<PAGE>
As filed with the Securities and Exchange Commission on April 4, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
US Unwired Inc.
(Exact Name of Corporation as Specified in Its Charter)
Louisiana 4812 72-1457316
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
One Lakeshore Drive, Suite 1900
Lake Charles, Louisiana 70629
(800) 673-2200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Thomas G. Henning
General Counsel and Secretary
US Unwired Inc.
One Lakeshore Drive, Suite 1900
Lake Charles, Louisiana 70629
(337) 436-9000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Anthony J. Correro, III Bryant B. Edwards
Louis Y. Fishman Latham & Watkins
Correro Fishman Haygood Phelps 633 West Fifth Street, Suite 4000
Walmsley & Casteix, L.L.P. Los Angeles, California 90071-2007
201 St. Charles Avenue, 46th Floor Telephone: (213) 485-1234
New Orleans, Louisiana 70170-4600 Facsimile: (213) 891-8763
Telephone: (504) 586-5252
Facsimile: (504) 586-5250
Approximate date of commencement of proposed sale to the public: As soon as
practicable following the effectiveness 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 of 1933, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of Securities to Amount to be Offering Price Aggregate Registration
be Registered Registered Per Share(1) Offering Price Fee
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value.................. $ $ $
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Total................... $ $138,000,000 $36,432
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</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933, as
amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION - April 4, 2000
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Prospectus
, 2000
[US Unwired Logo]
Shares of Class A Common Stock
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US Unwired Inc.: The Offering:
. We provide . We are offering
wireless shares
communications of our class A
services in the common stock.
Gulf States region
through our
affiliation with
Sprint PCS.
. The underwriters
may purchase an
additional
shares
from us and
selling
stockholders to
cover over-
allotments.
. We are the largest
Sprint PCS
affiliate by both
population covered
and number of
subscribers.
. This is our
. One Lakeshore initial public
Drive, Suite 1900 offering.
Lake Charles,
Louisiana 70629 . We plan to use the
(800) 673-2200 net proceeds from
www.usunwired.com this offering to
accelerate the
construction of
our PCS network
and for other
general corporate
purposes.
Proposed Symbol &
Market:
. UNWR/Nasdaq
National Market
. Closing: ,
2000
--------------------------------------------
<TABLE>
<CAPTION>
Per
Share Total
-------------------------------------------------
<S> <C> <C>
Public offering price (Estimated): $ $
Underwriting fees: $ $
Proceeds to us: $ $
</TABLE>
--------------------------------------------
This investment involves risk. See "Risk Factors" beginning on page 5.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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Donaldson, Lufkin & Jenrette
Credit Suisse First Boston
First Union Securities, Inc.
<PAGE>
[map showing the registrant's Sprint PCS(R) markets and service area]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Historical Consolidated Financial Information................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 20
Business................................................................. 30
The Wireless Communications Industry..................................... 51
Sprint PCS Agreements.................................................... 54
Management............................................................... 62
Certain Relationships and Related Transactions........................... 68
Securities Ownership of Certain Beneficial Owners and Management......... 71
Certain Indebtedness..................................................... 73
Description of Capital Stock............................................. 77
Shares Eligible for Future Sale.......................................... 81
Important United States Federal Tax Consequences of Our Common Stock to
Non-U.S. Holders...................................................... 84
Underwriting............................................................. 87
Legal Matters............................................................ 90
Available Information.................................................... 90
Experts.................................................................. 91
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
You should not make an investment decision based only on summary
information. We therefore urge you to read carefully all of this prospectus.
US Unwired
General
We currently provide wireless personal communications services, commonly
referred to as PCS, in parts of Louisiana and Texas. We are a network partner
of Sprint PCS, the personal communications services group of Sprint
Corporation. Sprint PCS, directly and through affiliates like us, provides
wireless services in more than 4,000 cities and communities across the country.
We have the exclusive right to provide digital PCS services under the Sprint(R)
and Sprint PCS(R) brand names in a service area comprising approximately 9.7
million residents in the Gulf States region. Our service area has the largest
population and the most subscribers of any network partner of Sprint PCS.
We currently provide Sprint PCS service in eleven markets: Alexandria,
Houma-Thibodaux, Lake Charles, Monroe and Shreveport, Louisiana and Beaumont-
Port Arthur, Longview-Marshall, Lufkin-Nacogdoches, Texarkana and Tyler, Texas
and Montgomery, Alabama. Our network currently covers approximately 2.4 million
residents out of approximately 3.6 million total residents in those markets. We
expect to cover a total of approximately 6.1 million residents by December 2000
and 6.4 million residents by March 2001, at which point we expect to have
covered approximately 66% of the resident population in our service area. The
number of people in our service area does not represent the number of Sprint
PCS subscribers that we expect to have in our service area. At December 31,
1999, we were providing PCS services to approximately 47,000 subscribers in our
service area. In addition, we were providing cellular and paging service to
approximately 83,000 subscribers in southwest Louisiana at December 31, 1999.
For the year ended December 31, 1999, we had revenues of approximately $58.6
million and a net loss from continuing operations of approximately $17.6
million, and our operations used approximately $7.4 million more cash than they
generated.
Our service area covers 41 markets in eastern Texas, southern Oklahoma,
southern Arkansas, significant portions of Louisiana, Alabama and Mississippi,
the Florida panhandle and southern Tennessee. Our service area is contiguous
with Sprint PCS's launched markets of Houston, Dallas, Little Rock, New
Orleans, Birmingham, Tallahassee and Memphis. We are constructing a 100%
digital, 100% wireless PCS network that we expect to complete by March 2001. We
estimate that Sprint PCS paid over $100 million to acquire the PCS licenses in
our service area and to clear the licensed markets for microwave radio
frequency service.
Benefits of Our Affiliation with Sprint PCS
Our exclusive relationship with Sprint PCS allows us to take advantage of
the strength and reputation of Sprint PCS's national brand. We believe the
benefits of this relationship include:
Marketing. We market our products and services under the nationally
recognized Sprint PCS(R) brand. We benefit from Sprint PCS's national
advertising campaigns and subscriber programs and its relationships with
major national retailers.
1
<PAGE>
National Network. Subscribers in our service area can immediately
access Sprint PCS's growing network in over 4,000 cities and communities
across the United States.
Handset and Equipment Availability and Pricing. We have access to
network and subscriber equipment under Sprint PCS's vendor contracts that
provide for volume discounts.
Exclusive Traveling Partner. We are the exclusive provider of
traveling services for all non-US Unwired Sprint PCS customers in our
service area and benefit from the increased traffic created by other Sprint
PCS customers who travel in our service area.
Technology. Sprint PCS's extensive research and development effort
produces ongoing benefits through both new technological products as well
as enhanced service features.
As provided under our agreements with Sprint PCS, we receive from Sprint
PCS 92% of collected revenues from subscribers based in our service area and
Sprint PCS retains the remaining 8%. We also receive other revenue, including
Sprint PCS traveling revenues, calculated as a per minute charge paid to us by
Sprint PCS for each minute that Sprint PCS subscribers based outside our
service area use our portion of the Sprint PCS network, and 100% of revenues
for handset sales.
Our Competitive Strengths
In addition to the advantages provided by our strategic affiliation with
Sprint PCS, we have the following competitive strengths:
. extensive territorial reach.
. existing corporate infrastructure.
. significant number of owned licenses.
. 40 MHz of bandwidth in many of our markets.
. high-quality customer care.
Adequate Funding to Complete Our Network
We funded the initial phase of our PCS network buildout with a portion of
the proceeds from the sale of our non-Louisiana cellular assets in 1998. As of
the date of this prospectus, we have raised $264 million from the sale of $55
million of our convertible preferred stock and the issuance in a private
placement of $209 million of our senior subordinated discount notes. We also
have a $130 million senior credit facility under which, as of the date of this
prospectus, no funds have been drawn. Management expects that these funds,
together with the proceeds of this offering, will be sufficient to complete the
buildout of our PCS network, fund start up losses and maintain adequate working
capital.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Class A common stock offered...... shares
Class A and Class B common stock
to be outstanding after this
offering....................... shares
Use of proceeds................... For accelerating the construction of our
PCS network and for other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol......................... "UNWR"
</TABLE>
The number of shares of our common stock to be outstanding after this
offering includes:
. shares of our class A common stock outstanding as of ,
2000.
. shares of our class B common stock outstanding as of , 2000.
. shares of our class A common stock to be sold in this offering.
The number of shares of our common stock to be outstanding after this
offering excludes:
. shares of our class A common stock issuable upon exercise of
options that have been granted under our 1999 Equity Incentive Plan at
an average exercise price of $ per share.
. shares of our class A common stock reserved as of , 2000
for issuance under our 1999 Equity Incentive Plan.
Generally, the information in this prospectus assumes that the
underwriters do not exercise any of their over-allotment option and gives
effect to the conversion of our preferred stock. We describe our
capitalization on page 16.
---------------
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The table below shows summary consolidated financial information for 1998
and 1999. You should read this information with our consolidated financial
statements and the related notes and the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
of which are included in this prospectus.
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------
1998(/1/) 1999
--------- -----------
(Dollars in thousands
except for per share
data and other data)
<S> <C> <C>
Statement of Operations Data(/2/):
Revenues................................................ $ 71,711 $ 58,632
Cost of services and merchandise sold................... 29,363 31,591
Other operating expenses................................ 37,873 52,299
-------- ---------
Operating income (loss)................................. $ 4,475 $ (25,258)
======== =========
Income (loss) from continuing operations................ $ 28,796 $ (17,634)
======== =========
Basic and Diluted Per Share Data:
Income (loss) from continuing operations................ $ 2.56 $ (1.57)
======== =========
Other Data:
Number of PCS subscribers(/3/).......................... 14,611 46,838
Number of PCS markets launched(/4/)..................... 5 10
Total residents in launched markets (millions)(/4/)..... 1.8 3.1
<CAPTION>
As of December 31,
1999
---------------------
Actual As Adjusted
--------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 14,695 $
Marketable securities................................... 141,453 141,453
Property and equipment, net............................. 106,067
Total assets(/5/)....................................... 317,110 315,601
Long term debt, including current maturities(/5/)....... 216,080 214,571
Equity.................................................. 28,585
</TABLE>
- --------------------
(1) In July 1998, in anticipation of the Sprint PCS buildout, US Unwired sold
all of its cellular assets related to its Mississippi, Alabama and Kansas
markets, along with its majority ownership interest in Mississippi 34
Cellular Corporation, for $161.5 million. This transaction resulted in a
gain of approximately $57.4 million which is included in income (loss) from
continuing operations.
(2) Includes results of operations for Unwired Telecom, our cellular and paging
operating subsidiary, which for the year ended December 31, 1999 generated
$46.2 million of revenues and $5.7 million of operating income and for the
year ended December 31, 1998 generated $67.7 million of revenues and $4.0
million of operating income. Presents LEC Unwired as a discontinued
operation. LEC Unwired began operations in 1998 and is presented on the
equity method for the year ended December 31, 1998.
(3) Reflects PCS subscribers controlled by LA Unwired only and does not include
our proportionate share of PCS subscribers in our Meretel partnership,
which were 1,538 at December 31, 1998 and 5,045 at December 31, 1999.
(4) Does not include the two launched markets in our Meretel partnership or our
proportional ownership of the residents in those markets, which were
approximately 163,000 residents at December 31, 1998 and at December 31,
1999.
(5) The as adjusted column reflects the sale of certain PCS licenses and the
payoff of the related debt as if these events occurred as of December 31,
1999.
*****
We are located at One Lakeshore Drive, Suite 1900, Lake Charles, Louisiana
70629. Our phone number is (800) 673-2200, and our website is
www.usunwired.com.
4
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of our common stock.
Risks Related to US Unwired
Our substantial indebtedness could prevent us from fulfilling our obligations
to our creditors which could, in turn, adversely affect our stockholders.
We have a substantial amount of debt. On December 31, 1999, we had
outstanding debt of:
. approximately $214.0 million in principal amount of our notes.
. approximately $3.8 million of debt guaranteed by US Unwired. This
represents our share of the indebtedness of Meretel at December 31,
1999. Currently, we guarantee approximately $2.5 million of Meretel's
indebtedness.
In addition, at December 31, 1999, we had a commitment to provide $4.5
million to LEC Unwired.
We may incur additional debt in the future. The indenture governing our
notes permits us to incur additional debt, but there are limitations. Our
credit facilities provide for total borrowings of up to $130.0 million. Some
of our obligations under our credit facilities may limit our ability to borrow
more money. If we cannot borrow more money, it could impair our ability to
repay our notes and other indebtedness.
Because of our substantial debt:
. we will use a substantial portion of our cash flow from operations to
pay interest and principal on our debt, which will reduce the cash that
is available for other purposes.
. we may not have enough cash to pay interest and principal on our debt.
. we may not be able to borrow more money or get additional financing.
. an increase in interest rates could increase our interest expense.
. most of our assets are encumbered with liens.
. we may not be able to adjust to changing market conditions or
competition.
. we may be at a competitive disadvantage to our competitors who have
less debt.
Our ability to generate cash to pay interest and principal on our indebtedness
depends on many factors beyond our control, and this could reduce our
flexibility and impair the value of our common stock.
Our ability to pay interest and principal on our debt depends on our
future operating performance. Our performance depends on general economic and
competitive conditions and on financial, business and other factors, many of
which we cannot control. We will use a substantial portion of our cash flow
from operations to repay our borrowings and interest under our debt
instruments. This will be a significant cost to us. We cannot assure you that
we will have enough cash
5
<PAGE>
flow from operations or future borrowings under our credit facilities to repay
our indebtedness or for our other liquidity needs.
We may try to:
. delay or reduce our capital expenditures.
. restructure our debt.
. sell some of our assets or operations.
. acquire equity capital from other investors.
We may not be able to take any of these actions on satisfactory terms or at
all. These actions may not provide us with enough cash to repay our debt. If we
cannot repay our debt or take any of these actions, the market value of the
common stock will be impaired.
As a holding company, we depend on dividends from our subsidiaries to meet
our debt obligations. The indenture governing our notes may allow our
subsidiaries to enter into future loan agreements which restrict or prohibit
them from paying dividends. State law may also limit the amount of the
dividends that our subsidiaries are permitted to pay.
If there is a change of control of US Unwired, we may not be able to satisfy
our obligations to our creditors.
If the persons who control US Unwired lose this control, we must offer to
buy back all of our outstanding notes. We cannot assure you that we will have
sufficient funds at the time of a change of control to perform this obligation
or that restrictions in our credit facilities will allow us to do so. Our
inability to buy back the notes could impair the value of our common stock.
If we need additional financing that we cannot obtain, we may have to change
our network construction plan.
We will make significant capital expenditures to complete our PCS network.
Actual expenditures may differ significantly from our estimates. We would have
to obtain additional financing if:
. any of our sources of capital is unavailable or insufficient.
. we significantly depart from our business plan.
. we experience unexpected delays or cost overruns in the construction of
our network, including changes to the schedule or scope of our network
buildout.
. changes in technology or governmental regulations create unanticipated
costs.
. we acquire additional licenses or Sprint PCS grants us more service
areas to build out and manage.
We cannot predict whether any additional financing will be available or on
what terms. If we need additional financing that we cannot obtain, we will have
to change our plans for the remainder of our network.
6
<PAGE>
If we cannot construct our communications network timely or successfully, our
ability to compete could be limited, and we could lose our PCS licenses or our
relationship with Sprint PCS.
We must lease or acquire rights to use locations for our PCS equipment and
our PCS network. This may require us to obtain zoning variances or governmental
approvals. If we are unable to obtain or use these locations, we may need to
alter the design of our network. This could prevent us from completing
construction of our network in a timely manner or at all.
There is considerable demand for the communications equipment that we need
to construct our network, and manufacturers of this equipment could have
substantial backlogs of orders. Competitors who purchase large quantities of
communications equipment may receive priority in the delivery of this
equipment. If we cannot get this equipment, we may fail to construct our
network timely. This could limit our ability to compete effectively or to meet
the construction requirements of the FCC or our Sprint PCS agreements. If we do
not meet these construction requirements, we could lose our licenses or breach
our agreements with Sprint PCS.
If we lose our agreements with Sprint PCS, our PCS business may not succeed.
Our agreements with Sprint PCS are central to our business plan.
. These agreements give us the right to use the Sprint PCS(R) brand name
and logo and related rights. If we lose these rights, our PCS
operations will be impaired.
. These agreements impose strict requirements on the construction of our
network. If we do not meet these requirements, these agreements may be
terminated and we could lose the right to be the sole provider of
Sprint PCS products and services in our service area.
. These agreements may be terminated also if any of Sprint PCS's FCC
licenses is lost or jeopardized, or if we become insolvent.
. These agreements give Sprint PCS a substantial amount of control over
the conduct of our business. Sprint PCS may make decisions that
adversely affect our business like setting the prices for its national
plans at levels that may not be economically sufficient for our
business.
. If our management agreements with Sprint PCS are terminated or
breached, we may be required to sell our PCS assets to Sprint PCS or
Sprint PCS may be required to assign to us some of their licensed
spectrum.
. If Sprint PCS decides not to renew our management agreements at the
expiration of the 20-year initial term or any 10-year renewal term, we
would no longer be a part of the Sprint PCS network and would be
limited in conducting our business.
Provisions of our management agreements with Sprint PCS may diminish our value
and restrict the sale of our business.
Under specific circumstances and without further stockholder approval,
Sprint PCS may purchase our operating assets for 72% or 80%, depending on the
circumstances, of our "entire business value," which is more fully described in
"Sprint PCS Agreements--The Management
7
<PAGE>
Agreements--Non-renewal of management agreements." Sprint PCS must approve any
change of control of our ownership and consent to any assignment of our
management agreements to an unrelated third party or to one of its
competitors. In addition, before we can accept an offer to sell the properties
used in specified markets, we must first offer them to Sprint PCS on the same
terms. Also, if we want to transfer an ownership interest in LA Unwired or
Texas Unwired to an unrelated third party, we must first give Sprint PCS a
right of first offer for the interest. These restrictions and other
restrictions in our management agreements with Sprint PCS could adversely
affect the value of our common stock, may limit our ability to sell the
business, may reduce the value a buyer would be willing to pay for our
business and may reduce our entire business value.
Problems with Sprint PCS's internal support systems could lead to customer
dissatisfaction or increase our costs.
We will rely on Sprint PCS's internal support systems, including customer
care, billing and back-office support, in some of our markets. As Sprint PCS
has expanded, its internal support systems have been subject to increased
demand and, in some cases, suffered problems in service. We cannot assure you
that Sprint PCS will be able to add system capacity successfully or that its
internal support systems will be adequate. Problems with Sprint PCS's internal
support systems could cause:
. delays or problems in our own operations or service.
. delays or difficulty in gaining access to customer and financial
information.
. a loss of Sprint PCS customers.
. an increase in the costs of customer care, billing and back office
services.
The Federal Communications Act of 1934 could affect our agreements with Sprint
PCS and could require changes in them.
The Communications Act prohibits any transfer of control of a radio
station license without prior approval of the FCC. Our agreements with Sprint
PCS provide for us to manage its licenses in our service area. If the FCC were
to conclude that our management constituted our control over Sprint PCS's
licenses, we would probably be required to modify our agreements to eliminate
that control. We cannot predict what modifications could be required or
whether we would be adversely affected by them.
If Sprint PCS does not succeed, or if we do not maintain a good relationship
with Sprint PCS, our PCS business may not succeed.
. If Sprint PCS has a significant disruption to its system, fails to
develop its system, or suffers a weakening of its brand name, our
operations and profitability would likely be impaired.
. We will use our relationship with Sprint PCS to obtain, at favorable
prices, the equipment for the construction and operation of our
network. Any disruption in our relationship with Sprint PCS could make
it much more difficult to obtain this equipment.
Our relationship with Sprint or its successor may be adversely affected by the
proposed merger of Sprint and MCI WorldCom.
Sprint and MCI WorldCom announced on October 5, 1999 that they have
agreed to merge to form a new company called WorldCom. The merger is subject
to various conditions, including the approvals of the shareholders of both
companies, the FCC, the Justice Department and various state
8
<PAGE>
governmental bodies and foreign antitrust authorities. We do not know what
effect the merger will have on Sprint's business. If the merger does not occur,
Sprint's business may be adversely affected. Any negative impact on Sprint
could have a negative effect on us as a Sprint PCS network partner.
Our competitors may have more resources or other advantages that may make it
difficult for us to compete effectively.
Competition in the wireless communications services industry is intense.
If we are unable to compete successfully, our business and operations will be
impaired. We may be at a disadvantage compared to our competitors who:
. have substantially greater financial, technological, marketing and
sales and distribution resources than we do.
. entered the wireless communications services market before we did.
. market other competitive services, like local dial tone, long distance
and internet, together with their wireless communications services.
. have more established networks, marketing programs and brand names.
. offer coverage in areas not served by our PCS network or offer lower
rates for placing and receiving calls outside of their own networks.
We expect that some of the existing cellular providers will continue to
upgrade their systems to provide digital wireless communication services that
compete with Sprint PCS. Many of these cellular providers have more financial
resources and customers than we do. Providers of traditional landline telephone
services, energy companies, utility companies and cable operators may expand
their services to offer competitive wired or wireless communications services.
We compete also with companies that use other communications technologies and
paging and dispatch companies. People who are considering using PCS systems may
find their communications needs satisfied by these other current and developing
technologies.
Changes in technology could adversely affect us.
PCS providers in the United States use one of three technological
standards. Even though the three standards share basic characteristics, they
are not compatible or interchangeable with each other. We and Sprint PCS use
the standard known as CDMA. If another standard becomes preferred in the
industry, we may be at a competitive disadvantage. If Sprint PCS changes its
standard, we will need to change ours as well, which will be costly and time
consuming. If we cannot change our standard, we may not be able to compete with
other systems.
The wireless telecommunications industry is experiencing significant
technological change. This is evident from:
. an increase in the number of upgrades from analog systems to digital.
. improvements in digital technology.
. shorter development periods for new products and enhancements.
. changes in customer needs and preferences.
To be competitive, we must have access to new technology. Future
technology and advancements could be better than PCS service and even make our
service obsolete. The development of new or better technologies could impair
our business and operating results.
