equipment. Under the terms of the agreements, the combined principal
amounts outstanding may not exceed $8.0 million. Borrowings under the term loan
bear interest at the rate of 15% per annum and are payable in full in June 1997.
As additional consideration for providing such financing, Dominion Fund will
receive at closing of the term loan and the master lease line, a total of
430,000 detachable warrants to purchase Class B Common Stock exercisable at
$8.00 per share, subject to certain adjustments, which expire at the earlier of
(i) five years from the date of the
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Offering or (ii) seven years from the date of the agreement, whose exercise is
subject to compliance with FCC rules.
Vendor Stock Purchase Warrants and Conversion Rights
The Credit Agreement, the Nortel Agreement, and the Siemens Finance
Facility, provide for the exercise of either stock purchase warrants and
conversion rights for the issuance of up to 8,568,750 shares of Class B Common
Stock over the term of such financings, subject to compliance with FCC
requirements. Both the stock purchase warrants and the convertible rights (i)
are exercisable after July 1998, (ii) have an exercise price and a conversion
rate of $8.00 and (iii) are issued pro rata with draw downs made under the
respective vendor financing agreement. Warrants will be valued at the time that
they are issued to the vendor.
Other Matters
The vendor financing agreements contain affirmative covenants of the
Company, including, among others, maintenance of its licenses and properties,
compliance with laws, insurance, payment of taxes, payment of other indebtedness
and delivery of financial and other information. These agreements require that
the Company and certain of its subsidiaries comply with certain financial tests
and maintain certain financial ratios, including, among others, with respect to
maximum leverage, debt service, fixed charges and other financial ratios. Under
the terms of the vendor financing agreements, the Company's subsidiaries must
receive certain minimum capital contributions prior to drawing down funds under
the facilities, a portion of which are expected to be satisfied with the
proceeds from the Offerings. See "Use of Proceeds." Moreover, additional capital
contributions will be required in order for the Company to access the total
commitments under the vendor financing. In addition, the Company is required to
make certain repayments of borrowings under these agreements from certain asset
sales and excess cash flow. These agreements also contain negative covenants
which impose restrictions and/or limitations on the operations and activities of
the Company and certain of its subsidiaries, including, among others, the
incurrence of indebtedness, the creation or incurrence of liens, the sale of
assets, investments and acquisitions, mergers, declaration or payment of
dividends on or other payments or distributions to shareholders or material
transactions with an affiliate on terms less favorable than those obtainable
from a nonaffiliate. These agreements also limit the total investment by the
Company in its subsidiaries owning PCS licenses (exclusive of license
acquisition costs and proceeds of the agreements themselves until the PCS
licenses are final).
Certain of these agreements provide for various events of default,
including, without limitation, interest and payment defaults, breach of the
Company's covenants, agreements, representations and warranties made by the
Company and certain of its subsidiaries under the various agreements, cross
defaults to certain other indebtedness, judgments in excess of $1.0 million
which remain undischarged for a period of 30 days, certain events relating to
bankruptcy or insolvency, revocation of any material FCC license, and the
failure of the present Control Group of the Company to retain control.
SENIOR DISCOUNT NOTES
The Company is offering $ million gross proceeds of % Senior
Discount Notes due 2007 in the Debt Offering for estimated net proceeds of
$ million. The Notes will be issued pursuant to the Indenture between the
Company and , as trustee. See "Use of Proceeds."
The Notes mature in 2007. The Notes will be issued at a discount to their
aggregate principal amount to generate gross proceeds of approximately $
million. The Notes will accrete at a rate of %, compounded semiannually,
to an aggregate principal amount of $ million by , 2001.
Thereafter, interest on the Notes will accrue at the rate of % per annum
and will be payable semiannually on and , commencing on ,
2002. The Notes will be subject to redemption at the option of the Company, in
whole or in part, at any time on or after , 2001, initially at %
and declining to 100% of their principal amount on or after , 2004, plus
accrued and unpaid interest thereon to the applicable redemption date. In
addition, in the event of a public equity offering with proceeds of $
million or more prior to , 1999, the Company may, at its option, within
60 days thereof, use net proceeds of
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such equity offering to redeem up to % of the aggregate principal amount of
the Notes originally issued at a redemption price of % of the accreted
value as of the redemption date of the Notes so redeemed; provided that at least
% of the aggregate principal amount of the Notes originally issued remains
outstanding after such redemption. Upon the occurrence of a Change of Control
(as defined in the Indenture), each holder of Notes will have the right to
require the Company to purchase all or any part of such holder's Notes at a
purchase price equal to 101% of the accreted value thereof in the event of a
Change of Control occurring prior to , 2001, plus any accrued and unpaid
interest not otherwise included in the accreted value.
The Notes will rank pari passu in right of payment with all existing and
future unsecured, unsubordinated indebtedness of the Company and will be senior
in right of payment to all existing and future subordinated indebtedness of the
Company. The Notes will be effectively subordinated to all liabilities of the
Company's subsidiaries, including trade payables and indebtedness that may be
incurred by the Company's subsidiaries under vendor financing arrangements.
The Indenture relating to the Notes contains, among others, covenants with
respect to incurrence of indebtedness, preferred stock of subsidiaries,
restricted payments, distributions and transfers by subsidiaries, subordinated
liens, certain asset dispositions, issuances and sales of capital stock of
wholly owned subsidiaries, transactions with affiliates and related persons and
mergers, consolidations and certain sales of assets. The indebtedness covenant
limits the incurrence of indebtedness by the Company based on certain of the
Company's financial ratios; provided, however, that such limitation does not
prohibit, among other exceptions, indebtedness incurred or committed by the
Company for the acquisition, construction or improvement of assets in the
wireless communications business.
The closing of the Debt Offering is conditioned on the closing of the
Offering and the Company may elect not to consummate the Debt Offering. The
closing of the Offering is not conditioned on the closing of the Debt Offering.
GOVERNMENT FINANCING FOR FCC LICENSES
The total cost of the FCC licenses acquired by the Company is approximately
$1.43 billion, net of approximately $476 million in bidding credits provided to
bidders in the C Block auction. Although the Company's obligation under the
Government Financing will be recorded on the Company's financial statements at
its estimated fair market value of $823.9 million, based on an estimated fair
market borrowing rate of 14%, the amount that would be owed to the U.S.
Government if the Government Financing were declared immediately due and payable
would be $1.28 billion plus accrued interest. The Company paid the first half of
the down payment on May 14, 1996 and the second half of the down payment on
November 8, 1996. As a Small Business, the Company is eligible for favorable
financing through a deferred payment arrangement provided by the U.S. Government
for the remaining 90% of the license cost. This Government Financing has a
10-year term with a fixed rate of 6.5% per annum and will require payments of
interest only for the first six years with payments of interest and principal
amortized over the remaining four years of the license term. Significant
provisions of the FCC Notes, which are currently under review and
interpretation, include, among others, the terms of the FCC Notes, the
underlying Security Agreement, matters involving collateral (including whether
the FCC licenses will be cross collateralized where the Company holds or
controls licenses for multiple PCS markets), and the assignment of the FCC
licenses by the licensee.
Failure to make timely quarterly installment payments on the Government
Financing (within 90 days of the due date of any installment) pursuant to such
financing terms may result in the imposition of substantial financial penalties,
license revocation or other enforcement measures, at the FCC's discretion. In
the event that the Company anticipates inability to make any required payment,
it may request a further three- to six-month grace period before the FCC cancels
its license. In the event of default by the Company, the FCC could reclaim the
licenses, reauction them and subject the Company to a penalty which may be
comprised of the difference between the price at which it acquired its license
and the amount of the winning bid at the reauction, plus an additional penalty
of three percent of the subsequent winning bid or the defaulting bid, whichever
is less. See "Regulation of the Wireless Telecommunications Industry."
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In addition, the Company must maintain its Designated Entity Status while
any part of the Government Financing remains outstanding in order to retain its
eligibility to take advantage of such favorable payment terms. In the event that
the Company loses its Designated Entity Status during such period, it may be
required to pay the Government Financing under terms that are less favorable to
the Company or to pay the entire outstanding amount immediately in order to
retain its FCC licenses, and may be subject to revocation of its licenses.
CONVERTIBLE LOANS AND CONVERTIBLE DEBENTURE SERIES
The Loan and Purchase Agreements
In June 1995, the Company entered into a Loan and Purchase Agreement with
MTAI (the "MTAI Agreement") with MTAI, pursuant to which the Company borrowed
$30.0 million in November 1995 at an interest rate of 6.71% per annum, all of
which was used to satisfy partially the Downpayment for the Company's PCS
licenses. In August 1995, the Company entered into a similar Loan and Purchase
Agreement with Pacific Eagle (the "Pacific Eagle Agreement"), pursuant to which
the Company would receive up to $35.0 million to satisfy partially the
Downpayment. In November 1995, the Company borrowed $9.3 million under the
Pacific Eagle Agreement at an interest rate of 6.71% per annum, all of which was
used towards the Downpayment. In April 1996, the Company, MASA and Pacific Eagle
amended the Pacific Eagle Agreement to modify certain conditions for and to
permit further borrowings. In May 1996, the Company borrowed $15.0 million under
the Pacific Eagle Agreement, as amended, at an interest rate of 7.28% per annum
and applied such borrowings towards the Downpayment. In November, 1996, the
Company borrowed $10.7 million under the Pacific Eagle Agreement at an interest
rate of 6.79% to satisfy partially the Downpayment.
The borrowings under both the MTAI Agreement and the Pacific Eagle
Agreement may convert into convertible debentures (the "Series A Convertible
Debentures") 15 days after an initial public offering or a private placement
sale of at least $172.5 million, and only if and in such amounts that such
conversion does not result in the violation of the Company's Designated Entity
Status under the 25% equity test. For borrowings which do convert, all unpaid
interest, together with interest payable thereon at the same rate, is due five
years after the date of the borrowing conversion. Borrowings that remain
unconverted, along with all deferred and unpaid interest, would be due and
payable on May 15, 2001. The Series A Convertible Debentures bear interest at
the Applicable Federal Midterm Rate in effect at the date on which they are
issued. The Series A Convertible Debentures would have a face amount equivalent
to the original principal amount of such borrowings and unless subsequently
converted, will, along with all unpaid interest, be due on December 1, 2000.
Under the MTAI Agreement and the Pacific Eagle Agreement, the holders of
the Series A Convertible Debentures would have the option, at any time prior to
December 1, 2001, to convert the debentures into the then existing convertible
preferred stock, par value $.01 per share, of the Company (the "Old Convertible
Preferred Stock"). The Old Convertible Preferred Stock was convertible into
shares of then existing Class B common stock, par value $.01 per share, of the
Company (the "Old Class B Common Stock"). As part of the Recapitalization, the
MTAI Agreement and the Pacific Eagle Agreement will be amended to provide for
the conversion of the Series A Convertible Debentures directly into shares of
Class B Common Stock. Such conversions can only occur in increments of $5.0
million. Beginning December 1, 1997, and each anniversary thereafter, until
maturity, the Company, at its option can require conversion of all outstanding
debentures into shares of Class B Common Stock. For convertible debentures which
are converted at the option of the debenture holder or at the option of the
Company, all unpaid interest, together with interest payable thereon at the same
rate, is due five years after the date of conversion. Additionally, all Series A
Convertible Debentures are subject to mandatory conversion into shares of Class
B Common Stock with the sale of capital stock of the Company totalling at least
$5.0 million in an initial public offering. For convertible debentures which
convert as a result of mandatory conversions, all unpaid interest, together with
interest payable thereon at the same rate, is due five years after the date of
conversion. Any conversion of the Series A Convertible Debentures into Class B
Common Stock, upon effectiveness of the Recapitalization, will be at a price
equal to the lesser of $8.00, subject to certain adjustments, and the price at
which the shares of Class B Common Stock are sold in
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the Offering. All conversions, including mandatory conversions, are subject to
the Company's continued compliance with foreign ownership restrictions and
maintenance of its Designated Entity Status.
The Company has arranged with certain related entities, including Pacific
Eagle, for short-term borrowings of approximately $41.7 million, which includes
associated fees of approximately $1.0 million, to meet a portion of the second
half of the Downpayment (the "Short-Term Facility"). Borrowings under the
Short-Term Facility will accrue interest at 11.25% per annum, with such interest
paid quarterly. Amounts borrowed under the Short-Term Facility are subject to
mandatory prepayment by the Company in the event that at least $200 million of
certain financing is raised, including amounts raised in the Offerings.
Borrowings that are not prepaid will mature on the earlier of (i) one year from
the first borrowing, and (ii) the occurrence of an event of default (as defined
in the Short-Term Facility). Additionally, in connection with the borrowing of
$41.7 million for the Downpayment under the Short-Term Facility, the Company
issued a promissory note in the principal amount of $8.0 million to a third
party, which is related to Pacific Eagle, in satisfaction of services provided
in securing the financing. Warrants to purchase 1 million shares of Class B
Common Stock, subject to FCC requirements, at an exercise price of $8.00 per
share, were attached to such promissory note. The promissory note matures two
years from the date of issuance unless tendered by the holder in satisfaction of
the exercise price of the attached warrants.
Series B Convertible Debenture
In August 1995, the Company issued a total of $833,000 in Series B
convertible debentures (the "Series B Convertible Debentures"), which bear
interest at rates ranging from 6.31% to 6.38% per annum, to MTB pursuant to a
Purchase Agreement (the "MTB Agreement"). The Series B Convertible Debentures,
which mature on September 1, 2000, were convertible, at the holder's option,
into shares of then existing Class A voting common stock, par value $.01, of the
Company ("Old Class A Voting Common Stock") in minimum increments of $200,000.
The Series B Convertible Debentures were convertible into shares of Old Class A
Voting Common Stock at a conversion price of $0.83 per share. As a result of the
Recapitalization, the MTB Agreement will be amended to provide for the
conversion of the Series B Convertible Debentures into shares of Class B Common
Stock at the same price per share. Additionally, the MTB Agreement allows for
the Company to elect to cause mandatory conversion of any outstanding Series B
Convertible Debentures if (i) Series A Convertible Debentures have been
converted and (ii) the sale of the capital stock of the Company totalling at
least $5.0 million in an initial public offering is consummated. Pursuant to the
MTB Agreement, any conversion of the Series B Convertible Debentures would be
(i) secondary to any elected or mandatory conversion of Series A Convertible
Debentures and (ii) subject to the FCC foreign ownership restrictions. For
Series B Convertible Debentures which do convert, all unpaid interest, together
with interest payable thereon at the same rate, is due five years after the date
of the conversion.
In 1995, MTB assigned its rights under the MTB Agreement and the Series B
Convertible Debentures to Pacific Eagle.
LCC Agreements
In March 1996, the Company entered into a Convertible Loan and Investment
Agreement with LCC (the "LCC Agreement"), under which the Company received a
total of $6.5 million through the issuance of convertible debentures (the
"Series D Convertible Debentures") divided into two parts as follows:
(i) An initial loan of $3.5 million, of which (i) $1.5 million was
allocated for the license to use LCC's CellCAD Software for five years (the
"License Agreement") and (ii) $2.0 million of which was allocated for
working capital purposes and to satisfy partially the down payment.
Interest on this initial loan accrues for the first six months at the prime
rate plus 4% per annum and thereafter at the prime rate plus 2.5% per
annum, with interest payments commencing March 31, 1997, covering the
period from the date of initial funding through March 31, 1997, and
quarterly thereafter. The entire unpaid principal balance will be due and
payable in March 2001. Borrowings under the initial loan at June 30, 1996
bear interest at 12.25% per annum.
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(ii) A subsequent loan of $3.0 million was applied towards working
capital purposes and to satisfy partially the down payment requirement.
Interest on the subsequent loan accrues at the prime rate plus 2.5% per
annum. The entire unpaid principal balance will be due and payable in May
2001. Borrowings under the subsequent loan at June 30, 1996 bear interest
at 10.75% per annum.
Pursuant to the LCC Agreement, LCC was entitled to convert, subject to the
FCC's foreign ownership restrictions, the unpaid balance of the borrowings
thereunder into shares of Old Class B Common Stock in multiples of not less than
$1.0 million. As part of the Recapitalization, the LCC Agreement will be amended
to provide that the Series D Convertible Debentures be convertible on the same
terms into shares of Class B Common Stock. As a result, upon effectiveness of
Recapitalization, such borrowings would be convertible into shares of Class B
Common Stock at the lesser of $14.00 per share and the price at which the
Company sells certain shares of its equity securities, including shares
anticipated to be sold at $8.00 per share to third parties and including the
shares sold in the Offering. Additionally, the LCC Agreement allows for the
Company to elect to cause mandatory conversion of the borrowings into shares of
Class B Common Stock, or similar equity, as defined in the LCC Agreement, in
certain situations, including the sale of capital stock of the Company totalling
at least $25.0 million in an initial public offering. Upon receipt of a notice
of mandatory conversion by the Company, LCC may elect not to have the borrowings
converted in exchange for forfeiting its rights to future voluntary conversions.
Borrowings under the LCC Agreement were conditioned on the Company's
commitment to (i) purchase from LCC, over a period of five years, not less than
$65.0 million worth of radio frequency engineering and program management
services (the "Services Agreement") and (ii) the License Agreement. The Services
Agreement provides for minimum purchases per year commencing March 1996. Both
the License Agreement and the Services Agreement are renewable at the option of
both parties.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon consummation of the Recapitalization, the Company will have authorized
100,000,000 shares of Class A Common Stock, 500,000,000 shares of Class B Common
Stock and 100,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"). As of December 4, 1996 and prior to the Recapitalization,
the Company had issued and outstanding 27,158,340 shares of Old Class A Voting
Common Stock, 2,809,479 shares of Old Class B Common Stock and no shares of Old
Convertible Preferred Stock. As part of the Recapitalization, shares of Old
Class B Common Stock and Old Convertible Preferred Stock issued and outstanding
immediately before the consummation of the Recapitalization will be
automatically converted into shares of Class B Common Stock at a conversion
ratio of 1-to-1. Shares of Old Class A Voting Common Stock issued and
outstanding and not held by a member of the Control Group immediately before the
consummation of the Recapitalization will be automatically converted into shares
of Class B Common Stock at a conversion ratio of 1-to-1. Shares of Old Class A
Voting Common Stock held by a member of the Control Group immediately before the
consummation of the Recapitalization will be automatically converted into shares
of Class A Common Stock at a conversion ratio of 1-to-1.
The remainder of this section describes the capital stock of the Company
following the Recapitalization.
COMMON STOCK
The Company has two classes of authorized Common Stock, Class A Common
Stock and Class B Common Stock. Only Class B Common Stock is being offered in
the Offering. Shares of Class A Common Stock can only be issued and transferred
to persons who are Control Group members. In the event that shares of Class A
Common Stock shall become owned by a person who is not a member of the Control
Group while the Company has elected to maintain its Designated Entity Status,
such shares of Class A Common Stock shall be converted automatically into shares
of Class B Common Stock. The Class A Common Stock has five votes per share and
the Class B Common Stock has one vote per share; but in all cases, the
outstanding shares of Class A Common Stock, as a class, will have at least 50.1%
of the total votes, with the number of votes per
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share to be adjusted appropriately as necessary from time to time. Pursuant to
the terms of the Control Group Agreement, until three years after the License
Grant Date, up to 2% of the shares of the Class A Common Stock outstanding as of
the date of the Offering are convertible into shares of Class B Common Stock on
a 1-to-1 basis. Three years after the License Grant Date, up to 20% of the
shares of Class A Common Stock outstanding at the time of the Offering are
convertible into shares of Class B Common Stock on a 1-to-1 basis and subject to
the condition that following such conversion, the Company would maintain its
Designated Entity Status without issuing any options to Control Group members
pursuant to the Control Group Option Plan. Five years after the License Grant
Date, additional shares of Class A Common Stock may be converted into shares of
Class B Common Stock on a 1-to-1 basis and subject to the same condition;
provided that the number of such shares to be exchanged, when added to the total
number of shares of Class A Common Stock previously converted, do not exceed 60%
of the shares of Class A Common Stock outstanding at the date of the Offering.
Any liquidation, dissolution or winding-up of the Company; certain mergers,
reorganizations, recapitalizations, sales or transfers of substantially all of
the assets of the Company (except for pro forma transfers among the Company, its
controlled affiliates and its subsidiaries); any amendment to the Articles of
Incorporation or By-Laws that substantially adversely affects the contract right
of the holders of Class B Common Stock; and any transfer or assignment of
ownership of interest in the Control Group that would be deemed a transfer of
control under FCC rules requires the approval of the holders of a majority of
the outstanding shares of Class A Common Stock and the approval of the holders
of a majority of the outstanding shares of Class B Common Stock, each voting
separately as a class. The holders of Class A Common Stock, acting as a single
class, are entitled to elect the A Directors (a majority of the total number of
directors) which shall include seven of the thirteen directors and the holders
of Class B Common Stock, subject to the right of any then outstanding Preferred
Stock, acting as a single class, are entitled to elect the B Directors (the
remainder of the directors).
Except as described below, holders of Common Stock have no cumulative
voting rights and no preemptive, subscription or sinking fund rights. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock will be entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock will be entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference to any then outstanding Preferred Stock.
The Articles of Incorporation also contain certain provisions to ensure
compliance with certain regulatory requirements regarding ownership of C Block
licenses, as follows. No person, together with its affiliates (as defined by
applicable FCC rules and regulations), can own shares of capital stock of the
Company or options to purchase shares of capital stock of the Company in excess
of the amount that would require attribution of such person's assets and
revenues with that of the Company's for purposes of the Designated Entity Status
requirements, unless the Board of Directors determines, in its sole discretion
and upon opinion of counsel that such ownership by a certain person would not
cause the Company to be in violation of such requirements, to waive this
restriction as to that person. No alien (which term includes an alien and its
representatives, a foreign government and its representatives, and a corporation
organized under the laws of a foreign country) can own shares of capital stock
of the Company in an amount that would result in the violation of the FCC's
foreign ownership limitation, unless the Board of Directors determines, in its
sole discretion and subject to a waiver by the FCC of such ownership limits for
such alien, to waive this restriction as to that alien. Any transfer or issuance
of such shares or options will be void ab initio to the extent it would result
in violations of the above restrictions.
In order to maintain the requisite equity and voting power holdings of the
Control Group, the Control Group Agreement provides that any transfer by a
Control Group member of shares of capital stock of the Company, shares of voting
stock of the Company or options to purchase capital stock of the Company that,
if effective, would result in the Control Group as a whole owning less than the
required equity (anticipated to be 25% for the first three years of the initial
license term upon effectiveness of Recapitalization and consummation of the
Offering) of the Company will be void ab initio to the extent necessary for
compliance. The
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Company will not issue such shares or options if such issuance would result in
violation of these Control Group ownership requirements. In addition, the
Articles of Incorporation and Control Group Option Plan also contain provisions
to guard against the failure of the Qualifying Investors to own the percentages
of equity (anticipated to be 15% for the first three years and 10% for the
following seven years of the initial license term upon effectiveness of
Recapitalization and consummation of the Offering) or voting power (50.1% of the
Control Group's voting stock for the initial license term) required for
Designated Entity Status. The Control Group Option Plan requires the Company to
grant to the Control Group members options to purchase shares of Class A Common
Stock and Class B Common Stock of the Company at a price equal to either 90% of
the fair market value at the time of exercise or at the fair market value at
time of grant, but only to the extent required for the Company to comply with
the Qualifying Investor ownership requirements.
The Articles of Incorporation provide that no Class B Common Stock
shareholder who does not also hold Class A Common Stock may vote more than 25%
of the Voting Power. In addition, the Company has the right to redeem, at fair
market value, shares of Class B Common Stock, on a last-in-first-out basis, in
order to reduce such shares to the 25% limit necessary to maintain compliance
with the foreign ownership and Designated Entity Status restrictions to protect
the Company's ownership of its PCS licenses. Certificates for shares of Common
Stock will bear legends describing all of the above restrictions.
The Control Group ownership requirements, in particular the requirement
that the Control Group hold 50.1% of the voting stock of the Company, would
effectively preclude a third party from gaining control of the Company without
consent of one or more of the Control Group members. In addition, the Designated
Entity Status requirement mandating the Control Group's control of a majority of
the Board of Directors, which control is ensured by the Company's classification
of its Common Stock and Directors, would effectively prevent changes by persons
outside the Control Group of the membership of the majority of the Board of
Directors (i.e., the A Directors). The above provisions of the Articles of
Incorporation would also prevent a third party from taking control of the
Company without consent of the Board of Directors.
PREFERRED STOCK
The Articles of Incorporation authorize the Company's Board of Directors to
establish one or more series of Preferred Stock and to determine, with respect
to any series of Preferred Stock, the terms and rights of such series, including
(i) the designation of the series, (ii) the number of shares of the series,
which number the Company's Board of Directors may thereafter (except where
otherwise provided in the applicable certificate of designation) increase or
decrease (but not below the number of shares thereof then outstanding), (iii)
whether dividends, if any, will be cumulative or noncumulative, and, in the case
of shares of any series having cumulative dividend rights, the date or dates or
method of determining the date or dates from which dividends on the shares of
such series shall be cumulative, (iv) the rate of any dividends (or method of
determining such dividends) payable to the holders of the shares of such series,
any conditions upon which such dividends will be paid and the date or dates or
the method for determining the date or dates upon which such dividends will be
payable; (v) the redemption rights and price or prices, if any, for shares of
the series, (vi) the terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series, (vii) the amounts payable on and
the preferences, if any, of shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Company, (viii) whether the shares of the series will be convertible or
exchangeable into shares of any other class or series, or any other security, of
the Company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates as of
which such shares will be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made, (ix) restrictions
on the issuance of shares of the same series or of any other class or series,
(x) the voting rights, if any, of the holders of the shares of the series, and
(xi) any other relative rights, preferences and limitations of such series.
The Company believes that the ability of the Company's Board of Directors
to issue one or more series of Preferred Stock will provide the Company with
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs which might arise. The authorized shares of
Preferred Stock, as well as shares of Class B Common Stock, will be available
for issuance without further action by the
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Company's stockholders, unless such action is required by applicable law or the
rules of any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. The National Association of Securities
Dealers, Inc. currently requires stockholder approval as a prerequisite to
listing shares in several instances, including where the present or potential
issuance of shares could result in an increase in the number of shares of common
stock, or in the amount of voting securities, outstanding of at least 20%. If
the approval of the Company's stockholders is not required for the issuance of
shares of Preferred Stock or Class B Common Stock, the Board may determine not
to seek stockholder approval.
Although the Company's Board of Directors has no intention at the present
time of doing so, it could issue a series of Preferred Stock that could,
depending on the terms of such series, impede the completion of a merger, tender
offer or other takeover attempt. The Company's Board of Directors will make any
determination to issue such shares based on its judgment as to the best
interests of the Company and its stockholders. The Company's Board of Directors,
in so acting, could issue Preferred Stock having terms that could discourage an
acquisition attempt through which an acquiror may be able to change the
composition of the Company's Board of Directors, including a tender offer or
other transaction that some, or a majority, of the Company's stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then current market price of such stock.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND
BY-LAWS
Board of Directors
The Articles of Incorporation and the By-Laws provide that, except as
otherwise fixed by or pursuant to the provisions of any Articles Supplementary
setting forth the rights of the holders of any class or series of Preferred
Stock, the number of the directors of the Company shall be thirteen unless and
until changed by the Company's Board of Directors as provided by the Company's
By-Laws, but shall never be less than three. The holders of Class A Common
Stock, acting as a single class, are entitled to elect a majority of the total
number of directors (the A Directors) and the holders of Class B Common Stock,
subject to the right of any then outstanding Preferred Stock, acting as a single
class, are entitled to elect the remainder of the directors (the B Directors).
The Articles of Incorporation provide that each Class A Director and each Class
B Director shall hold office for a period of two years from the annual meeting
of stockholders at which the Class A Director or Class B Director is elected.
The Articles of Incorporation provide that, except as otherwise required by
law, provided for or fixed by or pursuant to any Articles Supplementary thereto
setting forth the rights of the holders of any class or series of Preferred
Stock, newly created directorships resulting from any increase in the number of
A Directors or B Directors and any vacancies for A Directors or B Directors on
the Company's Board of Directors resulting from death, resignation,
disqualification, removal or other cause will be filled by the affirmative vote
of a majority of the remaining A Directors or B Directors, respectively, then in
office, even though less than a quorum of the Company's Board of Directors, and
not by the stockholders. Any director elected in accordance with the preceding
sentence will hold office until such director's successor shall have been duly
elected and qualified. No decrease in the number of directors constituting the
Company's Board of Directors will shorten the term of any incumbent director.
Officers of the Company serve at the discretion of the Board of Directors. See
"Description of Capital Stock."
Certain extraordinary corporate actions, pursuant to the Articles of
Incorporation, require approval by at least 75% of the entire Board of
Directors, including issuance or sale of stock, or the issuance of options, to
employees as well as third parties, at a purchase price below fair market value
at the date of issuance or sale; certain significant capital expenditures,
incurrence of indebtedness or acquisitions; certain significant participation in
joint ventures or partnerships; any merger, reorganization, recapitalization,
liquidation, dissolution or winding up of the Company; certain mergers,
reorganizations, recapitalizations or sales, transfers or other disposals
affecting all or substantially all of the assets of a majority-owned subsidiary
of the Company (except pro forma transfers among the Company, its controlled
affiliates or subsidiaries); a declaration of bankruptcy by the Company;
issuance of stock representing more than 20% of the outstanding shares; during
the first year following the consummation of the Offering, a change in control
of the Control Group that would cause a
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change in control of the Company; and a decision to abandon the Company's
Designated Entity Status while the Company is still utilizing any special
benefits thereunder or if such action would result in a material penalty to the
Company. In addition, the affirmative vote of two-thirds of the entire Board of
Directors is required for declaration of dividends; any lease, mortgage or
encumbrance of all or substantially all of the assets of the Company or its
subsidiaries (after approval by the Finance Committee of the Company's Board of
Directors); and authorization and issuance of a new class of capital stock of
the Company.
Persons outside the Control Group, which will have sole ownership of all
outstanding shares of Class A Common Stock, will not be able to remove A
Directors, who will comprise the majority of the Board of Directors. In
addition, the classified board provisions described above would preclude a third
party from removing incumbent B Directors and simultaneously gaining control of
the B Directors on the Company's Board of Directors by filling the vacancies
created by removal with its own nominees. Under such provisions, it would take
at least two elections of B Directors for any individual or group to gain
control of the B Directors. Accordingly, these provisions would discourage a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of the Company.
Special Meetings
The Articles of Incorporation and By-Laws provide that, except as otherwise
required by law and subject to the rights of the holders of any Preferred Stock,
special meetings of stockholders of the Company for any purpose or purposes may
be called only by the Company's Board of Directors pursuant to a resolution
stating the purpose or purposes thereof approved by at least five members of the
Company's Board of Directors if the Board of Directors is composed of thirteen
members and at least six members of the Company's Board of Directors if the
Board of Directors is composed of fourteen members or by the Chairman of the
Board of Directors. No business other than that stated in the notice shall be
transacted at any special meeting. These provisions may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by the Company's Board of Directors or the
Chairman of the Board of Directors.
Advance Notice Procedures
The By-Laws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before an annual meeting of stockholders of the Company (the "Stockholder Notice
Procedure"). The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Chairman of the Board, or by a
stockholder who has given timely written notice to the Secretary of the Company
prior to the meeting at which directors are to be elected, will be eligible for
election as directors of the Company. The Stockholder Notice Procedure also
provides that at an annual meeting only such business may be conducted as has
been brought before the meeting by, or at the direction of, the Chairman of the
Board or the Company Board, or by a stockholder who has given timely written
notice to the Secretary of the Company of such stockholder's intention to bring
such business before such meeting. Under the Stockholder Notice Procedure, for
notice of stockholder nominations to be made at an annual meeting to be timely,
such notice must be received by the Company not later than the close of business
on the 60th calendar day nor earlier than the close of business on the 90th
calendar day prior to the first anniversary of the preceding year's annual
meeting (except that, in the event that the date of the annual meeting is more
than 30 calendar days before or more than 60 calendar days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 90th calendar day prior to such
annual meeting and not later than the close of business on the later of the 60th
calendar day prior to such annual meeting or the 10th calendar day following the
day on which public announcement of a meeting date is first made by the
Company).
Notwithstanding the foregoing, in the event that the number of directors to
be elected to the Company's Board of Directors is increased and there is no
public announcement by the Company naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 90 calendar
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice also will be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered
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not later than the close of business on the 10th calendar day following the day
on which such public announcement is first made by the Company. Under the
Stockholder Notice Procedure, for notice of a stockholder nomination to be made
at a special meeting at which directors are to be elected to be timely, such
notice must be received by the Company not earlier than the close of business on
the 90th calendar day prior to such special meeting and not later than the close
of business on the later of the 60th calendar day prior to such special meeting
or the 10th calendar day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting.
In addition, under the Stockholder Notice Procedure, a stockholder's notice
to the Company proposing to nominate an individual for election as a director or
relating to the conduct of business other than the nomination of directors must
contain certain specified information. If the chairman of a meeting determines
that an individual was not nominated, or other business was not brought before
the meeting, in accordance with the Stockholder Notice Procedure, such
individual will not be eligible for election as a director, or such business
will not be conducted at such meeting, as the case may be.
The Stockholder Notice Procedure does not apply to members of the Control
Group and their respective affiliates.
Amendment
The Articles of Incorporation provide that the affirmative vote of the
holders of a majority of the outstanding shares of Class A Common Stock and the
holders of a majority of shares of Class B Common Stock, voting as separate
classes, is required to amend the Articles of Incorporation or By-Laws if such
amendment would substantially affect the contract rights of the holders of Class
B Common Stock.
MARYLAND BUSINESS COMBINATION STATUTE
Under the Corporation and Associations Article of the Maryland Annotated
Code (the "Maryland Article"), certain "business combinations" (including any
merger or similar transaction subject to a statutory stockholder vote and
additional transactions involving transfers of assets or securities in specific
amounts) between a Maryland corporation and any person who beneficially owns 10%
or more of the voting power of the corporation's shares or any affiliate of the
corporation who, at any time within the two-year period, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder"), or an affiliate thereof, are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder unless an exemption is available.
Thereafter, any such business combination must be recommended by the board of
directors of the corporation and approved by the affirmative vote of at least:
(i) 80% of the votes entitled to be cast by holders of outstanding voting shares
of the corporation and (ii) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of the corporation other than shares held
by the Interested Stockholder with whom the business combination is to be
effected, unless the corporation's stockholders receive a minimum price (as
described in the Maryland Article) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the board of
directors prior to the time that the Interested Stockholder becomes an
Interested Stockholder. In order to amend the Company's Articles of
Incorporation to elect not to be subject to the foregoing requirements with
respect to Interested Stockholders, an affirmative vote of at least 80% of the
votes entitled to be cast by all holders of outstanding shares of voting stock
and two-thirds of the votes entitled to be cast by holders of outstanding shares
of voting stock who are not Interested Stockholders is required under the
Maryland Article. The business combination statute could have the effect of
delaying or preventing a change of control of the Company.
MARYLAND CONTROL SHARE ACQUISITIONS STATUTE
The Maryland Article provides that "control shares" of a Maryland
corporation acquired in a "control share acquisition" have no voting rights
except as to the extent approved by a vote of two-thirds of the votes
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entitled to be cast on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
such shares of stock previously acquired by the acquiror, or in respect of which
the acquiror is able to exercise or direct the exercise of voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority or (iii) a majority of all voting power. Control Shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of Control Shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and
delivery of an "acquiring person statement"), may compel the corporation's board
of directors to call a special meeting of stockholders to be held within 90 days
of demand to consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question at any
stockholders' meeting.
Unless the articles of incorporation or by-laws provide otherwise, if
voting rights are not approved at the meeting or if the acquiring person does
not deliver an acquiring person statement within 10 days following a control
share acquisition, then subject to certain conditions and limitations, the
corporation may redeem any or all of the control shares (except those for which
voting rights have previously been approved) for fair value determined, without
regard to the absence of voting rights for the control shares, as of the date of
the last control share acquisition or of any meeting of stockholders at which
the voting rights of such shares are considered and not approved. Moreover,
unless the articles of incorporation or by-laws provide otherwise, if voting
rights for control shares are approved at a stockholders' meeting and the
acquiror becomes entitled to exercise or direct the exercise of a majority or
more of all voting power, other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights may
not be less than the highest price per share paid by the acquiror in the control
share acquisition.
The control share acquisition does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation. The Company has included in its Articles of Incorporation an
exemption from the applicability of the control share provisions.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Under Maryland law, a corporation formed in Maryland is permitted to limit,
by provision in its charter, the liability of directors and officers so that no
director or officer of the corporation shall be liable to the corporation or to
any stockholder for money damages except to the extent that (i) the director or
officer actually received an improper benefit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in a proceeding that
the director's or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. The Company's Articles of Incorporation have incorporated the
provisions of this law limiting the liability of directors and officers.
The Company's Articles of Incorporation require it to indemnify (i) any
present or former director or officer who has been successful, on the merits or
otherwise, in the defense of a proceeding to which he was made a party by reason
of his service in that capacity, against reasonable expenses incurred by him in
connection with the proceeding and (ii) any present or former director or
officer against any claim or liability unless it is established that (a) his act
or omission was committed in bad faith or was the result of active or deliberate
dishonesty, (b) he actually received an improper personal benefit in money,
property or services or (c) in the case of a criminal proceeding, he had
reasonable cause to believe that his act or omission was unlawful. In addition,
the Company's Articles of Incorporation require it to pay or reimburse, in
advance of final disposition of a proceeding, reasonable expenses incurred by a
present or former director or officer made a party to a proceeding by reason of
his service as a director or officer provided that the Company shall have
received (A) a written affirmation by the director or officer of his good faith
belief that he has met the
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standard of conduct necessary for indemnification by the Company as authorized
by the Articles of Incorporation and (B) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met. The Company's
Articles of Incorporation also (i) provide that any indemnification or payment
or reimbursement of the expenses permitted by the Articles of Incorporation
shall be furnished in accordance with the procedures provided for
indemnification and payment of expenses under Section 2-418 of the Maryland
General Corporation Law for directors of Maryland corporations and (ii) permit
the Company such other expenses as may be permitted under Section 2-418 of the
Maryland General Corporation Law for directors of Maryland corporations.
TRANSFER AGENT AND REGISTRAR
The Bank of New York will be the transfer agent and registrar for the Class
B Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Class B Common Stock ( shares if the Underwriters'
over-allotment option is exercised in full) and shares of Class A
Common Stock. An aggregate of shares of Class B Common Stock have been
reserved for issuance under the Company's stock option plans and options to
purchase of such shares of Class B Common Stock are currently
outstanding and shares of Class A Common Stock are reserved for
issuance pursuant to future option grants.
The shares of Class B Common Stock sold in the Offering will be freely
tradeable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate" (as that term is defined under
the Securities Act) of the Company, which will be subject to the resale
limitations of Rule 144. All of such shares of Class B Common Stock are
"restricted securities" within the meaning of Rule 144 (the "Restricted Shares")
and may not be publicly sold unless registered under the Securities Act or sold
in accordance with an applicable exemption from registration, such as Rule 144.
In addition to the shares ( shares if the Underwriters'
over-allotment options are exercised in full) of Class B Common Stock offered by
the Company in the Offering, beginning 180 days after the date of this
Prospectus, following the expiration of certain lock-up agreements between the
Underwriters, the Company's executive officers and directors and certain other
stockholders of the Company, additional outstanding shares of Class B
Common Stock will be eligible for sale in the public market, subject to the
provisions of Rule 144 or Rule 701. In addition, up to an aggregate of
shares of Class B Common Stock, including an aggregate of
Option Shares issuable upon exercise of outstanding stock options may become
eligible for resale in the public market at various times after the expiration
of the 180 day lock-up period, depending upon when such shares are actually
issued, if at all, and whether such shares are registered for resale under the
Securities Act, or are subject to Rule 144 or Rule 701. Subject to compliance
with the FCC regulations regarding ownership requirements for the Control Group,
up to 2% of the shares of Class A Common Stock outstanding at the date of the
Offering (and after three years from the License Grant Date, up to 20% of the
shares of Class A Common Stock then outstanding) will be convertible into shares
of Class B Common Stock on a one-for-one basis, and such shares of Class B
Common Stock may become eligible for resale in the public market subject to the
provisions of Rule 144 or Rule 701, after the expiration of a -day lock-up
period. After five years from the License Grant Date, additional shares of Class
A Common Stock, which, when added to the number of shares of Class A Common
Stock previously converted, do not exceed 60% of the shares of Class A Common
Stock outstanding as of the date of the Offering, will become convertible into
shares of Class B Common Stock and become eligible for resale subject to the
provisions of Rule 144 or Rule 701.
In general, under Rule 144, as currently in effect, beginning 90 days after
the Offering, if two years have elapsed since the later of the date of
acquisition of Restricted Shares from the Company or any affiliate of the
Company, the acquiror or subsequent holder (including an affiliate) is entitled
to sell, within any three-month period, that number of shares that does not
exceed the greater of 1% of the then outstanding shares of Class B Common Stock
(approximately shares immediately after the Offerings) or the average
weekly trading volume of the shares of Class B Common Stock on all exchanges
and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission"). Sales under Rule 144 are also subject to certain
restrictions relating to manner of sale, notice requirements and the
availability of current public information about the Company. If three years
have elapsed since the later of the date of acquisition of Restricted Shares
from the Company or from any affiliate of the Company, and the acquiror or
subsequent holder thereof is deemed not to have been an affiliate of the Company
at any time during the 90 days preceding a sale, such person would be entitled
to sell such shares in the public market under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements. As defined in Rule 144, an "affiliate" of an issuer is a
person that directly, or indirectly through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer. In general, under Rule 701, as currently in effect, persons who
purchase shares upon exercise of options that were granted pursuant to Rule 701
are entitled to sell such shares in reliance on Rule 144 without regard to the
holding period, public information, volume limitations or notice
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provisions of Rule 144, if such persons are not affiliates of the Company, and
without regard to the holding period requirements of Rule 144, if such persons
are affiliates of the Company. Restricted Shares properly sold in reliance on
Rule 144 are thereafter freely tradeable without restrictions or registration
under the Securities Act, unless thereafter held by an affiliate of the Company.
The Company, the Company's officers and directors and, certain other
shareholders of the Company have agreed that, during the period beginning from
the date of this Prospectus and continuing to and including the date 180 days
after the date of this Prospectus, they will not register for sale or offer,
issue, pledge, sell, contract to sell, grant any other option or contract to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Class B Common Stock or any securities which are convertible or exchangeable
into shares of Class B Common Stock, without the prior written consent of
Donaldson, Lufkin and Jenrette Securities Corporation, except for the shares of
Class B Common Stock offered in connection with the Offering, shares issued to
employees pursuant to the Company's stock option plans and certain gift
transactions.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors between May 20, 1988, the effective
date of Rule 701, and the date the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to typical stock options granted by an issuer
before it becomes subject to the reporting requirements of the Exchange Act
(including options granted before May 20, 1988, if made in accordance with Rule
701 had it been in effect), along with the shares acquired upon exercise of such
options beginning May 20, 1988 including exercises after the date of this
Prospectus). Securities issued in reliance on Rule 701 are Restricted Shares
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this Prospectus, such securities may be sold (i) by persons
other than affiliates, subject only to the manner of sale provisions of Rule 144
and (ii) by affiliates under Rule 144 without compliance with its two-year
minimum holding period requirements.
The Company intends to file a registration statement under the Securities
Act covering 12,350,000 shares of Common Stock issued or issuable under the
Company's stock option plans. Such registration statement is expected to be
filed 90 days after the date of this Prospectus and will automatically become
effective upon filing. Accordingly, shares registered under such registration
statement will be, subject to Rule 144 volume limitations applicable to
affiliates, available for sale in the open market, except to the extent that
such shares are subject to vesting restrictions with the Company or the
contractual restrictions described above.
REGISTRATION RIGHTS
The Company implemented the Registration Rights Program to provide certain
of its stockholders with piggyback and demand registration rights with respect
to their shares of Common Stock. Participants in the Registration Rights Program
consist of three tiers: Tier 1 participants include certain founding and
strategic stockholders identified in the Registration Rights Program; Tier 2
participants include Nortel, Ericsson and Siemens; and Tier 3 participants
include the Control Group members. Tier 1, Tier 2 and Tier 3 participants owning
an aggregate of shares of Class B Common Stock have piggyback and demand
registration rights exercisable after the lock-up period described above. See
"Certain Transactions -- Registration Rights."
86
<PAGE> 90
UNDERWRITING
Subject to the terms and conditions in the Underwriting Agreement (the
"Underwriting Agreement"), the Underwriters named below for whom Donaldson,
Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc., Cowen &
Company and Goldman, Sachs & Co. are acting as representatives (the
"Representatives") have severally agreed to purchase from the Company the
respective numbers of shares of Class B Common Stock set forth opposite their
names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..................
Bear, Stearns & Co. Inc. ............................................
Cowen & Company......................................................
Goldman, Sachs & Co. ................................................
----------------
Total................................................................
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class B Common
Stock offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. The Underwriters are obligated to
purchase all of the shares of Class B Common Stock offered hereby (other than
the shares of Class B Common Stock covered by the Underwriters' over-allotment
option described below) if any are purchased.
The Underwriters have advised the Company that they propose to offer the
Class B Common Stock to the public initially at the public offering price set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such a price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to any other Underwriter and
to certain other dealers. After the initial offering of the shares of Class B
Common Stock, the public offering price and other selling terms may be changed
by the Representatives.
Prior to the Offering, there has been no established trading market for the
Class B Common Stock. The initial price to the public for the Class B Common
Stock offered hereby will be determined by negotiation among the Company and the
Representatives. The factors considered in determining the initial price to the
public include the history of and the prospects for the industry in which the
Company competes, the past and present operations of the Company, the historical
results of operations of the Company, the prospects for future earnings of the
Company, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
Offering. Application has been made to have the Class B Common Stock quoted on
the Nasdaq under the symbol "PCKT."
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate additional shares of Class
B Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Underwriters may exercise such
option to purchase additional shares solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the shares of Class
B Common Stock offered hereby. To the extent such option is exercised, each
Underwriter will
87
<PAGE> 91
become obligated, subject to certain conditions, to purchase the same percentage
of such additional shares as the number set forth next to such Underwriter's
name in the preceding table bears to the total number of shares of Class B
Common Stock set forth above.
The Company, the Company's officers and directors and certain other
shareholders of the Company have agreed that, during the period beginning from
the date of this Prospectus and continuing to and including the date 180 days
after the date of this Prospectus, they will not register for sale or offer,
issue, pledge, sell, contract to sell, grant any other option or contract to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Class B Common Stock or any securities convertible into or exercisable
or exchangeable for Class B Common Stock without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, subject to certain
exceptions. See "Shares Eligible for Future Sale."
Of the shares of Class B Common Stock offered hereby, have been
reserved (the "Reserved Shares") for sale to certain individuals, including
employees of the Company and members of their families. The Reserved Shares will
be sold at a price per share equal to the price to the public set forth on the
cover page of this Prospectus. The number of shares available to the general
public will be reduced to the extent those persons purchase Reserved Shares. Any
shares not so purchased will be offered in the Offering at the price to the
public set forth on the cover page of this Prospectus.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of Class B Common Stock offered hereby to any accounts
over which they exercise discretionary authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments that the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the Class B Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Latham & Watkins, New York,
New York. Certain legal matters will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom (Illinois). Certain regulatory matters will
be passed upon for the Company by Wilmer, Cutler & Pickering, Washington, D.C.
EXPERTS
The audited consolidated financial statements and financial statement
schedule included in this Prospectus and in the Registration Statement of which
this Prospectus forms a part have been included herein in reliance on the report
of Arthur Andersen LLP, independent auditors, given on the authority of that
firm as experts in accounting and auditing. Reference is made to said report
which includes an emphasis of a matter paragraph calling attention to the
Company's risk factors and need to raise significant capital, as further
discussed in Note 1 to the financial statements.
OTHER MATTERS
In May 1996, the Company retained Arthur Andersen LLP as accountants for
the Company after the Company's management decided to replace Coopers & Lybrand
L.L.P. The Audit Committee and the Board of Directors approved the replacement.
During the Company's two most recent fiscal years and during the subsequent
interim period preceding the date of replacement, there were no disagreements on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Coopers & Lybrand L.L.P., would have caused it to make reference
to the subject matter of the disagreement in connection with their report. The
report of Coopers & Lybrand L.L.P. on the Company's financial statements for the
year ended December 31, 1994 included an explanatory paragraph for an
uncertainty as to the Company's ability to continue as a going concern. In
addition, the report of Coopers & Lybrand L.L.P. for the year ended December 31,
1995 included a paragraph which emphasized the uncertainty of the ultimate
success of the auction and the Company's ability
88
<PAGE> 92
to finance the payment of licenses awarded, construction of its PCS Network and
implementation of its planned service. Prior to the retention of Arthur Andersen
LLP, neither the Company nor anyone on the Company's behalf consulted Arthur
Andersen LLP regarding either the application of accounting principles related
to a specified transaction, completed or proposed, or the type of audit opinion
that might be rendered on the Company's financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the Class
B Common Stock offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Class B Common Stock offered hereby, reference is
made to the Registration Statement. Statements contained in this Prospectus as
to the contents of any contract, agreement or other document are not necessarily
complete, and, in each instance, reference is made to the copy of the document
filed as an exhibit to the Registration Statement. The Registration Statement
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at
the Commission's regional offices at Suite 1400, Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center (13th
Floor), New York, New York 10048. Copies of such material can also be obtained
from the Commission at prescribed rates through its Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a web
site on the Internet that contains reports, proxy and information statements and
other information (http://www.sec.gov).
The Company is not currently subject to the informational requirements of
the Exchange Act. As a result of the Offering, the Company will become subject
to the informational requirements of the Exchange Act. The Company will fulfill
its obligations with respect to such requirements by filing periodic reports and
other information with the Commission. In addition, the Company intends to
furnish to its stockholders annual reports containing consolidated financial
statements examined by an independent public accounting firm.
89
<PAGE> 93
GLOSSARY OF TERMS
"1.9 GHz" or "1900 MHz" -- Generally, the radio spectrum between 1850 MHz and
1990 MHz used in broadband PCS in the U.S.
"900 MHz" -- The radio spectrum utilized in narrowband PCS.
"A Block" -- One of two sets of broadband PCS 30 MHz licenses auctioned by the
FCC covering the 51 MTAs.
"airtime charges" -- Charges for use of the wireless communication system based
on minutes of use (above any included in a monthly subscription) that are in
addition to any charges for access to the public switch telephone network or for
long distance.
"analog cellular" -- Existing cellular technology which uses one continuous
electronic signal that varies in amplitude or frequency over a single radio
channel.
"B Block" -- One of two sets of broadband PCS 30 MHz licenses auctioned by the
FCC covering the 51 MTAs.
"broadband PCS " -- Digital wireless services operating in the 1.9 GHz spectrum.
"BTA" -- Basic Trading Area, as defined by Rand McNally.
"C Block" -- The 30 MHz broadband PCS licenses auctioned by the FCC covering the
493 BTAs that are reserved for Designated Entities.
"CDMA" -- Code Division Multiple Access, a digital wireless transmission
technology for use in cellular telephone communications, personal communications
services and other wireless communications systems. CDMA is a spread spectrum
technology in which calls are assigned 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 radio frequency band with reduced interference.
"cell " -- A geographic area within a wireless network covered by a single base
station and having a radius anywhere from several hundred feet to several miles,
depending on the technology and service provided.
"cellular system" -- A telephone system based on a grid of "cells" deployed at
800 MHz. Each cell contains transmitters, receivers, antennas, and is connected
to switching gear and control equipment.
"churn rate" -- Expressed as a rate for a given measurement period, equal to the
number of subscriber units disconnected divided by the average number of units
of the entire installed base of customers.
"CTIA" -- The Cellular Telecommunications Industry Association, an industry
group in North America comprised primarily of cellular telephone service
companies and recently some PCS license holders.
"D Block" -- One of three sets of 10 MHz broadband PCS licenses being auctioned
by the FCC which will cover each of the BTAs.
"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.
"dual mode operation" -- A wireless system which is capable of supporting either
different digital protocols or both digital and analog technologies, whether
operating at the same or different frequencies.
"dual mode phone" -- A mobile or portable phone which is capable of dual mode
operation.
"E Block" -- One of three sets 10 MHz broadband PCS licenses to be auctioned by
the FCC which will cover each of the BTAs.
90
<PAGE> 94
"Entrepreneurs' Block " -- The C and F Block licenses, consisting of 30 MHz and
10 MHz of spectrum, respectively, auctioned by the FCC to qualifying bidders.
"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.
"F Block" -- The 10 MHz broadband PCS licenses being auctioned by the FCC which
covers the BTAs and is strictly for Designated Entities.
"FCC " -- The Federal Communications Commission.
"Five-Year Buildout Requirement" -- The requirement that a holder of a 30 MHz
PCS license build out its network so that service is available to one-third of
the POPs in its service area and that a holder of a 10 MHz PCS license buildout
its network so that service is available to one-quarter of the POPs in its
service area within five years of the date that the license was issued.
"frequency" -- The number of cycles per second, measured in hertz, of a periodic
oscillation or wave radio propagation.
"global satellite system" -- Satellite systems designed for communications in
remote locations where terrestrial wireless systems such as PCS are neither
feasible nor economical.
"GSM " -- Global System for Mobile Communications is a distributed networking
architecture designed for managing digital mobile telephone users.
"hand-off " -- The act of transferring communication with a mobile unit from one
base station to another. A hand-off transfers a call from the current base
station to the new base station. A "soft" hand-off establishes communications
with a new cell before terminating communication with the old cell.
"handset" -- The phone used by cellular, PCS and other wireless customers.
"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
communications system that receives, transmits and processes signals from and to
subscriber equipment and/or between wireless systems and the public switched
telephone network.
"ISDN " -- Integrated Services Digital Network.
"LEC " -- Local Exchange Carrier.
"mobile network systems" -- Mobile systems such as cellular, PCS, SMR and ESMR.
"MSA" -- Metropolitan Statistical Area.
"MTA" -- Major Trading Area, as defined by Rand McNally.
"narrowband PCS " -- Refers to PCS in the 900 MHz spectrum which offers two-way
paging, digital voice paging, advanced telemetry, wireless E-mail, and data and
fax services.
"Network" -- The Company's collective PCS networks.
"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.
"PBX" -- Private branch exchange.
"PCIA" -- Personal Communications Industry Association is a North America trade
association whose members either have narrowband or broadband PCS licenses.
91
<PAGE> 95
"PCS " -- The second generation digital wireless telecommunications service that
will be offered by companies that have or will acquire licenses to operate on
the broadband radio spectrum (frequency range of 1850-1990 MHz) in the FCC
auctions.
"PCS-1900" -- A 1.9 GHz upbanded version of the 900 MHz RF access protocol to
GSM, proposed for use in PCS networks in the US.
"POPs" -- A shorthand abbreviation for the population covered by a license or
group of licenses. As used in this document, unless otherwise specified, the
term POPs means the Paul Kagan Associates 1995 PCS Atlas & Databook estimate of
the 1995 population of a particular MTA or BTA of the total U.S.
"protocols" -- Methodologies which serve to manage the communication for digital
signal transmission. GSM, CDMA and TDMA are examples of high level digital
protocols.
"RF " -- Radio frequency. Frequencies of the electromagnetic spectrum that are
associated with radio wave propagation.
"RF access system " -- The portion of the wireless network which involves the
communications of the handset to the base station.
"RF bandwidth" -- The amount of radio frequency spectrum assigned to a channel
or license that encompasses a relative range of frequencies that can be passed
through a transmission medium without distortion (normally with respect to one
channel). The greater the bandwidth, the greater the information carrying
capacity. Bandwidth is measured in hertz.
"roaming" -- A service offered by mobile communications network operators which
allows a subscriber to use his/her handset while in the service area of another
carrier. Roaming requires an agreement between operators of different markets to
permit customers of either operator to access the other's system.
"RSA" -- Rural Statistical Area.
"SIM " -- Also known as a "Smartcard," the Subscriber Identity Module is an
integrated circuit chip housed in a plastic card which enables a subscriber to
activate service immediately, to use multiple handsets, to easily customize
features, and to use GSM technology around the world.
"Smartcard " -- See "SIM."
"SMR" -- Specialized mobile radio is a public two-way analog radio
communications network, using simplex push-to-talk technology, whereby services
such as dispatch for taxis, delivery, service, and utility repair services use
mobile radios in vehicles and/or portable radios, and typically operate on a
repeater network that "repeats" an incoming transmission on one channel onto an
appropriate outgoing designated or available channel.
"TDMA" -- Time Division Multiple Access, a digital wireless transmission
technology which 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.
PCS technology that is an upbanded version of the TDMA-based digital cellular
protocol used by cellular operators in the US.
"Ten-Year Buildout Requirement" -- The requirement that a holder of a 30 MHz PCS
license build out its network so that service is available to two-thirds of the
population in its service area within 10 years of the date that the license was
issued.
"vocoder" -- A speech compression device which encodes voice signals to reduce
the amount of bandwidth required for a voice transmission.
92
<PAGE> 96
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Arthur Andersen LLP, Independent Accountants................................ F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and September 30, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Loss for the period April 20, 1994 (date of inception) to
December 31, 1994, the year ended December 31, 1995, the period April 20, 1994 (date
of inception) to December 31, 1995 and the nine months ended September 30, 1995 and
1996 (unaudited).................................................................... F-4
Consolidated Statements of Cash Flows for the period April 20, 1994 (date of
inception) to December 31, 1994, the year ended December 31, 1995, the period April
20, 1994
(date of inception) to December 31, 1995 and the nine months ended September 30,
1995
and 1996 (unaudited)................................................................ F-5
Consolidated Statements of Stockholders' Deficit...................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 97
After the contemplated stock split and recapitalization discussed in Note 2
to Pocket Communications, Inc.'s consolidated financial statements is determined
and effected, we expect to be in a position to render the following audit
report.
Arthur Andersen LLP
December 13, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Pocket Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Pocket
Communications, Inc. (a Development Stage Enterprise and formerly DCR
Communications, Inc.) and subsidiaries, as of December 31, 1994 and 1995, and
the related consolidated statements of loss, stockholders' deficit and cash
flows for the period April 20, 1994 (date of inception) to December 31, 1994,
the year ended December 31, 1995, and for the period April 20, 1994 (date of
inception) to December 31, 1995. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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.
As discussed in Note 1, the Company is in the Development Stage and its
business plan is subject to significant risk factors including the need to raise
significant amounts of capital resources in 1997. While the Company believes
that sufficient capital will be available through this and future offerings,
there can be no assurance that such funds will be secured.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Pocket Communications, Inc. and subsidiaries, as of December 31, 1994 and 1995,
and the results of their operations and their cash flows for the period April
20, 1994 (date of inception) to December 31, 1994, the year ended December 31,
1995, and the period April 20, 1994 (date of inception) to December 31, 1995, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule of Valuation and Qualifying
Accounts listed in Item 16, Exhibits and Financial Statement Schedules, is
presented for purposes of complying with the Securities and Exchange Commission
rules and is not part of the basic financial statements. The schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
Washington, D.C.,
, 1996
F-2
<PAGE> 98
POCKET COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY DCR COMMUNICATIONS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1996
-------------------------- ----------------------------
1994 1995 ACTUAL PRO FORMA
(UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 7,755 $ 1,079,235 $ 288,152 $ 479,235
Prepaid insurance..................................... -- -- 339,089 339,089
Other current assets.................................. 2,588 174,084 117,329 117,329
----------- ----------- ------------ ------------
Total currents assets............................. 10,343 1,253,319 744,570 935,653
Funds held in escrow...................................... -- -- 15,000,000 --
Property and equipment, net............................... 13,090 1,749,165 13,695,875 13,695,875
License costs............................................. -- 40,050,000 71,338,145 966,594,322
Deferred financing costs, net............................. -- 1,122,400 9,779,461 12,493,820
Other assets.............................................. -- 158,076 226,625 226,625
----------- ----------- ------------ ------------
Total assets...................................... $ 23,433 $44,332,960 $110,784,676 $993,946,295
=========== =========== ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses................. $ 123,026 $ 1,006,165 $ 3,127,595 $ 3,127,595
Accrued interest payable.............................. -- 20,688 671,709 671,709
Accrued network development costs..................... -- 509,549 2,476,982 2,476,982
Accrued financing costs............................... -- 1,122,400 9,408,549 9,408,549
Short-term borrowings................................. -- 1,500,000 1,030,927 42,905,502
Funds held in escrow.................................. -- -- 5,000,000 --
----------- ----------- ------------ ------------
Total current liabilities......................... 123,026 4,158,802 21,715,762 58,590,337
Long-term liabilities
Government Financing, net of $460,177,167 discount.... -- -- -- 823,918,032
Long term debt........................................ -- 40,133,000 96,174,402 47,541,402
Deferred interest..................................... -- 267,240 2,672,278 2,672,278
Other liabilities..................................... -- 700,001 828,092 828,092
----------- ----------- ------------ ------------
Total long-term liabilities....................... -- 41,100,241 99,674,772 874,959,804
Total liabilities................................. 123,026 45,259,043 121,390,534 933,550,141
Commitments and contingencies (Notes 10 and 14)
Minority interest......................................... -- 76,037 1,420,326 1,420,326
Class B Common stock subject to redemption, net of
subscription receivable of $386,057 as of December 31,
1995.................................................... -- 1,113,943 1,500,000 1,500,000
Stockholders' deficit:
Preferred stock, non-voting, $0.01 par value,
100,000,000 shares authorized; no shares issued or
outstanding......................................... -- -- -- --
Class A Common stock, voting $0.01 par value,
100,000,000 shares authorized; 19,700,000 shares
issued and outstanding as of December 31, 1994,
December 31, 1995 and September 30, 1996, Actual and
Pro Forma, respectively............................. 197,000 197,000 197,000 197,000
Class B Common stock, voting $0.01 par value,
500,000,000 shares authorized; 1,200,000, 7,380,000,
7,623,340 and 18,185,840 shares issued and
outstanding as of December 31, 1994, December 31,
1995, and September 30, 1996, Actual and Pro Forma,
respectively (excludes 843,750 shares and 218,750
shares subscribed and not issued and outstanding at
September 30, 1996 Actual and Pro Forma,
respectively)....................................... 12,000 73,800 76,233 181,858
Additional paid-in capital............................ 1,598,273 6,346,172 15,572,502 81,377,661
Deferred compensation................................. -- -- (1,516,679) (1,516,679)
Subscriptions receivable.............................. (868,297) (301,175) (6,750,000) (1,750,000)
Deficit accumulated during the development stage...... (1,038,569) (8,431,860) (21,105,240) (21,014,012)
----------- ----------- ------------ ------------
Total stockholders' deficit....................... (99,593) (2,116,063) (13,526,184) 57,475,828
----------- ----------- ------------ ------------
Total liabilities and stockholders' deficit....... $ 23,433 $44,332,960 $110,784,676 $993,946,295
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 99
POCKET COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY DCR COMMUNICATIONS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
APRIL 20, APRIL 20,
1994 (DATE OF 1994 (DATE OF
INCEPTION) TO YEAR ENDED INCEPTION) TO NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------------------
1994 1995 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues...................... $ -- $ -- $ -- $ -- $ --
Operating Expenses:
General and
Administrative............ 197,619 4,347,814 4,545,433 2,468,798 6,917,984
Business development........ 840,950 2,257,321 3,098,271 1,538,617 1,266,470
Sales and marketing......... -- 566,971 566,971 462,269 567,429
-------------- ------------ -------------- -------------- --------------
1,038,569 7,172,106 8,210,675 4,469,684 8,751,883
Interest income............... -- 66,743 66,743 50,352 63,547
Interest expense.............. -- (287,928) (287,928) -- (3,985,044)
-------------- ------------ -------------- -------------- --------------
Net loss.................... $ (1,038,569) $(7,393,291) $ (8,431,860) $ (4,419,332) $ (12,673,380)
============= =========== ============= ============ =============
Pro forma net loss per
common share (Note 3)..... $ $
Pro forma weighted-average
number of shares
outstanding (Note 3)......
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 100
POCKET COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY DCR COMMUNICATIONS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
APRIL 20, APRIL 20,
1994 (DATE OF 1994 (DATE OF NINE MONTHS ENDED SEPTEMBER
INCEPTION) TO YEAR ENDED INCEPTION) TO 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------------------
1994 1995 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $ (1,038,569) $(7,393,291) $ (8,431,860) $(4,419,332) $(12,673,380)
Adjustment to reconcile net loss to net
cash
used in operating activities
Depreciation and amortization...... 302 44,233 44,535 28,663 99,368
Common stock and partnership
interests issued in exchange for
property and services............ 608,976 233,522 842,498 135,116 132,474
Accrued and deferred interest...... -- 287,928 287,928 -- 3,419,742
Compensation expense for stock
options.......................... -- -- -- -- 1,774,127
Minority interest.................. -- -- -- -- (239,301)
Interest expense in connection with
amortization
of debt issuance costs........... -- -- -- -- 553,409
Increase (decrease) in cash and cash
equivalents resulting from changes in
operating assets and operating
liabilities:
Other assets and prepaid
insurance........................ (2,588) (246,272) (248,860) (85,821) (510,882)
Accounts payable, accrued expenses
and other liabilities............ 123,026 1,501,502 1,624,528 318,042 1,142,516
-------------- ----------- -------------- ----------- ------------
Net cash used in operating
activities....................... (308,853) (5,572,378) (5,881,231) (4,023,332) (6,301,927)
-------------- ----------- -------------- ----------- ------------
Cash flows from investing activities:
Expenditures for network development in
process.............................. -- (725,774) (725,774) (115,109) (883,245)
Expenditures for property and
equipment............................ (13,392) (343,368) (356,760) (231,222) (140,705)
FCC License deposit.................... -- (40,050,000) (40,050,000) -- (31,288,145)
-------------- ----------- -------------- ----------- ------------
Net cash used in investing
activities....................... (13,392) (41,119,142) (41,132,534) (346,331) (32,312,095)
-------------- ----------- -------------- ----------- ------------
Cash flows from financing activities:
Net proceeds from issuance of Common
stock................................ 330,000 6,060,000 6,390,000 5,150,000 455,222
Proceeds from issuance of debt and
borrowings........................... -- 41,633,000 41,633,000 400,000 36,494,128
Payment of financing costs............. -- -- -- (250,000) (610,000)
Contributions from minority
interests............................ -- 70,000 70,000 -- 1,483,589
-------------- ----------- -------------- ----------- ------------
Net cash provided by financing
activities....................... 330,000 47,763,000 48,093,000 5,300,000 37,822,939
-------------- ----------- -------------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents.............................. 7,755 1,071,480 1,079,235 930,337 (791,083)
Cash and cash equivalents at the beginning
of period................................ -- 7,755 -- 7,755 1,079,235
-------------- ----------- -------------- ----------- ------------
Cash and cash equivalents at the end of
period................................... $ 7,755 $ 1,079,235 $ 1,079,235 $ 938,092 $ 288,152
=============== ============= =============== ============= ==============
SUPPLEMENTAL INFORMATION:
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock to purchase
common stock in unrelated entity..... $ -- $ 83,300 $ 83,300 $ -- $ --
Issuance of common stock and
partnership interests in exchange for
property and services................ 608,976 233,522 842,498 135,116 132,474
Issuance of common stock for network
development, in process.............. -- 113,942 113,942 -- 386,057
Issuance of common stock for deferred
financing costs...................... -- -- -- -- 123,450
Financing fee obligations incurred..... -- 1,122,400 1,122,400 -- 8,286,149
Accrued network development costs in
process and equipment in service..... -- 597,224 597,224 382,792 10,149,934
Funds transferred to escrow for FCC
License deposit...................... -- -- -- -- 15,000,000
PROCEEDS FROM (PAYMENT TO) RELATED PARTIES
Payments for services rendered......... -- (899,010) (899,010) (627,165) (683,502)
Proceeds from debt issuance............ -- 40,133,000 40,133,000 -- 20,994,128
Loan to officer........................ -- -- -- -- 32,600
OTHER
Cash paid for interest................. -- -- -- -- --
Cash paid for income taxes............. $ -- $ -- $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 101
POCKET COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY DCR COMMUNICATIONS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
------------------------ ---------------------- ADDITIONAL
AMOUNT NUMBER PAR NUMBER PAR PAID-IN
PER SHARE OF SHARES VALUE OF SHARES VALUE CAPITAL
<S> <C> <C> <C> <C> <C> <C>
April 20, 1994 (date of inception),
initial capitalization common stock
issued................................... $0.05 400,000 $ 4,000 -- $ -- $ 16,000
Common stock issued in exchange for
property and services in April 1994...... $0.05 10,000,000 100,000 -- -- 400,000
Common stock subscribed in August 1994.... $0.05 5,000,000 50,000 -- -- 200,000
Common stock issued for cash in October
1994..................................... $0.05 -- -- 1,200,000 12,000 48,000
Common stock subscribed in December
1994..................................... $0.23 4,300,000 43,000 -- -- 934,273
Cash collection of subscription
receivable............................... -- -- -- -- --
Collection of subscription receivable in
consideration of services performed...... -- -- -- -- --
Net loss.................................. -- -- --
---------- -------- --------- ------- -----------
Balance, December 31, 1994................ 19,700,000 197,000 1,200,000 12,000 1,598,273
---------- -------- --------- ------- -----------
Common stock issued for cash in January
and May 1995, net of stock issuance
costs.................................... $0.83 -- -- 6,000,000 60,000 4,599,999
Common stock issued in October 1995 in
consideration of services performed...... $0.83 -- -- 80,000 800 65,600
Common stock issued in exchange for common
stock in unrelated entity in November
1995..................................... $0.83 -- -- 100,000 1,000 82,300
Cash collection of subscription
receivable............................... -- -- -- -- --
Collection of subscription receivable in
consideration of services performed...... -- -- -- -- --
Net loss.................................. -- -- -- -- --
---------- -------- --------- ------- -----------
Balance, December 31, 1995................ 19,700,000 197,000 7,380,000 73,800 6,346,172
---------- -------- --------- ------- -----------
Collection of subscription receivable in
consideration of services performed...... -- -- -- -- --
Cash collection of subscription
receivable............................... -- -- -- -- --
Exercise of stock options in March 1996... $0.83 -- -- 30,120 301 24,699
Common stock issued for cash in April
1996..................................... $0.83 1,801 18 1,482
Common stock and warrants issued for
services in April, 1996.................. $0.83 -- -- 148,199 1,482 121,968
Committed stock options as a form of
compensation in May 1996................. -- -- -- -- 2,168,790
Exercise of stock options in September
1996..................................... $0.83 -- -- 48,220 482 39,541
Common stock issued for cash in September
1996..................................... $8.00 -- -- 15,000 150 119,850
Common Stock subscribed................... $8.00 -- -- -- -- 6,750,000
Amortization of deferred compensation..... -- -- -- -- --
Net loss.................................. -- -- -- -- --
---------- -------- --------- ------- -----------
Balance, September 30, 1996............... 19,700,000 $197,000 7,623,340 $76,233 $15,572,502
=========== ========== ========== ======== =============
<CAPTION>
DURING THE
DEFERRED SUBSCRIPTION DEVELOPMENT
COMPENSATION RECEIVABLE STAGE TOTAL
<S> <C> <C> <C> <C>
April 20, 1994 (date of inception),
initial capitalization common stock
issued................................... $ -- $ -- $ -- $ 20,000
Common stock issued in exchange for
property and services in April 1994...... -- -- -- 500,000
Common stock subscribed in August 1994.... -- (250,000) -- --
Common stock issued for cash in October
1994..................................... -- -- -- 60,000
Common stock subscribed in December
1994..................................... -- (977,273) -- --
Cash collection of subscription
receivable............................... -- 250,000 -- 250,000
Collection of subscription receivable in
consideration of services performed...... -- 108,976 -- 108,976
Net loss.................................. -- -- (1,038,569) (1,038,569)
------------ ----------- ------------ ------------
Balance, December 31, 1994................ -- (868,297) (1,038,569) (99,593)
------------ ----------- ------------ ------------
Common stock issued for cash in January
and May 1995, net of stock issuance
costs.................................... -- -- -- 4,659,999
Common stock issued in October 1995 in
consideration of services performed...... -- -- -- 66,400
Common stock issued in exchange for common
stock in unrelated entity in November
1995..................................... -- -- -- 83,300
Cash collection of subscription
receivable............................... -- 400,000 -- 400,000
Collection of subscription receivable in
consideration of services performed...... -- 167,122 -- 167,122
Net loss.................................. -- -- (7,393,291) (7,393,291)
------------ ----------- ------------ ------------
Balance, December 31, 1995................ -- (301,175) (8,431,860) (2,116,063)
------------ ----------- ------------ ------------
Collection of subscription receivable in
consideration of services performed...... -- 32,475 -- 32,475
Cash collection of subscription
receivable............................... -- 268,700 -- 268,700
Exercise of stock options in March 1996... -- -- -- 25,000
Common stock issued for cash in April
1996..................................... -- -- -- 1,500
Common stock and warrants issued for
services in April, 1996.................. -- -- -- 123,450
Committed stock options as a form of
compensation in May 1996................. (2,168,790) -- -- --
Exercise of stock options in September
1996..................................... -- -- -- 40,023
Common stock issued for cash in September
1996..................................... -- -- -- 120,000
Common Stock subscribed................... -- (6,750,000) -- --
Amortization of deferred compensation..... 652,111 -- -- 652,111
Net loss.................................. -- -- (12,673,380) (12,673,380)
------------ ------------ ------------ ------------
Balance, September 30, 1996............... $(1,516,679) $(6,750,000) $(21,105,240) $(13,526,184)
============== ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 102
POCKET COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY DCR COMMUNICATIONS, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995, IS
UNAUDITED)
1. BUSINESS
Pocket Communications, Inc. (together with its consolidated subsidiaries,
"Pocket" or the "Company"), formerly DCR Communications, Inc., was incorporated
in Maryland in April, 1994 for the purpose of (i) acquiring Personal
Communication Services ("PCS") licenses (the "PCS licenses") issued by the
Federal Communication Commission ("FCC"), (ii) constructing PCS networks to
operate in the Basic Trading Area ("BTAs") covered by its licenses and (iii)
providing PCS in these areas using Global System for Mobile Communications
("GSM") technology. Following a bidding process in the FCC broadband C Block
auction, which concluded on May 6, 1996 (the "Auction"), the FCC, on November 4,
1996, granted the Company licenses in 43 BTAs consisting of 30 MHz of spectrum
(the "Entrepreneurs' Block"). The Company's winning bids totaled approximately
$1.43 billion, net of a 25% bidding credit available to the Company for
qualifying as a small business, as defined by the FCC, (the "Net Bid Price"). In
connection with the Auction rules, the Company was required to make downpayments
equaling ten percent of the Net Bid Price. On November 30, 1995, May 14, 1996,
and November 8, 1996, the Company remitted $40.0 million, $31.3 million, and
$71.3 million, respectively, to the FCC, (collectively the "Downpayment")
representing ten percent of the Net Bid Price, in satisfaction of the Auction
rules. The PCS licenses will allow the Company to offer PCS within BTAs
principally in the central region of the United States, including BTAs in and
around Chicago, Dallas, Detroit, St. Louis and New Orleans, as well as BTAs in
Las Vegas and Honolulu (each a "market" and each PCS network thereof a "PCS
network", with all PCS networks in the aggregate the "PCS Network").
Since formation, the Company has been devoting its efforts to establishing
its business, including recruiting its management team, conducting market
research, participating in the Auction, arranging financing and undertaking
initial activities relating to the development and future construction of its
PCS Network. The Company has commenced engineering and site acquisition with
respect to its PCS Network and intends to offer service within two markets in
the third quarter of 1997 and within the majority of its remaining markets by
the end of 1998. Capital requirements including costs of licenses, development,
construction and start up activities for the Company will be significant.
As further discussed in the section "Risk Factors" of the Company's
Registration Statement, which, as discussed in Note 2, was filed on August 29,
1996, the Company, as a development stage enterprise, is subject to risks
typically associated with start-up entities in the telecommunications industry
including, but not limited to, (i) the potential inability to implement the
Company's strategic plan, (ii) the uncertainty of securing sufficient debt and
equity financing, (iii) competition from the other providers of
telecommunication services, (iv) dependence on key vendors and strategic
partners to perform their contractual obligations, and (v) difficulties and
resulting delays encountered in the development and successful operation of its
PCS networks. While existing cash and cash equivalents as of December 13, 1996
are sufficient to meet working capital requirements through February 1, 1997,
such funds are insufficient to satisfy the required interest payment due on the
Government Financing, herein defined, of approximately $27.0 million due
February 28, 1997. While the Company is depending upon the success of the
offerings discussed in Note 2 below, the Company believes that if such offerings
are delayed that, based on discussions with both existing and prospective
investors and lenders, sufficient capital will be raised to satisfy the interest
payment due in February 1997 and to continue to execute the Company's strategic
plan, however, there can be no assurances that such funds will be secured.
Depending on their extent and timing, these factors individually or in the
aggregate could have a material adverse effect on the Company's financial
condition.
F-7
<PAGE> 103
2. REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND
RECAPITALIZATION
The Company filed a Registration Statement on Form S-1 (the "Registration
Statement") on August 29, 1996, for an offering (the "Offering") of Class B
Common Stock, par value of $.01 per share (the "Class B Common Stock").
Subsequent to August 29, 1996, the Company filed an amendment to the
Registration Statement. Simultaneously with the Offering, the Company plans to
offer to sell debt (the "Debt Offering") anticipated to result in $
million gross proceeds to the Company. Assuming a $ offering price, the
Offering would result in gross proceeds to the Company of $150.0 million. On
August 9, 1996, the Board of Directors of the Company approved a plan of
recapitalization (the "Recapitalization"), pursuant to which, subject to
stockholder approval, an amended and restated Articles of Incorporation will be
adopted to authorize, among other things, adjustments to the number of
authorized shares of capital stock, including shares of Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"); shares of Class B Common
Stock, par value $.01 per share (the "Class B Common Stock"); and shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). Pursuant to
the Recapitalization, immediately prior to and conditioned upon the consummation
of the Offering and subject to compliance with FCC rules and regulations
regarding the Company's ownership of the PCS licenses and any necessary FCC
approvals, the following transactions will occur: (i) the conversion of all
issued and outstanding shares of currently existing non-voting Class B Common
Stock, par value $.01 per share (the "Old Class B Common Stock"), into an equal
number of shares of Class B Common Stock; (ii) the conversion of all issued and
outstanding shares of currently existing voting Class A Common Stock, par value
$.01 per share (the "Old Class A Common Stock"), held by the members of the
Control Group, as defined below, into an equal number of shares of Class A
Common Stock; and (iii) the conversion of all issued and outstanding shares and
options granted to purchase Old Class A Common Stock not held by members of the
Control Group into an equal number of shares or options to purchase Class B
Common Stock; and (iv) a reverse stock split of all outstanding shares
of Class A Common Stock and Class B Common Stock resulting from the conversion
described in clauses (i) through (iii).
Certain outstanding agreements of the Company which currently provide for
the conversion of term loans into convertible debentures permit the conversion
of such convertible term loans into convertible debentures within fifteen days
following the consummation of either a public or private offering of Class B
Common Stock, subject to compliance with FCC ownership regulations. The pro
forma balance sheet as of September 30, 1996, reflects (i) additional
borrowings, before expenses, of $57.6 million and stock issuances aggregating
$5.0 million, such transactions occurring subsequent to the balance sheet and
prior to the consummation of the Offering to satisfy the balance of the required
Downpayment, (ii) capitalization as an intangible asset of the PCS licenses
awarded to the Company and the recognition of the resulting net indebtedness to
the FCC of $823.9 million and (iii) the issuance of an $8 million promissory
note with attached warrants to purchase 1 million shares of Class B Common Stock
as a fee for securing certain financing in connection with the Downpayment, (iv)
utilization of escrow funds of $15 million which was applied towards the
Downpayment, including $5 million which was received for Class B Common Stock
issued on November 8, 1996, and (v) the conversion of approximately $72.3
million principal amount of certain convertible debt and term loans convertible
into convertible debt which may be converted into 9,937,500 shares of Class B
Common Stock, of which $7.3 million is expected to convert immediately following
the consummation of the Offering and $65 million is expected to convert into
convertible debt and subsequently into Class B Common Stock within 15 days
following the consummation of the Offering. Due to FCC compliance requirements,
the actual amount of convertible debentures that convert into Class B Common
Stock or term loans that convert into convertible debentures and subsequently
into Class B Common Stock may be different than what is currently anticipated.
Accordingly, the actual amount of convertible debentures which do convert will
cause adjustment to the capital accounts when such transactions occur.
Unless otherwise specified, the financial statements and the notes thereto
give retroactive effect to the Recapitalization, except for adjustments to the
authorized shares of capital stock, as though it had occurred at the beginning
of all periods presented. Also in connection with Recapitalization, outstanding
warrants to purchase shares of Old Class B Common Stock will be converted into
rights to purchase shares of Class B Common Stock, with appropriate adjustments
to the exercise price thereof.
F-8
<PAGE> 104
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
The Company's activities to date principally have been planning and
participating in the Auction, conducting market research, securing capital and
developing its proposed service and PCS Network. The Company will continue to be
a development stage company, as defined in Statement of Financial Accounting
Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage
Enterprises," until it generates significant revenue from its products and
services.
Principles of consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and a partnership in which the Company has a
majority general partner interest. All significant intercompany transactions and
balances have been eliminated. Minority interest in the partnership is
approximately $1,420,000 and $76,000, at September 30, 1996 and December 31,
1995, respectively.
Unaudited interim financial information
The accompanying consolidated financial statements as of September 30,
1996, and for the nine months ended September 30, 1996 and 1995, have been
prepared by the Company and are unaudited. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows at September
30, 1996 and for the interim periods have been made. Results of operations for
the nine months ended September 30, 1996 and 1995 are not necessarily indicative
of the results that may be expected for the full year or for any future periods.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of expenses during the
reported period. The estimates involve judgments with respect to, among other
things, various future factors which are difficult to predict and are beyond the
control of the Company. Therefore, actual amounts could differ from these
estimates.
Concentration of credit risk
The Company invests its excess cash in short-term highly liquid investments
including United States government securities and obligations. The Company's
intent is to hold its investments in debt securities to maturity.
Cash and cash equivalents
The Company considers all highly liquid instruments with remaining
maturities of 90 days or less at the time of purchase to be cash equivalents.
Escrow accounts
The Company's policy is to record funds deposited into escrow accounts as
assets when the Company has control over the escrow account. As of September 30,
1996, the Company has recorded $15 million of funds held in escrow, which by
their terms, were applied towards the Downpayment on November 8, 1996.
License costs
As of September 30, 1996, the Company had recorded $71.3 million of license
costs representing funds remitted in satisfaction of the first five percent
downpayment requirement. On November 8, 1996, the Company remitted an additional
$71.3 million and recorded $966.6 million as an intangible asset representing
F-9
<PAGE> 105
the cost of the acquired licenses, with cost determined as (i) the present value
of the deferred payment obligation provided by the U.S. Government using a
discount rate of 14% (the "Government Financing") and (ii) the Downpayment. The
Government Financing, which provides for favorable terms, including a below
market interest rate of 6.5% per annum fixed for the ten year life of the
financing, is available to the Company because it qualifies as a small business
as defined by the FCC rules and regulations for the Auction. The PCS licenses
expire in November 2006 but typically are renewable for a nominal fee. The
licenses will be amortized using the straight-line method over a period of 40
years.
As discussed in Note 14, "Regulatory Matters", the Company, as holder of
the PCS licenses, will be subject to various restrictions and regulations of the
FCC. If the Company should fail to meet or violate one or more of these
regulations, the FCC could revoke one or more of the Company's licenses, which
may result in an impairment loss to be recognized in the financial statements in
an amount that could be material.
The Company, as a matter of policy, and in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," will assess the fair value of its long-lived assets, including
intangibles, periodically and earlier if situations arise. Management's
evaluation will include a number of factors, including the impact of regulatory
issues, in determining potential impairment loss.
Deferred financing costs
Deferred financing costs represent capitalized costs incurred to obtain
financing under debt agreements, vendor financing arrangements and borrowing and
credit facilities. The Company's policy is to amortize these costs over the life
of the underlying indebtedness using the effective interest method.
Property and equipment in service and network development in process
Property and equipment are recorded at cost and depreciated using the
straight-line method over three to seven years based upon the estimated useful
lives of the related equipment.
The Company's policy is to capitalize development and related build-out
costs of its PCS Network. As of September 30, 1996, the Company has capitalized
engineering, site acquisition and other development costs incurred in its
initial markets. Charges to operations for depreciation expense of a PCS network
will commence when the respective PCS network is available for commercial use.
The Company follows the requirements of SFAS No. 34, "Capitalization of Interest
Cost," when the amounts become material. For the nine months ended September 30,
1996, the Company incurred interest costs of $4.5 million, of which $494,000 was
capitalized as part of the Company's network development activities. Interest
costs incurred prior to 1996 were expensed.
Pro forma net loss per common share (unaudited)
Pro forma net (loss) per common share is computed based on the weighted
average number of outstanding shares of common stock and dilutive common stock
equivalents. As required by the Securities and Exchange Commission Staff
Accounting Bulletin No. 83 ("SAB No. 83"), common stock and common stock
equivalents issued at prices below the anticipated initial public offering price
since August 1995 have been included in the calculation, even if antidilutive,
as if they were outstanding for all periods. As permitted under SAB No. 83, the
common stock equivalents for stock options and warrants, were determined using
the treasury method at a per share price of $ , the midpoint of the
proposed public offering price range. In addition, convertible subordinated
debentures to be converted into Class B Common Stock upon the consummation of
the Offering are treated as having been converted into Common Stock at the date
of original issuance. Common stock equivalents issued prior to August 1995 have
not been included since the effect would be antidilutive.
F-10
<PAGE> 106
New accounting statement
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement encourages, but does not require, a fair value
based method of accounting for employee stock options or similar equity
instruments. Entities that elect not to adopt the fair value method of
accounting are required to make pro forma disclosures of net loss and net loss
per share as if the fair value method were adopted. This Statement is required
for fiscal years beginning after December 15, 1995. Management does not intend
to adopt the fair value method of accounting. Accordingly, adoption of the
Statement in the fiscal year ending December 31, 1996, will only impact the
Company's disclosures.
4. STOCKHOLDERS' DEFICIT
After the Recapitalization discussed in Note 2, the Company will have
authorized two classes of common stock, Class A Common Stock and Class B Common
Stock, and one class of Preferred Stock. The Class A Common Stock has five votes
per share and the Class B Common Stock has one vote per share; provided,
however, that the number of votes per share of Class A Common Stock may be
adjusted from time to time to ensure that the total number of votes of the
issued and outstanding shares of Class A Common Stock is not less than 50.1% of
the total number of votes of the issued and outstanding shares of voting stock
of the Company.
In order to maintain compliance with the FCC requirements, the control
group of the Company, consisting of individuals or entities who meet certain
financial requirements and members of the Company's management team (the
"Control Group"), must maintain certain minimum equity interest levels in the
Company. As provided in the Control Group Agreement (as defined below), a number
of actions can be taken to ensure compliance, including the grant of options to
purchase either Class A Common Stock or Class B Common Stock to Control Group
members in sufficient number and only to the extent necessary to increase the
Control Group's equity interest to the required minimum levels (the "Control
Group Options"). The exercise price of Control Group Options granted prior to
the Offering to acquire Class A Common Stock to maintain the 50.1% Control Group
equity structure, as defined, is $8.00. Control Group Options to purchase Class
A Common Stock granted after the Offering shall be exercisable at 90% of the
fair market value on the date of exercise or at the fair market value on the day
of grant and will expire when the maintenance of such minimum ownership level is
no longer necessary. The exercise price of Control Group Options granted to
acquire Class B Common Stock to maintain minimum levels of equity as provided by
the FCC requirements also is 90% of the fair market value on the date of
exercise the closing asked price of the Class B Common Stock at the date of
grant as quoted on the Nasdaq National Market. Such Control Group Options also
expire when they are no longer needed to maintain required minimum equity
levels.
Members of the Control Group have entered into an agreement (the "Control
Group Agreement") which, among other things, limits the transfer or issuance of
capital stock of the Company in situations where the Company would violate
ownership regulations as promulgated by the FCC, including its Designated Entity
status as further discussed in Note 14. For the licenses granted on November 4,
1996, the terms of the Control Group Agreement provide that (i) up to 2% of the
shares of the Class A Common Stock outstanding as of the date of the Offering
are convertible into shares of Class B Common Stock on a 1-to-1 basis for the
period from November 4, 1999, (ii) up to 20% of the shares of the Class A Common
Stock outstanding as of the date of the Offering are convertible into shares of
Class B Common Stock on a 1-to-1 basis for the period through November 4, 1999
to November 4, 2001 subject to the condition that following such conversion the
Company would maintain its Designated Entity status without issuing any Control
Group Options and (iii) after November 4, 2001, the number of shares of the
Class A Common Stock outstanding as of the date of the Offering that are
convertible into shares of Class B Common Stock on a 1-to-1 basis do not exceed
60% of the shares of Class A Common Stock outstanding as of the date of the
Offering, subject to the condition that following such conversion the Company
would maintain its Designated Entity status without issuing any Control Group
Options.
The Company's Articles of Incorporation, as amended, provide that, among
other things, any liquidation, dissolution, certain mergers, reorganizations,
recapitalizations, sales or transfers of substantially all of the
F-11
<PAGE> 107
assets of the Company, amendments to the Articles of Incorporation that
substantially adversely affects the contract rights of the holders of Class B
Common Stock and any substantial transfer of control under FCC rules requires
the approval of the holders of a majority of the outstanding shares of Class A
Common Stock and the approval of the holders of a majority of the outstanding
shares of Class B Common Stock, each voting separately as a class.
Prior to the Recapitalization discussed in Note 2, effective November 3,
1994 and July 7, 1995, the Board of Directors of the Company declared a 10 to 1
and a 1,000 to 1 stock split, respectively, of the then outstanding shares of
Old Class A Common Stock. All references in the financial statements and notes
have been adjusted to give effect to the stock splits.
As of December 13, 1996 the Company reserved Class B Common Stock for
future issuance as detailed below:
<TABLE>
<S> <C>
Conversion of convertible debentures.................................... 10,562,500
Stock purchase warrants................................................. 400,000
Employee and director option plans and grants........................... 7,231,660
----------
Total......................................................... 18,194,160
=========
</TABLE>
The Company expects to reserve 5,040,000 shares of Class B Common Stock for
issuances under a Director Stock Compensation Plan, an Incentive Compensation
Plan, a 401-K Plan, and an Employee Stock Purchase Plan, all of which are
expected to be approved by the Board of Directors prior to the Offering.
Additionally, shares of Common Stock will be reserved for Control Group Options
and future issuances of stock relating to its vendor financing agreements.
In exchange for services rendered, the Company, in April 1996, issued to C.
E. Capital Consultants, Inc., 150,000 shares of Class B Common Stock and
warrants to purchase 150,000 shares of Class B Common Stock at an exercise price
of $14.00 per share (the "Warrants"). The Warrants expire in January 1998. The
shares issued and the Warrants were recorded at the fair value of the
professional services, which the Company estimated at $123,000.
On August 19, 1996, the Company entered into two agreements with
Booz - Allen & Hamilton Inc. ("Booz - Allen") which would provide for the
issuance of up to 718,750 shares of Class B Common Stock at a purchase price of
$8.00 per share, subject to certain adjustments and satisfaction of certain
conditions. Such conditions were met upon making the Downpayment. In connection
with these agreements, the Company recorded subscribed stock of $5,750,000 as of
September 30, 1996 and on November 8, 1996 issued 625,000 shares of Class B
Common Stock resulting in proceeds of $5.0 million which was applied towards the
Downpayment and 93,750 shares of Class B Common Stock as payment for $750,000 of
services provided in connection with development of the Company's PCS networks.
Additional shares of Class B Common Stock may be issued by the Company to
Booz - Allen to adjust for the lowest per share price paid to the Company for
certain sales of Class B Common Stock from and after August 1, 1996 until the
earlier of the consummation of the Offering and January 31, 1997.
On August 29, 1996, the Company entered into a subscription agreement to
sell 125,000 shares of Class B Common Stock at a purchase price of $8.00 per
share in return for executive search and consulting services. In connection with
this agreement, the Company recorded subscribed stock of $1.0 million as of
September 30, 1996.
On November 1, 1996, the Company entered into a stock purchase agreement
with a third party whereby the Company would sell 1,800,729 shares of Class B
Common Stock for approximately $2.7 million. The proceeds from the sale of the
Class B Common Stock were used by the Company to satisfy an obligation
approximating $1.2 million and redeem shares of Old Class A Common Stock
previously purchased by a third party aggregating $1.5 million, as discussed in
Note 11.
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<PAGE> 108
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 and September 30, 1996
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C>
Office equipment................................... $11,029 $ 272,134 $ 411,138
Furniture and fixtures............................. 2,363 120,053 111,330
Leasehold improvements............................. -- 52,248 70,138
------- ---------- ----------
13,392 444,435 592,606
Less accumulated depreciation...................... (302) (44,535) (143,903)
------- ---------- ----------
13,090 399,900 448,703
Network development, in process.................... -- 1,349,265 13,247,172
------- ---------- ----------
$13,090 $1,749,165 $13,695,875
======= ========== ==========
</TABLE>
6. SHORT-TERM BORROWINGS
Borrowing Facility
In August 1996, the Company, in connection with securing financing for the
Downpayment, entered into an arrangement with certain related entities for
borrowings of approximately $41.7 million, including fees of approximately $1.0
million (the "Borrowing Facility"). On November 8, 1996, the Company borrowed
$41.7 million at an interest rate of 11.25% per annum with such interest paid
quarterly with such net borrowings of $40.6 million applied towards the
Downpayment. Amounts borrowed under the Borrowing Facility are subject to
mandatory prepayment by the Company in the event that at least $200 million of
certain financing is raised, including amounts raised in the Offering.
Borrowings that are not prepaid will mature on the earlier of (i) November 8,
1997, and (ii) the occurrence of an event of default, as defined in the
Borrowing. In connection with the borrowings under the Borrowing Facility, the
Company has issued a promissory note in the principal amount of $8.0 million to
an affiliated third party (the "Promissory Note") in satisfaction of services
provided in securing the Borrowing Facility. Warrants to purchase 1 million
shares of Class B Common Stock at an exercise price of $8.00 per share, whose
exercise is subject to FCC requirements, are attached to such promissory note.
The promissory note matures November 8, 1998 unless tendered by the holder in
satisfaction of the exercise price of the warrants.
The Company has entered into three working capital loan agreements
(collectively the "Short-Term Financing Agreements") with proceeds to the
Company aggregating approximately $3.2 million all with borrowings at an
interest rate of 12% per annum. As of September 30, 1996, the Company had
approximately $1.0 million outstanding under the Short-Term Financing
Agreements. Amounts borrowed, including unpaid interest, under the Short-Term
Financing Agreements are due over periods through October 22, 1997, unless
prepaid earlier as provided in the respective agreements. Generally, the
Short-Term Financing Agreements provide that outstanding borrowings will be due
in full when the Company has secured alternative sources of financing, including
the Offering. In securing certain of these financing agreements, the Company
issued a promissory note, with attached stock purchase warrants, in the amount
of $240,000 due in two years. The stock purchase warrants, whose exercise is
subject to FCC requirements, will allow for the purchase of up to 30,000 shares
of Class B Common Stock at $8.00 per share. All amounts borrowed under the
Short-Term Financing Agreements are with related parties or their affiliates.
In December 1996, the Company entered into a financing agreement with
Dominion Fund IV ("Dominion Fund") pursuant to which Dominion Fund agreed to
provide an $8.0 million short-term loan for the purchase of telephone switching
equipment for use in the Las Vegas and Honolulu BTAs. Simultaneously with the
closing of this short-term loan, the Company and Dominion Fund entered into an
$8.0 million master lease line with a term of 36 months for the leasing of
telephone switching equipment and office equipment. Under the terms of the
agreements, the combined principal amounts outstanding may not exceed $8.0
million.
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<PAGE> 109
The term loan bears an interest rate of 15% per annum and is payable in full in
June 1997. As additional consideration for providing such financing, Dominion
Fund will receive at closing of the term loans and the master lease line, a
total of 430,000 detachable warrants to purchase Class B Common Stock
exercisable at $8.00 per share, subject to certain adjustments, which expire at
the earlier of (a) five years from the date of the Offering or (b) seven years
from the date of the agreement, whose exercise is subject to compliance with FCC
rules.
7. LONG-TERM DEBT
Long-term debt at December 31, 1995 and September 30, 1996 was:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------
PRO FORMA
DECEMBER 31, 1995 ACTUAL (UNAUDITED) (NOTE 2)
<S> <C> <C> <C>
Vendor Financing.......................... -- $34,541,402 $ 39,541,402
Convertible and Additional Convertible
Loans................................... $39,300,000 54,300,000 --
Series B and D Convertible Debentures..... 833,000 7,333,000 --
Promissory Note........................... -- -- 8,000,000
----------- ---------- -----------
40,133,000 96,174,402 47,541,402
----------- ---------- -----------
Government Financing...................... -- -- 823,918,032
----------- ---------- -----------
$40,133,000 $96,174,402 $871,459,434
=========== ========== ===========
</TABLE>
VENDOR FINANCING AGREEMENTS
Ericsson Inc.
In November 1995, the Company entered into a loan agreement with Ericsson
Inc. ("Ericsson"), whereby the Company would receive up to $2.0 million for
working capital purposes (the "Ericsson Working Capital Loan"). As of September
30, 1996, the Company had borrowed $2.0 million under the Ericsson Working
Capital Loan at an interest rate of 11% per annum. In May 1996, the Company
entered into a second loan agreement with Ericsson (the "1996 Ericsson Loan")
providing the Company with a credit facility of up to $20.0 million in principal
and an additional $3.0 million for interest advances on the borrowings. As of
September 30, 1996, the Company borrowed approximately $15.6 million under the
second loan agreement consisting of (i) $15.0 million at an interest rate of
11.25% per annum and (ii) $643,000 of financed interest costs in connection with
principal borrowings. On November 7, 1996, the Company borrowed an additional
$5.0 million under the 1996 Ericsson Loan at an interest rate of 11.25% per
annum with such interest to be paid quarterly. Amounts borrowed and outstanding
under the Ericsson Working Capital Loan and the 1996 Ericsson Loan are expected
to be refinanced with the first borrowings under the Ericsson Financing
Agreement as herein defined.
At September 30, 1996, the Company has classified all amounts currently due
within one year, including interest and accrued network development costs owed
to Ericsson, of $22.7 million as long-term debt. The Company has both the intent
and the ability, as demonstrated by an executed financing agreement with
Ericsson dated December 11, 1996 to refinance this debt on a long-term basis
(the "Ericsson Financing Agreement").
The Ericsson Financing Agreement provides that Ericsson will provide up to
$422 million of vendor financing. The funds available under the Ericsson
Financing Agreement may be drawn upon by a subsidiary of the Company that will
be the holding company for indirect subsidiaries of the Company to be formed in
each of the Honolulu, Chicago and Dallas markets for the build-out and operation
of the Company's PCS network in such markets.
Advances under the Ericsson Financing Agreement will bear interest at a
rate of prime plus 3% per annum. At the Company's option, advances may be
converted into Eurodollar loans, bearing interest at a rate
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<PAGE> 110
of LIBOR plus 5.75%. The Ericsson Financing Agreement makes funds available to
the Company for a period of four years, subject to the Company's satisfaction of
certain equity and borrowing base requirements.
The principal amount due on advances made under the Ericsson Financing
Agreement is repayable in quarterly installments during calendar years 2001
through 2004, with the amount of the installments ranging from 3.75% of the
then-outstanding principal amount of the advances in 2001 to 8.75% in 2004.
Accrued interest will be payable quarterly or, in the case of Eurodollar loans,
at the end of interest periods as defined in the Ericsson Financing Agreement.
As additional consideration to Ericsson for its provision of up to $422
million of vendor financing, Ericsson has the right to receive detachable
warrants to purchase shares of the Company's Class B Common Stock. The warrants
can be exercised at $8.00 per share. Warrants shall be issued pro rata only to
the extent of draws made under the Ericsson Financing Agreement but shall not be
exercisable until December 31, 1998. Both the issuance and exercise of the
warrants are subject to FCC requirements.
Advances under the Ericsson Credit Agreement will be secured by a security
interest in all of the assets of the Company's operating subsidiaries that will
be developing and operating the PCS Network in the Honolulu, Chicago and Dallas
markets, and by a pledge of all the stock of the license-holding subsidiaries to
which the Licenses for each of the markets will be assigned. In addition, the
Company will provide a guaranty of the repayment obligations of its operating
subsidiaries under the Ericsson Financing Agreement.
Siemens Stromberg-Carlson
In August 1996, the Company entered into an agreement with Siemens
Stromberg-Carlson ("Siemens") whereby Siemens agreed to loan the Company $10.0
million, subject to certain conditions (the "Siemens Facility").
On September 18, 1996, the Company borrowed $10.0 million under the Siemens
Facility at an interest rate of 10.74% per annum. Borrowings under the Siemens
Facility were applied towards the Downpayment discussed in Note 1. At September
30, 1996, the Company has classified all amounts due within one year, including
interest, under the Siemens Facility of approximately $10.0 million as long-term
debt. The Company has both the intent and the ability, as demonstrated by
financing agreements that are currently being finalized to refinance this debt
on a long-term basis (the "Siemens Financing Term Sheet").
The Siemens Financing Term Sheet provides that Siemens will provide up to
$165 million of vendor financing. Under the agreed terms, the Siemens financing
will be available to the Company for equipment and services to be provided by
Siemens for the build-out of the Detroit market. In addition, the Siemens
Facility would provide funds for certain related third-party equipment and
services. Advances bear interest at prime plus 4% or LIBOR plus 5%. The agreed
terms for the Siemens Facility represent a commitment by Siemens to provide such
financing subject to execution of a definitive agreement. As additional
consideration to Siemens for its provision of up to $165 million of vendor
financing, Siemens will have the right to receive detachable warrants to
purchase shares of the Company's Class B Common Stock. The warrants can be
exercised at $8.00 per share. Warrants shall be issued pro rata only to the
extent of draws made under the Siemens financing agreement but shall not be
exercisable until July 1, 1998. Both the issuance and exercise of the warrants
are subject to FCC requirements. Management believes that a definitive agreement
for the Siemens Facility will be executed, however, there can be no assurance of
such closing.
Northern Telecom Inc.
In November 1996, the Company and Northern Telecom Inc. ("Nortel") entered
into a contract pursuant to which Nortel would sell telephone equipment and
provide financing and related services in connection with the implementation and
operation of the Las Vegas BTA (the "Nortel Financing Agreement"). Total
financing to be provided will approximate $59.0 million.
At September 30, 1996, the Company has classified all amounts due within
one year, including interest and accrued network development costs owed to
Nortel under previous and separate agreements, of approximately $1.8 million as
long-term debt. The Company has both the intent and the ability to refinance
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<PAGE> 111
this debt on a long-term basis. The Nortel Financing Agreement provides that the
funds available under the Nortel Financing Agreement may be drawn upon by DCR
Pacific PCS Limited Partnership, a majority-owned subsidiary of the Company
("DCR Pacific"). A portion of the credit provided by the Nortel Financing
Agreement ("Tranche B") is available for the payment of certain Nortel equipment
and services not provided under the Nortel Project and Supply Agreement and for
certain other third-party related costs.
Advances under the Nortel Financing Agreement will be subject to interest
on a LIBOR basis, bearing interest at a rate of LIBOR plus 4.5%. The Nortel
Financing Agreement makes funds available to the Company until October 31, 2000,
subject to the Company's satisfaction of certain equity requirements.
The principal amount due on the advances made under the Nortel Financing
Agreement is repayable in 16 consecutive quarterly installments following the
fourth anniversary of the Nortel Financing Agreement. Prior to such date,
interest only is payable.
The Nortel Financing Agreement provides, after July 1, 1998, for the right
to convert certain advances under Tranche B of the facility into shares of Class
B Common Stock of the Company only to the extent drawn down and consistent with
FCC requirements. The exchange rate for conversion shall be equal to $8.00 per
share. In addition, holders of shares received by conversion of the advances
will be entitled to certain registration rights for the public sale of such
shares.
Advances under the Nortel Financing Agreement will be secured by a security
interest in all of the assets of DCR Pacific, and by pledge of the partnership
interests of DCR PCS of Las Vegas Limited Partnership, a wholly-owned subsidiary
of DCR Pacific, to which the License for the Las Vegas market will be assigned.
In addition, the Company provided a guaranty of the repayment obligations of its
operating subsidiary under the Nortel Agreement.
Vendor Stock Purchase Warrants, Conversion Rights
The Ericsson Credit Agreement, the Nortel Agreement and the Siemens
Agreement provide for stock purchase warrants (as to Ericsson and Siemens) and
conversion rights (as to Nortel) for the issuance of up to 8,568,750 shares of
Class B Common Stock over the term of such financings, subject to FCC
requirements. Both the stock purchase warrants and the convertible rights (i)
are exercisable in periods after July 1, 1998, (ii) have an exercise price and a
conversion rate of $8.00 and (iii) are issued pro rata with draws made under the
respective vendor financing agreement. Warrants will be valued at the time that
they are issued to the vendor.
CONVERTIBLE AND ADDITIONAL CONVERTIBLE LOANS
Convertible Loans
In June 1995, the Company entered into a loan and purchase agreement (the
"MTAI Agreement") with Masa Telecom Asia Investment Pte. Ltd. ("MTAI") whereby
MTAI agreed to loan the Company up to $30.0 million with such funds to be
applied towards the Downpayment. The MTAI Agreement, as amended, provides that
initial borrowings would be in the form of term loans (the "Convertible Loans")
which may convert into Series A convertible debentures (the "Convertible
Debentures"), subject to certain limitations, within fifteen days following the
consummation of either an initial public offering or a private placement of at
least $172,500,000 of securities. In November 1995, the Company borrowed $30.0
million in Convertible Loans at an interest rate of 6.71% per annum. The Company
expects that certain of the Convertible Loans will convert to Convertible
Debentures within fifteen days following the consummation of Offering (the
"Converted Loans"). Any conversions of the outstanding Convertible Loans and the
conversion of Convertible Debentures, including mandatory conversion features,
are subject to the Company's continued compliance with the FCC's alien ownership
restrictions, Small Business qualifications and maintenance of its Designated
Entity Status as discussed in Note 14 (together the "FCC Ownership
Regulations").
Unpaid interest on the Converted Loans at the date of conversion, together
with interest payable thereon at 6.71% will be due five years after conversion.
Convertible Loans which do not convert, unless subsequently converted, will,
along with all deferred and unpaid interest, be due and payable in May 2001.
F-16
<PAGE> 112
Future issuances of Convertible Debentures, if any, resulting from
conversions of Convertible Loans will bear interest at the Applicable Federal
Midterm Rate in effect at the date on which the Convertible Debentures are
issued. The Convertible Debentures, unless subsequently converted, along with
unpaid interest shall be due in September 2000. Convertible Debentures will be
subject to mandatory conversion to shares of Class B Common Stock in the event
of a public offering of stock by the Company, subject to the FCC Ownership
Regulations. Any such mandatory conversion shall be at a price equal to the
lesser of (i) $8.00, subject to certain adjustments or (ii) an amount equal to
the price paid per share of Class B Common Stock sold in the Offering, (the
"Conversion Ratio"). Certain of the then outstanding Convertible Debentures are
expected to convert into shares of Class B Common Stock in connection with the
Offering discussed in Note 2. For Convertible Debentures which do convert as a
result of the mandatory conversion feature, all unpaid interest together with
interest payable thereon at the same rate, is due five years after date of the
conversion.
For the period prior to maturity, each Convertible Debenture is convertible
into shares of Class B Common Stock at the option of the debenture holder. Any
such voluntary conversion of the Convertible Debentures into shares of Class B
Common Stock shall be at the Conversion Ratio. Additionally, the Company, at its
option, can require conversion of all outstanding Convertible Debentures into
shares of Class B Common Stock beginning September 1, 1997, and each anniversary
thereafter, until maturity. All conversions of the Convertible Debentures into
shares of Class B Common Stock are subject to the FCC Ownership Regulations. For
Convertible Debentures which are converted at the option of the debenture holder
or at the option of the Company, all unpaid interest together with interest
payable thereon is due five years after date of the conversion.
Additional Convertible Loans
The Company entered into a loan and purchase agreement (the "Pacific Eagle
Agreement") in August 1995, with Pacific Eagle Investments, Ltd. ("Pacific
Eagle"), whereby Pacific Eagle agreed to loan the Company up to $35.0 million to
be used towards the Downpayment. The Pacific Eagle Agreement, as amended,
provides that initial borrowings would be in the form of term loans (the
"Additional Convertible Loans"), which would convert into Convertible
Debentures, subject to certain limitations, within fifteen days following the
consummation of either a public or private offering of Class B Common Stock,
including the Offering. In November 1995, the Company borrowed $9.3 million in
Additional Convertible Loans at an interest rate of 6.71% per annum, which was
applied towards the Downpayment. In April 1996, the Pacific Eagle Agreement was
amended to permit further borrowings. In May 1996, the Company borrowed $15.0
million in Additional Convertible Loans under the amended Pacific Eagle
Agreement at an interest rate of 7.28% per annum, which was applied towards the
Downpayment. On November 8, 1996, the Company borrowed an additional $10.7
million at an interest rate of 6.79% per annum with such borrowings being
applied toward the Downpayment. The Company expects that certain of the
Additional Convertible Loans will convert to Convertible Debentures within
fifteen days following the consummation of the Offering (the "Additional
Converted Loans"). Any subsequent conversions of outstanding Additional
Convertible Loans and the conversion of Convertible Debentures are subject to
continued compliance with the FCC Ownership Regulations. Additionally, the
repayment terms, maturity, and conversion features and restrictions of the
Additional Convertible Loans, and conversion features and restrictions of
Convertible Debentures under the Pacific Eagle Agreement are the same as those
provided in the MTAI Agreement.
Unpaid interest due on the Additional Converted Loans at the date of
conversion, together with interest payable thereon at rates ranging from 6.71%
to 7.28% will be due five years after conversion. Additionally, it is expected
that in connection with the consummation of the Offering discussed in Note 2,
certain of the then outstanding Convertible Debentures will be converted into
shares of Class B Common Stock. All conversions of the Convertible Debentures
into shares of Class B Common Stock are subject to the FCC Ownership
Regulations.
F-17
<PAGE> 113
CONVERTIBLE DEBENTURES
Series B Convertible Debentures
In August 1995, the Company issued a total of $833,000 in Series B
Convertible Debentures (the "Series B Convertible Debentures"), to Multinational
Technology and Business Limited ("MTB") which bear interest at rates ranging
from 6.31% to 6.38% per annum. The Series B Convertible Debentures, which mature
in September 2000, are convertible into shares of Class B Common Stock at a
price per share of $.833 at any time prior to maturity and automatically convert
in the event of a public offering of capital stock by the Company. Conversions
are subject to (i) minimum conversion increments of $200,000, (ii) continued
compliance with FCC Ownership Regulations and (iii) the conversion priority of
holders of debentures issued in connection with the MTAI Agreement and the
Pacific Eagle Agreement, if any. In 1995, MTB assigned its rights under the
Series B Convertible Debentures to Pacific Eagle.
It is expected that, in connection with the consummation of the Offering
discussed in Note 2, a certain amount of Series B Convertible Debentures will be
converted into shares of Class B Common Stock. All conversions of the Series B
Convertible Debentures into shares of Class B Common Stock are subject to the
FCC Ownership Regulations. For Series B Convertible Debentures which convert,
all unpaid interest, together with interest payable thereon at the same rate, is
due five years after date of conversion.
The entities MTAI, Pacific Eagle, and MTB are all affiliated because some
of the principals own shares in two or more of the other entities.
Series D Convertible Debentures
In March 1996, the Company entered into a Convertible Loan and Investment
Agreement, (the "Investment Agreement"), with LCC, L.L.C. ("LCC") to provide the
Company financing of up to $6.5 million. In connection therewith, the Company
issued Series D convertible debentures (the "Series D Convertible Debentures")
in the amount of $6.5 million allocated by the Investment Agreement to (i) $1.5
million for software license fees and (ii) $5.0 million for working capital
purposes or to partially satisfy the Downpayment. The Series D Convertible
Debentures of $3.5 million accrue interest at prime, determined as of the last
business day of the immediately preceding calendar quarter, plus 4% per annum
for the first six months, and thereafter at prime plus 2.5% per annum. Series D
Convertible Debentures of $3.0 million accrue interest at prime, determined as
of the last business day of the immediately preceding calendar quarter, plus
2.5% per annum. Interest shall be payable quarterly, in arrears, with the first
interest payment due on March 31, 1997 covering the period from the initial
funding through March 1997. As of September 30, 1996, outstanding Series D
Convertible Debentures bear interest ranging from 10.75% to 12.25% per annum.
The Series D Convertible Debentures are convertible into shares of Class B
Common Stock at the lesser of $14.00 and the price at which the Company sells
certain shares of its equity securities, including the shares sold in the
Offering. In connection with the subscription agreement entered into with Booz -
Allen, which provides for a purchase price of $8.00 per share of Class B Common
Stock, the conversion rate of the Series D Convertible Debentures is anticipated
to be $8.00 per share. The Series D Convertible Debentures, unless converted
into Class B Common Stock, mature in 2001.
As specified in the Investment Agreement, the lender, at its option, can
convert the Series D Convertible Debentures into Class B Common Stock in
multiples of not less than $1.0 million, subject to the FCC's foreign ownership
restrictions. The Company may also exercise the mandatory conversion feature of
the Series D Convertible Debentures upon the closing of an initial public
offering of the Company's common stock resulting in gross proceeds of at least
$25.0 million and require the conversion of Series D Convertible Debentures,
subject to limitations, into Class B Common Stock or similar other equity, as
defined, if other equity is being offered. In those situations where the Company
has elected to cause mandatory conversion of the Series D Convertible
Debentures, LCC may elect to not have the Series D Convertible Debentures
mandatorily converted but in so doing waives its rights to effect future
voluntary conversions. Any conversion into Class B Common Stock would be at the
Conversion Rate.
F-18
<PAGE> 114
In connection with the Offering discussed in Note 2, it is expected that a
certain amount of Series D Convertible Debentures will be converted into shares
of Class B Common Stock. All conversions of the Series D Convertible Debentures
into Class B Common Stock are subject to the FCC Ownership Regulations.
GOVERNMENT FINANCING
On November 8, 1996, the Company recorded an obligation of $823.9 million
for the Government Financing determined as the present value of the deferred
payment obligation using a discount rate of 14%. The Government Financing will
finance 90% of the Company's total bid of $1.43 billion, which is net of a 25%
bidding credit available to the Company as a result of qualifying as a Small
Business under FCC regulations.
The Government Financing has a ten-year term and will require only
quarterly interest payments for the first six years. The interest rate of 6.50%
per annum is fixed for the ten year term. For years seven through ten, the
obligation requires both principal and interest payments through maturity.
OTHER MATTERS
The Company's financing agreements contain affirmative covenants,
including, among others, maintenance of licenses and properties, compliance with
laws, insurance, payment of taxes, payment of other indebtedness, and delivery
of financial and other information. Additionally, the vendor financing
agreements require that the Company and certain of its subsidiaries comply with
certain financial tests and maintain certain financial ratios, including, among
others, with respect to maximum leverage, debt service, fixed charges and other
financial ratios. In addition, the Company is required to make certain
repayments of borrowing under these agreements from certain asset sales and
excess cash flow. These agreements also contain restrictive covenants that
impose restrictions and/or limitations on the operations and activities of the
Company and certain of its subsidiaries, including, among others, the incurrence
of indebtedness, material adverse change clauses, the creation or incurrence of
liens, the sale of assets, investments and acquisitions, mergers, declaration or
payment of dividends on or other payments or distributions to shareholders (or
partners in the case of subsidiaries that are partnerships) or material
transactions with an affiliate on terms less favorable than those obtainable
from a nonaffiliate. Additionally, certain of the financing agreements provide
for restrictions and limitations on transactions by the Company other than in
the ordinary course of its business or that would affect its cash flow,
liabilities or capital structure including the requirement to continue the
Company's prior commitment to use GSM technology and the requirement to procure
and use certain lenders' equipment and related services in specific markets.
The agreements governing the vendor financings contain a number of
customary representations, warranties, covenants and conditions. In addition,
such agreements require the Company's subsidiaries to receive certain minimum
capital contributions prior to drawing down funds under the facilities. The
Company expects to satisfy a portion of such minimum capital contributions
through the Offerings. Moreover, additional significant capital contributions
will be required in order to access the total commitments under the vendor
financing.
These agreements provide for various events of default, including, without
limitation, interest and payments defaults, breach of the covenants, agreements,
representations and warranties made by the Company and certain of its
subsidiaries under the various agreements, cross defaults to certain other
indebtedness, judgments in excess of $1.0 million which remain undischarged for
a period of 30 days, certain events relating to bankruptcy or insolvency,
revocation of any material FCC license, the failure of the present Control Group
to retain control.
Borrowings under certain financing agreements are secured by, among other
things, the grant of security interests in the assets of the respective borrower
and its affiliates, the pledge of the capital stock and partnership interests of
subsidiaries to the lenders and guarantees provided by the Company and its
subsidiaries.
As of September 30, 1996, $1.0 million, $66.1 million and $29.1 million of
long-term debt matures in 2000, 2001 and 2002 and beyond, respectively.
F-19
<PAGE> 115
On December 12, 1996, the Company and Brightpoint Inc. ("Brightpoint")
entered into both a services agreement and financing agreement whereby (i)
Brightpoint will provide the Company a variety of services, including wholesale
inventory management, warehousing and fulfillment and (ii) Brightpoint
purchased, and the Company sold, $5.0 million of Series E Convertible Debentures
(the "Series E Convertible Debentures"). The Series E Convertible Debentures are
due December 12, 1998 (the "Maturity Date"), unless previously converted into
Class B Common Stock, as provided, by either Brightpoint or the Company, or
redeemed by the Company at face value as provided. Borrowings bear interest at
the prime rate, adjusted quarterly, plus two and one-half percent. Interest at
the prime rate plus one-half percent per annum shall be payable quarterly in
arrears and two percent per annum shall accrue and be due at maturity or upon
the conversion of the principal. In the event of conversion of the principal,
the accrued portion of interest will be payable in shares of Class B Common
Stock, subject to compliance with FCC requirements, at the conversion rate of
$8.00 per share. The Series E Convertible Debentures are not convertible by
Brightpoint until June 1998 at which time Brightpoint can convert such
obligations into Class B Common Stock, subject to compliance with FCC
requirements, at $8.00 per share. At Maturity Date, if the price per share of
Class B Common Stock equals or exceeds $10.00 per share, the Company can convert
any outstanding Series E Convertible Debentures into Class B Common Stock.
Additionally, at Maturity Date, if the price per share of Class B Common Stock
is less than $10.00, Brightpoint at its election may convert the Series E
Convertible Debentures into Class B Common Stock, subject to compliance with FCC
requirements, or require repayment in cash. Additional shares of Class B Common
Stock may be issued by the Company to Brightpoint, subject to compliance with
FCC requirements, to adjust for the lowest per share price paid to the Company
for certain sales of Class B Common Stock after December 12, 1996 until such
time as the Company secures at least $150 million in additional financing.
8. STOCK OPTIONS
The Company's Incentive Stock Option Plan (the "1995 Plan") was established
in 1995 and authorizes the grant of options for Class B Common Stock to all
eligible employees. As of September 30, 1996, a total of 1,550,000 shares of
Class B Common Stock have been reserved for issuance under the 1995 Plan. The
exercise price for each option may not be less than 100% of the fair market
value, as defined, of a share of Class B Common Stock on the date of grant. The
1995 Plan is administered by the Board of Directors which has the authority to
determine the option recipients, the number of shares subject to each option,
the term of the option, the exercise price and the vesting schedule.
In 1995, the Company authorized the grant of non-qualified stock options
for Class B Common Stock to certain employees (the "1995 Non-Qualified
Options"). The exercise price for the 1995 Non-Qualified Options is $0.83 per
share. As of September 30, 1996, 3,000,000 shares of Class B Common Stock have
been reserved for issuance to employees pursuant to the 1995 Non-Qualified
Options.
F-20
<PAGE> 116
The following table summarizes the Company's stock option activity for the
1995 Non-Qualified Options and the 1995 Plan:
<TABLE>
<CAPTION>
1995 INCENTIVE STOCK OPTION PLAN 1995 NON-QUALIFIED STOCK OPTIONS
------------------------------------- --------------------------------------
NUMBER OF SHARES NUMBER OF SHARES
------------------------ -------------------------
GRANTED & PRICE PER GRANTED & PRICE PER
AVAILABLE OUTSTANDING SHARE AVAILABLE OUTSTANDING SHARE
<S> <C> <C> <C> <C> <C> <C>
Shares authorized........... 1,550,000 3,000,000
Granted during 1995......... (756,000) 756,000 $.83 (1,500,000) 1,500,000 $.83
--------- ----------- ---------- -----------
Balance at December 31,
1995...................... 794,000 756,000 1,500,000 1,500,000
--------- ----------- ---------- -----------
Expired/forfeited during
1996...................... 65,000 (65,000) $.83 0 0
Exercised during 1996....... (18,100) $.83 (60,240) $.83
--------- ----------- ---------- -----------
Balance at September 30,
1996...................... 859,000 672,900 1,500,000 1,439,760
========= =========== ========== ===========
Exercisable at December 31,
1995...................... -- 500,000 $.83
Exercisable at September 30,
1996...................... 225,327 $.83 939,760 $.83
</TABLE>
In May 1996, the Board of Directors approved the reservation of 390,000
shares of Class B Common Stock in anticipation of the adoption of the 1996
Director Non-Qualified Stock Option Plan (the "1996 Director Plan"). The 1996
Director Plan, if adopted, will provide the grant of stock options to eligible
directors of the Company who served on the Board of Directors. The exercise
price for options granted under the 1996 Director Plan will be (i) $0.83 per
share or (ii) at the discretion of the Board of Directors, if less, the fair
market value, as defined, of Class B Common Stock at the date of grant and
provide for vesting on the later of (i) June 1, 1997 or (ii) an initial public
offering of stock, including the Offering. While the Company has not granted any
options under the 1996 Director Plan as of September 30, 1996, it has committed
that options providing for the purchase of up to 257,500 shares will be granted
to directors serving on the Board of Directors as of June 1, 1996, contingent on
compliance with FCC requirements and stockholder approval, but prior to the
consummation of the Offering. As of September 30, 1996, in connection with these
options, the Company has recorded $1.2 million of deferred compensation
representing the portion of deferred compensation to be earned through June 1,
1997.
In May 1996, the Board of Directors approved the reservation of 2,370,000
shares of Class B Common Stock in anticipation of the adoption of the 1996
Non-Qualified Stock Option Plan (the "1996 Employee Plan"). The 1996 Employee
Plan, if adopted, will provide the grant of stock options to eligible employees
of the Company. The exercise price for options granted will be determined by the
Board of Directors, but will not be less than the lesser of (i) $0.83 per share
and (ii) the fair market value, as defined, of the Class B Common Stock on the
date of grant. In anticipation of the adoption of the 1996 Employee Plan and as
an inducement to retain key personnel, the Company has entered into stock option
commitments with employees totaling 1,736,153. Subject to finalization of terms
and conditions and adoption by the Board of Directors of the 1996 Employee Plan,
it is expected that (i) such commitments will provide for an exercise price of
$.83 per share, (ii) for 1,623,765 of option commitments, one third of the
options would vest by May 17, 1997 with the remaining stock options vesting
evenly through May 17, 1999 and (iii) 112,388 of stock option commitments vest
at the grant date. Because the exercise price of the stock options at the date
of commitment was below the fair market value of the Class B Common Stock, the
Company has recorded (i) $316,000 of compensation expense for the portion of the
1.6 million share issuance representing the portion earned as of September 30,
1996, (ii) $10.4 million of deferred compensation representing the portion of
the 1.6 million option issuance to be earned over the remaining vesting period,
and (iii) $805,000 of compensation expense for the 112,388 options earned prior
to September 30, 1996. Deferred compensation is charged to expense over the
vesting period commencing the earlier of the commitment date or the grant date.
All grants and commitments under the 1996 Employee Plan are subject to
compliance with FCC requirements and stockholder approval of the 1996 Employee
Plan.
Also see discussion of Control Group Options in Note 4, "Stockholders'
Deficit."
F-21
<PAGE> 117
9. INCOME TAXES
Differences between accounting rules and tax laws cause differences between
the bases of certain assets and liabilities for financial reporting and tax
purposes, primarily related to different treatment of start up costs. The tax
effects of these differences, to the extent they are temporary, are recorded as
deferred tax assets and liabilities and consisted of the following components
at:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
DEFERRED TAX ASSETS: 1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Capitalized start-up costs for tax purposes..... $ 199,001 $ 2,824,433 $ 5,419,111
Accruals........................................ -- -- 674,781
Amortization of financing costs................. -- -- 145,365
Net operating loss carry-forwards............... -- 106,389 1,374,379
--------- ----------- ------------
Total deferred tax assets....................... 199,001 2,930,822 7,613,636
--------- ----------- ------------
Valuation allowance............................. (199,001) (2,930,822) (7,613,636)
--------- ----------- ------------
Deferred tax assets, net........................ $ -- $ -- $ --
========= =========== ============
</TABLE>
Due to the uncertainty surrounding the realization of these assets, a
valuation allowance has been provided for the full amount of the deferred tax
assets. At September 30, 1996 the Company had net operating loss carryforwards
of approximately $3.7 million which can be used to offset taxable income through
the year 2010.
10. COMMITMENTS
Supply Agreements and Vendor Financing
As further discussed below in Note 7, the Company has entered into various
supply and service related agreements with vendors for the purchase of
equipment, services, and software required to construct and deploy the PCS
Network which could aggregate $646 million. The Company's ability to meet its
business plan is largely dependent on the performance of these suppliers. There
are a limited number of suppliers who can perform these services.
LCC
In connection with the Investment Agreement, and in support of the design
and buildout of the PCS Network, the Company has agreed to purchase from LCC a
total of $65 million of professional services over a period of five years
consisting of (i) $45.0 million of program management services and (ii) $20.0
million of radio frequency engineering services.
Booz - Allen
The Company has entered into an agreement whereby Booz - Allen will provide
up to $50 million of management and technology consulting services over a five
year period. The agreement provides that the Company, in situations where
minimum services are not purchased within required time frames, will be
obligated to pay liquidated damages of up to 15% of the difference between
amounts purchased and the stipulated minimum requirements.
Financing
In connection with its financing efforts, the Company has entered into
agreements with third parties that generally provide for a fee based on either
performance within specified guidelines or a percentage of debt or equity raised
by the firm including financing raised in future periods. At September 30, 1996,
the Company has obligations of $9.4 million in financing related costs for
financing raised to date.
F-22
<PAGE> 118
Leases
The Company leases office space, office equipment and transponder sites
under arrangements accounted for as operating leases. As of September 30, 1996,
future annual minimum rental payments under operating leases are as follows :
<TABLE>
<S> <C>
1996 (3 months remaining)....................................... $ 248,902
1997............................................................ 1,424,052
1998............................................................ 1,212,099
1999............................................................ 987,016
2000............................................................ 989,745
2001............................................................ 843,138
Thereafter...................................................... 3,201,034
----------
Total........................................................... $8,905,986
=========
</TABLE>
Rent expense for the nine months ended September 30, 1996, for the year
ended December 31, 1995, for the period April 20, 1994 (date of inception) to
December 31, 1994 and for the period April 20, 1994 (date of inception) to
September 30, 1996, was approximately $567,000, $243,000, $22,000 and $832,000,
respectively.
11. REDEEMABLE COMMON STOCK
In 1995, the Company entered into a services contract (the "Services
Contract") with a third party that provides that, in certain situations, the
Services Contract may be terminated by either party. In August 1996, the Company
notified the third party that it was terminating the Services Contract which
obligated the Company to redeem the 1,800,729 shares of Old Class B Common Stock
previously purchased by the third party for $1.5 million. On December 3, 1996,
the Company satisfied this obligation and redeemed, and subsequently canceled,
1,800,729 shares of Old Class B Common Stock.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
At September 30, 1996, and December 31, 1995, the Company's carrying value
of financial instruments approximated fair value. The estimated fair value of
the financial instruments has been determined using available market
information. However, considerable judgment is required in interpreting market
data and assessing the impact of the FCC's alien ownership restrictions on
certain instruments conversion rights.
13. CERTAIN RELATED PARTY TRANSACTIONS
The Company has had transactions in the normal course of business with
various corporations, certain of whose directors or officers are also directors
of the Company. Payment to these corporations for services rendered was
approximately $683,502, $899,010 and $1.6 million for the nine months ended
September 30, 1996, for the year ended December 31, 1995, and for the period
from April 20, 1994 to September 30, 1996, respectively. There were no payments
to the affiliated parties for the period April 20, 1994 to December 31, 1994.
Since inception, the Company has issued shares of its common stock to
shareholders and affiliates for property and services rendered. These services
have been recorded at their estimated fair value of $542,000, $347,000, $609,000
and $1,498,000 for the nine months ended September 30, 1996, for the year ended
December 31, 1995, for the period April 20, 1994 to December 31, 1994, and for
the period from April 20, 1994 to September 30, 1996, respectively. At September
30, 1996, the Company was indebted to affiliates and certain related parties for
approximately $72.3 million.
14. REGULATORY MATTERS
On June 21, 1996, National Telecom PCS, Inc. ("NatTel") filed a petition
with the FCC to deny all of the Company's applications for the C Block licenses.
Allegations cited include, among other things, the Company's failure to satisfy
certain of the FCC's small business requirements and alien ownership
restrictions. In addition, on July 1, 1996, Radiofone, Inc. ("Radiofone") filed
petitions to dismiss or deny and reauction
F-23
<PAGE> 119
the C Block licenses for certain markets, for each of which the Company was the
high bidder. Radiofone alleged, among other things, that the FCC's conduct of C
Block auctions for these markets was unlawful in that it permitted Radiofone to
bid only subject to its potential future disqualifications (based upon
Radiofone's challenge to the FCC's spectrum cap rules). In July 1996, the
Company filed oppositions to these petitions as without merit. On November 4,
1996, the FCC staff decided both these petitions in favor of the Company and
conditionally granted all of the Company's licenses, subject to payment of the
required downpayment, which the Company paid on November 8, 1996. On November
27, 1996, NatTel appealed the denial of its petition to the FCC and sought a
stay of the decision granting the Company's licenses. The Company filed its
opposition on December 12, 1996 stating its position that NatTel's claims are
without merit. The Company cannot predict the outcome of this proceeding.
Upon acquiring the licenses, the Company will be subject to various
restrictions, rules and regulations of the FCC. These regulations include
matters relating to the (i) ongoing eligibility requirements for entities
qualifying as a Small Business and designated entity status, (ii) restrictions
on the ownership and control of a FCC license holder and (iii) compliance with
established deadlines for the buildout of PCS Networks, among others. Depending
on their extent and timing, these matters, as well as other regulatory matters,
could individually or in the aggregate have an adverse effect on the Company's
financial condition, results of operations and cash flows.
To continue to qualify as a designated entity ("DE") under the FCC rules
and thereby qualifying for the favorable license financing terms of the
Government Financing, the DE rules require that the Control Group (as defined in
the rules and regulations promulgated by the FCC) hold 50.1% of the voting
control of the Company and either 50.1% or 25% (depending on which Control Group
minimum equity structure is used) of the "fully diluted" equity for at least 3
years. Additionally, the regulations include (i) restrictions on the composition
of the Control Group and certain members thereof (the "Qualifying Investors")
and requirements for the Qualifying Investors voting stock and equity and (ii)
the involvement of the Control Group in the operations of the Company, (iii)
requirements as to rights and privileges of stock held by members of the Control
Group and (iv) requirements that the Control Group must constitute or appoint a
majority of the Board of Directors. Additionally, DE's are subject to
restrictions relating to the transfer and the assignment of licenses. License
holders are also subject to specific construction schedules for system build
out. Licensees that fail to meet construction and buildout schedules may be
subject to forfeiture of their licenses. With respect to foreign ownership
regulation, the Company is subject to a 25% limitation regarding the total
percentage of capital stock of the Company directly or indirectly owned of
record or voted by non-U.S. persons or entities or their representatives ("Alien
Ownership").