9
<PAGE>
Our agreement with Sprint PCS prohibits us from upgrading our cellular
network in Lake Charles, Louisiana from an analog network to a digital network
like the Sprint PCS network without Sprint PCS's approval. If cellular
equipment manufacturers stop making analog cellular equipment and we cannot buy
used analog cellular equipment on the open market, it could impair our ability
to service our existing cellular subscribers and attract new ones.
If the Sprint PCS network does not complete its nationwide expansion, we may
not be able to provide our customers with the services they demand.
Sprint PCS intends to cover a significant portion of the population of the
United States, Puerto Rico and the U.S. Virgin Islands with its PCS system, but
it has not yet completed the buildout of its planned network. If one of our
customers travels in an area where a Sprint PCS system or another CDMA-based
system is not yet operational, the customer will need a telephone handset that
can make calls on both CDMA-systems and non-CDMA-systems. Generally, these
handsets are more costly. Moreover, the Sprint PCS network does not allow for
calls to be transferred without interruption between the Sprint PCS network and
another wireless network. This means that a customer must end a call in
progress and initiate a new call when entering an area not served by the Sprint
PCS network. The quality of the service provided by another network may not be
equal to that of the Sprint PCS network, and our customers may not be able to
use some of the advanced features of our network. This could result in customer
dissatisfaction and loss of customers.
If there are any effects of the Year 2000 that are not yet known, there could
be an interruption or failure of our computer systems.
We use a significant number of computer systems and software programs in
our operations, including in support of our PCS network equipment and for
various administrative functions. Before the Year 2000, we discussed the nature
and progress of our plans to prepare for that year. In late 1999, we finished
testing and preparing our systems for the Year 2000 date change. As of the date
of this prospectus, we have experienced no significant disruptions in our
critical information technology and non-information technology systems that
resulted from the Year 2000 date change. We believe that our systems
successfully responded to the Year 2000 date change. We expensed less than
$550,000 during 1999 to prepare our systems for the Year 2000. We are not aware
of any material problems that resulted from the Year 2000 date change with our
products, our internal systems or the products and services of third parties.
We will continue to monitor our critical computer applications and those of our
suppliers and vendors throughout 2000 so we can promptly address any Year 2000
matters that may arise.
Our service area is threatened by bad weather, including hurricanes, which
could cause interruptions in service.
Much of our service area is on or near the Gulf of Mexico and could be
damaged by bad weather like hurricanes and excessive rain. Even though we
believe our insurance coverage is adequate, we may face service interruptions
for indefinite periods if a major hurricane strikes one or more of our Gulf
Coast service areas.
10
<PAGE>
Risks Related to the Wireless Telecommunications Industry
We are subject to broad and evolving government regulation that could cause us
to change our business plans or lose our licenses if we do not comply.
. Our business must comply with the rules and regulations of the FCC,
the FAA and state and local regulatory agencies.
. New regulations may require us to modify our business plan or
operations. This could increase our operating costs.
. The loss of any of our FCC licenses, or any of Sprint PCS's FCC
licenses for our service area, would impair our business and operating
results.
. The FCC may revoke any of our PCS licenses at any time for cause. Cause
could be our failure to comply with terms of the licenses or the FCC
rules that apply to us. We cannot ensure that our PCS licenses will be
renewed when they expire.
. The FCC regulates our relationship with Sprint PCS under our Sprint PCS
agreements.
. We may need to acquire additional licenses, which may require approval
of regulatory authorities. These regulatory authorities may not grant
approval in a timely manner, if at all.
. All PCS licenses, including our own licenses and Sprint PCS's
licenses, are subject to the FCC's buildout regulations. These
regulations require license holders to offer specified levels of
service to the population in their service areas within set time
periods. Even though we have developed a buildout plan that meets
these requirements, we may be unable to meet our buildout schedule. If
Sprint PCS or we do not meet these requirements, the FCC could take
back the portions of our service area that are not being served,
impose fines, or even revoke the related licenses.
. The FCC imposes limitations on the foreign ownership of license
holders. If foreign ownership is too great, the FCC may revoke our PCS
licenses or require an ownership restructuring.
. The FCC imposes additional requirements on holders of PCS licenses
reserved for small businesses. These licenses are called C-block and
F-block licenses. We hold F-block licenses and must meet special
requirements to hold them. If we do not meet these requirements, the
FCC could fine us, revoke our licenses or require us to restructure
our ownership.
Our future prospects are uncertain because the future prospects of the PCS
industry are uncertain.
PCS systems have not operated in the United States for very long, and we
cannot assure you that the operation of these systems in our markets will
become profitable. In addition, we cannot estimate how much demand there will
be for PCS in our markets or how much competitive pricing pressure there will
be. As a result, the future prospects of the PCS industry, including our
prospects, remain uncertain. The future demand for wireless communications
services in general is uncertain.
11
<PAGE>
Our PCS business may suffer because more subscribers generally disconnect their
service in the PCS industry than in the cellular industry.
The PCS industry has experienced a higher rate of subscribers who
disconnect their service than the cellular industry. This rate, or churn, of
PCS subscribers may be the result of limited network coverage, unreliable
performance of calls, costs, customer care or other competitive factors.
We plan to keep our PCS subscriber churn down by expanding network
coverage, improving network reliability, marketing affordable plans and
enhancing customer care. We cannot assure you that these strategies will be
successful. A high rate of PCS subscriber churn could harm our competitive
position and the results of operations of our PCS services.
Radio frequency emissions may pose health concerns which may cause people to
sue us or discourage them from using our services.
Media reports have suggested that some radio frequency emissions from
wireless telephone handsets may be linked to various health concerns, including
cancer, and may interfere with some electronic medical devices, including
hearing aids and pacemakers. These concerns may discourage the use of these
handsets or expose us to potential litigation.
Worse than expected fourth quarter results may cause our stock price to drop
and significantly reduce our overall results of operations.
The wireless industry is heavily dependent on fourth quarter results.
Among other things, the industry relies on significantly higher subscriber
additions and handset sales in the fourth quarter as compared to the other
three fiscal quarters. The price of our common stock may drop and our overall
results of operations could be significantly reduced if we have a worse than
expected fourth quarter for any reason, including the following:
.our inability to match or beat pricing plans offered by competitors.
.our failure to promote Sprint PCS's products, services and pricing plans
adequately.
.our inability to obtain an adequate supply or selection of handsets.
.a downturn in the economy of some or all markets in our service area.
.a poor holiday shopping season.
Risks Related to This Offering
The tangible book value attributable to shares of our common stock that you buy
in this offering will be substantially lower than the price that you pay for
those shares.
The initial public offering price of our common stock is substantially
higher than the tangible book value per share of our outstanding common stock.
Tangible book value per share is the amount of our total tangible assets less
total liabilities divided by the number of outstanding shares of our common
stock. If you purchase shares of our common stock in this offering, the value
of your purchased shares will be immediately and substantially reduced, or
diluted, because the tangible book value attributable to your shares will be
less than what you paid for the shares. This means that if we distributed our
tangible assets to our stockholders immediately following this offering, you
would receive less than the amount that you paid for your shares.
The dilution to purchasers in this offering will be approximately $
per share. This offering will materially increase the tangible book value per
share of shares of common stock owned
12
<PAGE>
by our existing stockholders because your purchases will increase the tangible
book value attributable to their existing shares of our common stock. In
addition, as of , 2000, we had granted options to purchase
shares of common stock, having an average weighted exercise price of $ per
share. Further, we plan to grant additional options to purchase shares
of common stock at the initial public offering price. When the holders of
these options exercise them, new stockholders will experience further dilution
of their shares of common stock.
Provisions in our charter documents and in Louisiana law could prevent or
delay a change in the persons who control us. This could impair the market
price of our common stock.
Some of the provisions in our articles of incorporation, bylaws and
Louisiana law could:
.discourage potential acquisition proposals.
.delay or prevent a change in the persons who control us.
. limit the price that investors may be willing to pay in the future for
shares of our common stock.
In particular, our articles of incorporation and bylaws provide the
following:
. our board of directors is divided into three classes, as nearly equal
in size as possible, with each class beginning its three year term in a
different year.
.our board of directors may issue preferred stock without stockholder
approval.
. a stockholder may nominate directors only if the stockholder delivers
written notice to us not less than 45 days or more than 90 days before
the meeting of shareholders to elect directors.
. the Louisiana Business Corporation Law and our charter documents
require supermajority voting power to amend our articles of
incorporation or to approve a merger, consolidation, share exchange,
disposition of all or substantially all of US Unwired's assets or
dissolution.
Our existing stockholders will be able to control the outcome of significant
matters presented to stockholders after the completion of this offering.
We have two classes of common stock, class A and class B. Holders of our
class A common stock have one vote per share, and holders of our class B
common stock have 10 votes per share. Our class B common stock will not trade
in the public market, and there are restrictions on its transfer. Immediately
after this offering, the outstanding shares of our class A common stock will
represent approximately 1.5% of the combined voting power of our outstanding
class A and class B common stock, and 1.7% if the underwriters exercise their
over-allotment option in full. Our existing stockholders, most of whom will
hold class B shares, will continue to be able to control the election of our
directors and generally will be able to direct our affairs. These holders will
have the power to determine whether we should be sold, including a sale in
which a class A holder would receive a premium for the holder's shares over
the then-prevailing market price. This control may impair the market price of
our class A common stock.
Our stock has not been publicly traded before, and there may be volatility in
our stock price.
Prior to this offering, there has been no public market for our common
stock. We cannot predict how much interest investors will have in our common
stock or whether an active and liquid
13
<PAGE>
trading market will develop for our common stock. We and the representatives of
the underwriters together will set the initial public offering price for shares
of our common stock. This price may not necessarily represent the market price
of the common stock that will prevail in the trading market. The market price
of our common stock may fall below the initial public offering price. In recent
years, the securities markets have been extremely volatile in prevailing price
levels. This volatility has been unrelated or disproportionate to the operating
performance of individual companies. In some cases, stockholders of companies
that have had volatile stock prices have filed securities class action lawsuits
against those companies. If a suit were filed against us, regardless of the
outcome, it could result in substantial costs and a diversion of our
management's attention and resources.
Management will have broad discretion for the use of proceeds from this
offering, including the ability to apply the proceeds to uses that do not
increase our operating results or market value.
Most of the net proceeds of this offering are not allocated for specific
uses other than for accelerating the construction of our PCS network and for
general corporate purposes. Our management will have considerable discretion in
applying these net proceeds. You will not have the opportunity, as part of your
investment decision, to assess whether we are using the proceeds appropriately.
We may decide to use the net proceeds for corporate purposes that do not
increase our operating results or market value. Until we actually use the net
proceeds, we may place them in investments that do not produce income or that
lose value.
If a large number of shares of our common stock are available for sale after
this offering, the market price of our common stock could be impaired.
The market price of our common stock could decline if there are sales of a
large number of shares in the market after this offering or if the market
believes that these sales could occur. These factors could also make it more
difficult for us to raise funds through future offerings of common stock.
We will have shares of our common stock outstanding immediately
after this offering. If the underwriters exercise their entire over-allotment
option, we will have shares of our common stock outstanding immediately
after this offering. You may freely trade any shares that you purchase in this
offering unless you are our affiliate. Our affiliates may only resell their
shares pursuant to an effective registration statement or pursuant to Rule 144
under the Securities Act or another available exemption from registration. Any
remaining shares will be "restricted securities." Holders of restricted
securities may sell them in the public market at various times after 180 days
after the date of this prospectus, if they comply with Rule 144 under the
Securities Act.
Risks Related to Forward-Looking Statements
You should be aware that actual results or outcomes may be different from those
stated in any forward-looking statements included in this prospectus.
This prospectus includes forward-looking statements. Forward-looking
statements are statements about our current and future business strategy,
operations, capabilities and construction plan and schedule, as well as
financial projections, plans and objectives of management, expected actions of
third parties and other matters. They often include the words "believes,"
"belief," "expects," "plans," "anticipates," "intends," "projects" or similar
words. Forward-looking statements speak only as of the date made. They involve
known and unknown risks and other factors
14
<PAGE>
that could cause our actual results to be materially different from our
historical results or from any future results expressed or implied by any
forward-looking statements. Some of the factors that could cause this
difference are:
. the availability at acceptable terms of sufficient funds to pay for our
business plan.
. competition.
. changes in labor, equipment and capital costs.
. any inability to obtain required regulatory approvals.
. changes in technology.
. any inability to comply with the indenture that governs the notes or
with our credit agreements.
. changes in management.
. any inability to attract and retain qualified employees.
. future acquisitions.
. general economic and business conditions.
You should not rely too heavily on any forward-looking statement. We
cannot assure you that our forward-looking statements will prove to be correct.
We have no obligation to update or revise publicly any forward-looking
statement based on new information, future events or otherwise. When the
registration statement containing this prospectus becomes effective, we will be
required to report to the SEC on a periodic basis specified information about
us and our business. The information in these reports must be accurate and
complete as of the date of the report.
USE OF PROCEEDS
We expect to receive approximately $ of net proceeds from the sale of
the shares of common stock at an assumed initial public offering price of
$ per share (approximately $ if the underwriters exercise their entire
over-allotment option), after we deduct the estimated underwriting discounts
and offering expenses payable by us.
We intend to use the net proceeds of the offering:
. to accelerate the construction of our PCS network.
. for other general corporate purposes.
Until we actually use these net proceeds, we will invest them in
investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock, and we do not plan
to pay any cash dividends on our common stock in the near future. We intend to
retain all of our future earnings, if any, and use them to expand and operate
our business and for general corporate purposes. In addition, our debt
instruments limit our ability to declare or pay cash dividends on our common
stock. We may incur future indebtedness or enter into loan arrangements that
also restrict our ability to pay dividends or make distributions to our
stockholders.
15
<PAGE>
CAPITALIZATION
The table below shows:
. the actual cash and capitalization of US Unwired as of December 31,
1999.
. the cash and capitalization of US Unwired as adjusted to reflect the
sale in this offering of shares of common stock and the
application of $ million in net proceeds from the sale and the
conversion of preferred stock into common stock.
You should read this table with our consolidated financial statements and
related notes, which are included in this prospectus.
<TABLE>
<CAPTION>
As of December 31,
1999
----------------------
As
Actual Adjusted(/1/)
-------- -------------
(In thousands)
<S> <C> <C>
Cash and cash equivalents................................ $ 14,695 $
Marketable securities.................................... 141,453 141,453
-------- --------
Total cash and marketable securities................... $156,148 $
======== ========
Debt, including current maturities:
US Unwired senior credit facilities.................... $ -- $ --
Senior subordinated discount notes..................... 214,045 214,045
Other debt(/2/)........................................ 2,035 526
-------- --------
Total debt........................................... 216,080 214,571
-------- --------
Mandatory redeemable convertible preferred stock......... 50,000 --
Stockholders' equity:
Common stock........................................... 113
Additional paid-in capital............................. 2,634
Accumulated other comprehensive income................. 474 474
Retained earnings...................................... 25,364 26,735
-------- --------
Total stockholders' equity........................... 28,585
-------- --------
Total capitalization................................. $294,665
======== ========
</TABLE>
- ---------------------
(1) Upon completion of this offering our $50 million of series A preferred
stock, which was issued on October 29, 1999, and $5 million of series B
preferred stock, which was issued on February 15, 2000, will be converted
into 2,071,563 shares of our common stock. The as adjusted amount reflects
this conversion.
(2) The as adjusted column reflects the payoff of certain debt related to the
sale of certain PCS licenses as if these events occurred as of December 31,
1999.
16
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was $28.6 million or
approximately $2.54 per share of common stock. Net tangible book value per
share represents the amount of our total tangible assets reduced by the amount
of total liabilities and divided by the number of shares of common stock
outstanding. After giving effect to our sale of shares of common
stock in the offering, and deducting underwriting discounts and commissions and
estimated offering expenses, our as-adjusted net tangible book value as of
December 31, 1999 would have been approximately $ million, or
approximately $ per share. This represents an immediate dilution of $
per share to new investors purchasing shares of common stock in the offering
and an immediate increase in net tangible book value to existing stockholders
of $ per share.
Dilution per share represents the difference between the amount that
purchasers pay in this offering for each share of our common stock and the net
tangible book value per share immediately after the sale of common stock in
this offering.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Net tangible book value per share as of December 31, 1999.......... $2.54
Increase per share attributable to new investors in this offering..
-----
As-adjusted net tangible book value per share after the offering.....
---
Dilution per share to new investors.................................. $
---
</TABLE>
This table excludes all options that will remain outstanding after we
complete this offering. As of December 31, 1999, we had granted options to
purchase a total 664,600 shares of common stock, with a weighted average
exercise price of $11.15 per share. If the holders of outstanding options
exercise them at a price that is less than the offering price, our new
investors will have further dilution.
The following table shows on an as-adjusted basis as of December 31, 1999
the number of shares of common stock purchased, the total price paid and the
average price per share paid by our existing stockholders and by new investors,
before deducting estimated underwriting discounts and commissions and estimated
offering expenses of $ million payable by us, at an initial public offering
price of $ per share.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
-------------- -------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % $ % $
New investors.......................
--- --- ---- ---
Total............................. % $ %
=== === ==== ===
</TABLE>
17
<PAGE>
We calculated the existing stockholder amounts in the table above on an
as-adjusted basis, which
. includes shares outstanding as of December 31, 1999.
. excludes 664,600 shares of our class A common stock that we have
reserved for issuance under our 1999 Equity Incentive Plan. As of
December 31, 1999, we had granted options for of these shares with a
weighted average exercise price of $11.15 per share.
If the underwriters exercise their entire over-allotment option, our new
investors will hold shares, or approximately % of the total number
of shares of our common stock outstanding after this offering.
18
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The table below shows some of our historical financial information based
on our audited consolidated financial statements for each of the five years in
the period ended December 31, 1999. You should read this information with our
consolidated financial statements and the related notes and the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations," all of which are included in this prospectus.
You should keep in mind the following points as you read this information:
. in July 1998, we sold all of our cellular assets related to our
Mississippi, Alabama and Kansas markets, including our majority
interest in Mississippi 34 Cellular Corporation.
. in August 1998, we ended our practice of reselling the PCS service of
Meretel when we sold our wholesale PCS subscribers to Meretel.
. the results for LA Unwired are consolidated with those of US Unwired
for 1999 due to US Unwired's increased equity ownership in 1999, but
results are presented on the equity method for 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1996 1997 1998(/1/)(/2/)(/4/) 1999(/3/)(/4/)
------- ------- -------- ------------------- --------------
Statement of Operations
Data: (In thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $39,252 $61,893 $ 74,668 $71,711 $ 58,632
Cost of services and
merchandise sold..... 14,803 21,949 29,054 29,363 31,591
Other operating
expenses............. 17,256 27,781 36,053 37,873 52,299
------- ------- -------- ------- --------
Operating income
(loss)............... 7,193 12,163 9,561 4,475 (25,258)
Net income (loss) from
continuing
operations........... 2,603 3,854 (1,509) 28,796 (17,634)
======= ======= ======== ======= ========
<CAPTION>
At December 31,
------------------------------------------------------------
1995 1996 1997 1998(/2/) 1999(/3/)
------- ------- -------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data: (In thousands)
Cash and cash
equivalents.......... $ 5,102 $ 5,464 $ 4,955 $32,475 $ 14,695
Marketable securities... -- -- -- -- 141,453
Property and equipment,
net.................. 20,911 28,692 38,891 22,565 106,067
Total assets............ 78,754 132,328 142,133 87,629 317,110
Long-term debt,
including current
maturities........... 52,051 95,901 100,066 29,067 216,080
Equity.................. 21,403 25,437 23,929 51,479 28,585
</TABLE>
- ---------------------
(1) In July 1998, in anticipation of the Sprint PCS buildout, US Unwired sold
all of its cellular assets related to its Mississippi, Alabama and Kansas
markets, along with its majority ownership interest in Mississippi 34
Cellular Corporation, for $161.5 million. This transaction resulted in a
gain of approximately $57.4 million which is included in income (loss) from
continuing operations.
(2) In June 1998, Meretel returned its PCS licenses to the FCC in exchange for
cancellation of Meretel's debt and interest owed to the FCC. Meretel
returned its PCS licenses so it could manage Sprint PCS's licenses in
Meretel's service areas. This transaction resulted in a loss of $3.5
million, and our partnership share of that loss, which is approximately
$850,000, is included in income (loss) from continuing operations.
(3) In 1999, US Unwired made a series of capital contributions to LA Unwired
which increased its ownership percentage in LA Unwired to 93.7% as of
December 31, 1999. As a result, the operating results for 1999 include the
operations of LA Unwired on a consolidated basis.
(4) Includes results of operations for Unwired Telecom, our cellular and paging
operating subsidiary, which for the year ended December 31, 1999 generated
$46.2 million of revenues and $5.7 million of operating income and for the
year ended December 31, 1998 generated $67.7 million of revenues and $4.0
million of operating income. Presents LEC Unwired as a discontinued
operation. LEC Unwired began operations in 1998 and is presented on the
equity method for the year ended December 31, 1998.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this section with our consolidated financial statements
and the related notes in this prospectus. This section contains forward-looking
statements. You should read the risk factor about forward-looking statements.
Overview
We currently offer PCS service in eleven markets: Beaumont-Port Arthur,
Longview-Marshall, Lufkin-Nacogdoches, Texarkana and Tyler, Texas and
Alexandria, Houma-Thibodaux, Lake Charles, Monroe and Shreveport, Louisiana and
Montgomery, Alabama. Our network currently covers approximately 2.4 million
residents out of approximately 3.6 million total residents in those markets. We
expect to cover a total of approximately 6.1 million residents by December 2000
and 6.4 million residents by March 2001, at which point we expect to have
covered approximately 66% of the resident population in our service area. The
number of people in our service area does not represent the number of Sprint
PCS subscribers that we expect to have in our service area. At December 31,
1999, we had approximately 47,000 subscribers within those eleven markets. This
phase of our buildout represents 368 constructed and co-located towers. We have
begun radio frequency design, network design and cell site engineering in the
remaining markets to be built out.
Our service area covers 41 markets in eastern Texas, southern Oklahoma,
southern Arkansas, significant portions of Louisiana, Alabama and Mississippi,
the Florida panhandle and southern Tennessee. Our service area is contiguous
with Sprint PCS's launched markets of Houston, Dallas, Little Rock, New
Orleans, Birmingham, Tallahassee and Memphis. We are constructing a 100%
digital, 100% wireless PCS network that we expect to complete by March 2001.
Beginning in 1987, we acquired 14 cellular rural markets and one cellular
metropolitan market in Louisiana, Mississippi, Alabama and Kansas. In July
1998, we sold our cellular markets in Mississippi, Alabama and Kansas for gross
proceeds of $161.5 million. We kept the Lake Charles, Louisiana cellular
market, which had approximately 59,000 cellular subscribers and 24,000 paging
subscribers as of December 31, 1999. As a result of these transactions, there
is no comparability of the results for 1999, 1998 and 1997.
In 1995, US Unwired formed Meretel Communications Limited Partnership to
bid for, develop and operate PCS licenses in specified markets. In the original
partnership agreement, Meretel's general partner, Wireless Management
Corporation, owned 2%; US Unwired, Fort Bend Telephone Company, and EATELCORP,
Inc. each owned 24 1/3%; XIT Leasing, Inc. owned 5%; and Meretel Wireless, Inc.
owned 20%. The FCC awarded Meretel the PCS licenses for the Baton Rouge,
Lafayette and Hammond, Louisiana and Beaumont and Lufkin, Texas markets. US
Unwired and EATEL jointly managed Meretel through the completion of the
buildout of the Beaumont, Lafayette and Baton Rouge markets in November 1997.
After completing buildout of the first three markets, Meretel sold wholesale
wireless minutes to US Unwired and EATEL, both of which resold the minutes to
the general public.
20
<PAGE>
On June 8, 1998, Meretel returned its five PCS licenses to the FCC and
agreed to manage Sprint PCS's spectrum in those five markets. On August 1,
1998, we sold our wholesale PCS subscriber base in the Beaumont, Lafayette and
Baton Rouge markets to Meretel, so Meretel could operate as a retailer of PCS
services. At the same time, US Unwired agreed to manage Meretel's retail
operations, including sales, customer care and back end services. EATEL
continued to buy wholesale wireless minutes from Meretel.
The owners of Meretel recently restructured the partnership. Under the
new agreement:
. Meretel transferred ownership of the Beaumont-Port Arthur and Lufkin-
Nacogdoches markets to Texas Unwired, a general partnership of which LA
Unwired owns 80% and is the managing partner.
. we transferred to Meretel the Biloxi, Mississippi market.
. EATEL sold its wholesale PCS subscriber base to Meretel.
. Meretel will continue to manage the Lafayette, Hammond, Baton Rouge and
Biloxi markets for Sprint PCS.
We now own approximately 13.3% of Meretel. We have terminated our management
agreement with Meretel. We plan to transfer our partnership interest in
Meretel to LA Unwired. As of December 31, 1999, Meretel had approximately
51,000 subscribers. Approximately 13,000 of these subscribers are in the
markets owned by Texas Unwired.
As of December 31, 1999, we owned 93.7% of LA Unwired. At December 31,
1999, LA Unwired had $18.1 million in revenues and a subscriber base of
approximately 34,000 compared to $1.5 million in revenues and a subscriber
base of approximately 6,000 at December 31, 1998. On March 22, 2000, US
Unwired adopted a formal plan to sell its 56.7% ownership interest in LEC
Unwired.
Results of Operations
1999 compared to 1998.
You should keep in mind the following points when reading these results:
. in July 1998, we sold all of our cellular assets related to our
Mississippi, Alabama and Kansas markets and our majority interest in
Mississippi 34 Cellular Corporation. Accordingly, the results for 1998
include the operating results of the sold assets, but the results for
1999 do not include those operating results.
. in August 1998, we ended our practice of reselling Meretel's PCS
service when we sold our wholesale PCS subscribers to Meretel. Thus,
the results for 1998 include PCS reseller activity, but the results for
1999 do not include that reseller activity.
. results for LA Unwired are consolidated with those of US Unwired for
1999 due to US Unwired's increased equity ownership in 1999, but
results are presented on the equity method for 1998.
. results for LEC Unwired are presented as discontinued operations for
1999 and 1998.
21
<PAGE>
Revenues
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Subscriber revenues.......................................... $48,723 $39,734
Roaming revenues............................................. 11,914 10,867
Merchandise sales............................................ 3,915 5,371
Other revenue................................................ 7,159 2,660
------- -------
Total revenues............................................. $71,711 $58,632
======= =======
</TABLE>
Subscriber revenues were $39.7 million for 1999 compared to $48.7 million
for 1998. The decrease of $9.0 million was attributable to the sale of selected
cellular markets in 1998, which generated $13.5 million of revenues through the
point of sale in July 1998 and the loss of $2.1 million of subscriber revenue
related to the conclusion of our PCS reseller activity. Additionally, cellular
and paging revenues for our Louisiana cellular markets decreased $3.7 million
from $33.1 million in 1998 to $29.4 million in 1999. These decreases were
offset by the consolidation of LA Unwired in 1999, which generated subscriber
revenue of $10.3 million.
Roaming revenues were $10.9 million for 1999 compared to $11.9 million for
1998. The decrease of $1.0 million is attributable to the sale of selected
cellular markets in 1998, which generated roaming revenues of $5.3 million
through the point of sale in July 1998. This decrease was offset by the 1999
consolidation of LA Unwired which generated roaming revenue of $3.6 million in
1999. In addition, 1999 roaming revenue for our Louisiana cellular markets
increased $600,000 from $6.6 million in 1998 to $7.2 million in 1999.
Merchandise sales were $5.4 million for 1999 compared to $3.9 million for
1998. This increase of $1.5 million was substantially due to the inclusion of
LA Unwired as a consolidated entity in 1999, resulting in an additional $4.0
million in merchandise sales. Offsetting the increase was the inclusion of PCS
reseller activity in 1998 amounting to $1.6 million, which was discontinued in
August 1998 when we sold our Meretel market PCS subscribers to Meretel, and the
inclusion of $500,000 in 1998 merchandise sales attributable to the sale of
selected cellular markets sold in July 1998. Louisiana market cellular and
paging merchandise sales decreased $400,000 from $1.8 million in 1998 to $1.4
million in 1999.
Other revenues were $2.7 million in 1999 compared to $7.2 million in 1998.
PCS reseller activity, which concluded in August 1998, accounted for $2.2
million. LA Unwired management fees accounted for $1.2 million in 1998, and
were eliminated in consolidation in 1999. LEC Unwired management fees were
approximately $500,000 in 1998. We collected $1.7 million in management fees in
1998 for management services following the sale of selected markets. This was
offset by an increase in 1999 of management fees related to Meretel of $1.3
million.
Operating Expenses
Cost of service was $19.6 million for 1999 as compared to $18.6 million
for 1998. The increase of $1.0 million was primarily due to the inclusion of LA
Unwired presented in 1999 on a
22
<PAGE>
consolidated basis versus an equity basis in 1998. Cost of service in 1999 for
LA Unwired was $10.3 million. This increase was offset by the 1998 sale of
selected cellular markets and the conclusion of PCS reseller activity that
accounted for 1998 cost of service of $6.2 million and $1.5 million,
respectively. Cost of service in our Louisiana cellular and paging markets
decreased $1.3 million from $10.9 million in 1998 to $9.6 million in 1999.
Merchandise cost of sales was $12.0 million for 1999 and $10.8 million for
1998. This increase of $1.2 million was primarily the result of the inclusion
in 1998 of merchandise cost of sales of $1.5 million associated with selected
cellular markets sold in 1998, and the inclusion of $4.2 million of merchandise
sales in 1998 related to PCS reseller activity that was concluded in 1998. The
inclusion of LA Unwired on a consolidated basis in 1999 added $9.2 million to
cost of sales. Merchandise cost of sales for our Louisiana cellular and paging
properties decreased $2.3 million from $5.1 million in 1998 to $2.8 million in
1999.
General and administrative expenses were $20.1 million for 1999 and $17.2
million for 1998, an increase of $2.9 million. The sale of selected cellular
markets in 1998 resulted in a $2.4 million decrease and the conclusion of PCS
reseller activity in 1998 accounted for a $1.6 million decrease. This was
offset by the inclusion of LA Unwired in 1999 on a consolidated basis which
added $6.5 million to 1999. General and administrative expenses for our
Louisiana cellular and paging markets remained unchanged in 1999 and included
an adjustment to salaries of $799,000 for the compensation associated with the
issuance of stock options below market value.
Sales and marketing expenses were $12.8 million for 1999 and $10.9 million
for 1998. This increase of $1.9 million was primarily the result of the 1999
consolidation of LA Unwired, which accounted for $8.3 million. This was offset
by $3.2 million associated with the sale of selected markets in 1998 and $3.6
million associated with PCS reseller activity which concluded in 1998. Sales
and marketing expenses for our Louisiana cellular and paging markets increased
by $400,000 from $4.1 million in 1998 to $4.5 million in 1999.
Depreciation and amortization expense was $19.4 million for 1999 and $9.8
million for 1998, an increase of $9.6 million. The inclusion of LA Unwired in
1999 added $13.5 million. Depreciation and amortization expense for our
Louisiana cellular and paging markets increased $1.3 million from $4.6 million
in 1998 to $5.9 million in 1999. These increases were partially offset by the
elimination of $5.2 million related to the sale of selected cellular markets in
1998.
Operating Income/(Loss)
The total operating loss for 1999 was $25.3 million as compared to
operating income of $4.5 million for 1998. This decrease of $29.8 million was
primarily the result of the reduction of income associated with the sale of
selected cellular markets of $800,000; losses of $29.6 million associated with
the start-up of LA Unwired; and a decrease in operating income of $3.9 million
related to our Louisiana cellular markets, which included $799,000 related to
option compensation. These decreases were offset by the conclusion of our PCS
reseller activity that resulted in operating losses of $5.0 million in 1998.
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Other Income/(Expense)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Interest expense......................................... $(6,157) $(11,225)
Interest income.......................................... 1,778 2,949
Other income/(expense)................................... -- 587
Losses on sale of assets................................. (114) --
Gain on sale of selected markets......................... 57,364 819
------- --------
Total other income/(expense)........................... $52,871 $ (6,870)
======= ========
</TABLE>
Interest expense was $11.2 million for 1999 and $6.2 million for 1998. Our
outstanding debt was $216.1 million at December 31, 1999 as compared to $29.1
million at December 31, 1998. The increase in debt was the result of our
offering of our senior subordinated discount notes in October 1999. Interest
income was $2.9 million for 1999 and $1.8 million for 1998. Interest income in
1999 was associated with the proceeds from the note offering. Interest income
in 1998 was associated with the sale of selected cellular markets. Other income
for the year ended December 31, 1999 represents income earned on the settlement
of LA Unwired's interest rate swap agreement.
Gain on sale of markets was $57.4 million in 1998. In 1998, we received
gross proceeds of $161.5 million from the sale of selected cellular markets.
The $819,000 recognized in 1999 is also associated with the 1998 sale, as we
concluded our settlement of the working capital and related items relative to
the original sale.
Minority Interest in Subsidiaries
Minority interest in losses of subsidiaries was $10.4 million for 1999 and
$0 in 1998. The increase in minority interest in losses of subsidiaries
resulted from the consolidation of LA Unwired in 1999 and represents the
portion of the losses from LA Unwired allocable to minority shareholders of
these subsidiaries.
Equity in Losses of Affiliates
Equity in losses of affiliates was $4.9 million for 1999 and $11.7 million
in 1998. The decrease of $6.8 million was primarily due to the consolidation of
LA Unwired in 1999 versus reporting for the losses under the equity method in
1998.
Result of Discontinued Operations
On March 22, 2000 US Unwired adopted a formal plan to sell its 56.7%
ownership interest in LEC Unwired. For financial reporting purposes, we are
presenting this as a discontinued operation and recognizing a charge of
approximately $3.5 million, net of $1.5 million in income taxes.
1998 compared to 1997.
You should keep in mind the following points when reading these results:
. the 1997 financial information includes 12 months of operating results
from the assets related to our selected cellular markets that we sold
in July 1998, and the 1998 financial
24
<PAGE>
information reflects only six months of operations for those assets
along with the gain from the sale of those assets.
. the 1998 financial information includes the results of seven months of
PCS reseller activity, and the 1997 financial information includes the
results of only three months of PCS reseller activity.
Revenues
<TABLE>
<CAPTION>
Twelve Months
Ended
December 31,
---------------
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Subscriber revenues....................................... $53,255 $48,723
Roaming revenues.......................................... 16,079 11,914
Merchandise sales......................................... 2,685 3,915
Other revenues............................................ 2,649 7,159
------- -------
Total revenues.......................................... $74,668 $71,711
======= =======
</TABLE>
Subscriber revenues were $48.7 million for 1998 as compared to $53.3
million for 1997. The primary reason for this decrease of $4.6 million was our
1998 sale of selected cellular markets. Subscriber revenues for the selected
cellular markets in 1997 was $24.2 million as compared to $13.7 million in
1998, resulting in a decrease of $10.5 million. Offsetting the reduction in
revenues from the sale of selected cellular markets was the increase in
subscriber revenues from our Louisiana cellular markets of $4.0 million and
$1.9 million from our PCS reseller activity.
Roaming revenues were $11.9 million for 1998 as compared to $16.1 million
for 1997. This decrease of $4.2 million was primarily a result of our 1998 sale
of selected cellular markets. Roaming revenues for the selected cellular
markets sold were $10.2 in 1997 million as compared to $5.6 million for 1998,
resulting in a decrease of $4.6 million. Our Louisiana cellular markets had
roaming revenues of $6.3 million for 1998 as compared to $5.8 million for 1997,
representing an increase of $500,000.
Merchandise sales were $3.9 million for 1998 as compared to $2.7 million
for 1997. This increase of $1.2 million was primarily the result of an increase
of 11,000 in gross additional subscribers from PCS reseller activity resulting
in an increase of $1.2 million in merchandise sales.
Other revenues were $7.2 million for 1998 as compared to $2.6 million for
1997. This increase of $4.6 million was primarily the result of an increase in
management fee revenue of $3.1 million and incentive revenue of $1.0 million
from Meretel for our gross additions of 2,900 PCS reseller subscribers.
Operating Expenses
Cost of service was $18.6 million for 1998 as compared to $20.1 million
for 1997. This decrease of $1.5 million was mainly attributable to our 1998
sale of selected cellular markets, which generated cost of service of $6.7
million for 1998 as compared to $9.7 million for 1997, resulting in a decrease
of $3.0 million. An increase of $1.3 million in PCS reseller cost of service
and an increase of $200,000 in our Louisiana cellular markets' cost of service
offset this decrease.
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<PAGE>
Merchandise cost of sales was $10.8 million for 1998 as compared to $8.9
million for 1997. This increase of $1.9 million was primarily the result of our
gross additional subscribers of 11,000 from our PCS reseller activity,
resulting in an increase of $3.3 million in merchandise cost of sales. We
incurred an additional increase of $400,000 in merchandise cost of sales
relating to our Louisiana cellular markets. This increase was offset by a
decrease of $1.8 million related to our 1998 sale of selected cellular markets.
General and administrative expenses were $17.2 million for 1998 as
compared to $12.7 million for 1997. This increase of $4.5 was attributable to
additional employee costs, despite our having sold the selected cellular
markets, as the majority of our employees were redeployed to manage the
expansion of our PCS activity through LA Unwired and Meretel and to establish
our data and CLEC activities through LEC Unwired. US Unwired manages these
subsidiaries, employs the majority of personnel for these operations and
charges a management fee to these subsidiaries for these management services.
Sales and marketing expenses were $10.9 million for 1998 and 1997.
Depreciation and amortization was $9.8 million for 1998 as compared to
$12.5 million for 1997. This decrease of $2.7 million was primarily the result
of our 1998 sale of depreciable assets related to the selected cellular
markets. Depreciation and amortization for the selected cellular markets was
$9.8 million in 1997 as compared to $5.6 million in 1998, resulting in a
decrease of $4.2 million. An increase of $1.5 million in depreciation and
amortization of our Louisiana cellular markets offset this decrease.
Operating Income
Operating income was $4.5 million for 1998 as compared to $9.6 million for
1997. The decrease of $5.1 million was primarily the result of an increase in
losses resulting from our PCS reseller activity of $4.4 million and $4.0
million related to our 1998 sale of selected cellular markets. These decreases
were offset by an increase of $3.3 million in operating income related to our
Louisiana cellular markets.
Other Income/Expense
<TABLE>
<CAPTION>
Twelve Months
Ended
December 31,
----------------
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Interest expense.......................................... $(8,580) $(6,157)
Interest income........................................... 1,690 1,778
Other costs............................................... (1,082) --
Losses on sale of assets.................................. -- (114)
Gain on sale of markets................................... -- 57,364
------- -------
Total other income/(expense)............................ $(7,972) $52,871
======= =======
</TABLE>
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<PAGE>
Interest expense was $6.2 million for 1998 as compared to $8.6 million for
1997. This decrease of $2.4 million was the result of our application of a
portion of the proceeds from our 1998 sale of selected cellular markets to our
outstanding debt obligations. Total long-term debt decreased from $100.1
million at December 31, 1997 to $29.1 million at December 31, 1998.
Interest income was $1.8 million for 1998 as compared to $1.7 million for
1997. Interest income for 1998 was primarily generated from our investment of
proceeds from our 1998 sale of selected cellular markets in interest bearing
accounts.
Other costs totaled $1.1 million in 1997 for US Unwired's preparation for
an initial public offering that was canceled due to unfavorable market
conditions.
Gain on sale of markets totaled $57.4 million for 1998. This was
attributable to our 1998 sale of selected cellular markets. Gross proceeds
allocated to us from the sale totaled $161.5 million.
Minority interest in losses of subsidiaries
Minority interest in losses of subsidiaries was $0 for 1998 as compared to
$134,000 for 1997. The 1997 amount relates to the portion of the losses from
Mississippi 34 Cellular Corporation allocable to the minority shareholders of
that corporation. No minority interest in subsidiary is reflected in 1998 due
to the sale of Mississippi 34 Cellular Corporation in July 1998.
Equity in losses of affiliates
Equity in losses of affiliates was $11.7 million for 1998 as compared to
$3.1 million for 1997 resulting in an increase of $8.6 million. US Unwired's
proportionate share of Meretel's losses increased from $3.5 million for 1997 to
$7.2 million for 1998. In their first year of operations in 1998, LA Unwired
contributed losses of $4.7 million. LA Unwired did not report any losses in
1997 due to commencement of operations in 1998.
Liquidity and Capital Resources
We need approximately $303.8 million to build out our PCS network and to
market and distribute our products and services from January 2000 through
December 2001. We believe that the proceeds from our financings and internally
generated cash will be enough to build out our network as planned, cover
anticipated operating losses and meet our debt service requirements through
December 2001. We expect to cover approximately 66% of the population in a
majority of markets in our service area by March 2001. We plan to use this
$303.8 million for capital requirements, including capital expenditures,
working capital, debt service requirements and anticipated operating losses for
the period from January 2000 through December 2001. We will use this capital
also for switches, base stations, towers and antennae, radio frequency
engineering, cell site acquisition and construction and microwave relocation.
The actual amounts required to build out our PCS network may vary materially
from these estimates. We may need more capital if we have unforeseen delays,
cost overruns, unanticipated expenses, regulatory expenses, engineering design
changes and other technological risks.
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<PAGE>
In the past, we have paid our working capital requirements, acquisitions,
capital expenditures and debt service through bank financing and retained
earnings from operations and the one-time gain from our 1998 sale of selected
cellular markets.
On October 29, 1999, we issued approximately $400 million in principal
amount of 13 3/8% senior subordinated discount notes of US Unwired and received
net proceeds of approximately $209 million. These notes are unsecured
obligations. They bear interest at a rate of 13 3/8% per year, payable twice
per year on May 1 and November 1, beginning May 1, 2005. LA Unwired and Unwired
Telecom fully and unconditionally and jointly and severally guarantee our
obligations under the notes.
On October 1, 1999, US Unwired entered into a credit facility with CoBank,
ACB, The Bank of New York, BNY Capital Markets, Inc., First Union Securities,
Inc., First Union National Bank and other lenders for $130 million. At December
31, 1999, we had full availability of $130 million under our new credit
facility for the buildout of our PCS network and anticipated operating losses.
In addition, we issued $50 million of preferred stock on October 29, 1999
and $5 million of preferred stock on February 15, 2000, all of which will be
converted into our common stock at the completion of this offering.
On December 31, 1999, LEC Unwired had $11.8 million outstanding under two
senior credit facilities dated July 22, 1998. The first credit facility is a
$15.0 million senior facility with a three year drawdown period and five year
amortization. The second facility is a $3.0 million subordinated facility with
a three year drawdown period and five year amortization. Both facilities mature
on July 1, 2006. On March 22, 2000, we adopted a formal plan to sell our 56.7%
ownership interest in LEC Unwired.
Cash used in operating activities was $7.4 million in 1999. This use
primarily consisted of our net loss of $24.2 million offset by $19.4 million in
depreciation and amortization, $4.9 million in equity losses in affiliates,
$3.9 million in debt extinguishment charges, $4.8 million in debt discount
accretion, $177,000 in discontinued operations and $799,000 in non-cash
compensation. Other reductions included a $10.4 million loss in our minority
share in affiliates, a $5.9 million decrease in working capital and a deferred
tax benefit of $516,000. Net cash used by operations for 1998 was $14.7
million, and net cash provided by operations was $12.0 million in 1997.
Cash used in investing activities was $198.4 million in 1999. These uses
primarily consisted of $49.9 million to purchase property and equipment, $8.2
million for discontinued operations and $140.7 million to purchase marketable
securities. Net cash provided by investing activities was $113.2 million in
1998, and net cash used in investing activities was $17.6 million in 1997.
Cash flow provided by financing activities was $188.0 million in 1999. We
received $240.2 million in net proceeds from long-term debt, $11.8 million from
discontinued operations and $50 million from the issuance of preferred stock.