Failure on the part of an entity to maintain the Designated Entity Status,
satisfy specific buildout and construction requirements, and comply with Alien
Ownership limitations, among others, could result in the loss of the favorable
license financing terms of the Government Financing including the loss of
bidders credits, acceleration of payments due under the Government Financing or
the revocation of the awarded licenses, among others.
F-24
<PAGE> 120
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 7
Use of Proceeds........................ 21
Dividend Policy........................ 21
Dilution............................... 22
Capitalization......................... 23
Selected Financial Data................ 24
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............ 25
Business............................... 29
Regulation of the Wireless
Telecommunications Industry.......... 44
Management............................. 48
Certain Transactions................... 65
Principal Stockholders................. 68
Description of Certain Indebtedness.... 70
Description of Capital Stock........... 77
Shares Eligible for Future Sale........ 85
Underwriting........................... 87
Legal Matters.......................... 88
Experts................................ 88
Other Matters.......................... 88
Additional Information................. 89
Glossary of Terms...................... 90
Index to Financial Statements.......... F-1
---------------------
UNTIL , 1997 (25 DAYS
AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS
B COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
SHARES
[LOGO]
POCKET COMMUNICATIONS, INC.
CLASS B COMMON STOCK
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
GOLDMAN, SACHS & CO.
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission (the "Commission") registration fee and the
National Association of Securities Dealers, Inc. ("NASD") registration fee.
<TABLE>
<CAPTION>
PAYABLE BY
THE REGISTRANT
<S> <C>
SEC registration fee............................................ $ 59,483
NASD registration fee........................................... 17,750
Blue Sky fees and expenses...................................... *
Accounting fees and expenses.................................... *
Legal fees and expenses......................................... *
Printing and engraving expenses................................. *
Miscellaneous fees and expenses................................. *
--------
Total................................................. $ *
========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provides that, to the fullest
extent that limitations on the liability of directors and officers are permitted
by the Maryland General Corporation Law, no director or officer of the Company
shall have any liability to the Company or its stockholders for monetary
damages. The Maryland General Corporation Law provides that a corporation's
charter may include a provision which restricts or limits the liability of its
directors or officers to the corporation or its stockholders for money damages
except: (1) to the extent that it is provided that the person actually received
an improper benefit or profit in money, property or services, for the amount of
the benefit or profit in money, property or services actually received, or (2)
to the extent that a judgment or other final adjudication adverse to the person
is entered in a proceeding based on a finding in the proceeding that the
person's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. The Company's Articles of Incorporation and By-laws provide that the
Company shall indemnify and advance expenses to its currently acting and its
former directors to the fullest extent permitted by the Maryland General
Corporation Law and that the Company shall indemnify and advance expenses to its
officers to the same extent as its directors and to such further extent as is
consistent with law.
The Articles of Incorporation and By-Laws provide that the Company will
indemnify its directors and officers and may indemnify employees or agents of
the Company to the fullest extent permitted by law against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Company. In addition, the Company's Articles
of Incorporation provides that its directors and officers will not be liable to
stockholders for money damages, except in limited instances. However, nothing in
the Articles of Incorporation or By-Laws of the Company protects or indemnifies
a director, officer, employee or agent against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith gross
negligence or reckless disregard of the duties involved in the conduct of his
office. To the extent that a director has been successful in defense of any
proceeding, the Maryland General Corporation Law provides that he shall be
indemnified against reasonable expenses incurred in connection therewith.
The Underwriting Agreement provides for indemnification by the Underwriters
of the registrant, its Directors and officers, and by the registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Act, and affords certain rights of contribution with respect thereto.
II-1
<PAGE> 122
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, the Company has issued and sold the following securities
(The following information has been adjusted to reflect the Recapitalization
Plan and will be adjusted to reflect the reverse stock split to be effected
prior to the effective date of this Registration Statement):
(a)(1) On April 20, 1994, the Company issued and sold an aggregate of
10,400,000 shares of Class A Common Stock at a price of $.05 per share to
two of its founding members, Janis A. Riker and Daniel C. Riker, in
exchange for $10,000 and the contribution by Ms. and Mr. Riker of a
business plan for the Company.
(2) In August 1994, the Company sold 5,000,000 shares of Class A
Common Stock at a price of $.05 per share to Teleconsult, Incorporated. In
December 1994, the Company agreed to sell to Teleconsult, Incorporated an
aggregate of 4,300,000 shares at a price of $.227 in exchange for $918,700
in cash and $308,573 in services. Such consideration was received by the
Company during the period December 1994 through February 1996.
(3) On October 24, 1994, the Company issued and sold for $.05 per
share 1,000,000 shares of Class B Common Stock to Randall S. Anderson, for
$.05 per share and 200,000 shares of Class B Common Stock to Jonathan L.
Alpert and Jo Elizabeth Alpert, as tenants by the entirety for cash in the
aggregate amount of $60,000.
(4) On January 30, 1995, the Company sold an aggregate of 6,000,000
shares of Class B Common Stock at $.83 per share to Masa Telecom, Inc., for
a $5 million cash payment. 1,800,000 shares were issued on January 31, 1995
for a $1.5 million cash payment. 4,200,000 shares were issued on May 1,
1995 for a $3.5 million cash payment.
(5) On October 30, 1995, the Company issued 20,000 shares of Class B
Common Stock to each of the following directors of the Company, Brion R.
Sasaki, Ronald S. Schimel, Thomas L. Leming and George S. Wills, as
compensation for services rendered as a Board member, which shares were
valued at $.83 per share.
(6) On November 3, 1995, the Company sold to CTD, L.L.C. 100,000
shares of Class B Common Stock at a purchase price of $.83 per share in
exchange for 100 shares of FedSMR, Inc. Common Stock.
(7) On November 9, 1995, the Company sold to Westinghouse Electric
Corporation ("WEC") 1,800,729 shares of Class B Common Stock at $.83 per
share in exchange for $1 million cash payment and $500,000 worth of
services, which services were provided by WEC to the Company during the
period from November 1995 through March 1996. Such shares were redeemed by
the Company for $1,500,000 on December 3, 1996.
(8) On March 15, 1996, the Company issued and sold 30,120 shares of
Class B Common Stock to Randall S. Anderson (an employee) pursuant to the
exercise of his option to purchase such stock and for which he paid $25,000
in cash or $.83 per share.
(9) On March 21, 1996, the Company agreed to sell and issue Series D
Convertible Debentures to LCC, L.L.C. for an aggregate purchase price of
$6.5 million which debentures are convertible into common stock of the
Company. The Company issued two debentures, one with a principal amount of
$3.5 million on March 27, 1996 in exchange for a $2 million cash payment
and a $1.5 million license fee and the other debenture with a principal
amount of $3 million on May 10, 1996 in exchange for a $3.0 million cash
payment.
(10) On April 25, 1996, the Company agreed to sell to C.E. Capital
Consultants, Inc. (a) 150,000 shares of Class B Common Stock for a purchase
price of $.01 per share and (b) warrants to purchase 150,000 shares of
Class B Common Stock at an exercise price of $14.00 per share as partial
consideration of the consulting services provided to the Company by C.E.
Capital Consultants, Inc.
(11) On August 19, 1996, Booz - Allen & Hamilton, Inc. entered into a
subscription agreement to purchase 718,750 shares of Class B Common Stock
at a purchase price of $8.00 per share, subject to
II-2
<PAGE> 123
certain adjustments, for an aggregate purchase price of $5,750,000
consisting of both cash and consulting services.
(12) On August 26, 1996, Kimbaco agreed to purchase an $8.0 million
note along with 1,000,000 non-detachable warrants to purchase Class B
Common Stock at $8.00 per share. The agreement to issue the note and
warrants was in lieu of a cash payment to satisfy a placement fee for
services provided by Kimbaco to the Company.
(13) Pursuant to an investment decision made by Executive Search
International, Inc. prior to August 29, 1996, which investment decision was
set forth in an agreement executed on August 29, 1996 prior to filing the
Registration Statement, Executive Search International, Inc. agreed to
purchase from the Company an aggregate of 125,000 shares of Class B Common
Stock at a purchase price of $8.00 per share, subject to certain
adjustments, for aggregate purchase price of $1.0 million in executive
search and consulting services.
(14) Pursuant to an investment decision made by William A. Marshall
prior to August 29, 1996, which investment decision was set forth in an
agreement executed on August 29, 1996 prior to filing the Registration
Statement, William A. Marshall (an employee) agreed to purchase 15,000
shares of Class B Common Stock for which he paid $120,000 in cash or $8.00
per share.
(15) On September 18, 1996, the Company sold 30,120 shares of Class B
Common Stock to Randall S. Anderson (an employee) for $25,000. The sale was
a result of Mr. Anderson's exercise of stock options, which options were
granted in August 1995 and were granted to him pursuant to an agreement
negotiated prior to August 29, 1996.
(16) On September 18, 1996, the Company sold 18,100 shares of Class B
Common Stock to Larry D. Berent (an employee) for $15,023. The sale was a
result of Mr. Berent's exercise of stock options, which options were
granted in 1995 and were granted to him pursuant to an agreement negotiated
prior to August 29, 1996.
(17) On October 31, 1996, Lee Chung Chan agreed to purchase a $240,000
note along with non-detachable warrants to purchase 30,000 shares of Class
B Common Stock at an exercise price of $8.00 per share. The warrants are to
be issued as compensation for placement agency services rendered by Lee
Chung Chan in connection with a $2.0 million working capital facility.
(18) As of November 4, 1996, DCR Pacific PCS Limited Partnership, a
subsidiary of the Company ("DCR Pacific"), agreed to issue to Northern
Telecom Inc. promissory notes in the aggregate principal amount of $59.0
million, each as a consideration for loans extended to DCR Pacific by
Northern Telecom Inc. pursuant to a Loan Agreement, dated as of November 4,
1996, by and among DCR Pacific, Northern Telecom Inc. and the other lenders
thereunder. One of such promissory notes is exchangeable, subject to
compliance with FCC rules, regulations and policies including Designated
Entity and foreign ownership rules, for Class B Common Stock of the Company
after July 1, 1998 at an exercise price equal to $8.00 per share.
(19) As of December 11, 1996, the Company entered into a vendor
financing agreement with Ericsson, Inc., pursuant to which Ericsson agreed
to provide the Company with $422 million in equipment financing for the
purpose of paying the purchase price for equipment, software, goods and
engineering services to be purchased by the Company from Ericsson for the
Company's Chicago, Hawaii and Dallas markets. In connection with the
Ericsson Agreement, the Company agreed to issue Ericsson warrants to
purchase Class B Common Stock at an $8.00 exercise price.
(20) On December 12, 1996, in connection with a distribution and
services agreement pursuant to which Brightpoint will provide inventory
management, warehousing and fulfillment services to the Company, the
Company entered into a subscription agreement with Brightpoint pursuant to
which the Company would receive $5.0 million in cash in return for the
issuance of 25 Series E Convertible Debentures convertible into 625,000
shares of Class B Common Stock at a conversion price of $8.00 per share,
subject to adjustment.
II-3
<PAGE> 124
(21) On December 12, 1996, the Company agreed to issue to Siemens
Stromberg-Carlson warrants to purchase Class B Common Stock at an exercise
price of $8.00 per share. The proceeds of the sale of such warrants will be
used to purchase goods and services from Siemens Stromberg-Carlson for use
in the Detroit market. The warrants will not be exercisable before July 1,
1998.
(22) As of December 13, 1996, in connection with a loan and a lease
agreement to be entered into with Dominion Fund IV, the Company agreed to
issue to Dominion Fund IV warrants to purchase 430,000 shares of Class B
Common Stock at an exercise price of $8.00 per share, subject to certain
adjustments. The proceeds of such financing will be used to lease telephone
switching equipment, computers and office equipment. The warrants will not
be exercisable before June 1998.
The issuances described in Item 15(a) were deemed exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving a public offering. In addition, the
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates and/or debentures issued in such transactions. All
recipients had adequate access, through their relationships with the Company, to
information about the Company.
(b)(1) The Company sold and issued Class B Convertible Debentures to
Multinational Technology and Business Limited ("MTB") on August 18, 1995,
for a $833,000 cash payment, which debentures are convertible into
1,000,000 shares of Class B Common Stock. MTB assigned the debenture to
Pacific Eagle Investments Ltd.
(2) On November 1, 1996, the Company agreed to issue and sell to
Dong-Hoon Choi 1,800,729 shares of Class B Common Stock for an aggregate
cash purchase price of $2,716,158, the proceeds of which were used to
redeem Common Stock and pay certain amounts owed to C.E. Capital
Consultants, Inc.
The issuances described in Item 15(b) were deemed exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering and Regulation S
promulgated under the Securities Act as an offshore transaction. The recipient
of the securities represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and had adequate access through its relationship with the
Company to information about the Company. In addition, the recipient represented
that it would not engage in any direct selling efforts to a U.S. person or for
the account or benefit of a U.S. person. Appropriate legends were affixed to the
securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1.1 Form of Underwriting Agreement.**
3.1 Form of Amended and Restated Articles of Incorporation of the Company.**
3.2 Form of By-Laws of the Company.**
4.1 Form of the Company's Class B Common Stock certificate.**
5.1 Opinion of Latham & Watkins re: legality of shares being registered.**
10.1 Stock Purchase Agreement, dated as of December 1, 1994, by and between the Company
and Teleconsult, Inc.
10.2 Consulting Agreement, dated January 10, 1995, by and between the Company and C.E.
Capital Consultants, Inc.**
10.3 Stock Purchase Agreement, dated as of January 30, 1995, by and between the Company
and Teleconsult, Inc.
10.4 Stock Purchase Agreement, dated as of January 30, 1995, by and between the Company
and Masa Telecom, Inc., as amended as of November, 1995.**
</TABLE>
II-4
<PAGE> 125
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.5 Stockholders' Agreement, dated as of January 30, 1995, as amended from time to time,
by and between the Company and the stockholders named therein and the amendments
thereto.
10.6 Memorandum of Understanding and Acquisition Agreement, dated June 20, 1995, by and
between the Company and Ericsson, Inc. (confidential treatment requested)**
10.7 Loan and Purchase Agreement, dated as of June 24, 1995, by and between the Company
and Masa Telecom Asia Investment Pte. Ltd.**
10.8 PCS 1900 Project and Supply Agreement, dated as of July 26, 1995, by and between the
Company and Northern Telecom, Inc. (confidential treatment requested)**
10.9 Loan and Purchase Agreement, dated as of August 18, 1995, by and between the Company
and Pacific Eagle Investments Ltd. and the amendments thereto.**
10.10 Purchase Agreement, dated as of August 18, 1995, by and between the Company and
Multinational Technology and Business Limited.
10.11 Working Capital Loan Agreement, dated as of November 8, 1995, by and between the
Company and Ericsson, Inc. and the amendment thereto. (confidential treatment
requested)**
10.12 Stock Purchase and Warrant Agreement, dated January 21, 1996, by and between the
Company and C.E. Capital Consultants, Inc.**
10.13 Convertible Loan and Investment Agreement, dated March 20, 1996, by and between the
Company and LCC, L.L.C., as amended as of May 10, 1996.
10.14 Loan Agreement, dated May 13, 1996, by and between the Company and Ericsson, Inc.
(confidential treatment requested)**
10.15 Stock Option Agreement by and between the Company and Randall Anderson, dated August
10, 1995.**
10.16 1995 Incentive Stock Option Plan and amendments thereto.**
10.17 1996 Employee Non-Qualified Stock Option Plan.**
10.18 1996 Director Non-Qualified Stock Option Plan.**
10.19 1996 Incentive Compensation Plan.**
10.20 Pocket Director Stock Compensation Plan.**
10.21 Employment Agreement, dated as of August 1, 1994 and amended as of July 12, 1995, by
and between the Company and Daniel C. Riker.**
10.22 Employment Agreement, effective as of May 1, 1995, by and between the Company and
Janis A. Riker.**
10.23 Employment Agreement, effective January 3, 1995, by and between the Company and
Randall S. Anderson.
10.24 Employment Agreement, effective March 6, 1995, by and between the Company and Barry
C. Winkle.
10.25 Employment Agreement, effective February 1, 1996, by and between the Company and
Robert A. Kerstein.**
10.26 Employment Agreement, effective January 1, 1997, by and between the Company and John
Samarron, Jr.**
10.27 Employment Agreement, effective January 1, 1997, by and between the Company and
Colleen R. Cross.**
10.28 Employment Agreement, effective January 1, 1997, by and between the Company and John
A. Hoffman.**
10.29 DCR Pacific PCS Limited Partnership Agreement of Limited Partnership, dated as of
October 19, 1995, as amended.
10.30 Letter Agreement, dated as of April 1, 1996, by and between the Company and Masa
Telecom, Inc.
10.31 Financing Agreement, dated as of August 9, 1996, by and between the Company and
Siemens Stromberg-Carlson.**
10.32 Subscription Agreement for 93,750 shares of Common Stock, dated as of August 19,
1996, by and between the Company and Booz - Allen & Hamilton, Inc.
10.33 Subscription Agreement for 625,000 shares of Common Stock, dated as of August 19,
1996, by and between the Company and Booz - Allen & Hamilton, Inc.
10.34 Services Agreement, dated as of August 19, 1996, by and between the Company and Booz
Allen & Hamilton, Inc.**
10.35 Loan Agreement, dated November 4, 1996, by and among DCR Pacific PCS Limited
Partnership and Northern Telecom Inc. (confidential treatment requested)**
10.36 Services and Financing Agreement, dated December 12, 1996, between the Company and
Brightpoint Inc.**
10.37 Financing Agreement, dated December 13, 1996, between the Company and Dominion Fund
IV.**
10.38 Term Sheet, dated December 12, 1996, between the Company and Siemens
Stromberg-Carlson. (confidential treatment requested)**
</TABLE>
II-5
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.39 Credit Agreement, dated December 11, 1996, by and between the Company and Ericsson,
Inc. (confidential treatment requested).**
11.1 Computations of Earnings per Common Share.*
16.1 Letter from Coopers & Lybrand L.L.P.*
21.1 Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Latham & Watkins (included in Exhibit 5.1).**
23.3 Consent of Wilmer, Cutler & Pickering.**
24.1 Powers of Attorney (contained on signature page).**
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules. Schedule II -- Valuation and Qualifying
Accounts.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing of the Offerings specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-6
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Washington, D.C., on the 17th day of
December, 1996.
POCKET COMMUNICATIONS, INC.
By: /s/ DANIEL C. RIKER
------------------------------------
(DANIEL C. RIKER)
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ DANIEL C. RIKER Chairman of the Board and December 17, 1996
- --------------------------------------------- Chief Executive Officer
(DANIEL C. RIKER)
* Director and President December 17, 1996
- ---------------------------------------------
(JANIS A. RIKER)
* Director December 17, 1996
- ---------------------------------------------
(THOMAS L. LEMING)
* Director December 17, 1996
- ---------------------------------------------
(J. HERBERT NUNNALLY)
* Director December 17, 1996
- ---------------------------------------------
(EDUARDO PAZ)
* Director December 17, 1996
- ---------------------------------------------
(BRION SASAKI)
* Director December 17, 1996
- ---------------------------------------------
(RONALD S. SCHIMEL)
* Director December 17, 1996
- ---------------------------------------------
(GEORGE S. WILLS)
* Senior Vice President and December 17, 1996
- --------------------------------------------- Chief Financial Officer
(ROBERT A. KERSTEIN)
* Vice President and December 17, 1996
- --------------------------------------------- Controller
(WILLIAM G. ARENDT)
By: /s/ DANIEL C. RIKER
- ---------------------------------------------
DANIEL C. RIKER
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE> 128
POCKET COMMUNICATIONS, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS WRITE-OFFS, BALANCE AT
BEGINNING CHARGED TO NET OF END OF
DESCRIPTION OF PERIOD INCOME RECOVERIES PERIOD
<S> <C> <C> <C> <C>
For the Year Ended December 31, 1995............ $199,001 $2,731,821 $-- $2,930,822
For the Period April 20, 1994 (Inception) to
December 31, 1994............................. $ -- $ 199,001 $-- $ 199,001
</TABLE>
S-1
<PAGE> 129
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
<C> <S> <C>
1.1 Form of Underwriting Agreement.**........................................
3.1 Form of Amended and Restated Articles of Incorporation of the
Company.**...............................................................
3.2 Form of By-Laws of the Company.**........................................
4.1 Form of the Company's Class B Common Stock certificate.**................
5.1 Opinion of Latham & Watkins re: legality of shares being registered.**...
10.1 Stock Purchase Agreement, dated as of December 1, 1994, by and between
the Company and Teleconsult, Inc. .......................................
10.2 Consulting Agreement, dated January 10, 1995, by and between the Company
and C.E. Capital Consultants, Inc.**.....................................
10.3 Stock Purchase Agreement, dated as of January 30, 1995, by and between
the Company and Teleconsult, Inc. .......................................
10.4 Stock Purchase Agreement, dated as of January 30, 1995, by and between
the Company and Masa Telecom, Inc., as amended as of November, 1995.**...
10.5 Stockholders' Agreement, dated as of January 30, 1995, as amended from
time to time, by and between the Company and the stockholders named
therein and the amendments thereto. .....................................
10.6 Memorandum of Understanding and Acquisition Agreement, dated June 20,
1995, by and between the Company and Ericsson, Inc. (confidential
treatment requested)**...................................................
10.7 Loan and Purchase Agreement, dated as of June 24, 1995, by and between
the Company and Masa Telecom Asia Investment Pte. Ltd.**.................
10.8 PCS 1900 Project and Supply Agreement, dated as of July 26, 1995, by and
between the Company and Northern Telecom, Inc. (confidential treatment
requested)**.............................................................
10.9 Loan and Purchase Agreement, dated as of August 18, 1995, by and between
the Company and Pacific Eagle Investments Ltd. and the amendments
thereto.**...............................................................
10.10 Purchase Agreement, dated as of August 18, 1995, by and between the
Company and Multinational Technology and Business Limited. ..............
10.11 Working Capital Loan Agreement, dated as of November 8, 1995, by and
between the Company and Ericsson, Inc. and the amendments thereto.
(confidential treatment requested)**.....................................
10.12 Stock Purchase and Warrant Agreement, dated January 21, 1996, by and
between the Company and C.E. Capital Consultants, Inc.**.................
10.13 Convertible Loan and Investment Agreement, dated March 20, 1996, by and
between the Company and LCC, L.L.C., as amended as of May 10, 1996. .....
10.14 Loan Agreement, dated May 13, 1996, by and between the Company and
Ericsson, Inc. (confidential treatment requested)**......................
10.15 Stock Option Agreement by and between the Company and Randall Anderson,
dated August 10, 1995. **................................................
10.16 1995 Incentive Stock Option Plan and amendments thereto.**...............
10.17 1996 Employee Non-Qualified Stock Option Plan.**.........................
10.18 1996 Director Non-Qualified Stock Option Plan.**.........................
10.19 1996 Incentive Compensation Plan.**......................................
10.20 Pocket Director Stock Compensation Plan.**...............................
10.21 Employment Agreement, dated as of August 1, 1994 and amended as of July
12, 1995, by and between the Company and Daniel C. Riker.**..............
10.22 Employment Agreement, effective as of May 1, 1995, by and between the
Company and Janis A. Riker.**............................................
10.23 Employment Agreement, effective January 3, 1995, by and between the
Company and Randall S. Anderson. ........................................
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
<C> <S> <C>
10.24 Employment Agreement, effective March 6, 1995, by and between the Company
and Barry C. Winkle. ....................................................
10.25 Employment Agreement, effective February 1, 1996, by and between the
Company and Robert A. Kerstein.**........................................
10.26 Employment Agreement, effective January 1, 1997, by and between the
Company and John Samarron, Jr.**.........................................
10.27 Employment Agreement, effective January 1, 1997, by and between the
Company and Colleen R. Cross.**..........................................
10.28 Employment Agreement, effective January 1, 1997, by and between the
Company and John A. Hoffman.**...........................................
10.29 DCR Pacific PCS Limited Partnership Agreement of Limited Partnership,
dated as of October 19, 1995, as amended. ...............................
10.30 Letter Agreement, dated as of April 1, 1996, by and between the Company
and Masa Telecom, Inc. ..................................................
10.31 Financing Agreement, dated as of August 9, 1996, by and between the
Company and Siemens Stromberg-Carlson.**.................................
10.32 Subscription Agreement for 93,750 shares of Common Stock, dated as of
August 19, 1996, by and between the Company and Booz - Allen & Hamilton,
Inc. ....................................................................
10.33 Subscription Agreement for 625,000 shares of Common Stock, dated as of
August 19, 1996, by and between the Company and Booz - Allen & Hamilton,
Inc. ....................................................................
10.34 Services Agreement, dated as of August 19, 1996, by and between the
Company and Booz - Allen & Hamilton, Inc.**..............................
10.35 Loan Agreement, dated November 4, 1996, by and among DCR Pacific PCS
Limited Partnership and Northern Telecom Inc. (confidential treatment
requested)**.............................................................
10.36 Services and Financing Agreement, dated December 12, 1996, between the
Company and Brightpoint Inc.**...........................................
10.37 Financing Agreement, dated December 13, 1996, between the Company and
Dominion Fund IV.**......................................................
10.38 Term Sheet, dated December 12, 1996, between the Company and Siemens
Stromberg-Carlson (confidential treatment requested).**..................
10.39 Credit Agreement, dated December 11, 1996, by and between the Company and
Ericsson, Inc. (confidential treatment requested).**.....................
11.1 Computations of Earnings per Common Share.*..............................
16.1 Letter from Coopers & Lybrand L.L.P.*....................................
21.1 Subsidiaries of the Company.**...........................................
23.1 Consent of Arthur Andersen LLP. .........................................
23.2 Consent of Latham & Watkins (included in Exhibit 5.1).**.................
23.3 Consent of Wilmer, Cutler & Pickering.**.................................
24.1 Power of Attorney (contained on signature page).**.......................
27.1 Financial Data Schedule..................................................
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of the
1st day of December, 1994, by and between DCR COMMUNICATIONS, INC., a Maryland
corporation (the "Corporation" or the "Company"), and TELECONSULT, INC., a
Delaware corporation (hereinafter "Purchaser").
RECITALS:
The Corporation desires to issue and sell to the Purchaser and the
Purchaser desires to purchase Five Thousand (5,000) shares of the
Corporation's Class A Voting Common Stock, par value $.0l per share, ("Class A
Common Stock") at a purchase price of Fifty Dollars ($50.00) per share, upon
the following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1
PURCHASE AND SALE OF SECURITIES
1.1. Sale and Issuance of Class A Common Stock. Subject to the terms and
conditions of this Agreement, the Purchaser agrees to purchase and the
Corporation agrees to authorize the issuance of and to sell, issue and deliver
to the Purchaser Five Thousand (5,000) shares of the Corporation's Class A
Common Stock, for a purchase price of Fifty Dollars ($50.00) per share
("Shares") which shall be paid as set forth in that certain Subscription
Agreement entered into by and between the Company and the Purchaser of even
date herewith.
1.2. Closing. The sale and purchase of the Shares issued pursuant to
Section 1.1 shall occur at a closing (the "Closing") to be held at 10:00 a.m.
E.S.T. on December 1, 1994, at the offices of Levan, Schimel, Belman &
Abramson, P.A., 9881 Broken Land Parkway, Suite 400, Columbia, Maryland 21046,
or such date, time and/or location as the parties hereto shall otherwise agree
(hereinafter, the "Closing Date"). The cash portion of the payment for such
Shares shall be delivered to the Company in immediately available funds.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
As a material inducement to the Purchaser to purchase shares of Class A
Common Stock hereunder, the Corporation represents and warrants to the
Purchaser that the following statements are true and correct as of the Closing
Date.
2.1. Organization and Standing. The Corporation is a corporation duly
organized, validly existing and in good standing
<PAGE> 2
under the laws of the State of Maryland, has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted.
2.2. Capitalization. The authorized capital stock of the Corporation
will consist of One Hundred Thousand (100,000) shares of Class A Voting Common
Stock and One Hundred Thousand (100,000) shares of Class B Non-Voting Common
Stock, of which Sixteen Thousand Six Hundred (16,600) shares of Class A Common
Stock will be duly authorized and validly issued and fully paid and
nonassessable subsequent to the Closing.
2.3. Authorization. All corporate action on the part of the Corporation
and its officers, directors and stockholders necessary for the authorization,
execution, delivery and performance of all obligations of the Corporation
under this Agreement has been or will be taken prior to or concurrently with
the Closing. This Agreement, when executed and delivered by the Corporation
(and assuming the due authorization, execution and delivery by the Purchaser
and/or any other parties thereto), shall constitute the legal, valid and
binding obligation of the Corporation, enforceable against the Corporation in
accordance with its terms, except that: (i) enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally, and (ii) the availability of certain remedies may be limited by
equitable principles of general applicability.
2.4. Business Plan. The Corporation has furnished to the Purchaser a
Business Plan of the Corporation ("Business Plan").
2.5. Title to Assets. The Corporation owns good, marketable title, free
and clear of all liens and encumbrances, to all of the property and assets as
described in the Business Plan, except to the extent that such property and
assets have been disposed of for fair value in the ordinary course of
business.
2.6. Contracts and Commitments. Except as set forth on Schedule 2.6,
the Corporation is not a party to any agreement, contract, commitment or other
obligation, including, but not limited to, any employment agreement, loan
agreement, pension or profit sharing plan, lease or other obligation.
2.7. Brokers and Finders. Except as set forth on Schedule 2.6, the
Corporation has not incurred or become liable for any commission, fee or other
similar payment to any broker, finder, agent or other similar payment to any
broker, finder, agent or other intermediary in connection with the negotiation
or execution of this Agreement or the consummation of the transactions
contemplated hereby.
2
<PAGE> 3
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Corporation as
follows:
3.1. Organization, Standing, Etc. The Purchaser is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has all requisite power and authority to execute, deliver and
perform this Agreement. The execution, delivery and performance of this
Agreement by the Purchaser has been duly authorized by all appropriate action
and this Agreement constitutes a valid and binding obligation of the Purchaser
enforceable against it in accordance with the terms hereof.
3.2. Experience. The Purchaser is experienced in evaluating and
investing in companies such as the Corporation. The Purchaser is capable of
evaluating the merits and risks of an investment in the Corporation and has
evaluated the merits and risks associated with its investment in the
Corporation, including the current financial condition of the Corporation.
3.3. Investment. The Purchaser is acquiring the Shares for its own
account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof. The Purchaser further represents
that it understands that (i) the Shares have not been registered under the
Securities Act of 1933 (the "Act") or the securities laws of any state, (ii)
the Shares cannot be sold unless a subsequent disposition thereof is
registered under the Act and under any applicable state securities law or is
exempt from such registration, (iii) the certificates representing the Shares
will bear a legend to such effect, and (iv) the Corporation will make a
notation on its transfer books to such effect.
3.4. Access to Information. The Purchaser has had a full opportunity to
request and receive from the Corporation and its responsible officers,
directors and employees, all information which the Purchaser deems relevant to
the purchase of shares of Class A Common Stock hereunder and to inspect the
Corporation's facilities and operations during normal business hours. The
Purchaser acknowledges that it is not relying upon any other purchasers, or
any officer, director, employee, agent, partner or affiliate of any such other
purchaser, in making its investment or decision to invest in the Corporation
or in monitoring such investment.
3
<PAGE> 4
3.5. Ownership. As of the date first set forth above, the equity of the
Purchaser is owned as follows:
Non-Voting Voting
---------- ------
No. % No. %
-- - -- -
1. Eduardo Paz
2.
3.
TOTAL:
The Purchaser is a corporation that is entirely controlled by, and ____% of the
equity is owned by, Members of Minority Groups (as that phrase is defined in 47
CFR Section 24.720(i)) and/or women who are United States citizens.
SECTION 4
OWNERSHIP STATUS
4.1. Control Group. The Purchaser and Eduardo Paz ("Paz") acknowledge
that upon the purchase of the Shares the Purchaser will be a qualifying member
of the "control group" of the Corporation as defined in 47 CFR Section
24.720(k) and Paz will be a "Qualifying Minority and/or Woman Investor" as
defined in 47 CFR Section 24.720(n). The Purchaser and Paz covenant and agree
that at all times during which the Purchaser owns any Common Stock, the
Purchaser and Paz will not, without the prior written consent of the
Corporation, assign or transfer control or any ownership interest of the
Purchaser to any person or entity unless, following such assignment or
transfer, the Purchaser shall continue to be a qualifying member of the
control group, and the transferee of any interest currently owned by Paz
shall continue to be owned by a Qualifying Minority and/or Woman Investor.
The Purchaser hereby grants to the Corporation a future right to inspect the
minute book, stock ledger and stock records of the Purchaser in order to
confirm the ownership status of the Purchaser.
4.2. Right to Repurchase. In the event that the Purchaser fails to
maintain its status as a qualifying member of the control group as set forth
in Section 4.1 above, Paz's interest in the Purchaser fails to be owned by a
Qualifying Minority and/or Woman Investor or it otherwise causes the
Corporation to fail to meet the definition of a Small Business owned by
Members of Minority Groups and/or Women (as defined in 47 CFR Section
24.720(d)), the Corporation may, at its option, repurchase any and all Shares
owned by the Purchaser. The right to repurchase shall be exercisable by the
Corporation immediately upon the Corporation providing written notice to the
Purchaser of its election to exercise its repurchase right. The repurchase
price shall be the net tangible book value (total assets excluding intangible
assets, less total liabilities,
4
<PAGE> 5
excluding contingent liabilities) of the Shares based on a balance sheet
prepared by the regular accountant of the Corporation reflecting the financial
position of the Corporation as of a day that is not more than one hundred and
eighty (180) days from the date on which such notice is provided by the
Corporation. The balance sheet shall be prepared in accordance with the
accounting principles consistently applied by the Corporation in connection
with the maintenance of its books and records. The purchase price shall be
payable upon payment terms as determined by the Corporation and may be paid in
installments, with interest at the prime rate published in The Wall Street
Journal but in no event shall the installments extend beyond a five year
period.
SECTION 5
MISCELLANEOUS
5.1. Waivers by Purchaser. Any failure by a Purchaser to insist upon
strict performance by the Corporation of any of the terms and provisions of
this Agreement shall not be deemed to be a waiver of any of the terms and
conditions thereof and the Purchasers shall have the right thereafter to
insist upon strict performance thereof by the Corporation.
5.2. Relationships to Other Agreements. In the event of a conflict
between any of the provisions of this Agreement and any other agreement
relating to this transaction, the provisions of this Agreement shall control.
5.3. Titles and Captions. All section titles or captions in this
Agreement are for convenience only. They shall not be deemed part of this
Agreement and shall in no way define, limit, extend or describe the scope or
intent of provisions herein.
5.4. Applicable Law. This Agreement is to be governed by, and construed,
interpreted, and enforced in accordance with the laws of the State of
Maryland.
5.5. Binding Effect and Assignment. This Agreement shall be binding upon
and inure to the benefit of the heirs, personal representatives, successors
and assigns of the parties. Notwithstanding the foregoing, neither the
Corporation nor any of the Purchaser shall have the right to assign any of
their respective rights or obligations under this Agreement.
5.6. Notices. All notices or other documents required hereunder shall be
deemed to have been given or made when delivered by registered mail or
certified mail, return receipt requested, postage prepaid to:
5
<PAGE> 6
If the Corporation:
DCR Communications, Inc.
11910 Yellow Rush Pass
Columbia, Maryland 21044
Attn: Daniel C. Riker
With copies to:
Levan, Schimel, Belman & Abramson, P.A.
9881 Broken Land Parkway, Suite 400
Columbia, MD 21046
Attn: Ronald S. Schimel, Esquire
If to the Purchaser, to the address of the Purchaser as provided to the
Corporation in the Subscription Agreement of the Purchaser. Any party may
from time to time give the others written notice of a change in the address to
which notices are to be sent and any successors in interest.
5.7. Severability. Inapplicability or unenforceability of any provision
of this Agreement shall not impair the operation or validity of any other
provision hereof. If any provision shall be declared inapplicable or
unenforceable, there shall be added automatically as part of this Agreement a
provision as similar in terms to such inapplicable or unenforceable provision
as may be possible and be legal, valid and enforceable.
5.8. Entire Agreement. This Agreement, including all Schedules hereto,
along with all other agreements required to be executed hereunder, constitutes
the entire agreement among the parties pertaining to the subject matter
hereof, and supersedes all prior agreements and understandings pertaining
thereto. No covenant, representation or condition not expressed in this
Agreement shall affect or be deemed to interpret, change or restrict the
express provisions hereof and no amendments hereto shall be valid unless
signed by the Corporation and the Purchaser.
5.9. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ATTEST/WITNESS: DCR COMMUNICATIONS, INC.
By: /s/ DANIEL C. RIKER
- -------------------------- ------------------------
Daniel C. Riker, President
PURCHASER:
TELECONSULT, INC.
/s/ SHIRLEY E. DAVE By: /s/ EDUARDO PAZ
- -------------------------- ------------------------
Eduardo Paz, President
The undersigned, Eduardo Paz, hereby joins this Agreement for the purpose
of making the representations and warranties of Section 3 and acknowledging and
consenting to the provisions of Sections 3 and 4 regarding ownership status of
Purchaser.
/s/ EDUARDO PAZ
- -------------------------- ---------------------------
Eduardo Paz
7
<PAGE> 8
SCHEDULE 2.6
1. Employment Agreement by and between the Corporation and Daniel C. Riker
(proposed draft, not yet executed).
2. Memorandum of Understanding by and between the Corporation and OSCI dated
October 11, 1994.
3. Agreement with a Japanese investment company to find investors for
capital necessary for auction pursuant to which the Company has agreed to
pay commissions in the form of stock and cash.
4. Consulting Agreements with Armistead C. Leigh and Randall S. Anderson.
8
<PAGE> 1
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of the
30th day of January, 1995, by and between DCR COMMUNICATIONS, INC., a Maryland
corporation (the "Corporation" or the "Company"), and TELECONSULT,
INCORPORATED, a Delaware corporation (hereinafter "Purchaser").
RECITALS:
The Corporation desires to issue and sell to the Purchaser and the
Purchaser desires to purchase Six Hundred Sixty (660) shares of the
Corporation's Class A Voting Common Stock, par value $.01 per share, ("Class A
Common Stock") at a purchase price of Two Hundred Twenty-Seven Dollars and
Twenty-Seven Cents ($227.27) per share, upon the following terms and
conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1
PURCHASE AND SALE OF SECURITIES
1.1. Sale and Issuance of Class A Common Stock. Subject to the terms and
conditions of this Agreement, the Purchaser agrees to purchase and the
Corporation agrees to authorize the issuance of and to sell, issue and deliver
to the Purchaser in the aggregate Six Hundred Sixty (660) shares of the
Corporation's Class A Common Stock, for a purchase price of Two Hundred
Twenty-Seven Dollars and Twenty-Seven Cents ($227.27) per share ("Shares") for
an aggregate purchase price of One Hundred Fifty Thousand Dollars
($150,000.00).
1.2. Closing. The sale and purchase of the Shares issued pursuant to
Section 1.1 shall occur at a closing (the "Closing") to be held at 10:00 a.m.
E.S.T. on January __, 1995, at the offices of Levan, Schimel, Belman &
Abramson, P.A., 9881 Broken Land Parkway, Suite 400, Columbia, Maryland
21046, or such date, time and/or location as the parties hereto shall
otherwise agree (hereinafter, the "Closing Date"). The payment for such
Shares shall be delivered to the Company in immediately available funds.
SECTION 2
CONDITIONS TO CLOSING
2.1. Purchaser's Condition. The obligation of the Purchaser to purchase
the shares pursuant to Section 1.1. hereof at the Closing Date shall be
subject to fulfillment of the following condition on or prior to the Closing,
unless such condition is expressly waived, in writing, by the Purchaser:
2.1.1. Option Agreement. The Purchaser and the Company shall
have entered into that certain Option Agreement in substantially the
same form as set forth in
<PAGE> 2
the Exhibit 2.1 pursuant to which Three Thousand Six Hundred Forty
(3,640) shares of Class A Common Stock ("Option Shares") may be
acquired by the Purchaser.
2.2. Seller's Condition. The obligation of the Seller to sell the Shares
pursuant to Section 1.1 hereof at the Closing Date shall be subject to
fulfillment of the following condition on or prior to the Closing Date, unless
such condition is expressly waived, in writing, by the Seller:
2.2.1. Subscription Agreement. The Purchaser shall have
completed a Subscription Agreement and Purchaser Questionnaire, if
applicable, as provided by the Corporation with respect to the
Purchaser's Shares purchased hereunder.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
As a material inducement to the Purchaser to purchase shares of Class A
Common Stock hereunder, the Corporation represents and warrants to the
Purchaser that the following statements are true and correct as of the Closing
Date.
3.1. Organization and Standing. The Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Maryland, has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted.
3.2. Capitalization. The authorized capital stock of the Corporation
consists of One Hundred Thousand (100,000) shares of Class A Voting Common
Stock and One Hundred Thousand (100,000) shares of Class B Non-Voting Common
Stock.
3.3. Authorization. All corporate action on the part of the Corporation
and its officers, directors and stockholders necessary for the authorization,
execution, delivery and performance of all obligations of the Corporation
under this Agreement has been or will be taken prior to or concurrently with
the Closing. This Agreement, when executed and delivered by the Corporation
(and assuming the due authorization, execution and delivery by the Purchaser
and/or any other parties thereto), shall constitute the legal, valid and
binding obligation of the Corporation, enforceable against the Corporation in
accordance with its terms, except that: (i) enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally, and (ii) the availability of certain remedies may be limited by
equitable principles of general applicability.
3.4. Business Plan. The Corporation has furnished to the Purchaser a
Business Plan of the Corporation ("Business Plan").
2
<PAGE> 3
3.5. Title to Assets. The Corporation owns good, marketable title, free
and clear of all liens and encumbrances, to all of the property and assets as
described in the Business Plan, except to the extent that such property and
assets have been disposed of for fair value in the ordinary course of
business.
3.6. Contracts and Commitments. Except as set forth on Schedule 3.6, the
Corporation is not a party to any agreement, contract, commitment or other
obligation, including, but not limited to, any employment agreement, loan
agreement, pension or profit sharing plan, lease or other obligation.
3.7. Brokers and Finders. The Corporation has not incurred or become
liable for any commission, fee or other similar payment to any broker, finder,
agent or other similar payment to any broker, finder, agent or other
intermediary in connection with the negotiation or execution of this Agreement
or the consummation of the transactions contemplated hereby.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Corporation as
follows:
4.1. Organization, Standing, Etc. The Purchaser is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has all requisite power and authority to execute, deliver and
perform this Agreement. The execution, delivery and performance of this
Agreement by the Purchaser has been duly authorized by all appropriate action
and this Agreement constitutes a valid and binding obligation of the Purchaser
enforceable against it in accordance with the terms hereof.
4.2. Experience. The Purchaser is experienced in evaluating and
investing in companies such as the Corporation. The Purchaser is capable of
evaluating the merits and risks of an investment in the Corporation and has
evaluated the merits and risks associated with its investment in the
Corporation, including the current financial condition of the Corporation.
4.3. Investment. The Purchaser is acquiring the Shares for its own
account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof. The Purchaser further represents
that it understands that (i) the Shares have not been registered under the
Securities Act of 1933 (the "Act") or the securities laws of any state, (ii)
the Shares cannot be sold unless a subsequent disposition thereof is
registered under the Act and under any applicable state securities law or is
exempt from such registration, (iii) the certificates representing the Shares
will bear a legend to such effect, and (iv)
3
<PAGE> 4
the Corporation will make a notation on its transfer books to such effect.
4.4. Access to Information. The Purchaser has had a full opportunity to
request and receive from the Corporation and its responsible officers,
directors and employees, all information which the Purchaser deems relevant to
the purchase of shares of Class A Common Stock hereunder and to inspect the
Corporation's facilities and operations during normal business hours. The
Purchaser acknowledges that it is not relying upon any other purchasers, or
any officer, director, employee, agent, partner or affiliate of any such other
purchaser, in making its investment or decision to invest in the Corporation
or in monitoring such investment.
4.5. Ownership. As of December 1, 1994, the date on which that certain
Stock Purchase Agreement was entered into by and between the Purchaser and the
Corporation, and as of the date first set forth above, the equity of the
Purchaser is owned as set forth on the attached Schedule 4.5.
4.6. Minority Status. The Purchaser is a corporation that is entirely
controlled by Members of Minority Groups (as that phrase is defined in 47 CFR
Section 24.720(i)) and/or women who are United States citizens.
SECTION 5
OWNERSHIP STATUS
5.1. Control Group. The Purchaser and Eduardo Paz ("Paz") acknowledge
that as of December 1, 1994, the Purchaser was, and upon the purchase of the
Shares the Purchaser will be, a qualifying member of the "control group" of
the Corporation as defined in 47 CFR Section 24.720(k) and Paz will be a
"Qualifying Minority and/or Woman Investor" as defined in 47 CFR Section
24.720(n). The Purchaser and Paz covenant and agree that at all times during
which the Purchaser owns any Common Stock, the Purchaser and Paz will not,
without the prior written consent of the Corporation, assign or transfer
control or any ownership interest of the Purchaser to any person or entity
unless, following such assignment or transfer, the Purchaser shall continue to
be a qualifying member of the control group, and the transferee of any
interest currently owned by Paz shall continue to be owned by a Qualifying
Minority and/or Woman Investor. The Purchaser hereby grants to the
Corporation a continuing right to inspect the minute book, stock ledger and
stock records of the Purchaser in order to confirm the ownership status of the
Purchaser.
5.2. Right to Repurchase. In the event that the Purchaser fails to
maintain its status as a qualifying member of the control group as set forth
in Section 5.1 above, Paz's interest in the Purchaser fails to be owned by a
Qualifying Minority and/or Woman
4
<PAGE> 5
Investor or it otherwise causes the Corporation to fail to meet the definition
of a Small Business owned by Members of Minority Groups and/or Women (as
defined in 47 CFR Section 24.720(d)), the Corporation may, at its option,
repurchase any and all Shares owned by the Purchaser. The right to repurchase
shall be exercisable by the Corporation immediately upon the Corporation
providing written notice to the Purchaser of its election to exercise its
repurchase right. The repurchase price shall be the net tangible book value
(total assets excluding intangible assets, less total liabilities, excluding
contingent liabilities) of the Shares based on a balance sheet prepared by the
regular accountant of the Corporation reflecting the financial position of the
Corporation as of a day that is not more than one hundred and eighty (180)
days from the date on which such notice is provided by the Corporation. The
balance sheet shall be prepared in accordance with the accounting principles
consistently applied by the Corporation in connection with the maintenance of
its books and records. The purchase price shall be payable upon payment terms
as determined by the Corporation and may be paid in installments, with
interest at the prime rate published in The Wall Street Journal, Eastern
Edition, but in no event shall the installments extend beyond a five year
period.
SECTION 6
MISCELLANEOUS
6.1. Waivers by Purchaser. Any failure by a Purchaser to insist upon
strict performance by the Corporation of any of the terms and provisions of
this Agreement shall not be deemed to be a waiver of any of the terms and
conditions thereof and the Purchasers shall have the right thereafter to
insist upon strict performance thereof by the Corporation.
6.2. Relationships to Other Agreements. In the event of a conflict
between any of the provisions of this Agreement and any other agreement
relating to this transaction, the provisions of this Agreement shall control.
6.3. Titles and Captions. All section titles or captions in this
Agreement are for convenience only. They shall not be deemed part of this
Agreement and shall in no way define, limit, extend or describe the scope or
intent of provisions herein.
6.4. Applicable Law. This Agreement is to be governed by, and construed,
interpreted, and enforced in accordance with the laws of the State of
Maryland.
6.5. Binding Effect and Assignment. This Agreement shall be binding upon
and inure to the benefit of the heirs, personal representatives, successors
and assigns of the parties. Notwithstanding the foregoing, neither the
Corporation nor the
5
<PAGE> 6
Purchaser shall have the right to assign any of their respective rights or
obligations under this Agreement.
6.6. Notices. All notices or other documents required hereunder shall be
deemed to have been given or made when delivered by registered mail or
certified mail, return receipt requested, postage prepaid to:
If the Corporation:
DCR Communications, Inc.
11910 Yellow Rush Pass
Columbia, Maryland 21044
Attn: Daniel C. Riker
With copies to:
Levan, Schimel, Belman & Abramson, P.A.
9881 Broken Land Parkway, Suite 400
Columbia, MD 21046
Attn: Ronald S. Schimel, Esquire
If to the Purchaser, to the address of the Purchaser as provided to
the Corporation in the Subscription Agreement of the Purchaser. Any party may
from time to time give the others written notice of a change in the address to
which notices are to be sent and any successors in interest.
6.7. Severability. Inapplicability or unenforceability of any provision
of this Agreement shall not impair the operation or validity of any other
provision hereof. If any provision shall be declared inapplicable or
unenforceable, there shall be added automatically as part of this Agreement a
provision as similar in terms to such inapplicable or unenforceable provision
as may be possible and be legal, valid and enforceable.
6.8. Entire Agreement. This Agreement, including all Schedules hereto,
along with all other agreements required to be executed hereunder, constitutes
the entire agreement among the parties pertaining to the subject matter
hereof, and supersedes all prior agreements and understandings pertaining
thereto. No covenant, representation or condition not expressed in this
Agreement shall affect or be deemed to interpret, change or restrict the
express provisions hereof and no amendments hereto shall be valid unless
signed by the Corporation and the Purchaser.
6.9. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ATTEST/WITNESS: DCR COMMUNICATIONS, INC.
By: /s/ DANIEL C. RIKER
- ---------------------------- --------------------------------
Daniel C. Riker, President
PURCHASER:
TELECONSULT, INCORPORATED
By: /s/ EDUARDO PAZ
- ---------------------------- --------------------------------
Eduardo Paz, President
The undersigned, Eduardo Paz, hereby joins this Agreement for the purpose
of making the representations and warranties of Section 4 and acknowledging
and consenting to the provisions of Sections 4 and 5 regarding ownership
status of Purchaser.
- ---------------------------- --------------------------------
Eduardo Paz
7
<PAGE> 8
SCHEDULE 3.6
1. Employment Agreement by and between the Corporation and Daniel C.
Riker (proposed draft, not yet executed).
2. Memorandum of Understanding by and between the Corporation and OSCI
dated October 11, 1994.
3. Agreement with a Japanese investment company to find investors for
capital necessary for auction pursuant to which the Company has
agreed to pay commissions in the form of stock and cash.
4. Consulting Agreements with Armistead C. Leigh and Randall S.
Anderson.
5. Letter of Intent between DCR Communications, Inc. and Masa Telecom,
Inc.
8
<PAGE> 9
SCHEDULE 4.5
<TABLE>
<CAPTION>
====================================================================================================================
COMMON PREFERRED - NON-VOTING
- --------------------------------------------------------------------------------------------------------------------
CLASS A - VOTING CLASS B - NON-VOTING CLASS A CLASS B
(NON-CONVERT)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
*Eduardo Paz 510 60.6% 0 5,000 91.9% 0
- --------------------------------------------------------------------------------------------------------------------
Mark Burke (VP) 166 19.7% 0 150 2.8% 0
- --------------------------------------------------------------------------------------------------------------------
Manuel Marino 166 19.7% 0 140 2.6% 0
- --------------------------------------------------------------------------------------------------------------------
*Terdtoon Tapjan 0 0 100 1.8% 0
- --------------------------------------------------------------------------------------------------------------------
Michael Hitch 0 0 50 0.9% 0
- --------------------------------------------------------------------------------------------------------------------
*Eduardo Armenta 0 0 0 4,500 81.9%
- --------------------------------------------------------------------------------------------------------------------
*Sarah Stom 0 0 0 997 18.1%
----- ----
- --------------------------------------------------------------------------------------------------------------------
Total Issued and 842 100% 0 5,440 100% 5,497 100%
Outstanding
- --------------------------------------------------------------------------------------------------------------------
Total Authorized 30,000 30,000 30,000 30,000
- --------------------------------------------------------------------------------------------------------------------
Strategic Technologies, 720
Inc. (1)
- --------------------------------------------------------------------------------------------------------------------
Alfredo Echeverria (2) 107
- --------------------------------------------------------------------------------------------------------------------
Carlos Pichardo (3)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
*Each of these stockholders is a United States citizen and is a
woman or a Member of a Minority Group [as defined in 47 CFR Section
24.720 (i)]
===============================================================================
Initials:
- -------------
- -------------
- --------------------
1 U.S. Citizen - Non-minority
2 Minority and U.S. Citizen
3 One more potential investor for 800 shares - U.S./Minority (DCR may
employ).
9
<PAGE> 1
EXHIBIT 10.5
DCR COMMUNICATIONS, INC.
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is made, entered into and
effective as of the 30th day of January, 1995, by and among (i) DCR
COMMUNICATIONS, INC., a Maryland corporation (the "Corporation"), (ii) MASA
TELECOM, INC., a Delaware corporation ("MTI"), (iii) DANIEL C. RIKER ("D.
Riker"), (iv) JANIS RIKER ("J. Riker"), (v) TELECONSULT, INC., a Delaware
corporation ("Teleconsult"), (vi) RANDALL S. ANDERSON ("Anderson") and (vii)
JONATHAN L. ALPERT AND JO ELIZABETH ALPERT, JTWROS ("Alperts") [MTI, D. Riker,
J. Riker, Teleconsult, Anderson and Alperts are hereinafter sometimes
collectively referred to as the "Stockholders" and individually referred to as
a "Stockholder", and J. Riker, D. Riker and Teleconsult are hereinafter
sometimes together referred to as the "Control Group".]
WHEREAS, the Corporation has an authorized capital stock of two hundred
thousand (200,000) shares of Common Stock, with a par value of One Cent
($0.01) per share, consisting of one hundred thousand (100,000) shares of
Class A Voting Common Stock ("Class A Stock") and one hundred thousand
(100,000) shares Class B Non-Voting Common Stock;
WHEREAS, the Stockholders are the legal and beneficial owners of all of
the issued and outstanding shares of Class A Stock, consisting of nineteen
thousand sixty (19,060) shares, as follows:
NUMBER OF SHARES
STOCKHOLDER OF CLASS A STOCK
----------- ----------------
D. Riker 4,670
J. Riker 5,730
Teleconsult 5,660
Anderson 1,000
Alperts 200
MTI 1,800
------
Total: 19,060
WHEREAS, the Corporation proposes to bid in auctions to be conducted by
the Federal Communications Commission ("FCC") for broadband personal
communications services ("PCS") licenses and to qualify (i) to bid for
entrepreneurs' blocks to be set aside in such auctions for firms that meet
certain criteria set forth in FCC regulations and (ii) for special financing,
credits and other benefits to be made available by the FCC with respect to
such auctions to firms that meet criteria set forth in FCC regulations for any
eligible licensee that is a "small business"
<PAGE> 2
and a "business owned by members of minority groups and women" (collectively,
the "Special Incentives");
WHEREAS, the parties hereto believe it is in the best interests of the
Corporation and of the Stockholders to provide means by which the Corporation
can determine its compliance, at the time of such auctions and in the future,
with all criteria for applicable Special Incentives and all applicable foreign
ownership requirements pursuant to the Communications Act of 1934, as amended
(all such criteria and requirements that the Corporation determines, from time
to time, are in its best interests to meet or to comply with are referred to
hereinafter as the "Ownership Regulations");
WHEREAS, the parties hereto believe it is in the best interests of the
Corporation and of the Stockholders to make provision for future dispositions
of shares of Class A Stock and certain other matters; and
WHEREAS, the parties hereto desire to set forth herein their
understandings and agreements with respect to such matters.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
RESTRICTIONS ON STOCK
1.1. Scope of Agreement. This Agreement shall apply to all transfers,
whether voluntary, involuntary or by operation of law, whether resulting from
death, bankruptcy, insolvency or otherwise, of Class A Stock, whether now
owned or hereafter acquired by the Stockholders. A "transfer resulting from
bankruptcy or insolvency" shall include a transfer by attachment or levy, any
transfer made subject to a charging order, any transfer or assignment for the
benefit of creditors or an adjudication of a Stockholder as bankrupt.
References to "Class A Stock" shall include any securities of the Corporation
with voting rights issued in exchange for, or distributed to holders of, Class
A Voting Common Stock of the Corporation in a stock dividend, reclassification
or recapitalization of the Corporation.
1.2. Restrictions on Transfer by Any Stockholder.
A. Except as otherwise provided in this Agreement or upon the
express prior written consent of all other Stockholders, no Stockholder shall
or may sell, exchange, deliver or assign, dispose of, bequeath or gift,
pledge, mortgage, hypothecate or
- 2 -
<PAGE> 3
otherwise encumber, transfer or permit to be transferred, whether voluntarily,
involuntarily or by operation of law (including, without limitation, the laws
of bankruptcy, insolvency, intestacy, descent and distribution and
succession), all or any of the Class A Stock now owned or hereafter acquired
by such Stockholder.
B. In no event shall any Stockholder sell, exchange, deliver or
assign, dispose of, bequeath or gift, pledge, mortgage, hypothecate or
otherwise encumber, transfer or permit to be transferred, whether voluntarily,
involuntarily or by operation of law, all or any of the Class A Stock now
owned or hereafter acquired if such transaction is prohibited by, requires any
consent or approval not obtained pursuant to, or does not comply in all
respects with, applicable Ownership Regulations.
1.3. Permitted Transfers. Notwithstanding the provisions of Section 1.2A
hereof, but subject to Section l.2B hereof, shares of Class A Stock now owned
or hereafter acquired by a Stockholder may at any time be transferred by such
Stockholder to any of the following (and such transfer shall be registered on
the books of the Corporation):
A. A Stockholder who is an individual may, upon his death,
transfer Class A Stock to one or more heirs who is a Family Member (as
hereinafter defined) of such Stockholder or to one or more trusts for the
benefit of Family Members of such Stockholder, if such Family Member or the
trustees of such trust shall agree in writing to be bound by all provisions of
this Agreement as a party hereto and in the capacity as a Stockholder
(whereafter all references herein to the Stockholders shall be deemed to
include such person or trust), if such transfer complies in all respects with
applicable Ownership Regulations; provided, however, that any such legal or
beneficial transfer from J. Riker's personal representative, executor or
estate to D. Riker shall be subject to D. Riker's prompt appointment or
retransfer to one or more designees of D. Riker if his legal or beneficial
ownership of such Class A Stock would violate applicable Ownership Regulations
and if such appointment or retransfer complies in all respects with applicable
Ownership Regulations.
B. A Stockholder that is not an individual may transfer Class A
Stock, by distribution or contribution, but not by sale or in exchange for any
consideration, to a wholly-owned subsidiary of such Stockholder or any entity
that is the parent of such Stockholder that shall agree in writing to be bound
by all provisions of this Agreement as a party hereto and in the capacity as a
Stockholder (whereafter all references herein to the Stockholders shall be
deemed to include such entity), if such transfer complies in all respects with
applicable Ownership Regulations.
- 3 -
<PAGE> 4
C. A Stockholder who is an individual may gift Class A Stock to
one or more members of the immediate family (any parent, parent-in-law,
spouse, brother or sister, or natural or adopted lineal descendant or spouse
of such descendant) of such Stockholder (any such person being referred to as
a "Family Member") or to a trust for the benefit of one or more Family Members
if such Family Member or the trustees of such trust shall agree in writing to
be bound by all provisions of this Agreement as a party hereto and in the
capacity as a Stockholder (whereafter all references herein to the
Stockholders shall be deemed to include such person or trust), if that such
transfer complies in all respects with applicable Ownership Regulations.
1.4. Agreement Binding Upon Transferees. In the event that, at any time
or from time to time, any Class A Stock is transferred to any party (other
than the Corporation or any Stockholder) pursuant to any provision hereof, the
transferee shall take such Class A Stock pursuant to all provisions,
conditions and covenants of this Agreement, and, as a condition precedent to
the transfer of such Class A Stock, the transferee shall agree (for and on
behalf of himself or itself, his or its legal representatives and his or its
transferees and assigns) in writing to be bound by all provisions of this
Agreement as a party hereto and in the capacity of a Stockholder. In the
event that there shall be any transfer to any person or entity pursuant to any
provision of this Agreement and in compliance with the provisions of this
Section l.4, all references herein to the Stockholders, to any Stockholder or
to any group of Stockholders shall thereafter be deemed to include such
transferee, and the provisions hereof shall thereafter be applicable to such
transferee (and not the transferor Stockholder unless he shall remain a
Stockholder to which such provisions otherwise apply).
1.5. Stock Transfer Record. The Corporation shall keep a stock transfer
book in which shall be recorded the name and address of each Stockholder. No
transfer or issuance of any Class A Stock shall be effective or valid unless
and until recorded in such stock transfer book. The Corporation agrees not to
record any transfer or issuance of Class A Stock in such stock transfer book
unless the transfer or issuance is in strict compliance with all provisions of
this Agreement. Each Stockholder agrees that, in the event he desires to make
a transfer within the provisions hereof, he shall furnish to the Corporation
such evidence of his compliance with this Agreement and any applicable
Ownership Regulations as may be reasonably required by the Board of Directors
of, or counsel for, the Corporation.
1.6. Endorsement on Stock Certificates. Each certificate representing
Class A Stock of the Corporation now or hereafter held by a Stockholder shall
bear any legend or legends required by, or deemed appropriate by the
Corporation with respect to,
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applicable securities laws and, in addition thereto, shall bear a statement in
substantially the following form:
"The voluntary or involuntary encumbering, transfer or other disposition
(including, without limitation, any disposition pursuant to the laws of
bankruptcy, intestacy, descent and distribution or succession) of the
shares evidenced by the within Certificate is restricted under the terms
of a Stockholders' Agreement, effective as of January 30, 1995, by and
among the Corporation and the holders of all of its Class A Voting Common
Stock then outstanding, a copy of which agreement is on file at the
principal office of the Corporation. Upon written request of any
stockholder of the Corporation, the Corporation shall furnish, without
charge to such stockholder, a copy of such agreement."
1.7. Agreements by the Corporation. The Corporation agrees, for and on
behalf of itself and its successors and assigns, that:
A. It hereby consents to this Agreement.
B. It shall not transfer or reissue any Class A Stock in violation
of the provisions of this Agreement.
C. It shall not issue any Class A Stock to any person who, or
entity which, is not a Stockholder or does not, as a condition to such
issuance, agree (for and on behalf of himself or itself, his or its legal
representatives and his or its transferees and assigns) in writing to be bound
by all provisions of this Agreement as a party hereto and in the capacity of a
Stockholder, whereafter all references herein to the Stockholders shall
thereafter be deemed to include such person or entity.
D. It shall take all action necessary to ensure that all
certificates representing Class A Stock issued by the Corporation and held by
a Stockholder shall bear a legend in substantially the form specified in
Section l.6 hereof.
E. In the event that the Corporation issues or agrees to issue any
class or series of stock having any voting rights (contingent or otherwise),
or any other security (whether debt or equity) possessing any voting rights
(contingent or otherwise), the Corporation shall enter into legally
enforceable agreements with the holders thereof prohibiting transfers thereof
that would cause the violation of, or would not comply in all respects with,
applicable Ownership Regulations.
1.8. Specific Performance. Strict compliance shall be required with each
and every provision of this Agreement, it being understood and agreed that no
Stockholder shall, as set forth in
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Section l.2 hereof, have the right or power to sell or assign any of his Class
A Stock except in strict compliance with the procedures set forth in the
provisions of Articles 1, 3, 4, 5 and 6 hereof. The parties hereto agree that
the Class A Stock is unique, that failure to perform the obligations provided
by this Agreement shall result in irreparable damage and that specific
performance of these obligations (including temporary restraining orders and
preliminary and permanent injunctions) may be obtained by suit in equity.
1.9. Termination. The restrictions on transfer of this Article 1 shall
terminate at such time as the Corporation completes an underwritten public
offering of Class A Stock for an aggregate price to the public of not less
than Five Million Dollars ($5,000,000) (a "Qualifying Offering") if prior
thereto, the Corporation has not determined that such termination reasonably
may jeopardize its ability to ensure compliance with Ownership Regulations and
has not given notice to each Stockholder that such completion of such offering
shall not cause a termination of such provisions (a "Termination Event").
ARTICLE 2
CONTROL
2.1. Board of Directors. The Stockholders covenant and
agree, at all times and from time to time, if lawfully permitted
to do so, to vote their Class A Stock and, if applicable, to vote
as a director of the Corporation (or cause their designees to vote as
directors), in such manner: (a) so that the Board of Directors of the
Corporation shall at all times consist of at least three (3) members; and (b)
so that, of such members, one (1) shall be designated by MTI.
2.2. Termination. The provisions of this Article 2 shall terminate at
the earlier to occur of a closing of a Qualifying Offering or a merger or
similar corporate transaction in which a majority of the Corporation's voting
securities are acquired by a third party that is not directly or indirectly
related to or affiliated with the Corporation or any stockholder of the
Corporation.
ARTICLE 3
RIGHTS OF FIRST REFUSAL
3.1. Definitions. The following terms shall have the following meanings
whenever used in this Agreement:
A. "Bona Fide Offer" shall mean a legally enforceable offer to
purchase all Class A Stock owned by a Stockholder in writing, made and signed
by an offeror or offerors who is (or who are) not an Affiliate (as defined in
Section 3.1.C hereof) of the Offering Stockholder and who is a person or
persons or entity or
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entities financially capable of carrying out the terms of such Bona Fide offer
and whose ownership would comply in all respects with applicable Ownership
Regulations.
B. "Registered Notice" shall mean notice hand-delivered, sent by
any express courier service that produces and maintains proof of delivery or
by registered or certified mail, return receipt requested; and, if such
Registered Notice is sent with respect to a Bona Fide Offer (as provided for
in Section 3.2 hereof), such Registered Notice shall contain a true and
complete copy of the Bona Fide Offer, setting forth the price and all terms
and conditions, with the name(s), address(es) (both home and office) and
business(es) or other occupation(s) of the offeror or offerors and the
citizenship of the offeror or offerors. Any notice which does not contain all
such requisite information shall not be considered a "Registered Notice" for
the purposes of Section 3.2 hereof.
C. "Affiliate" shall mean (i) any person who is a parent,
parent-in-law, spouse, brother or sister, or natural or adopted lineal
descendant or spouse of such descendant of the Offering Stockholder or of any
person who owns, directly or indirectly, at least ten percent (10%) of any
class of voting security of the Offering Stockholder or (ii) any entity [A]
which owns, directly or indirectly, at least ten percent (10%) of any class of
voting security of the Offering Stockholder, [B] of which the Offering
Stockholder owns, directly or indirectly, at least ten percent (10%) of any
class of voting security of such entity, or [C] of which at least ten percent
(10%) of any class of voting securities are owned, directly or indirectly, by
any person or entity owning, directly or indirectly, at least ten percent
(10%) of any class of voting securities of the Offering Stockholder.
3.2. Receipt of Bona Fide Offer. In the event that a Stockholder shall
receive a Bona Fide Offer to purchase all (but not less than all) of such
Stockholder's Class A Stock for cash and/or promissory notes and in the
further event that such Stockholder shall desire to accept such Bona Fide
Offer, such Stockholder (hereinafter in this Article 3 referred to as the
"Offering Stockholder") shall promptly send Registered Notice to all other
Stockholders (hereinafter in this Article 3 referred to as the "Other
Stockholders") and to the Corporation, offering to sell the Offering
Stockholder's Class A Stock to all Other Stockholders and to the Corporation
at the same price and upon the same terms and conditions as are contained in
the Bona Fide Offer. The Other Stockholders and the Corporation shall then
have such rights and privileges, for the prescribed time periods, as are set
forth in Section 3.3 hereof.
3.3. Procedure. Whenever, under Section 3.2 hereof, a Bona Fide Offer to
purchase Class A Stock has been received, and Registered
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Notice of the Bona Fide Offer has been sent by the Offering Stockholder, the
Corporation shall prepare a statement approved by counsel to the Corporation
setting forth the maximum number of shares of Class A Stock owned by the
Offering Stockholder that may be purchased by each of the Other Stockholders
and the Corporation in accordance with the Ownership Regulations (a "Statement
of Ownership"), and the Corporation shall send written notice of such
Statement of Ownership to each Stockholder not later than ten (10) days
following receipt by the Corporation of such Registered Notice pursuant to
Section 3.2.
A. If the Offering Stockholder is a member of the Control Group,
the following procedure shall be complied with:
(i) For a period of thirty (30) days from his receipt of such
Registered Notice, each member of the Control Group shall have the right, at
his sole option, by written notice to the Offering Stockholder and the
Corporation, to purchase his ratable portion of the Class A Stock so offered
(to the extent specified in the Statement of Ownership) and, if any of such
shares are not purchased by the other members of the Control Group, any such
remaining shares as the members of the Control Group agree or provide
otherwise (to the extent specified in the Statement of Ownership); provided,
however, that an election by the members of the Control Group to purchase less
than all of the Class A Stock so offered shall be ineffective unless the Other
Stockholders or the Corporation shall purchase the balance of the Class A
Stock so offered, and any portion of an election that exceeds the applicable
number of shares set forth in the Statement of Ownership shall be disregarded.
(ii) If the members of the Control Group shall not
have made elections to purchase all of the Class A Stock so offered within
such thirty (30)-day period for any reason whatsoever, then each of the Other
Stockholders not included in the Control Group shall have the right, at his
sole option, by written notice to the Offering Stockholder and the
Corporation, for a period of twenty (20) days after the expiration of such
thirty (30)-day period, to purchase his ratable portion of the Class A Stock
offered as aforesaid to the members of the Control Group and not elected to be
purchased by the members of the Control Group (to the extent specified in the
Statement of Ownership); provided, however, that an election by the Other
Stockholders not included in the Control Group to purchase less than all of
the remaining shares of Class A Stock so offered shall be ineffective unless
the Corporation shall purchase the balance of the Class A Stock so offered,
and any portion of an election that exceeds the applicable number of shares
set forth in the Statement of Ownership shall be disregarded.
(iii) If the Other Stockholders not included in the Control
Group shall not have made elections to purchase all
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of the Class A Stock so offered within such twenty (20)-day period for any
reason whatsoever, then the Corporation shall have the right, at its sole
option, by written notice to the Offering Stockholder, for a period of ten
(10) days after the expiration of such twenty (20)-day period, to purchase all
(but not less than all) of the Class A Stock offered as aforesaid to the Other
Stockholders and not elected to be purchased by the Other Stockholders (to the
extent specified in the Statement of Ownership); provided, however, that an
election by the Corporation to purchase less than all of the remaining shares
of Class A Stock so offered shall be ineffective, and any portion of an
election that exceeds the applicable number of shares set forth in the
Statement of Ownership shall be disregarded.
B. If the Offering Stockholder is not a member of the Control
Group, the following procedure shall be complied with:
(i) For a period of thirty (30) days from his receipt of such
Registered Notice, each of the Other Stockholders shall have the right, at his
sole option, by written notice to the Offering Stockholder and the Corporation,
to purchase his ratable portion of the Class A Stock (to the extent specified
in the Statement of Ownership); provided, however, that an election by the
Other Stockholders to purchase less than all of the Class A Stock so offered
shall be ineffective unless the Corporation shall purchase the balance of the
Class A Stock so offered, and any portion of an election that exceeds the
applicable number of shares set forth in the Statement of Ownership shall be
disregarded.
(ii) If the Other Stockholders shall not have submitted
elections to purchase all of the Class A Stock so offered within such thirty
(30)-day period for any reason whatsoever, then the Corporation shall have the
right, at its sole option, by written notice to the Offering Stockholder, for
a period of twenty (20) days after the expiration of such thirty (30)-day
period, to purchase all (but not less than all) of the Class A Stock offered
as aforesaid to the Other Stockholders and not elected to be purchased by the
Other Stockholders (to the extent specified in the Statement of Ownership);
provided, however, that an election by the Corporation to purchase less than
all of the remaining shares of Class A Stock so offered shall be ineffective,
and any portion of an election that exceeds the applicable number of shares
set forth in the Statement of Ownership shall be disregarded.
C. If the members of the Control Group, the Other Stockholders and
the Corporation, individually or together, shall not have submitted timely
elections to purchase all of the Class A Stock covered by the Bona Fide Offer
(for reasons other than the Offering Stockholder's default hereunder or the
Corporation's failure to prepare and distribute a Statement of Ownership as
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provided herein), then the Offering Stockholder shall have the right to accept
the Bona Fide Offer in whole (but not in part) and to sell such Class A Stock,
subject to all of the provisions and restrictions of this Agreement, but only
in strict accordance with all of the provisions of the Bona Fide Offer and
only if the sale is fully consummated within ninety (90) days after the
Registered Notice was received by the Corporation pursuant to Section 3.2
hereof.
D. In the event that such sale is not fully consummated within
ninety (90) days after the Registered Notice was received by the Corporation
pursuant to Section 3.2 hereof, the provisions of this Article 3 must again be
complied with by the Offering Stockholder before the Offering Stockholder may
sell the Class A Stock which is the subject of the Bona Fide Offer pursuant to
this Article 3.
3.4. Voting by Offering Stockholder. The Offering Stockholder agrees, if
so requested by any of the other Stockholders, to vote or cause a vote to be
made (as a director of the Corporation and, if applicable, as a stockholder of
the Corporation) in favor of the exercise by the Corporation of its option to
purchase all or a portion (but if a portion, only if the members of the
Control Group or the Other Stockholders have elected to purchase the balance
of the Class A Stock so offered) of the Class A Stock which the Offering
Stockholder has offered to sell to the Corporation pursuant to and within the
provisions of Section 3.2 hereof. In the event that the Corporation's
exercise of such option to purchase such Class A Stock requires an amendment
to the Charter or Bylaws of the Corporation or a reduction of its capital or a
reappraisal of its assets and/or any other corporate action, the Offering
Stockholder agrees, if so requested by any of the other Stockholders, to vote
or cause a vote to be made (as a director of the Corporation and, if
applicable, as a stockholder of the Corporation) in favor of any such
corporate action as may be legally taken.
3.5. Termination. The right of first refusal provisions of this Article
3 shall terminate upon a Termination Event.
ARTICLE 4
REPURCHASE EVENT
4.1. Repurchase Event.
A. "Repurchased Stockholder" shall mean and refer to a Stockholder
who or which has suffered a Repurchase Event.
B. "Repurchase Event" shall mean and refer to any of the
following:
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(i) In the case of an individual holder of Class A Stock, the
death of such Stockholder (except that such repurchase right shall not apply
to Class A Stock of such Stockholder that was or is transferred pursuant to
the provisions of Section 1.3A hereof;
(ii) Any event that entitles the Corporation to repurchase or
redeem any or all of such Stockholder's Class A Stock under applicable
agreements;
(iii) The bankruptcy, or liquidation of a Stockholder; or
(iv) The determination by the appropriate governmental agency
or authority or by counsel to the Corporation that the Stockholder's ownership
of part or all of the Class A Stock then owned by the Stockholder violates or
does not comply in all respects with applicable Ownership Regulations;
provided, that if the Ownership Regulation that is violated or not complied
with involves foreign ownership restrictions, such repurchase right shall
apply only to the Stockholder [A] that transfers its Class A Stock, or [B]
whose change of ownership results in such violation or noncompliance.
4.2. Transfer of Shares.
A. If the Repurchased Stockholder is a member of the Control Group
at the time of a Repurchase Event, the Corporation shall send written notice
to each other member of the Control Group (hereinafter in this Article 4
referred to as the "Other Control Stockholders") offering the Other Control
Stockholders the right to purchase part or all of the Class A Stock owned by
the Repurchased Stockholder as hereinafter provided in this Article 4, which
notice shall include a statement approved by counsel to the Corporation
setting forth the maximum number of such shares that may be purchased by such
Other Control Stockholder in accordance with applicable Ownership Regulations
(hereinafter referred to in this Section 4.2A as the "Share Cap"); provided,
that the right of the Other Control Stockholders to purchase any Class A Stock
of the Repurchased Stockholder pursuant to Section 4.1B(iv) shall be limited
to that number of shares of Class A Stock of the Repurchased Stockholder in
violation of or in conflict with applicable Ownership Regulations, which shall
be specified in such notice. For a period of thirty (30) days from his
receipt of such notice, each Other Control Stockholder shall have the right,
at his sole option, by written notice to the Corporation, to purchase any or
all of the Class A Stock of the Repurchased Stockholder available for purchase
up to the Share Cap applicable to such Other Control Stockholder (provided,
that if more than one Other Control Stockholder exercises his right in full
and the aggregate shares so offered to be purchased exceeds the shares of to
be repurchased pursuant
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<PAGE> 12
to this Article 4, the rights of the Other Control Stockholders exercising
their rights in full shall be reduced pro rata based upon their relative
ownership of Class A Stock owned by all of such Other Control Stockholders
exercising their rights in full), whereupon such Other Control Stockholder
shall be legally obligated to purchase such shares if the repurchase procedure
is consummated as provided in this Article 4. If the Other Control
Stockholders shall not have made elections to purchase all of the Class A
Stock of the Repurchased Stockholder so offered with such thirty (30)-day
period, the Corporation shall the right, at its sole option, to purchase the
balance of the Class A Stock of the Repurchased Stockholder so offered which
was not elected to be purchased by the Other Control Stockholders.
B. If the Repurchased Stockholder is not a member of the Control
Group at the time of a Repurchase Event, the Corporation shall send written
notice to each Stockholder other than the Repurchased Stockholder offering to
each such Stockholder the right to purchase part or all of the Class A Stock
owned by the Repurchased Stockholder as hereinafter provided in this Article
4, which notice shall include a statement approved by counsel to the
Corporation setting forth the maximum number of such shares that may be
purchased by such Stockholder in accordance with applicable Ownership
Regulations (hereinafter referred to in this Section 4.2B as the "Share Cap");
provided, that the right of such Stockholders to purchase any Class A Stock of
the Repurchased Stockholder pursuant to Section 4.1B(iv) shall be limited to
that number of shares of Class A Stock of the Repurchased Stockholder in
violation of or in conflict with applicable Ownership Regulations, which shall
be specified in such notice. For a period of thirty (30) days from his
receipt of such notice, each Stockholder other than the Repurchased
Stockholder shall have the right, at his sole option, by written notice to the
Corporation, to purchase any or all of the Class A Stock of the Repurchased
Stockholder available for purchase up to the Share Cap applicable to such
Stockholder (provided, that if more than one Stockholder exercises his right
in full and the aggregate shares so offered to be purchased exceeds the shares
to be repurchased pursuant to this Article 4, the rights of the Stockholders
exercising their rights in full shall be reduced pro rata based upon their
relative ownership of Class A Stock owned by all of such Stockholders
exercising their rights in full), whereupon such Stockholder shall be legally
obligated to purchase such shares if the repurchase procedure is consummated
as provided in this Article 4. If the Stockholders other than the Repurchased
Stockholder shall not have made elections to purchase all of the Class A Stock
of the Repurchased Stockholder so offered with such thirty (30)-day period,
the Corporation shall have the right, at its sole option, to purchase the
balance of the Class A Stock of the Repurchased Stockholder so offered which
was not elected to be purchased by the Stockholder other than the Repurchased
Stockholder.
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C. The Corporation shall exercise the right of repurchase on
behalf of the Other Control Stockholders or the other Stockholders electing to
purchase any Class A Stock of the Repurchased Stockholder, if applicable,
and/or the Corporation (collectively, the "Purchaser") by sending written
notice to that effect to the Repurchased Stockholder (which notice shall
specify the aggregate number of shares of Class A Stock of the Repurchased
Stockholder intended to be purchased hereunder) and commencing the procedure
for determining the Appraised Value of the Class A Stock to be repurchased.
D. For purposes of this Article 4, a Repurchased Stockholder is
conclusively deemed and considered to own all Class A Stock owned by such
Stockholder directly and by his estate, his executors or administrators and
his personal and legal representatives (except to the extent that such Class A
Stock is transferred pursuant to the provisions of Section l.3A hereof).
E. The Purchaser may abandon a repurchase proceeding only if the
Purchaser agrees to pay all reasonable expenses incurred by the Repurchased
Stockholder (or his or its executor, administrator or personal or legal
representatives) incurred in such proceeding.
4.3. Purchase Price. The purchase price of the Class A Stock to be
repurchased shall be equal to the Appraised Value of such shares (as defined
in Article 7 hereof) as of the Repurchase Event. The purchase price of the
Class A Stock to be repurchased shall be paid by (i) a cash payment at
settlement equal to twenty percent (20%) of the Appraised Value of such shares
and (ii) an unsecured promissory note providing for payment of the balance of
such Appraised Value of such shares over a five (5)-year period in sixty (60)
equal monthly payments of principal plus interest, as provided herein, accrued
on the unpaid principal through the date such payment is due, with such
promissory note providing for acceleration of the unpaid balance of principal
and all interest accrued thereon in the event of default. Such promissory
note shall provide for interest on the unpaid principal balance at a rate
equal to the "Prime Rate" published in the Eastern Edition of The Wall Street
Journal on the date of settlement on such repurchase, which shall adjust
annually to the "Prime Rate" published in the Eastern Edition of The Wall
Street Journal on each succeeding anniversary of such settlement date. In the
event that the Purchaser consists of more than one person or entity, each such
person or entity may deliver a promissory note for his allocable portion of
the deferred amount of such purchase price, which shall include all of the
terms as provided in this Section 4.3.
4.4. Voting by Offering Stockholder. The Repurchased Stockholder agrees
to vote or cause a vote to be made (as a director of the Corporation, and, if
applicable, as a stockholder of the
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Corporation) in favor of the exercise by the Corporation of its option to
repurchase all or a portion of the Class A Stock subject to the Repurchase
Event. In the event that the Corporation's exercise of such option to
repurchase such Class A Stock requires an amendment to the Charter or Bylaws
of the Corporation or a reduction of its capital or a reappraisal of its
assets and/or any other corporate action, the Repurchased Stockholder agrees
to vote or cause a vote to be made (as a director of the Corporation, and, if
applicable, as a stockholder of the Corporation) in favor of any such
corporate action as may be legally taken.
4.5. Conflicts Among Provisions. In the event of any conflict between
the provisions of Article 3 hereof and this Article 4 or of the rights of the
parties thereunder, the provisions of this Article 4 shall control and take
precedence over the provisions of Article 3 hereof, and any rights or actions
pursuant to Article 3 shall be held in abeyance during the pendency of any
repurchase proceeding pursuant to this Article 4.
ARTICLE 5
SETTLEMENT
5.1. Settlement. Settlement shall be held on the purchase of Class A
Stock under Article 3 or 4 at the principal office of the Corporation (or at
such other place as the parties thereto shall agree), at such time and date as
shall be not more than ninety (90) days after the Registered Notice was first
received by the Corporation (for purchases pursuant to Article 3) or thirty
(30) days after the Appraised Value of the Class A Stock of the Repurchased
Stockholder is determined pursuant to Article 7 hereof (for purchases pursuant
to Article 4). At settlement on a purchase of Class A Stock by the Purchaser
under Article 4, the Repurchased Stockholder or its or his executors,
administrators or personal or legal representatives shall deliver to the
Purchaser the Class A Stock owned by the Repurchased Stockholder as of the
Repurchase Event, and, upon delivery of the Class A Stock of the Repurchased
Stockholder, the Purchaser shall be obligated to pay the Repurchased
Stockholder or his executors, administrators or personal or legal
representatives the Appraised Value of the Class A Stock of the Repurchased
Stockholder repurchased pursuant to Article 4. At settlement on the purchase
of shares pursuant to Article 3, such of the Other Stockholders and the
Corporation as have elected to purchase the Class A Stock so offered shall
deliver to the Offering Stockholder a good check and/or promissory notes in an
amount equal to the purchase price.
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ARTICLE 6
GENERAL PROVISIONS RE PURCHASES
6.1. Delivery of Stock and Documents. Upon the closing of any purchase
of any Class A Stock pursuant to this Agreement, the seller shall deliver to
the purchaser the following: The certificate or certificates representing the
Class A Stock being sold, duly endorsed for transfer and bearing such
documentary stamps, if any, as are necessary, and such assignments,
certificates of authority, tax releases, consents to transfer, instruments and
evidences of title of the seller and of his compliance with this Agreement as
may be reasonably required by the purchaser (or by counsel for the purchaser).
6.2. Remedy for Failure to Transfer Shares. In the event that any
Stockholder shall be required to sell its Class A Stock pursuant to any
provision hereof, and in the further event that such Stockholder is unable to,
or for any reason does not, deliver the certificate or certificates evidencing
such shares to the person who, or entity which, is (or desires) to purchase
such shares, in accordance with the applicable provisions of this Agreement,
the purchaser of such shares may deposit the purchase price for such shares
(by good check, promissory note or both, as the case may be under the
applicable provisions of this Agreement) with any bank doing business in the
Washington, D.C. metropolitan area, or with the Corporation's certified public
accountants, as agent or trustee, or in escrow, for such Stockholder, to be
held by such bank, accountant or escrow agent until withdrawn by such
Stockholder. Upon such deposit by the purchaser of such shares and upon
notice to the Stockholder who was required to sell, the Class A Stock of such
Stockholder to be sold pursuant to the applicable provisions of this Agreement
shall at such time be deemed to have been sold, assigned, transferred and
conveyed to such purchaser, such Stockholder shall have no further rights
thereto and the Corporation shall record such transfer in its stock transfer
book.
ARTICLE 7
APPRAISED VALUE
7.1. Procedure for Determining Appraised Value.
A. For purposes of this Agreement, the Appraised Value of Class A
Stock shall be determined as follows: If the Repurchased Stockholder, on the
one hand (or, if applicable, the estate or representative of such Repurchased
Stockholder) and the Purchaser, on the other hand, are able to reach mutual
agreement as to Appraised Value, such agreed Appraised Value shall govern and
shall be fixed as of the date of written agreement as to such Appraised Value.
If mutual agreement cannot be reached, the Repurchased Stockholder (or, if
applicable, the estate or representative of the Repurchased Stockholder) shall
promptly,
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but no later than thirty (30) days after receipt by the Repurchased
Stockholder of the notice by the Purchaser of its intention to repurchase such
shares, appoint an appraiser, and the Purchaser shall promptly, but no later
than thirty (30) days after receipt by the Repurchased Stockholder of the
notice by the Purchaser of its intention to repurchase such shares, appoint an
appraiser to find the Appraised Value for the Repurchased Stockholder's Class
A Stock as of the Repurchase Event. Any party hereto appointing an appraiser
shall furnish the other party hereto with written notice of the name, address
and telephone number of such appraiser. The failure of any party entitled to
appoint an appraiser to make such appointment within such thirty (30)-day
period shall constitute a waiver of such party's right to appoint an
appraiser, and the determination of the other party's appraiser shall be
deemed to be the "Appraised Value" for the Class A Stock, notwithstanding any
other provision of this Article 7. If the two (2) appraisers agree upon the
value of such Class A Stock, they shall jointly render a single written report
of their opinion thereon. If the two (2) appraisers cannot agree upon the
value of such Class A Stock, they shall each render a separate written report
within sixty (60) days after their respective appointment as an appraiser and
shall together, within fifteen (15) days after the end of such sixty (60)-day
period, appoint a third appraiser. If the two appraisers cannot, within such
fifteen (15)-day period, agree on the appointment of a third appraiser, then
such third appraiser shall be determined by arbitration in accordance with the
rules of the American Arbitration Association in the District of Columbia and
the provisions of Section 7.3 hereof. The decision made pursuant to such
arbitration proceeding as to the appointment of such third appraiser shall be
conclusive and binding for all purposes hereof. Within forty-five (45) days
following his or its appointment as an appraiser, whether by agreement or
arbitration, such third appraiser shall render a written report of his or its
opinion as to the value of such Class A Stock.
B. The agreed value or the value contained in the aforesaid joint
written report or written report of the third appraiser, as the case may be,
shall constitute the "Appraised Value" of such Class A Stock; provided,
however, that, if the value of such Class A Stock contained in the appraisal
report of the third appraiser is more than the higher of the first two (2)
appraisals, the higher of the first two (2) appraisals shall constitute the
"Appraised Value"; and, provided further, if the value of such Class A Stock
contained in the appraisal report of the third appraiser is less than the
lower of the first two (2) appraisals, the lower of the first two (2)
appraisals shall constitute the "Appraised Value".
7.2. Assumptions. Any appraiser making any appraisal pursuant to this
Article 7 (i) shall assume the terms of payment set forth in Section 4.3
hereof with respect to the Class A Stock to be
- 16 -
<PAGE> 17
sold, (ii) shall assume that the restrictions on transfer specified in this
Agreement and any applicable Federal or state securities law restrictions on
transfer are not applicable to such Class A Stock and (iii) shall take into
account such other factors deemed appropriate for such purposes.
7.3. Qualifications. All appraisers appointed shall be qualified by
experience in the industry (industries) in which the Corporation does
business, directly or through subsidiaries, and by their ability to appraise
such Class A Stock.
7.4. Costs of Appraisal. The fees and other costs of each of the first
two (2) appraisers shall be borne by the party appointing each such appraiser,
with the fees and other costs of the third appraiser, including those
connected with any arbitration proceeding, shall be shared equally by the two
(2) parties.
ARTICLE 8
COVENANTS
As a material inducement to the Corporation to enter into this Agreement,
each Stockholder covenants and agrees as follows:
8.1. Covenant Not to Disclose Confidential Information. During the
period that a Stockholder is a stockholder of the Corporation, and at all
times after such Stockholder ceases to be a Stockholder of the Corporation,
such Stockholder shall not, directly or indirectly (including, without
limitation, through actions of its officers, directors or agents), without the
express permission of the Corporation or in the course of providing services
for the benefit of the Corporation, divulge or disclose, for any purpose
whatsoever, any confidential or proprietary information, including, without
limitation, the contents of this Agreement, the Corporation's trade secrets,
confidential or proprietary information or reports of the Corporation and
confidential or proprietary information received from any other person or
entity with restrictions on disclosure or use; provided, however, the
following information is excluded from the scope of this Section 8.1: (1)
information which is or becomes a part of the public domain; (2) information
which such Stockholder can reasonably and promptly demonstrate was in the
receiving party's possession at the time he divulged or disclosed such
information; (3) information which such Stockholder is required to disclose in
order to comply with any subpoena, judicial order or applicable law; and (4)
information which such Stockholder discloses to its or his own attorney,
counsel for the Corporation and authorized employees of the Corporation.
8.2. Covenant to Provide Ownership Information. Each Stockholder shall
provide to the Corporation and authorize it to disclose, as required, such
information as may be necessary, useful or appropriate to determine compliance
with any and all
- 17 -
<PAGE> 18
Ownership Regulations and Federal and applicable state securities laws.
8.3. Covenants Re Ownership Regulations. During the period that a
Stockholder is a stockholder of the Corporation, such Stockholder shall not
directly or indirectly, without the express permission of the Corporation, (i)
take any action or omit to take any action which shall jeopardize the
Corporation's compliance with applicable Ownership Regulations or (ii) take
any action inconsistent with the purchaser representations made by such
Stockholder on which the Corporation relied or expressed an intention to rely
for purposes of qualifying for an exemption from registration pursuant to
Federal and applicable state securities laws, including, without limitation,
acting in any way that would cause such Stockholder to be deemed an
"underwriter" (within the meaning given that term by the Securities Act of
1933, as amended) of such shares.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
9.1. Compliance. Each Stockholder represents and warrants to the
Corporation and to the other Stockholders that, to his current knowledge and
belief after such investigation as is reasonable and prudent, (a) his
ownership of the Class A Stock owned by him is in compliance in all respects
with applicable Ownership Regulations, (b) any and all information provided by
such Stockholder to the Corporation and upon which the Corporation expressed
an intention to rely for purposes of qualifying for an exemption from
registration pursuant to Federal and applicable securities laws was accurate
and complete and (c) he did not rely in acquiring any Class A Stock on
information that he now believes or suspects was false, misleading or
incomplete, in any material respect, at the time of his acquisition and he
knows of no basis upon which he may rescind his acquisition of any Class A
Stock or assert any claim for damages against the Corporation or any director,
officer, employee or agent thereof relating to such Stockholder's acquisition
of any Class A Stock.
9.2. Preemptive Rights. Each Stockholder represents and warrants to the
Corporation and to the other Stockholders that he or it has no, and hereby
waives any and all, preemptive rights that he might have with respect to any
issuance or agreement to issue any Class A Stock by the Corporation to and
including the date hereof except such rights provided in that certain Stock
Purchase Agreement by and between the Corporation and MTI of even date
herewith.
- 18 -
<PAGE> 19
ARTICLE 10
MISCELLANEOUS
10.1. Arbitration. Any and all claims, disputes and controversies
that may arise between or among the parties hereto concerning this Agreement
or a breach or default thereof, which have not been resolved by the parties
within thirty (30) days after any party's receipt of another party's notice of
the same shall, within thirty (30) days thereafter, be submitted to and
finally resolved by arbitration in accordance with the rules of the American
Arbitration Association then applicable in the District of Columbia by a
single arbitrator chosen in accordance with such rules. The determination
made pursuant thereto shall be conclusive and binding on the parties, and any
judgment or injunction upon the determination rendered by the arbitrator may
be entered in any court having jurisdiction. Arbitration may proceed in the
absence of any party if notice (pursuant to the American Arbitration
Association's rules and regulations) of the proceedings has been given to such
party, and the absence of such party shall be deemed to result in a
determination against such party with respect to such claim, dispute,
controversy, breach or default. Each party hereby consents to an expedited
hearing pursuant to the American Arbitration Association's rules and
regulations and to the entry of judgment by any court having jurisdiction in
accordance with the decision of the arbitrator. All fees, costs and expenses,
including reasonable attorneys' fees, of the arbitration and the entry and
enforcement of any judgment or injunction shall be borne by the nonprevailing
party. This Section 10.1 shall not prohibit any party from obtaining injunctive
relief to prevent or enjoin a breach of any provisions of this Agreement so
that an arbitration proceeding can be commenced and completed with respect
thereto.
10.2. Notices. Any and all notices, requests or other
communications hereunder provided for herein shall be given in writing and
sent by hand delivery, by express courier service that produces and maintains
proof of delivery, by registered or certified mail, return receipt requested,
or by facsimile (if proof of receipt is provided and such facsimile machine is
located in the principal office, or residence, of a Stockholder); and such
notices shall be addressed: (i) if to the Corporation:
DCR Communications, Inc.
2715 M Street, N.W.
Suite 150
Washington, D.C. 20007
Fax: (202) 337-9175
- 19 -
<PAGE> 20
with a copy to:
Ronald S. Schimel, Esquire
Levan, Schimel, Belman & Abramson, P.A.
9881 Broken Land Parkway
Columbia, Maryland 21046
and (ii) if to any Stockholder, to the address of such Stockholder as
reflected in the stock records of the Corporation, unless notice of a change
of address is furnished to all parties in the manner provided in this Section
10.2. Any notice which is required to be made within a stated period of time
shall be considered timely if delivered before midnight of the last day of
such period.
10.3. Corporate Action. In the event that the Corporation is obligated
to purchase any Class A Stock under this Agreement, and in the further event
that, under the applicable laws of the jurisdiction of incorporation of the
Corporation, the Corporation is legally prevented from purchasing or acquiring
such Class A Stock, the Corporation shall promptly take (or cause to be taken)
such measures (whether it be an amendment of the Charter or Bylaws of the
Corporation, a reduction of its capital, a reappraisal of its assets and/or any
other corporate action) as are necessary or appropriate to enable the
Corporation to purchase or acquire such Class A Stock, and, if required to
comply with applicable Ownership Regulations, the Corporation, by action of its
Board of Directors, may assign part or all of its right to acquire such Class A
Stock with respect to a specific repurchase or right-of-first refusal
proceeding.
10.4. Invalid or Unenforceable Provisions. The invalidity or
unenforceability of any particular provision of this Agreement shall not
affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were omitted.
10.5. Benefit and Burden. This Agreement shall inure to the benefit
of, and shall be binding upon, the parties hereto and their legatees,
distributees, estates, executors, administrators, personal representatives,
successors and assigns, and other legal representatives.
10.6. Gender. The use of any gender herein shall be deemed to be or
include the other genders and the use of the singular herein shall be deemed
to be or include the plural (and vice versa), wherever appropriate.
10.7. Changes; Waiver. No change or modification of this Agreement
shall be valid unless the same is in writing and signed by all parties hereto;
provided, however, that the Corporation shall be authorized to execute any
amendment hereto
- 20 -
<PAGE> 21
solely for the purpose of adding as a party hereto any person who or entity
which has subscribed for any Class A Stock, a copy of which the Corporation
promptly shall send to all Stockholders. No waiver of any provision of this
Agreement shall be valid unless in writing and signed by the person against
whom sought to be enforced. The failure of any party at any time to insist
upon strict performance of any condition, promise, agreement or understanding
set forth herein shall not be construed as a waiver or relinquishment of the
right to insist upon strict performance of the same or any other condition,
promise, agreement or understanding at a future time.
10.8. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and
representations among the parties hereto with respect to the Class A Stock
owned by the Stockholders and any other matters set forth herein, and there
are no promises, agreements, conditions, understandings, warranties or
representations, oral or written, express or implied, among them with respect
to such shares or such other matters except as set forth herein and in
subscription agreements by and between the Corporation and each Stockholder.
This Agreement is an integration of any and all prior agreements among the
parties hereto with respect to the subject matter hereof, which are hereby
revoked. The stock transfer restrictions and repurchase provisions of this
Agreement shall supersede any and all prior agreements between the Corporation
and any Stockholder with respect to any stock transfer restrictions and stock
repurchase rights and/or obligations.
10.9. Governing Law. This Agreement shall be construed and enforced
in accordance with the substantive laws of the State of Maryland, without
regard to its rules regarding conflicts of law.
10.10. Headings. The headings, subheadings and other captions in this
Agreement are for convenience and reference only and shall not be used in
interpreting, construing or enforcing any of the provisions of this Agreement.
10.11. Term of Agreement. This Agreement shall be effective as of the
date first hereinabove set forth and shall terminate at such time as there
shall be only one holder of Stock or all Stockholders shall have sold,
transferred or conveyed all of their Class A Stock to any other entity or
person by merger, share exchange or business combination. Notwithstanding the
foregoing, certain sections of this Agreement may terminate prior to the
aforesaid termination if such sections so provide and the provisions of
Article 8 shall survive the termination of the Agreement.
- 21 -
<PAGE> 22
IN WITNESS WHEREOF, the Corporation and each of the Stockholders that is
incorporated has caused this Agreement to be executed by its duly authorized
officers, and each Stockholder who is an individual has executed this
Agreement, all as of the day and year first above written.
CORPORATION:
ATTEST: DCR COMMUNICATIONS, INC., a
Maryland corporation
/s/ JANIS A. RIKER By: /s/ DANIEL C. RIKER
- ------------------------- -------------------------------
,Secretary Daniel C. Riker, President
STOCKHOLDERS:
WITNESS/ATTEST: MASA TELECOM, INC., a Delaware
corporation
/s/ TOSHI YAMASHITA By:/s/ BRION SASAKI
- ------------------------- -------------------------------
Toshi Yamashita, Assistant Brion Sasaki, President
Secretary
TELECONSULT, INC., a Delaware
corporation
[SIG] By: [SIG] (SEAL)
- ------------------------- --------------------------------
, Secretary , President
/s/ DANIEL C. RIKER (SEAL)
- ------------------------- -----------------------------------
DANIEL C. RIKER
/s/ JANIS A RIKER (SEAL)
- ------------------------- -----------------------------------
JANIS RIKER
/s/ DANIEL C. RIKER /s/ RANDALL S. ANDERSON (SEAL)
- ------------------------- -----------------------------------
RANDALL S. ANDERSON
/s/ JONATHAN L. ALPERT (SEAL)
- ------------------------- -----------------------------------
JONATHAN L. ALPERT
/s/ JO ELIZABETH ALPERT (SEAL)
- ------------------------- -----------------------------------
JO ELIZABETH ALPERT
- 22 -
<PAGE> 23
AMENDMENT TO STOCKHOLDERS' AGREEMENT
THIS AMENDMENT TO STOCKHOLDERS' AGREEMENT ("Amendment") is made this ____
day of November, 1996, by and between RONALD S. SCHIMEL (hereinafter referred
to as "Transferee"), and DCR COMMUNICATIONS, INC. (the "Corporation").
R E C I T A L S
WHEREAS, the stockholders of the Corporation and the Corporation entered
into that certain Stockholders' Agreement, dated January 30, 1995, as amended
(the "Stockholders' Agreement"), which provides that the Corporation shall not
issue any shares of its Class A Voting Common Stock, par value $.01 per share
("Class A Stock") unless the holder agrees to be bound by all of the
provisions of the Agreement, including certain restrictions on the transfer of
Class A Stock;
WHEREAS, the Corporation intends to issue Twenty Thousand (20,000) shares
of the Class A Stock to Transferee pursuant to the stock grant approved by the
Board of Directors on October 12, 1995 dated;
WHEREAS, the parties hereto desire to amend the Stockholders' Agreement
to add Transferee as a party thereto and to reflect Transferee's Agreement to
be bound by all of the terms and conditions of the Stockholders' Agreement.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Recitals. The recitals set forth above are hereby made a part of
this Amendment.
2. Agreement to be Bound. Transferee hereby covenants and agrees for,
and on behalf of, himself, his legal representatives and his transferees and
assigns (a) to be bound by all of the provisions of the Stockholders'
Agreement as a party thereto and in the capacity of "Stockholder" as that term
is defined in the Stockholders' Agreement, and (b) that the Class A Stock
issued to Transferee shall be subject to all of the terms and conditions set
forth in the Stockholders' Agreement, including, but not limited to, the
transfer restrictions.
3. Effect on Stockholders' Agreement. Except as specifically provided
herein, the terms and conditions of the Stockholders' Agreement shall remain
in full force and effect.
<PAGE> 24
4. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original document,
but all of which counterparts shall together constitute one and the same
instrument. This Amendment shall not be effective unless and until executed
by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal on the date first above written.
WITNESS: TRANSFEREE:
By: (SEAL)
- ---------------------------- ----------------------
RONALD S. SCHIMEL
DCR COMMUNICATIONS, INC.
By: (SEAL)
- ---------------------------- ----------------------
Janis A. Riker, President
2
<PAGE> 25
AMENDMENT TO STOCKHOLDERS' AGREEMENT
THIS AMENDMENT TO STOCKHOLDERS' AGREEMENT ("Amendment") is made this ____
day of November, 1995, by and between THOMAS S. LEMING (hereinafter referred
to as "Transferee"), and DCR COMMUNICATIONS, INC. (the "Corporation").
R E C I T A L S
WHEREAS, the stockholders of the Corporation and the Corporation entered
into that certain Stockholders' Agreement, dated January 30, 1995, as amended
(the "Stockholders' Agreement"), which provides that the Corporation shall not
issue any shares of its Class A Voting Common Stock, par value $.01 per share
("Class A Stock") unless the holder agrees to be bound by all of the
provisions of the Agreement, including certain restrictions on the transfer of
Class A Stock;
WHEREAS, the Corporation intends to issue Twenty Thousand (20,000) shares
of the Class A Stock to Transferee pursuant to the stock grant approved by the
Board of Directors on October 12, 1995 dated;
WHEREAS, the parties hereto desire to amend the Stockholders' Agreement
to add Transferee as a party thereto and to reflect Transferee's Agreement to
be bound by all of the terms and conditions of the Stockholders' Agreement.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Recitals. The recitals set forth above are hereby made a part of
this Amendment.
2. Agreement to be Bound. Transferee hereby covenants and agrees for,
and on behalf of, himself, his legal representatives and his transferees and
assigns (a) to be bound by all of the provisions of the Stockholders'
Agreement as a party thereto and in the capacity of "Stockholder" as that term
is defined in the Stockholders' Agreement, and (b) that the Class A Stock
issued to Transferee shall be subject to all of the terms and conditions set
forth in the Stockholders' Agreement, including, but not limited to, the
transfer restrictions.
3. Effect on Stockholders' Agreement. Except as specifically provided
herein, the terms and conditions of the Stockholders' Agreement shall remain
in full force and effect.
<PAGE> 26
4. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original document,
but all of which counterparts shall together constitute one and the same
instrument. This Amendment shall not be effective unless and until executed
by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal on the date first above written.
WITNESS: TRANSFEREE:
By: (SEAL)
- --------------------------- -----------------------
THOMAS S. LEMING
DCR COMMUNICATIONS, INC.
By: (SEAL)
- --------------------------- ----------------------
Janis A. Riker, President
2
<PAGE> 27
AMENDMENT TO STOCKHOLDERS' AGREEMENT
THIS AMENDMENT TO STOCKHOLDERS' AGREEMENT ("Amendment") is made this ____
day of November, 1995, by and between GEORGE S. WILLS (hereinafter referred to
as "Transferee"), and DCR COMMUNICATIONS, INC. (the "Corporation").
R E C I T A L S
WHEREAS, the stockholders of the Corporation and the Corporation entered
into that certain Stockholders' Agreement, dated January 30, 1995, as amended
(the "Stockholders' Agreement"), which provides that the Corporation shall not
issue any shares of its Class A Voting Common Stock, par value $.01 per share
("Class A Stock") unless the holder agrees to be bound by all of the
provisions of the Agreement, including certain restrictions on the transfer of
Class A Stock;
WHEREAS, the Corporation intends to issue Twenty Thousand (20,000) shares
of the Class A Stock to Transferee pursuant to the stock grant approved by the
Board of Directors on October 12, 1995 dated;
WHEREAS, the parties hereto desire to amend the Stockholders' Agreement
to add Transferee as a party thereto and to reflect Transferee's Agreement to
be bound by all of the terms and conditions of the Stockholders' Agreement.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Recitals. The recitals set forth above are hereby made a part of
this Amendment.
2. Agreement to be Bound. Transferee hereby covenants and agrees for,
and on behalf of, himself, his legal representatives and his transferees and
assigns (a) to be bound by all of the provisions of the Stockholders'
Agreement as a party thereto and in the capacity of "Stockholder" as that term
is defined in the Stockholders' Agreement, and (b) that the Class A Stock
issued to Transferee shall be subject to all of the terms and conditions set
forth in the Stockholders' Agreement, including, but not limited to, the
transfer restrictions.
3. Effect on Stockholders' Agreement. Except as specifically provided
herein, the terms and conditions of the Stockholders' Agreement shall remain
in full force and effect.
<PAGE> 28
4. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original document,
but all of which counterparts shall together constitute one and the same
instrument. This Amendment shall not be effective unless and until executed
by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal on the date first above written.
WITNESS: TRANSFEREE:
By: (SEAL)
- -------------------------- ----------------------
GEORGE S. WILLS
DCR COMMUNICATIONS, INC.
By: (SEAL)
- --------------------------- ----------------------
Janis A. Riker, President
2
<PAGE> 29
AMENDMENT TO STOCKHOLDERS' AGREEMENT
THIS AMENDMENT TO STOCKHOLDERS' AGREEMENT ("Amendment") is made this ____
day of March, 1996, by and between BRION SASAKI (hereinafter referred to as
"Transferee"), and DCR COMMUNICATIONS, INC. (the "Corporation").
R E C I T A L S
WHEREAS, the stockholders of the Corporation and the Corporation entered
into that certain Stockholders' Agreement, dated January 30, 1995, as amended
(the "Stockholders' Agreement"), which provides that the Corporation shall not
issue any shares of its Class A Voting Common Stock, par value $.01 per share
("Class A Stock") unless the holder agrees to be bound by all of the
provisions of the Agreement, including certain restrictions on the transfer of
Class A Stock;
WHEREAS, the Corporation intends to issue Twenty Thousand (20,000) shares
of the Class A Stock to Transferee pursuant to the stock grant approved by the
Board of Directors on October 12, 1995 dated;
WHEREAS, the parties hereto desire to amend the Stockholders' Agreement
to add Transferee as a party thereto and to reflect Transferee's Agreement to
be bound by all of the terms and conditions of the Stockholders' Agreement.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Recitals. The recitals set forth above are hereby made a part of
this Amendment.
2. Agreement to be Bound. Transferee hereby covenants and agrees for,
and on behalf of, himself, his legal representatives and his transferees and
assigns (a) to be bound by all of the provisions of the Stockholders'
Agreement as a party thereto and in the capacity of "Stockholder" as that term
is defined in the Stockholders' Agreement, and (b) that the Class A Stock
issued to Transferee shall be subject to all of the terms and conditions set
forth in the Stockholders' Agreement, including, but not limited to, the
transfer restrictions.
3. Effect on Stockholders' Agreement. Except as specifically provided
herein, the terms and conditions of the Stockholders' Agreement shall remain
in full force and effect.
<PAGE> 30
4. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original document,
but all of which counterparts shall together constitute one and the same
instrument. This Amendment shall not be effective unless and until executed
by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal on the date first above written.
WITNESS: TRANSFEREE:
By: (SEAL)
- -------------------------- ----------------------
BRION SASAKI
DCR COMMUNICATIONS, INC.
By: (SEAL)
- -------------------------- ----------------------
Janis A. Riker, President
2
<PAGE> 31
AMENDMENT TO STOCKHOLDERS' AGREEMENT
THIS AMENDMENT TO STOCKHOLDERS' AGREEMENT ("Amendment") is made this ____
day of January, 1996, by and between CTD, L.L.C., a Maryland limited liability
company (hereinafter referred to as "Transferee"), and DCR COMMUNICATIONS,
INC. (the "Corporation").
R E C I T A L S
WHEREAS, the stockholders of the Corporation and the Corporation entered
into that certain Stockholders' Agreement, dated January 30, 1995, as amended
(the "Stockholders' Agreement"), which provides that the Corporation shall not
issue any shares of its Class A Voting Common Stock, par value $.01 per share
("Class A Stock") unless the holder agrees to be bound by all of the
provisions of the Agreement, including certain restrictions on the transfer of
Class A Stock;
WHEREAS, the Corporation intends to issue One Hundred Thousand (100,000)
shares of the Class A Stock to Transferee pursuant to the stock grant approved
by the Board of Directors on October 12, 1995 dated;
WHEREAS, the parties hereto desire to amend the Stockholders' Agreement
to add Transferee as a party thereto and to reflect Transferee's Agreement to
be bound by all of the terms and conditions of the Stockholders' Agreement.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Recitals. The recitals set forth above are hereby made a part of
this Amendment.
2. Agreement to be Bound. Transferee hereby covenants and agrees for,
and on behalf of, itself, its legal representatives, transferees and assigns
(a) to be bound by all of the provisions of the Stockholders' Agreement as a
party thereto and in the capacity of "Stockholder" as that term is defined in
the Stockholders' Agreement, and (b) that the Class A Stock issued to
Transferee shall be subject to all of the terms and conditions set forth in
the Stockholders' Agreement, including, but not limited to, the transfer
restrictions.
3. Effect on Stockholders' Agreement. Except as specifically provided
herein, the terms and conditions of the Stockholders' Agreement shall remain
in full force and effect.
<PAGE> 32
4. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original document,
but all of which counterparts shall together constitute one and the same
instrument. This Amendment shall not be effective unless and until executed
by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal on the date first above written.
WITNESS: TRANSFEREE:
CTD, L.L.C.
By: (SEAL)
- -------------------------- ----------------------
Timothy Dennis, President
DCR COMMUNICATIONS, INC.
By: (SEAL)
- -------------------------- ----------------------
Janis A. Riker, President
2
<PAGE> 33
AMENDMENT TO STOCKHOLDERS' AGREEMENT
THIS AMENDMENT TO STOCKHOLDERS' AGREEMENT ("Amendment") is made this ____
day of November, 1995, by and between WESTINGHOUSE ELECTRIC CORPORATION,
(hereinafter referred to as "Transferee"), and DCR COMMUNICATIONS, INC. (the
"Corporation").
R E C I T A L S
WHEREAS, the stockholders of the Corporation and the Corporation entered
into that certain Stockholders' Agreement, dated January 30, 1995, as amended
(the "Stockholders' Agreement"), which provides that the Corporation shall not
issue any shares of its Class A Voting Common Stock, par value $.01 per share
("Class A Stock") unless the holder agrees to be bound by all of the
provisions of the Agreement, including certain restrictions on the transfer of
Class A Stock;
WHEREAS, the Corporation intends to issue One Million Eight Hundred
Thousand Seven Hundred Twenty-Nine (1,800,729) shares of the Class A Stock to
Transferee pursuant to that certain Loan and Purchase Agreement entered into
by and between the Corporation and Transferee dated November 9, 1995;
WHEREAS, the parties hereto desire to amend the Stockholders' Agreement
to add Transferee as a party thereto and to reflect Transferee's Agreement to
be bound by all of the terms and conditions of the Stockholders' Agreement.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Recitals. The recitals set forth above are hereby made a part of
this Amendment.
2. Agreement to be Bound. Transferee hereby covenants and agrees for,
and on behalf of, itself, its legal representatives, transferees and assigns
(a) to be bound by all of the provisions of the Stockholders' Agreement as a
party thereto and in the capacity of "Stockholder" as that term is defined in
the Stockholders' Agreement, and (b) that the Class A Stock issued to
Transferee shall be subject to all of the terms and conditions set forth in
the Stockholders' Agreement, including, but not limited to, the transfer
restrictions.
<PAGE> 34
3. Effect on Stockholders' Agreement. Except as specifically provided
herein, the terms and conditions of the Stockholders' Agreement shall remain
in full force and effect.
4. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original document,
but all of which counterparts shall together constitute one and the same
instrument. This Amendment shall not be effective unless and until executed
by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal on the date first above written.
WITNESS: TRANSFEREE:
WESTINGHOUSE ELECTRIC
CORPORATION
By: (SEAL)
- -------------------------- ----------------------
Title:
----------------------
DCR COMMUNICATIONS, INC.
By: (SEAL)
- -------------------------- ------------------------
Janis A. Riker, President
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<PAGE> 1
EXHIBIT 10.10
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made this 18th
day of August, 1995, by and between DCR COMMUNICATIONS, INC. (the
"Corporation" or "DCR"), a corporation organized under the laws of the State of
Maryland, and MULTINATIONAL TECHNOLOGY AND BUSINESS LIMITED (the "Purchaser"),
a corporation organized under the laws of the Republic of Hong Kong, and
entered into in the Republic of Hong Kong.
W I T N E S S E T H:
WHEREAS, the Purchaser desires to invest Eight Hundred
Thirty-Three Thousand and 00/100 Dollars (U.S.) ($833,000.00) in DCR through
the purchase of a convertible debenture pursuant to the terms and subject to
the conditions set forth herein; and
WHEREAS, the parties hereto desire to set forth herein their
understandings and agreements.
NOW, THEREFORE, in consideration of the foregoing, of the
mutual covenants and agreements set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by DCR and the Purchaser, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Definitions:
1.1. For purposes of this Agreement, the following
terms shall have the following definitions:
"AUCTION" shall mean the Federal Communications
Commission ("FCC") C-Block Auction for Broadband Personal Communications
Services ("PCS").
"CLASS A STOCK" shall mean shares of the Class A
Voting Common Stock of the Corporation, par value One Cent ($0.01) per share,
as the same may be modified or exchanged in any reclassification or
recapitalization of the Corporation.
"CLASS B STOCK" shall mean shares of the Class B
Non-Voting Common Stock of the Corporation, par value One Cent ($0.01) per
share, as the same may be modified or exchanged in any reclassification or
recapitalization of the Corporation.
"CLOSING DATE" shall mean the date that the parties
hereto execute this Agreement, which shall take place at _______________, Hong
Kong, on August 18, 1995, or at such other date, time or location as the
parties hereto shall otherwise agree.
<PAGE> 2
"COMMUNICATIONS ACT" shall mean the Communications
Act of 1934, as amended, codified at 47 U.S.C.A. Section 151, et seq.
"FOREIGN INVESTOR" shall mean any alien or
representative thereof, any foreign government or representative thereof or any
corporation organized under the laws of a foreign country whose ownership of
capital stock of the Corporation is or would be subject to foreign ownership
restrictions of the Communications Act including, without limitation, 47
U.S.C.A. Section 310(b), or FCC regulations.
"FOREIGN-OWNED EQUITY" shall mean any and all shares
of capital stock of DCR owned of record or voted for the account of a Foreign
Investor.
"PREFERRED STOCK" shall mean shares of Convertible
Preferred Stock of the Corporation, par value One Cent ($0.01) per share, as
the same may be modified or exchanged in any reclassification or
recapitalization of the Corporation.
"SERIES A DEBENTURES" shall mean the convertible
debentures issued to Masa Telecom Asia Investment Pte. Ltd. ("MTAI") pursuant
to that certain Loan and Purchase Agreement entered into by and between the
Corporation and MTAI dated June 24, 1995 ("MTAI Agreement"), and the
convertible debentures issued or to be issued to Pacific Eagle Investments Ltd.
("Pacific") pursuant to that certain Loan and Purchase Agreement entered into
by and between the Corporation and Pacific ("Pacific Agreement").
"SERIES B DEBENTURE" shall mean the convertible
debenture(s) issued to the Purchaser hereunder.
"TERMINATION EVENT" shall mean the earlier to occur
of (a) a closing of the first sale of stock of the Corporation to the public
through an underwriter which produces gross proceeds of at least Five Million
and 00/100 Dollars ($5,000,000.00) pursuant to a registration statement filed
with, and declared effective by, the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933 as amended (the "Securities
Act"), or (b) a merger or similar corporate transaction in which a majority of
the Corporation's voting securities are acquired by a third party that is not
directly or indirectly related to or affiliated with the Corporation or any
stockholder of the Corporation.
ARTICLE 1
PURCHASE AND SALE OF SERIES B CONVERTIBLE DEBENTURE
1.1. Sale of Convertible Debentures; Payment of Purchase
Price. The Corporation agrees to sell to the Purchaser, and the Purchaser
agrees to purchase from the Corporation, a convertible debenture of DCR in the
amount of Eight Hundred Thirty-Three
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<PAGE> 3
Thousand and 00/100 Dollars ($833,000.00) (hereinafter, "Purchase Price"). The
Purchase Price shall be deposited into the Corporation's bank account in
immediately available U.S. funds no later than September 5, 1995.
1.2. Conversion. The Series B Debenture purchased
hereunder shall be issued to the Purchaser upon full payment of the Purchase
Price in a form substantially similar to the form Debenture attached hereto as
Exhibit 1.2, which debenture shall be convertible into shares of Class A Stock,
as provided below.
1.2.1. Elective Conversion Rights. To the extent that such
conversion does not cause the Corporation's Foreign-owned Equity to exceed the
maximum allowable amount of Foreign-owned Equity on the effective date(s) of
any such conversion ("Conversion Dates"), the holder of the Series B Debenture
shall have the right, at the Debenture holder's option, to convert the entire
amount or a portion of the Series B Debenture into such number of fully paid
and non-assessable shares of Class A Stock upon such terms and conditions as
set forth in this Agreement; provided, however, that if, as of the Conversion
Date, (i) any holder of Series A Debentures has made an election to convert
any Series A Debentures pursuant to the terms of such Series A Debentures
which conversion has not been completed or (ii) any mandatory conversion of
Series A Debentures is in process or is applicable, the conversion of the
Series A Debentures shall be processed prior to any conversion of the Series B
Debenture so that the Series B Debenture conversion takes place subsequent to
such Series A Debenture conversions, Foreign-owned Equity limitations
permitting. Any election made by a Series B Debenture holder shall be deemed
irrevocable and continuing until completion of the conversion giving elections
by holders of Series A Debentures priority over holders of Series B Debentures.
Any irrevocable election to convert (i) shall be processed at the earliest
time that the Foreign-owned Equity restrictions permit such conversion, in
whole or in part, (ii) shall be processed in the order received by the
Corporation giving elections by holders of Series A Debentures priority over
holders of Series B Debentures, and (iii) shall be prorated in accordance with
the percentage of the total number of outstanding Series B Debentures held by
each holder thereof in the event two or more elections to convert are received
on the same day. In the event that there is more than one holder of the
Corporation's Series B Debenture on any Conversion Date, the aggregate amount
of the debenture then convertible hereunder shall convert on a pro rata basis
among all of the Series B Debenture holders. The Corporation shall give
written notice to the Series B Debenture holder at such address as provided in
the debenture ("Debenture Holder Notice") of the principal amount of the
debenture that are to be converted as provided herein and the number of shares
of Class A Stock to be issued therefor. Promptly after receipt of the
Debenture Holder Notice, the debenture holder shall provide the Corporation
with the
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<PAGE> 4
debenture being converted and the name and address to which the stock
certificate is to be issued and delivered.
1.2.2. Mandatory Conversion. At any time
following the completed conversion of all of the Series A Debentures pursuant
to the terms and conditions of the Series A Debentures, to the extent that such
conversion does not cause the Corporation's Foreign-owned Equity to exceed the
maximum allowable amount of Foreign-owned Equity on the Conversion Date, all or
a portion of the Series B Debenture shall convert into such number of fully
paid and non-assessable shares of Class A Stock as set forth herein.
1.2.3. Mandatory Conversion Upon Public
Offering. Notwithstanding anything herein contained to the contrary, to the
extent that such conversion does not cause the Corporation's Foreign-owned
Equity to exceed the maximum allowable amount, the Series B Debenture shall
convert into such number of fully paid and nonassessable shares of Class A
Stock as set forth herein, at the time of the closing of the first sale of
stock of the Corporation to the public through an underwriting which produces
gross proceeds of at least Five Million and 11/100 Dollars ($5,000,000.00)
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, and continue to convert thereafter, Foreign-owned Equity limitations
permitting. Notwithstanding, in the event that any of the Series A Debentures
are immediately convertible on the Conversion Date pursuant to their terms, the
conversion of any and all Series A Debentures shall be processed first pursuant
to their terms of conversion, followed by the conversion of the Series B
Debentures, Foreign-owned Equity limitations permitting. In the event that
there is more than one holder of the Corporation's Series B Debenture on any
Conversion Date, the aggregate amount of the debenture then convertible
hereunder shall convert on a pro rata basis among all of the Series B Debenture
holders.
1.3. Conversion Rate. For any conversion of the Series B
Debenture, the number of shares of Class A Stock that shall be issuable upon
conversion of such debenture shall equal the amount of the debenture being
converted divided by Eighty-Three Cents ($0.833000). In the event that there
are any stock dividends, split-ups, combinations, recapitalizations, or the
like, which affect the Class A Stock, proportionate adjustments shall be made
to the conversion rate, or the number of shares of Class A Stock issuable
pursuant to this conversion right.
1.4. Minimum Conversion Increments. Notwithstanding
anything in this Article 1 to the contrary, in no event shall any conversion of
the Series B Debenture into Class A Stock (other than the final conversion of
the remaining portion of the Series B Debenture) take
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<PAGE> 5
place unless and until the amount convertible is at least Two Hundred Thousand
and 00/100 Dollars ($200,000.00).
1.5. Notice; Election of Rights. The Series B Debenture
holder may exercise its Elective Conversion Rights provided in Section 1.2.1 by
giving written notice to the Corporation of its exercise of such right and
stating the name in which the stock certificate is to be issued and the address
to which such certificate shall be delivered. Such notice, to be effective,
must be accompanied by the Debenture(s) being converted. The Corporation shall
issue and deliver to an address designated by the Debenture holder, a stock
certificate of the Corporation representing the number of shares of Class A
Stock to which the Series B Debenture holder is entitled.
ARTICLE 2
CONDITIONS TO CLOSING; CONDITIONS TO CONVERSION
2.1. Purchaser's Conditions to Closing. The Purchaser's
obligation to purchase the Series B Debenture shall be subject to the
fulfillment of the following conditions on or prior to the Closing Date, or the
waiver thereof by the Purchaser:
2.1.1. The Corporation shall have delivered to
the Purchaser (a) the Articles of Incorporation of the Corporation, with any
and all amendments thereto (the "Articles of Incorporation"), (b) the Bylaws of
the Corporation, with any and all amendments thereto (the "Bylaws"), (c) all
authorizations by the Board of Directors and, if necessary, the stockholders of
the Corporation, relating to the execution and performance of this Agreement
(including the issuance of the Series B Debentures) and (d) a certificate of
Secretary of the Corporation attesting to the completeness and accuracy of each
such document.
2.1.2. All covenants, agreements and conditions
contained herein to be performed by the Corporation on or prior to the Closing
Date shall have been performed or complied with, and the Corporation shall have
delivered to Purchaser a certificate to that effect.
2.2. The Corporation's Conditions to Closing. The
Corporation's obligation to issue and sell the Series B Debenture shall be
subject to the fulfillment of the following conditions on or prior to the
Closing Date (unless another date is specified herein), or the waiver thereof
by the Corporation:
2.2.1. Masa Telecom, Inc. shall have executed
and delivered to the Corporation an amendment of certain rights relating to the
Class A Stock, which amendment shall be in substantially the same form as
attached hereto as Exhibit 2.2.1.
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<PAGE> 6
2.2.2. All covenants, agreements and conditions
contained herein to be performed by the Purchaser on or prior to the Closing
Date shall have been performed or complied with, and the Purchaser shall have
delivered to the Corporation a certificate to that effect.
2.3. Condition to Conversion. The obligation to issue the
shares of Class A Stock upon conversion of the Series B Debenture shall be
subject to the Purchaser and/or its permitted assigns having executed and
delivered to the Corporation on or prior to any Conversion Date, an amendment
to that certain Stockholders' Agreement entered into by and among the
Corporation by each of its holders of Class A Stock, dated January 30, 1995,
which amendment shall be in substantially the same form as attached hereto as
Exhibit 2.3.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION
As a material inducement to the Purchaser to purchase the
Series B Debenture, the Corporation represents and warrants to the Purchaser
that the following statements are true and correct in all material respects as
of the date hereof:
3.1. Organization and Standing; Articles and Bylaws. The
Corporation is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland. The Corporation has
requisite corporate power and authority to own and operate its properties and
assets and to carry on its business as presently conducted and as proposed to
be conducted. The Corporation is duly licensed or qualified to transact
business as a foreign corporation in each jurisdiction in which failure to
qualify would have a material adverse effect on the Corporation. The Articles
of Incorporation and the Bylaws of the Corporation delivered to the Purchaser
pursuant to Section 2.1.1 hereof are true, correct and complete.
3.2. Corporate Power. The Corporation has all requisite
legal and corporate power and authority to execute and deliver this Agreement,
to sell and issue the Series B Debenture pursuant thereto, and to carry out and
perform all of its other obligations under the terms of this Agreement and the
Series B Debenture.
3.3. Subsidiaries. Except as set forth on Schedule 3.3
attached hereto, the Corporation has no subsidiaries or affiliated companies
and does not otherwise own or control, directly or indirectly, any equity
interest in any corporation, association or business entity other than the
fifty (50) shares of FedSMR, Inc. contributed by American Business
Communications, Inc.
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<PAGE> 7
3.4. Capitalization. The authorized capital stock of the
Corporation consists solely of (i) one hundred million (100,000,000) shares of
Class A Voting Common Stock, par value One Cent ($0.01) per share, of which
twenty-five million four hundred thirty-four thousand (25,434,000) shares are
issued and outstanding, (ii) one hundred million (100,000,000) shares of Class
B Nonvoting Common Stock, par value One Cent ($0.01) per share, of which no
shares are issued and outstanding, and (iii) one hundred million (100,000,000)
shares of Convertible Preferred Stock, par value One Cent ($0.01) per share, of
which no shares are issued and outstanding. All issued and outstanding shares
of Class A Voting Common Stock have been duly authorized and validly issued and
are fully paid and nonassessable. The Corporation has duly and validly
reserved (a) an aggregate of three million (3,000,000) shares of Class B Stock
for issuance pursuant to stock options to be granted to employees of the
Corporation (the "Employee Reserve"), and (b) an aggregate of one million five
hundred sixty-six thousand (1,566,000) shares are reserved for issuance to
other investors. Except as set forth on Schedule 3.4, there are no preemptive
rights or anti-dilution rights existing with respect to any issuance or
proposed issuance of any Class A Stock, including issuances pursuant to this
Agreement.
3.5. Authorization. All corporate actions on the part of
the Corporation, its directors and stockholders necessary for (a) the
authorization, execution, delivery and performance of this Agreement by the
Corporation, (b) the sale, issuance and delivery of the Series B Debenture, and
(c) the performance of all of the Corporation's obligations under this
Agreement and the other agreements and actions contemplated herein, have been
or will be taken prior to or as of the Closing Date.
3.6. Binding Effect. This Agreement, when executed and
delivered by the parties hereto, shall constitute a valid and binding
obligation of the Corporation, and shall be enforceable in accordance with its
terms. The Series B Debenture issued to Purchaser pursuant to this Agreement,
when paid for and issued in compliance with the provisions of this Agreement,
shall be validly issued, and any shares of Class A Stock issued upon conversion
thereof shall be validly issued, fully-paid and nonassessable, and free of any
liens or encumbrances; provided, however, that such Debenture and shares may be
subject to restrictions on transfer under state, United States federal and/or
foreign securities laws and any other restrictions set forth in this Agreement,
agreements with other investors, the Series A Debentures, and the Series B
Debenture, to the extent applicable.
3.7. Liabilities. To the actual knowledge of the officers
of the Corporation, the Corporation has no material liabilities or obligations,
absolute or contingent (individually or in the aggregate), except liabilities
and obligations relating to (a) the
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ordinary course of its business (in each case in normal amounts and incurred
only in the ordinary course of business), (b) items set forth in the Financial
Statements and notes thereto; (c) the Loan and Purchase Agreements entered into
with MTAI and Pacific; and (d) PCS 1900 Project and Supply Agreement between
the Corporation and Northern Telecom, Inc. dated July 28, 1995.
3.8. Title to Properties and Assets; Liens. The
Corporation has good and marketable title to its properties and assets,
including, without limitation, all technology, patents, copyrights, trademarks,
trade names, service marks (and any applications for any of the foregoing) and
trade secrets (the Corporation's proprietary rights are hereinafter referred to
as the "Business Property Rights"). All of the Business Property Rights are
accurately listed on Schedule 3.8 attached hereto, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge. The Business Property
Rights constitute all such proprietary rights owned or held by the Corporation.
No person or entity has made or, to the knowledge of the officers of the
Corporation, has threatened to make any claims that the operation of the
business of the Corporation is in violation of or infringes any Business
Property Rights or any other proprietary or trade rights of any third party.
3.9. Consents. No consent, approval or authorization of
any third party or governmental authority, or designation, declaration or
filing with any governmental authority on the part of the Corporation, is
required in connection with the valid execution, delivery and performance of
this Agreement, or the offer, sale or issuance of the Series B Debenture, or
the consummation of any other transaction contemplated by this Agreement,
except as required under the Communications Act and applicable FCC policies,
rules and regulations or to comply with exemptions from registration under the
Securities Act, the rules and regulations promulgated thereunder, applicable
state securities laws and regulations, and applicable foreign securities laws
and regulations.
3.10. Compliance with Other Instruments. To the knowledge
of the officers of the Corporation, the Corporation is not in violation of any
term of its Articles of Incorporation or Bylaws, of any term or provision of
any mortgage, indebtedness, indenture, contract, agreement, instrument,
judgment or decree, or of any order, statute, rule or regulation applicable to
the Corporation. The execution, delivery and performance of this Agreement by
the Corporation, and the issuance of the Series B Debenture, have not resulted
and shall not result in any violation of, or conflict with, or constitute a
default under, the Corporation's Articles of Incorporation or Bylaws. To the
knowledge of the officers of the Corporation, there is no event or circumstance
which, with the passage of time, would constitute any such violation or default
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which would adversely affect the business of the Corporation or any of its
properties or assets.
3.11. Litigation. There are no actions, suits, proceedings
or investigations pending or (to the knowledge of the officers of the
Corporation) threatened against the Corporation or its properties before any
court or governmental agency, nor (to the knowledge of the officers of the
Corporation) is there any reasonable basis therefor.
3.12. Registration Rights. Except as set forth in Schedule
3.12 attached hereto, the Corporation is not under any contractual obligation
to register any of its presently outstanding securities or any of its
securities which may hereafter be issued.
3.13. Financial Statements. The Profit and Loss Statements
for the period ending December 31, 1994 and the six (6) month period ending
June 30, 1995, and the Balance Sheets of the Corporation dated as of December
31, 1994 and June 30, 1995, previously furnished to the Purchaser and attached
hereto as Exhibit 3.13 ("Financial Statements") are true and correct in all
material respects. The Corporation previously delivered to the Purchaser
financial information, including prospective financial information which was
based upon assumptions that the Corporation believed to be reasonable in light
of all facts known to the Corporation at the time such financial information
was provided.
3.14. Other Agreements. A list of all material agreements
with vendors or suppliers of equipment or network services (other than
employment agreements to which the Corporation is a party) is attached hereto
as Schedule 3.14.
3.15. Violation of Other Agreements. The execution and
performance of this Agreement and the other agreements, documents and actions
contemplated herein shall not violate or result in any breach of any agreement
to which the Corporation is a party or by which it is bound.