Cash used in financing activities consisted of $98.4 million in principal
payments on long-term debt and $15.7 million of debt issuance costs. Net cash
used in financing activities was $71.0 million in 1998, and net cash provided
by financing activities was $3.9 million in 1997.
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<PAGE>
Seasonality
Like the wireless communications industry in general, our subscribers
increase in the fourth quarter due to the holiday season. A greater number of
phones sold at holiday promotional prices increases our losses on merchandise
sales. Our sales and marketing expenses increase also with holiday promotional
activities. We generally have the most use and revenue per subscriber in the
summer because of an increase in revenues from fees charged to non-US Unwired,
non-Sprint PCS customers who use our network while traveling in our service
area. We believe that the increased traffic in our service area comes from
people traveling during summer vacation. We expect these trends to continue
based on historical operating results.
Impact of Year 2000 Issue on Our Operations and Financial Condition
We use a significant number of computer systems and software programs in
our operations, including in support of our PCS network equipment and for
various administrative functions. Before the Year 2000, we discussed the nature
and progress of our plans to prepare for that year. In late 1999, we finished
testing and preparing our systems for the Year 2000 date change. As of the date
of this prospectus, we had experienced no significant disruptions in our
critical information technology and non-information technology systems that
resulted from the Year 2000 date change. We believe that our systems
successfully responded to the Year 2000 date change. We expensed less than
$550,000 during 1999 to prepare our systems for the Year 2000. We are not aware
of any material problems that resulted from the Year 2000 date change with our
products, our internal systems or the products and services of third parties.
We will continue to monitor our critical computer applications and those of our
suppliers and vendors throughout 2000 so we can promptly address any Year 2000
matters that may arise.
Quantitative and Qualitative Disclosure about Market Risk
We are not exposed to fluctuations in currency exchange rates, as all of
our services are invoiced in U.S. dollars. We are exposed to the impact of
interest rate changes on our short-term cash investments, consisting of U.S.
Treasury obligations and other investments in respect of institutions with the
highest credit ratings, all of which have maturities of 90 days or less. These
short-term investments carry a degree of interest rate risk. We believe that
the impact of a 1% increase or decline in current average investment rates
would not have a material impact on our investment income.
Inflation
We believe that inflation has not impaired, and will not impair, our
results of operations.
Accounting
We do not believe that any recently issued accounting pronouncements will
have any material impact on our financial position, results of operations or
cash flows.
29
<PAGE>
BUSINESS
General
We currently provide wireless personal communications services, commonly
referred to as PCS, in parts of Louisiana and Texas. We are a network partner
of Sprint PCS, the personal communications services group of Sprint
Corporation. Sprint PCS, directly and through affiliates like us, provides
wireless services in more than 4,000 cities and communities across the country.
We have the exclusive right to provide digital PCS services under the Sprint(R)
and Sprint PCS(R) brand names in a service area comprising approximately 9.7
million residents in the Gulf States region. Our service area has the largest
population and the most subscribers of any network partner of Sprint PCS.
We currently provide Sprint PCS service in eleven markets: Alexandria,
Houma-Thibodaux, Lake Charles, Monroe and Shreveport, Louisiana and Beaumont-
Port Arthur, Longview-Marshall, Lufkin-Nacogdoches, Texarkana and Tyler, Texas
and Montgomery, Alabama. Our network currently covers approximately 2.4 million
residents out of approximately 3.6 million total residents in those markets. We
expect to cover a total of approximately 6.1 million residents by December 2000
and 6.4 million residents by March 2001, at which point we expect to have
covered approximately 66% of the resident population in our service area. The
number of people in our service area does not represent the number of Sprint
PCS subscribers that we expect to have in our service area. At December 31,
1999, we were providing PCS service to approximately 47,000 subscribers in our
service area. In addition, we were providing cellular and paging service to
approximately 83,000 subscribers in southwest Louisiana at December 31, 1999.
For the year ended December 31, 1999, we had revenues of approximately $58.6
million and a net loss from continuing operations of approximately $17.6
million, and our operations used approximately $7.4 million more cash than they
generated.
Our service area covers 41 markets in eastern Texas, southern Oklahoma,
southern Arkansas, significant portions of Louisiana, Alabama and Mississippi,
the Florida panhandle and southern Tennessee. Our service area is contiguous
with Sprint PCS's launched markets of Houston, Dallas, Little Rock, New
Orleans, Birmingham, Tallahassee and Memphis. We are constructing a 100%
digital, 100% wireless PCS network that we expect to complete by March 2001. We
estimate that Sprint PCS paid over $100 million to acquire the PCS licenses in
our service area and to clear the licensed markets for microwave radio
frequency service.
Our Background
We have a long heritage in the telecommunications business. The Henning
family, which controls US Unwired, has been involved in telecommunications
continuously since 1928. The Henning family has a history of being first-to-
market in southwestern Louisiana with many major telephony developments,
including first wireline operator in Cameron Parish, Louisiana in 1928, first
cellular provider in southwestern Louisiana in 1987 and first PCS service
provider in southwestern Louisiana in 1997.
We formed our parent corporation, US Unwired, in Louisiana in September
1999. At that time it acquired the stock of its subsidiaries from their
shareholders. In return, it issued its own stock to those shareholders. We
formed the predecessor to our parent company in March 1967.
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<PAGE>
Our Affiliation with Sprint PCS
Under our agreements with Sprint PCS, we market Sprint PCS products and
services in our service area using licenses that Sprint PCS acquired from the
FCC in 1994 and 1996. We will be the only provider of Sprint PCS products and
services in our service area. Some key points about these agreements are:
. each agreement lasts 50 years with an initial period of 20 years and
three automatic, successive 10-year renewal periods.
. each agreement requires revenue sharing of 8% to Sprint PCS and 92% to
US Unwired, except that US Unwired retains 100% of revenues from non-US
Unwired Sprint PCS customers traveling in our service area,
extraordinary income and equipment sales.
. if we terminate or breach the agreements, we may be required to sell
our PCS business and network to Sprint PCS or to purchase the Sprint
PCS licenses from Sprint PCS.
. if Sprint PCS terminates or breaches the agreements, we may be able to
sell our PCS business and network to Sprint PCS or to purchase the
Sprint PCS licenses from Sprint PCS.
We believe that our service area is important to Sprint PCS's plan to
expand its PCS network. To date, Sprint PCS has made considerable investments
in the licenses covering our service area. We estimate that Sprint PCS paid
over $100 million to acquire the PCS licenses in our service area and to
prepare the licensed markets for service.
Benefits of Our Affiliation with Sprint PCS
Our relationship with Sprint PCS provides us with many operational and
business advantages, including:
Exclusive access to Sprint PCS products and services. We are the only
provider of Sprint PCS products and services in our service area. We have the
right to provide these products and services under the Sprint(R) and Sprint
PCS(R) brand names.
Strong brand recognition and national advertising support. We expect to
benefit from the strength and reputation of the Sprint(R) and Sprint PCS(R)
brands. In our local markets, we use the Sprint(R) and Sprint PCS(R) brands and
logos without having to pay for this right. We benefit from Sprint PCS's
national advertising campaigns and developed marketing programs at no
additional cost.
Sprint PCS "Free and Clear" one-rate pricing plans. We offer our customers
the same free long distance, free traveling on the Sprint PCS network and other
promotional campaigns, like telephone handsets and accessories, that Sprint PCS
offers to all of its customers throughout the United States.
Established distribution channels. We have access to all national
distribution channels that Sprint PCS uses. These channels include:
. major national third party retailers like Radio Shack, Office Depot,
Circuit City, Dillard's, Sam's Wholesale Club, Office Max and Best Buy.
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<PAGE>
.Sprint PCS's national inbound telemarketing sales program.
.Sprint PCS's Business-to-Business and national accounts sales programs.
.Sprint PCS's electronic commerce sales platform.
National network. We operate our PCS network as part of the Sprint PCS
network. We believe that our ability to offer access to the Sprint PCS network,
with current service in more than 280 major metropolitan markets across the
country, represents a competitive advantage over regional offerings. Our
customers can place calls in any area of the United States where Sprint PCS
service is available without charges for traveling on Sprint PCS's network or,
under specified pricing plans, for long distance. In areas where Sprint PCS
service is not available, our customers must pay a fee to use another wireless
provider's service.
Exclusive traveling partner to Sprint PCS. We are the only provider of PCS
services to non-US Unwired Sprint PCS customers in our service area. We benefit
from the increased traffic from other Sprint PCS customers who travel in our
service area.
Sprint PCS engineering and network design. In markets where we use
spectrum owned by Sprint PCS, Sprint PCS provides the engineering services for
microwave clearance and handles all of the design, planning and relocation of
any radio cell sites.
Better equipment availability and pricing. We can buy network and
subscriber equipment under Sprint PCS's contracts that provide for volume
discounts. These discounts will reduce the overall capital required to build
our PCS network and will lower our cost of subscriber equipment.
Reduced startup costs. We estimate that Sprint PCS spent over $100 million
to purchase a substantial portion of the licenses covering our service area and
for microwave clearing. As a Sprint PCS network partner, we did not have to
acquire most of the licenses in our service area. This reduced our start-up
costs.
Availability of technology and service advances developed by Sprint
PCS. Sprint PCS's extensive research and development effort produces ongoing
benefits through both new technological products as well as enhanced service
features. We have immediate access to any developments produced by Sprint PCS
for its nationwide PCS network.
Our Competitive Strengths
Our competitive strengths include the following:
Extensive territorial reach. There are approximately 9.7 million residents
in our service area. This is a significant percentage of the population in the
Gulf States region. The number of residents in our service area does not
represent the number of PCS subscribers that we expect to have in our service
area. At December 31, 1999, we were providing PCS services to approximately
47,000 subscribers in our service area. Our service area has characteristics
that are favorable to wireless communications, including:
.extensive highway miles and commuter zones.
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.high commuter activity.
.concentration of major industries.
.major regional tourist destinations.
.a large number of higher education institutions.
Existing corporate infrastructure. We have employees to handle billing,
customer care, accounting, treasury and legal services in our markets where we
currently offer PCS service and in most of our new markets. We believe that
providing these functions ourselves is more cost-effective than having third
parties provide them. In a limited number of markets, however, Sprint PCS will
provide us on a contract basis with selected back office functions like billing
and customer care. We anticipate that we may over time transfer control of
these functions to Sprint PCS if Sprint PCS can provide them more cost-
effectively and efficiently than we can.
Significant number of owned licenses. In addition to the Sprint PCS
licenses that we manage, we own thirteen 10 MHz PCS licenses and three 25 MHz
cellular licenses within our service area. The combination of the Sprint PCS
licenses and our licenses gives us access to 40 MHz of bandwidth in many of our
markets. We believe that this positions us well for the possible future
introduction of wireless internet and data transmission service.
High-quality customer care. We are committed to building strong customer
relationships by providing high-quality customer care. We serve our customers
from our state-of-the-art call center facility in Lake Charles, Louisiana. Our
customers can contact our customer care representatives from any of our
handsets without charge. Additionally, we are staffing each of our retail
outlets with full-time customer care representatives to deal directly with the
customers concerning billing and service issues. Our web-based services allow
customers to check billing and manage their accounts on line.
Our Business Strategy
We plan to offer high-capacity, high-quality, advanced communications on
our PCS wireless network. We believe the following elements of our business
strategy will distinguish our wireless service from those of our competitors
and will enable us to compete successfully in the wireless communications
marketplace:
Leverage relationship with Sprint PCS. We intend to capitalize on the
benefits of our relationship with Sprint PCS. These benefits include:
.strong brand recognition and national marketing campaigns.
.exclusive Sprint PCS traveling partner.
.access to Sprint PCS products and services.
.availability of Sprint PCS "Free and Clear" one-rate pricing plans.
. access to Sprint PCS's network, which includes more than 4,000 cities
and communities across the United States.
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. established direct and indirect distribution channels.
. volume-driven vendor discounts.
. access to Sprint PCS engineering and network design.
. reduced startup costs.
. long-term management agreement.
. availability of technology and service advances developed by Sprint
PCS.
Execute integrated marketing plan. Our marketing approach leverages Sprint
PCS's highly recognizable brand name and reputation and its relationship with
major national retailers. We emphasize the improved quality, enhanced features
and favorable pricing of Sprint PCS service. In addition, we benefit from the
Sprint PCS:
. organized national accounts sales force.
. e-commerce website.
. pre-negotiated contracts with national retail chain outlets.
On the local level, we provide:
. multi-media marketing efforts, including point-of-sale, print,
television and radio campaigns for our own co-branded US Unwired(R) and
Sprint PCS(R) retail outlets.
. approximately 131 independent agent representatives.
. direct mail efforts and a website, www.usunwired.com.
Execute high-quality buildout plan. We are constructing a state-of-the-
art, high quality 100% PCS network using 100% digital technology.
. our network design allows our system to handle higher traffic demand
than cellular operators. This allows us to offer lower per-minute
rates.
. our network design enables us to service expensive, difficult to reach
locations and coverage gaps within our wireless network.
. we will maintain low construction costs for our network by planning to
co-locate on existing towers as our primary strategy and developing our
radio frequency design around this strategy.
Our Service Area
Our Sprint PCS service area covers 41 markets spanning over 164,500
square miles with a population of approximately 9.7 million. Our service area
is the largest in the United States by measure of population for all of the
territories assigned to Sprint PCS network partners. Even though our service
area comprises approximately 9.7 million residents, the number of residents in
our service area does not represent the number of PCS subscribers that we
expect to have in our service area. At December 31, 1999, we were providing PCS
services to approximately 47,000 subscribers in our service area.
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Our service area is contiguous with Sprint PCS's recently launched markets
of Houston, Dallas, Little Rock, New Orleans, Birmingham, Tallahassee and
Memphis. Our network buildout will link these existing Sprint PCS markets. We
will be the only provider of Sprint PCS products and services in the markets
connecting these major cities.
We believe that our service area has many regional characteristics that
are favorable for wireless communication, including the following:
Extensive highway miles and commuter zones. Our service area includes high
traffic corridors traversed by major interstate highways. Overall, our service
area covers 4,509 total highway miles; 2,073 are interstate.
High commuter activity. We have high commuter activity. Over 24% of the
average commute time is greater than 30 minutes.
Concentration of major industries. The Gulf States region is home to many
large businesses in the oil and gas, gaming and agriculture industries. These
businesses are very important to the region and provide the majority of
business travelers who visit our service area.
Major regional tourist destinations. According to major tourist
publication guides, the Gulf Coast region is a major tourist and vacation
destination. The Gulf Coast beaches in Mississippi, Alabama and Florida draw
millions of visitors annually. Our service area has many historical sites, and
the numerous casino gaming establishments in our service area are major travel
destinations. The Mississippi casino market alone is the largest casino market
in the United States between Las Vegas and Atlantic City.
Large number of higher education institutions. There are 86 colleges and
universities in and around our service area, including the University of
Alabama, the University of Southern Mississippi, Mississippi State University
and Louisiana State University. Over 415,000 students attend these
institutions.
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The following table shows some key information about our PCS markets
(population in thousands):
<TABLE>
<CAPTION>
Basic Total Expected Sprint Spectrum Total
Trading Market % Population Online Spectrum (Owned Spectrum
Market(/1/) Area # Population(/1/) Owned Owned Date (Managed MHz) MHz) (MHz)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anniston, AL......................... 17 167.2 100% 167.2 Jun-00 30 -- 30
Chilton Area Counties, AL(/2/)(/3/).. 44 246.4 100 246.4 Sep-00 30 -- 30
Decatur, AL.......................... 108 145.6 100 145.6 Sep-00 30 -- 30
Florence, AL......................... 146 185.8 100 185.8 Sep-00 30 -- 30
Gadsen, AL........................... 158 188.2 100 188.2 Sep-00 30 -- 30
Huntsville, AL....................... 198 512.9 100 512.9 Sep-00 30 -- 30
Mobile, AL........................... 302 667.8 100 667.8 Jun-00 30 -- 30
Montgomery, AL....................... 305 477.4 100 477.4 Online 30 -- 30
Selma, AL............................ 415 72.1 100 72.1 Sep-00 30 -- 30
Tuscaloosa, AL....................... 450 254.5 100 254.5 Sep-00 30 10 40
El Dorado, AR........................ 125 102.2 100 102.2 Mar-01 30 10 40
Hot Springs, AR...................... 193 135.7 100 135.7 Jun-00 30 -- 30
Nevada Area Counties, AR(/2/)(/4/)... 257 57.3 100 57.3 Jun-00 30 -- 30
Pine Bluff, AR....................... 348 147.4 100 147.4 Mar-01 30 10 40
Fort Walton Beach, FL................ 154 225.6 100 225.6 Sep-00 30 -- 30
Jackson Area County, FL(/2/)......... 439 50.9 100 50.9 Jun-00 10 -- 10
Panama City, FL...................... 340 210.6 100 210.6 Sep-00 10 -- 10
Pensacola, FL........................ 343 428.9 100 428.9 Jun-00 30 -- 30
Alexandria, LA....................... 9 273.6 100 273.6 Online 30 10 40
Houma, LA............................ 195 277.1 100 277.1 Online 30 -- 30
Lake Charles, LA..................... 238 282.6 100 282.6 Online 10 10 20
Monroe, LA........................... 304 330.4 100 330.4 Online 30 10 40
Shreveport, LA....................... 419 586.7 100 586.7 Online 30 10 40
Columbus, MS......................... 94 171.5 100 171.5 Dec-00 10 10 20
Greenville, MS....................... 175 205.8 100 205.8 Dec-00 10 -- 10
Grenada Area Counties, MS(/2/)(/5/). 290 62.4 100 62.4 Dec-00 10 -- 10
Hattiesburg, MS...................... 186 186.5 100 186.5 Dec-00 30 -- 30
Jackson, MS.......................... 210 667.0 100 667.0 Jun-00 10 -- 10
Laurel, MS........................... 246 82.3 100 82.3 Mar-01 30 -- 30
McComb, MS........................... 269 111.7 100 111.7 Mar-01 30 -- 30
Meridian, MS......................... 292 206.7 100 206.7 Jun-00 10 -- 10
Natchez, MS.......................... 315 72.1 100 72.1 Jun-00 10 10 20
Tupelo, MS........................... 449 318.4 100 318.4 Dec-00 10 10 20
Vicksburg, MS........................ 455 62.4 100 62.4 Mar-01 10 -- 10
Marshall Area Counties,
TN(/2/)(/6/)........................ 314 56.9 100 56.9 Sep-00 30 -- 30
Longview, TX......................... 260 320.8 100 320.8 Online 30 10 40
Paris, TX............................ 341 93.0 100 93.0 Mar-01 30 10 40
Texarkana, TX........................ 443 262.0 100 262.0 Online 30 10 40
Tyler, TX............................ 452 310.0 100 310.0 Online 30 -- 30
Beaumont, TX......................... 34 464.3 80 371.4 Online 10 -- 10
Lufkin, TX........................... 265 165.2 80 132.2 Online 10 -- 10
-------- -------
Subtotal........................... 9,845.9 9,720.0
Minority Interests:
Baton Rouge, LA..................... 32 685.2 13 91.0 Online 30 -- 30
Hammond, LA......................... 180 107.7 13 14.3 Online 30 -- 30
Lafayette, LA....................... 236 543.1 13 72.1 Online 30 -- 30
Biloxi, MS.......................... 42 389.1 13 51.7 Sep-00 30 -- 30
-------- -------
Subtotal........................... 1,725.1 229.1
Total............................ 11,571.0 9,949.1
======== =======
</TABLE>
- --------
(1)Source: Paul Kagan Associates, Inc., 2000 PCS Atlas and Databook.
(2)County based information.
(3)Includes Chilton, Cullman, Talladega, Coosa and Tallapoosa Counties.
(4)Includes Nevada, Clark, Dallas, and Grant Counties.
(5)Includes Grenada, Yalobusha, Tallahatchie and Montgomery Counties.
(6)Includes Marshall and Giles Counties.
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The following table shows some information about our cellular markets
(population in thousands):
<TABLE>
<CAPTION>
Metropolitan Total Spectrum
or Rural Market % Population Online (Owned
Market Service Area # Population (1) Owned Owned Date MHz)
<S> <C> <C> <C> <C> <C> <C>
Beauregard, LA.......... RSA 5 B-1 147.0 100% 147.0 Online 25
De Soto, LA............. RSA 3 B-1 54.0 100% 54.0 Online 25
Lake Charles, LA........ MSA 197 179.9 100% 179.9 Online 25
Chambers, TX............ RSA 21 23.3 25% 5.8 Online 25
----- -----
Total................... 404.2 386.7
===== =====
</TABLE>
- ---------------------
(/1/) Source: Paul Kagan Associates, Inc., Cellular Telephone Atlas 1998.
Network Buildout Plan
As of December 31, 1999, we were providing PCS service in the following
eleven markets covering a total population of approximately 3.6 million:
Alexandria, Houma-Thibodaux, Lake Charles, Monroe and Shreveport, Louisiana and
Beaumont-Port Arthur, Longview-Marshall, Lufkin-Nacogdoches, Texarkana and
Tyler, Texas and Montgomery, Alabama. Our network currently covers
approximately 2.4 million of the approximately 3.6 million total residents in
those markets. When we complete our network buildout, we expect to cover
approximately 66% of the population in a majority of markets in our service
area.
We expect that the combined proceeds of our financings will be sufficient
to provide the $303.8 million required for our network buildout plan and for
anticipated operating losses from January 2000 through December 2001. We plan
to complete construction of our network and be providing PCS service in all of
our markets by March 2001. We expect our network to cover approximately 6.1
million residents by December 2000 and approximately 6.4 million residents by
March 2001, at which point we expect to have covered approximately 66% of the
9.7 million resident population in our service area. The number of people in
the service area covered by our network does not represent the number of PCS
subscribers that we expect to have in our service area. At December 31, 1999,
we were providing PCS services to approximately 47,000 subscribers in our
service area.
We are focusing our network construction first on the concentrated
population and business centers of the major metropolitan areas in our service
area and the adjoining interstate highways. We will then build out the smaller
markets surrounding the existing built out areas and will continue to build out
interstate and state highways. We intend to launch PCS service only after we
complete a significant portion of the planned buildout for a given major city.