3.16. Taxes. The Corporation (a) has duly and timely filed
or caused to be filed all federal, state, local and foreign tax returns
(including, without limitation, consolidated and/or combined tax returns)
required to be filed by it prior to the date of this Agreement which relate to
the Corporation or with respect to which the Corporation is liable or otherwise
in any way subject, (b) has paid or fully accrued for all taxes shown to be due
and payable on such returns (which taxes are all the taxes due and payable
under the laws and regulations pursuant to which returns were filed) and (c)
has properly accrued for all such taxes accrued in respect of the Corporation
for periods subsequent to the periods covered by such returns. No deficiency
in payment of taxes for any
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period has been asserted by any taxing body and remains unsettled at the date
of this Agreement.
3.17. ERISA. Except as set forth in Schedule 3.17, the
Corporation does not participate in any ERISA or employee pension or benefit
plan of any kind whatsoever.
3.18. Transactions With Affiliates. Except as set forth on
Schedule 3.18 attached hereto, no director, officer or stockholder of the
Corporation, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person is an officer,
director, trustee, partner or holder of any of the outstanding capital stock,
is a party to any transaction with the Corporation, including any contract,
agreement or other arrangement providing for the employment of, furnishing of
services by, rental of real or personal property from or otherwise requiring
payments to, any such person or firm.
3.19. Offering. Subject to the truth and completeness of
representations and warranties received by the Corporation from holders of its
outstanding shares of Class A Voting Common Stock (none of which the
Corporation or its officers has reason to believe is false or inaccurate in any
material respect), all shares of Class A Stock outstanding immediately prior to
the date hereof shall have been issued and sold in compliance with exemptions
from registration requirements of the Securities Act and applicable state
securities laws. The offer, sale and issuance of the Series B Debenture in
conformity with the terms of this Agreement shall constitute a transaction
exempt from the registration requirements of the Securities Act, subject to the
truth and completeness of the representations and warranties of the Purchaser
in Article 4 hereof and any purchaser questionnaires provided by the Purchaser
and each of its equity owners to the Corporation in connection herewith.
3.20. Brokers. Except as set forth in Exhibit 3.20
attached hereto, the Corporation has not incurred, nor shall incur, directly or
indirectly, as a result of any action taken by it, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement.
3.21. FCC Matters. This Agreement is entered into in
connection with the Corporation's intention to bid in the Auction and to
qualify (a) to bid for entrepreneurs' blocks ("Blocks") to be set aside in the
Auction for firms that meet certain criteria set forth in FCC regulations,
including, without limitation, 47 CFR Section 24.709, and (b) for special
financing, credits and other benefits which may be made available by the FCC
with respect to the Auction to firms that meet applicable criteria for any
eligible licensee that is a "small business" and a "business owned by members
of minority groups and women" to the extent such benefits are made
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available ("Special Incentives"). Subject to its filing of the Application to
Participate in the Auction, the Corporation is eligible to bid for and receive
PCS licenses in the Auction, qualifies to bid for Blocks and qualifies as a
small business and as a business owned by members of minority groups and women
for purposes of the Special Incentives.
3.22. Disclosure. This Agreement and the Exhibits and
Schedules hereto, and all of the documents and materials delivered to Purchaser
in connection herewith, do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As a material inducement to the Corporation to agree to issue
and sell the Series B Debenture as provided herein, the Purchaser represents
and warrants to the Corporation that the following statements are true and
correct in all material respects as of the date hereof and shall be true and
correct in all material respects as of the date hereof:
4.1. Organization and Standing; Authority. The Purchaser
is a corporation duly organized, validly existing and in good standing under
the laws of the Republic of Hong Kong and is duly licensed or qualified to
transact business in each jurisdiction in which the failure to qualify would
have a material adverse effect on the Purchaser. The Purchaser has requisite
legal and corporate power and authority to execute and deliver this Agreement
to purchase the Series B Debenture pursuant to the terms of this Agreement, and
to carry out and perform all of its other obligations under the terms of this
Agreement.
4.2. Authorization. All corporate actions on the part of
the Purchaser, its directors and stockholders necessary for (a) the
authorization, execution, delivery and performance of this Agreement by the
Purchaser, (b) the purchase of the Series B Debenture, and (c) the performance
of all of Purchaser's obligations under this Agreement and the other agreements
and actions contemplated herein, have been taken prior to or as of the Closing
Date.
4.3. Binding Effect. This Agreement, when executed and
delivered by the parties hereto, shall constitute a valid and binding
obligation of the Purchaser, enforceable in accordance with its terms.
4.4. No Violation; Compliance with Laws. The execution,
delivery and performance of this Agreement and compliance with the
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provisions hereof (a) will be in conformance with all laws, statutes and
regulations applicable to the Purchaser and (b) will not conflict with, or
result in any breach of, any agreement to which the Purchaser is a party or by
which Purchaser is bound.
4.5. Purchaser Representations.
4.5.1. The Purchaser is acquiring the Series B
Debenture with the intention of selling it to another foreign entity, and in a
manner to enable the Series B Debenture to come to rest outside of the United
States of America, its territories and possessions. The Purchaser is not
engaged in the business of dealing in securities in Hong Kong. The Purchaser
has not engaged in any activity that would reasonably be expected, or is
intended, to condition the market in the United States with respect to the
securities being purchased hereunder, i.e., has not engaged in any "directed
selling efforts" within the meaning given by Regulation S adopted pursuant to
the Securities Act. The Purchaser is not a "U.S. Person" within the meaning
given by Regulation S, and is not acquiring the Series B Debenture on behalf of
any U.S. Person.
4.5.2. Each of the answers in the Purchaser
Questionnaires completed by the Purchaser and each of the equity owners of the
Purchaser and submitted to the Corporation, in a form substantially similar to
that attached hereto as Exhibit 4.5, is true, complete and correct.
4.5.3. The Purchaser is acquiring securities of
the Corporation after having received and reviewed such financial and other
information as was necessary in order to make an informed investment decision
and after having completed an independent investigation and analysis of facts
and circumstances that it deems appropriate for this investment. The Purchaser
understands that the Corporation is a recent start-up company with very limited
operating history, that much of the financial information provided is
prospective in nature and is based upon assumptions that the Corporation
believes to be reasonable in light of all facts currently known to the
Corporation, and that the validity of such assumptions is subject to numerous
risks and unknown factors, involving the uncertainties associated with PCS.
The Purchaser also acknowledges that the technological know-how required for
the development and implementation of PCS is not owned by the Corporation, but
is either generally available in the marketplace or is owned by other parties.
4.5.4. The Corporation has made available to
the Purchaser all documents that have been requested by the Purchaser relating
to an investment in the Corporation, and has provided the Purchaser the
opportunity to ask, and has provided answers to, its questions concerning the
offering and an investment in the Corporation; and, in evaluating the
suitability of the investment
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<PAGE> 13
in the Corporation, the Purchaser has relied only on the information contained
in any documents or written answers so furnished to it by the Corporation.
4.5.5. The Purchaser was outside of the United
States at the time Purchaser offered to purchase securities of the Corporation,
and the securities purchased hereunder were offered and sold to the Purchaser
outside of the United States.
4.5.6. The Purchaser recognizes that an
investment in the Corporation involves substantial risks and that it has taken
full cognizance of and understands all the risks related to the purchase of the
Series B Debenture.
4.6. Brokers. The Corporation has not incurred, and shall
not incur, directly or indirectly, as a result of any action taken by the
Purchaser, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement.
4.7. Disclosure. This Agreement and the Exhibits and
Schedules hereto, and all of the documents and materials delivered to the
Corporation in connection herewith, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statement contained herein or therein not misleading.
ARTICLE 5
COVENANTS
5.1. Financial Statements. From the date hereof until a
Termination Event, the Corporation shall furnish to the Purchaser:
5.1.1. Within ninety (90) days after the end of
each fiscal year of the Corporation, a consolidated balance sheet of the
Corporation and its subsidiaries, if any, as of the end of such fiscal year and
the related consolidated statements of income, stockholders' equity and cash
flows for the fiscal year then ended, prepared in accordance with generally
accepted accounting principles applied on a consistent basis, as audited by the
Corporation's independent certified public accountant.
5.1.2. Within thirty (30) days after the end of
each fiscal quarter in each fiscal year (other than the last fiscal quarter in
each fiscal year), a consolidated balance sheet of the Corporation and its
subsidiaries, if any, and the related consolidated statements of income,
stockholders' equity and cash flows, unaudited but prepared in accordance with
generally accepted accounting principles and certified by the Chief Financial
Officer of the Corporation, such consolidated balance sheet to be as of the end
of such fiscal quarter, and such consolidated statements of
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<PAGE> 14
income, stockholders' equity and cash flows to be for such fiscal quarter and
for the period from the beginning of the fiscal year to the end of such fiscal
quarter, in each case with comparative statements for the corresponding period
or periods in the prior fiscal year.
5.2. Reservation of Class A Stock. The Corporation shall
at all times until issuance thereof in accordance with the terms of this
Agreement and the Corporation's Articles of Incorporation, reserve and keep
available out of its authorized but unissued shares of its Class A Stock, such
shares as are necessary for the purpose of issuing the Class A Stock in
accordance with the terms of the Series B Debenture. The Corporation shall
issue such Class A Stock in accordance with the applicable terms of this
Agreement, the Series B Debenture and the Corporation's Articles of
Incorporation. The Corporation shall obtain any authorization, consent,
approval or other action by, or make any filing with, any governmental agency
or administrative body that may be required under applicable United States of
America and state securities laws, any foreign securities laws and the
Communications Act in connection with the issuance of the Series B Debenture
and the Class A Stock, or any portion thereof, as contemplated by the terms of
this Agreement and subject to the truth and completeness, at the time of
issuance of such shares, of the representations of the Purchaser in Article 4
hereof.
5.3. Corporate Existence. The Corporation shall maintain
its corporate existence in full force and effect.
5.4. Stockholders' Rights. In the event that, at the time
of any conversion of the Series B Debenture pursuant to the terms of this
Agreement, any rights with respect to inspection of the Corporation's books and
records, registration rights, preemptive rights, tag-along rights, and/or
redemption rights have been granted to holders of the Corporation's Preferred
Stock or Class B Stock at any time prior to September 1, 1996, then the holders
of Series B Debentures that have been converted into Class A Stock shall have
the following rights with respect to the Converted Shares:
To the extent such rights are or have been granted to
Third Party Investors (hereinafter defined), then the Corporation shall enter
into such agreement(s) as are necessary to provide to holders of shares of
Class A Stock received upon conversion of the Series B Debenture ("Converted
Shares") rights with respect to the Converted Shares that are equal to the most
favorable rights granted to other purchasers of Preferred Stock or Class B
Stock ("Third Party Investors") at any time prior to September 1, 1996, with
respect to: (a) inspection of the properties of the Corporation and its
subsidiaries and examination of its books and records, subject to standard
corporate confidentiality agreements;
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(b) registration rights; (c) preemptive rights to acquire its proportionate
share of a future offering or sale of Preferred Stock or Class B Stock; (d)
tag-along rights in the event of a sale of over fifty percent (50%) of the
outstanding Class A Stock; (e) periodic financial information; and (f)
redemption rights.
5.5. Securities Law Compliance. The Purchaser covenants
and agrees (i) not to offer, sell, hypothecate or otherwise dispose of the
securities purchased hereunder except in a manner consistent with the
restrictions set forth in Regulation S adopted pursuant to the Securities Act
("Regulation S") and the restrictions imposed by any applicable foreign
securities law, (ii) with respect to any activities in the United States, not
to act in any way that would cause it to be deemed an "underwriter" of such
securities within the meaning given that term by the Securities Act, and (iii)
not to engage in any activity that could reasonably be expected, or is
intended, to condition the market in the United States with respect to the
securities being purchased hereunder, i.e., not to engage in any "directed
selling efforts" within the meaning given that term by Regulation S with
respect to the Series B Debenture or Class A Stock.
5.6. Transfer Restrictions. The Purchaser hereby
covenants and agrees for itself and on behalf of its representatives, agents,
transferees and assigns, with respect to the Series B Debenture to be bound by
all of the provisions of Article 1 of the Stockholders' Agreement (a copy of
which is attached hereto as Exhibit 5.6) including the transfer restrictions,
as if the Series B Debentures were Class A Stock. Notwithstanding any transfer
restrictions included in Article 1 of the Stockholders' Agreement, the
Corporation agrees to allow the Purchaser to transfer its right, title and
interest in the Agreement and the Series B Debenture to Lee Chung Chan ("Chan")
or an entity designated by Chan, subject to the terms and conditions set forth
in this Agreement.
ARTICLE 6
INDEMNIFICATION
6.1. Indemnification of Purchaser. The Corporation hereby
agrees to indemnify, defend and hold harmless the Purchaser against and in
respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest,
penalties, costs of investigation and reasonable attorneys' fees, that the
Purchaser may incur, directly or indirectly, which result from any breach of,
or failure by the Corporation to perform, any of its representations,
warranties, covenants or agreements contained in this Agreement.
6.2. Indemnification of the Corporation. The Purchaser
hereby agrees to indemnify, defend and hold harmless the Corporation against
and in respect of any and all claims, demands, losses,
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<PAGE> 16
costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including interest, penalties, costs of investigation and
reasonable attorneys' fees, that the Corporation may incur, directly or
indirectly, which result from any breach of, or failure by the Purchaser to
perform, any of its representations, warranties, covenants or agreements
contained in this Agreement.
ARTICLE 7
MISCELLANEOUS
7.1. Expenses. Each of the parties hereto shall be
responsible for its respective expenses incurred in connection with the
preparation and execution of this Agreement (and any and all investigations
undertaken in connection herewith or therewith), including the fees and
expenses of all accountants, attorneys and advisors of any such party. The
Corporation covenants and agrees that it shall not bear, pay or reimburse any
fees, costs or expenses of any holder of any Series B Debenture in connection
with the negotiation and execution of this Agreement, or any other agreement
executed in connection herewith or therewith.
7.2. Notices. Any and all notices, requests or other
communications hereunder provided for herein shall be given in writing and sent
by hand delivery, by any express courier service that produces and maintains
proof of delivery or by registered or certified mail, return receipt requested,
with first-class postage prepaid; and such notices shall be addressed (a) if to
the Corporation, to the principal office of the Corporation, with a copy to
Ronald S. Schimel, Esquire, Levan, Schimel, Belman & Abramson, P.A., 9881
Broken Land Parkway, Suite 400, Columbia, Maryland 21046, U.S.A., and (b) if
to the Purchaser, to its address as reflected in the stock records of the
Corporation, with a copy to Masa Telecom, Inc., 1140 19th Street, N.W., Suite
602, Washington, DC 20036, and a copy to Arthur Cirulnick, Esquire, Tucker,
Flyer & Lewis, 1615 L Street, N.W., Suite 400, Washington, DC 20036-5061,
unless notice of a change of address is furnished to all parties in the manner
provided in this Section 7.2. Any notice which is required to be made within a
stated period of time shall be considered timely if delivered or mailed before
midnight of the last day of such period.
7.3. Invalid or Unenforceable Provisions. The invalidity
or unenforceability of any particular provision of this Agreement shall not
affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were omitted.
7.4. Survival. The representations, warranties, covenants
and agreements made in this Agreement shall survive any investigation made by
the Purchaser and the closing of the transactions contemplated by this
Agreement.
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<PAGE> 17
7.5. Benefit and Burden, Permitted Assignment. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their successors and assigns, and other legal representatives,
provided that Purchaser may not assign its rights and obligations under the
Agreement without the prior written consent of the Corporation. The
Corporation hereby consents to the assignment by Purchaser to Lee Chung Chan
("Chan") or an entity designated by Chan (Chan or his designated entity shall
be collectively referred to hereinafter as "Permitted Assignee") and
acknowledges that in addition to being bound by the obligations of the
Purchaser set forth herein, including all transfer restrictions, the Permitted
Assignee has the right to enforce the terms hereof against the Corporation as
if it were the Purchaser.
7.6. Gender. The use of any gender herein shall be deemed
to be or include the other genders and the use of the singular herein shall be
deemed to be or include the plural (and vice versa), wherever appropriate.
7.7. Changes; Waiver. No change or modification of this
Agreement shall be valid unless the same is in writing and signed by all of the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the person against whom sought to be enforced.
The failure of any party at any time to insist upon strict performance of any
condition, promise, agreement or understanding set forth herein shall not be
construed as a waiver or relinquishment of the right to insist upon strict
performance of the same or any other condition, promise, agreement or
understanding at a future time.
7.8. Entire Agreement. This Agreement and the Exhibits
and Schedules attached hereto set forth all of the promises, agreements,
conditions, understandings, warranties and representations among the parties
hereto with respect to the matters set forth herein, and there are no promises,
agreements, conditions, understandings, warranties or representations, oral or
written, express or implied, among them with respect to such matters except as
set forth herein or therein. Except for the Exhibits and Schedules attached
hereto, any and all prior agreements among the parties hereto with respect to
the matters set forth herein are hereby revoked. This Agreement and the
Exhibits and Schedules attached hereto are intended by the parties to be an
integration of any and all prior agreements or understandings, oral or written,
with respect to the matters set forth herein. Each writing or document
referred to as being attached hereto as an exhibit or otherwise designated
herein as an exhibit hereto is hereby made a part hereof.
7.9. Governing Law. Notwithstanding that the offer and
sale of securities sold to the Purchaser hereunder shall have taken place
outside of the United States, this Agreement shall be
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construed and enforced in accordance with the substantive laws of the State of
Maryland without regard to its rules regarding conflicts of law.
7.10. Headings. The headings, subheadings and other
captions in this Agreement are for convenience and reference only and shall not
be used in interpreting, construing or enforcing any of the provisions of this
Agreement.
7.11. Counterparts. This Agreement may be executed in any
number of counterparts, all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
CORPORATION:
WITNESS: DCR COMMUNICATIONS, INC.,
a Maryland corporation
By:
- -------------------------- -------------------------------
Daniel C. Riker,
Chairman of the Board
PURCHASER:
ATTEST: MULTINATIONAL TECHNOLOGY AND BUSINESS LIMITED
By:
- -------------------------- -------------------------------
-------------------------------
President
18
<PAGE> 1
EXHIBIT 10.13
CONVERTIBLE LOAN AND INVESTMENT AGREEMENT
THIS CONVERTIBLE LOAN AND INVESTMENT AGREEMENT (this
"Agreement") is made this 20th day of March, 1996, by and between DCR
COMMUNICATIONS, INC. (the "Corporation" or "DCR"), a corporation organized
under the laws of the State of Maryland, and LCC, L.L.C. (the "LCC"), a limited
liability company organized under the laws of Delaware.
W I T N E S S E T H:
WHEREAS, LCC desires to loan to DCR up to Six Million Five
Hundred Thousand and 00/100 Dollars (U.S.) ($6,500,000.00) in the form of two
loans which will have rights of conversion into the Corporation's Class B Non
Voting Common Stock pursuant to the terms and subject to the conditions set
forth herein; and
WHEREAS, the parties hereto desire to set forth herein their
understandings and agreements.
NOW, THEREFORE, in consideration of the foregoing, of the
mutual covenants and agreements set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by DCR and LCC, the parties hereto, intending to be legally bound,
hereby agree as follows:
Definitions:
For purposes of this Agreement, the following
terms shall have the following definitions:
"AUCTION" shall mean the Federal Communications
Commission ("FCC") C-Block Auction for Broadband Personal Communications
Services ("PCS").
"CLASS A STOCK" shall mean shares of the Class A
Voting Common Stock of the Corporation, par value One Cent ($0.01) per share,
as the same may be modified or exchanged in any reclassification or
recapitalization of the Corporation.
"CLASS B STOCK" shall mean shares of the Class B
Non-Voting Common Stock of the Corporation, par value One Cent ($0.01) per
share, as the same may be modified or exchanged in any reclassification or
recapitalization of the Corporation.
"COMMUNICATIONS ACT" shall mean the Communications
Act of 1934, as amended, codified at 47 U.S.C.A. Section 151, et seq.
"FOREIGN INVESTOR" shall mean any alien or
representative thereof, any foreign government or representative thereof or any
<PAGE> 2
corporation organized under the laws of a foreign country whose ownership of
capital stock of the Corporation is or would be subject to foreign ownership
restrictions of the Communications Act including, without limitation, 47
U.S.C.A. Section 310(b), or FCC regulations.
"FOREIGN-OWNED EQUITY" shall mean any and all shares
of capital stock of DCR owned of record or voted for the account of a Foreign
Investor.
"PREFERRED STOCK" shall mean shares of Convertible
Preferred Stock of the Corporation, par value One Cent ($0.01) per share, as
the same may be modified or exchanged in any reclassification or
recapitalization of the Corporation.
"SERIES A DEBENTURES" shall mean the Debentures
issued to Masa Telecom Asia Investment Pte. Ltd. ("MTAI") pursuant to that
certain Loan and Purchase Agreement entered into by and between the Corporation
and MTAI dated June 24, 1995 and to Pacific Eagle Investments Ltd. ("Pacific
Eagle") pursuant to that certain Loan and Purchase Agreement entered into by
and between the Corporation and Pacific Eagle dated August 18, 1995.
"SERIES B DEBENTURES" shall mean the Series B
Debentures issued to Multinational Technology and Business Limited ("MTB")
pursuant to that certain Purchase Agreement entered into by and between the
Corporation and MTB dated August 18, 1995.
"SERIES C DEBENTURES" shall mean the Series C
Debentures issued or to be issued to Westinghouse Electric Corporation ("WEC")
pursuant to the terms of that certain Loan and Purchase Agreement entered into
by and between the Corporation and WEC dated November 9, 1995.
"SERIES D DEBENTURES" and "DEBENTURES" shall mean the
Series D Debentures issued to LCC pursuant to the terms of this Agreement.
"STOCKHOLDERS' AGREEMENT" means that certain
Stockholders' Agreement dated January 20, 1995, among the holders of the
Corporation's Class A Stock, as amended.
"TERMINATION EVENT" shall mean the earlier to occur
of (a) a closing of the first sale of Stock of the Corporation to the public
through an underwritten public offering where the Company's securities are
listed on an established national stock exchange or are admitted to quotation
on the National Association of Securities Dealer Automated Quotation System,
which produces gross proceeds of at least Twenty-Five Million and 00/100
Dollars ($25,000,000.00) pursuant to a registration statement filed with, and
declared effective by, the Securities and Exchange Commission (the
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<PAGE> 3
"Commission") under the Securities Act of 1933 as amended (the "Securities
Act") (hereinafter "IPO"), or (b) a merger or similar corporate transaction in
which a majority of the Corporation's voting securities are acquired by a third
party that is not directly or indirectly related to or affiliated with the
Corporation or any stockholder of the Corporation.
ARTICLE 1
INITIAL LOAN AND SALES AGREEMENT LOAN
1.1. Loan. LCC agrees to make two loans to the
Corporation in the aggregate amount of Six Million Five Hundred Thousand
Dollars ($6,500,000) (the "Loans"). The Loans will be made in two advances, as
follows: i) an initial loan in the amount of Three Million Five Hundred
Thousand Dollars ($3,500,000) (the "Initial Loan") and ii) subject to
satisfaction of the conditions set forth in Section 1.3.1, the subsequent loan
in the amount of Three Million Dollars ($3,000,000) (the "Subsequent Loan")
(the "Initial Loan" and the "Subsequent Loan" are hereinafter collectively
referred to as the "Loans"), subject to the conditions and limitations
hereinafter set forth.
1.2. Initial Loan. The Initial Loan shall be funded within
five (5) business days after execution of this Agreement (the "Initial Loan
Funding Date") and shall be made upon the following terms and conditions:
1.2.1. Initial Loan Proceeds. The proceeds of the
Initial Loan shall be applied by the Corporation as follows: i) One Million
Five Hundred Thousand Dollars ($1,500,000) shall be paid to LCC as the up-front
license fee in connection with LCC's grant to DCR of a license to use LCC's
proprietary CellCADII propagation modeling software which license is being
acquired as set forth in the license agreement attached hereto as Exhibit 1.2.1
(the "License Agreement") and which shall be entered into between the parties,
and the license fee paid, contemporaneously with LCC's funding of the Initial
Loan; and ii) Two Million Dollars ($2,000,000) used for the Corporation's
working capital requirements and/or applied to the downpayment on PCS licenses.
1.2.2. Interest Rate. For the first six (6) months
of the term of the Initial Loan interest shall accrue at a rate per annum
(based on actual days elapsed in a 360-day year) equal to the Prime Rate, plus
four percent (4%), and thereafter at the Prime Rate plus two and one-half
percent (2 1/2%) until maturity or conversion. The term "Prime Rate" shall
mean, with respect to interest accrued on the Loans issued hereunder during
each calendar quarter (or portion thereof) during the period in which the
Loan(s) remain outstanding, the amount shown as the bank prime lending rate
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<PAGE> 4
in the Wall Street Journal, Eastern Edition on the last business day of the
immediately preceding calendar quarter.
1.2.3. Interest Payments. The Loans issued
hereunder shall bear interest from the date of issuance on the unpaid principal
balance thereof at the variable rates set forth in Section 1.2.2, with respect
to the Initial Loan, and 1.3.3, with respect to the Subsequent Loan. Such
interest shall be payable quarterly in arrears on June 30, September 30,
December 31 and March 31 of each year (provided that the first installment of
interest shall be due and payable on March 31, 1997 covering the period from
the date of funding through March 31, 1997), and at maturity, and to bear
interest (so calculated), payable on demand, on any overdue principal and, to
the extent permitted by law, on any overdue interest payable hereunder, until
the same shall be paid in full, at a variable rate per annum equal to the sum
of 2% plus the rate that would at the time be applicable to principal under the
foregoing provisions.
1.2.4. Maturity. The entire unpaid principal
balance of the Initial Loan shall be due and payable five (5) years following
the Initial Loan Funding Date. Subject to Section 1.2.6.2 hereof, prepayments
of principal and interest may be paid without penalty at any time during the
term of the Initial Loan. Such prepayment shall be made upon not less than ten
(10) business days prior written notice to LCC setting forth (i) the date such
prepayment will be made, and (ii) the principal amount to be prepaid on such
date.
1.2.5. Form of Instrument. The Initial Loan shall
be evidenced by the Corporation's Series D Debenture, a copy of which is
attached hereto as Exhibit 1.2.5.
1.2.6. Initial Loan Voluntary Conversion Right.
Until (a) a Termination Event, or (b) when and if LCC timely makes its election
not to be converted pursuant to its rights set forth in Section 1.2.7 hereof,
LCC shall have the continuing option exercisable in accordance with the terms
of this Agreement, the Series D Debenture and the Corporation's Charter, from
time to time, to convert all or any portion of the unpaid principal balance of
the Initial Loan into such number of fully paid and nonassessable shares of
Class B Stock as provided in Section 1.2.6.1 hereof, but (i) the option may be
exercised, from time to time, in multiples of not less than One Million Dollars
($1,000,000.00), and (ii) only to the extent that such conversion does not
cause the Corporation's Foreign-owned Equity to exceed the maximum allowable
Foreign-owned Equity.
1.2.6.1. Conversion Rate. For the
conversion of the Initial Loan and the Subsequent Loan, the number of shares of
Class B Stock that shall be issuable upon conversion shall equal
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the amount of the Loan being converted, divided by the lesser of (i) Fourteen
and 00/100 Dollars ($14.00), or (ii) the lowest per share purchase price paid
to the Corporation by any investor (including but not limited to the price paid
in a private placement and the offering price in an IPO) for the purchase of
the Corporation's equity securities (other than "Excluded Securities") up to
the first One Hundred Twenty-Seven Million Dollars ($127,000,000.00) worth of
equity securities sold. For purposes of determining the lowest price paid for
equity securities sold, the following shall not be included and are Excluded
Securities: a sale or issuance of (a) any preferred stock, (b) any securities
that are issued exclusively to Control Group members (as that term is defined
in Part 24 of the rules and regulations of the FCC), and (c) any equity
securities to (1) employees of the Corporation pursuant to stock options, stock
bonus or stock incentive plans duly approved by the Board of Directors of the
Corporation, (2) any third parties who receive or are issued equity securities
solely as a finder's fee, consulting fee, or as compensation for identifying
investors in the Corporation, and (3) any entity as consideration for the
purchase by the Corporation of names or marks or the right to use names or
marks. In the event that there are any stock dividends, split-ups,
combinations, recapitalizations, or the like, prior to the conversion which
affect the Class B Stock, reasonable proportionate adjustments shall be made to
the conversion rate, or the number of shares of Class B Stock issuable pursuant
to this conversion right.
1.2.6.2. Notice; Election of Rights.
LCC may exercise the Initial Loan voluntary conversion rights as provided in
Section 1.2.6 herein by giving written notice to the Corporation, at the
Corporation's principal offices, of its exercise of such right. Conversion
shall be deemed to have been effected on the date when delivery of the
conversion notice is made or, if earlier, one (1) day after the notice is
placed with an overnight delivery service for delivery. Such notice, to be
effective, must be accompanied by the Series D Debenture. Within ten (10)
business days after receipt of the conversion notice, the Corporation shall
issue and deliver to an address designated by LCC, (i) a stock certificate of
the Corporation representing the number of shares of Class B Stock to which LCC
is entitled, and (ii) if the conversion is exercised with respect to less than
the entire principal balance of the Initial Loan, a replacement Series D
Debenture, having the same terms, in the principal amount remaining under the
Initial Loan bearing interest at the same rate. LCC shall be the holder of
record of the shares issuable upon conversion effective upon the Corporation's
receipt of LCC's conversion notice. In the event that the Corporation issues a
notice of prepayment to LCC under Section 1.2.4 hereof, LCC shall have the
right to convert the principal amount to be repaid by the Corporation into
shares of Class B Stock upon written notice to the Corporation at any time
within the ten (10) day notice period set
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forth in Section 1.2.4., provided that its conversion rights have not
terminated pursuant to Section 1.2.6.
1.2.7. Initial Loan Mandatory Conversion. As soon
as practicable prior to a pending Termination Event, the Corporation may elect
to cause the mandatory conversion of the Initial Loan into Class B Stock or
"Like Equity", if Like Equity is being offered by the Corporation in the
Termination Event, upon the same terms as set forth in Sections 1.2.6.1,
subject to the terms of this Section 1.2.7. For purposes of this Agreement,
"Like Equity" shall mean equity securities of the Corporation similar to the
Class B Stock other than any preferred stock and any equity securities that are
issued exclusively to Control Group members. To make such election to convert
the Debentures, the Corporation shall notify LCC in writing of the pending
Termination Event, the offering price of the shares being offered by the
Corporation in the Termination Event and the rights attached thereto. Upon
notification of Corporation's election to cause the conversion of the Initial
Loan, LCC shall have the right to elect not to have the Debentures converted by
notifying the Corporation in writing of its exercise of this right within two
(2) business days of receipt of the notice of the Corporation's election to
convert. Upon LCC's exercise of this right, all voluntary conversion rights of
LCC shall immediately terminate. If LCC fails to exercise timely this right,
it shall forthwith surrender to the Corporation the Series D Debentures and the
Corporation shall issue to LCC a certificate evidencing the shares of Class B
Stock.
1.2.8. Reduction in Loan Balance. If and to the
extent that LCC exercises the aforesaid Initial Loan voluntary conversion right
or the Corporation exercises the aforesaid Initial Loan mandatory conversion
right and LCC fails to elect not to be converted, the principal balance of the
Initial Loan shall be deemed repaid with respect to the principal amount
converted.
1.2.9. In the event that the Initial Loan is
converted into Series B Stock in accordance with the provisions of Section
1.2.6 or 1.2.7, hereof, the Corporation shall grant to LCC the most favorable
rights granted to other purchasers of any equity securities of the Corporation,
with respect to (a) inspection of the properties of the Corporation and its
subsidiaries and examination of its books and records, subject to standard
corporate confidentiality agreements; (b) registration rights; (c) preemptive
rights to acquire its proportionate share of a future offering or sale of Class
B Stock; (d) tag-along rights in the event of a sale of over fifty percent
(50%) of the outstanding Class A Stock; (e) periodic financial information; and
(f) redemption rights.
1.3. Subsequent Loan. In order to notify LCC of the
timing of funding of the Subsequent Loan, the Corporation shall provide written
notice to LCC when Stage 3 of the Auction commences, when
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<PAGE> 7
and if announced by the FCC. Provided that the conditions set forth in Section
1.3.1 are satisfied, the Subsequent Loan shall be funded on or before three (3)
business days following the FCC's announced conclusion of the Auction (the
"Subsequent Loan Funding Date") and shall be made upon the following terms and
conditions:
1.3.1. Subsequent Loan Funding Conditions. LCC's
obligation to fund the Subsequent Loan shall be subject to and conditioned upon
the Corporation being the high bidder at the Auction for licenses pertaining to
BTAs encompassing at least 25,000,000 in population.
1.3.2. Use of Subsequent Loan Proceeds. The
proceeds from the Subsequent Loan shall be used for the Corporation's working
capital requirements and/or applied to the down payment on PCS licenses.
1.3.3. Subsequent Loan Interest Rate. Interest
shall accrue on the Subsequent Loan at a rate per annum (based on actual days
elapsed in a 360-day year) equal to the Prime Rate (as defined in Section 1.2.3
hereof) plus Two and one-half percent (2 1/2%) until maturity or conversion.
Interest shall accrue from the Subsequent Loan Funding Date and be payable
quarterly in arrears in accordance with Section 1.2.3 hereof.
1.3.4. Maturity of Subsequent Loan. The entire
unpaid principal balance of the Subsequent Loan shall be due and payable five
(5) years following the Subsequent Loan Funding Date. Subject to Section
1.3.6.2 hereof, prepayments of principal and interest may be paid without
penalty at any time during the term of the Subsequent Loan. Such prepayment
shall be made upon not less than ten (10) business days prior written notice to
LCC setting forth (i) the date such prepayment will be made, and (ii) the
principal amount to be prepaid on such date.
1.3.5. Form of Instrument. The Subsequent Loan
shall be evidenced by the Corporation's Series D Debenture in the form attached
hereto as Exhibit 1.2.5.
1.3.6. Subsequent Loan Voluntary Conversion Right.
LCC shall have the same conversion rights with respect to the Subsequent Loan
as it has with respect to the Initial Loan as set forth in Section 1.2.6
hereof.
1.3.6.1. Conversion Rate. The
Conversion Rate for the Initial Loan set forth in Section 1.2.6.1 hereof shall
apply to the Subsequent Loan.
1.3.6.2. Notice; Election of Rights.
LCC may exercise the Subsequent Loan voluntary conversion right provided in
Section 1.3.6 by giving written notice to the Corporation, in the
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same manner as set forth in Section 1.2.6.2 hereof with respect to the Initial
Loan.
1.3.7. Subsequent Loan Mandatory Conversion. The
Corporation shall have the option to cause the mandatory conversion of the
Subsequent Loan into Class B Stock upon the same terms as set forth in Section
1.2.7, including the right of LCC to elect not to be converted.
1.3.8. Reduction in Loan Balance. If and to the
extent that LCC exercises the aforesaid Subsequent Loan voluntary conversion
right or the Corporation exercises the Subsequent Loan mandatory conversion
right and LCC fails to elect not to be converted, the principal balance of the
Subsequent Loan shall be deemed repaid with respect to the amount converted.
ARTICLE 2
CONDITIONS TO FUNDING
2.1. LCC's Conditions to Funding Initial Loan. LCC's
obligation to make the Initial Loan and purchase the Series D Debenture shall
be subject to the fulfillment of the following conditions on or prior to the
Initial Loan Funding Date, or the waiver thereof by LCC:
2.1.1. The Corporation shall have delivered to LCC
(a) the Articles of Incorporation of the Corporation, with any and all
amendments thereto (the "Articles of Incorporation"), (b) the Bylaws of the
Corporation, with any and all amendments thereto (the "Bylaws"), (c) all
authorizations by the Board of Directors and, if necessary, the stockholders of
the Corporation, relating to the execution and performance of this Agreement
(including the issuance of the Debentures) and (d) a copy of the Stockholders'
Agreement, and (e) a certificate of Secretary of the Corporation attesting to
the completeness and accuracy of each such document.
2.1.2. LCC and the Corporation entering into the
Services Agreement in form and substance as set forth in Exhibit 2.1.2 attached
hereto (the "Services Agreement") and the License Agreement.
2.1.3. All covenants, agreements and conditions
contained herein to be performed by the Corporation on or prior to the Initial
Loan Funding Date shall have been performed or complied with, and the
Corporation shall have delivered to LCC a certificate to that effect.
2.1.4. LCC shall have satisfactorily completed its
due diligence investigation of the Corporation including its review and
analysis of any and all data, documents, reports, financial
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statements, financial projections, business plans and all other information of
every subject, type and nature pertaining to the Corporation and its business
as requested by LCC.
2.1.5. All representations and warranties made by
the Corporation herein shall be true, accurate and correct, in all material
respects, and no material adverse change shall have occurred with respect to
the Corporation's business, conduct or affairs.
2.1.6. No event of default shall have occurred under
this Agreement, the Services Agreement, the License Agreement or any Debenture
issued pursuant hereto.
2.2. The Corporation's Conditions to Borrow the Initial
Loan Funds. The Corporation's obligation to borrow the Initial Loan proceeds
and issue and sell the Series D Debentures shall be subject to the fulfillment
of the following conditions on or prior to the Initial Loan Funding Date, or
the waiver thereof by the Corporation:
2.2.1. All covenants, agreements and conditions
contained herein to be performed by LCC on or prior to the Initial Loan Funding
Date shall have been performed or complied with, and LCC shall have delivered
to the Corporation a certificate to that effect.
2.2.2. The Corporation and LCC entering into the
Services Agreement.
2.2.3. LCC shall have provided to the Corporation
evidence reasonably satisfactory to the Corporation that LCC's purchase of the
Series D Debenture pursuant to the terms hereof is in compliance with all
applicable securities laws which evidence shall consist of a completed
Purchaser Questionnaire in the form attached hereto as Exhibit 4.5.2 that is
accepted by the Corporation by the Corporation providing notice of acceptance
to LCC.
2.3. LCC's Conditions to Funding Subsequent Loan. LCC's
obligation to make the Subsequent Loan and purchase of Series D Debenture shall
be subject to the fulfillment of the following conditions on or prior to the
Subsequent Loan Funding Date, or the waiver thereof by LCC:
2.3.1. All of the conditions set forth in Section
2.1 above shall have been met.
2.3.2. All covenants, agreements and conditions
contained herein to be performed by the Corporation on or prior to the
Subsequent Loan Funding Date shall have been performed or
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complied with, and the Corporation shall have delivered to LCC a certificate to
that effect.
2.4. The Corporation's Conditions to Borrow the Subsequent
Loan Funds. The Corporation's obligations to borrow the Subsequent Loan
proceeds and issue and sell the Series D Debentures shall be subject to the
fulfillment of the following conditions on or prior to the Subsequent Loan
Funding Date, or the waiver thereof by the Corporation:
2.4.1. All covenants, agreements and conditions
contained herein to be performed by the LCC on or prior to the Subsequent Loan
Funding Date shall have been performed or complied with, and LCC shall have
delivered to the Corporation a certificate to that effect.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION
As a material inducement to LCC to make the Initial Loan and
Subsequent Loan and purchase the Series D Debentures, the Corporation
represents and warrants to LCC that the following statements are true and
correct in all material respects as of the Initial Loan Funding Date.
3.1. Organization and Standing; Articles and Bylaws. The
Corporation is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland. The Corporation has
requisite corporate power and authority to own and operate its properties and
assets and to carry on its business as presently conducted and as proposed to
be conducted. The Corporation is duly licensed or qualified to transact
business as a foreign corporation in each jurisdiction in which failure to
qualify would have a material adverse effect on the Corporation. The Articles
of Incorporation and the Bylaws of the Corporation delivered to LCC pursuant to
Section 2.1.1 hereof are true, correct and complete as of the date hereof.
3.2. Corporate Power. The Corporation has all requisite
legal and corporate power and authority to execute and deliver this Agreement,
to sell and issue the Debentures pursuant thereto, and to carry out and perform
all of its other obligations under the terms of this Agreement and the
Debenture.
3.3. Subsidiaries. Except as set forth on Schedule 3.3
attached hereto, the Corporation has no subsidiaries or affiliated companies
and does not otherwise own or control, directly or indirectly, any equity
interest in any corporation, association or
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business entity other than the fifty (50) shares of FedSMR, Inc. contributed by
American Business Communications, Inc.
3.4. Capitalization. The authorized capital stock of the
Corporation consists solely of One Hundred Million (100,000,000) shares of
Class A Common Stock, par value One Cent ($0.01) per share, of which
Twenty-eight Million Nine Hundred Ten Thousand Eight Hundred Forty-nine
(28,910,849) shares are issued and outstanding, One Hundred Million
(100,000,000) shares of Class B Nonvoting Common Stock, par value One Cent
($0.01) per share, of which [One Hundred Fifty Thousand (150,000)] shares are
issued and outstanding, and One Hundred Million (100,000,000) shares of
Preferred Stock, par value One Cent ($.01) per share, of which no shares are
outstanding. All outstanding shares of Class A Stock and Class B Stock have
been duly authorized and validly issued and are fully paid and nonassessable.
The Corporation has duly and validly reserved (a) an aggregate of Four Million
Five Hundred Nineteen Thousand Eight Hundred Eighty (4,519,880) shares of Class
A Stock for issuance pursuant to stock options to be granted to employees of
the Corporation (the "Employee Reserve"), (b) an aggregate of Six Million Seven
Hundred Thousand (6,700,000) shares of Class B Stock for issuance to other
investors (excluding shares reserved for LCC), and (c) an aggregate of Six
Million Five Hundred Fifty Thousand (6,550,000) shares of Preferred Stock for
issuance to other investors. The Class B Stock has the rights, preferences,
privileges and restrictions set forth in the Articles of Incorporation
delivered to LCC pursuant to Section 2.1.1 hereof. Except as set forth on
Schedule 3.4, there are no preemptive rights or anti-dilution rights existing
with respect to any issuance or proposed issuance of any equity securities of
the Corporation, including issuances pursuant to this Agreement.
3.5. Authorization. All corporate actions on the part of
the Corporation, its directors and stockholders necessary for (a) the
authorization, execution, delivery and performance of this Agreement by the
Corporation, (b) the sale, issuance and delivery of the Series D Debentures,
and (c) the performance of all of the Corporation's obligations under this
Agreement and the other agreements and actions contemplated herein with respect
to the Initial Loan, have been or will be taken prior to or as of the Initial
Loan Funding Date.
3.6. Binding Effect. This Agreement, when executed and
delivered by the parties hereto, shall constitute a valid and binding
obligation of the Corporation, and shall be enforceable in accordance with its
terms. The Class B Stock, when paid for and issued in compliance with the
provisions of this Agreement, shall be validly issued, fully-paid and
nonassessable, and free of any liens, claims or encumbrances; provided,
however, that such shares may be subject to restrictions on transfer under
state, United States federal and/or foreign securities laws and any other
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restrictions set forth in this Agreement, other investor agreements or the
Debentures, to the extent applicable.
3.7. Liabilities. Except as set forth on Schedule 3.7,
the Corporation has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except liabilities and
obligations relating to the ordinary course of its business (in each case in
normal amounts and incurred only in the ordinary course of business).
3.8. Title to Properties and Assets; Liens. The
Corporation has good and marketable title to its properties and assets,
including, without limitation, all technology, patents, copyrights, trademarks,
trade names, service marks (and any applications for any of the foregoing) and
trade secrets (the Corporation's proprietary rights are hereinafter referred to
as the "Business Property Rights"). No person or entity has made or, to the
knowledge of the officers of the Corporation, has threatened to make any claims
that the operation of the business of the Corporation is in violation of or
infringes any Business Property Rights or any other proprietary or trade rights
of any third party.
3.9. Consents. No consent, approval or authorization of
any third party or governmental authority, or designation, declaration or
filing with any governmental authority on the part of the Corporation, is
required in connection with the valid execution, delivery and performance of
this Agreement, or the offer, sale or issuance of the Debentures, or the
consummation of any other transaction contemplated by this Agreement, except as
required under the Communications Act and applicable FCC policies, rules and
regulations or to comply with exemptions from registration under the Securities
Act, the rules and regulations promulgated thereunder, and applicable state
securities laws and regulations.
3.10. Compliance with Other Instruments. The Corporation
is not in violation of any term of its Articles of Incorporation or Bylaws, of
any material term or provision of any mortgage, indebtedness, indenture,
contract, agreement, instrument, judgment or decree, or of any order, statute,
rule or regulation applicable to the Corporation. The execution, delivery and
performance of this Agreement, the Services Agreement and the License Agreement
by the Corporation, and the issuance of the Series D Debentures, have not
resulted and shall not result in any violation of, or conflict with, or
constitute a default under, the Corporation's Articles of Incorporation or
Bylaws, or any other agreement to which the Corporation is a party or by which
it or any of its property is bound.
3.11. Litigation. Except as set forth on Schedule 3.11
attached hereto, there are no actions, suits, proceedings or investigations
pending or (to the knowledge of the executive
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officers of the Corporation) threatened against the Corporation or its
properties before any court or governmental agency, which, if adversely
determined would materially adversely affect the Corporation, nor (to the
knowledge of the executive officers of the Corporation) is there any reasonable
basis therefor.
3.12. Registration Rights. Except as set forth in Schedule
3.12 attached hereto, the Corporation is not under any contractual obligation
to register any of its presently outstanding securities or any of its
securities which may hereafter be issued.
3.13. Financial Statements. The Profit and Loss Statement
for the twelve (12) month period ending December 31, 1995, and the Balance
Sheet of the Corporation dated as of December 30, 1995, and the one (1) month
Profit and Loss Statement and Balance Sheet of the Corporation dated January
31, 1996 attached hereto as Exhibit 3.13 (collectively the "Financial
Statement") are true and correct in all material respects, have been prepared
in accordance with generally accepted accounting principles, present fairly, in
all material respects, the financial condition of the Corporation, and do not
fail to state any material fact or condition. The Corporation previously
delivered to LCC financial information and projections, including prospective
financial information which was based upon assumptions that the Corporation
believed to be reasonable in light of all facts known to the Corporation at the
time such financial information was provided.
3.14. Taxes. The Corporation (a) has duly and timely filed
or caused to be filed all federal, state, local and foreign tax returns
(including, without limitation, consolidated and/or combined tax returns)
required to be filed by it prior to the date of this Agreement which relate to
the Corporation or with respect to which the Corporation is liable or otherwise
in any way subject, (b) has paid or fully accrued for all taxes shown to be due
and payable on such returns (which taxes are all the taxes due and payable
under the laws and regulations pursuant to which returns were filed) and (c)
has properly accrued for all such taxes accrued in respect of the Corporation
for periods subsequent to the periods covered by such returns. No deficiency
in payment of taxes for any period has been asserted by any taxing body and
remains unsettled at the date of this Agreement.
3.15. Offering. Subject to the truth and completeness of
representations and warranties received by the Corporation from holders of its
outstanding shares of Class A Stock (none of which the Corporation or its
executive officers has reason to believe is false or inaccurate in any material
respect), all shares of Class A Stock outstanding immediately prior to the date
hereof shall have been issued and sold in compliance with exemptions from
registration requirements of the Securities Act and applicable U.S. state
securities laws. Subject to the truth and completeness of
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the representations and warranties received by the Corporation from holders of
its Series A Debentures, Series B Debentures, and Series C Debentures (none of
which the Corporation or its executive officers has reason to believe is false
or inaccurate in any material respect), all Series A Debentures, Series B
Debentures, and Series C Debentures outstanding immediately prior to the date
hereof shall have been issued and sold in compliance with exemptions from
registration requirements of the Securities Act and applicable U.S. state
securities laws. The offer, sale and issuance of the Series D Debentures in
conformity with the terms of this Agreement shall constitute a transaction
exempt from the registration requirements of the Securities Act, subject to the
truth and completeness of the representations and warranties of LCC in Article
4 hereof and any purchaser questionnaire(s) provided by LCC herewith.
3.16. Brokers. The Corporation has not incurred, nor shall
incur, directly or indirectly, as a result of any action taken by it, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
3.17. Disclosure. This Agreement and the Exhibits and
Schedules hereto, and all of the documents and materials delivered to LCC in
connection herewith, do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
3.18. Qualification to Bid. The Corporation, including its
affiliate DCR PCS, Inc., ("DCR PCS"), qualifies as a "Small Business" and
"Designated Entity" as defined under Part 24 of the Rules of the FCC as
presently in effect, and DCR PCS qualifies to bid on and the C-Block licenses
for which it has bid in the Auction; provided all post-Auction requirements are
met.
3.19. Investor Agreements. Attached hereto as Schedule
3.19 is a true, accurate, correct and complete list of all agreements entered
into by the Corporation and any investor in the Corporation.
3.20. Shareholders and Debt Holders. Attached hereto as
Schedule 3.20 is a true, accurate, correct and complete listing of: (i) all
shareholders of the Corporation setting forth their respective equity holdings
by class, purchase price and amount, (ii) all debt issued by the Corporation
setting forth the principal amount of such debt, (iii) all securities issued by
the Corporation including, without limitation, all options, warrants, debt
instruments, or similar rights or agreements convertible into equity securities
of the Corporation setting forth the holder thereof, type, amount and purchase
price for such security.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF LCC
As a material inducement to the Corporation to agree to issue
and sell the Debentures as provided herein, LCC represents and warrants to the
Corporation that the following statements are true and correct in all material
respects as of the date hereof and shall be true and correct in all material
respects as of the Initial Loan Funding Date:
4.1. Organization and Standing; Authority. LCC is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or qualified to
transact business in each jurisdiction in which the failure to qualify would
have a material adverse effect on LCC. LCC has requisite legal and limited
liability company power and authority to execute and deliver this Agreement,
and to purchase the Debentures pursuant to the terms of this Agreement, and to
carry out and perform all of its other obligations under the terms of this
Agreement.
4.2. Authorization. All actions on the part of LCC and
its members necessary for (a) the authorization, execution, delivery and
performance of this Agreement by LCC, (b) the purchase of the Series D
Debentures, and (c) the performance of all of LCC's obligations under this
Agreement and the other agreements and actions contemplated herein, have been
taken prior to or as of the Initial Loan Funding Date.
4.3. Binding Effect. This Agreement, when executed and
delivered by the parties hereto, shall constitute a valid and binding
obligation of LCC, enforceable in accordance with its terms.
4.4. No Violation; Compliance with Laws. The execution,
delivery and performance of this Agreement and compliance with the provisions
hereof (a) will be in conformance with all laws, statutes and regulations
applicable to LCC and (b) will not conflict with, or result in any breach of,
any agreement to which LCC is a party or by which LCC is bound.
4.5. Investment.
4.5.1. LCC is acquiring the Series D Debentures for
its own account for investment and not with a view to distribution or resale,
and agrees (i) not to sell, hypothecate or otherwise dispose of the securities
unless the securities have been registered under the Securities Act and
applicable state securities laws or, in the opinion of counsel reasonably
acceptable to the Corporation, an exemption from the registration requirements
of the
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Securities Act and such laws is available, and (ii) not to act in any way that
would cause it to be deemed to be an "underwriter" of such securities within
the meaning given that term by the Securities Act.
4.5.2. Each of the answers in the Purchaser
Questionnaire(s) completed by LCC (and each of the equity owners of LCC if
applicable) and submitted to the Corporation, in a form substantially similar
to that attached hereto as Exhibit 4.5.2, is true, complete and correct.
4.5.3. LCC is entering into this transaction after
having received and reviewed such financial and other information as was
necessary in order to make an informed investment decision and after having
completed an independent investigation and analysis of facts and circumstances
that it deems appropriate for this investment. LCC understands that the
Corporation is a recent start-up company with very limited operating history,
that much of the financial information provided is prospective in nature and is
based upon assumptions that the Corporation believes to be reasonable in light
of all facts currently known to the Corporation, and that the validity of such
assumptions is subject to numerous risks and unknown factors, involving the
uncertainties associated with PCS. LCC also acknowledges that the
technological know-how required for the development and implementation of PCS
is not owned by the Corporation, but is either generally available in the
marketplace or is owned by other parties.
4.5.4. The Corporation has made available to LCC all
documents that have been requested by LCC relating to an investment in the
Corporation, and has provided LCC the opportunity to ask, and has provided
answers to, its questions concerning the offering and an investment in the
Corporation; and, in evaluating the suitability of the investment in the
Corporation, LCC has not relied on information regarding the Corporation except
information contained in any documents or written answers so furnished to it by
the Corporation.
4.5.5. LCC is experienced in evaluating and
investing in companies such as the Corporation. LCC is capable of evaluating
the merits and risks of an investment in the Corporation and has evaluated the
merits and risks associated with its investment in the Corporation, including
the current financial condition of the Corporation. LCC further represents
that it understands that (i) neither the Series D Debentures nor the Class B
Stock have been registered under the Securities Act or the securities laws of
any state by reason of their issuance in a transaction exempt from the
registration requirements of the Act pursuant to Section 4(2) thereof, (ii) the
Debentures and the Class B Stock cannot be sold unless a subsequent disposition
thereof is registered under the Act and under any applicable securities law or
is exempt from such
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registration, (iii) the Debentures and the certificates representing the Class
B Stock will bear a legend to such effect, and (iv) the Corporation will make a
notation on its transfer books to such effect.
4.5.6. LCC recognizes that an investment in the
Corporation involves substantial risks and that it has taken full cognizance of
and understands all the risks related to the purchase of the Series D
Debentures.
4.6. Brokers. The Corporation has not incurred, and shall
not incur, directly or indirectly, as a result of any action taken by LCC, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
4.7. Ownership of Other DEs and Broadband PCS, Cellular and
SMRS Interests. LCC does not own in excess of five percent (5%) of the
ownership interests (as defined in 47 CFR Sec. 24.229) in any other entity that
is participating in the Auction, or hold any officer or director positions
attributable to LCC in such entities. LCC does not own five percent (5%) or
more of the ownership interests (as defined in 47 CFR Sec. 24.229) in any PCS
A/B-block licenses or hold any officer of director positions attributable to
LCC for any such licensee, and does not own forty percent (40%) or more of the
ownership interests (as defined in 47 CFR Secs. 24.204 and 20.6) in any
cellular or SMRS licensee or hold any officer or director positions
attributable to LCC in such entities.
4.8. Disclosure. This Agreement and the Exhibits and
Schedules hereto, and all of the documents and materials delivered to the
Corporation in connection herewith, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statement contained herein or therein not misleading.
ARTICLE 5
COVENANTS
5.1. Financial Statements. From the date hereof until a
Termination Event resulting in LCC's receiving periodic 10-K, 10-Q, 8-K and
similar reports, the Corporation shall furnish to LCC:
5.1.1. Within ninety (90) days after the end of each
fiscal year of the Corporation, a consolidated balance sheet of the Corporation
and its subsidiaries, if any, as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for the
fiscal year then ended, prepared in accordance with generally accepted
accounting
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principles applied on a consistent basis, as audited by the Corporation's
independent certified public accountant.
5.1.2. Within thirty (30) days after the end of each
fiscal quarter in each fiscal year (other than the last fiscal quarter in each
fiscal year), a consolidated balance sheet of the Corporation and its
subsidiaries, if any, and the related consolidated statements of income,
stockholders' equity and cash flows, unaudited but prepared in accordance with
generally accepted accounting principles and certified by the Chief Financial
Officer of the Corporation, such consolidated balance sheet to be as of the end
of such fiscal quarter, and such consolidated statements of income,
stockholders' equity and cash flows to be for such fiscal quarter and for the
period from the beginning of the fiscal year to the end of such fiscal quarter,
in each case with comparative statements for the corresponding period or
periods in the prior fiscal year.
5.2. Reservation of Class B Stock. The Corporation shall
at all times until issuance thereof in accordance with the terms of this
Agreement or the expiration of the conversion rights set forth in Article 1
hereof, reserve and keep available out of its authorized but unissued shares of
its Class B Stock such shares as are necessary for the purpose of issuing Class
B Stock in accordance with the terms of this Agreement. The Corporation shall
issue the Class B Stock in accordance with the applicable terms of this
Agreement and the Series D Debentures. The Corporation shall obtain any
authorization, consent, approval or other action by, or make any filing with,
any governmental agency or administrative body that may be required under
applicable United States of America and state securities laws and the
Communications Act in connection with the issuance of the Series D Debentures
and the Class B Stock, or any portion thereof, as contemplated by the terms of
this Agreement and subject to the truth and completeness, at the time of
issuance of such shares, of the representations of LCC in Article 4 hereof.
5.3. Reports Under Securities Exchange Act of 1934. From
and after any Termination Event, with a view of making available to LCC the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the SEC that may at any time permit LCC to sell securities of the
Corporation to the public without registration, the Corporation agrees to: (a)
make and keep public information available, as those terms are understood and
defined in Rule 144, at all times; (b) file with the SEC in a timely manner all
reports and other documents required of the Corporation under the Securities
Act and the 1934 Act, and (c) furnish to LCC, so long as LCC owns any
registrable securities, forthwith upon request such information as may be
reasonably requested in order to allow LCC to avail itself of any rule or
regulation of the SEC which permits the selling of any such securities without
registration,
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provided such information is otherwise available generally to the stockholders
of the Corporation.
5.4. Corporate Existence. The Corporation shall maintain
its corporate existence in full force and effect.
5.5. Securities Law Compliance. LCC covenants and agrees
(i) not to offer, sell, hypothecate or otherwise dispose of the securities
purchased hereunder except in the manner consistent with the restrictions set
forth in the Securities Act, and (ii) not to act in any way that would cause it
to be deemed to be "underwriter" of such securities within the meaning given
that term by the Securities Act.
5.6. Adjustments. The number and kind of securities which
may be received upon the exercise of the conversion rights granted hereunder
and the conversion price shall be subject to adjustment from time to time upon
the happening of certain events, as follows:
5.6.1. Adjustment for Stock Splits. If the
Corporation shall at any time or from time to time after the date hereof effect
a subdivision of the outstanding shares of its Class B Stock, the conversion
price then in effect immediately before that subdivision shall be
proportionately decreased. Any adjustment under this Section 5.6.1 shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
5.6.2. Adjustment for Certain Dividends and
Distributions. In the event the Corporation shall at any time or from time to
time after the date hereof make or issue, or fix a record date for the
determination of holders of shares of its Class B Stock entitled to receive, a
dividend or other distribution payable in additional shares of Class B Stock of
the Corporation, then and in each such event the conversion price then in
effect shall be decreased as of the time of such issuance or, in the event such
a record date shall have been fixed, as of the close of business on such record
date, by multiplying the conversion price then in effect by a fraction: (i)
the numerator of which shall be the total number of shares of Class B Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date; and (ii) the denominator of which shall
be the sum of the total number of shares of Class B Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date and the number of shares of Class B Stock issuable
in payment of such dividend or distribution; provided, however, if such record
date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the conversion price
shall be recomputed accordingly as of the close of business on such record date
and thereafter such conversion price
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<PAGE> 20
shall be adjusted pursuant to this Section 5.6.2 as of the time of actual
payment of such dividends or distributions.
5.6.3. Adjustment for Reclassification, Exchange or
Substitution. If the shares issuable upon the conversion of the Loans shall be
changed into the same or different number of shares or any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation or sale of assets provided
for hereunder), then and in each such event, LCC shall have the right
thereafter to convert each Loan into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification or other change, as such Loans might have been converted
immediately prior to such reorganization, reclassification or change.
5.6.4. Adjustment for Reorganization, Merger,
Consolidation or Sale of Assets. If at any time or from time to time prior to
a Termination Event there shall be a capital reorganization of the shares of
the Corporation's Class B Stock (other than a reclassification or exchange of
shares provided for elsewhere in this Section 5.6.4) or a merger or
consolidation of the Corporation with or into another corporation, or the sale
of all or substantially all of the Corporation's properties and assets to any
other person, then, as a part of such reorganization, merger, consolidation or
sale, provision shall be made so that LCC shall thereafter be entitled to
receive upon conversion of the Loans, the number of shares of stock or other
securities or property of the Corporation or of the successor corporation
resulting from such merger or consolidation or sale, to which the holders of
shares the Corporation's Class B Stock were entitled on such reorganization,
merger, consolidation, or sale. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 5.6 with respect
to the rights of LCC after the reorganization, merger, consolidation or sale to
the end that the provisions of this Section 5.6 (including adjustment of the
conversion price then in effect and the number of shares receivable upon
conversion of the Loans) shall be applicable after that event as nearly
equivalent hereto as may be practicable.
5.6.5. Certificate of Adjustment. Upon the
occurrence of each adjustment or readjustment of the applicable conversion
price or shares of Class B Stock into which the Loans are convertible pursuant
to this Section 5.6, the Corporation shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to LCC
a certificate, signed by two executive officers of the Corporation, setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. The
20
<PAGE> 21
Corporation shall also provide LCC with not less than ten (10) days prior
written notice of any event under this Section 5.6.
5.7. Dissenter Rights. Until a Termination Event, holders
of the Corporation's Preferred Stock and holders of the Corporation convertible
debentures, including LCC as the holder of the Series D Debentures, (voting on
an as converted basis) shall have the right to approve by a majority vote,
voting as a class, the following transactions: (a) the consolidation of the
Corporation with one or more corporations to form a new consolidated
corporation; (b) the sale, lease, exchange or other transfer of all, or
substantially all of the property and assets of the Corporation; (c) the
participation by the Corporation in a share exchange (as defined in the
Corporations and Associations Article of the Annotated Code of Maryland); (d)
the voluntary liquidation, dissolution or winding-up of the Corporation; (e)
the Corporation's repurchase or redemption of any securities junior to the
Preferred Stock other than (i) the exercise by the Corporation of redemption
rights as necessary to remain in compliance with the FCC foreign ownership
requirements, spectrum cap requirements and the regulations regarding DE
status, (ii) pursuant to any rights of first refusal or repurchase rights in
the Stockholders Agreement, and (iii) rights to repurchase shares pursuant to
employee stock option agreements; and (f) the issuance of any new class of
stock that pays dividends.
In the event that the required majority refuses to grant
consent, the Corporation shall have the option, in its sole discretion, to
repurchase all of the stock and/or debenture interest of any holder of any
convertible debentures or Preferred Stock that has voted against such consent
by paying to such holder "fair value" (as is defined in Section 3-202 of the
Annotated Code of Maryland) for the stock interest held by such dissenting
holder and, in the case of LCC, with respect to the debenture interest held by
such dissenting holder, by paying the entire principal and interest then due
and owing under each of the Initial Loan and the Subsequent Loan.
ARTICLE 6
INDEMNIFICATION
6.1. Indemnification of LCC. The Corporation hereby
agrees to indemnify, defend and hold harmless LCC against and in respect of any
and all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies, including interest, penalties, costs of
investigation and reasonable attorneys' fees, that LCC may incur, directly or
indirectly, which result from any breach of, or failure by the Corporation to
perform, any of its representations, warranties, covenants or agreements
contained in this Agreement.
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<PAGE> 22
6.2. Indemnification of the Corporation. LCC hereby
agrees to indemnify, defend and hold harmless the Corporation against and in
respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest,
penalties, costs of investigation and reasonable attorneys' fees, that the
Corporation may incur, directly or indirectly, which result from any breach of,
or failure by LCC to perform, any of its representations, warranties, covenants
or agreements contained in this Agreement.
ARTICLE 7
MISCELLANEOUS
7.1. Expenses. Each of the parties hereto shall be
responsible for its respective expenses incurred in connection with the
preparation and execution of this Agreement (and any and all investigations
undertaken in connection herewith or therewith), including the fees and
expenses of all accountants, attorneys and advisors of any such party. The
Corporation covenants and agrees that it shall not bear, pay or reimburse any
fees, costs or expenses of any holder of any Debentures in connection with the
negotiation and execution of this Agreement, or any other agreement executed in
connection herewith or therewith.
7.2. Notices. Any and all notices, requests, elections or
other communications provided for herein shall be given in writing and sent by
hand delivery, by any express courier service that produces and maintains proof
of delivery or by registered or certified mail, return receipt requested, with
first-class postage prepaid; and such notices shall be addressed (a) if to the
Corporation, to the principal office of the Corporation, with a copy to Ronald
S. Schimel, Esquire, Levan, Schimel, Belman & Abramson, P.A., 9881 Broken Land
Parkway, Suite 400, Columbia, Maryland 21046, U.S.A., and (b) if to LCC, to
its address at 2300 Clarendon Blvd., Suite 800, Arlington, Virginia 22201,
attention: President, with a copy to its general counsel, unless notice of a
change of address is furnished to all parties in the manner provided in this
Section 7.2. Any notice which is required to be made within a stated period of
time shall be considered timely if delivered or mailed before midnight of the
last day of such period.
7.3. Invalid or Unenforceable Provisions. The invalidity
or unenforceability of any particular provision of this Agreement shall not
affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were omitted.
7.4. Survival. The representations, warranties, covenants
and agreements made in this Agreement shall survive any investigation
22
<PAGE> 23
made by LCC and the closing of the transactions contemplated by this Agreement.
7.5. Benefit and Burden. This Agreement shall inure to
the benefit of, and shall be binding upon, the parties hereto and their
successors and assigns, and other legal representatives and, in the case of
LCC, its designees, if reasonably acceptable to the Corporation. Neither party
may transfer or assign this Agreement or any of their respective rights, duties
or obligations under this Agreement without the express prior written consent
of the other party, except that LCC may transfer this Agreement and its rights,
duties and obligations hereunder to (i) any successor entity organized in
connection with a public offering of LCC's equity securities, (ii) any entity
in connection with a merger, consolidation, recapitalization, reorganization or
similar transaction, or (iii) any entity acquiring all or substantially all of
LCC's assets or ownership interests.
7.6. Gender. The use of any gender herein shall be deemed
to be or include the other genders and the use of the singular herein shall be
deemed to be or include the plural (and vice versa), wherever appropriate.
7.7. Changes; Waiver. No change or modification of this
Agreement shall be valid unless the same is in writing and signed by all of the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the person against whom sought to be enforced.
The failure of any party at any time to insist upon strict performance of any
condition, promise, agreement or understanding set forth herein shall not be
construed as a waiver or relinquishment of the right to insist upon strict
performance of the same or any other condition, promise, agreement or
understanding at a future time.
7.8. Entire Agreement. This Agreement and the Exhibits
and Schedules attached hereto set forth all of the promises, agreements,
conditions, understandings, warranties and representations among the parties
hereto with respect to the matters set forth herein, and there are no promises,
agreements, conditions, understandings, warranties or representations, oral or
written, express or implied, among them with respect to such matters except as
set forth herein or therein. Except for the Exhibits and Schedules attached
hereto, any and all prior agreements among the parties hereto with respect to
the matters set forth herein are hereby revoked. This Agreement and the
Exhibits and Schedules attached hereto are intended by the parties to be an
integration of any and all prior agreements or understandings, oral or written,
with respect to the matters set forth herein. Each writing or document
referred to as being attached hereto as an exhibit or otherwise designated
herein as an exhibit hereto is hereby made a part hereof.