Before we launch service, we will perform extensive field testing to ensure
comprehensive and reliable coverage within a particular market. We are
providing the overall project and construction management of the design, site
acquisition, installation and testing of our PCS system.
Initial radio frequency design. Lucent Technologies, Inc. and the
engineering firm of 3Ngineering, L.L.C. are performing the initial radio
frequency design for our network. Lucent or 3Ngineering determines the required
number of cell sites to operate our network and identifies the general
geographic areas for proposed cell site locations. We have completed the
initial radio frequency design for all of our markets that are expected to be
completed by December 2000 and for 30% of our markets that are expected to be
completed by March 2001.
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Site identification, acquisition and construction. Either we or a
commercial real estate firm that advises us identifies and acquires the sites
where we will locate the towers, antennae and other equipment to operate our
PCS system. After a general geographic area is identified, the commercial real
estate firm, or we, identify two potential tower sites within that area
location and evaluate them based on various engineering criteria and economic
desirability.
We obtain cell sites in three ways: (1) co-location, (2) construction of a
tower by an independent build-to-suit company, or (3) construction of a tower
by us. We prefer to co-locate with another wireless company by leasing space on
an existing tower or building. When we co-locate, we generally have lower
construction costs and it is likely that any zoning difficulties have been
resolved. We believe that we need approximately 833 cell sites to achieve
approximately 66% coverage of the population in our service area. We expect to
co-locate approximately 40% of our cell sites, hire tower construction
companies to build 10% and manage construction of 50% ourselves.
Microwave relocation. Fixed microwave operators previously used the
frequencies that are now allocated for PCS licenses. The FCC has established
procedures for PCS licensees to relocate these existing microwave paths,
generally at the PCS licensee's expense. We have relocated all microwave paths
for the PCS licenses that we own. Sprint PCS is helping us relocate the
microwave paths for the PCS licenses that it owns. Sprint PCS is analyzing
these relocations as we continue the buildout of our network. We expect to
spend less than $20.0 million for relocation. We plan to complete the microwave
relocation for the Sprint PCS licenses before our targeted buildout completion
date.
Switching centers. Our service area will have five switching centers
located in our four markets of Shreveport and Lake Charles, Louisiana, Jackson,
Mississippi and Montgomery, Alabama. We have leased and constructed the
Shreveport location. We expect to lease and construct the other locations in
time to launch the markets that we expect to complete by March 2001. Each
switching center will serve several purposes, including routing calls, managing
call handoff, managing access to landlines and providing access to voice mail.
Interconnection. We will connect our digital PCS network to the landline
telephone system through interconnection agreements with local exchange
carriers. Before entering the Sprint PCS agreements, we entered into
interconnection agreements with BellSouth. Through our agreements with Sprint
PCS, we will benefit from the interconnection agreements that Sprint PCS
negotiates.
Long distance and back haul. We have a long distance agreement with our
affiliate, Cameron Communications Corporation, for preferred rates for long
distance services. We can also buy long distance services from Sprint PCS at
favorable rates.
Network communications equipment. Lucent Technologies, Inc. and Nortel
Networks will supply the radio base stations, switches and other related PCS
transmission equipment, software and services necessary for our markets that we
expect will be built out by December 2000 and some of our markets that we
expect will be completed by March 2001. Lucent and Nortel are helping us
install and test this transmission equipment. We are still deciding who will
provide these products and services for our remaining markets that we expect
will be completed by March 2001.
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Network monitoring systems. Our network operations center in Lake Charles,
Louisiana will provide around-the-clock monitoring and maintenance of our
entire network, including:
. the constant monitoring for blocked or dropped calls, call clarity and
signs of tampering, cloning or fraud.
. the recording of network traffic.
. the overseeing of customer usage, data collected at switch facilities
and billing.
Services and Features
We offer Sprint PCS products and services in our service area. Our
products and services are designed to mirror those of Sprint PCS and to become
part of the Sprint PCS nationwide network. Our PCS network has significant
advantages over competing digital networks.
Improved quality and technology. We expect an increase in PCS customers as
the quality of digital wireless networks continues to approach that of wireline
systems. We believe that PCS providers will be first to be able to offer mass
market wireless applications in competition with traditional wireline telephone
service.
. Cellular carriers must reserve portions of their cellular spectrum for
analog subscribers who cannot use a digital network with their analog
equipment or take advantage of the numerous features offered by digital
service. Spectrum reserved for this use limits a cellular carrier's
ability to offer a mass market product that competes with traditional
wireline telephone service.
. In many smaller metropolitan and rural areas, digital cellular service
has not been deployed. Analog service in these areas precludes deployment
of a mass market replacement of the traditional wireline phone service in
these areas.
. The shorter travel distance of the signal on PCS spectrum permits PCS
carriers to reuse frequencies and increase capacity to a greater extent
than cellular carriers.
. PCS providers have access to 30 MHz of spectrum in major markets and 15
MHz in others. These amounts are more than enough to offer a replacement
for traditional wireline telephone service.
. One PCS provider, Leap Wireless, exclusively markets its digital PCS
service as a replacement for traditional wireline telephone service. In
its first year of services, Leap Wireless attracted over 2% penetration
in its markets. Through Sprint PCS, we will market pricing plans that are
competitive with offerings like Leap Wireless's.
100% digital wireless mobility. Our PCS network is part of the largest
100% digital, 100% PCS network in the nation. We offer customers in our service
area enhanced voice clarity, advanced features and simple, affordable Sprint
PCS "Free and Clear" pricing plans. These plans include long distance and
wireless airtime minutes that can be used on the Sprint PCS network at no
additional charge. Our basic wireless service includes voice mail, caller
identification, enhanced call waiting, three-way conferencing, call forwarding,
distinctive ringing and call blocking.
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National network. Sprint PCS customers can use Sprint PCS services in our
service area and throughout the Sprint PCS network. Sprint PCS, directly and
through its affiliates, currently provides wireless service in more than 4,000
cities and communities throughout the United States, Puerto Rico and the U.S.
Virgin Islands. Dual-band/dual-mode telephone handsets allow customers to make
calls on analog networks where CDMA coverage is not available.
Caller identification, voicemail, message waiting indicator, short
messaging, paging. Caller identification lets users choose which calls to
accept and which to send to voicemail. This feature increases the customer's
willingness to leave the phone on for incoming calls. Digital voicemail is
available at a very cost effective rate and allows for fewer missed calls.
Digital handset displays with message waiting indicators eliminate the need to
"dial-in" to check voicemail and deliver short messages similar to e-mail or
alpha-numeric paging.
Advanced handsets. Our dual-band/dual-mode telephone handsets allow
customers to make and receive calls on both PCS and cellular systems using both
digital and analog technology. These advanced handsets allow calls to continue
without interruption on cellular networks where PCS service is not offered.
They can be equipped for a variety of enhanced features and applications.
Extended battery life. Our digital handsets can operate in sleep mode
while powered on but not in use. This improves efficiency and extends battery
life by an estimated five to six times of that of analog handsets. We expect
that this feature will increase usage, especially for incoming calls, as the
phone can be left on for longer periods.
Improved voice quality. Our technology offers significantly improved voice
quality, more powerful error correction, less susceptibility to call fading and
enhanced interference rejection. All of these things result in fewer dropped
calls.
Voice privacy. We use technology that provides for greater privacy and
fraud protection. We believe that new features and services will be developed
on the Sprint PCS network to take advantage of CDMA technology. Sprint PCS
conducts ongoing research and development to produce innovative services that
give it a competitive advantage. We offer a portfolio of products and services
developed by Sprint PCS to accommodate the growth in, and the unique
requirements of, high speed data traffic. We plan to provide, when available, a
number of applications for wireless data services including facsimile, internet
access and point-of-sale terminal connections.
Marketing Strategy
We use a two-tiered marketing approach that:
. leverages Sprint PCS's nationwide presence, brand name and proven
strategies.
. capitalizes on our regional focus, our history of providing
communications services and our ability to respond quickly and
creatively to changing customer needs.
Use of Sprint PCS's brand name and marketing. We benefit from the
recognizable Sprint PCS brand names and logos and from Sprint PCS's
technological developments.
Pricing. We use the Sprint PCS pricing strategy. This offers customers in
our service area simplified, customer-friendly service plans with preferred
options and features. Under our agreements
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with Sprint PCS, we offer Sprint PCS's consumer pricing plans, including the
"Free and Clear" price plans. These plans typically offer service features such
as voicemail, enhanced caller identification, call waiting, three-way calling
and low per-minute rates. The greater capacity of our and Sprint PCS's
technology allows us to offer lower per-minute rates.
Sprint PCS's "Free and Clear" price plans offer simple and affordable rate
plans for the consumer and business customer. These plans include large numbers
of base minutes which can be used anywhere on the Sprint PCS network and free
long distance calling from anywhere on Sprint PCS's nationwide network. All of
Sprint PCS's current national plans:
. include minutes in any Sprint PCS market (with no traveling charges).
. have many features and generally require no annual contracts and
contain no hidden charges.
. offer a wide selection of phones.
. provide the first incoming minute free.
We offer long-term traveling arrangements with set pricing. We are the
only provider of PCS service for non-US Unwired Sprint PCS customers traveling
in our service area.
Advertising. We use the Sprint PCS name and reputation to attract
customers more efficiently than competitors with low brand awareness. Sprint
PCS has launched a national advertising campaign to promote its products, and
we benefit from this national advertising in our service area at no additional
cost to us. Sprint PCS also runs numerous promotional campaigns which provide
customers with benefits such as additional features at the same rate or free
ancillary services. We purchase promotional materials related to these programs
from Sprint PCS at their cost.
In addition, Sprint PCS sponsors many national, regional and local events.
These sponsorships provide Sprint PCS with brand name and product recognition
in high profile events, provide a forum for sales and promotional activities
and enhance our promotional efforts in our service area.
Prepaid Subscribers. US Unwired is a leading proponent of prepaid products
in the wireless industry. Industry experts believe that 70% of all new wireless
activations will be prepay by 2002. We have a system that permits us to track
minutes of use, replenish minutes and extinguish minutes not used within 30
days.
Our prepaid services include a pre-packaged wireless handset, marketed
under the brand name Chatpak,(TM) that is pre-activated and includes a pre-set
number of minutes. We acquired most of the market for prepaid services by
simplifying the phone activation process and allowing the subscriber to control
pre-set spending limits. A key component of any prepaid product is the
carrier's ability to encourage the subscriber to purchase minutes. We have
implemented three key strategies designed to promote high levels of prepaid
usage: handset pricing, airtime replenishment and dedicated customer care.
We believe that the handsets should be priced at a level that encourages
the subscriber to think of the handset as a reusable asset and not an impulse
purchase. We do not subsidize the phone sales to prepay subscribers to the same
extent as we do for sales to post-pay subscribers. We price prepaid minutes at
a modest premium to the rates of our post-pay plans.
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The subscriber may purchase additional minutes at hundreds of US Unwired's
convenient locations, including our stores, indirect retailers and vending
machines located in high traffic areas. Other options include inbound telesales
with credit card purchases of airtime through our customer care department or
our computerized interactive voice response unit. The dedicated customer care
team contacts each prepaid subscriber within 30 days following the purchase of
the handset to welcome the subscriber and to validate the subscriber's
knowledge of the handset and how to replenish airtime.
Finally, we have focused our efforts on retaining subscribers. We receive
weekly and monthly reports of prepay usage. These reports allow us to focus on
subscribers who show less than normal usage patterns.
Regional focus and customer care. Our regional focus enables us to
supplement Sprint PCS's marketing strategies with our own strategies tailored
to each of our specific markets. This includes attracting local businesses to
enhance our distribution and drawing on our management team's local experience.
Our large local sales force executes our marketing strategy through our retail
stores and kiosks. Our outside sales force targets business sales.
Additionally, we are staffing our retail outlets with full-time customer care
representatives to communicate directly with the customers concerning billing
and service issues.
We direct our media and promotional efforts at the community level by
advertising Sprint PCS's products and services through television, radio, print
advertisements, outdoor advertising, billing inserts and promotional displays
in our retail stores. We market our products and services under the name US
Unwired along with the Sprint(R) and Sprint PCS(R) logos. Also, we sponsor
local and regional events. In addition, Sprint PCS's existing agreements with
national retailers provide us with access to over 250 national retail locations
in our service area.
We offer the business user cost-saving features like:
.home regional roaming rates.
.free long distance throughout the contiguous United States.
.voicemail.
.reduced rates for incoming calls.
In addition, we offer shared minute pools to businesses and families who have
multiple users who share the base plan of minutes.
We are committed to building strong customer relationships by providing
customer care that exceeds expectations. Our customers can contact our customer
care representatives from any of our handsets at no charge. Our web-based
services allow customers to check billing or otherwise manage their accounts on
line.
Sales and Distribution
We target a broad range of consumer and business markets through a sales
and distribution plan. We use traditional cellular channels, like our retail
stores, mass merchandisers and other
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<PAGE>
national retail outlets, independent agents and an outside sales force. We also
use lower-cost methods like direct marketing and a corporate website.
Retail stores. We have 16 retail stores and six kiosks and plan to open
between 30 and 40 additional retail stores by March 2001. Our retail stores are
located in the principal retail districts in each market. Kiosks, which are
located in Wal-Mart stores, maximize our retail presence in some of our markets
and take advantage of high traffic areas. We use our stores and kiosks for much
of the distribution and sale of our handsets and services. Sales
representatives in these stores and kiosks receive in-depth training which
allows them to explain PCS service in an informed manner. We believe that these
representatives will foster effective and enduring customer relationships.
Independent agents. We have a network of over 131 independent agents which
creates additional opportunities for local distribution. Most of these
businesses are family-owned consumer electronics dealers and wireless
telecommunication retailers.
Mass merchandisers and outlets. We target customers through our mass
market retail outlets. We are negotiating distribution agreements based on
Sprint PCS's arrangements with national and regional mass merchandisers and
consumer electronic retailers, including Radio Shack, Office Depot, Circuit
City, Dillard's, Sam's Wholesale Club, Office Max and Best Buy. There are over
250 national retail outlet locations where our customers can purchase our
services. We choose these distributors for their ability to target customers in
our service area. We support their dedication of valuable floor space to
wireless communications products through a local team of retail merchandisers,
attention-grabbing materials and consumer appeal.
Outside sales force. We participate in Sprint PCS's national accounts
program, which targets Fortune 1000 companies. Under this program, when a
Sprint PCS representative reaches an agreement with the corporate headquarters
of a Fortune 1000 company, we service the offices of that corporation that are
located within our service area. We generate additional subscribers through
Sprint PCS's Business to Business Accounts Teams, which call on businesses of
all sizes below the Fortune 1000 tier. In addition, our own outside corporate
sales force targets businesses that are not covered by Sprint PCS's national
accounts program or its Business to Business Account Teams.
Inbound telemarketing. Sprint PCS provides inbound telemarketing sales
when customers call from our service area. We expect to use the national Sprint
PCS (800) 480-4PCS number campaigns that generate call-in leads. These leads
are then handled by a US Unwired retail outlet.
Electronic commerce. Sprint PCS launched an internet site in December 1998
which contains information on Sprint PCS products and services. A visitor to
Sprint PCS's internet site who is interested in purchasing a handset for postal
zip codes in our service area is referred to our toll free customer care
telephone number for assistance. Customers in our service area who purchase
products and services over the Sprint PCS internet site become customers of our
PCS network.
Direct marketing and website. In addition to Sprint PCS's efforts, we use
direct marketing efforts through direct mail and our own website. We are
developing these less expensive and more
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innovative sales channels to complement the retail presence within our service
area as the buildout continues. Our website, www.usunwired.com, provides
current information about us, our markets and our product offerings and
includes an online store. Our web-based services allow customers to check
billing or otherwise manage their accounts on line.
Sprint PCS
Sprint Corporation is a diversified telecommunications service provider of
long distance service, local service, wireless telephone products and services,
product distribution and directory publishing activities and other
telecommunication activities, investments and alliances. Sprint PCS, a group of
subsidiaries of Sprint, operates the only 100% digital, 100% PCS wireless
network in the United States. Sprint PCS, directly and through its network
partners like US Unwired, holds PCS licenses to provide this service in more
than 4,000 cities and communities throughout the United States, Puerto Rico and
the U.S. Virgin Islands. The Sprint PCS network uses CDMA technology.
Through an affiliate, Sprint launched the first commercial PCS service in
the United States in November 1995. Since then, the number of Sprint PCS
subscribers has grown to approximately 5.7 million as of December 31, 1999:
. in 1999, Sprint PCS added approximately 3.1 million new subscribers,
including 20,000 in Hawaii acquired from PrimeCo Personal
Communications.
. as of December 31, 1999, Sprint PCS, together with its network
partners, operated PCS systems within the United States and its
territories covering approximately 270 million people in more than
4,000 cities and communities.
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The chart below illustrates Sprint PCS's subscriber growth from the
beginning of 1997 to the end of the fourth quarter of 1999.
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
1997 1997 1997 1997 1998 1998 1998 1998
------- ------- ------- ------- ------- ------- ------- -------
.2 .3 .6 .9 1.1 1.4 1.8 2.6
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
1999 1999 1999 1999
- ------- ------- ------- -------
3.4 4.0 4.7 5.7
Sprint PCS currently provides service through:
. operation of its own digital network.
. strategic affiliations with other companies, primarily in and around
smaller metropolitan areas.
. placing and receiving calls on analog cellular networks of other
providers using dual-band/dual-mode handsets.
. placing and receiving calls on digital PCS networks of other CDMA-based
providers.
Sprint PCS has a strategy to expand its PCS network through agreements
with independent wireless companies, like US Unwired, to construct and manage
the Sprint PCS markets and to market Sprint PCS services. Through these
affiliations, Sprint PCS services will be available in key cities next to
current and future Sprint PCS markets. For example, our service area connects
to Sprint PCS's markets in Houston, Dallas, Little Rock, New Orleans, Memphis,
Tallahassee and Birmingham.
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Cellular and Paging Services
We provide cellular and paging service in Lake Charles, Leesville,
Jennings, Sulphur and Cameron, Louisiana through our subsidiary, Unwired
Telecom Corp. At December 31, 1999, we had approximately 59,000 cellular
subscribers and approximately 24,000 paging subscribers. Our Louisiana cellular
and paging business had $46.2 million in revenues for the year ended
December 31, 1999.
We are currently reviewing our strategic options with respect to our
cellular operations. These options include:
. sale of the system.
. conversion of our cellular subscribers to Sprint PCS subscribers.
We have not made a decision to take either of these actions or any action
at all.
Competitive Local Exchange Carrier Services
As of December 31, 1999, we owned a 56.7% interest in LEC Unwired, LLC, a
competitive local exchange carrier company. A competitive local exchange
carrier provides local telephone and data services in competition with the
current local service provider. On March 22, 2000, we adopted a formal plan to
sell our interest in LEC Unwired. See "Certain Relationships and Related
Transactions."
Competition
We will compete in our service area with the current cellular providers
and new PCS providers. The cellular providers in our service area serve
different geographic segments of our service area, but no one cellular carrier
provides complete coverage throughout our service area. Some of these cellular
providers offer a digital product also, but it typically covers only a small
segment of our service area.
Of our PCS competitors, only PrimeCo, TeleCorp PCS, Inc., Tritel PCS, Inc.
and Alltel Corp. will provide service comparable to ours in our service area.
PrimeCo uses CDMA technology and is licensed to offer PCS services in all of
our Louisiana and Texas markets but has not indicated any intention to buildout
a network in these markets. Telecorp and Tritel recently announced that they
intend to merge and will operate in parts of the south-central and southeastern
United States under a common regional brand name, SunCom, as members of the
AT&T wireless network. We expect the merged company to compete with us in our
Monroe, Louisiana market and in our Alabama, Arkansas and Mississippi markets.
Alltel is a current PCS provider in several of our markets.
Our ability to compete effectively with other PCS providers will depend
on:
. the continued success of CDMA technology in providing better call
quality and clarity than analog cellular systems.
. our competitive pricing with various options suiting individual
subscriber's calling needs.
. the continued expansion and improvement of the Sprint PCS network,
customer care system and telephone handset options.
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We will compete also with paging, enhanced specialized mobile radio and
dispatch companies in our markets. Potential users of PCS systems may satisfy
their communications needs with other current and developing technologies. One
or two-way paging or beeper services that feature voice messaging and data
display as well as tone-only service may be adequate for potential subscribers
who do not need to speak to the caller.
Sprint PCS has chosen CDMA technology, which we believe offers
significant advantages in the marketplace. CDMA is one of three languages that
wireless telephones use to communicate with the phone network. The other two
predominant standards are TDMA and GSM.
CDMA offers superior call quality and clarity. CDMA also offers the
highest capacity of the three standards. This means that more simultaneous
calls can be handled on a CDMA network than on equivalent TDMA or GSM
networks. CDMA also offers a high level of security, giving customers
confidence that their calls remain private. CDMA offers many advanced features
such as short text messaging, internet access, call waiting, call forwarding
and three way calling. Several providers in the United States, including
Sprint PCS, Bell Atlantic and PCS PrimeCo, have adopted CDMA.
TDMA is generally less expensive to deploy if a carrier seeks to overlay
an analog network, like a cellular carrier would be required to do. TDMA also
offers increased call security and advanced features like those available on a
CDMA network. Several providers in the United States, including AT&T Wireless
Services, Tritel, Triton and Telecorp, have adopted TDMA.
GSM is the most widely adopted standard around the world. It originated
in Europe, where it continues to be the dominant standard. It has been widely
deployed for over ten years, which means that economies of scale for network
and handset equipment have been achieved. This has lowered the cost of
purchasing the equipment for a GSM system. GSM also offers increased call
security and advanced features like those available on a CDMA network. Several
providers in the United States, including BellSouth, VoiceStream Wireless, and
Powertel, have adopted GSM.
We do not currently face competition from resellers on our facilities. A
reseller buys blocks of wireless telephone numbers and capacity from a
licensed carrier and resells service through its own distribution network to
the public but does not hold FCC licenses or own facilities. Thus, a reseller
is both a customer of a wireless licensee's services and also a competitor of
that and other licensees. We expect to continue to be subject to the FCC rule
that requires cellular and PCS licensees to permit resale of carrier service.