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<PAGE> 24
7.9. Governing Law. This Agreement shall be construed and
enforced in accordance with the substantive laws of the District of Columbia
without regard to its rules regarding conflicts of law, and each party hereby
irrevocably submits to the jurisdiction of any court of the District of
Columbia, and the United States District Court for the District of Columbia for
the purpose of any suit, action or other proceeding arising out of this
Agreement, or any of the agreements or transactions contemplated hereby. Each
party hereby (a) hereby irrevocably agrees that all claims in respect of any
such suit, action or proceeding may be heard and determined in any such court,
(b) to the extent that either party has acquired or hereafter may acquire, any
immunity from jurisdiction of any such court or from any legal process therein,
such party hereby waives, to the fullest extent permitted by applicable law,
such immunity and (c) agrees not to commence any action, suit or proceeding
relating to this Agreement other than in such courts. Each party hereby
waives, and agrees not to assert in any such suit, action or proceeding, in
each case, to the fullest extent permitted by applicable law, any claim that
(i) such party is not personally subject to the jurisdiction of any such court,
(ii) such party is immune from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution, execution
or otherwise) with respect to such party or its property or (iii) any such
suit, action or proceeding is brought in an inconvenient forum.
7.10. Headings. The headings, subheadings and other
captions in this Agreement are for convenience and reference only and shall not
be used in interpreting, construing or enforcing any of the provisions of this
Agreement.
7.11. Counterparts. This Agreement may be executed in any
number of counterparts, all of which together shall constitute one instrument.
[SIGNATURES ON NEXT PAGE]
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
ATTEST/WITNESS: DCR COMMUNICATIONS, INC.,
a Maryland corporation
By: /s/ JANIS A. RIKER
- -------------------------- -------------------------------
Janis A. Riker
President
ATTEST/WITNESS: LCC, L.L.C.
By: /s/ PIYUSH SODHA
- -------------------------- -------------------------------
Piyush Sodha
President and C.E.O.
25
<PAGE> 26
FIRST AMENDMENT
TO CONVERTIBLE LOAN AND INVESTMENT AGREEMENT
THIS FIRST AMENDMENT TO CONVERTIBLE LOAN AND
INVESTMENT AGREEMENT (the "First Amendment") is made this 10th day of May, 1996,
by and between DCR COMMUNICATIONS, INC. (the "Corporation"or "DCR") and LCC,
L.L.C. ("LCC").
W I T N E S S E T H:
WHEREAS, the Corporation and LCC entered into a
certain Convertible Loan and Investment Agreement dated March 20,
1996("Agreement"); and
WHEREAS, the parties hereto desire to clarify a provision
of the Agreement by entering into this First Amendment thereto.
NOW, THEREFORE, in consideration of the foregoing, of
the mutual covenants and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Corporation and LCC, the parties hereto intending to be
legally bound, hereby agree asfollows:
1. Amendment to Agreement.
A. The second sentence of Section 1.2.6.1 of
the Agreement captioned "Conversion Rate" is amended by deleting the word "and"
immediately preceding the phrase "(c) any equity securities" and inserting the
following phrase immediately after the word "marks" and before the period at the
end of the sentence: ", and (d) those equity securities issued or sold prior to
the date hereof which are set forth in Schedule 1.2.6.1 attached hereto."
B. A new Schedule 1.2.6.1 as set forth on
Exhibit A attached hereto is added to the Agreement.
2. Effectiveness. Except as hereinbefore amended,
the Agreement remains in full force and effect in accordance with its original
terms.
IN WITNESS WHEREOF the parties hereto have executed this First
Amendment as of the day and year first above written.
WITNESS: DCR COMMUNICATIONS, INC.,
a Maryland corporation
By: /s/ JANIS A. RIKER (SEAL)
- -------------------------- ----------------------
Janis A. Riker, President
LCC, L.L.C
By: /s/ PIYUSH SODHA (SEAL)
- -------------------------- ----------------------
Piyush Sodha, President
<PAGE> 27
EXHIBIT A
SCHEDULE 1.2.6.1
EXCLUDED SECURITIES
1. The 28,910,849 shares of Class A Stock issued and outstanding
as of March 20, 1996, as set forth below:
<TABLE>
<CAPTION>
=========================================================================================================
ISSUED AND OUTSTANDING - CLASS A STOCK
=========================================================================================================
VALUE OF
STOCKHOLDER NO. OF SHARES CASH PAID IN-KIND TOTAL
CONSIDERATION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
D. Riker 4/94 4,670,000 $ 10,000 $250,000 $260,000
- ---------------------------------------------------------------------------------------------------------
J. Riker 4/94 5,730,000 10,000 250,000 260,000
- ---------------------------------------------------------------------------------------------------------
R. Anderson 10/94 1,000,000 50,000 0 50,000
3/96 30,120 25,000 0 25,000
- ---------------------------------------------------------------------------------------------------------
J. Alpert 10/94 200,000 10,000 0 10,000
- ---------------------------------------------------------------------------------------------------------
Teleconsult 12/94 5,000,000 150,000 100,000 250,000
1/30/95 660,000 150,000 150,000
6/14/95 1,540,000 350,000 350,000
7/10/95 634,000 144,092 144,092
10/30/95 140,828 32,007 32,007
3/15/96 1,325,172 268,700 32,474 301,174
---------
9,300,000
- ---------------------------------------------------------------------------------------------------------
Masa Telecom, Inc.
1/31/95 1,800,000 1,500,000
5/1/95 4,200,000 3,500,000
----------
6,000,000 5,000,000
- ---------------------------------------------------------------------------------------------------------
CTD, L.L.C. 11/95 100,000 50 shares of
FedSMR Stock
- ---------------------------------------------------------------------------------------------------------
Thomas S. Leming 10/95 20,000 0 $ 16,600 16,600
- ---------------------------------------------------------------------------------------------------------
Brion Sasaki 10/95 20,000 0 $ 16,600 16,600
- ---------------------------------------------------------------------------------------------------------
Ronald S. Schimel 10/95 20,000 0 $ 16,600 16,600
- ---------------------------------------------------------------------------------------------------------
George S. Wills 10/95 20,000 0 $ 16,600 16,600
- ---------------------------------------------------------------------------------------------------------
Westinghouse Electric
Corporation 11/9/95 1,800,729 1,000,000 $500,000 1,500,000
- ---------------------------------------------------------------------------------------------------------
Subtotal 28,910,849 $7,023,700 $1,374,973** $8,398,673**
=========================================================================================================
</TABLE>
**Does not include a value for FedSMR Stock contributed.
2. Equity securities issued pursuant to the Series B Debentures
at conversion rate of $.833 per share.
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the
"Agreement") is made this 3rd day of January, 1995, effective as of ______
__, 199_ (the "Effective Date"), by and between DCR COMMUNICATIONS, INC., a
Maryland corporation (hereinafter referred to as the "Employer"), and
Randall S. Anderson (hereinafter referred to as the "Employee").
WITNESSETH
WHEREAS, the Board of Directors of the Employer has determined
that it is to the advantage and interest of the Employer to avail itself of the
Employee's services in connection with the business of the Employer; and
WHEREAS, the Employee desires to accept employment with the
Employer upon the terms and conditions contained herein.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties do hereby covenant and agree as
follows:
1. AGREEMENT.
This Agreement constitutes the entire understanding
of the parties relating to the transactions outlined herein and conclusively
supersedes all prior writings and understandings, whether oral or written, with
respect hereto.
2. DEFINITIONS.
Unless otherwise expressly stated herein, the
following words or phrases shall be defined as set forth below:
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<PAGE> 2
A. Good Cause. "Good Cause" shall be deemed to
exist upon written notice from the Board of Directors to the Employee of the
occurrence of any of the following, as determined in the sole and absolute
discretion of the Board of Directors:
(1) Employee's negligence or willful
misconduct which is injurious to the Employer's business affairs;
(2) Employee's breach of any material
provision of this Agreement;
(3) Employee's conviction of or guilty plea
to a criminal act, potentially punishable by imprisonment of one (1) year or
more;
(4) Employee's failure to satisfactorily
perform the duties as required by the terms hereof; or
(5) Employee's failure to follow directions,
policies, rules or procedures established from time to time by the Board of
Directors of the Employer.
Notwithstanding anything herein to the contrary, for purposes
of subsections (2), (4) and (5) of this Section 2.A., Good Cause shall be
deemed to exist only upon thirty (30) days prior written notice from the
Employer of the occurrence of such events and the Employee's failure to cure
the same to the satisfaction of the Board of Directors within the thirty (30)
day period. Notwithstanding the foregoing, no such prior notice shall be
required to be given where to do so would be impractical, such as where the
action giving rise to Good Cause is not reasonably capable of being cured.
2
<PAGE> 3
B. Disability. For purposes of this Agreement,
"Disability" shall be defined as Employee's inability to perform the duties he
is required to perform under the terms of this Agreement by reason of illness
or incapacity, as determined by the Board of Directors of the Employer in its
sole and absolute discretion; provided that Employee shall be considered
disabled for purposes hereof as of the onset of the illness or incapacity if he
is reasonably anticipated, as of such date of onset, to be unable, by reason of
such illness or incapacity, to perform full-time services for a period in
excess of thirty (30) consecutive days.
3. EMPLOYMENT AND DUTIES.
The Employer hereby employs Employee and Employee hereby
accepts employment upon the terms and conditions hereinafter set forth.
Employee agrees to devote his best efforts and full business time to rendering
services as ____________ of the Employer or in such other positions as he may
hold with the Employer. Employee agrees that he will not engage in any other
gainful occupation during the term of this Agreement without the prior written
consent of the Employer. Nothing contained herein shall be construed, however,
to prevent Employee from trading, for his own account and benefit, in stocks,
bonds, securities, real estate, commodities or other forms of investments. The
Employee shall perform assigned work in a competent, professional and timely
manner. Employee, in the discharge of his responsibilities, will at all times
act in good faith. In addition, Employee agrees to comply with the Employer's
policies, rules and regulations, as
3
<PAGE> 4
determined from time to time by the Board of Directors of the Employer.
4. TERM.
The initial term of this Agreement shall begin on the
Effective Date hereof and shall continue for a period of ____ (_) years
thereafter ("Initial Term"), or until terminated as provided herein (including
as set forth in Section 11 hereof). This Agreement shall be subject to
automatic renewal for successive one (1) year periods, subject to the terms and
conditions set forth in this Agreement, unless either party notifies the other
in writing at least __________________ (__) days prior to termination of the
then current term of the party's desire to terminate this Agreement. The
Initial Term and each renewal of this Agreement shall be collectively referred
to as the "Term."
5. COMPENSATION.
In consideration of and for the services rendered by
the Employee under this Agreement, the Employer shall pay the Employee a base
salary of _______________________________ Dollars ($_______.00) per annum, as
well as such additional salary and bonuses as may be determined in accordance
with the policies for determination of salary and bonuses established by the
Employer's Board of Directors from time to time.
6. FRINGE BENEFITS.
During the Term of this Agreement, the Employee shall
be entitled to all fringe benefits offered generally to the Employer's
employees, as determined by the Board of Directors from time to
4
<PAGE> 5
time, subject to the rules and regulations in effect regarding participation in
such benefit plans.
7. BUSINESS EXPENSES.
The Employee is authorized to incur reasonable
expenses in connection with the business of the Employer, including dues and
subscriptions for professional organizations and periodicals, travel and
entertainment expenses. Any such expenses shall be subject to any requirements
or limitations imposed by the Board of Directors of the Employer.
The Employer will reimburse Employee for the expenses
incurred pursuant to this Section 7, unless such expenses have been paid
directly by the Employer, upon presentation by the Employee of an itemized
account of such expenditures in a manner prescribed and authorized by the
Employer.
9. VACATION.
The Employee shall be entitled to ______ (__) working
days per calendar year paid vacation, to be taken at such times as determined
by the Employee and approved by the Board of Directors of the Employer;
provided that if the Employee fails to fully take such vacation in any calendar
year, any unused vacation time may only be carried forward from year to year
with the prior written approval of the Employer's Board of Directors. Upon
termination of the Employee's employment, Employee shall be paid for any
accrued but unused vacation time except in the event that Employee terminates
his employment with Employer or fails to renew this Agreement or the Employer
terminates the employment of the Employee
5
<PAGE> 6
due to circumstances or for reasons constituting Good Cause. For purposes of
this Section 9, Good Cause shall be deemed to exist only if the Board of
Directors reasonably determines that any of the events listed in Section 2.A.
above have occurred. Attendance at seminars approved in advance by the Board
of Directors shall not be chargeable against the vacation time provided for
hereinabove.
9. DISABILITY.
If the Employee is unable to perform his services by
reason of Disability, as defined in Section 2.B. hereof, he shall be entitled
to receive salary continuation payments (but only for so long as he shall
remain so disabled) as follows:
(a) During the first ______ (__) days of
Disability, the Employee shall receive an amount equal to ___________ Percent
(___%) of the compensation to which he would have otherwise been entitled as
hereinabove provided in Section 5, reduced by any insurance benefits received
by the Employee from disability insurance purchased by the Employer.
b. After ______ (__) days of Disability, the
Employee shall no longer receive any compensation from the Employer.
If the Employee is unable to perform the services
required hereunder by reason of Disability for a period exceeding ______ (__)
continuous days, this Agreement may be terminated at the end of such ______
(__) day period in the sole and absolute discretion of the Board of Directors
without further liability on the part of either of the parties hereto;
provided, however, that for purposes of this Section 9, the restrictions set
forth in
6
<PAGE> 7
Section 11 hereinbelow shall remain in full force and effect.
10. TERMINATION.
(a) Notwithstanding any provision of this Agreement
to the contrary, this Agreement may be terminated by the Employer (acting
through its Board of Directors) effective immediately for Good Cause, as
defined herein.
(b) Upon the termination of this Agreement for
Good Cause or otherwise, the Employee shall return all records, files,
documents and other written materials of the Employer and shall have no further
involvement in or access to the Employer's customer files, records or affairs.
He shall thereafter have no further professional duties to perform for the
Employer or any of its customers. Employee shall thereupon immediately remove
himself and his personal effects from the Employer's premises.
(c) If Employee's employment is terminated as
provided for herein, Employee shall not be entitled to any sums other than
those expressly provided for hereunder or under the terms of any employee
benefit plan or other agreement to which Employee is a party or participant.
11. RESTRICTIVE COVENANT.
(a) Covenant Not to Compete. During the Term of
this Agreement, and for a period of two (2) years after termination of
employment (with or without cause), Employee will not, directly or indirectly,
either as an individual or as a proprietor, stockholder, partner, officer,
director, employee, agent, consultant or independent contractor of any
individual,
7
<PAGE> 8
partnership, corporation or other entity (excluding an ownership interest of
one percent (1%) or less in the stock of a publicly traded company):
(i) participate in any way in hiring or
otherwise engaging, or assist any other person or entity in hiring or otherwise
engaging, on a temporary, part-time or permanent basis, any individual who was
employed by the Employer during the one (1) year period immediately prior to
the termination of the Employee's employment; or
(ii) assist, advise, or serve in any
capacity, representative or otherwise, any third party in any action against
the Employer or transaction involving the Employer; or
(iii) sell, offer to sell, provide
communication or telephone services, assist any other person in selling or
providing communication or telephone services, or solicit or otherwise compete
for, either directly or indirectly, any orders, contracts, or accounts for
services of a kind or nature like or substantially similar to the services
performed or products sold by the Employer (the preceding hereinafter referred
to as "Services"), to or from any person or entity from whom Employee or the
Employer provided telephone or communication services, sold, offered to sell or
solicited orders, contracts or accounts for Services during the one (1) year
period immediately prior to the termination of the Employee's employment; or
(iv) divulge, disclose, or communicate to any
person, firm or corporation in any manner whatsoever, except such
8
<PAGE> 9
disclosures to the Employer or its agents and employees as may be necessary in
the performance of the Employee's duties for the Employer, any information
concerning any matters affecting or relating to the business of the Employer,
including without limiting the generality of the foregoing, products,
processes, know-how, designs, formulas, methods, developmental or experimental
work, improvements, discoveries, plans for research or new products; any of its
customers or clients, past, present or prospective; past, present or future
research done by the Employee respecting the business or operations of the
Employer or customers or clients or potential customers or clients of the
Employer; the Employee's work performed for any customer or client of the
Employer; any method and/or procedure developed by or on behalf of the Employer
relating or pertaining to projects or other work of the Employer or
contemplated by the Employer to be developed; the prices it obtains or has
obtained from the sale of its services or the method of setting prices;
purchasing history and sources of supply; earnings or any other information
concerning the business of the Employer, its manner of operation, its plans,
processes, or other data without regard to whether all of the foregoing matters
will be deemed confidential, material, or important, the parties hereto
stipulating that as between them, the same are important, material, and
confidential and gravely affect the effective successful conduct of the
business of the Employer and the Employer's good will, and that any breach of
the terms of this paragraph shall be a material breach of this Agreement. The
9
<PAGE> 10
restrictions contained in this paragraph apply to all confidential information
regarding the Employer's business regardless of the source who provided or
compiled such information and regardless of the person or entity who prepared
any documents containing such information, provided that the information was
obtained during the Employee's period of employment with the Employer.
Further, upon leaving the employ of the Employer for any reason whatsoever, the
Employee shall not, without the prior written consent of the Employer, take
with him, or make or retain any copies of, any drawings, reproductions, data,
reports, pricing information, programs, tapes, card decks, listings and/or any
other written, printed, graphic or recorded information relating or pertaining
to the Employer. Unless otherwise agreed upon, all such property shall be the
sole and exclusive property of the Employer and the Employee shall have no
interest therein. Notwithstanding anything to the contrary contained herein,
the terms of this subparagraph (iv) shall not be limited to the two (2) year
restriction set forth above and the Employer's confidential information
protected pursuant to this paragraph (iv) shall not include any information
which is known, or available to, the general public or generally to those
people working within the personal communication services or cellular telephone
industry or any other industry with which the Employee is restricted from
dealing pursuant to the terms of this Agreement.
(b) Remedies. In the event of a breach or
a threatened breach by the Employee of any provision of these restrictions, the
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Employee recognizes the substantial and immediate harm that a breach or
threatened breach will impose upon the Employer, and further recognizes that in
such event monetary damages may be inadequate to fully protect Employer.
Accordingly, in the event of a breach or threatened breach of this Agreement,
Employee consents to the Employer's entitlement to such ex parte, preliminary,
interlocutory, temporary or permanent injunctive, or any other equitable
relief, protecting and fully enforcing Employer's rights hereunder and
preventing Employee from further breaching any of his obligations set forth
herein. Employee expressly waives any requirement, based on any statute, rule
of procedure, or other source, that Employer post a bond as a condition of
obtaining any of the above-described remedies. Nothing herein shall be
construed as prohibiting Employer from pursuing any other remedies available to
the Employer at law or in equity for such breach or threatened breach,
including the recovery of damages from the Employee. Employee expressly
acknowledges and agrees that: (i) the restrictions set forth in this Section
11 are reasonable, in terms of scope, duration, geographic area, and otherwise,
(ii) the protections afforded Employer in this Section 11 are necessary to
protect its legitimate business interest, (iii) the restrictions set forth in
this Section 11 will not be materially adverse to the Employee's ability to
obtain gainful employment comparable to the Employee's employment with the
Employer, and (iv) his agreement to observe such restrictions forms a material
part of the consideration for this Agreement.
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(c) Overbreadth of Restrictive Covenant. It is the
intention of the parties that if any restrictive covenant in this Agreement is
determined by a court of competent jurisdiction to be overly broad, then the
court should enforce such restrictive covenant to the maximum extent permitted
under the law as to area, breadth and duration.
12. EMPLOYEE COVENANT.
Employee shall not during the Term of this Agreement
or at any time thereafter divulge, disclose or communicate to others in any
manner whatsoever, information or statements which disparage or are intended to
disparage the Employer and its business reputation.
13. INSURANCE.
The Employer may purchase life insurance and/or
disability insurance on the Employee to protect its interests hereunder. All
policies so purchased shall name the Employer as beneficiary. The Employee
shall cooperate with the Employer in obtaining such insurance, including, but
not limited to, by completing such applications and documents as are required
by the insurers and submitting to physical examinations, if necessary.
14. ENFORCEMENT OF PROVISIONS.
The failure of the Employer or the Employee at any
time to enforce any of the provisions of this Agreement, or any right with
respect thereto, will in no way be construed to be a waiver of such provisions
or rights or in any way to affect the validity of this Agreement. The exercise
by either party hereto of any rights
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under the terms or covenants herein shall not preclude or prejudice the
exercising thereafter of the same or any other rights under this Agreement.
15. RECORDS.
All records pertaining to customers of the Employer,
including but not limited to work papers, receipts, financial reports and
statements, applications, statements, records of fees, billings and payment of
fees and all personnel records pertaining to compensation and expenses of the
Employee within the scope of his employment shall at all times be the property
of the Employer.
16. NOTICES.
All communications or notices required or permitted
by this Agreement shall be in writing and shall be deemed to have been given at
the earlier of the date when actually delivered to an individual party or to an
executive officer of a corporate party or when deposited in the United States
mail, certified or registered mail, postage prepaid, return receipt requested,
and addressed as follows, unless and until any of such parties notifies the
others in accordance with this Section 16 of a change of address:
If to Employer: Janis Riker
DCR Communications, Inc.
2715 M Street, N.W.
Washington, D.C. 20007
With a copy to: Ronald S. Schimel, Esquire
Levan, Schimel, Belman & Abramson, P.A.
Woodmere I, Suite 400
9881 Broken Land Parkway
Columbia, Maryland 21046-1153
If to Employee: _____________________
_____________________
_____________________
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17. INVALID PROVISION.
The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
the Agreement shall be construed in all respects as though such invalid or
unenforceable provisions were omitted.
18. INTERPRETATION.
This Agreement shall be interpreted in accordance
with the laws of the State of Maryland, exclusive of its conflicts of law
provisions.
19. MODIFICATION.
This Agreement may be changed, modified or amended
only by an agreement in writing signed by the parties.
20. HEADINGS.
The section headings herein are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
21. ASSIGNMENT.
The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Employer. This Agreement being for the personal services of the
Employee, shall not be assignable nor delegable by him.
22. COUNTERPARTS.
This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original,
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but all of which shall together constitute one and the same document.
23. ARBITRATION.
Any question or controversy arising under this
Agreement shall be settled by arbitration, except any action seeking equitable
relief initiated by the Employer pursuant to Section 11 above, under the then
existing rules of the American Arbitration Association, and the decision of the
arbitrator shall be final and binding upon the parties (including an award of
costs of the arbitration which shall be paid by the non-prevailing party, as
determined by the arbitrator). The arbitration shall be conducted by a single
arbitrator in Howard County, Maryland.
24. COSTS OF BREACH.
The parties agree that the non-breaching party shall
be entitled to all attorneys' fees, court costs and other expenses incurred by
the non-breaching party as a result of any breach by the Employer or the
Employee of any covenant, agreement, term, condition or obligation contained in
this Agreement.
25. WITHHOLDING FUNDS; RIGHT TO OFFSET AND APPLY
PAYMENTS.
In the event that Employee shall owe an obligation of
any type whatsoever to the Employer at any time during the Term or after
termination hereof, and shall not have paid such obligation as and when the
same became due and payable, Employee hereby expressly authorizes Employer to
withhold or deduct an amount equal to said obligation from any wages due to the
Employee from the Employer. For purposes of this provision, wages shall mean
any
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remuneration, compensation, bonus, commission, and/or fringe benefit provided
in return for services provided by the Employee. In addition, notwithstanding
the terms of any other agreement or obligation between Employer and Employee,
any amounts due under any agreement or obligation to the Employee, including
under the terms set forth herein, including wages shall first be applied and
offset against any money owed by the Employee to the Employer.
26. SURVIVAL.
Except as otherwise expressly set forth herein, the
provisions of Sections 11, 12, 13, 23, 24 and 25 of this Agreement shall
survive the termination of this Agreement for any reason.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal the day and year first above written.
WITNESS/ATTEST: DCR COMMUNICATIONS, INC.
By: (SEAL)
- --------------------------- --------------------------
WITNESS:
- ---------------------------- (SEAL)
16
<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the
"Agreement") is made this 10th day of March, 1995, effective as of March, 6,
1995, (the "Effective Date"), by and between DCR COMMUNICATIONS, INC., a
Maryland corporation (hereinafter referred to as the "Employer"), and Barry C.
Winkle (hereinafter referred to as the "Employee").
WITNESSETH
WHEREAS, the Board of Directors of the Employer has determined
that it is to the advantage and interest of the Employer to avail itself of
the Employee's services in connection with the business of the Employer; and
WHEREAS, the Employee desires to accept employment with the
Employer upon the terms and conditions contained herein.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties do hereby covenant and agree as
follows:
1. AGREEMENT.
This Agreement constitutes the entire understanding of
the parties relating to the transactions outlined herein and conclusively
supersedes all prior writings and understandings, whether oral or written,
with respect hereto.
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2. DEFINITIONS.
Unless otherwise expressly stated herein, the following
words or phrases shall be defined as set forth below:
A. Good Cause. "Good Cause" shall be deemed to exist upon
written notice from the Board of Directors to the Employee of the occurrence
of any of the following, as determined in the sole and absolute discretion of
the Board of Directors:
(1) Employee's negligence or willful misconduct
which is injurious to the Employer's business affairs;
(2) Employee's breach of any material provision of
this Agreement;
(3) Employee's conviction of or guilty plea to a
criminal act, potentially punishable by imprisonment of one (1) year or more.
Notwithstanding anything herein to the contrary, for purposes
of subsection (2) of this section 2.A., Good Cause shall be deemed to exist
only upon thirty (30) days, prior written notice from the Employer of the
occurrence of such events and the Employee's failure to cure the same to the
satisfaction of the Board of Directors within the thirty (30) day period.
Notwithstanding the
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<PAGE> 3
foregoing, no such prior notice shall be required to be given where to do so
would be impractical, such as where the action giving rise to Good Cause is
not reasonably capable of being cured.
B. Disability. For purposes of this Agreement, "Disability"
shall be defined as Employee's inability to perform the duties he is required
to perform under the terms of this Agreement by reason of illness or
incapacity, as determined by the Board of Directors of the Employer in its
sole and absolute discretion; provided that Employee shall be considered
disabled for purposes hereof as of the onset of the illness or incapacity if
he is reasonably anticipated, as of such date of onset, to be unable, by
reason of such illness or incapacity, to perform full-time services for a
period in excess of thirty (30) consecutive days.
3. EMPLOYMENT AND DUTIES.
The Employer hereby employs Employee and Employee
hereby accepts employment upon the terms and conditions hereinafter set
forth. Employee agrees to devote his best efforts and full business time to
rendering services as Senior Vice President, Marketing and Sales, of the
Employer or in such other positions as he may hold with the Employer.
Employee agrees that he will not engage in any other gainful occupation during
the term of this Agreement without
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<PAGE> 4
the prior written consent of the Employer. Nothing contained herein shall be
construed, however, to prevent Employee from trading, for his own account and
benefit, in stocks, bonds, securities, real estate, commodities or other forms
of investments. The Employee shall perform assigned work in a competent,
professional and timely manner. Employee, in the discharge of his
responsibilities, will at all times act in good faith. In addition, Employee
agrees to comply with the Employer's policies, rules and regulations, as
determined from time to time by the Board of Directors of the Employer.
4. TERM.
The initial term of this Agreement shall begin on the
Effective Date hereof and shall continue for a period of two (2) years
thereafter ("Initial Term"), or until terminated as provided herein (including
as set forth in Section 11 hereof). This Agreement shall be subject to
automatic renewal for successive one (1) year periods, subject to the terms
and conditions set forth in this Agreement, unless either party notifies the
other in writing at least thirty (30) days prior to termination of the then
current term of the party's desire to terminate this Agreement. The Initial
Term and each renewal of this Agreement shall be collectively referred to as
the "Term."
5. COMPENSATION.
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<PAGE> 5
A. In consideration of and for the services rendered by
the Employee under this Agreement, the Employer shall pay the Employee a base
salary of One Hundred Fifty Thousand Dollars ($150,000.00) per annum, as well
as such additional salary and bonuses as may be determined in accordance with
the policies for determination of salary and bonuses established by the
Employer's Board of Directors from time to time.
B. The Employee is eligible for Employer's executive bonus
program. Under this program the Employee will be eligible for a bonus payable
January, 1996. The Employee's target will be fifty percent (50%) of his base
salary, adjusted for the period of time he is employed in 1995. The bonus
consists of two factors, the Company's performance against its plan and
Employee's performance against his plan. Employee and his supervisor will
negotiate a plan each year that will be subject to periodic adjustments,
depending on events. Employee will be eligible for 100% of his bonus if both
the Company and Employee achieve 90% of each plan. The bonus will be adjusted
proportionately if the performance of either the Company or the Employee is
below 90% or above 110%. However, the Company reserves the right to pay no
bonus if performance under either plan falls below 50%.
6. FRINGE BENEFITS.
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<PAGE> 6
During the Term of this Agreement, the Employee shall
be entitled to all fringe benefits offered generally to the Employer's
employees, as determined by the Board of Directors from time to time, subject
to the rules and regulations in effect regarding participation in such benefit
plans.
The Employee shall be eligible to participate in any
equity sharing plan established by Employer. Although the Employer does not
have such plan in effect at this time, it is the intent of the Employer to
establish an equity sharing plan for the benefit of the employees as soon as
possible.
7. BUSINESS EXPENSES.
The Employee is authorized to incur reasonable expenses
in connection with the business of the Employer, including dues and
subscriptions for professional organizations and periodicals, travel and
entertainment expenses. Any such expenses shall be subject to any
requirements or limitations imposed by the Board of Directors of the Employer.
The Employer will reimburse Employee for the expenses
incurred pursuant to this Section 7, unless such expenses have been paid
directly by the Employer, upon presentation by the Employee of an itemized
account of such expenditures in a manner prescribed and authorized by the
Employer.
8. VACATION.
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<PAGE> 7
The Employee shall be entitled to twenty five (25)
working days per calendar year paid vacation, to be taken at such times as
determined by the Employee and approved by the Board of Directors of the
Employer; provided that if the Employee fails to fully take such vacation in
any calendar year, any unused vacation time may be carried forward for a
period of one year.
Upon termination of the Employee's employment, Employee
shall be paid for any accrued but unused vacation time except in the event
that Employee terminates his employment with Employer or fails to renew this
Agreement or the Employer terminates the employment of the Employee due to
circumstances or for reasons constituting Good Cause. For purposes of this
Section 8, Good Cause shall be deemed to exist only if the Board of Directors
reasonably determines that any of the events listed in Section 2.A. above have
occurred. Attendance at seminars approved in advance by the Board of
Directors shall not be chargeable against the vacation time provided for
hereinabove.
9. DISABILITY.
If the Employee is unable to perform his services by
reason of Disability, as defined in Section 2.B. hereof, he shall be entitled
to receive salary continuation payments (but only for so long as he shall
remain so disabled) as follows:
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<PAGE> 8
(a) During the first ninety (90) days of Disability,
the Employee shall receive an amount equal to One Hundred Percent (100%) of
the base salary to which he would have otherwise been entitled as hereinabove
provided in Section 5, reduced by any insurance benefits received by the
Employee from disability insurance purchased by the Employer. After ninety
days of Disability, the Employee shall receive an amount equal to sixty-six
and two-thirds percent (66 2/3%) of the base salary to which he would
otherwise have been entitled as hereinabove provided in Section 5 for a period
that shall terminate upon the first to occur of the following events:
1. Employee no longer being disabled;
2. Employee obtaining full-time employment;
3. Employee obtaining age sixty-five (65)
but, in no event shall such period exceed two (2) years from the date of
Disability. Any benefits payable hereunder shall be reduced by any insurance
benefits received by the Employee from disability insurance purchased by the
Employer.
If the Employee is unable to perform the services required
hereunder by reason of Disability for a period exceeding ninety (90)
continuous days, this Agreement may be terminated at the end of such ninety
(90) day period in the sole and absolute discretion of the Board of Directors
without further liability on the part of either of the parties hereto;
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<PAGE> 9
provided, however, that for purposes of this Section 9, the restrictions set
forth in Section 12 hereinbelow shall remain in full force and effect.
10. TERMINATION.
(a) Notwithstanding any provision of this Agreement
to the contrary, this Agreement may be terminated by the Employer (acting
through its Board of Directors) effective immediately for Good Cause, as
defined herein.
(b) Upon the termination of this Agreement for Good
Cause or otherwise, the Employee shall return all records, files, documents
and other written materials of the Employer and shall have no further
involvement in or access to the Employer's customer files, records or affairs.
He shall thereafter have no further professional duties to perform for the
Employer or any of its customers. Employee shall thereupon immediately remove
himself and his personal effects from the Employer's premises.
(c) If Employee's employment is terminated as
provided for herein, Employee shall not be entitled to any sums other than
those expressly provided for hereunder or under the terms of any employee
benefit plan or other agreement to which Employee is a party or participant.
(d) In the event that the Employer terminates the
employment of Employee during the Term of this Agreement other than for Good
Cause, the Employer shall immediately pay to the Employee upon termination: A
lump sum
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<PAGE> 10
severance compensation payment equal to the amount of salary to which the
Employee would have been entitled for the greater of (i) the period of time
remaining in the Term at the time of the Employee's termination, or (ii) one
(1) year. In addition, upon termination as provided in this Section 10, the
Employee shall be entitled to a continuation of those fringe benefits provided
by the Employer hereunder at the then current levels for the greater of (i)
the period of time remaining in the Term at the time of the Employee's
termination, or (ii) one (1) year. Notwithstanding the foregoing, the
Employee's entitlement to such fringe benefits shall cease at such time that
the Employee begins full-time employment elsewhere.
11. RESTRICTIVE COVENANT.
(a) Covenant Not to Compete. During the Term of
this Agreement, and for a period of two (2) years after termination of
employment (with or without cause), Employee will not, directly or indirectly,
either as an individual or as a proprietor, stockholder, partner, officer,
director, employee, agent, consultant or independent contractor of any
individual, partnership, corporation or other entity (excluding an ownership
interest of one percent (1%) or less in the stock of a publicly traded
company):
(i) participate in any way in hiring or otherwise
engaging, or assist any other person or entity in hiring or otherwise
engaging, on a
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temporary, part-time or permanent basis, any individual who was employed by
the Employer during the one (1) year period immediately prior to the
termination of the Employee's employment; or
(ii) assist, advise, or serve in any capacity,
representative or otherwise, any third party in any action against the
Employer or transaction involving the Employer; or
(iii) sell, offer to sell, provide communication or
telephone services, assist any other person in selling or providing
communication or telephone services, or solicit or otherwise compete for,
either directly or indirectly, any orders, contracts, or accounts for services
of a kind or nature like or substantially similar to the services performed or
products sold, by the Employer (the preceding hereinafter referred to as
"Services"), to or from any person or entity from whom Employee or the
Employer provided telephone or communication services, sold, offered to sell
or solicited orders, contracts or accounts for Services during the one (1)
year period immediately prior to the termination of the Employee's employment;
or
(iv) divulge, disclose, or communicate to any person,
firm or corporation in any manner whatsoever, except such disclosures to the
Employer or its agents and employees as may be necessary in the performance of
the Employee's duties for the Employer, any information concerning any matters
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affecting or relating to the business of the Employer, including without
limiting the generality of the foregoing, products, processes, know-how,
designs, formulas, methods, developmental or experimental work, improvements,
discoveries, plans for research or new products; any of its customers or
clients, past, present or prospective; past, present or future research done
by the Employee respecting the business or operations of the Employer or
customers or clients or potential customers or clients of the Employer; the
Employee's work performed for any customer or client of the Employer; any
method and/or procedure developed by or on behalf of the Employer relating or
pertaining to projects or other work of the Employer or contemplated by the
Employer to be developed; the prices it obtains or has obtained from the sale
of its services or the method of setting prices; purchasing history and
sources of supply; earnings or any other information concerning the business
of the Employer, its manner of operation, its plans, processes, or other data
without regard to whether all of the foregoing matters will be deemed
confidential, material, or important, the parties hereto stipulating that as
between them, the same are important, material, and confidential and gravely
affect the effective successful conduct of the business of the Employer and
the Employer's good will, and that any breach of the terms of this paragraph
shall be a material breach of this Agreement. The restrictions contained in
this paragraph apply to all confidential information regarding the
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Employer's business regardless of the source who provided or compiled such
information and regardless of the person or entity who prepared any documents
containing such information, provided that the information was obtained during
the Employee's period of employment with the Employer. Further, upon leaving
the employ of the Employer for any reason whatsoever, the Employee shall not,
without the prior written consent of the Employer, take with him, or make or
retain any copies of, any drawings, reproductions, data, reports, pricing
information, programs, tapes, card decks, listings and/or any other written,
printed, graphic or recorded information relating or pertaining to the
Employer. Unless otherwise agreed upon, all such property shall be the sole
and exclusive property of the Employer and the Employee shall have no interest
therein. Notwithstanding anything to the contrary contained herein, the terms
of this subparagraph (iv) shall not be limited to the two (2) year restriction
set forth above and the Employer's confidential information protected pursuant
to this paragraph (iv) shall not include any information which is known, or
available to, the general public or generally to those people working within
the personal communication services or cellular telephone industry or any
other industry with which the Employee is restricted from dealing pursuant to
the terms of this Agreement.
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(b) Remedies. In the event of a breach or a
threatened breach by the Employee of any provision of these restrictions, the
Employee recognizes the substantial and immediate harm that a breach or
threatened breach will impose upon the Employer, and further recognizes that in
such event monetary damages may be inadequate to fully protect Employer.
Accordingly, in the event of a breach or threatened breach of this Agreement,
Employee consents to the Employer's entitlement to such ex parte, preliminary,
interlocutory, temporary or permanent injunctive, or any other equitable
relief, protecting and fully enforcing Employer's rights hereunder and
preventing Employee from further breaching any of his obligations set forth
herein. Employee expressly waives any requirement, based on any statute, rule
of procedure, or other source, that Employer post a bond as a condition of
obtaining any of the above-described remedies. Nothing herein shall be
construed as prohibiting Employer from pursuing any other remedies available
to the Employer at law or in equity for such breach or threatened breach,
including the recovery of damages from the Employee. Employee expressly
acknowledges and agrees that: (i) the restrictions set forth in this Section
11 are reasonable, in terms of scope, duration, geographic area, and
otherwise, (ii) the protections afforded Employer in this Section 11 are
necessary to protect its legitimate business interest, (iii) the restrictions
set forth in this Section 11 will not be materially adverse to the Employee's
ability to
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obtain gainful employment comparable to the Employee's employment with the
Employer, and (iv) his agreement to observe such restrictions forms a material
part of the consideration for this Agreement.
(c) Overbreadth of Restrictive Covenant. It is the
intention of the parties that if any restrictive covenant in this Agreement is
determined by a court of competent jurisdiction to be overly broad, then the
court should enforce such restrictive covenant to the maximum extent permitted
under the law as to area, breadth and duration.
12. EMPLOYEE COVENANT.
Employee shall not during the Term of this Agreement or
at any time thereafter divulge, disclose or communicate to others in any
manner whatsoever, information or statements which disparage or are intended
to disparage the Employer and its business reputation.
13. INSURANCE.
The Employer may purchase life insurance and/or
disability insurance on the Employee to protect its interests hereunder. All
policies so purchased shall name the Employer as beneficiary. The Employee
shall cooperate with the Employer in obtaining such insurance, including, but
not limited to, by completing such applications and documents as are required
by the insurers and submitting to physical examinations, if necessary.
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<PAGE> 16
14. ENFORCEMENT OF PROVISIONS.
The failure of the Employer or the Employee at any time
to enforce any of the provisions of this Agreement, or any right with respect
thereto, will in no way be construed to be a waiver of such provisions or
rights or in any way to affect the validity of this Agreement. The exercise
by either party hereto of any rights under the terms or covenants herein shall
not preclude or prejudice the exercising thereafter of the same or any other
rights under this Agreement.
15. RECORDS.
All records pertaining to customers of the Employer,
including but not limited to work papers, receipts, financial reports and
statements, applications, statements, records of fees, billings and payment of
fees and all personnel records pertaining to compensation and expenses of the
Employee within the scope of his employment shall at all times be the property
of the Employer.
16. NOTICES.
All communications or notices required or permitted by
this Agreement shall be in writing and shall be deemed to have been given at
the earlier of the date when actually delivered to any individual party or to
an executive officer of a corporate party or when deposited in the United
States mail, certified or registered mail, postage prepaid, return receipt
requested, and
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addressed as follows, unless and until any of such parties notifies the others
in accordance with this Section 16 of a change of address:
If to Employer: Janis A. Riker
DCR Communications, Inc.
2715 M Street, N. W.
Washington, D. C. 20007
With a copy to: Ronald S. Schimel, Esquire
Levan, Schimel, Belman & Abramson, P.A.
Woodmere I, Suite 400
9881 Broken Land Parkway
Columbia, Maryland 21046-1153
If to Employee:
-------------------------------
-------------------------------
-------------------------------
17. INVALID PROVISION.
The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
the Agreement shall be construed in all respects as though such invalid or
unenforceable provisions were omitted.
18. INTERPRETATION.
This Agreement shall be interpreted in accordance with
the laws of the State of Maryland, exclusive of its conflicts of law
provisions.
19. MODIFICATION.
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This Agreement may be changed, modified or amended only
by an agreement in writing signed by the parties.
20. HEADINGS.
The section headings herein are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
21. ASSIGNMENT.
The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Employer. This Agreement being for the personal services of
the Employee, shall not be assignable nor delegable by him.
22. COUNTERPARTS.
This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same document.
23. ARBITRATION.
Any question or controversy arising under this
Agreement shall be settled by arbitration, except any action seeking equitable
relief initiated by the employer pursuant to Section 11 above, under the then
existing rules of the American Arbitration Association, and the decision of
the arbitrator shall be
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final and binding upon the parties (including an award of costs of the
arbitration which shall be paid by the non-prevailing party, as determined by
the arbitrator). The arbitration shall be conducted by a single arbitrator in
Howard County, Maryland.
24. COSTS OF BREACH
The parties agree that the non-breaching party shall be
entitled to all attorneys' fees, court costs and other expenses incurred by
the non-breaching party as a result of any breach by the Employer or the
Employee of any covenant, agreement, term, condition or obligation contained
in this Agreement.
25. WITHHOLDING FUNDS; RIGHT TO OFFSET AND APPLY PAYMENTS.
In the event that Employee shall owe an obligation of
any type whatsoever to the Employer at any time during the Term or after
termination hereof, and shall not have paid such obligation as and when the
same became due and payable, Employee hereby expressly authorizes Employer to
withhold or deduct an amount equal to said obligation from any wages due to
the Employee from the Employer. For purposes of this provision, wages shall
mean any remuneration, compensation, bonus, commission, and/or fringe benefit
provided
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in return for services provided by the Employee. In addition, notwithstanding
the terms of any other agreement or obligation between Employer and Employee,
any amounts due under any agreement or obligation to the Employee, including
under the terms set forth herein, including wages shall first be applied and
offset against any money owed by the Employee to the Employer.
26. SURVIVAL.
Except as otherwise expressly set forth herein, the
provisions of Sections 9, 10, 11, 12, 23, 24 and 25 of this Agreement shall
survive the termination of this Agreement for any reason.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal the day and year first above written.
WITNESSS/ATTEST: DCR COMMUNICATIONS, INC.
SHIRLEY E. DAVE By: JANIS O. RIKER
- ---------------------------- -------------------------(SEAL)
President
WITNESS:
[sig]
- ---------------------------- -------------------------(SEAL)
20
<PAGE> 1
EXHIBIT 10.29
DCR PACIFIC PCS LIMITED PARTNERSHIP
AGREEMENT
OF LIMITED PARTNERSHIP
Dated As of October ___, 1995
<PAGE> 2
DCR PACIFIC PCS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1.1 "Act" . . . . . . . . . . . . . . . . . . . . . . . . - 1 -
---
1.2 "Adjusted Capital Account" . . . . . . . . . . . . . - 1 -
------------------------
1.3 "Affiliate" . . . . . . . . . . . . . . . . . . . . . - 1 -
---------
1.4 "Agreement" . . . . . . . . . . . . . . . . . . . . . - 1 -
---------
1.5 "Capital Account" . . . . . . . . . . . . . . . . . . - 1 -
---------------
1.6 "Capital Contribution" . . . . . . . . . . . . . . . . - 1 -
--------------------
1.7 "Capital Proceeds" . . . . . . . . . . . . . . . . . . - 2 -
----------------
1.8 "Code" . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
----
1.9 "Consent" . . . . . . . . . . . . . . . . . . . . . . - 2 -
-------
1.10 "Contract Date" . . . . . . . . . . . . . . . . . . . - 2 -
-------------
1.11 "DCR" . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
---
1.12 "DCR PCS Network" . . . . . . . . . . . . . . . . . . - 2 -
---------------
1.13 "Debt Service" . . . . . . . . . . . . . . . . . . . - 2 -
------------
1.14 "Depreciation" . . . . . . . . . . . . . . . . . . . - 2 -
------------
1.15 "Encumber" . . . . . . . . . . . . . . . . . . . . . - 2 -
--------
1.16 "FCC" . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
---
1.17 "FCC Auction" . . . . . . . . . . . . . . . . . . . . - 2 -
-----------
1.18 "General Partner" . . . . . . . . . . . . . . . . . . - 3 -
--------------
1.19 "Gross Operating Receipts" . . . . . . . . . . . . . - 3 -
------------------------
1.20 "Interest" . . . . . . . . . . . . . . . . . . . . . . - 3 -
--------
1.21 "Limited Partner" . . . . . . . . . . . . . . . . . . - 3 -
---------------
1.22 "Loan Documents" . . . . . . . . . . . . . . . . . . - 3 -
--------------
1.23 "Management Agreement" . . . . . . . . . . . . . . . - 3 -
--------------------
1.24 "Net Distributable Cash" . . . . . . . . . . . . . . - 3 -
----------------------
1.25 "New Allocation" . . . . . . . . . . . . . . . . . . - 3 -
--------------
1.26 "Nonrecourse Debt" . . . . . . . . . . . . . . . . . - 3 -
----------------
1.27 "Notice" . . . . . . . . . . . . . . . . . . . . . . . - 3 -
------
1.28 "Partner" . . . . . . . . . . . . . . . . . . . . . . - 4 -
-------
1.29 "Partnership" . . . . . . . . . . . . . . . . . . . . - 4 -
-----------
1.30 "Partnership Minimum Gain" . . . . . . . . . . . . . - 4 -
------------------------
1.31 "Partner Nonrecourse Debt Minimum Gains" . . . . . . - 4 -
--------------------------------------
1.32 "Pay Amount" . . . . . . . . . . . . . . . . . . . . - 4 -
----------
1.33 "PCS Licenses" . . . . . . . . . . . . . . . . . . . - 4 -
------------
1.34 "Person" . . . . . . . . . . . . . . . . . . . . . . - 4 -
------
1.35 "Post-Auction Period" . . . . . . . . . . . . . . . . - 4 -
-------------------
1.36 "Profits and Losses" . . . . . . . . . . . . . . . . - 4 -
------------------
1.37 "Project" . . . . . . . . . . . . . . . . . . . . . . - 5 -
-------
1.38 "Project Costs" . . . . . . . . . . . . . . . . . . . - 5 -
-------------
1.39 "Project Development Budget" . . . . . . . . . . . . - 5 -
--------------------------
1.40 "Regulations" . . . . . . . . . . . . . . . . . . . . - 5 -
-----------
1.41 "Value" . . . . . . . . . . . . . . . . . . . . . . . - 5 -
-----
2.1 Formation and Name . . . . . . . . . . . . . . . . . - 6 -
------------------
2.2 General and Limited Partners . . . . . . . . . . . . - 6 -
----------------------------
2.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . - 6 -
-------
2.4 Principal Office and Place of Business . . . . . . . - 6 -
--------------------------------------
2.5 Statutory Compliance . . . . . . . . . . . . . . . . - 7 -
--------------------
3.1 Initial Capital Contribution . . . . . . . . . . . . - 7 -
----------------------------
3.2 Additional Contributions . . . . . . . . . . . . . . - 7 -
------------------------
3.3 Limit . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
-----
3.4 No Third-Party Rights . . . . . . . . . . . . . . . . - 8 -
---------------------
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
3.5 Loans by Partners . . . . . . . . . . . . . . . . . . - 8 -
-----------------
3.6 Limitation on Withdrawal of Capital . . . . . . . . . - 8 -
-----------------------------------
3.7 Interest on Contributions . . . . . . . . . . . . . . - 9 -
-------------------------
3.8 Auction Pricing . . . . . . . . . . . . . . . . . . . - 9 -
---------------
3.9 Condition Precedent . . . . . . . . . . . . . . . . . - 10 -
-------------------
3.10 Options of Partners . . . . . . . . . . . . . . . . . - 10 -
-------------------
3.11 Limitation of Liability . . . . . . . . . . . . . . . - 11 -
-----------------------
4.1 Maintenance of Capital Accounts . . . . . . . . . . . - 11 -
-------------------------------
4.2 Transfers . . . . . . . . . . . . . . . . . . . . . . - 11 -
---------
4.3 Revaluation . . . . . . . . . . . . . . . . . . . . . - 11 -
-----------
4.4 Compliance . . . . . . . . . . . . . . . . . . . . . - 11 -
----------
5.1 Allocations of Gain, Loss, Etc. . . . . . . . . . . . - 12 -
------------------------------
5.2 Allocations of Gain, Loss, Etc. Upon a Capital
----------------------------------------------
Event . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
-----
5.3 Allocations Upon Assignment . . . . . . . . . . . . . - 14 -
---------------------------
5.4 Tax Benefits and Burdens . . . . . . . . . . . . . . - 14 -
------------------------
5.5 Other Allocation Rules . . . . . . . . . . . . . . . - 15 -
----------------------
5.6 Authority of General Partner to Vary Allocations
------------------------------------------------
to Preserve and Protect Partner's Interest . . . . . - 15 -
------------------------------------------
6.1 Net Distributable Cash . . . . . . . . . . . . . . . - 16 -
----------------------
7.1 Duties of the General Partner . . . . . . . . . . . . - 17 -
-----------------------------
7.2 Powers of the General Partners . . . . . . . . . . . - 17 -
------------------------------
7.3 Compensation of General Partners; Expense
-----------------------------------------
Reimbursement . . . . . . . . . . . . . . . . . . . . - 19 -
-------------
7.4 Liability and Indemnification of the General
--------------------------------------------
Partner . . . . . . . . . . . . . . . . . . . . . . . - 19 -
-------
7.5 Prohibition of Management by Limited Partners . . . . - 21 -
---------------------------------------------
7.6 Liability of Limited Partners . . . . . . . . . . . . - 21 -
-----------------------------
7.7 Rights of Limited Partners . . . . . . . . . . . . . - 21 -
--------------------------
7.8 Duties and Obligations of the General Partner . . . . - 22 -
---------------------------------------------
8.1 Voting and Decisions by Partners and the
----------------------------------------
Partnership . . . . . . . . . . . . . . . . . . . . . - 23 -
-----------
8.2 Amendments . . . . . . . . . . . . . . . . . . . . . - 23 -
----------
9.1 Transfer of the General Partner's Interests . . . . . - 23 -
-------------------------------------------
9.2 Transfer of a Limited Partner's Interest . . . . . . - 23 -
----------------------------------------
9.3 Substituted Limited Partner . . . . . . . . . . . . . - 24 -
---------------------------
9.4 Encumbrance of a Partner's Interest . . . . . . . . . - 24 -
-----------------------------------
9.5 Withdrawal of Limited Partner . . . . . . . . . . . . - 25 -
-----------------------------
9.6 Transfers in Connection with the Sale of the
--------------------------------------------
Business . . . . . . . . . . . . . . . . . . . . . . - 25 -
--------
10.1 Term . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
----
10.2 Dissolution . . . . . . . . . . . . . . . . . . . . . - 25 -
-----------
10.3 Winding Up and Liquidation . . . . . . . . . . . . . - 26 -
--------------------------
10.4 Compliance With Timing Requirements of
--------------------------------------
Regulations . . . . . . . . . . . . . . . . . . . . . - 26 -
-----------
10.5 Death, Dissolution or Other Disqualification of a
-------------------------------------------------
General Partner . . . . . . . . . . . . . . . . . . . - 27 -
---------------
10.6 Successor Partnership . . . . . . . . . . . . . . . . - 28 -
---------------------
11.1 Books and Records . . . . . . . . . . . . . . . . . . - 28 -
-----------------
11.2 Fiscal Year and Method of Accounting . . . . . . . . - 29 -
------------------------------------
11.3 Reports . . . . . . . . . . . . . . . . . . . . . . . - 29 -
-------
11.4 Tax Elections . . . . . . . . . . . . . . . . . . . . - 29 -
-------------
11.5 Tax Matters Partner . . . . . . . . . . . . . . . . . - 29 -
-------------------
12.1 Management Agreement . . . . . . . . . . . . . . . . - 30 -
--------------------
12.2 Services Agreement . . . . . . . . . . . . . . . . . - 30 -
------------------
12.3 Compensation . . . . . . . . . . . . . . . . . . . . - 30 -
------------
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
13.1 IPO . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
---
13.2 Agreed Valuation . . . . . . . . . . . . . . . . . . - 32 -
----------------
14.1 Buy-Out . . . . . . . . . . . . . . . . . . . . . . . - 32 -
-------
15.1 Bank Accounts . . . . . . . . . . . . . . . . . . . . - 33 -
-------------
15.2 Waiver of Partition . . . . . . . . . . . . . . . . . - 33 -
-------------------
15.3 Choice of Law and Severability . . . . . . . . . . . - 33 -
------------------------------
15.4 Captions, Gender and Number . . . . . . . . . . . . . - 33 -
---------------------------
15.5 Counterparts . . . . . . . . . . . . . . . . . . . . . - 34 -
------------
15.6 Binding Effect . . . . . . . . . . . . . . . . . . . - 34 -
--------------
15.7 Entire Agreement . . . . . . . . . . . . . . . . . . - 34 -
----------------
15.8 Plain Meaning . . . . . . . . . . . . . . . . . . . . - 34 -
-------------
15.9 Notices. . . . . . . . . . . . . . . . . . . . . . . . - 34 -
-------
15.10 DE Status . . . . . . . . . . . . . . . . . . . . . . - 34 -
---------
16.1 Ratification . . . . . . . . . . . . . . . . . . . . - 35 -
------------
16.2 Power of Attorney . . . . . . . . . . . . . . . . . . - 35 -
-----------------
</TABLE>
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<PAGE> 5
DCR PACIFIC PCS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
EXHIBITS
EXHIBIT A -- Names, Addresses and Percentage Interests of Partners
EXHIBIT B -- Management Agreement
EXHIBIT C -- Project Development Budget
- iv -
<PAGE> 6
DCR PACIFIC PCS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
The undersigned, being all of the Partners of the Partnership, hereby
enter into this Agreement of Limited Partnership for the Partnership, dated as
of October __, 1995, as follows:
ARTICLE I
DEFINED TERMS
Capitalized terms used herein without further definition, and
variations thereof, have the meanings set forth below unless the context
otherwise clearly requires:
1.1 "Act" means the Nevada Revised Uniform Limited Partnership Act.
1.2 "Adjusted Capital Account" shall be an amount equal to the Partner's
Capital Account (x) increased by the sum of (A) the amount of the Partner's
share of Partnership Minimum Gain, (B) the amount of the Partner's share of
Partner Nonrecourse Debt Minimum Gain, and (C) any amount of the deficit
balance in its Capital Account the Partner is obligated to restore on
liquidation of the Partnership, and (y) decreased by reasonably expected
adjustments, allocations and distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
1.3 "Affiliate" means with respect to any Person, any Person that,
directly or indirectly, controls, is under common control with, or is
controlled by that Person. For purposes of this definition, "control"
(including, with correlative meaning, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct and cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
1.4 "Agreement" means this Agreement of Limited Partnership, and all
amendments thereto.
1.5 "Capital Account" means the separate account maintained for each
Partner pursuant to Article IV of this Agreement.
1.6 "Capital Contribution" means the amount of cash and the value of
property contributed by the Partners to the Partnership.
<PAGE> 7
1.7 "Capital Proceeds" means the sum of (i) the amount by which the net
proceeds of any sale or other disposition of the Partnership assets exceed the
aggregate amount of Partnership indebtedness, (ii) condemnation and excess
title, property and casualty or liability insurance proceeds not required for
the restoration or repair of the DCR PCS Network and (iii) the amount by which
any refinancing of any loan on the Project or the DCR PCS Network exceeds the
sum of the then outstanding principal balance of any loan being refinanced plus
such reasonable closing costs and reasonable reserves for interest or other
expenses as the General Partner deems advisable.
1.8 "Code" means the Internal Revenue Code of 1986, as amended or
recodified.
1.9 "Consent" means the prior written consent or approval of a Person to
do the act or thing for which this consent or approval is solicited, or the act
of granting such consent or approval as the context may require.
1.10 "Contract Date" means the date of this Agreement.
1.11 "DCR" means DCR Communications, Inc., a Maryland corporation, its
successors and assigns.
1.12 "DCR PCS Network" means the personal communications services network
(including tangible and intangible property) to be owned and operated by the
Partnership in the Las Vegas basic trading area.
1.13 "Debt Service" means principal, interest and other payments of every
kind on or in connection with the outstanding indebtedness of the Partnership.
1.14 "Depreciation" means, for each fiscal year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that
if the Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be
an amount which bears the same ratio to such beginning Value as the federal
income tax depreciation, amortization or other cost recovery deduction for such
year or other period bears to such beginning adjusted tax basis.
1.15 "Encumber" (or "Encumbrance" as the context requires) means mortgage,
pledge, hypothecate, grant a security interest in or otherwise encumber,
directly or indirectly, voluntarily or involuntarily.
1.16 "FCC" means the Federal Communications Commission.
1.17 "FCC Auction" means the broadband PCS block auction to commence on
December 11, 1995 by the FCC.
- 2 -
<PAGE> 8
1.18 "General Partner" means each Person named as such in Exhibit A
attached hereto and any other Person who becomes a successor or additional
General Partner of the Partnership pursuant to the terms hereof, and who is a
General Partner at the time of reference thereto, in such Person's capacity as
a General Partner of the Partnership.
1.19 "Gross Operating Receipts" means all rents and receipts, cash or
otherwise (including Capital Proceeds), from the conduct of the business of
the Partnership and all other income of the Partnership of any nature
whatsoever, including without limitation, loans from Partners and tax-exempt
income, arising out of the operation of the DCR PCS Network or otherwise,
calculated in accordance with the cash basis method of accounting.
1.20 "Interest" or "Partnership Interest" means the entire ownership
interest (which may be expressed as a percentage) of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits to which a Partner may be entitled pursuant to this Agreement
and under the Act, together with all obligations of such Partner to comply
with the terms and provisions of this Agreement and the Act. The Interest of
each Partner is set forth on Exhibit A hereto, as the same is amended from time
to time.
1.21 "Limited Partner" means any Partner who is designated as a Limited
Partner on Exhibit A to this Agreement at the time of reference thereto, in
such Partner's capacity as a Limited Partner of the Partnership.
1.22 "Loan Documents" shall have the meaning set forth in Section 7.2(h)
hereof.
1.23 "Management Agreement" means the Management Agreement, dated as of
the Contract Date, between the Partnership and DCR, a copy of which is to be
attached as Exhibit B hereto.
1.24 "Net Distributable Cash" means Gross Operating Receipts less Project
Costs.
1.25 "New Allocation" shall have the meaning set forth in Section 5.6(b)
hereof.
1.26 "Nonrecourse Debt" means a liability of the Partnership (or portion
thereof) with respect to which none of the Partners has any economic risk of
loss (other than through their Interests as Partners in Partnership assets
subject to such liability).
1.27 "Notice" means a writing containing the information required by this
Agreement to be communicated to any Person, sent by registered or certified
mail, postage prepaid, or given by personal delivery, or sent by confirmed air
courier to such Person at the last known address of such Person, the date of
registry thereof or the date of the certification or receipt therefor as
evidenced by postal or air courier records or the date of personal delivery (or
refusal thereof during normal business hours) being
- 3 -
<PAGE> 9
deemed the date of receipt of Notice; provided, however, that any communication
sent to such a Person and actually received by such a Person shall constitute
Notice for all purposes of this Agreement.
1.28 "Partner" means any Person listed on Exhibit A hereto in such
Person's capacity as a General Partner or a Limited Partner and any Partners
admitted pursuant to the terms hereof.
1.29 "Partnership" means the limited partnership herein created and
established as DCR PACIFIC PCS LIMITED PARTNERSHIP, as said Partnership may
from time to time be constituted.
1.30 "Partnership Minimum Gain" shall have the meaning assigned to such
term in Regulations Section 1.704-2(d).
1.31 "Partner Nonrecourse Debt Minimum Gains" shall have the meaning
assigned to such term in Regulations Section 1.704-2(i)(3).
1.32 "Pay Amount" shall have the meaning set forth in Section 3.9 hereof.
1.33 "PCS Licenses" means the PCS C block licenses sold to bidders at the
FCC Auction.
1.34 "Person" means any individual, partnership, firm, corporation, trust,
estate or other entity.
1.35 "Post-Auction Period" shall have the meaning set forth in Section 3.9
hereof.
1.36 "Profits and Losses" means, for each fiscal year or other period, an
amount equal to the Partnership's taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or
loss), with the following adjustments:
1.36(a) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or loss;
1.36(b) any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this definition,
shall be subtracted from such taxable income or loss;
1.36(c) gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Value of the property
disposed of, notwithstanding
- 4 -
<PAGE> 10
that the adjusted tax basis of such property differs from its Value; and
1.36(d) in lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such fiscal year or
other period hereof.
1.37 "Project" means the acquisition of licenses at the FCC Auction for,
and the development, engineering, construction, build-out, installation,
operation and maintenance of, the DCR PCS Network.
1.38 "Project Costs" means amounts paid by the Partnership in connection
with the Project, including, without limitation, financing and costs for loans
pertaining to the Project or the DCR PCS Network; bank charges for letters of
credit; insurance and bond premiums; interest and principal repayments in
connection with loans pertaining to the Project or the DCR PCS Network or any
other property of the Partnership (excluding loans by Partners); real and
personal property taxes; accounting, auditing and legal fees; fees and deposits
for permits, licenses and other governmental authorizations; promotional
expenses directly related to the DCR PCS Network; public utility charges;
sales, use and income taxes; employee salaries, benefits and payroll taxes;
contracts and/or subcontracts for equipment, services, software, labor and
materials; supplies, tools and equipment; costs of repair, maintenance and
replacement; leasing and rental commissions; development, engineering,
construction management, and management fees; franchise fees; and all other
capital or operating charges, costs and expenses actually paid in connection
with the ownership and operation of the Project or the DCR PCS Network and
properly charged to the Partnership, all determined in accordance with the cash
basis method of accounting, together with reserves for any of the foregoing
determined to be necessary or advisable by the General Partner.
1.39 "Project Development Budget" means the budget setting forth costs of
the Project, a copy of which Project Development Budget is to be attached
hereto as Exhibit C.
1.40 "Regulations" means the final regulations under the Code, unless the
context clearly requires otherwise.
1.41 "Value" means, with respect to any asset, the asset's adjusted basis
for federal income tax purposes, except as follows:
1.41(a) The initial Value of any asset contributed by a Partner to
the Partnership shall be the gross fair market value of such asset, as
determined by the contributing Partner and the Partnership;
1.41(b) the Values of all Partnership assets shall be adjusted to
equal their respective gross fair market values, as determined by the General
Partner as of the following times: (a) the acquisition of any additional
Interest in the Partnership by
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<PAGE> 11
any new or existing Partner in exchange for more than a de minimis capital
contribution; (b) the distribution by the Partnership to a Partner of more than
a de minimis amount of Partnership property, unless all Partners receive
simultaneous distributions of undivided interests in the distributed property
in proportion to their Interests in the Partnership; and (c) the termination of
the Partnership for federal income tax purposes pursuant to Code Section
708(b)(1)(B); and
1.41(c) if the Value of an asset has been determined or adjusted
pursuant to Sections 1.41(a) or 1.41(b) above, such Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.
ARTICLE II
THE PARTNERSHIP
2.1 Formation and Name
2.1(a) The undersigned Partners do hereby create and establish a
limited partnership under the name "DCR PACIFIC PCS LIMITED PARTNERSHIP"
pursuant to the provisions of the Act and this Agreement.
2.1(b) Upon execution hereof, the Partners agree to execute and
file for record with the State of Nevada Secretary of State and in any other
place which the law may prescribe, a Certificate of Limited Partnership along
with such other documents, if any, as may be required in connection with the
creation and establishment of this Partnership.
2.2 General and Limited Partners. The names and addresses of the General
Partner and the Limited Partners of the Partnership are set forth in Exhibit A
attached hereto.
2.3 Purpose. The purpose and business of the Partnership shall be,
subject in all respects to the terms and provisions of this Agreement: (a) to
be and at all times remain a "small business" and a "designated entity" as
those terms are defined in applicable orders and regulations of the FCC; (b) to
acquire at the FCC Auction and to own PCS Licenses for the Las Vegas basic
trading area; (c) to own, develop, engineer, construct, build-out and operate
the DCR PCS Network as an investment and for income producing purposes; (d) to
form other partnerships or Persons to engage in other projects or in businesses
ancillary to the business carried on by this Partnership; and (e) to carry on
all activities required in connection with the Project and the DCR PCS Network
or which are necessary, convenient, incidental or related to the foregoing.
2.4 Principal Office and Place of Business. The principal office of the
Partnership shall be 11910 Yellow Rush Pass, Columbia, Maryland 21044, and the
principal place of business of
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<PAGE> 12
the Partnership shall be 2550 M Street, N.W., Suite 200, Washington, D.C.
20037, or such other address as is designated with the Consent of the General
Partner. The Partnership may have such additional offices as the General
Partner deems advisable. The name and address of the agent for service of
process on the Partnership is:
The Corporation Trust Company of Nevada
One East First Street
Reno, NV 89501
Said agent for service of process is a natural person who is a resident of
Nevada, a Nevada corporation or a foreign corporation authorized to do business
in Nevada.
2.5 Statutory Compliance. The Partnership shall exist under and be
governed by, and this Agreement shall be construed in accordance with, the
applicable laws of the State of Nevada, including the Act. The Partnership
shall make all filings and disclosures required by, and otherwise shall comply
with, all such laws. All real and personal property owned by the Partnership
shall be deemed owned by the Partnership as an entity, and no Partner shall
have any beneficial ownership interest in such property in its individual name
or right.
ARTICLE III
CONTRIBUTIONS BY THE PARTNERS
3.1 Initial Capital Contribution. The initial Capital Contributions of
each of the Partners is set forth on Exhibit A hereto. Contemporaneously with
the signing of this Agreement, said initial Capital Contributions shall be
paid, in cash, to the Partnership by the Partners in the respective amounts
set forth opposite their names on Exhibit A hereto. The General Partner shall
cause such Capital Contributions to be held in a depositary account which is in
the name of the Partnership and shall not commingle such funds with those of
any other entity. Notwithstanding the foregoing provision, the Partners agree
that all or part of the Capital Contribution of the General Partner and of any
Limited Partner that is an Affiliate of the General Partner will be deposited
as part of the downpayment for PCS Licenses to be acquired at the FCC Auction.
3.2 Additional Contributions
3.2(a) Subject to the limitations set forth in Section 3.3,
additional Capital Contributions to the Partnership, as and when the same have
been determined by the General Partner, shall be made by the Partners in
proportion to their then respective Interests. The Partnership shall give each
Partner at least thirty (30) days Notice of any call for additional Capital
Contributions.
3.2(b) In the event a Partner fails to make a Capital Contribution as
required by Section 3.1 or subsection 3.2(a) or is
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not obligated to make such Capital Contribution pursuant to Section 3.3, such
Partner shall be deemed to be in default of this Agreement (hereinafter, for
purposes of this Section 3.2, such Partner is referred to as the "Defaulting
Partner"). Upon the occurrence of such default, either one or all of the
non-defaulting Partners (the "Non-Defaulting Partners") shall have the right to
cause a dilution of the Defaulting Partner's Partnership Interest in accordance
with the terms and provisions of Subsection 3.2(c).
3.2(c) In the event any one or more of the Non-Defaulting Partners
elect to cause a dilution of the Defaulting Partner's Partnership Interest,
those of the Non-Defaulting Partners so electing shall have the right to pay
the amount of the defaulted additional Capital Contribution and elect to have
the Partnership Interest of those of the Non-Defaulting Partners making such
payment increased by the percentage of the non-contributing Partner's Interest
that the amount of such defaulted additional Capital Contribution bears to the
total sum of the Capital Contributions which such Defaulting Partner is then
obligated to have contributed to the capital of the Partnership (including the
initial and all additional Capital Contributions and including the Capital
Contribution with respect to which the Defaulting Partner is in default). The
Partnership Interest of the Defaulting Partner shall be correspondingly
reduced, and the Defaulting Partner shall have no further obligation to the
Non-Defaulting Partners with respect to said default.
3.3 Limit. Notwithstanding the foregoing provisions, no Partner shall be
obligated, but upon Notice by the Partnership shall have the option, to
contribute to the Partnership any amounts in excess of its respective initial
Capital Contribution as set forth in Exhibit A. The details of any call for
additional Capital Contributions shall be set forth in the aforesaid Notice.
In the event that any Partner does not elect, after such Notice, to make an
additional contribution, the Interest of said Partner shall be subject to
dilution pursuant to Section 3.2 above.
3.4 No Third-Party Rights. No provision in this Article III set forth
shall be construed to be for the benefit of any third party including without
limitation any creditor of the Partnership and no such third party or creditor
shall be entitled to enforce any such provision.
3.5 Loans by Partners. Any loans made to the Partnership by a General
Partner or a Limited Partner shall not increase such Partner's respective
Capital Account, but shall be repaid, together with interest, as a priority
distribution, as provided in Article VI, or in accordance with such other terms
as the Partnership and such Partner agree.
3.6 Limitation on Withdrawal of Capital. Except as expressly provided in
this Agreement, no Partner
3.6(a) shall be required at any time to make any contribution to the
Partnership,
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3.6(b) shall have the right to withdraw or receive any return on its
Capital Contributions or claim to any Partnership capital prior to termination
of the Partnership pursuant to Article X hereof,
3.6(c) shall have any right to demand and receive property other than
cash in return for its Capital Contributions, or
3.6(d) shall be liable to any other Partner for the return of such
Partner's Capital Contributions to the Partnership, or any portion thereof, it
being expressly understood that such return shall be made solely from
Partnership assets.
3.7 Interest on Contributions. Capital Contributions (as opposed to
loans) to the Partnership are not entitled to and shall not earn any interest.
3.8 Auction Pricing.
3.8(a) Contemporaneously with the signing of this Agreement, the
Partners have agreed upon a maximum dollar amount per pop to be bid by the
Partnership for PCS Licenses at the FCC Auction.
3.8(b) If, notwithstanding the foregoing, the General Partner
during the FCC Auction decides to cause the Partnership to pay a higher price
per pop for any PCS License, said General Partner shall give Notice to the
Limited Partners of its intent to do so with details appurtenant thereto and
the amount of additional capital required from the Limited Partners as their
respective pro rata shares of such increased price and said Limited Partners
shall have the right, pro rata, in accordance with their respective Interests,
exercisable in a Notice given by the Limited Partners to the General Partner
within twenty-four (24) hours after the receipt of the first above-mentioned
Notice or such longer time as the Partners may agree to either
(i) pay to the Partnership the full amount of their additional
Capital Contribution; or
(ii) pay to the Partnership a portion (rounded up to the nearest
$100,000) of said respective shares of such additional Capital Contribution; or
(iii) pay no portion of the additional Capital Contribution,
in which event the Limited Partners who have not made an additional Capital
Contribution pursuant to this Section 3.8 (for purposes of this Section
3.8(b)(iii) and of Section 3.10, "Non-Contributing Limited Partner") shall have
the option set forth in Section 3.10(a)(i) below and the General Partner shall
have the option set forth in Section 3.10(a)(ii) below.
3.8(c) In the event that any one or more of the Limited Partners
exercises one of the options specified in Subsection 3.8(b)(ii) or (iii),
the remaining Partners (the "Contributing Partners") shall have the right, but
not the obligation, to
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contribute to the Partnership the amount which the Non-Contributing Limited
Partner was to have contributed but elected not to contribute (the
"Contribution Deficiency"), in which event the Interest of the Non-Contributing
Limited Partner shall be reduced by that percentage of the Non-Contributing
Limited Partner's Interest that the amount of such Contribution Deficiency
bears to the total sum of the Capital Contributions which such Non-Contributing
Limited Partner would be required to have contributed to the capital of the
Partnership had the Non-Contributing Limited Partner exercised the option set
forth in subsection 3.8(b)(i) (including the initial and all additional Capital
Contributions). In such event, the Interest of the Contributing Partners shall
be increased accordingly.
3.9 Condition Precedent. In the event that the Partnership does not
acquire the PCS Licenses required to own and operate the DCR PCS Network in the
Las Vegas basic trading area, then, with respect to each Limited Partner, a sum
equal to the aggregate amount of all Capital Contributions (i.e. the initial
Capital Contribution and all additional Capital Contributions) paid by such
Limited Partner to the Partnership, plus accrued interest thereon, less an
amount equal to ten percent (10%) times the aggregate amount of all such
Capital Contributions to cover costs attributable to preparation for and
participation in the bidding for said PCS Licenses at the FCC Auction ("Pay
Amount") shall be returned to such Limited Partner within thirty (30) days
subsequent to the date on which said FCC Auction is concluded ("Post-Auction
Period"). Upon the payment by the Partnership to any Limited Partner of the
Pay Amount, said Limited Partner shall thereafter own no Interest in the
Partnership.
3.10 Options of Partners
3.10(a) In the event described in Section 3.8(b)(iii),
(i) each Non-Contributing Limited Partner shall have the option
exercisable in a Notice given to the General Partner during the Post-Auction
Period to put its Interest to the Partnership at a price equal to the Pay
Amount, and
(ii) The General Partner shall have the option exercisable in a
Notice given to each Non-Contributing Limited Partner during the Post-Auction
Period to purchase the Interest of said Non-Contributing Limited Partner at a
price equal to the Pay Amount.
3.10(b) In the event any Partner shall exercise its respective option
as above set forth, the General Partner shall pay or cause a third-party to pay
to the Non-Contributing Limited Partners the Pay Amount within sixty (60) days
subsequent to the end of the Post-Auction Period and each Partner shall execute
and deliver such documents and take such action as may be necessary or
appropriate to transfer the Limited Partner's Interest to the General Partner
or such other Person.
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3.11 Limitation of Liability. Notwithstanding any other provision of this
Agreement, no Limited Partner shall in any event be required to make any
contribution beyond its share of the amount provided in Sections 3.1, 3.2 and
3.3, nor shall any Limited Partner be liable for any Partnership liabilities,
obligations, expenses or losses, or to pay any Partnership obligations
whatsoever, except as expressly provided in this Agreement.
ARTICLE IV
CAPITAL ACCOUNTS
4.1 Maintenance of Capital Accounts. A separate Capital Account shall be
maintained and adjusted for each Partner on the books and records of the
Partnership in accordance with the Code and the Regulations.
4.1(a) Increase. There shall be credited to each Partner's Capital
Account such Partner's Capital Contribution, such Partner's distributive share
of Profits, including any items in the nature of income or gain that are
specially allocated to a Partner pursuant to Article V, and the amount of any
Partnership liabilities that are assumed by such Partner or that are secured by
any Partnership property distributed to such Partner. Nonrecourse loans shall
be allocated among the Partners in accordance with their respective Partnership
Interests.
4.1(b) Decrease. There shall be debited to each Partner's Capital
Account the amount of cash and the Value of any Partnership property
distributed to such Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Losses, including any items in the nature of
expenses or losses that are specially allocated to a Partner pursuant to
Article V, and the amount of any liabilities of such Partner that are assumed
by the Partnership or that are secured by any property contributed by such
Partner to the Partnership.
4.2 Transfers. In the event any Interest in the Partnership is
transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferor to the extent the
transferor's Capital Account relates to the Partnership Interest so
transferred.
4.3 Revaluation. In the event the Values of Partnership assets are
adjusted pursuant to the definition of the term Value, the Capital Accounts of
all Partners shall be adjusted simultaneously to reflect the aggregate net
adjustment as if the Partnership recognized gain or loss equal to the amount of
such aggregate net adjustment, and such adjustment shall be allocated to the
Partners in accordance with Article V.
4.4 Compliance. The foregoing provisions and other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Section 704 of the Code and
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the Regulations thereunder and shall be interpreted and applied in a manner
consistent therewith.
ARTICLE V
PROFITS AND LOSSES
5.1 Allocations of Gain, Loss, Etc.
5.1(a) Gains and Losses. Except as otherwise provided in this
Article V, for tax years in which the Partnership has net Losses for federal
income tax purposes, net taxable losses and other deductions shall be allocated
pro rata among the Partners in accordance with their respective Partnership
Interests. For tax years in which the Partnership has net Profits for federal
income tax purposes, said Profits shall be allocated pro rata among the
Partners in accordance with their respective Partnership Interests.
5.1(b) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations, or distributions described
in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be
specially allocated to eliminate the deficit balances in their Adjusted Capital
Accounts created or increased by such adjustments, allocations, or
distributions as promptly as possible. Any special allocations of items of
income or gain pursuant to this Section 5.1(b) shall be taken into account in
computing subsequent allocations of Profits pursuant to this Article V, so that
the net amount of any items so allocated and the Profits, Losses and all other
items so allocated to each Partner pursuant to this Article V, to the extent
possible, shall be equal to the net amount that would have been allocated to
each such Partner pursuant to the provisions of this Article V if such
unexpected adjustments, allocations or distributions had not occurred. The
foregoing is intended to be a "qualified income offset provision" as described
in Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted and
applied in all respects in accordance with that Regulation.
5.1(c) Tax Allocations: Code Section 704(c) . Subject to the
provisions of Section 5.3 hereof, in accordance with Code Section 704(c) and
the Regulations thereunder, income, gain, loss and deduction with respect to
any property contributed to the capital of the Partnership, solely for tax
purposes, shall be allocated among the Partners so as to take into account any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial Value (computed in accordance with
Subsection 1.41 hereof). In the event the Value of any Partnership asset is
adjusted pursuant to said subsection 1.41, subsequent allocations of income,
gain, loss and deduction with respect to such asset shall take into account any
variation between the adjusted basis of such asset for federal income tax
purposes and its gross asset Value in the same manner as under Code Section
704(c) and the Regulations. Any election or
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other decision relating to such allocations shall be made by the General
Partner in any manner that reasonably reflects the purposes and intention of
this Agreement. Allocations pursuant to this Section 5.1(c) are solely for
purposes of federal, state and local taxes and shall not affect, or in any way
be taken into account in computing any Partner's Capital Account or share of
Profits, Losses, other items, or distributions pursuant to any provision of
this Agreement.
5.1(d)(1) Deficit Limited to Share of Minimum Gain. At no time shall
allocations of Loss (or items thereof) be made to a Partner if such allocations
would create or increase any deficit in the Partner's Adjusted Capital Account
balance.
5.1(d)(2) Partnership Minimum Gain Chargeback. If there is a net
decrease in Partnership Minimum Gain for a taxable year of the Partnership,
then there shall be allocated to each Partner items of income and gain for that
year equal to that Partner's share of the net decrease in Partnership Minimum
Gain (within the meaning of Regulations Section 1.704-2(g)(2)), subject to the
exceptions set forth in Regulations Section 1.704-2(f)(2), (3) and (5),
provided that if the Partnership has any discretion as to an exception set
forth pursuant to Regulations Section 1.704-2(f)(5), the General Partner may
exercise such discretion on behalf of the Partnership. In the event that the
application of this minimum gain chargeback requirement would cause a
distortion in the economic arrangement among the Partners, the General Partner
shall request that the Commissioner of Internal Revenue waive the minimum gain
chargeback requirement pursuant to Regulations Section 1.704-2(f)(4). The
foregoing is intended to be a "minimum gain chargeback" provision as described
in Regulation Section 1. 704-2(f) and shall be interpreted and applied in all
respects in accordance with that Regulation.
5.1(d)(3) Partner Nonrecourse Debt Minimum Gain Chargeback. If,
during a taxable year, there is a net decrease in Partner Nonrecourse Debt
Minimum Gain, then, in addition to the amounts, if any, allocated pursuant to
Section 5.1(d)(2), any Partner with a share of that Partner Nonrecourse Debt
Minimum Gain (determined in accordance with Regulations Section 1.704-2(i)(5))
as of the beginning of the taxable year shall, subject to exceptions in
Regulations Section 1.704-2(i)(4)), including the exceptions analogous to those
in Regulations Section 1.704-2(f)(2), (3) and (5), (provided, that if the
Partnership has any discretion as to the exception set forth pursuant to
Regulations Section 1.704-2(f)(5) as made applicable by Regulations Section
1.704-2(i)(4), the General Partner may exercise such discretion on behalf of
the Partnership), be allocated items of income and gain for the year (and, if
necessary, for succeeding years) equal to that Partner's share of the net
decrease in the Partner Nonrecourse Debt Minimum Gain. In the event that the
application of the Partner Nonrecourse Debt Minimum Gain chargeback requirement
would cause a distortion in the economic arrangement among the Partners, the
General Partner shall request that the Commissioner of Internal Revenue waive
the minimum gain chargeback requirement pursuant to Regulations Sections
1.704-2(f)(4) and 1.704-2(i)(4). The
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foregoing is intended to be the "chargeback of partner nonrecourse debt minimum
gain" required by Regulations Section 1.704-2(i)(4) and shall be interpreted
and applied in all respects in accordance with that Regulation.
5.2 Allocations of Gain, Loss, Etc. Upon a Capital Event.
5.2(a) Notwithstanding the provisions of Section 5.1 above, any
taxable gain or loss recognized on the sale or other disposition of all or
substantially all of the Partnership assets shall be allocated among all of the
Partners taking into account the impact on such Partners' Capital Accounts of
distributions under Article VI as follows:
(i) as to Profits: first among the Partners in proportion to
their negative Capital Account balances until all such Capital Accounts shall
have a zero balance; and then among the Partners in proportion to their
Partnership Interests.
(ii) as to Losses: first an amount of Losses equal to the
aggregate positive balances (if any) in the Capital Accounts of all Partners
having positive Capital Account balances shall be allocated to such Partners in
proportion to their positive Capital Account balances until such Capital
Accounts shall have a zero balance; and then among all Partners in proportion
to their Partnership Interests.
5.2(b) Subsequent Distributions. For purposes of computing the
sum of the negative Capital Accounts balances in connection with any allocation
of Profits, if any assets (including cash) are held by the Partnership at the
end of the Partnership taxable year and there is a reasonable expectation that
such assets will be distributed to the Partners (other than pursuant to a
distribution in liquidation under Article X hereof) prior to a corresponding
increase in such Partner(s) Capital Accounts, such assets shall be treated as
having been distributed to such Partners on the last day of such taxable year.
5.3 Allocations Upon Assignment. Except as otherwise provided in this
Article V, the Profits or Losses and other allocable items for any Partnership
fiscal year in which a Partner owns all or a part of any Partnership Interest
for less than the full fiscal year shall be allocated to such Partner in
proportion to the number of days as a percentage of 365 that the Partnership
Interest is effectively owned by such Partner during that year, according to
the provisions of this Agreement, although the General Partner has discretion
to determine such allocation under any other reasonable method permitted under
Section 706 of the Code.
5.4 Tax Benefits and Burdens. The Partners acknowledge that, to the
fullest extent permitted by law, the intent of the Partners is to obtain tax
benefits and share tax burdens from their participation in the Partnership in
proportion to their respective Partnership Interests, and the General Partner
shall apply its best commercially reasonable efforts to give effect to this
intent.
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5.5 Other Allocation Rules.
5.5(a) Allocations Upon the Admission of Additional Partners. In the
event additional Partners are admitted to the Partnership on different dates
during any taxable year, the Profits (or Losses) allocated to the Partners for
each such taxable year shall be allocated among the Partners in proportion to
the Interest of each during such taxable year in accordance with Code Section
706, using any convention permitted by law and selected by the General Partner.
In such event, subsequent allocations of Losses (or Profits) pursuant to this
Article V shall be allocated (i) first, so as to offset the Profits (or Losses)
allocated for such taxable year or years and (ii) the balance, if any, to the
Partners in proportion to their Partnership Interest.
5.5(b) Items Not Specifically Dealt With. Except as otherwise
provided in this Agreement, all items of Partnership income, gain, loss
deduction, and any other allocations not otherwise provided for shall be
allocated among the Partners according to their Partnership Interests.
5.5(c) Allocations Within Periods. For purposes of determining the
Profits, Losses, or any other items allocable to any period, Profits, Losses,
and any such other items shall be determined on a daily, monthly, or other
basis, as determined by the General Partner, using any permissible method under
Section 706 of the Code and the Regulations thereunder.
5.5(d) Allocations Binding on Partners. The Partners are aware of
the income tax consequences of the allocations made by this Article V and
hereby agree to be bound by the provisions of this Article V in reporting their
shares of Partnership income and loss for income tax purposes.
5.6 Authority of General Partner to Vary Allocations to Preserve and
Protect Partner's Interest.
5.6(a) It is the intent of the Partners that each Partner's tax
allocations of income, gain, loss deduction or credit (or any item thereof)
shall be determined and allocated in accordance with this Article V to the
fullest extent permitted by Section 704(b) of the Code and the Regulations. In
order to preserve and protect the determinations and allocations provided for
in this Article V, the General Partner is authorized and directed to allocate
income, gain, loss, deduction or credit (or any item thereof) arising in any
year differently than otherwise provided for in this Article V to the extent
that allocating income, gain, loss, deduction or credit (or any item thereof)
in the manner provided for in this Article V would cause the determinations and
allocations of the Partner's tax allocations of income, gain, loss, deduction
or credit (or any item thereof) not to be permitted by Section 704(b) of the
Code and the Regulations. Any allocations made pursuant to this Section shall
be deemed to be a complete substitution for any allocation otherwise provided
for in this Article V, and no amendment of this Agreement or approval of any
Partner shall be required.
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5.6(b) In making any allocation under this Section (the "New
Allocation"), the General Partner is authorized to act only after having been
advised by legal counsel to the Partnership that under Section 704(b) of the
Code and the Regulations thereunder, (i) the New Allocation appears necessary,
and (ii) the New Allocation appears to be the minimum modification of the
allocations otherwise provided for in this Article V necessary in order to
attempt to assure that, either in the then current year or in any preceding
year, each Partner's distributive share of income, gain, loss, deduction or
credit (or any item thereof) is determined and allocated in accordance with
this Article V to the fullest extent permitted by Section 704(b) of the Code
and the Regulations.
5.6(c) If the General Partner is required by this Section to make
any New Allocation in a manner less favorable to the Partners than is otherwise
provided for in this Article V, such General Partner is authorized and
directed, insofar as advised by legal counsel to the Partnership that it is
permitted by Section 704(b) of the Code, to allocate income, gain, loss,
deduction or credit (or any item thereof) arising in later years in a manner so
as to bring the allocations of income, gain, loss, deduction or credit (or item
thereof) to the Partners as nearly as possible to the allocations thereof
otherwise contemplated by this Article V.
5.6(d) New Allocations made under this Section in reliance upon
the advice of legal counsel to the Partnership shall be deemed to be made in
compliance with the fiduciary obligation of such General Partner to the
Partnership and Partners, and no such allocations shall give rise to any claim
or cause of action by any other Partner.
ARTICLE VI
DISTRIBUTIONS
6.1 Net Distributable Cash. So far as is practicable, and except as set
forth in Article X, the General Partner shall determine the amount of Net
Distributable Cash available for distribution, and shall distribute Net
Distributable Cash on an annual basis in the following order of priority:
6.1(a) To repay General Partner or Limited Partners loans (except for
those loans which provide for repayment terms not based upon the Net
Distributable Cash), with interest, pro rata, among the Partners which have
made such loans, based upon the outstanding principal and interest balances
thereof; and
6.1(b) to the Partners in proportion to their respective Partnership
Interests.
All distributions in repayment of Partner loans shall be credited
first to accrued but unpaid interest and then to principal.
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ARTICLE VII
RIGHTS, DUTIES, POWERS AND COMPENSATION OF PARTNERS
7.1 Duties of the General Partner.
7.1(a) The General Partner shall manage and supervise the Project,
the DCR PCS Network and the other business and affairs of the Partnership in
accordance with and subject to the terms and conditions of this Agreement and
the Act. The General Partner shall not be required to devote its full time and
efforts to the Partnership, but only so much of its time and efforts as
reasonably is necessary to carry out its duties.
7.1(b) None of the Limited Partners (other than a Limited Partner
that is an Affiliate of the General Partner) nor any of their Affiliates may
engage for its or their own account or for the account of others in any
business activities or ventures, which compete, directly or indirectly, with
the business of the Partnership or which involve, directly or indirectly,
personal communication services (PCS), without the Consent of the General
Partner, which Consent may be denied in the sole and absolute discretion of
such General Partner.
7.1(c) The General Partner shall report regularly to the Limited
Partners (and, in no event, less than quarter-annually) with respect to the
affairs of the Partnership. The General Partner shall furnish to the Limited
Partners, upon request, access to or copies of any correspondence, reports,
analyses, appraisals, feasibility studies, development plans and memoranda
received or sent by the Partnership.
7.2 Powers of the General Partners. In addition to the powers now or
hereafter granted the general partners of a limited partnership under the Act
or which are granted the General Partner under any other provisions of this
Agreement, but in all cases subject to the provisions of Section 7.7(a) and any
other provision of this Agreement relating to the rights of the Limited
Partners, the General Partner shall have the sole power and authority to
manage, control, administer and operate the business and affairs of the
Partnership for the purposes herein stated, to make all decisions affecting
such business and affairs, to adopt such accounting rules and procedures as it
deems appropriate in the conduct of the business and affairs of the
Partnership, including without limitation (whether similar or dissimilar) for
Partnership purposes, the power:
7.2(a) to submit applications to the FCC and to submit bids at the
FCC Auction;
7.2(b) to acquire by purchase, lease or otherwise, any real or
personal property, tangible or intangible, which may be necessary or
appropriate to the accomplishment of the purposes of the Partnership, and to
acquire PCS licenses;
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7.2(c) to sign such documents and to take such action as may be
necessary or appropriate to complete the Project and to own and operate the DCR
PCS Network according to the time schedule to be established therefor;
7.2(d) to own, develop, engineer, construct, build-out and operate
the DCR PCS Network;
7.2(e) to sell, dispose, trade or exchange all or any portion of
the assets of the Partnership in furtherance of the Partnership's business upon
such terms and conditions and for such consideration as the General Partner
deems appropriate;
7.2(f) to enter in good faith into agreements and contracts with
Persons and to give receipts, releases and discharges with respect to the
Partnership's business and to attend to, manage and follow-up on any matters
incident thereto as the General Partner deems advisable or appropriate;
7.2(g) to purchase, at the reasonable expense of the Partnership,
liability and other insurance to protect the Partnership's properties and
business;
7.2(h) to borrow money for and on behalf of the Partnership to
cover the costs, expenses and capital expenditures of the Partnership for any
Partnership purposes, and as security therefor to mortgage or grant deeds of
trust on all or any part of the assets owned by the Partnership, real, personal
or mixed and in connection therewith to execute for and on behalf of the
Partnership such loan agreements, notes, mortgages, deeds of trust, security
agreements, financing statements, assignments, pledges, certificates and other
documents (collectively "Loan Documents") as may be required or appropriate in
connection therewith;
7.2(i) to prepay in whole or in part, refinance, amend, modify or
extend any mortgages or deeds of trust which may affect any of the assets owned
by the Partnership and in connection therewith to execute for and on behalf of
the Partnership any amendments to Loan Documents including, without limitation,
any extensions, renewals or modifications of such mortgages or deeds of trust
on any such assets in lieu of then existing mortgages or deeds of trust;
7.2(j) to cause the Partnership to make or revoke any of the
elections referred to in Section 754 of the Code;
7.2(k) to place record title to, or the right to use, Partnership
assets in the name or names of a nominee or nominees, trustee or trustees for
any purpose convenient or beneficial to the Partnership;
7.2(l) to require in any or all Partnership contracts that the
Partners may have limited or no personal liability thereon but that the Person
or entity contracting with the Partnership may be required to look solely, or
only in part, to the Partnership and its assets for satisfaction;
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7.2(m) except as otherwise provided in this Agreement, but subject
to the provisions of all applicable laws, to have all the rights and power and
to be subject to all the restrictions and liabilities of a general partner in a
partnership with limited partners;
7.2(n) to execute any and all other instruments and documents
which may be necessary or in the reasonable opinion of the General Partner
desirable to carry out the intent and purposes hereof, including, but not
limited to, documents whose operation and effect extend beyond the term of the
Partnership;
7.2(o) to make any and all reasonable expenditures which the
General Partner, in its sole and absolute discretion, deems necessary or
appropriate in connection with the management of the affairs of the Partnership
and the carrying out of its obligations and responsibilities under this
Agreement, including, without limitation, all legal, accounting and other
related expenses incurred in connection with the organization, financing and
operation of the Partnership;
7.2(p) to enter into any kind of activity and to perform and carry
out contracts of any kind necessary to, or in connection with, or incidental to
the accomplishment of the purposes of the Partnership, so long as such
activities and contracts may be lawfully carried on or performed by a limited
partnership under the laws of the State of Nevada;
7.2(q) to invest and reinvest Partnership reserves in short-term
instruments or money market funds;
7.2(r) to confess a judgment against the Partnership;
7.2(s) to submit a Partnership claim or liability to arbitration
or reference; and
7.2(t) to enter into services or other agreements with any Person
or the General Partner or any Limited Partner or any Affiliate of the General
Partner or of a Limited Partner on commercially competitive terms and
conditions.
7.3 Compensation of General Partners; Expense Reimbursement. The General
Partner shall be entitled to reasonable compensation for its management and
other services rendered to the Partnership and to reimbursement of reasonable
expenses incurred in carrying out its obligations hereunder.
7.4 Liability and Indemnification of the General Partner.
7.4(a) Neither the General Partner nor any Affiliate of the
General Partner nor any officer, director, employee, partner, agent or advisor
of the General Partner or any Affiliate of the General Partner shall be
personally liable to the Partnership or to any Partner for loss or damage
caused by any act or omission in such capacity, except for losses or damages
adjudicated to have been caused by such party's fraudulent, willful or wanton
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misconduct, material breach of this Agreement or gross negligence. The
Partnership shall indemnify (only to the extent of Partnership assets without
recourse to any Partner) any Person who was or is a party or threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or on behalf of the Partnership), which action, suit or
proceeding arises out of or relates to any claim, issue or matter involving or
affecting the Partnership, by reason of the fact that such Person is or was the
General Partner, an Affiliate of the General Partner or an officer, director,
employee, partner, agent or advisor of the General Partner or an Affiliate of
the General Partner, or is or was serving at the request of the Partnership as
an officer, director, employee, agent or advisor of another partnership,
corporation, joint venture, trust or other enterprise, against all expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such Person in connection with such action,
suit or proceeding, so long as such Person acted in good faith in a manner
reasonably believed to be in or not opposed to the best interests of the
Partnership, except that no indemnification shall be made in respect of any
claim, issue or matter as to which a Person has been adjudged to be liable for
fraudulent, willful or wanton misconduct, material breach of this Agreement or
gross negligence, or with respect to any criminal action or proceeding unless,
in the latter case, only if such Person had no reasonable good faith cause to
believe its conduct was unlawful. The determination of any action, suit or
proceeding by judgment, order, settlement or conviction, or a plea of no
contest or its equivalent shall not, of itself, create a presumption that the
Person did not act in good faith and in a manner which such Person reasonably
believed to be in or not opposed to the best interests of the Partnership, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that such Person's conduct was unlawful.
7.4(b) To the extent that the General Partner, an Affiliate of the
General Partner or an officer, director, employee, partner, agent or advisor of
the General Partner or an Affiliate of the General Partner has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in Subsection 7.4(a), or in defense of any claim, issue or
matter therein, such Person shall be indemnified against expenses, including
reasonable attorneys' fees, actually and reasonably incurred by such Person in
connection therewith.
7.4(c) Expenses, including reasonable attorneys' fees, incurred in
defending a civil or criminal action, suit or proceeding shall be paid by the
Partnership in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking reasonably satisfactory to the
Partnership by or on behalf of the General Partner, an Affiliate of the General
Partner, or an officer, director, employee, partner, agent or advisor of the
General Partner or an Affiliate of the General Partner, to repay the amount
thereof unless it shall be determined ultimately that such Person is entitled
to be indemnified by the Partnership as authorized in this Section 7.4.
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7.4(d) The indemnification provided by this Section 7.4 shall not be
deemed exclusive of any other rights to which an indemnified party may be
entitled under any agreement, by vote of Partners or otherwise, both as to
action in such Person's official capacity and as to action in another capacity
while holding such office, and shall continue as to a Person who has ceased to
be the General Partner, an Affiliate of the General Partner or an officer,
director, employee, partner, agent or advisor of the General Partner or an
Affiliate of the General Partner and shall inure to the benefit of the heirs,
executors, administrators, assigns and successors of any such Person.
7.4(e) The Partnership may maintain insurance on behalf of any Person
who is or was the General Partner, who is or was an Affiliate of the General
Partner or an officer, director, employee, partner, agent or advisor of the
General Partner or an Affiliate or who is or was serving at the request of the
Partnership or an Affiliate of the Partnership as an officer, director,
employee, agent or advisor of another partnership, corporation, joint venture,
trust or other enterprise against any insurable liability asserted against and
incurred by such Person in any such capacity or arising out of such Person's
status as such, whether or not the Partnership would have the power to
indemnify such Person against such liability under this Section 7.4.
7.5 Prohibition of Management by Limited Partners. Except as
specifically provided otherwise in Section 7.7 of this Agreement, the Limited
Partners (except for any Limited Partner which is an Affiliate of the General
Partner) shall have no right to, and shall not take any part in the management
of the Partnership and shall have no right or authority to act on behalf of or
to bind the Partnership.
7.6 Liability of Limited Partners. So long as a Limited Partner is not a
General Partner and does not take part in the control of the Partnership's
business within the meaning of the Partnership Act, the liability of a Limited
Partner for the obligations or losses of the Partnership shall in no event
exceed such Limited Partner's Capital Contributions to the Partnership.
Notwithstanding the foregoing, if a Limited Partner has received the return of
all or any part of such Limited Partner's Capital Contribution, such Partner is
liable to the Partnership for the return of the contribution so received, but
only to the extent necessary to discharge the Partnership's liabilities to
creditors whose claims arose before such return, provided that for the purposes
hereof, no General Partner or Affiliate shall be deemed a creditor of the
Partnership.
7.7 Rights of Limited Partners.
7.7(a) Anything in this Agreement to the contrary notwithstanding
and only to the extent not prohibited by applicable law, the following
enumerated items shall require the Consent of the Limited Partners:
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(i) the Sale of the Business (as defined in Section 9.6 below);
(ii) doing any act in contravention of this Agreement;
(iii) possessing Partnership property, or assigning rights in
specific Partnership property, for other than a Partnership purpose;
(iv) except as provided in this Agreement, admitting additional
partners to the Partnership; or
(v) borrowing money from any source, except in furtherance of
Partnership purposes including, without limitation, for normal operations of
the Partnership or for the DCR PCS Network and for capital expenditures
required for the Project or for the DCR PCS Network.
For the purpose of this Subsection 7.7(a), Consent, if not denied by
Limited Partners who hold a majority of the Partnership Interests then owned by
Limited Partners within ten (10) business days after receipt by the Limited
Partners of Notice thereof from the General Partner, shall be deemed given.
7.7(b) Any Limited Partner shall have the right, for any proper
purpose, to call a meeting of the Partnership, to examine and copy during
regular business hours and upon not less than five (5) business days Notice at
the principal office of the Partnership the Partnership's books and records,
and to obtain from the General Partner a list showing the Partnership's records
of the names, addresses and the Partnership Interests of the Partners. The
General Partner shall deliver a copy of the Agreement and/or Certificate of
Limited Partnership or any amendment thereto to any Limited Partner upon
written request made by such Limited Partner to the General Partner.
7.8 Duties and Obligations of the General Partner.
7.8(a) The General Partner shall initiate and prosecute
diligently, as it, in its reasonable business judgment determines, the Project
and the operation and maintenance of the DCR PCS Network.
7.8(b) The General Partner shall be under a fiduciary duty to
conduct the affairs of the Partnership in the best interests of the
Partnership, including the safekeeping and use of all Partnership funds and
assets for the benefit of the Partnership. The General Partner at all times
shall act in good faith and exercise commercially reasonable due diligence in
all activities relating to the conduct of the business of the Partnership. The
General Partner shall take such actions as are necessary or appropriate to
protect the interests of the Limited Partners.
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ARTICLE VIII
PARTNERSHIP ADMINISTRATION
8.1 Voting and Decisions by Partners and the Partnership.
Except as otherwise expressly set forth in Section 7.7 hereof,
Partnership decisions and acts shall be made or performed by the General
Partner.
8.2 Amendments. The General Partner, without seeking the Consent of the
Limited Partners, shall have authority to amend this Agreement to make such
ministerial or technical changes which the General Partner determines are
necessary or desirable in order to achieve the intent of the Partners in
entering into this Agreement, including without limitation, to clarify
ambiguities, to correct inconsistencies, to insert unintentional omissions, to
attempt to ensure compliance with applicable tax, partnership and securities
laws, and to make any other changes which do not alter the rights or
obligations of the Limited Partners in a manner which would materially
disadvantage said Limited Partners. Such changes may only be made by the
General Partner after specific consultation with legal counsel on each such
matter, and prompt Notice of any such change shall be given to the Limited
Partner.
ARTICLE IX
ASSIGNMENT OF INTERESTS
9.1 Transfer of the General Partner's Interests. Except as provided
below, no General Partner may withdraw as a General Partner of the Partnership
nor transfer, assign or Encumber all or any part of such General Partner's
Interest to or for the benefit of any Person without the Consent of all other
Partners. Notwithstanding the foregoing, the General Partner shall have the
right without the Consent of the Limited Partners to transfer or assign in
whole or in part its Interest to an Affiliate and to cause such Affiliate to be
admitted to the Partnership as an additional General Partner, in the case of a
partial transfer or assignment, or substitute General Partner, in the case of a
whole transfer or assignment of such Interest. Notwithstanding the foregoing,
the General Partner may Encumber its Interest or its right to receive
distributions or proceeds from the Partnership in accordance with the
provisions of Section 9.4 below.
9.2 Transfer of a Limited Partner's Interest. No Limited Partner may
transfer, assign or Encumber all or any part of such Limited Partner's Interest
without the Consent of the General Partner which Consent may be granted or
denied in such General Partner's sole and absolute discretion. Notwithstanding
the foregoing, each Limited Partner shall Encumber its Interest or its right to
receive distributions or proceeds from the Partnership in accordance with the
provisions of Section 9.4 below.
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9.3 Substituted Limited Partner. An assignee of an interest of a Limited
Partner shall become a substituted Limited Partner if, and only if:
9.3(a) the Consent of the General Partner has been obtained;
9.3(b) the assignor gives the assignee such right in the instrument
of assignment;
9.3(c) the assignor delivers an opinion of counsel satisfactory to
the General Partner that such transfer does not require registration under
applicable federal and state securities laws; and
9.3(d) all costs, including reasonable attorney's fees incurred in
connection with the assignment, have been paid.
Absent such substitution, an assignor of a Limited Partner's Interest in
the Partnership shall continue to be a Limited Partner with all of the rights
and obligations thereof, except for entitlement to any Partnership
distributions or allocations attributable to such Interests. Notwithstanding
the foregoing, any Limited Partner which is an Affiliate of the General Partner
shall have the right, without the Consent of the General Partner or the other
Limited Partners, to transfer or assign its Interest in whole or in part to any
other Affiliate of the General Partner and to cause such Affiliate to be
admitted to the Partnership as an additional or substitute Limited Partner or
as an additional General Partner.
9.4 Encumbrance of a Partner's Interest. Without limiting the generality
of the foregoing provisions of this Article IX, no Partner shall Encumber such
Partner's Interest nor make any assignment (including collateral assignments)
of its rights to receive distributions or proceeds from the Partnership, except
as hereinafter provided in this Article IX. Each Partner agrees to allow such
Partner's Interest to be Encumbered to the extent deemed reasonably necessary
or appropriate by the General Partner in order to secure indebtedness of the
Partnership incurred for Partnership purposes. Each Limited Partner hereby
appoints the General Partner such Limited Partner's true and lawful
attorney-in-fact, coupled with an interest, to execute on behalf of such
Limited Partner such financing instruments and other documents including
assignments and collateral assignments of such Limited Partner's Interest or
such Limited Partner's right to receive distributions or proceeds from the
Partnership as the General Partner deems necessary or advisable in connection
with such financing. Notwithstanding the foregoing, the General Partner and
each Limited Partner which is an Affiliate of the General Partner shall have
the right to Encumber its respective Interest for reasons other than
Partnership purposes, including without limitation by reason of enumeration, to
secure indebtedness of DCR or of any DCR Affiliate in connection with the
financing of other PCS networks in which DCR or any such Affiliate has an
interest.
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9.5 Withdrawal of Limited Partner. Except as provided in this Article
IX, no Limited Partner may withdraw from the Partnership without the Consent of
the General Partner. In the event of death, incompetency, dissolution or
bankruptcy of a Limited Partner,
9.5(a) the Partnership shall not be dissolved, and
9.5(b) such Limited Partner's successors, assigns and personal
representatives shall have all the rights of such Limited Partner for the
purpose of settling or managing its estate or property, but shall not be
entitled to vote on any matter affecting the Partnership, and, unless admitted
as a substitute Limited Partner pursuant to' Section 9.3, shall be a mere
assignee with respect to such rights.
9.6 Transfers in Connection with the Sale of the Business. The Partners
acknowledge and agree that, with respect to the sale or exchange of all or
substantially all of the operating assets of the Partnership, other than a
Networks Sale as defined in Section 14.1 below (a "Sale of the Business"), it
may be advantageous for the Partnership and the Partners to sell or assign all
or substantially all of the Partnership Interests rather than to effect a
direct conveyance of the assets. In the event there is to be a Sale of the
Business as provided under the terms of this Agreement, and in the event the
General Partner determines that it is in the best interest of the Partnership
and the Partners to sell or assign all of their respective Partnership
Interests in lieu of providing a direct conveyance of assets, each of the
Partners hereby agrees to sell or assign their respective Partnership Interests
in such transaction. In such event, the net proceeds (after reduction for any
expenses of sale) shall be distributed and allocated among the Partners in
accordance with Section 10.3, as if the Partnership had sold the assets
directly. Each Limited Partner hereby appoints the General Partner such
Limited Partner's true and lawful attorney-in-fact, coupled with an interest,
to execute on behalf of such Limited Partner any and all documents as the
General Partner deems necessary or advisable in connection with such Sale of
the Business.
ARTICLE X
DISSOLUTION AND WINDING UP
10.1 Term. The Partnership shall continue in effect until 12:00 midnight,
December 31, 2050 unless sooner dissolved and liquidated in accordance with the
provisions hereof. All provisions of this Agreement relative to dissolution
and liquidation shall be cumulative and the exercise or use of one of the
provisions hereof shall not preclude the exercise or use of any other
provision.
10.2 Dissolution. The Partnership shall be dissolved upon the happening
of any of the following:
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10.2(a) The affirmative vote by all Partners to dissolve the
Partnership;
10.2(b) The sale of all or substantially all of the Partnership's
tangible assets and receipt of all net proceeds from such sale, unless the
Partners unanimously decide to continue the Partnership;
10.2(c) Following the death, dissolution or other disqualification of
a General Partner under Section 10.5, if any remaining General Partner(s)
fail(s) to elect, within ninety (90) days after such disqualifying event, to
continue the business of the Partnership, subject to the right of the Limited
Partners to continue the business of the Limited Partnership as provided in
Section 10.6;
10.2(d) Upon the occurrence of any event specified in the Act as
resulting in the dissolution of the Partnership; or
10.2(e) In any event, at 12:00 midnight, December 31, 2050.
10.3 Winding Up and Liquidation. Subject to the provisions, of Section
10.4 hereof, upon a dissolution of the Partnership, the remaining General
Partner(s), or if none, the remaining Limited Partners, shall liquidate the
Partnership's assets, and shall do so as promptly as is consistent with
obtaining fair value for such assets, and shall apply and distribute the net
proceeds thereof, any previously set-aside reserves and any unliquidated
property (at fair market value) in the following order of priority:
10.3(a) First, toward all Partnership obligations, including loans
by Partners, except as otherwise provided in this Agreement, and any reserves
for contingent obligations or liabilities as the General Partner (or, if none,
a majority in interest of the Limited Partners) deems necessary;
10.3(b) Second, to the Partners, in proportion to their positive
Capital Account balances, determined after all allocations pursuant to Article
V hereof and all prior distributions pursuant to Article VI hereof. All
distributions of Net Distributable Cash shall cease following any event calling
for dissolution under Section 10.1 or any sale of all or substantially all of
the Partnership's tangible assets.
10.4 Compliance With Timing Requirements of Regulations. In the event the
Partnership is "liquidated" within the meaning of Section 1.704-1(b)(2)(ii)(g)
of the Regulations, (a) distributions shall be made pursuant to this
Article X (if such liquidation constitutes a dissolution of the Partnership) or
Article VI hereof (if it does not) to the General and Limited Partners in
accordance with this Agreement. Distributions pursuant to the preceding
sentence may be made to a trust established for the benefit of the General and
Limited Partners for the purposes of liquidating Partnership assets, collecting
amounts owed to the Partnership, and paying any contingent or unforeseen
liabilities or obligations of
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the Partnership or of the General Partner(s) arising out of or in connection
with the Partnership. The assets of any such trust shall be distributed to the
General and Limited Partners from time to time, in the reasonable discretion of
the General Partner(s), in the same proportions as the amount distributed to
such trust by the Partnership would otherwise have been distributed to the
Partners pursuant to this Agreement, provided, however, that such trust may be
created only if the Partnership has received an opinion from counsel which is
recognized as having expertise in the area of federal income taxation that such
trust will not be classified as an association which will be taxed as a
corporation for federal income tax purposes.
10.5 Death, Dissolution or Other Disqualification of a General Partner. A
General Partner shall cease to be a general partner of the Partnership upon the
happening of any of the following events:
10.5(a) The death, insanity or adjudication of incompetence of such
General Partner (in the case of a natural person);
10.5(b) the dissolution or termination of such General Partner for
state law purposes (in the case of a corporation, trust, partnership or other
business entity);
10.5(c) the withdrawal of such General Partner with the Consent of
all the Limited Partners;
10.5(d) an assignment by such General Partner for the benefit of
creditors;
10.5(e) the filing of a voluntary petition in bankruptcy by such
General Partner;
10.5(f) the filing by such General Partner of a petition seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any federal or state bankruptcy or
insolvency laws;
10.5(g) the filing of an answer or other pleading by such General
Partner admitting or failing to contest the material allegations of a petition
filed against such General Partner under paragraph (f);
10.5(h) the consent or acquiescence by such General Partner to or
in the appointment of a trustee, receiver, or liquidator for such General
Partner or of all or any substantial part of such General Partner's property;
10.5(i) the institution of any proceeding against such General
Partner seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any federal or state
bankruptcy laws, which proceeding has not been dismissed within ninety (90)
days after the commencement thereof;
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10.5(j) the appointment, without such General Partner's consent or
acquiescence, of a trustee, receiver, or liquidator of such General Partner or
of all or any substantial part of such General Partner's property unless the
appointment is vacated or stayed within ninety (90) days; or
10.5(k) an appointment for such General Partner which is stayed
under the preceding paragraph and which is not vacated within ninety (90) days
after the expiration of the stay.
The Partnership Interest of a General Partner who ceases to be a
General Partner automatically shall convert into that of a Limited Partner and
(whether or not the Partnership dissolves or is terminated) shall represent an
identical interest in the Partnership's taxable income or loss, allocation and
distributions as such Interest had as a General Partnership Interest, and this
Agreement shall be amended accordingly to reflect the happening of any such
disqualifying event. If such General Partner is the last remaining General
Partner, the Partnership shall be dissolved, wound up and liquidated in
accordance with the provisions of Section 10.3, unless the Limited Partners
elect to continue the Partnership pursuant to Section 10.6.
10.6 Successor Partnership. If the Partnership would otherwise be
dissolved as provided in Section 10.2(c) , all Partners other than the
disqualified General Partner may determine, within ninety (90) days of the
event giving rise to dissolution, to continue the business of the Partnership
and elect one or more new General Partners, if necessary. Unless otherwise
agreed by such remaining Partners, this Agreement, as it may from time to time
be amended, shall constitute the limited partnership agreement of such new
partnership.
ARTICLE XI
BOOKS, REPORTS, ACCOUNTING
AND TAX DECISIONS
11.1 Books and Records. The General Partner shall maintain or cause to be
maintained at the Partnership's principal office complete and accurate books
and records with respect to all Partnership transactions, which books and
records shall be kept in accordance with generally accepted accounting
principles. At a minimum, the following books and records shall be kept at the
principal office of the Partnership:
11.1(a) a current list of the full name and last-known business
address of each Partner;
11.1(b) a copy of this Agreement and the Certificate of Limited
Partnership and all amendments, together with executed copies of any powers of
attorney pursuant to which any document has been executed;
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11.1(c) copies of the Partnership's federal, state and local income
tax returns and reports for the three (3) most recent years; and
11.1(d) copies of any effective written Partnership agreements and
of all financial statements of the Partnership for the three (3) most recent
years.
11.2 Fiscal Year and Method of Accounting. The Partnership's fiscal year
for both tax and financial reporting purposes shall be the calendar year. The
method of accounting for both tax and financial reporting purposes will be the
accrual basis method, unless the General Partner determines, upon at least
sixty (60) days prior written notice to all Partners, that there would be a
significant advantage to the Partnership if a different method or methods were
followed or another method is required by law. Where significant deviations
exist between the two methods, such deviations shall be fully explained in the
financial statements.
11.3 Reports. In addition to complying with the requirements of Section
7.1 of this Agreement, the General Partner shall prepare, or cause to be
prepared, and shall send to all Partners, within thirty (30) days after the end
of each fiscal quarter, unaudited statements of Partnership gross receipts and
operating expenses for such quarter. The General Partner shall send, by June
30 of each year, to each Person who was a Partner during that fiscal year, tax
information necessary for the preparation of such party's federal, state and
other required tax returns. The General Partner shall employ, at the
Partnership's expense, independent certified public accountants for the purpose
of compiling the Partnership's annual financial statements. Such statements,
at a minimum, shall include a balance sheet, related statements of income and
loss, Partners' equity, changes in financial position and cash flow statement
and such supplemental financial information as is deemed desirable by the
General Partner. A copy of the annual financial statements shall be sent to
each Partner within 120 days after the end of each fiscal year. The
Partnership's income tax return shall be prepared annually by an independent
certified public accountant.
11.4 Tax Elections. The General Partner shall have the sole and absolute
discretion and authority to make or revoke any elections on behalf of the
Partnership for tax purposes, including but not limited to the elections
referred to in Sections 734, 743, and 754 of the Code or any successor
provisions. Each of the Partners, upon request of a General Partner, shall
supply such information as reasonably may be necessary to properly give effect
to any such election.
11.5 Tax Matters Partner.
11.5(a) The General Partner hereby is designated the tax matters
partner of the Partnership (the "Tax Matters Partner"), as provided in the
Regulations issued pursuant to Section 6231 of the Code, and is authorized to
perform such duties as are required or appropriate in the capacity of Tax
Matters Partner. Each
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Partner, by the execution of this Agreement, consents to such designation of
the Tax Matters Partner, and agrees to execute, certify, acknowledge, deliver,
swear to, file and record at the appropriate public offices such documents as
may be necessary or appropriate to evidence such consent.
11.5(b) The Tax Matters Partner shall not settle any audit of the
Partnership or file any tax consent proceeding on behalf of the Partnership
without the Consent of a majority in Interest of the Partners.
ARTICLE XII
CONTRACTS WITH PARTNERS/AFFILIATES
12.1 Management Agreement. The Partnership shall enter into a Management
Agreement (to be attached to this Agreement as Exhibit B) with DCR or with an
Affiliate of DCR to provide for, inter alia, the coordination and control of
all matters relating to the Partnership's participation in the FCC Auction; the
management of the Project; the dealing with equipment, services and other
vendors; the provision or controlling the providing of marketing, billing,
customers service, fraud management, cash management, financial management and
related services and the general management of the Partnership's business. The
Management Agreement shall comply with all applicable rules, regulations and
policies of the FCC.
12.2 Services Agreement. The Partnership may enter into a services
agreement with any Limited Partner or with any Affiliate of any Limited Partner
for, inter alia, the rendering of certain build-out, marketing and site
location services as well as assistance to the Partnership in establishing
strategic alliances in the Las Vegas area, all in furtherance of the purposes
of the Partnership. The foregoing services agreement shall comply with all
applicable rules, regulations and policies of the FCC.
12.3 Compensation. All compensation paid to and the provision of any
agreement with any Partner or DCR or of any Affiliate of any Partner or of DCR
shall be on commercially competitive terms and conditions.
ARTICLE XIII
CONVERSION RIGHT
13.1 IPO. In the event that the General Partner intends to undertake an
initial public offering ("IPO") of its stock, each Limited Partner shall have
the option, exercisable pursuant to the terms and conditions in this Article
XIII set forth, to convert its respective Interest into the shares of stock
which are intended to be covered by the IPO ("DCR Shares").
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13.1.1 The General Partner shall give Notice ("First Notice") of
said intention to the Limited Partners within a period of at least ninety (90)
days prior to the target date of the intended IPO. Said First Notice shall be
accompanied by (a) an appraisal ("DCR Appraisal") by a nationally recognized
appraiser of partnership business interests or by any of the "Big Six"
nationally recognized certified public accounting firms ("Appraiser") of the
net value of the Partnership determined on a cash-flow basis and, based on said
net value, of the net value of each Limited Partner's Interest, and (b) a
description of the procedures and other information and instructions applicable
to the conversion of Partnership Interests into DCR shares (collectively,
"Conversion Procedures"). The aforesaid DCR appraisal shall be made as of the
last day of the most recently ended fiscal year of the Partnership ("Appraisal
Year End").
13.1.2 Within thirty (30) days after the date of receipt of the
First Notice, the Limited Partners shall give Notice ("Second Notice") to the
General Partner indicating (a) whether or not said Limited Partners intend to
exercise their options to convert their Interests into DCR Shares, and (b) if
said Limited Partners do intend to so exercise their option, whether or not
said Limited Partners accept the valuation of their Interests as set forth in
the DCR Appraisal.
13.1.3 In the event that the Limited Partners desire to exercise
their option to convert but do not accept the valuation of their Interests as
set forth in the DCR Appraisal, said Limited Partners may procure, at their
cost, their own appraisal as of the Appraisal Year End ("LP Appraisal") of
their Interests as determined by their Appraiser, in which event said LP
Appraisal shall be delivered in a Notice ("Third Notice") by the Limited
Partners to the General Partner within thirty (30) days subsequent to the date
of receipt by the General Partner of the Second Notice.
13.1.4 Within the thirty (30) days subsequent to the receipt by
the General Partner of the LP Appraisal and Third Notice, the General Partner
and the Limited Partners shall negotiate in good faith a compromise valuation
of the Limited Partners' Interests taking into consideration the analysis and
valuation set forth in the DCR Appraisal and the LP Appraisal, respectively.
In the event that said Partners cannot agree amicably on such valuation of the
Limited Partners' Interests, the dispute shall be resolved definitively and in
a manner binding upon the General Partner and the Limited Partners by an
Appraiser selected jointly by the respective Appraisers which made the DCR
Appraisal and the LP Appraisal. The expenses and costs of said third Appraiser
shall be paid by the Partnership.
13.1.5 In the event that the respective Appraisers for the General
Partner and the Limited Partners cannot agree upon a third Appraiser, the
matter of valuation of the Partnership and of the Limited Partners' Interests,
as of the Appraisal Year End, shall be submitted to binding arbitration under
the Rules of the American Arbitration Association. The award in such
arbitration shall be final and enforceable in any court of competent
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jurisdiction. All costs and expenses of the American Arbitration Association
and of the arbitrator(s) shall be paid by the party whose Appraisal valuation is
farthest from the valuation determined as a result of the aforesaid
arbitration.
13.1.6 Upon the valuation of the Partnership and of the Limited
Partners' Interests having been finally determined as in this Article XIII set
forth, the conversion of the Limited Partners' Interests shall proceed in
accordance with the Conversion Procedures.
13.1.7 Notwithstanding any other provision in this Article XIII to
the contrary, if the IPO undertaken by the General Partner shall be, in whole
or in part, an underwritten public offering, any exercise by the Limited
Partners of their option to convert their Interests to DCR Shares shall be
subject to the approval of the managing underwriter (or the General Partner if
there is no such managing underwriter), and the number of DCR Shares available
for issuance upon conversion by a Limited Partner may be reduced if and to the
extent that the managing underwriter (or the General Partner if there is no
such managing underwriter) shall be of the opinion that such conversion could
adversely affect the marketing of the securities to be sold by the General
Partner. Any such reduction shall be pro rata among the Limited Partners
requesting to exercise their conversion rights in accordance with their
respective Partnership Interests.
13.2 Agreed Valuation. Notwithstanding any other provision in this
Article XIII, the General Partner and the Limited Partners may agree upon the
valuation of the Limited Partners' Interests without the need for any, or any
further, Appraisals, as the case may be.
ARTICLE XIV
SALE OF DCR NETWORKS
14.1 Buy-Out. In the event that DCR intends to sell all of the PCS
networks, or most of such PCS networks, owned or controlled by DCR, including
the DCR PCS Network owned by the Partnership ("Network Sale"), the General
Partner shall have the right to buy-out the Interests of the Limited Partners
pursuant to the terms and conditions of this Article XIV.
14.1.1 The General Partner shall give Notice ("First Network
Notice") of said intention to the Limited Partners within a period of at least
ninety (90) days prior to the target date of the intended Networks Sale. Said
First Notice shall be accompanied by (a) an appraisal ("DCR Network Appraisal")
by an Appraiser as of the Appraisal Year End (as those terms are defined in
Subsection 13.1.1 above) of the net value of the Partnership determined on a
cash-flow basis and, based on said value, of the net value of each Limited
Partner's Interest, and (b) a description of the procedures and other
information and instructions applicable to the buy-out of the Limited Partners'
Interests ("Buy-Out Instructions").
- 32 -
<PAGE> 38
14.1.2 Within thirty (30) days after the date of receipt of the
First Network Notice, the Limited Partners shall give Notice ("Second Network
Notice") to the General Partner indicating whether or not said Limited Partners
accept the valuation of their Interests as set forth in the DCR Network
Appraisal.
14.1.3 In the event that the Limited Partners decide not to accept
the DCR Network Appraisal, the provisions of Sections 13.1.3, 13.1.4 and 13.1.5
and 13.2 shall be applied, to the extent necessary, to determine the valuation
of the Interests of the Limited Partners.
14.1.4 Upon the valuation of the Partnership and of the Limited
Partners' Interests having been finally determined as in this Article XIV set
forth, the buy-out of the Limited Partners' Interests shall proceed in
accordance with the Buy-Out Instructions.
ARTICLE XV
MISCELLANEOUS
15.1 Bank Accounts. Partnership funds shall be deposited in the name of
the Partnership in accounts designated by the General Partner, and withdrawals
shall be made only by Persons duly authorized by the General Partner.
15.2 Waiver of Partition. The Partners hereby agree that no Partner, nor
any successor in interest of any Partner, shall have the right, while this
Agreement remains in effect, to have the Property or any other Partnership
property partitioned, or to file a complaint or institute any proceeding at law
or in equity to have such Property or other property partitioned, and all
Partners, on behalf of themselves and their heirs, successors and assigns,
hereby waive any such right.
15.3 Choice of Law and Severability. This Agreement shall be construed in
accordance with the laws of the State of Nevada. If any provision of this
Agreement shall be contrary to the laws of the State of Nevada or any other
applicable law, at the present time or in the future, such provision only shall
be deemed null and void, but such nullity shall not affect the remaining
provisions of this Agreement, which shall continue in full force and effect.
This Agreement shall be deemed to be modified and amended so as to be in
compliance with all applicable laws and this Agreement shall then be construed
in such a way as will best serve the intention of the parties at the time of
the execution of this Agreement.
15.4 Captions, Gender and Number. The captions in this Agreement are
inserted only as a matter of convenience and in no way affect the terms or
intent of any provision of this Agreement. All defined phrases, pronouns and
other variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the context or the actual identity of the
organization, person or persons may require.
- 33 -
<PAGE> 39
15.5 Counterparts. This Agreement may be executed in one or more
counterparts, each bearing the signatures of one or more Partners. Each such
counterpart shall be considered an original and all of such counterparts shall
constitute a single agreement binding all of the parties as if all had signed a
single document.
15.6 Binding Effect. Except as may otherwise be provided to the contrary
in this Agreement, the terms and provisions of this Agreement shall be binding
upon and shall inure to the benefit of all the Partners, their personal
representatives, heirs, successors and assigns.
15.7 Entire Agreement. This Agreement, including any schedules and
exhibits, each of which is incorporated herein by this reference, constitutes
the entire agreement among the Partners regarding the terms and operations of
the Partnerships except as amended in writing pursuant to the requirements
hereof, and supersedes all prior and contemporaneous agreements, statements,
understandings and representations of the parties with respect to the
Partnership.
15.8 Plain Meaning. This Agreement shall be construed in accordance with
its plain meaning, without giving effect to any inference or implication
arising from the fact that it may have been drafted in whole or in part by
counsel to one or more but less than all Partners.
15.9 Notices. For purposes of Section 1.23 hereof, Notices shall be sent
to the Partners at their respective addresses set forth on Exhibit A hereto.
15.10 DE Status. During the term of the Partnership, no Limited
Partner shall, directly or indirectly, without the express written consent of
the General Partner (which consent may be granted or withheld by the General
Partner in the sole and absolute discretion of the General Partner) take any
action or omit to take any action which could, in the opinion of the General
Partner, jeopardize the General Partner's and/or the Partnership's compliance
with all criteria for (a) special financing, credits and other benefits to be
made available by the FCC with respect to the Auction to "small businesses" and
a "business owned by members of minority groups and women", (b) all applicable
foreign ownership requirements pursuant to the Communications Act of 1934, as
amended, and/or (c) ownership of a PCS License. If required by FCC regulations
and with the advice of FCC counsel, the Partners agree to modify the structure
of the Partnership to conform to such FCC regulations taking into consideration
and preserving to the extent possible the economic benefits of each Partner as
set forth in this Agreement.
- 34 -
<PAGE> 40
ARTICLE XVI
RATIFICATION, POWER OF ATTORNEY
16.1 Ratification. Each Partner who executes this Agreement at the end
of this Article by such Partner's personal signature or by the signature of
such Partner's authorized attorney-in-fact or signatory, hereby specifically
adopts and approves each and every provision of this Agreement.
16.2 Power of Attorney. Each Limited Partner, including any Limited
Partner who shall become a party to this Agreement on or after the date hereof,
constitutes and appoints the General Partner, or if more than one, the Managing
General Partner, its true and lawful attorney-fact, and in its name, place and
stead, to make, execute, sign, acknowledge, and file, but in all cases subject
to the limitations set forth elsewhere in this Agreement:
16.2(a) One or more certificates of limited partnership;
16.2(b) all instruments (including, e.g., Amended Certificates of
Limited Partnership) which such General Partner deems appropriate to reflect
any amendment, change, or modification of the Partnership Agreement in
accordance with the terms of Section 8.3 of this Agreement;
16.2(c) any and all other certificates or other instruments which
may be required to be filed by the Partnership under the laws of the State of
Nevada or of any other state or jurisdiction, including, without limitation,
any certificate or other instruments necessary in order that the Partnership
continue as a limited partnership under the laws of the State of Nevada;
16.2(d) one or more certificates of fictitious or assumed name;
16.2(e) any and all other documents which may be required to
effectuate the operation of this Partnership pursuant to the terms of this
Agreement; and
16.2(f) all documents which may be required to effectuate the
dissolution and termination of the Partnership in accordance with the
provisions of this Agreement, including cancellation of its Certificate of
Limited Partnership, as amended from time to time.
The foregoing Power of Attorney hereby is declared to be irrevocable
and a power coupled with an interest, and (to the extent permitted by
applicable law) shall survive the incapacity of a Limited Partner and the
delivery of an assignment by a Limited Partner of a Partnership Interest,
except that where the assignee is approved for admission as a Substituted
Limited Partner, the power of attorney shall survive the delivery of such
assignment for the sole purpose of enabling the General Partner or Managing
General Partner, as the case may be, to execute, acknowledge and
- 35 -
<PAGE> 41
file any instrument to effectuate such substitution. The Limited Partners
hereby agree to be bound by any representations made by the General Partner or
the Managing General Partner acting in good faith pursuant to such Power of
Attorney.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above.
GENERAL PARTNER:
---------------
DCR NEVADA, INC.
Attest: By: [SIG]
----------------------- -------------------------------
LIMITED PARTNERS:
----------------
DCR COMMUNICATIONS, INC.
Attest: By: [SIG]
----------------------- -------------------------------
ONYX TELECOMMUNICATIONS,
L.L.C.
Attest: By: [SIG]
----------------------- -------------------------------
WIRELESS PCS, INC.
Attest: By:
----------------------- -------------------------------
Witness: /s/ ANDREW MOLASKY
----------------------- ----------------------------------
Andrew Molasky
Witness: /s/ ALAN MOLASKY
----------------------- ----------------------------------
Alan Molasky
Witness: /s/ STEVEN MOLASKY
----------------------- ----------------------------------
Steven Molasky
- 36 -
<PAGE> 42
EXHIBIT A
to
DCR PACIFIC PCS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
Partners' Names, Addresses, Percentage Interests
and Capital Contributions
<TABLE>
<CAPTION>
Initial 10%
Names/Addresses % Interests Capital Contributions Contribution
- --------------- ----------- --------------------- ------------
<S> <C> <C> <C>
GENERAL PARTNER
DCR Nevada, Inc. 1.0 $20,000 $2,000
2550 M Street, N.W.
Suite 200
Washington, D.C. 20037
LIMITED PARTNERS
DCR Communications, Inc. 54.1 $1,380,000 $138,000
2550 M Street, N.W.
Suite 200
Washington, D.C. 20037
Onyx Telecomm L.L.C. 24.9 $400,000 $40,000
1221 11th Street N.W.
Washington DC 20005
Andrew Molasky 5.0 $100,000 $10,000
3111 S. Maryland Parkway
Las Vegas, NV 89109
Alan Molasky 5.1 $100,000 $10,000
3111 S. Maryland Parkway
Las Vegas, NV 89109
Steven Molasky 5.0 $100,000 $10,000
3111 S. Maryland Parkway
Las Vegas, NV 89109
Wireless PCS, Inc. 4.9 $100,000 $10,000
2305 Kelbe Drive
Little Chute, WI 54140
</TABLE>
A - 1
<PAGE> 43
EXHIBIT A
to
DCR PACIFIC PCS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
Partners' Names, Addresses, Percentage Interests
and Capital Contributions
<TABLE>
<CAPTION>
Initial
Names/Addresses % Interests Capital Contributions
- --------------- ----------- ---------------------
<S> <C> <C>
GENERAL PARTNER
DCR Nevada, Inc. 1.0 $20,000
2550 M Street, N.W.
Suite 200
Washington, D.C. 20037
LIMITED PARTNERS
DCR Communications, Inc. 54.1 $1,380,000
2550 M Street, N.W.
Suite 200
Washington, D.C. 20037
Onyx Telecomm L.L.C. 24.9 $400,000
1221 11th Street N.W.
Washington DC 20005
Andrew Molasky 5.0 $100,000
3111 S. Maryland Parkway
Las Vegas, NV 89109
Alan Molasky 5.1 $100,000
3111 S. Maryland Parkway
Las Vegas, NV 89109
Steven Molasky 5.0 $100,000
3111 S. Maryland Parkway
Las Vegas, NV 89109
Wireless PCS, Inc. 4.9 $100,000
2305 Kelbe Drive
Little Chute, WI 54140
</TABLE>
A - 1
<PAGE> 44
FIRST AMENDMENT TO
DCR PACIFIC PCS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
The undersigned, being all of the Partners of the Partnership, hereby
enter into this First Amendment to the Agreement of Limited Partnership for DCR
Pacific PCS Limited Partnership (the "Partnership"), dated as of October 17,
1995 (the "Agreement").