Over the past several years the FCC has auctioned and will continue to
auction large amounts of wireless spectrum that could be used to compete with
PCS services. Based upon increased competition, we anticipate that market
prices for two-way wireless services generally will decline in the future. We
will compete to attract and retain subscribers principally on the basis of
services and features, the size and location of our service areas, network
coverage and reliability, customer care and pricing. Our ability to compete
successfully will also depend, in part, on our ability to anticipate and
respond to various competitive factors affecting the industry, including new
services that may be introduced, changes in consumer preferences, demographic
trends, economic conditions and discount pricing strategies by competitors.
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Government Regulation
The FCC and other state and local regulatory agencies regulate our PCS and
cellular systems and our competitive local exchange carrier operations.
Licensing of PCS systems. A broadband PCS system operates under a service
area license granted by the FCC for a particular market. These licenses operate
on one of six frequency blocks allocated for broadband PCS service. Narrowband
PCS is for non-voice applications such as paging and data service and is
separately licensed. The FCC awards all PCS licenses by auction.
We hold some F-block PCS licenses. We had to qualify as a "designated
entity" to get them from the FCC. Our "designated entity" status may limit our
ability to accept additional equity investments in the future.
All PCS licenses have a 10-year term and must be renewed at the end of
this term. The FCC generally will renew a PCS license if the licensee provided
substantial service during the past license term and substantially complied
with applicable law. The FCC may revoke a license for serious violations of FCC
rules. All PCS licensees must satisfy coverage requirements. Licensees that
fail to meet the coverage requirements may lose the service area that is not
covered, or the license.
For up to five years after a PCS license is granted, a PCS licensee must
share spectrum with existing licensees that operate fixed microwave systems
within its license area. To operate our PCS systems efficiently and with
adequate population coverage, we must relocate many of these existing
licensees. The FCC has adopted a transition plan to relocate microwave
operators and a cost sharing plan for relocation that benefits more than one
PCS licensee. These plans expire on April 4, 2005.
The FCC regulates PCS resale practices also.
Licensing of cellular telephone systems. The FCC awards licenses for
cellular telephone systems by auction. Cellular licenses generally last for 10
years and may be renewed for periods of up to 10 years. The FCC may revoke a
license for serious violations of FCC rules. The FCC may deny renewal if it
determines that the grant of an application would not serve the public
interest. In addition, at the renewal time, other parties may file competing
applications for the license. A license in good standing is entitled to a
renewal expectancy. This gives the current license holder an advantage over
competing applicants.
The FCC regulates cellular service resale practices and the terms under
which ancillary services may be provided through cellular facilities.
We use landline facilities to connect cell sites and to link them to the
main switching office. The FCC separately licenses and regulates these
landlines.
Other regulatory requirements. The FCC imposes additional regulatory
requirements on all commercial mobile radio service, or CMRS, operators, which
include PCS and cellular systems as well as some specialized mobile radio
systems. These requirements may change. Some of the current requirements
include:
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. Resale. Most CMRS operators, including us, largely may not restrict
the resale of their services so that resellers may use the facilities
of the CMRS operator to introduce a competitive service.
. Roaming. CMRS carriers must provide service to all subscribers of a
compatible CMRS service in another geographic region.
. Number portability. CMRS carriers will soon be required to allow their
customers to take their phone numbers with them if they change to a
competitive service and must now be able to deliver calls to carried
numbers.
. Enhanced 911. CMRS carriers must transmit 911 calls from any qualified
handset without credit check or validation, must provide 911 service
to individuals with speech or hearing disabilities, and must provide
the approximate location of the 911 caller.
. Wiretaps. CMRS carriers must provide law enforcement personnel with
sufficient capacity to enable wiretaps on the CMRS network.
. Calling party pays. The FCC is considering rules to permit CMRS
operators to charge the party making the call. The new rules, if
adopted, would place consumer protection and uniform notification
requirements on the service.
. Customer information. The FCC has rules that protect the customer
against the use of customer proprietary information for marketing
purposes. A federal court recently struck down these rules, but the
FCC has stayed the effect of this decision by petitioning for
rehearing.
. Interconnection. All telecommunications carriers, including CMRS
carriers, must interconnect directly or indirectly with other
telecommunications carriers.
. Universal service and other fees. The FCC imposes large universal
service support fees on telecommunications carriers, including CMRS
carriers. The FCC imposes smaller fees for telecommunications relay
service, number portability and the cost of FCC regulation.
. Spectrum cap. There are limitations on a person's ownership in
licenses for more than 45 MHz of PCS, cellular and some specialized
mobile radio services in metropolitan statistical areas and 55 MHz in
rural service areas where there is significant overlap in any
geographic area. Significant overlap means that at least ten percent
of the population of the PCS licensed service area is within the
cellular and/or SMR service area(s). We believe that we are in
compliance with these limits.
Transfers and assignments of PCS and cellular licenses. The FCC must
approve the assignment or transfer of control of a license for a PCS or
cellular system. In addition, the FCC requires licensees who transfer control
of a PCS license within the first three years of their license term to
disclose the total consideration received for the transfer. FCC approval is
not required for the sale of an interest that does not transfer control of a
license. Any acquisition or sale of PCS or cellular interests may also require
the prior approval of the Federal Trade Commission, the Department of Justice
and state or local regulatory authorities.
Foreign ownership. The Communications Act of 1934 limits the non-U.S.
ownership of licensees. If foreign ownership exceeds the permitted level, the
FCC may revoke the PCS licenses or require an ownership restructuring. We
believe that we comply with these limitations.
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Additional spectrum. In 2000, the FCC is expected to auction spectrum
which could be used to compete with our PCS system. We have no way of knowing
whether the persons who acquire the licenses for the new spectrum in our
service area will offer a competitive service.
Intellectual Property
The Sprint(R) and Sprint PCS(R) brand names and logos are registered
service marks owned by Sprint. We have license agreements with Sprint that
allow us to use, without payment and only in our service area, the Sprint
design logo and "diamond" symbol and other Sprint service marks, like the
phrases "The Clear Alternative to Cellular" and "Clear Across the Nation." We
can use some of Sprint's licensed marks on some wireless telephone handsets.
The license agreements have many restrictions on our use of their licensed
marks. We are the only person entitled to market Sprint PCS products and
services in our service area, except for the Sprint PCS national marketing
programs.
Employees
As of December 31, 1999, we had approximately 650 employees, of which
approximately 70 were associated with our discontinued operations. Our
employees are not represented by a union. A recent employee survey conducted by
an independent third party reported a high level of job satisfaction for over
90% of the employees surveyed.
Properties
We lease space for our switches in Lake Charles and Shreveport, Louisiana,
and for our corporate operations, network operators and customer care and data
center in Lake Charles, Louisiana. We own two store sites, and we lease nine
store sites in Louisiana and five in Texas. At December 31, 1999, we owned 216
and leased 93 cellular, PCS, paging and microwave towers.
We recently purchased for $2.7 million an 11-story, 115,300 square foot
office building in downtown Lake Charles for our corporate headquarters. Even
though we are in the initial stages of evaluating the project, we expect to
spend approximately $5.0 million over several years to upgrade and renovate the
facility.
Legal Proceedings
We are from time to time involved in litigation that we believe ordinarily
accompanies the communications business. We do not believe that any of our
pending or threatened litigation will materially impair our business.
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THE WIRELESS COMMUNICATIONS INDUSTRY
Wireless communications systems use radio frequencies to transmit voice
and data. These systems are:
. one-way radio applications, like paging or beeper services.
. two-way radio applications, like cellular, PCS, enhanced specialized
mobile radio networks and two-way paging.
The FCC has licensed each application and allocated to each application a
distinct radio frequency block.
Cellular and PCS are the major two-way applications licensed by the FCC.
Most subscribers today use cellular service as their wireless voice
communications service. Cellular systems are mostly analog-based systems, but
digital technology has been introduced in most metropolitan markets. Analog-
based systems send signals that resemble the input signal. In digital systems,
the input signal is coded into a binary form before the signal is transmitted.
In 1993, the FCC allocated the 1900 MHz frequency block of the radio
spectrum for a new wireless personal communications service known as PCS. PCS
differs from traditional analog cellular telephone service because it operates
at a higher frequency and uses only advanced digital technology. Many cellular
systems now use digital technology, but all continue to offer analog service as
well. Digital systems convert voice or data signals into a stream of digits
that permit a single radio channel to carry multiple simultaneous
transmissions. Digital systems also have greater frequency reuse than analog
systems resulting in greater capacity than analog systems. This enhanced
capacity, along with enhancements in digital protocols, allows digital-based
wireless technologies (whether using PCS or cellular frequencies) to offer new
and enhanced services and more robust data transmission like greater clarity,
better security, facsimile, electronic mail and connection to notebook
computers with computer/data networks.
Cellular service was first introduced in the United States in 1983. Paul
Kagan Associates, Inc., an independent media and telecommunications
association, estimates that there were approximately 87 million wireless
subscribers in the United States as of December 31, 1999. This amount
represents an overall wireless penetration rate of 31.1%. This means that 31.1%
of the United States population at that time were wireless subscribers.
The following table shows some statistics for the domestic wireless
telephone industry as a whole:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Total service revenues (in
billions)........................ $10.9 $14.2 $19.1 $23.6 $27.5 $33.1
Ending wireless subscribers (in
millions)........................ 16.0 24.1 33.8 44.0 55.3 69.2
Subscriber growth................... 45.1% 50.8% 40.0% 30.4% 25.6% 25.1%
Average monthly revenue per
subscriber(/1/).................. $72.47 $63.48 $58.80 $54.85 $49.07 $46.83
Ending penetration.................. 6.2% 9.2% 12.8% 16.5% 20.6% 25.3%
</TABLE>
- ---------------------
Source: Cellular Telecommunications Industry Association; U.S. Census Bureau.
(1) Including roaming revenues.
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Paul Kagan estimates that the number of wireless users will increase to
approximately 151 million by 2002 and 198 million by 2005. Paul Kagan expects
that 34% of total users in 2002 and 43% in 2005 will be PCS users. Paul Kagan
estimates that total wireless industry penetration will grow to 53% in 2002 and
69% in 2005.
We believe that the predicted growth in the consumer market for wireless
telecommunications will come from:
.declines in costs of service.
.increased functional versatility.
.increased awareness of the benefits associated of PCS service.
.rapid growth of notebook computers and personal digital assistants.
.software programs for electronic mail, faxes and database searching.
We believe that our markets are well positioned to benefit from the growth
predicted for the wireless industry as forecast by the Cellular
Telecommunications Industry Association, or CTIA. We believe that our markets
and other markets similar to ours will experience the fastest growth in
subscribers because we currently have relatively low wireless penetration.
The following chart illustrates the annual growth in wireless subscribers
and total industry revenues during the periods indicated:
1985 1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ----- ----- ----- ----- ----- ------ ------
340 682 1,231 2,069 3,509 5,283 7,557 11,033 16,009
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
24,134 33,786 44,043 55,312 69,209
Wireless communications systems, whether PCS or cellular, are divided into
multiple geographic areas, known as cells. Each cell contains a transmitter, a
receiver and signaling
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equipment, together referred to as the cell site. The cell site is connected
by microwave or landline telephone lines to a switch that uses computers to
control the operation of the cellular or PCS communications system for the
entire service area. The system controls the transfer of calls from cell to
cell as a subscriber's wireless telephone handset travels, coordinates calls
to and from wireless telephone handsets, allocates calls among the cells
within the system and connects calls to the local landline telephone system or
to a long distance carrier. Wireless communications providers establish
interconnection agreements with local exchange carriers and interexchange
carriers to integrate their systems with the existing landline communications
system. Because the signal strength of a transmission between a wireless
telephone handset and a cell site declines as the handset moves away from the
cell site, the switching office and the cell site monitor the signal strength
of calls in progress. When the signal strength of a call declines to a
predetermined level, the switching office may "hand off" the call to another
cell site where the signal strength is stronger.
Wireless systems in the United States can be either analog or digital.
Traditional cellular providers have analog systems. Most of these systems have
been in operation for over ten years. Many cellular providers are converting
their analog systems to digital systems. These digital systems are new and
less established. PCS systems are totally digital, and PCS equipment vendors
have never made analog equipment for a PCS system.
Digital wireless systems in the United States, whether PCS or cellular,
are not necessarily compatible. U.S. digital systems use one of three designs,
known as CDMA, TDMA and GSM. Each design uses a different digital language to
send calls. The FCC has never required all U.S. digital systems to work
together. This means that, for example, a subscriber who carries a CDMA phone
into an area with a system that uses GSM language will not be able to make a
call with that phone on the GSM system. The subscriber could make a call on
the existing analog cellular system if the subscriber has a special phone that
works on both CDMA and analog cellular systems. Despite the limitations of
wireless system compatibility described above, once a wireless subscriber
accesses the telephone network, the subscriber can complete a call to any
other telephone, including wireline telephones and telephones that use
incompatible wireless technologies.
Vendors of wireless equipment have somewhat solved the problem of the
incompatibility of the three languages. These vendors have created phones that
work on more than one frequency, like PCS and cellular, and more than one
mode, like CDMA and analog. This means that a subscriber using one of these
phones can make calls on more than one type of system. For example, if we
distribute one of these phones for use on our PCS network, which uses CDMA
language, but the subscriber is in an area without a CDMA system, the
subscriber can use the phone on other networks in that area.
All digital wireless providers, whether they use CDMA, TDMA or GSM
language, face the same problems of incompatible systems that we do with our
CDMA system. Analog cellular subscribers have the greatest coverage area, but
digital cellular subscribers enjoy other benefits like longer battery life and
better quality of calls.
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SPRINT PCS AGREEMENTS
Overview of Sprint PCS Agreements
We have three management agreements with Sprint PCS. Under the first
agreement dated June 8, 1998, LA Unwired has the right to manage the Sprint PCS
services in the service areas listed below.
El Dorado-Magnolia-Camden, Arkansas Shreveport, Louisiana
Pine Bluff, Arkansas Longview-Marshall, Texas
Alexandria, Louisiana Paris, Texas
Houma-Thibodaux, Louisiana Texarkana, Texas
Lake Charles, Louisiana Tyler, Texas
Monroe, Louisiana
We own the PCS licenses for the Alexandria, Lake Charles, Monroe and
Shreveport, Louisiana and Longview-Marshall, Paris and Texarkana, Texas service
areas. We currently offer PCS service in Alexandria, Houma-Thibodaux, Lake
Charles, Monroe and Shreveport, Louisiana, and Beaumont-Port Arthur, Longview-
Marshall, Lufkin-Nacogdoches, Texarkana and Tyler, Texas and Montgomery,
Alabama.
The second agreement dated February 8, 1999 gives LA Unwired the right to
manage Sprint PCS services in the following service areas:
Anniston, Alabama Pensacola, Florida
Birmingham, Alabama (Chilton, Cullman, Talladega, Coosa and Tallapoosa
counties only)
Tallahassee, Florida (Jackson county
only)
Decatur, Alabama Columbus, Mississippi
Florence, Alabama Greenville, Mississippi
Gadsen, Alabama Hattiesburg, Mississippi
Huntsville, Alabama Jackson, Mississippi
Mobile, Alabama Laurel, Mississippi
Montgomery, Alabama McComb, Mississippi
Selma, Alabama Meridian, Mississippi
Tuscaloosa, Alabama Natchez, Mississippi
Hot Springs, Arkansas Tupelo, Mississippi
Little Rock, Arkansas (Clark, Vicksburg, Mississippi
Dallas, Grant and Nevada counties Memphis, Tennessee (Grenada,
only) Montgomery, Tallahatchie and
Fort Walton Beach, Florida Yalobusha counties in Mississippi
Panama City, Florida only)
Nashville, Tennessee (Marshall and
Giles
As part of the Meretel transaction described in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," we entered into a third agreement dated January 7, 2000. Under
this agreement, Texas Unwired, a Louisiana general partnership, has the right
to manage Sprint PCS services in Beaumont-Port Arthur and Lufkin-Nacogdoches,
Texas.
counties only)
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Sprint PCS owns the PCS licenses for all of the service areas covered by
the Sprint management agreements (other than the Alexandria, Lake Charles,
Monroe and Shreveport, Louisiana and Longview-Marshall, Paris and Texarkana,
Texas service area licenses, which we own). Sprint PCS gives us the right to
use their licenses in the management agreements.
The Sprint management agreements require us to:
. construct and manage the service areas in the manner described in the
Sprint management agreements.
. distribute Sprint PCS products and services and establish distribution
areas in the service areas.
. conduct advertising and promotion activities in the service areas.
. manage the customer base of Sprint PCS that has an area code and prefix
assigned to the service areas covered by the agreements.
Sprint PCS can access the network that we build for Sprint PCS. Sprint PCS
pays us a management fee to use our service area for sales and marketing and to
manage the service areas covered by Sprint PCS's licenses. In areas where we
use our own licenses, we pay Sprint a fee to be a Sprint PCS network partner.
Each Sprint management agreement requires us to follow program
requirements that are used throughout the nationwide Sprint PCS network. We
must continue to follow these program requirements if Sprint PCS changes them.
The program requirements involve:
. management of the service area.
. our participation in Sprint PCS distribution programs on a national and
regional basis.
. cost sharing and auditing in connection with distribution programs.
. handset logistics and distribution.
. retail store guidelines.
. participation in Sprint PCS national account programs.
. establishment of integrated networks with Sprint PCS in each area
serviced by us.
. roaming and inter-service area programs.
. adherence to Sprint technical program requirements.
. customer service matters.
. invoice presentation.
. billing cycles.
. management of fraud and receivables.
. disaster contingencies.
We also have trademark and service mark license agreements with Sprint
Communications Company, L.P. and trademark and service mark license agreements
with Sprint Spectrum L.P. We
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plan to enter into a services agreement for Sprint to provide us on a contract
basis with selected back office functions such as billing and customer care for
a limited number of our markets.
The Management Agreements
Under our management agreements with Sprint PCS, we have agreed to:
. construct and manage a network in our service area in compliance with
our and Sprint PCS's PCS licenses and the management agreement.
. distribute Sprint PCS products and services.
. use Sprint PCS's and our own distribution channels in our service area.
. conduct advertising and promotion activities in our service area.
. manage that portion of Sprint PCS's customer base assigned to our
service area.
Sprint PCS will supervise our PCS network operations and has unconditional
access to our PCS network.
Exclusivity. We are the only person who is entitled to manage or operate a
PCS network for Sprint PCS in our service area. Sprint PCS is prohibited from
owning, operating, building or managing another wireless mobility
communications network in our service area while our management agreements are
in place. Sprint PCS may make national sales to companies in our service area
and, as permitted by the FCC, may resell Sprint PCS products and services in
our service area.
Expansion. If Sprint PCS decides to expand our service area, it must give
us written notice. We then have 90 days to decide whether to buildout the
proposed area. If we do not, Sprint PCS may buildout the proposed area or
permit another third party to do so.
Network buildout. The management agreements describe our Sprint PCS
affiliation and the required network buildout plan. We have agreed to cover a
specified percentage of the population at coverage levels ranging from 65% to
75% within each of the 41 markets in our service area by specified dates ending
in June 2001.
Products and services. The management agreements identify the products and
services that we may offer in our service area. These services include Sprint
PCS consumer and business products and services. We are allowed to sell non-
Sprint PCS wireless products and services if they do not cause distribution
channel conflicts or consumer confusion with Sprint PCS's products and
services. We may cross-sell services like internet access, handsets, and
prepaid phone cards with Sprint, Sprint PCS and other Sprint PCS affiliates. If
we decide to use third parties to provide these services, we must give Sprint
PCS an opportunity to provide the services on the same terms and conditions. We
cannot offer wireless local loop services specifically designed for the
competitive local exchange market in areas where Sprint owns the local exchange
carrier unless we either name Sprint's local exchange carrier as the only
distributor or get approval from Sprint PCS.
We participate in the Sprint PCS sales programs for national sales to
customers and handle national accounts located in our service area. We have a
long distance agreement with our affiliate,
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Cameron Communications Corporation, for preferred long distance rates. We can
also buy long distance services from Sprint PCS at favorable rates.
Service pricing, traveling and fees. We must offer national and regional
Sprint PCS pricing plans, including Sprint PCS's "Free and Clear" plans. We can
set our own local price plans for Sprint PCS products and services offered only
in our service area, but we must get Sprint PCS's approval.
Our management agreements require revenue sharing of 8% to Sprint PCS and
92% to US Unwired, except for amounts collected with respect to taxes. We keep
100% of revenues, however, from:
.non-US Unwired Sprint PCS customers traveling in our service area.
.sales of handsets and accessories.
.proceeds from sales not in the ordinary course of business.
Although many Sprint PCS subscribers will purchase a pricing plan that
allows traveling anywhere on the Sprint PCS network without additional charges,
we earn revenues from every minute that we carry a non-Sprint PCS subscriber's
call on our PCS network. This is called roaming. We earn revenues from Sprint
PCS for Sprint PCS's or its network partners' subscribers traveling in our
service area. Similarly, we pay for every minute that our own subscribers use
the Sprint PCS nationwide network outside our service area. Sprint PCS's third
party roaming agreements set the rate for roaming onto a non-Sprint PCS
provider's network.
Advertising and promotions. Sprint PCS is responsible for all national
advertising and promotion of Sprint PCS products and services. We are
responsible for advertising and promotion in our service area. Sprint PCS's
service area includes the urban markets around our service area. Sprint PCS
will pay for advertising in these markets. Given the proximity of those markets
to ours, we expect considerable overlap from Sprint PCS's advertising in
surrounding urban markets.
Program requirements. We will comply with Sprint PCS's program
requirements for technical standards, customer service standards, national and
regional distribution, national accounts programs and traveling and inter-
service area services. Sprint PCS can adjust the program requirements from time
to time. We can appeal Sprint PCS's adjustments, but this could cause an
unreasonable increase in cost to us if the adjustment:
.costs more than 5% of the sum of our equity plus our outstanding long
term debt.
.increases our operating expenses by more than 10% on a net present value
basis.
If Sprint PCS denies our appeal and we do not follow the program adjustment,
Sprint PCS has the termination rights described below.
Non-competition. We may not offer Sprint PCS products and services outside
our service area without the prior written approval of Sprint PCS. Within our
service area, we may offer, market or promote telecommunications products and
services only under the Sprint PCS brands, our own brand or brands of our
related parties. We may offer other products and services approved under the
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management agreements, but we may not use a brand of a significant competitor
of Sprint PCS or its related parties for those products and services.
Inability to use non-Sprint PCS brand. We may not sell Sprint PCS products
and services on a non-branded, "private label" basis or under any name other
than the Sprint PCS brand. There are exceptions for sales to resellers and in
the trademark and service mark license agreements.
Termination of management agreements. Each management agreement lasts for
50 years with an initial period of 20 years and three automatic, successive 10-
year renewal periods. The management agreements can be terminated for:
. the termination of Sprint PCS's PCS licenses.
. a breach of the management agreement that is not corrected.
. the bankruptcy of a party to the management agreement.
. the management agreement not complying with any applicable law in any
material respect.
. the termination of either of the trademark and service mark license
agreements.
. our failure to obtain the financing necessary for the buildout of our
PCS network and for our working capital needs.
Sprint PCS agreed that the issuance of our senior subordinated discount
notes and the preferred stock investment by The 1818 Fund would meet the
financing requirements of the management agreements.
If a management agreement is terminated or not renewed, we and Sprint PCS
have specified rights. If we can terminate the management agreement because of
something that Sprint PCS did or did not do, generally we may:
. require Sprint PCS to purchase all of our operating assets used in our
PCS network for at least 80% of our entire business value, which is
described below;
. if Sprint PCS is the licensee for 20 MHz or more of the spectrum on the
date we terminate the management agreement, require Sprint PCS to
assign to us, subject to governmental approval, up to 10 MHz of
licensed spectrum for an amount equal to the greater of:
. the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS, or
. 9% of our entire business value; or
. sue Sprint PCS for damages instead of terminating the management
agreement.
If Sprint PCS can terminate the management agreement because of something
that we did or did not do, generally Sprint PCS may:
. require us to sell our PCS operating assets to Sprint PCS for an amount
equal to 72% of our entire business value;
. require us to purchase, subject to governmental approval, the licensed
spectrum for the greater of:
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. the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS or
. 10% of our entire business value;
. take any action to correct our breach of the management agreement. This
may include taking responsibility for, and operating, our PCS network;
or
. sue us for damages instead of terminating the management agreement.
Non-renewal of management agreements. If Sprint PCS gives us timely notice
that it does not intend to renew the management agreement, we may:
. require Sprint PCS to purchase all of our operating assets used in our
PCS network for 80% of our entire business value; or
. if Sprint PCS is the licensee for 20 MHz or more of the spectrum on the
date we terminate the management agreement, require Sprint PCS to
assign to us, subject to governmental approval, up to 10 MHz of
licensed spectrum for the greater of:
. the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS, or
. 10% of our entire business value.
If we give Sprint PCS timely notice that we do not intend to renew the
management agreement, or if we both give notice of non-renewal, or if the
management agreement can be terminated because it does not comply with legal or
regulatory requirements, Sprint PCS may:
. purchase all of our operating assets for 80% of our entire business
value; or
. require us to purchase, subject to governmental approval, the licensed
spectrum for the greater of:
. the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS, or
. 10% of our entire business value.
If the entire business value must be determined, we and Sprint PCS will
each select one independent appraiser and the two appraisers will select a
third appraiser. The three appraisers will determine the entire business value
on a going concern basis using the following assumptions:
. the entire business value is based on the price a willing buyer would
pay a willing seller for the entire on-going business.
. the then-current customary means of valuing a wireless
telecommunications business will be used.
. the business is conducted under the Sprint and Sprint PCS brands and
the Sprint PCS agreements.
. we own the spectrum and frequencies presently owned by Sprint PCS and
subject to the Sprint PCS agreements.
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. the valuation will not include any value for the business not directly
related to the Sprint PCS products and services.
If the management agreement is terminated or not renewed, we may be
obligated to allow Sprint PCS customers to travel at favorable prices in the
service areas where we own the licenses and to allow Sprint PCS to sell some of
our products there.
If the management agreement ends for any reason other than a loss of the
licenses or regulatory considerations, and if Sprint PCS does not transfer the
disaggregated licenses to us, then Sprint PCS must buy our PCS operating assets
except those for the Shreveport, Alexandria and Monroe service areas.
Right of first refusal/offer. Before we can accept an offer to sell the
properties used in specified markets, we must first offer them to Sprint PCS on
the same terms. Also, if we want to transfer an ownership interest in LA
Unwired or Texas Unwired to an unrelated third party, we must first give Sprint
PCS a right of first offer for the interest.
The Trademark and Service Mark License Agreements
We are permitted to use the Sprint and Sprint PCS brand names, "diamond"
symbol and other trademarks and service marks like "The Clear Alternative to
Cellular" and "Clear Across the Nation" on Sprint PCS products and services. We
do not pay to use these names and marks, but we cannot transfer the right to
use them. We believe that the Sprint and Sprint PCS brand names and symbols
enjoy a very high degree of awareness and provide us an immediate benefit in
the market place. To use the licensed marks, we must follow quality standards
determined by Sprint and Sprint PCS. We cannot use the licensed marks in a
manner that would reflect adversely on the image of quality symbolized by the
licensed marks. We will notify Sprint and Sprint PCS promptly if we know of any
violation of any of the licensed marks within our service area and will help
Sprint and Sprint PCS enforce their rights. We have agreed with Sprint and
Sprint PCS to repay each other for losses caused by a significant violation of
the trademark license agreements. In addition, we will repay Sprint and Sprint
PCS for any loss suffered from our use of the licensed marks or sale of any
Sprint or Sprint PCS products and services, unless the losses are from our use
of the licensed marks in compliance with certain guidelines.
Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if we file for bankruptcy or significantly violate the agreement, or
if our management agreement is terminated. We can terminate the trademark and
service mark license agreements if Sprint or Sprint PCS abandons the licensed
marks or files for bankruptcy, or if the management agreement is terminated.
Consent and Agreement for the Benefit of our Senior Lenders
Sprint PCS has a consent and agreement, or lender consent, with the
lenders under our credit facilities. The lender consent modifies Sprint PCS's
rights and remedies under our Sprint PCS management agreements for the benefit
of the lenders and vendor guarantor under our credit facilities and any
refinancing of it.
The lender consent generally provides for:
. Sprint PCS's consent to the pledge of the stock of our subsidiaries and
a security interest in all of our assets, including the Sprint PCS
management agreements.
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. Sprint PCS not to end our management agreements until our senior
financing is satisfied under the lender consent.
. a prohibition on competing Sprint PCS networks in our service area.
. Sprint PCS to maintain 10 MHz of PCS spectrum in all our markets.
. redirection of payments from Sprint PCS to our lenders under specified
circumstances.
. Sprint PCS and our lenders to provide to each other notices of default.
. the appointment of a temporary replacement manager, including Sprint
PCS, to operate our PCS network under the Sprint PCS management
agreements if our lenders accelerate our repayment of our financing or
if there is a reason to end the Sprint PCS management agreements.
. our lenders or Sprint PCS to assign the Sprint PCS agreements and sell
our assets or stock to a qualified purchaser other than a major
competitor of Sprint PCS or Sprint.
. us to buy spectrum from Sprint PCS and sell our assets or stock to any
qualified purchaser.
. Sprint PCS to buy our assets or our debt.
. the vendor guarantor to have a claim on assets following the payment of
the guarantee.
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MANAGEMENT
Executive Officers and Directors
These persons are our directors and executive officers:
<TABLE>
<CAPTION>
Name Age Office
<S> <C> <C>
William L. Henning, Jr 47 Chairman, Chief Executive Officer and Director
Robert W. Piper 41 President, Chief Operating Officer and Director
Jerry E. Vaughn 55 Chief Financial Officer
Thomas G. Henning 40 Secretary, General Counsel and Director
William L. Henning, Sr. 76 Director
John A. Henning 44 Director
Lawrence C. Tucker 56 Director
Andrew C. Cowen 29 Director
Michael D. Bennett 35 Vice President and General Manager of Wireless Operations
Jack J. Blanchard 40 Vice President of Marketing
Don A. Matz 41 Vice President of Information Technologies
Brenda S. McElveen 54 Vice President of Administration
Paul J. Clifton 45 Vice President of Research and Development
</TABLE>
William L. Henning, Jr. presently serves as our director and Chief
Executive Officer. He has held these positions since 1988. Before 1988, he was
our General Manager. He has been involved in the senior management of Cameron
Telephone Company and us since 1976. He has also served as our Chairman,
President and Vice President. He was also President of Mercury Information
Technologies, Inc., which has owned and operated a cable television franchise,
a voice mail service and an internet access service, for over five years. From
1991 to 1998, he served as a director of First National Bank of Lake Charles.
Robert W. Piper has been our President and Chief Operating Officer, since
1995. He served as our Chief Financial Officer from 1994 to 1995 and as Vice
President and General Manager of our long distance operations from 1987 to 1990
and of our wireless business from 1987 until 1994. He joined us in 1985 as
comptroller. He served on the Board of Directors of the Cellular
Telecommunications Industry Association from 1992 to 1994 and from 1998 to
1999.
Jerry E. Vaughn has served as our Chief Financial Officer since June 7,
1999. He has over 20 years of diversified financial management experience and
focused the last 11 of these years in the telecommunications industry. From
1994 until he joined us, Mr. Vaughn was President of NTFC Capital Corporation,
a subsidiary of GE Capital. Before that, he was Treasurer of Northern Telecom
Finance Corporation and Vice President of Mellon Bank Corporation.
Thomas G. Henning has been General Counsel of us and Cameron Telephone
Company since 1994. He is responsible for general corporate, regulatory and
other legal matters. Before becoming General Counsel, Mr. Henning was a partner
with the law firm of Stockwell, Sievert, Viccellio, Clements and Shaddock. He
remains of counsel to this firm. He has been an officer and director of us
since 1988.
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William L. Henning, Sr. has been our director since our predecessor's
incorporation in 1967. He practiced law for ten years after law school and has
been involved in the telecommunications industry for over 45 years. He was an
executive officer and director of Cameron Telephone Company for over 40 years.
He has also served as director of the National Rural Telecom Association since
1973. He was President of the Louisiana Telephone Association in 1955. He
served as a director of the West Calcasieu Port, Harbor and Terminal District
from 1964 to 1978, of the Calcasieu Parish Industrial Development Board from
1972 to 1986, of the United States Telephone Association from 1982 to 1988 and
of Calcasieu Marine National Bank from 1985 to 1996. He was a commissioner of
the Chenault Industrial Airpark Authority from 1986 to 1988.
John A. Henning has served as our officer and director and as a director
of Cameron State Bank since 1988. He served as President of our Louisiana
cellular operations from 1987 to 1995. He was a director of the Louisiana
Telephone Association from 1984 to 1995 and its President from 1993 to 1995.
Lawrence C. Tucker has been our director since November 1999. He has been
a General Partner of Brown Brothers Harriman & Co. since 1979 and currently
serves as a member of the Steering Committee of the firm's partnership. He co-
founded and has supervisory responsibility for BBH & Co.'s private equity
funds, which are known as The 1818 Funds and which have raised capital
commitments of $1.5 billion. He is a director of MCI WorldCom, Inc., the MCI
WorldCom Venture Fund, National Healthcare Corporation, Riverwood Holdings,
Inc., VAALCO Energy Inc., World Access, Inc. and National Equipment Services,
Inc.
Andrew C. Cowen has been our director since January 2000. He has been
employed by Brown Brothers Harriman & Co. since 1992 and is currently a senior
vice president and specializes in private equity investments. He is a director
of Computerized Medical Systems, Inc.
Michael D. Bennett has served as Vice President and General Manager of
wireless operations since January 2000 when he joined us. He has 15 years of
telecommunications experience and spent the last five years in various
positions with PrimeCo, including area director and sales and marketing
director in Jacksonville, Florida, and director of strategy and planning in
Dallas, Texas. He has also worked in various management positions at U.S.
Intelco Networks in Olympia, Washington and Century Telephone Enterprises, Inc.
in Monroe, Louisiana.
Jack J. Blanchard has served as our Vice President of Marketing since
January 1998. Before that, he served for at least five years as our Sales
Manager and Director of Sales and Marketing. He is responsible for all
marketing and public relations efforts for our cellular, PCS, paging, internet
and landline services. He had a leadership role in naming and developing our
very successful wireless prepaid program "Chat Pak." He has been instrumental
in our winning numerous advertising campaign awards such as CLIO's Best Overall
Campaign at the "One Awards" and first place in the television division at the
1998 Cellular Telecommunications Industry Association's EMA awards.
Don A. Matz has served as our Vice President of Information Systems since
October 26, 1998. He is responsible for our management information system and
support. Before joining us in 1998, he was employed for 18 years with Century
Telephone Enterprises, Inc., a telecommunications company engaged in wireline
and wireless activities. With Century Telephone, he held various
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positions within Information Systems, the last seven years of which were in
director-level positions in Applications Development, Systems and Networks, and
Research and Development.
Brenda S. McElveen presently serves as our Vice President of
Administration and is responsible for customer care, credit collections,
customer retention and employee training for our cellular, paging, PCS,
competitive local exchange carrier and internet services. She joined us in 1984
as Office Manager.
Paul J. Clifton has served as our Vice President of Research and
Development since 1998. From 1994 to 1998, he was our Vice President for
Engineering and Technical Services. From 1988 to 1994, he served us in various
capacities such as manager of network systems and traffic manager. He was first
hired by Cameron Telephone Company in 1980 and began to work for us in 1988. In
those capacities between 1980 and 1994, he was responsible for design and
implementation of projects associated with the operation of our cellular,
paging, voicemail, central office, personal computer, cable television and long
distance operations.
William L. Henning, Jr., Thomas G. Henning and John A. Henning are
brothers. William L. Henning, Sr. is their father.
Board of Directors
Our board of directors is divided into three classes. Each class serves
for three years. The terms of each class are staggered. The Class I directors
are John A. Henning and Thomas G. Henning, and their terms expire in 2001. The
Class II directors are William L. Henning, Sr. and Robert Piper, and their
terms expire in 2002. The Class III directors are William L. Henning, Jr.,
Lawrence C. Tucker and Andrew C. Cowen, and their terms expire in 2003. We have
an agreement with the former holders of our preferred stock, who now hold
common stock, that entitles them to elect up to two individuals to serve on our
board of directors. These individuals are Mr. Tucker and Mr. Cowen.
Our audit committee consists of .
We do not have a compensation committee. Instead, our board of directors
performs these functions. William L. Henning, Jr., Thomas G. Henning and Robert
Piper, who are some of our executive officers and directors, participate in
deliberations of our board of directors about executive officer compensation.
Under our by-laws, the board of directors may establish an executive
committee. If established, the committee will consist of up to five members and
will have all powers of the board of directors when the board is not in session
except powers expressly delegated to other committees. Every member of the
executive committee must approve the sale of any shares of capital stock or the
incurrence of any indebtedness, except for trade indebtedness incurred in the
ordinary course of our business and indebtedness not in excess of $1.0 million.
No Employment Agreements
We do not have employment agreements with any of our officers or
employees. Each may terminate his employment, or we may terminate his
employment, at will. Employees who started
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within the last five years have agreed to some restrictions on competing with
us after the person is no longer our employee.
Director Compensation
We do not presently pay our directors fees for service in their capacity
as directors. We reimburse their expenses of attendance at meetings of our
board and its committees.
Executive Compensation
The following table shows what our CEO and most highly compensated
officers earned in 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Bonus
--------------
All Other
Name and Principal Position Year Salary Cash Stock Compensation
--------------------------- ---- -------- -------- ----- ------------
<S> <C> <C> <C> <C> <C>
William L. Henning, Jr.............. 1997 $102,750 $ 25,075 -- --
Chairman & Chief Executive Officer 1998 $135,000 -- -- $950,000(/1/)
1999 $110,000 $300,000 -- --
Robert W. Piper..................... 1997 $ 87,951 $ 10,000 -- --
President & Chief Operating
Officer 1998 $105,750 $ 25,000 -- $500,000(/1/)
1999 $112,973 $150,000 -- --
Thomas G. Henning................... 1997 $ 56,875 $ 10,000 -- --
Secretary & General Counsel 1998 $ 60,000 $ 17,500 -- 700,000(/1/)
1999 $ 60,000 $150,000 -- --
Don A. Matz......................... 1997 $ -- -- -- --
VP-Information Systems 1998 $ 21,154 $ 10,000 -- --
1999 $111,008 $ 14,810 -- 56,874(/2/)
</TABLE>
- ---------------------
(1) Consideration from third parties for non-competition agreements in
connection with the 1998 sale of selected cellular markets.
(2) Relocation expenses.
The following table shows the options granted to these executive officers
in 1999:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------------------------------------------------
Potential Realizable Value at
Number of % of total Assumed Annual Rates of Stock
Securities options Price Appreciation for Option
underlying granted to Exercise Term
Name and Principal options employees or base Expiration --------------------------------
Position granted during 1999 price date 0% 5% 10%
------------------ ---------- ----------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
William L. Henning,
Jr................... 200,000 30.1% $ 6.00 9-30-09 $2,800,000 $5,315,579 $9,174,970
Chairman & Chief 29,100 4.4% $26.55 9-30-09 -- 175,412 736,953
Executive Officer
Robert W. Piper......... 100,000 15.0% $ 6.00 9-30-09 1,400,000 2,657,789 4,587,485
President & Chief 15,200 2.3% $26.55 9-30-09 -- 91,624 384,938
Operating Officer
Thomas G. Henning....... 100,000 15.0% $ 6.00 9-30-09 1,400,000 2,657,789 4,587,485
Secretary & General 12,000 1.8% $26.55 9-30-09 -- 72,335 303,898
Counsel
Don A. Matz............. 4,500 0.7% $ 6.00 9-30-09 63,000 119,601 206,437
VP-Information Systems 9,900 1.5% $26.55 9-30-09 $ -- $ 59,676 $ 250,716
</TABLE>
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1999 Equity Incentive Plan
We have adopted the US Unwired Inc. 1999 Equity Incentive Plan. Under the
plan, we may grant stock options and other equity-based awards to our
directors, officers, selected employees and consultants. Our board of directors
administers the plan.
The board may grant stock options, stock appreciation rights and other
equity-based awards to eligible persons. These awards may not relate to more
than 2,300,000 shares of class A common stock. We may reissue shares subject to
awards that are not exercised or paid. We do not count awards paid in cash
against the number of shares that we may issue under the plan.
We may satisfy awards with either authorized but unissued class A common
stock or class A common stock held as treasury shares. The board may grant one
or more types of awards in any combination to a particular participant in a
particular year. Unless our board of directors terminates it earlier, the plan
will remain in effect until all awards have been satisfied in stock or in cash
or terminated and there are no more restrictions on stock issued under the
plan. Except when we award
stock as additional payment for services to us, we will confirm each award and
sign an agreement with the participant.
We may make the following types of awards or grants under the plan:
Stock options. Stock options may be incentive stock options that qualify
under of Section 422 of the Internal Revenue Code or nonqualified stock
options. The board will set the exercise price and other terms of options.
A person who has been granted a stock option, or an optionee, may pay the
exercise price for an option in shares of class A common stock valued at their
then fair market value if the optionee has held the shares for at least six
months. The board may permit the optionee to pay in shares of class A common
stock that have been held for less time, or in any other manner.
We may not grant incentive options after September 30, 2009. If the
optionee does not exercise these options, they expire no later than 10 years
after the date of grant. We may not grant incentive options to any participant
in the plan who, at the time of the grant, would own (as determined by the
Internal Revenue Code) more than 10% of the total combined voting power of all
classes of our stock or of any of our subsidiaries.
Stock appreciation rights and limited stock appreciation rights. A stock
appreciation right is a right to receive, without payment to us, a number of
shares of stock, cash or both, as determined by a formula. A limited stock
appreciation right is a right to receive, without payment to us, cash in amount
determined by a formula if there is a change in the persons who control us. We
may grant stock appreciation rights with all or any part of a stock option or
independently. If a participant exercises a stock appreciation right, he is
entitled to receive, for each share of class A common stock relating to the
exercised stock appreciation right, the excess of the fair market value per
share of class A common stock on the date of exercise over the grant price of
the stock appreciation right. The board sets the terms of stock appreciation
rights. If a participant exercises a limited stock appreciation right, he is
entitled to receive a cash payment, for each share of class A common stock
relating to the exercised limited stock appreciation right, equal to excess of
the defined change of control value over the grant price of the limited stock
appreciation right.
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Other stock-based awards. The board may make other awards based on shares
of class A common stock. These awards may depend on our performance. The board
will determine the participants to whom and the times at which these awards
will be made, the number of shares of class A common stock to be awarded and
all other terms of the awards.
We will adjust the number of shares of class A common stock available or
issued under the plan if there is any recapitalization, reclassification, stock
dividend, stock split, combination of stock or other similar change in class A
common stock. If there is an adjustment, the board will make appropriate
adjustments to the purchase price of any option, the performance objectives of
any award and the stock issuable pursuant to any award so that participants
will have the same relative rights before and after the adjustment.
If there is a change in the persons who control us, all outstanding
options that we have granted, including incentive options, stock appreciation
rights and limited stock appreciation rights, will become fully exercisable,
all restrictions on any award will lapse, and all performance criteria and
other conditions relating to the payment of awards will be deemed achieved or
waived by us without further action.
Our board may change or terminate the plan at any time. Tax or regulatory
laws may require our stockholders to approve some changes.
The plan is not subject to ERISA and is not qualified under Section 401(a)
of the Internal Revenue Code.