I. Section 3.1 of the Agreement is hereby amended to read as follows:
3.1 Initial Capital Contribution. The initial Capital Contributions of
each of the Partners is set forth on Exhibit A hereto. On or before
October 24, 1995, each of the Partners shall pay, in cash, to the
Partnership an amount equal to ten per centum (10%) of their respective
initial Capital Contribution to such account of the Partnership as the
General Partner may direct. No later than two weeks before the date that
the General Partner shall give Notice of as being the date the initial
deposit for the FCC Auction is due, each of the Limited Partners shall
pay, in cash, to the Partnership the balance of their respective initial
Capital Contribution, being ninety per centum (90%) of the amount set
forth opposite their names on Exhibit A hereto, which payments the General
Partner shall cause to be held in an escrow account to be established by
the General Partner on behalf of the Partnership and held by an escrow
agent separate from funds of any other entity. Notwithstanding the
foregoing provision, the Partners agree that all or part of the Capital
Contribution of the General Partner and of any Limited Partner that is an
Affiliate of the General Partner will be deposited as part of the
downpayment for PCS Licenses to be acquired at the FCC Auction.
II. Section 3.9 of the Agreement is amended to read as follows:
3.9 Condition Precedent. In the event that the Partnership does not
acquire the PCS Licenses required to own and operate the DCR PCS Network
in the Las Vegas basic trading area, then, with respect to each Limited
Partner, a sum (the "Pay Amount") equal to the aggregate amount of (i) all
Capital Contributions (i.e. the initial Capital Contribution and all
additional Capital Contributions) paid by such Limited Partner to the
Partnership, plus (ii) accrued interest thereon, less (iii) an amount
determined by the General Partner to cover costs attributable to
preparation for and participation in the bidding for said PCS Licenses at
the FCC Auction, but not to exceed ten percent (10%) of the aggregate
amount of all such Capital Contributions paid by such Limited Partner,
shall be returned to such Limited Partner within thirty (30) days
subsequent to the date on which the FCC Auction is concluded
("Post-Auction Period"). Upon the payment by the Partnership to any
Limited Partner of the Pay Amount, said Limited Partner shall thereafter
own no Interest in the Partnership.
<PAGE> 45
III. Section 9.2 of the Agreement is amended to read as follows:
9.2 Transfer of a Limited Partner's Interest. No Limited Partner
may transfer, assign or Encumber all or any part of such Limited Partner's
Interest except in accordance with the provisions of this Section.
9.2(a) For a period of one year from the date of this First Amendment,
no Limited Partner may transfer, assign or Encumber all or part of such
Limited Partner's Interest except upon Consent of the General Partner
which Consent shall not unreasonably be withheld.
9.2(b) After the passage of one year from the date of this First
Amendment, should any Limited Partner decide to transfer or assign such
Limited Partner's interest, such Limited Partner (hereinafter called
"Offeror") shall first offer all or part of such Limited Partner's
Interest by Notice to the other Partners.
Every such offer shall be in writing, shall state that the Offeror offers
to sell all of Offeror's Interest, and shall specify the cash price
therefor. Each Partner other than the Offeror shall have the option to
purchase some or all of the Interest of the Offeror. Within ten (10) days
after receipt of such Notice, any Partner who desires to exercise such
option shall make, execute and deliver in writing to the Offeror, either
personally or by registered mail, such Partner's acceptance of the offer
and agreement to acquire the Interest of the Offeror at the price offered
by Offeror. Should more than one Partner exercise this option, then each
such Partner (hereinafter called an "Accepting Partner") shall acquire the
Interest of the Offeror in the proportion that the Interest of such
Accepting Partner bears to the aggregate Interests of all Accepting
Partners at the price and upon the terms hereinafter set forth. The
Accepting Partner(s) shall make payment of the entire purchase price
within (30) days of the acceptance of the offer.
Notwithstanding the foregoing, acquisition by an Accepting Partner of all
or part of such Offeror's Interest shall be permitted only to the extent
such transfer would not, in the opinion of the General Partner, contravene
Section 15.10 of the Agreement of Limited Partnership.
The Offeror shall not be required to sell its Interest pursuant to the
terms hereof if the options which have been exercised pursuant hereto to
purchase Offeror's Interest are for less than all of the Interest owned by
Offeror. In such event, Offeror shall thereafter be free to enter into an
agreement to dispose of Offeror's Interest free of the restrictions of
this Agreement for a period of six (6) months from the date of the offer
to the other Partners. At the expiration of this six-month period, the
restrictions and limitations imposed by this Agreement shall reapply to
any Interest then owned by the Offeror.
9.2(c) Notwithstanding the foregoing, each Limited Partner shall Encumber
its Interest or its right to receive distributions or proceeds from the
Partnership in accordance with the provisions of Section 9.4 below.
- 2 -
<PAGE> 46
IV. Section 16.2(b) of the Agreement is hereby amended to read:
16.2(b) All instruments (including, e.g., Amended Certificates of Limited
Partnership) which such General Partner deems appropriate to reflect any
amendment, change or modification of the Partnership Agreement in
accordance with the terms of Section 8.2 of this Agreement;
V. Except as so amended, the terms and provisions of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of October 19, 1995.
GENERAL PARTNER:
----------------
DCR NEVADA, INC.
Attest: By: [SIG]
---------------------- -----------------------------
LIMITED PARTNERS:
-----------------
DCR COMMUNICATIONS, INC.
Attest: By: [SIG]
---------------------- -----------------------------
ONYX TELECOMMUNICATIONS,
L.L.C.
Attest: By: /s/ THOMAS HART, JR.
---------------------- -----------------------------
WIRELESS PCS, INC.
Attest: By: [SIG]
---------------------- -----------------------------
Witness: /s/ ANDREW MOLASKY
---------------------- --------------------------------
Andrew Molasky
Witness: /s/ ALAN MOLASKY
---------------------- --------------------------------
Alan Molasky
Witness: /s/ STEVEN MOLASKY
---------------------- --------------------------------
Steven Molasky
- 3 -
<PAGE> 47
SECOND AMENDMENT
TO
DCR PACIFIC PCS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
The undersigned General Partner and DCR Communications, Inc., a limited
partner holding a majority of the partnership interests in DCR Pacific PCS
Limited Partnership (the "Partnership"), and Todd Marshall, as Trustee of the
Todd and Vivica Marshall Revocable Trust, hereby enter into this SECOND
AMENDMENT to the Agreement of Limited Partnership for DCR Pacific PCS Limited
Partnership dated as of October 17, 1995, as amended by a First Amendment dated
as of October 19, 1995 (as so amended, the "Agreement").
I. Exhibit A of the Agreement is hereby restated and amended to add the
Todd and Vivica Marshall Revocable Trust as a new limited partner in the
Partnership by partial assignment of the partnership interest of limited
partner DCR Communications, Inc. and to reduce the percentage interest of
limited partner DCR Communications, Inc. in the Partnership, all as set forth
in the Second Amended and Restated Exhibit A as attached hereto and which
partial assignment of limited partner's interest is hereby consented to by the
General Partner.
II. The Todd and Vivica Marshall Revocable Trust hereby acknowledges
receipt of the Agreement and all exhibits thereto which precede the date hereof
and adopts and approves each and every provision of the Agreement.
III. Except as so restated and amended, the terms and provisions of the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have caused this Second Amendment to
be executed as of March 19, 1996.
GENERAL PARTNER:
DCR NEVADA, INC.
Attest: [SIG] By: [SIG]
---------------------- -------------------------------
ASS'T SEC.
LIMITED PARTNERS:
DCR COMMUNICATIONS, INC.
Attest: [SIG] By: [SIG]
---------------------- -------------------------------
ASS'T SEC.
TODD AND VIVICA MARSHALL
REVOCABLE TRUST
Attest: By: /s/ TODD MARSHALL
---------------------- -------------------------------
Todd Marshall, Trustee
- 4 -
<PAGE> 48
EXHIBIT A
TO
DCR PACIFIC PCS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
Partners' Names, Addresses, Percentage Interests and Capital Contributions
(Amended and Restated as of March 19, 1996)
<TABLE>
<CAPTION>
Names/Addresses % Interests Capital Contributions
- --------------- ----------- ---------------------
<S> <C> <C>
GENERAL PARTNER
DCR Nevada, Inc. 1.0 $45,837
2550 M Street, N.W., Suite 200
Washington, D.C. 20037
LIMITED PARTNERS
DCR Communications, Inc. 72.1 $3,404,186*
2550 M Street, N.W., Suite 200
Washington, D.C. 20037
Onyx Telecomm L.L.C. 10.9 $500,000
1221 11th Street N.W.
Washington DC 20005
Andrew Molasky 3.0 $138,678
3111 S. Maryland Parkway
Las Vegas, NV 89109
Alan Molasky 3.1 $141,252
3111 S. Maryland Parkway
Las Vegas, NV 89109
Steven Molasky 3.0 $138,678
3111 S. Maryland Parkway
Las Vegas, NV 89109
Wireless PCS, Inc. 4.9 $224,603
2305 Kelbe Drive
Little Chute, WI 54140
Todd and Vivica Marshall Revocable Trust 2.0 $90,509
2330 Industrial Road
Las Vegas, NV 89102
</TABLE>
- ----------------------
* Contribution in cash and services pledged to license acquisition.
<PAGE> 1
EXHIBIT 10.30
DCR COMMUNICATIONS, INC.
2550 M Street, N.W., Suite 200
Washington, DC 20037
April 1, 1996
Masa Telecom, Inc.
1140 19th Street, N.W.
Suite 601
Washington, DC 20036
This letter is to acknowledge the agreement of DCR Communications, Inc.
("DCR") to pay Masa Telecom, Inc. ("MTI") a finder's fee in the amount of Five
Million Dollars ($5,000,000) in consideration of the agreement of MTI to
perform each of the following:
A. MTI shall cause a party who has previously loaned funds to DCR that
are convertible into Series A Debentures of DCR or another party introduced by
MTI to DCR which is reasonably acceptable to DCR (the "Investor") to purchase
from DCR Fifteen Million Dollars ($15,000,000.00) of its Series A Debentures,
which sum shall be paid directly by the Investor to the Federal Communications
Commission ("FCC") at the conclusion of the FCC's C-block auction for PCS
licenses (the "Licenses") in which DCR is declared the high bidder of any
Licenses (the "DCR Licenses") in time to be applied to the first five percent
(5%) downpayment due to the FCC within five (5) business days after the
conclusion of the said auction; and
B. Within sixty (60) days after the conclusion of the said auction and
provided that DCR is declared the high bidder of any Licenses, MTI shall also
cause the Investor to deposit the sum of $10,700,000 in an account maintained
at Mitsubishi Bank Trust Company of New York (the "Account"). MTI will notify
DCR of the name and account number of the Account and shall only permit the
disbursement of the principal amount of the funds from the Account in
furtherance of this letter agreement. MTI shall cause the payment to the FCC
on behalf of DCR of such portion of the $10,700,000 as directed in writing from
DCR in time to cover the second five percent (5%) downpayment due the FCC with
respect to the award of any DCR Licenses and simultaneously pay over to DCR the
balance of such sum. When said $10,700,000 is paid out by MTI as hereinafter
provided, DCR shall issue to the Investor payment of $10,700,000 of DCR's
Series A Debentures. In the event the FCC is delayed in awarding DCR Licenses
to DCR due to
<PAGE> 2
Masa Telecom, Inc.
April 1, 1996
Page 2
an administrative challenge, MTI shall retain the $10,700,000 in the Account
unless, and until such time as, any DCR Licenses shall be awarded by the FCC to
DCR. In the event the FCC is delayed in awarding all DCR Licenses to DCR due
to a judicial proceeding filed against DCR or the FCC, MTI shall be permitted
to withdraw the $10,700,000 from the Account upon at least three (3) prior
business days' written notice to DCR; provided, however, that within fifteen
(15) days after a judicial determination that permits the FCC to award any DCR
Licenses to DCR, MTI shall cause the sum of $10,700,000 to be redeposited into
the Account. If after such redeposit, the FCC does not issue any DCR Licenses
within thirty (30) days of such redeposit, the amount so redeposited will be
treated as a loan from Investor to DCR subject to all of the terms and
conditions described below with interest accruing on the 30th day after
redeposit. Notwithstanding the right of MTI to withdraw the $10,700,000 from
the Account in the event of a judicial proceeding that delays the award of DCR
Licenses, at DCR's option exercised prior to such withdrawal of funds, it may
require that the Investor loan such $10,700,000 to DCR on a non-recourse basis,
which amount so loaned shall be retained in the Account pending the FCC's
award of any DCR Licenses to DCR. As consideration for such loan, DCR agrees
to pay to the Investor interest on the outstanding balance of such loan at the
rate of 12% per annum; however, DCR shall be entitled to credit against the
amount of any such interest due the amount of interest earned by Investor from
Mitsubishi Bank Trust Company of New York on the amount so loaned during the
period that interest accrues from DCR to the Investor on the amount so loaned.
The loan will be evidenced by a registered promissory note in accordance with
the applicable portfolio debt rules and DCR will grant to the Investor a
security interest in the Account to collateralize the repayment of the amounts
due under such loan. Interest shall begin to accrue on such loan by the
Investor to DCR thirty (30) days after the $10,700,000 has been deposited in
the Account if, as of such 30th day there is litigation pending which prevents
the issuance by the FCC of, or causes the FCC not to issue, any DCR Licenses.
All accrued interest shall be payable on the earlier of the date of the release
of the $10,700,000 from the Account as provided herein or the 1st anniversary
date of the date interest begins to accrue on such loan, and, if the latter,
thereafter on a quarterly basis until distributed in accordance with the terms
of this letter. All interest will be paid to the Investor at a foreign account
designated by MTI. MTI represents to DCR that the Investor is a foreign person
and that the interest payable by DCR to the Investor will not be subject to
withholding and DCR agrees that the entire amount of such interest will be
remitted by DCR to the Investor. MTI's obligation to maintain the Account and
make disbursement from it in accordance with this letter agreement
<PAGE> 3
Masa Telecom, Inc.
April 1, 1996
Page 3
shall terminate upon the first to occur of (i) DCR and/or the FCC receiving the
entire $25,700,000 from MTI pursuant to this agreement, (ii) the final
non-appealable determination by a court of competent jurisdiction that the FCC
shall not award to DCR any DCR Licenses, in which event the funds shall be
returned to the Investor and (iii) written notice by DCR to MTI that MTI should
return such funds to the Investor.
If these conditions are met, the finder's fee shall be due and payable to
you on the later of December 31, 1996 or five (5) business days following the
date DCR and/or the FCC receives the entire $25,700,000 from MTI in accordance
with the terms of this agreement. DCR will include in its working capital
budget the payment of the foregoing fee.
MTI's obligation to transfer to the FCC and/or DCR any amounts hereunder
is conditioned upon DCR providing written notice to MTI of the need to transfer
such funds at least three (3) business days prior to the date such funds are to
be so transferred.
MTI agrees to indemnify and hold harmless DCR from all claims, actions,
suits, judgments, costs and expenses arising out of or in connection with a
possible assertion by C.E. Capital, Inc. that it is entitled to a portion of
the aforesaid fee. If you are in agreement with these terms, please so
indicate by signing below.
Very truly yours,
/s/ DANIEL C. RIKER
Daniel C. Riker
Chairman of the Board
Agreed this 1st day of April, 1996
MASA TELECOM, INC.
By: /s/ BRION R. SASAKI
---------------------------------
Brion R. Sasaki, President
<PAGE> 1
EXHIBIT 10.32
POCKET COMMUNICATIONS, INC.
Class B Non-voting Common Stock
Subscription Agreement
THIS SUBSCRIPTION AGREEMENT ("Subscription Agreement") is made
by and between POCKET COMMUNICATIONS, INC., a Maryland corporation formerly
known as DCR Communications, Inc. (the "Company") and the undersigned (the
"Subscriber"), who is subscribing hereby for the number of shares of Class B
Non-voting Common Stock, par value one cent ($.01) per share, of the Company
(the "Common Stock") set forth below.
In consideration of the Company's agreement to sell shares of
Common Stock to the Subscriber upon the terms and conditions set forth herein,
the Subscriber agrees with, and represents and warrants to, the Company as
follows:
A. SUBSCRIPTION.
1. The Subscriber, BOOZ-ALLEN & HAMILTON INC., a
corporation organized under the laws of Delaware, hereby subscribes for
Ninety-three Thousand Seven Hundred Fifty (93,750) shares of Common Stock
("Shares") at a price of Eight Dollars and 00/100 ($8.00) per share for an
aggregate purchase price of Seven Hundred Fifty Thousand Dollars ($750,000)
("Purchase Price"). As consideration for the Shares of Common Stock
hereinafter subscribed for, the Subscriber has agreed to provide to the Company
customer care system consulting services for the Las Vegas, Nevada, PCS
telephone network currently under development by the Company, which services
shall have an invoice value as approved by the Company of not less than One
Million Five Hundred Thousand Dollars ($1,500,000) and which services shall be
provided pursuant to the terms of that certain letter of proposal, dated June
28, 1996, from the Subscriber to the Company ("Customer Agreement"). As
invoices are submitted by Subscriber and approved by the Company for services
rendered and expenses incurred ("Approved Sum") pursuant to the Customer
Agreement, the Company shall pay such invoice and the Subscriber shall accept
said payment by the issuance to Subscriber of that number of Shares equal to
the Approved Sum divided by eight (8), rounded to the nearest whole Share.
Completed Subscription Agreement, including
Attachment A should be sent to:
Pocket Communications, Inc.
2550 M Street N.W., Suite 200
Washington, D.C. 20037
Attn: Daniel C. Riker
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2. The Subscriber understands and acknowledges that:
(a) This subscription may be accepted or rejected
in whole or in part by the Company, in its sole and absolute discretion. The
Subscriber shall not have any of the rights of a stockholder of the Company,
and any sale of Shares of Common Stock to the Subscriber shall not be deemed to
occur, until the Subscriber's offer is accepted in writing. The Subscriber
shall not have any recourse against the Company if a subscription is rejected
in whole or in part. The Company shall notify the Subscriber in writing of the
acceptance or rejection of this subscription. Upon acceptance of this
subscription, the Company will forthwith return to the Subscriber a copy of
this Subscription Agreement duly executed on behalf of the Company;
(b) This subscription is and shall be irrevocable
except that the Subscriber shall have no obligations hereunder in the event
that this subscription is for any reason rejected;
(c) No federal or state agency has made any
finding or determination as to the fairness of this offering for investment,
nor any recommendation or endorsement of the Common Stock;
(d) Because the Shares have not been registered
under the Securities Act of 1933, as amended (the "Act"), or applicable state
securities laws, the Shares cannot be resold unless subsequently registered
under the Act and such laws or an exemption from such registration is
available; the Company is not obligated to file a notification under a
registration statement under the Act; and the Shares are "restricted
securities" as that term is so defined under Rule 144, adopted under the Act,
which rule governs the possible disposition of the Shares. The Company is and
will be under no obligation to register the Shares under the Act, except as
provided in Section A.3 below.
3. The Subscriber and the Company agree that:
(a) Upon the earlier to occur of (i) the
completion of the IPO (hereinafter defined) and (ii) January 31, 1997, if the
Lowest Purchase Price received by the Company for Common Stock is less than
Eight and 00/100 Dollars ($8.00) per share, the Company shall issue to
Subscriber that number of shares of Common Stock (rounded to the nearest whole
share) (hereinafter, "Additional Shares") which, when added to the number of
Shares to be issued to Subscriber pursuant to the terms of this Subscription
Agreement shall result in Subscriber receiving that number of shares of Common
Stock that Subscriber would have received in exchange for the Purchase Price
if, as of the date of this Subscription Agreement, the per share purchase price
for the Common Stock had been the Lowest Purchase Price. For purposes of this
Subscription
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Agreement, unless expressly provided otherwise, the term "Shares" shall include
Additional Shares, if any. The "Lowest Purchase Price" shall be the lowest per
share purchase price paid to the Company for the Common Stock from and after
August 1, 1996 until the first to occur of (i) the completion of the IPO and
(ii) January 31, 1997; provided, however, that the following transactions shall
not be included in determining the Lowest Purchase Price: (a) a sale or
issuance of securities pursuant to any agreement entered into prior to the date
hereof, including, but not limited to, the issuance of securities pursuant to
warrants or conversion rights granted by the Company; (b) a sale or issuance of
securities, including options, that are issued exclusively to Control Group
members (as that term is defined in Part 24 of the rules and regulations of the
FCC); (c) a sale or issuance of securities, including options, to (i) employees
and/or directors of the Company pursuant to stock option, stock bonus or stock
incentive and/or compensation plans duly approved by the Board of Directors of
the Company, (ii) any third parties who receive or are issued securities solely
as a finder's fee, consulting fee, brokerage fee or as compensation for
identifying investors in the Company, (iii) any person or entity as
consideration of the purchase by the Company of assets and/or services,
including, but not limited to, the purchase of names or marks or the right to
use names or marks, (iv) Gloria Borland, Gloria Borland Hawaii PCS, Inc. or any
affiliate thereof, or (v) any partner(s) in DCR Pacific PCS Limited Partnership
or any affiliate of any partner(s) in exchange for or in connection with their
interests in the Partnership; and (d) a repurchase by the Company and/or a
resale by the Company or others (including, for purposes hereof, any issuance
and sale by the Company of up to One Million Eight Hundred Thousand Seven
Hundred Twenty-nine (1,800,729) shares of its common stock at $.83 per share,
which sale is related to such repurchase) of any and all shares of common stock
of the Company currently held by Westinghouse Electric Corporation, and any
assignment thereof.
(b) All references to Common Stock in this
Subscription Agreement shall mean Class B Non-voting Common Stock, par value
one cent ($.01) per share, as the same may be modified or exchanged in any
reclassification or recapitalization of the Company. The recapitalization
currently contemplated by the Company provides for the exchange of all shares
of Class A Common Stock held Non-Control Group Investors, par value $.01 per
share, and all shares of Class B Non-Voting Common Stock, par value $.01 per
share, into shares of Class B Voting Common Stock, par value $.01 per share.
(c) The Company agrees to endeavor to register
the Shares through a "shelf registration" to be filed with the Securities and
Exchange Commission ("Commission") following any applicable lock-up period
after the IPO, which lock-up period is anticipated to be approximately one
hundred eighty (180) days. In the event that such a shelf registration shall
not become effective
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within ninety (90) days following the end of the IPO lock-up period, the
Subscriber shall have the right to two (2) demands for registration of the
Shares held by the Subscriber at the expense of the Company (except for
underwriters' discounts and brokers' commissions, which shall be payable by the
Subscriber). With respect to each and every registration effected pursuant to
the terms and provisions hereof, each such registration shall be subject to any
cutback that is required by the Company's underwriters. At the Company's
election, other holders of the Company's Common Stock shall have the right to
piggyback on any such registration; provided, however, that in the event of any
cutback required by the underwriters, the cutback will be made pro rata among
the Subscriber and all persons exercising such registration rights. In
addition, the Subscriber shall have unlimited piggyback rights with respect to
any other Company registration statement other than the IPO (whether or not
such relates to shares being sold by the Company or others), subject to
underwriters' cutback; provided, however that any cutback by the underwriters
will be made pro rata among the Subscriber and all persons exercising such
registration rights.
(d) Subscriber covenants and agrees to furnish to
the Company annually a list of any commercial mobile radio service or private
mobile service ("CMRS") licenses attributable to Subscriber and to the Company
by virtue of Subscriber's investment in the Company pursuant to 47 CFR Sections
24.206 and 20.6.
(e) For purposes of this Subscription Agreement, IPO
means the first sale of stock of the Company to the public through an
underwritten public offering where the Corporation's securities are listed on
an established national stock exchange or are admitted to quotation on the
National Association of Securities Dealer Automated Quotation System, which
produces gross proceeds of at least Twenty-Five Million and 00/100 Dollars
($25,000,000) pursuant to a registration statement filed with, and declared
effective by, the Commission under the Act.
B. REPRESENTATIONS AND WARRANTIES
1. The Subscriber hereby represents, warrants and agrees
that:
(a) It is acquiring the Shares for its own
account for investment and not with a view to distribution or resale, and
agrees (i) not to sell, hypothecate, or otherwise dispose of the Shares unless
the Shares have been registered under the Act and applicable state securities
laws or, in the opinion of counsel approved by the Company, an exemption from
the registration requirements of the Act and such laws is available and (ii)
not to act in any way that would constitute it be an "underwriter" of such
shares within the meaning given that term by the Act;
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(b) Each of the answers in the Purchaser
Questionnaire, which is attached to this Subscription Agreement as Attachment A
and incorporated by reference herein, is true, complete, and correct;
(c) It is a sophisticated investor with a high
degree of business sophistication and it is not relying on the expertise or
experience of an advisor in making this investment decision; it is a
sophisticated institutional or corporate investor as well as an "accredited
investor" as defined in Rule 501(a) under the Act; the Subscriber agrees to
provide such additional information as may be reasonably required by the
Company for compliance with any applicable state or federal securities laws;
(d) It has adequate net worth and means of
providing for its current needs and could sustain a complete loss of its
investment in the Company; it has no need for liquidity in this investment in
the Shares.
(e) It has received and reviewed all financial
and other information that has been provided by the Company, including the
Descriptive Memorandum of the Company dated June, 1996 ("Descriptive
Memorandum"); the Company has made available to it all documents that have been
requested relating to an investment in the Company and has provided it the
opportunity to ask, and has provided answers to, all of its questions
concerning the offering and investment in the Company; and, in evaluating the
suitability of an investment in the Company, it has relied only on the
information contained in any documents or written answers so furnished to it by
the Company;
(f) It recognizes that investment in the Company
involves substantial risks and that it has taken full cognizance of and
understands all of the risks related to the purchase of Shares, including but
not limited to those set forth under the caption "Risk Factors" in the
Descriptive Memorandum;
(g) It has had the opportunity to discuss with
appropriate professional, legal, tax and financial advisors the suitability of
an investment in the Company for the Subscriber's particular financial
situation;
(h) The Subscriber is acquiring the interest in
the Company after having received and reviewed such financial information and
other data as was necessary in order to make an informed investment decision;
(i) No statement, printed material, or inducement
that is contrary to the information contained in the Descriptive Memorandum has
been given or made on behalf of the Company to the Subscriber; and
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(j) Subscriber does not own five percent (5%) or
more of the ownership interests (as such term is defined in 47 CFR Section
24.229) in any other entity that bid in the FCC C-Block Auction, or the FCC
C-Block Reauction or hold any officer or director positions attributable to the
Subscriber in such entities. Subscriber does not own five percent (5%) or more
of the ownership interests (as defined in 47 CFR Section 24.229) in any PCS
A/B-block licensees or hold any officer or director positions attributable to
Subscriber for any such licensee, and does not own five percent (5%) or more of
the ownership interests (as defined in 47 CFR Sections 24.204 and 20.6) in any
cellular, SMRS or other CMRS licensee or applicant or hold any officer or
director positions attributable to Subscriber in such entities.
(k) The Subscriber is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its organization and is qualified to do business and in good standing as a
foreign corporation under the laws of each jurisdiction in which the conduct of
the business of the Subscriber would require such registration or qualification
and in which the failure to so qualify could have a material adverse effect on
the business of the Subscriber.
(l) The execution, delivery and performance by
the Subscriber of this Subscription Agreement have been duly authorized by all
necessary action and this Subscription Agreement has been duly executed and
delivered and, when executed and delivered by the Company, will constitute the
legal, valid, binding and enforceable obligation of the Subscriber, subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
receivership, conservatorship, or other similar laws, regulations or procedures
of general applicability now or hereafter in effect relating to or affecting
creditors' or other obligees' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(m) Neither the execution and delivery of this
Agreement by the Subscriber, nor the consummation of the transactions herein
contemplated will, with or without the giving of notice or the passage of time,
or both, violate or conflict with, result in a material breach of, loss of
rights or constitute a default under any covenant or agreement to which the
Subscriber is a party or by which the Subscriber is bound, or any judgment,
order, decree, law, rule or regulation to which the Subscriber is subject, or
its certificate of incorporation or by-laws.
(n) The Subscriber is not subject to any order,
judgment, decree or governmental restriction or a party to or threatened with
any litigation or arbitration, or other legal or administrative proceeding
investigation of any kind which would
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materially adversely affect, or which would prevent or hamper the transactions
contemplated by this Subscription Agreement; and the Subscriber is not charged
with, or to its knowledge under investigation with respect to any violation of
any provision of any federal, state or local law or administrative rule or
regulation or the decree of any court by which the Subscriber is bound which
would materially adversely affect, or which would prevent or hamper the
transaction contemplated by this Subscription Agreement.
(o) All corporate proceedings of the Subscriber
including, without limitation, all actions of the shareholders and/or directors
of the Subscriber, if any, necessary to approve the transactions contemplated
by this Subscription Agreement have been taken or will be taken prior to the
Closing Date.
(p) It has full corporate power, authority and
legal right to execute, deliver and perform its obligations under this
Subscription Agreement.
THE FOREGOING REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER
ARE TRUE AND ACCURATE AS OF THE DATE OF THE ACCEPTANCE HEREOF BY THE COMPANY
AND THE ADMISSION OF THE SUBSCRIBER AS A STOCKHOLDER. IF IN ANY RESPECT SUCH
REPRESENTATIONS AND WARRANTIES SHALL NOT BE TRUE AND ACCURATE PRIOR THERETO,
THE SUBSCRIBER WILL GIVE WRITTEN NOTICE OF SUCH FACT TO THE COMPANY, SPECIFYING
WHICH REPRESENTATIONS AND WARRANTIES ARE NOT TRUE AND ACCURATE AND THE REASONS
THEREFOR.
2. The Company hereby represents, warrants and agrees
that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
organization and is qualified to do business and in good standing as a foreign
corporation under the laws of each jurisdiction in which the conduct of the
business of the Company would require such registration or qualification and in
which the failure to do so or the failure to so qualify could have a material
adverse effect on the business of the Company.
(b) The execution, delivery and performance by
the Company of this Subscription Agreement have been duly authorized by all
necessary action and this Subscription Agreement has been duly executed and
delivered and constitutes the legal, valid, binding and enforceable obligation
of the Company, subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, receivership, conservatorship, or other similar laws,
regulations or procedures of general applicability now or hereafter in effect
relating to or affecting creditors' or other obligees' rights generally and
subject, as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
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(c) Neither the execution and delivery of this
Subscription Agreement by the Company, nor the consummation of the transactions
herein contemplated in accordance with the conditions set forth herein, will,
with or without the giving of notice or the passage of time, or both, violate
or conflict with, result in a material breach of loss of rights, or constitute
a default under, any covenant or agreement to which the Company is a party or
by which the Company is bound, or any judgment, order, decree, law, rule or
regulation to which the Company is subject, or its certificate of incorporation
or by-laws.
(d) Except as disclosed on Schedule 2(e) and
rulemaking proceedings of general applicability, the Company is not subject to
any order, judgment, decree or governmental restriction or a party to or
threatened with any litigation or arbitration, or other legal or administrative
proceeding investigation of any kind which would materially adversely affect,
or which would prevent or hamper the transactions contemplated by this
Subscription Agreement; and the Company is not charged with, or to its
knowledge under investigation with respect to any violation of any provision of
any federal, state or local law or administrative rule or regulation or the
decree of any court by which the Company is bound which would materially
adversely affect, or which would prevent or hamper the transaction contemplated
by this Subscription Agreement.
(e) All corporate proceedings of the Company
including, without limitation, all actions of the shareholders and/or directors
of the Company, if any, necessary to approve the transactions contemplated by
this Subscription Agreement have been taken or will be taken prior to the
Closing Date.
(f) It has full corporate power, authority and
legal right to execute, deliver and perform its obligations under this
Subscription Agreement.
(g) Relying in part on the representations and
warranties of the Company set forth in Section B.1 above, the offering of the
Shares to the Company is exempt from registration under the Act.
(h) The Shares of Common Stock subscribed for
(other than the Additional Shares, the number of which cannot be determined)
have been duly authorized by the Company and, when issued and delivered by the
Company against payment therefor in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable.
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C. TRANSFER RESTRICTIONS
1. The certificates evidencing the Shares of the Company
shall include provisions substantially in the form of the legend set forth
below, which the Subscriber has read and understands:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES ACTS (THE
"STATE ACTS") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH SECURITIES MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER THE ACT OR THE STATE
ACTS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON DELIVERY
TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE BOARD OF DIRECTORS
OF THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE
SUBMISSION TO THE BOARD OF DIRECTORS OF SUCH OTHER EVIDENCE SATISFACTORY TO THE
BOARD OF DIRECTORS TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN
VIOLATION OF THE ACT OR STATE ACTS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER.
2. The Company shall, from time to time, make stop
transfer notations in the Company's records to insure compliance with the Act
and the State Acts.
3. By accepting the certificates bearing the aforesaid
legend, the Subscriber agrees, prior to any transfer of the Shares of the
Company represented by the certificates, to give written notice to the Company
expressing its desire to effect such transfer and describing briefly the
proposed transfer and to deliver to the Company an opinion of counsel
satisfactory to the Board of Directors of the Company that registration is not
required for such transfer ("Opinion") or the submission to the Board of such
other evidence satisfactory to the Board of Directors to the effect that any
such transfer will not be in violation of the Act or State Acts or any rule or
regulation promulgated thereunder. Upon receiving such notice and Opinion (or
other satisfactory submission), the following provisions shall apply:
(a) The Company shall promptly thereafter notify
the stockholder desiring to transfer such shares of Common Stock, whereupon
such stockholder shall be entitled to transfer such shares of Common Stock, all
in accordance with the terms of the notice and Opinion delivered by such
stockholder to the Company and upon such further terms and conditions as shall
be required by the Company to assure compliance with the Act and the State
Acts, and the Company will deliver, upon surrender of the certificate
evidencing such shares of Common Stock, a new certificate not bearing a legend
of the character set forth above if such counsel agrees that such legend is no
longer required under the Act and the State Acts.
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(b) If, in the opinion of counsel for the
Company, the proposed transfer of such shares of Common Stock may not be
effected without registration of such shares of Common Stock under the Act and
the State Acts, a copy of such opinion shall be promptly delivered to the
stockholder who has proposed such transfer, and such proposed transfer shall
not be made unless such registration is then in effect.
D. INDEMNIFICATION
1. The Subscriber recognizes that the sale of the Shares
to the Subscriber is being made in reliance upon Subscriber's agreements,
representations and warranties set forth in this Subscription Agreement. The
Subscriber hereby agrees to indemnify the Company, its agents and controlling
persons for, and to hold each of them harmless against, any liability, loss,
damage, cost or expense (including reasonable attorneys' fees):
(a) arising from any sale or distribution of the
Shares by the Subscriber in violation of the Act, the State Acts or any other
applicable law; and/or
(b) which they may incur by reason of or in
connection with any misrepresentation made by the Subscriber with respect to
the matters about which representations and warranties are required by the
terms of this Subscription Agreement; and/or
(c) arising from any breach by Subscriber of any
such representations and warranties or any failure to fulfill any covenants or
agreements set forth herein.
2. The Company hereby agrees to indemnify the
Subscriber, its agents and controlling persons for, and to hold each of them
harmless against, any liability, loss, damage, cost or expense (including
reasonable attorneys' fees):
(a) arising from any sale or distribution of the
Shares by the Company in violation of the Act, the State Acts or any other
applicable law; and/or
(b) which they may incur by reason of or in
connection with any misrepresentation made by the Company with respect to the
matters about which representations and warranties are required by the terms of
this Subscription Agreement; and/or
(c) arising from any breach by Company of any
such representations and warranties or any failure to fulfill any covenants or
agreements set forth herein.
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E. EXECUTION OF AGREEMENT
If this Subscription Agreement is executed and delivered on
behalf of a partnership, corporation, limited liability company, trust, or
other entity, (1) the undersigned has been duly authorized to execute and
deliver this Subscription Agreement and all other instruments executed and
delivered on behalf of such partnership, corporation, limited liability
company, trust, or other entity in connection with the purchase of the Common
Stock, (2) the signature of the undersigned is binding upon such partnership,
corporation, limited liability company, trust, or other entity, (3) the
Subscriber has not been organized or reorganized for the specific purpose,
among other purposes, of acquiring shares of Common Stock of the Company, (4)
if a corporation, a copy of corporate resolutions authorizing and approving the
purchase of Common Stock hereunder, and the execution of any documents related
thereto, has been delivered with their Subscription Agreement, and (5) the
undersigned has delivered herewith the underlying partnership agreement,
corporate charter documents, operating agreement or trust agreement of such
entity and such other evidence of the ability of such partnership, corporation,
limited liability company, trust, or other entity to purchase the Shares as may
be requested by the Company.
F. MISCELLANEOUS
1. All pronouns and any variations thereof used herein
shall be deemed to refer to the masculine, feminine, or neuter and to the
singular or plural as the identity of the person or persons may require.
2. Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given when
personally delivered or when sent by registered or certified mail, return
receipt requested.
3. Failure of the Company to exercise any right or
remedy under this Subscription Agreement or any other agreement, will not
operate as a waiver thereof. No waiver by the Company will be effective unless
and until it is in writing and signed by the Company.
4. The Subscriber and the Company agree that the
respective representations, warranties and agreements made by the Company and
the Subscribers herein or in any such certificate or other instrument shall
survive the delivery of and payment for the Common Stock.
5. The Subscription Agreement shall be enforced,
governed and construed in all respects in accordance with the laws of the State
of Maryland and, to the extent applicable, the laws of the
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United States of America. This Subscription Agreement and the rights, powers,
and duties set forth herein shall be binding upon the Subscriber, its legal
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors and assigns. In the event that any provision of this
Subscription Agreement is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any provisions hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof.
6. The undersigned certifies under the penalties of
perjury that the social security number or employer identification number
provided below and the information provided below with respect to Section
3406(a)(1)(C) of the Internal Revenue Code of 1986, as amended, is true,
correct and complete.
7. This Subscription Agreement (which incorporates the
Descriptive Memorandum by reference) states the entire agreement and
understanding of the parties and shall supersede all prior agreements and
understandings including but not limited to any term sheets previously provided
to the Subscriber. No amendment of this Subscription Agreement shall be made
without the express prior written consent of the parties.
8. This Subscription Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which
shall together constitute one instrument.
By executing this Subscription Agreement below, the Subscriber
agrees to be bound by all the terms, provisions, warranties and conditions
contained herein. Upon acceptance by the Company, this Subscription Agreement
shall be binding on both parties.
IN WITNESS WHEREOF, the Subscriber has executed this
Subscription Agreement as of the 19th day of August, 1996.
The Common Stock subscribed for hereby is being purchased as follows:
(Check One)
Partnership
-----
As Custodian, Trustee or Agent for ____________.
-----
X Corporation
-----
Limited Liability Company
-----
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SUBSCRIBER:
BOOZ-ALLEN & HAMILTON INC.
---------------------------
Full Name of Entity
/s/ EDWARD G. GALGAY By: /s/ MARTIN G. HYMAN (SEAL)
- ------------------------ -----------------------
Edward G. Galgay
Vice President Martin G. Hyman
--------------------------------
Print Name of Individual signing
Vice President
--------------------------------
Print capacity of individual
signing
36-2513626
--------------------------------
Employer Identification Number
101 Park Avenue
--------------------------------
Business Address
New York, NY 10178
--------------------------------
212-697-1900
--------------------------------
Business Phone Number
This Subscription Agreement is
hereby confirmed and accepted:
POCKET COMMUNICATIONS, INC.
BY: /s/ DANIEL C. RIKER
------------------------------------
Daniel C. Riker,
Chairman of the Board and CEO
Date: August 19, 1996
-------------
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EXHIBIT 10.33
POCKET COMMUNICATIONS, INC.
Class B Non-voting Common Stock
Subscription Agreement
THIS SUBSCRIPTION AGREEMENT ("Subscription Agreement") is made
by and between POCKET COMMUNICATIONS, INC., a Maryland corporation formerly
known as DCR Communications, Inc. (the "Company") and the undersigned (the
"Subscriber"), who is subscribing hereby for the number of shares of Class B
Non-voting Common Stock, par value one cent ($.01) per share, of the Company
(the "Common Stock") set forth below.
In consideration of the Company's agreement to sell shares of
Common Stock to the Subscriber upon the terms and conditions set forth herein,
the Subscriber agrees with, and represents and warrants to, the Company as
follows:
A. SUBSCRIPTION.
1. The Subscriber, BOOZ-ALLEN & HAMILTON INC., a
corporation organized under the laws of Delaware, hereby subscribes for Six
Hundred Twenty-Five Thousand (625,000) shares of Common Stock ("Shares") at a
price of Eight Dollars and 00/100 ($8.00) per share subject to the terms and
conditions set forth herein. As consideration for the Shares hereinafter
subscribed for, the Subscriber shall pay to or on behalf of the Company the
amount of Five Million Dollars ($5,000,000) by wire transfer ("Purchase Price")
delivered to the Escrow Agent as of the Funding Date pursuant to the terms of
that certain Escrow Agreement attached hereto as Exhibit 1. A stock
certificate evidencing such Shares shall be delivered to the Subscriber at the
time that the Purchase Price is released from escrow to or on behalf of the
Company. In the event, however, that the entire Purchase Price is not released
from escrow to or on behalf of the Company at one time, the Company shall issue
to Subscriber, from time to time, such number of Shares when multiplied by
$8.00 equals that portion of the Purchase Price that is last released from
escrow.
Completed Subscription Agreement, including
Attachment A, should be sent to:
Pocket Communications, Inc.
2550 M Street N.W., Suite 200
Washington, D.C. 20037
Attn: Daniel C. Riker
<PAGE> 2
2. The Subscriber understands and acknowledges that:
(a) This subscription may be accepted or rejected
in whole or in part by the Company, in its sole and absolute discretion. The
Subscriber shall not have any of the rights of a stockholder of the Company,
and any sale of Shares to the Subscriber shall not be deemed to occur, until
the Subscriber's offer is accepted in writing. The Subscriber shall not have
any recourse against the Company if a subscription is rejected in whole or in
part. The Company shall notify the Subscriber in writing of the acceptance or
rejection of a subscription. If the subscription is accepted, the Company will
confirm in writing the Subscriber's purchase of the Shares of Common Stock by
forthwith returning to the Subscriber a copy of this Subscription Agreement
duly executed on behalf of the Company;
(b) This subscription is and shall be irrevocable
except that the Subscriber shall have no obligations hereunder in the event
that this subscription is for any reason rejected;
(c) No federal or state agency has made any
finding or determination as to the fairness of this offering for investment,
nor any recommendation or endorsement of the Common Stock;
(d) Because the Shares have not been registered
under the Securities Act of 1933, as amended (the "Act"), or applicable state
securities laws, the Shares cannot be resold unless subsequently registered
under the Act and such laws or an exemption from such registration is
available; the Company is not obligated to file a notification under a
registration statement under the Act; and the Shares are "restricted
securities" as that term is so defined under Rule 144, adopted under the Act,
which rule governs the possible disposition of the Shares. The Company is and
will be under no obligation to register the Shares under the Act, except as
provided in Section A.3 below.
3. The Subscriber and the Company agree that:
(a) Upon the earlier to occur of (i) the
completion of the IPO (hereinafter defined) and (ii) January 31, 1997, if the
Lowest Purchase Price received by the Company for Common Stock is less than
Eight and 00/100 Dollars ($8.00) per share, the Company shall issue to
Subscriber that number of Shares of Common Stock (rounded to the nearest whole
share) (hereinafter, "Additional Shares") which, when added to the number of
Shares to be issued to Subscriber pursuant to the terms of this Subscription
Agreement shall result in Subscriber receiving that number of shares of Common
Stock that Subscriber would have received in exchange for the Purchase Price
if, as of the date of this Subscription Agreement, the per share purchase price
for the Common Stock had been the Lowest Purchase Price. For purposes of this
Subscription
2
<PAGE> 3
Agreement, unless expressly provided otherwise, the term "Shares" shall include
Additional Shares, if any. The "Lowest Purchase Price" shall be the lowest per
share purchase price paid to the Company for the Common Stock from and after
August 1, 1996 until the first to occur of (i) the completion of the IPO and
(ii) January 31, 1997; provided, however, that the following transactions shall
not be included in determining the Lowest Purchase Price: (a) a sale or
issuance of securities pursuant to any agreement entered into prior to the date
hereof, including, but not limited to, the issuance of securities pursuant to
warrants or conversion rights granted by the Company; (b) a sale or issuance of
securities, including options, that are issued exclusively to Control Group
members (as that term is defined in Part 24 of the rules and regulations of the
FCC); (c) a sale or issuance of securities, including options, to (i) employees
and/or directors of the Company pursuant to stock option, stock bonus or stock
incentive and/or compensation plans duly approved by the Board of Directors of
the Company, (ii) any third parties who receive or are issued securities solely
as a finder's fee, consulting fee, brokerage fee or as compensation for
identifying investors in the Company, (iii) any person or entity as
consideration of the purchase by the Company of assets and/or services,
including, but not limited to, the purchase of names or marks or the right to
use names or marks, (iv) Gloria Borland, Gloria Borland Hawaii PCS, Inc. or any
affiliate thereof, or (v) any partner(s) in DCR Pacific PCS Limited Partnership
or any affiliate of any partner(s) in exchange for or in connection with their
interests in the Partnership; and (d) a repurchase by the Company and/or a
resale by the Company or others (including, for purposes hereof, any issuance
and sale by the Company of up to One Million Eight Hundred Thousand Seven
Hundred Twenty-nine (1,800,729) shares of its common stock at $.83 per share,
which sale is related to such repurchase) of any and all shares of common stock
of the Company currently held by Westinghouse Electric Corporation, and any
assignment thereof.
(b) All references to Common Stock in this
Subscription Agreement shall mean Class B Non-voting Common Stock, par value
one cent ($.01) per share, as the same may be modified or exchanged in any
reclassification or recapitalization of the Company. The recapitalization
currently contemplated by the Company provides for the exchange of all shares
of Class A Common Stock held by Non-Control Group Investors, par value $.01 per
share, and all shares of Class B Nonvoting Common Stock, par value $.01 per
share, into shares of Class B Voting Common Stock, par value $.01 per share.
(c) The Company agrees to endeavor to register
the Shares through a "shelf registration" to be filed with the Securities and
Exchange Commission ("Commission") following any applicable lock-up period
after the IPO, which lock-up period is anticipated to be approximately one
hundred eighty (180) days. In the event that such a shelf registration shall
not become effective
3
<PAGE> 4
within ninety (90) days following the end of the IPO lock-up period, the
Subscriber shall have the right to two (2) demands for registration of the
Shares held by the Subscriber, at the expense of the Company (except for
underwriters' discounts and brokers' commissions, which shall be payable by the
Subscriber). With respect to each and every registration effected pursuant to
the terms and provisions hereof, each such registration shall be subject to any
cutback that is required by the Company's underwriters. At the Company's
election, other holders of the Company's Common Stock shall have the right to
piggyback on any such registration; provided, however, that in the event of any
cutback required by the underwriters, the cutback will be made pro rata among
the Subscriber and all persons exercising such registration rights. In
addition, the Subscriber shall have unlimited piggyback rights with respect to
any other Company registration statement other than the IPO (whether or not
such relates to shares being sold by the Company or others), subject to
underwriters' cutback; provided, however that any cutback by the underwriters
will be made pro rata among the Subscriber and all persons exercising such
registration rights.
(d) Subscriber covenants and agrees to furnish to
the Company annually a list of any commercial mobile radio service or private
mobile service ("CMRS") licenses attributable to Subscriber and to the Company
by virtue of Subscriber's investment in the Company pursuant to 47 CFR Sections
24.206 and 20.6.
(e) For purposes of this Subscription Agreement,
IPO means the first sale of stock of the Company to the public through an
underwritten public offering where the Corporation's securities are listed on
an established national stock exchange or are admitted to quotation on the
National Association of Securities Dealer Automated Quotation System, which
produces gross proceeds of at least Twenty-Five Million and 00/100 Dollars
($25,000,000) pursuant to a registration statement filed with, and declared
effective by, the Commission under the Act.
(f) The Funding Date shall be the date upon which
each of the following conditions have been met.
(i) the parties hereto shall have entered
into an agreement pursuant to which the Subscriber shall provide management and
technology consulting services having an aggregate invoice value of not less
than Fifty Million Dollars ($50,000,000) ("Services Agreement"); and
(ii) the Company shall have agreed in its
recapitalization plan as approved by the Board of Directors to exchange Class A
Common stock not held by Control Group investors, par value $.01 per share, and
non-voting Class B Common Stock, par
4
<PAGE> 5
value $.01 per share, into Voting Common Stock on a share-for-share exchange
basis (the "recapitalization"); provided, however, that if said two
preconditions have not been met on or before the Termination Date of the Escrow
Agreement, Subscriber shall not be obligated to fund the Purchase Price and
this Subscription Agreement and Services Agreement shall be terminated and both
parties shall be relieved of any further obligations thereunder.
B. REPRESENTATIONS AND WARRANTIES
1. The Subscriber hereby represents, warrants and agrees
that:
(a) It is acquiring the Shares for its own
account for investment and not with a view to distribution or resale, and
agrees (i) not to sell, hypothecate, or otherwise dispose of the Shares unless
the Shares have been registered under the Act and applicable state securities
laws or, in the opinion of counsel approved by the Company, an exemption from
the registration requirements of the Act and such laws is available and (ii)
not to act in any way that would constitute it be an "underwriter" of such
shares within the meaning given that term by the Act;
(b) Each of the answers in the Purchaser
Questionnaire, which is attached to this Subscription Agreement as Attachment A
and incorporated by reference herein, is true, complete, and correct;
(c) It is a sophisticated investor with a high
degree of business sophistication and it is not relying on the expertise or
experience of an advisor in making this investment decision; it is a
sophisticated institutional or corporate investor as well as an "accredited
investor" as defined in Rule 501(a) under the Act; the Subscriber agrees to
provide such additional information as may be reasonably required by the
Company for compliance with any applicable state or federal securities laws;
(d) It has adequate net worth and means of
providing for its current needs and could sustain a complete loss of its
investment in the Company; it has no need for liquidity in this investment in
the Shares.
(e) It has received and reviewed all financial
and other information that has been provided by the Company, including the
Descriptive Memorandum of the Company dated June, 1996 ("Descriptive
Memorandum"); the Company has made available to it all documents that have been
requested relating to an investment in the Company and has provided it the
opportunity to ask, and has provided answers to, all of its questions
concerning the offering
5
<PAGE> 6
and investment in the Company; and, in evaluating the suitability of an
investment in the Company, it has relied only on the information contained in
any documents or written answers so furnished to it by the Company;
(f) It recognizes that investment in the Company
involves substantial risks and that it has taken full cognizance of and
understands all of the risks related to the purchase of Shares, including but
not limited to those set forth under the caption "Risk Factors" in the
Descriptive Memorandum;
(g) It has had the opportunity to discuss with
appropriate professional, legal, tax and financial advisors the suitability of
an investment in the Company for the Subscriber's particular financial
situation;
(h) The Subscriber is acquiring the interest in
the Company after having received and reviewed such financial information and
other data as was necessary in order to make an informed investment decision;
(i) No statement, printed material, or inducement
that is contrary to the information contained in the Descriptive Memorandum has
been given or made on behalf of the Company to the Subscriber; and
(j) Subscriber does not own five percent (5%) or
more of the ownership interests (as such term is defined in 47 CFR Section
24.229) in any other entity that bid in the FCC C-Block Auction, or the FCC
C-Block Reauction or hold any officer or director positions attributable to the
Subscriber in such entities. Subscriber does not own five percent (5%) or more
of the ownership interests (as defined in 47 CFR Section 24.229) in any PCS
A/B-block licensees or hold any officer or director positions attributable to
Subscriber for any such licensee, and does not own five percent (5%) or more of
the ownership interests (as defined in 47 CFR Sections 24.204 and 20.6) in any
cellular, SMRS or other CMRS licensee or applicant or hold any officer or
director positions attributable to Subscriber in such entities.
(k) The Subscriber is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its organization and is qualified to do business and in good standing as a
foreign corporation under the laws of each jurisdiction in which the conduct of
the business of the Subscriber would require such registration or qualification
and in which the failure to so qualify could have a material adverse effect on
the business of the Subscriber.
(l) The execution, delivery and performance by
the Subscriber of this Subscription Agreement have been duly authorized
6
<PAGE> 7
by all necessary action and this Subscription Agreement has been duly executed
and delivered and, when executed and delivered by the Company, will constitute
the legal, valid, binding and enforceable obligation of the Subscriber, subject
to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance,
receivership, conservatorship, or other similar laws, regulations or procedures
of general applicability now or hereafter in effect relating to or affecting
creditors' or other obligees' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(m) Neither the execution and delivery of this
Agreement by the Subscriber, nor the consummation of the transactions herein
contemplated will, with or without the giving of notice or the passage of time,
or both, violate or conflict with, result in a material breach of, loss of
rights or constitute a default under any covenant or agreement to which the
Subscriber is a party or by which the Subscriber is bound, or any judgment,
order, decree, law, rule or regulation to which the Subscriber is subject, or
its certificate of incorporation or by-laws.
(n) The Subscriber is not subject to any order,
judgment, decree or governmental restriction or a party to or threatened with
any litigation or arbitration, or other legal or administrative proceeding or
investigation of any kind which would materially adversely affect, or which
would prevent or hamper the transactions contemplated by this Subscription
Agreement; and the Subscriber is not charged with, or to its knowledge under
investigation with respect to any violation of any provision of any federal,
state or local law or administrative rule or regulation or the decree of any
court by which the Subscriber is bound which would materially adversely affect,
or which would prevent or hamper the transaction contemplated by this
Subscription Agreement.
(o) All corporate proceedings of the Subscriber
including, without limitation, all actions of the shareholders and/or directors
of the Subscriber, if any, necessary to approve the transactions contemplated
by this Subscription Agreement have been taken or will be taken prior to the
Funding Date.
(p) It has full corporate power, authority and
legal right to execute, deliver and perform its obligations under this
Subscription Agreement.
THE FOREGOING REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER
ARE TRUE AND ACCURATE AS OF THE DATE OF THE ACCEPTANCE HEREOF BY THE COMPANY
AND THE ADMISSION OF THE SUBSCRIBER AS A STOCKHOLDER. IF IN ANY RESPECT SUCH
REPRESENTATIONS AND WARRANTIES SHALL NOT BE TRUE AND ACCURATE PRIOR THERETO,
THE SUBSCRIBER WILL GIVE WRITTEN NOTICE OF SUCH FACT TO THE COMPANY, SPECIFYING
WHICH
7
<PAGE> 8
REPRESENTATIONS AND WARRANTIES ARE NOT TRUE AND ACCURATE AND THE REASONS
THEREFOR.
2. The Company hereby represents, warrants and agrees
that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
organization and is qualified to do business and in good standing as a foreign
corporation under the laws of each jurisdiction in which the conduct of the
business of the Company would require such registration or qualification and in
which the failure to do so or the failure to so qualify could have a material
adverse effect on the business of the Company.
(b) The execution, delivery and performance by
the Company of this Subscription Agreement have been duly authorized by all
necessary action and this Subscription Agreement has been duly executed and
delivered and constitutes the legal, valid, binding and enforceable obligation
of the Company, subject to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, receivership, conservatorship, or other similar laws,
regulations or procedures of general applicability now or hereafter in effect
relating to or affecting creditors' or other obligees' rights generally and
subject, as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
(c) Neither the execution and delivery of this
Subscription Agreement, nor the consummation of the transactions herein
contemplated in accordance with the conditions set forth herein, will, with or
without the giving of notice or the passage of time, or both, violate or
conflict with, result in a material breach of, loss of rights, or constitute a
default under, any covenant or agreement to which the Company is a party or by
which the Company is bound, or any judgment, order, decree, law, rule or
regulation to which the Company is subject, or its certificate of incorporation
or by-laws.
(d) Except as disclosed on Schedule 2(e) and
rulemaking proceedings of general applicability, the Company is not subject to
any order, judgment, decree or governmental restriction or a party to or
threatened with any litigation or arbitration, or other legal or administrative
proceeding or investigation of any kind which would materially adversely
affect, or which would prevent or hamper the transactions contemplated by this
Subscription Agreement; and the Company is not charged with, or to its
knowledge under investigation with respect to any violation of any provision of
any federal, state or local law or administrative rule or regulation or the
decree of any court by which the Company is bound which would materially
adversely affect, or which would prevent or hamper the transaction contemplated
by this Subscription Agreement.
8
<PAGE> 9
(e) All corporate proceedings of the Company
including, without limitation, all actions of the shareholders and/or directors
of the Company, if any, necessary to approve the transactions contemplated by
this Subscription Agreement have been taken or will be taken prior to the
Funding Date.
(f) It has full corporate power, authority and
legal right to execute, deliver and perform its obligations under this
Subscription Agreement.
(g) Relying in part on the representations and
warranties of the Subscriber set forth in Section B.1 above, the offering of
the Shares to the Company is exempt from registration under the Act.
(h) The Shares of Common Stock subscribed for
(other than the Additional Shares, the number of which cannot be determined)
have been duly authorized by the Company and, when issued and delivered by the
Company against payment therefor in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable.
C. TRANSFER RESTRICTIONS
1. The certificates evidencing the Shares of the Company
shall include provisions substantially in the form of the legend set forth
below, which the Subscriber has read and understands:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES ACTS (THE
"STATE ACTS") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH SECURITIES MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER THE ACT OR THE STATE
ACTS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON DELIVERY
TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE BOARD OF DIRECTORS
OF THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE
SUBMISSION TO THE BOARD OF DIRECTORS OF SUCH OTHER EVIDENCE SATISFACTORY TO THE
BOARD OF DIRECTORS TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN
VIOLATION OF THE ACT OR STATE ACTS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER.
2. The Company shall, from time to time, make stop
transfer notations in the Company's records to insure compliance with the Act
and the State Acts.
3. By accepting the certificates bearing the aforesaid
legend, the Subscriber agrees, prior to any transfer of the Shares of the
Company represented by the certificates, to give written notice to the Company
expressing its desire to effect such transfer and describing briefly the
proposed transfer and to deliver to the
9
<PAGE> 10
Company an opinion of counsel satisfactory to the Board of Directors of the
Company that registration is not required for such transfer ("Opinion") or the
submission to the Board of such other evidence satisfactory to the Board of
Directors to the effect that any such transfer will not be in violation of the
Act or State Acts or any rule or regulation promulgated thereunder. Upon
receiving such notice and Opinion (or other satisfactory submission), the
following provisions shall apply:
(a) The Company shall promptly thereafter notify
the stockholder desiring to transfer such shares of Common Stock, whereupon
such stockholder shall be entitled to transfer such shares of Common Stock, all
in accordance with the terms of the notice and Opinion delivered by such
stockholder to the Company and upon such further terms and conditions as shall
be required by the Company to assure compliance with the Act and the State
Acts, and the Company will deliver, upon surrender of the certificate
evidencing such shares of Common Stock, a new certificate not bearing a legend
of the character set forth above if such counsel agrees that such legend is no
longer required under the Act and the State Acts.
(b) If, in the opinion of counsel for the
Company, the proposed transfer of such shares of Common Stock may not be
effected without registration of such shares of Common Stock under the Act and
the State Acts, a copy of such opinion shall be promptly delivered to the
stockholder who has proposed such transfer, and such proposed transfer shall
not be made unless such registration is then in effect.
D. INDEMNIFICATION
1. The Subscriber recognizes that the sale of the Shares
to the Subscriber is being made in reliance upon Subscriber's agreements,
representations and warranties set forth in this Subscription Agreement. The
Subscriber hereby agrees to indemnify the Company, its agents and controlling
persons for, and to hold each of them harmless against, any liability, loss,
damage, cost or expense (including reasonable attorneys' fees):
(a) arising from any sale or distribution of the
Shares by the Subscriber in violation of the Act, the State Acts or any other
applicable law; and/or
(b) which they may incur by reason of or in
connection with any misrepresentation made by the Subscriber with respect to
the matters about which representations and warranties are required by the
terms of this Subscription Agreement; and/or
10
<PAGE> 11
(c) arising from any breach by Subscriber of any
such representations and warranties or any failure to fulfill any covenants or
agreements set forth herein.
2. The Company hereby agrees to indemnify the
Subscriber, its agents and controlling persons for, and to hold each of them
harmless against, any liability, loss, damage, cost or expense (including
reasonable attorneys' fees):
(a) arising from any sale or distribution of the
Shares by the Company in violation of the Act, the State Acts or any other
applicable law; and/or
(b) which they may incur by reason of or in
connection with any misrepresentation made by the Company with respect to the
matters about which representations and warranties are required by the terms of
this Subscription Agreement; and/or
(c) arising from any breach by Company of any
such representations and warranties or any failure to fulfill any covenants or
agreements set forth herein.
E. EXECUTION OF AGREEMENT
If this Subscription Agreement is executed and delivered on
behalf of a partnership, corporation, limited liability company, trust, or
other entity, (1) the undersigned has been duly authorized to execute and
deliver this Subscription Agreement and all other instruments executed and
delivered on behalf of such partnership, corporation, limited liability
company, trust, or other entity in connection with the purchase of the Common
Stock, (2) the signature of the undersigned is binding upon such partnership,
corporation, limited liability company, trust, or other entity, (3) the
Subscriber has not been organized or reorganized for the specific purpose,
among other purposes, of acquiring shares of Common Stock of the Company, (4)
if a corporation, a copy of corporate resolutions authorizing and approving the
purchase of Common Stock hereunder, and the execution of any documents related
thereto, has been delivered with their Subscription Agreement, and (5) the
undersigned has delivered herewith the underlying partnership agreement,
corporate charter documents, operating agreement or trust agreement of such
entity and such other evidence of the ability of such partnership, corporation,
limited liability company, trust, or other entity to purchase the Shares as may
be requested by the Company.
F. MISCELLANEOUS
1. All pronouns and any variations thereof used herein
shall be deemed to refer to the masculine, feminine, or neuter and to the
11
<PAGE> 12
singular or plural as the identity of the person or persons may require.
2. Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given when
personally delivered or when sent by registered or certified mail, return
receipt requested.
3. Failure of the Company to exercise any right or
remedy under this Subscription Agreement or any other agreement, will not
operate as a waiver thereof. No waiver by the Company will be effective unless
and until it is in writing and signed by the Company.
4. The Subscriber and the Company agree that the
respective representations, warranties and agreements made by the Company and
the Subscribers herein or in any such certificate or other instrument shall
survive the delivery of and payment for the Common Stock.
5. The Subscription Agreement shall be enforced,
governed and construed in all respects in accordance with the laws of the State
of Maryland and, to the extent applicable, the laws of the United States of
America. This Subscription Agreement and the rights, powers, and duties set
forth herein shall be binding upon the Subscriber, its legal representatives,
successors and assigns and shall inure to the benefit of the Company, its
successors and assigns. In the event that any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provisions hereof which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision hereof.
6. The undersigned certifies under the penalties of
perjury that the social security number or employer identification number
provided below and the information provided below with respect to Section
3406(a)(1)(C) of the Internal Revenue Code of 1986, as amended, is true,
correct and complete.
7. This Subscription Agreement (which incorporates the
Descriptive Memorandum by reference) states the entire agreement and
understanding of the parties and shall supersede all prior agreements and
understandings including but not limited to any term sheets previously provided
to the Subscriber. No amendment of this Subscription Agreement shall be made
without the express prior written consent of the parties.
12
<PAGE> 13
8. This Subscription Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which
shall together constitute one instrument. By executing this Subscription
Agreement below, the Subscriber agrees to be bound by all the terms,
provisions, warranties and conditions contained herein. Upon acceptance by the
Company, this Subscription Agreement shall be binding on both parties.
IN WITNESS WHEREOF, the Subscriber has executed this
Subscription Agreement as of the 19th day of August, 1996.
The Common Stock subscribed for hereby is being purchased as follows:
(Check One)
Partnership
-----
As Custodian, Trustee or Agent for ____________.
-----
X Corporation
-----
Limited Liability Company
-----
SUBSCRIBER:
BOOZ-ALLEN & HAMILTON INC.
-------------------------------
Full Name of Entity
/s/ EDWARD G. GALGAY By: /s/ MARTIN G. HYMAN (SEAL)
--------------------- ----------------------
Edward G. Galgay
Vice President Martin G. Hyman
-------------------------------
Print Name of Individual signing
Vice President
-------------------------------
Print capacity of individual
signing
36-2513626
-------------------------------
Employer Identification Number
101 Park Avenue
-------------------------------
Business Address
New York, NY 10178
-------------------------------
212-697-1900
-------------------------------
Business Phone Number
13
<PAGE> 14
This Subscription Agreement is
hereby confirmed and accepted:
POCKET COMMUNICATIONS, INC.
BY: /s/ DANIEL C. RIKER
------------------------------------
Daniel C. Riker,
Chairman of the Board and CEO
Date: August 19, 1996
------------
14
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Washington, D.C.
December 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1995 SEP-30-1995 SEP-30-1996
<PERIOD-START> APR-20-1994 JAN-01-1995 JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1994 DEC-31-1995 SEP-30-1995 SEP-30-1996
<CASH> 7,755 1,079,235 0 288,152
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 0 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 10,343 1,253,319 0 744,570
<PP&E> 13,392 1,793,700 0 13,839,778
<DEPRECIATION> (302) (44,535) 0 (143,903)
<TOTAL-ASSETS> 23,433 44,332,960 0 110,784,676
<CURRENT-LIABILITIES> 123,026 4,158,802 0 21,715,762
<BONDS> 0 40,133,000 0 96,174,402
0 0 0 0
0 0 0 0
<COMMON> 1,807,273 7,730,915 0 10,595,735
<OTHER-SE> (1,906,866) (8,733,035) 0 (22,621,919)
<TOTAL-LIABILITY-AND-EQUITY> 23,433 44,332,960 0 110,784,676
<SALES> 0 0 0 0
<TOTAL-REVENUES> 0 0 0 0
<CGS> 0 0 0 0
<TOTAL-COSTS> 1,038,569 7,172,106 4,469,684 8,751,883
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 287,928 0 (3,985,044)
<INCOME-PRETAX> (1,038,569) (7,393,291) (4,419,332) (12,673,380)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (1,038,569) (7,393,291) (4,419,332) (12,673,380)
<EPS-PRIMARY> 0 0 0 0
<EPS-DILUTED> 0 0 0 0
</TABLE>