We have granted an aggregate of 1,090,000 options under our plan. This
amount includes 229,100 options to William L. Henning, Jr., 115,200 options to
Robert W. Piper, 112,000 options to Thomas G. Henning, 24,000 options to Jerry
E. Vaughn and 14,400 options to Don A. Matz.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Corporate Restructuring
We recently changed our corporate structure. US Unwired previously was our
operating cellular company, and LA Unwired and LEC Unwired were its
subsidiaries. In September 1999, we formed a holding company named US Unwired,
and all of the stockholders of old US Unwired became stockholders of the new
holding company. We did this by exchanging all of the issued and outstanding
capital stock of old US Unwired, the operating cellular company, for an equal
number of shares of new US Unwired, the holding company. Old US Unwired was
renamed Unwired Telecom and became a wholly owned subsidiary of new US Unwired.
Unwired Telecom made a stock dividend to US Unwired of all of its ownership
interest in LA Unwired and LEC Unwired. LA Unwired and LEC Unwired are now
subsidiaries of the holding company.
Our affiliate Command Connect used to hold some of our FCC licenses and
owed $2.3 million to the FCC for those licenses. US Unwired and our affiliate
Cameron Communications Corporation equally own Command Connect. As of December
17, 1999, Command Connect transferred its PCS licenses and related FCC debt to
LA Unwired. The Henning family owns approximately 60% of Cameron.
Disposition of Assets
Sale of LEC Unwired. On March 22, 2000, US Unwired adopted a formal plan
to sell its 56.7% ownership interest in LEC Unwired to LEC Unwired for the fair
market value of that interest. That value has not yet been determined. Upon
conclusion of such a sale, LEC Unwired would be owned approximately 76.9% by
Cameron and 23.1% by a corporation that is owned by existing stockholders of US
Unwired. Completion of this transaction would require consents of US Unwired's
and LEC Unwired's lenders.
Sale of Command Connect. On , 2000, Unwired Telecom agreed to
sell its 50% interest in Command Connect, including its interest in the LMDS
licenses that Command Connect holds, to Cameron for approximately $1.4 million
of Cameron's interest in LA Unwired.
Sale of PCS Licenses. On , 2000, LA Unwired agreed to sell its
PCS licenses for service areas not covered by the Sprint PCS management
agreements to Cameron for approximately $1.15 million of Cameron's interest in
LA Unwired and $1.3 million in cash, and LA Unwired agreed to use this $1.3
million of cash to purchase Command Connect's 0.5% interest in LA Unwired.
The indenture under which our notes were issued requires that US Unwired
receive fair value in these transactions with its affiliates.
Affiliate Transactions
General. US Unwired, Cameron and their subsidiaries have agreements with
one another and with other companies under common control. We describe some of
those agreements below. Other agreements include sharing of costs, services and
salary expenses and sales of assets between companies.
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Bill processing procedures. Under agreements made in 1997 and 1998,
Unibill, Inc., a wholly owned subsidiary of Cameron, provides bill processing
and related services for us and Meretel. We believe that the terms of these
agreements are no less favorable to us than would be available from
unaffiliated third persons. For these services, Unibill received approximately
$2.7 million in 1997, $2.9 million in 1998 and $2.8 million in 1999.
Property leases. In March 1998, US Unwired agreed to lease office,
equipment and warehouse space from Unibill for 60 months. We believe that the
terms of this lease are no less favorable to us than would be available from
unaffiliated third persons. US Unwired paid Unibill $173,500 in 1998 and
$294,500 in 1999 to lease these properties.
System management and construction services. On January 1, 1998, US
Unwired agreed to provide Meretel with construction and management services for
its systems. These services included reviewing and modifying system design,
obtaining governmental and regulatory approvals, preparing control point, base
station and business office sites, purchasing and installing switching and base
station equipment, negotiating interconnection to the local exchange switched
telephone network, and generally managing the operations of the system. In
return for these services, Meretel paid US Unwired a management fee and
reimbursed it for all of its expenses. As part of the Meretel transaction
described in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," we no longer provide these
services. Meretel paid US Unwired approximately $1.4 million in 1997, $4.5
million in 1998 and $1.6 million in 1999 for these services and expense
reimbursements. In 1997, Meretel agreed to pay US Unwired a commission for each
customer activated for Meretel. Meretel paid US Unwired commissions of
approximately $1.2 million in 1997 and $1.9 million in 1998. Effective November
1, 1999, US Unwired agreed to provide specified management services to Meretel
in connection with Meretel's provision of PCS services. In 1999, Meretel paid
US Unwired approximately $674,000 for these services.
Long distance services. US Unwired purchases long distance service from
Cameron and resells that service to US Unwired's customers. US Unwired pays
rates for this service that are comparable to rates at similar volumes charged
by Cameron to other customers. These rates are competitive with rates that US
Unwired would expect to pay for similar service from an unaffiliated third
party. US Unwired paid Cameron approximately $951,000 in 1997, $764,000 in 1998
and $1.5 million in 1999 for long distance services.
Flight services. US Unwired uses, for a rate of $2.75 per air mile, a
Mitsubishi Diamond 1A aircraft owned and operated by Cameron. US Unwired paid
Cameron approximately $93,800 in 1997, $84,500 in 1998 and $97,100 in 1999 for
these flight services. These rates are comparable to what US Unwired would be
required to pay to an unaffiliated third party for similar services.
Consulting agreements. In October 1999, US Unwired entered into consulting
agreements with William L. Henning, Sr. and John A. Henning, both of whom serve
on US Unwired's board of directors. US Unwired paid $250,000 to William L.
Henning, Sr. and $150,000 to John A. Henning for consulting services for
matters involving financing of our wireless business through potential bank
financing and senior subordinated discount notes.
Management and other services. In 1999, LEC Unwired began providing US
Unwired with voicemail services which US Unwired uses and also resells to its
cellular and digital subscribers.
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LEC agreed also to provide technical support to Cameron for $2,600 per month.
We believe that the terms of these arrangements are no less favorable to US
Unwired than would be expected in comparable arrangements with unaffiliated
third persons.
On September 30, 1998, US Unwired purchased from Maas.net all of its
internet assets for approximately $620,000. This amount represented the then
current outstanding liabilities of Maas.net. Maas.net is a limited liability
company owned 63% by MIT. MIT owns 20% of Wireless Management Corporation,
which is the general partner of Meretel. Two of our directors and one of our
officers own interests in MIT, and the chairman of our board of directors owns
27% of MIT.
Internet services. Effective October 1, 1998, US Unwired began providing
to Cameron and its affiliates internet services for resale to their customers.
Preferred stock sale. On October 29, 1999, we sold $50 million of our
convertible preferred stock to The 1818 Fund III, L.P., a Delaware private
equity partnership managed by Brown Brothers Harriman & Co. Pursuant to the
sale, Lawrence C. Tucker, who is a general partner of Brown Brothers Harriman &
Co., which is the general partner of The 1818 Fund, and Andrew C. Cowen, who is
a senior vice president at Brown Brothers Harriman & Co., became members of our
board of directors.
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SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table shows as of March 1, 2000 the beneficial ownership of
the capital stock of US Unwired by (a) each of our directors and officers
listed in the summary compensation table, (b) all directors and officers as a
group and (c) each person known to us to be the beneficial owner of 5% or more
of any class of our voting securities. In this table, beneficial ownership
means the sole or shared power to vote or direct the voting or to dispose or
direct the disposition of any security. A person is deemed as of any date to
have beneficial ownership of any security that the person has a right to
acquire within 60 days after that date. Any security that any person has the
right to acquire within 60 days is deemed to be outstanding for purposes of
calculating the ownership percentage of any other person. Except as otherwise
indicated, the address for each stockholder is c/o US Unwired Inc., One
Lakeshore Drive, Suite 1900, Lake Charles, Louisiana 70629.
<TABLE>
<CAPTION>
Class A
Common Stock Class B Common Stock
------------------ ------------------------------
Percentage Percentage
Name of Beneficial Owner Shares of class Shares of class
- ------------------------ ------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Sandy Britnell, Trustee of the William L.
Henning Grantor Retained Annuity Trust and the
Lena B. Henning Grantor Retained Annuity
Trust.......................................... -- -- 4,502,731(/1/) 35.1%
William L. Henning, Sr. ........................ -- -- 80,255(/2/) 0.6
William L. Henning, Jr. ........................ -- -- 1,043,179(/3/)(/4/) 8.1
John A. Henning................................. -- -- 987,861(/4/)(/5/) 7.7
Thomas G. Henning............................... -- -- 1,380,592(/6/) 10.7
Thomas D. Henning............................... -- -- 779,596 6.1
Robert W. Piper................................. -- -- 33,286(/7/) 0.3
Lawrence C. Tucker.............................. -- -- 1,883,239(/8/) 14.7
The 1818 Fund III, L.P. ........................ -- -- 1,883,239 14.7
Trust Company of the West(/9/).................. 188,324 39.2% -- --
All officers and directors as a group
(11 persons total, 7 with ownership interests).. -- -- 5,408,412 42.1
</TABLE>
- ---------------------
(/1/) Includes 2,251,366 shares held by the William L. Henning Grantor
Retained Annuity Trust and 2,251,365 shares held by the Lena B. Henning
Grantor Retained Annuity Trust. Ms. Britnell disclaims the beneficial
ownership of all shares held by these trusts.
(/2/) Includes 14,942 shares held by William L. Henning, Sr. as custodian
under the Uniform Gifts to Minors Act for the benefit of the minor
children of Thomas G. Henning, of which shares William L. Henning. Sr.
disclaims beneficial ownership. The remainder includes the community
property interest of Mrs. William L. Henning, Sr. Also includes William
L. Henning, Sr.'s proportionate interest in 33,286 shares held by a
general partnership comprised of Mr. and Mrs. William L. Henning, Sr.,
William L. Henning, Jr., John A. Henning and Thomas G. Henning, based on
his interest in that partnership.
(/3/) Excludes 15,798 shares held by Thomas G. Henning as custodian under the
Uniform Gifts to Minors Act for the benefit of the minor children of
William L. Henning, Jr.
(/4/) Excludes 116,501 shares held in each of two trusts for the benefit of
the minor children of William L. Henning, Jr. and John A. Henning,
respectively, of which shares each of them disclaims beneficial
ownership. Includes each of William L. Henning, Jr.'s and John A.
Henning's proportionate interest in 33,286 shares held by a general
partnership comprised of Mr. and Mrs. William L. Henning, Sr., William
L. Henning, Jr., John A. Henning and Thomas G. Henning, based on each of
their respective interests in that partnership.
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(/5/) Excludes 21,186 shares held by Thomas G. Henning as custodian under the
Uniform Gifts to Minors Act for the benefit of the minor children of
John A. Henning.
(/6/) Includes an aggregate of 36,984 shares held by Thomas G. Henning as
custodian under the Uniform Gifts to Minors Act for the benefit of the
minor children of John A. Henning and William L. Henning, Jr. (see Notes
(3) and (5) above), of all of which shares Thomas G. Henning disclaims
beneficial ownership. Excludes 14,942 shares held by William L. Henning,
Sr. as custodian under the Uniform Gifts to Minors Act for the benefit
of the minor children of Thomas G. Henning (see Note (2) above).
Includes 233,002 shares held by Thomas G. Henning as trustee for the
minor children of William L. Henning, Jr. and John A. Henning (see Note
(4) above), and 116,501 shares held by Thomas G. Henning as trustee for
his own minor children, and 2,856 shares held by Thomas G. Henning as
custodian under the Uniform Gifts to Minors Act for the benefit of his
minor children, of all of which shares he disclaims beneficial
ownership. Also includes Thomas G. Henning's proportionate interest in
33,286 shares held by a general partnership comprised of Mr. and Mrs.
William L. Henning, Sr., William L. Henning, Jr., John A. Henning and
Thomas G. Henning, based on his interest in that partnership.
(/7/) Includes the community property interest of Dr. Eileen Piper, the spouse
of Robert W. Piper.
(/8/) Mr. Tucker, a general partner of Brown Brothers Harriman & Co., which is
the general partner of The 1818 Fund, may be deemed to be the beneficial
owner of shares held of record by The 1818 Fund due to his role as a co-
manager of The 1818 Fund. Mr. Tucker disclaims beneficial ownership of
the shares beneficially owned by The 1818 Fund, except to the extent of
his pecuniary interest therein. The 1818 Fund designated Mr. Tucker as a
director.
(/9/) Represents shares held by the following affiliates of Trust Company of
the West: TCW/Crescent Mezzanine Partners II, L.P., TCW/Crescent
Mezzanine Trust II, TCW Shared Opportunity Fund II, L.P., TCW Shared
Opportunity Fund IIB, LLC, TCW Shared Opportunity Fund III, L.P., TCW
Leveraged Income Trust II, L.P., TCW Leveraged Income Trust, L.P. and
Brown University Third Century Fund.
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CERTAIN INDEBTEDNESS
Senior Subordinated Discount Notes
On October 29, 1999, US Unwired issued in a private placement $400.0
million in aggregate principal amount of its 13 3/8% series A senior
subordinated discount notes due 2009. On , 2000, the SEC declared
effective a registration statement on Form S-4 relating to a registered
exchange offer for the series A senior subordinated discount notes. Holders of
the series A notes can exchange their notes for US Unwired's 13 3/8% series B
senior subordinated discount notes due 2009 in the registered exchange offer.
The following discussion applies to the series A senior subordinated discount
notes and the series B senior subordinated discount notes.
The notes are unsecured obligations of US Unwired. They are subordinated
in right of payment to US Unwired's existing and future senior debt and rank
equal in right of payment with US Unwired's future senior subordinated debt.
The notes are fully and unconditionally, jointly and severally guaranteed
by US Unwired's subsidiary guarantors. The guarantees are:
. unsecured obligations of the guarantors except for the limited security
provided by a pledge agreement from one of the guarantors.
. subordinated in right of payment to all existing and future senior debt
of the guarantors.
. equal in right of payment with any future senior subordinated debt of
the guarantor.
We may redeem some or all of the notes after November 1, 2004, and before
November 1, 2002 we may redeem a portion of the notes with the net proceeds of
an equity offering.
We issued the series A notes at a discount to their principal amount. The
notes will accrete in value daily, compounded semi-annually, at a rate of 13
3/8% per year until November 1, 2004, at which time their accreted value will
equal their principal amount. Interest will begin to accrue at this time at an
annual rate of 13 3/8% and will be payable semi-annually, beginning May 1,
2005. The indenture relating to the notes contains covenants that limit our
ability and the ability of our subsidiaries to:
. incur additional debt or issue preferred stock.
. pay dividends, redeem capital stock or make other restricted payments
or investments.
. create liens on assets.
. merge, consolidate or dispose of assets.
. enter into transactions with affiliates.
. change lines of business.
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These and other limitations in the indenture are subject to qualifications
described in full in the indenture, which has been filed as an exhibit to the
registration statement on Form S-4 described above.
If there is a change in the persons who control us, holders of the notes
have the right to require us to repurchase all or any part of their notes at
101% of the accreted value, if before November 1, 2004, or 101% of the
aggregate principal amount, if on or after November 1, 2004, together with
accrued and unpaid interest, subject to restrictions in US Unwired's senior
credit facility.
The indenture also contains customary events of default relating to the
notes including:
. failure to pay interest or principal on the notes when due.
. failure to perform covenants.
. acceleration of the maturity of other debt.
. events of bankruptcy.
. certain judgments against us.
. the occurrence of any event of default pursuant to our agreements with
Sprint PCS.
Senior Credit Facilities
Under a credit agreement dated as of October 1, 1999, US Unwired entered
into senior credit facilities for $130.0 million. The senior credit facilities
provide for an $80.0 million reducing revolving credit facility, which matures
on September 30, 2007, and a $50.0 million delay draw term loan, which matures
on September 30, 2007.
The reducing revolver will be permanently reduced in quarterly
installments beginning on June 30, 2000, in amounts which vary between $1.3
million and $6.0 million. The term loan will be amortized in quarterly
installments beginning on June 30, 2003. These quarterly amounts range between
$1.3 million and $3.7 million.
Interest on all loans made under the senior credit facilities bear
interest at variable rates tied to the prime rate, the federal funds rate or
the London Interbank Offering Rate.
The senior credit facilities require US Unwired to pay an annual
commitment fee of 1.5% of the unused commitment under the senior credit
facilities when the unused portion is greater than or equal to 66.67% of the
total amount of the senior credit facilities, reducing to 1.25% when the unused
portion is less than 66.67% but equal to or greater than 50% of the total
amount of the senior credit facilities, and reducing to 1.00% when the unused
portion is less than 50% of the total amount of the senior credit facilities.
All of US Unwired's obligations under the senior credit facilities are
guaranteed by:
. a fully secured guarantee from each of LA Unwired and Unwired Telecom.
. an unsecured partial guarantee from Lucent Technologies, Inc. in the
amount of up to $43.3 million available for principal, together with
one-third of accrued interest and other
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applicable fees (but excluding prepayment premiums). If US Unwired
(including the subsidiary guarantors and Texas Unwired) demonstrates a
defined total leverage ratio (including subordinated indebtedness) of
less than 6:1 for four consecutive quarters, Lucent will be released
from its guarantee.
The senior credit facilities are secured by:
. a first priority security interest in all tangible and intangible
assets of US Unwired (other than the corporate headquarters building),
LA Unwired and Unwired Telecom (including the owned PCS licenses, to
the extent legally permitted).
. a pledge by US Unwired and Cameron of 100% of the ownership interests
in LA Unwired, a pledge by US Unwired of its ownership interest in
Unwired Telecom and a pledge by LA Unwired of its ownership interest in
Texas Unwired.
. an assignment by LA Unwired of all Sprint PCS agreements and any
network contract (including software rights).
The agreement governing the senior credit facilities contains covenants
customary for facilities similar to the senior credit facilities, including
covenants that restrict the incurrence of indebtedness, liens or contingent
obligations, mergers and acquisitions, asset sales, investments, transactions
with affiliates other than at arm's length, management fees, dividends and
distributions, and covenants that require compliance with various financial
requirements, maintenance of existence, records, properties and insurance,
certain conduction of business, compliance with laws, reporting of regulatory,
litigation and other matters, rights of inspection and Year 2000 preparation,
in each case by US Unwired, LA Unwired, Unwired Telecom and Texas Unwired.
Other terms of the agreement include annual mandatory prepayments
beginning after December 31, 2002 of 50% of excess cash flow and limitations on
a change in control of US Unwired.
We will use borrowings under the senior credit facilities for working
capital requirements and capital expenditures for LA Unwired.
Other Credit
LEC Unwired loan agreements and US Unwired undertaking. On July 22, 1998,
LEC Unwired entered into a loan agreement for $15.0 million and a subordinated
loan agreement for $3.0 million with certain lenders. Under these agreements,
no more than two loans may be made to LEC Unwired in any calendar month. Each
loan must be of a minimum principal amount of $500,000. All loans made under
either of these agreements are represented by notes stated to mature on July 1,
2006. All loans made under the $15.0 million agreement bear interest at
variable rates tied to the defined Commercial Paper Rate, London Interbank
Offering Rate or U.S. Treasury securities rate, and all loans made under the
$3.0 million agreement bear interest at the U.S. Treasury securities rate plus
the defined applicable margin. Both loan agreements contain customary covenants
for similar facilities. Loans made under these agreements are available for LEC
Unwired to build, own and operate its competitive local exchange carrier
systems and for other costs.
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As required by these loan agreements, US Unwired agreed on March 31, 1999
to contribute cash of not more than $4.5 million to LEC Unwired if LEC Unwired
does not meet specified financial requirements in the loan agreements. These
include projected EBITDA and revenue requirements, specified company ratio
requirements and minimum cash availability requirements. On March 22, 2000, US
Unwired adopted a formal plan to sell its 56.7% ownership interest in LEC
Unwired.
Meretel credit agreement and US Unwired guarantee. On May 16, 1997,
Meretel entered into a credit agreement for a $57.0 million reducing revolving
senior credit facility which matures on July 1, 2007.
All loans made under the senior credit facility bear interest at variable
rates tied to the prime rate, the London Interbank Offering Rate or the U.S.
Treasury Rate. The credit agreement contains customary covenants for similar
facilities. Meretel uses these borrowings to construct its network and for
working capital.
As required by the credit agreement, US Unwired entered into a primary
guaranty agreement on May 16, 1997. The primary guarantors are the owners of
Meretel. The primary guarantors guarantee $19.0 million of Meretel's senior
credit facility. US Unwired's proportionate share of the guarantee is based on
its ownership percentage, which is 13.3% or approximately $2.5 million, as of
the date of this prospectus.
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DESCRIPTION OF CAPITAL STOCK
In this section the pronoun "we" or "us" means US Unwired Inc. and not
other members of its corporate family.
Immediately prior to this offering, assuming the conversion of our
preferred stock, our capital stock consisted of the following:
<TABLE>
<CAPTION>
Approximate
Class or Series of Stock Shares Authorized Shares Outstanding No. of Holders
------------------------ ----------------- ------------------ --------------
<S> <C> <C> <C>
Class A common stock.... 100,000,000 291,867 22
Class B common stock.... 60,000,000 10,958,133 36
Undesignated preferred
stock................ 40,000,000 0 0
</TABLE>
Common Stock
We have two classes of authorized common stock, class A and class B. The
class A common stock has one vote per share and the class B common stock has 10
votes per share. The two classes vote together in electing directors and
generally on all matters that require a vote of stockholders.
Our charter permits only qualified holders to own class B common shares.
If class B shares are transferred to other holders, the shares automatically
become an equal number of class A shares. Qualified holders are:
.our founders who are:
.the original holders of our class B shares, and
. any person or entity that receives class B shares in a distribution
from an entity that is a founder to the persons that hold its equity
interests.
.any descendant of a founder.
.any spouse or widow(er) of a qualified holder.
.any trustee or other fiduciary if:
. the trust is a charitable lead or remainder trust or similar entity
created by a founder, or
. the beneficial owners are qualified holders;
. any corporation, partnership or limited liability company whose equity
interests are held only by qualified holders.
. tax-exempt organizations that are described in section 501(c)(3) of the
Internal Revenue Code.
. The 1818 Fund III, L.P. and its affiliates.
. a person who ceases to be a qualified holder but is nevertheless named
a qualified holder by the remaining qualified holders.
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Except for these voting and ownership differences, the class A shares and
class B shares have the same rights.
Holders of common stock have no cumulative voting rights and no
preemptive, subscription or sinking fund rights. Subject to the preferences of
our preferred stock, holders of common stock are entitled to any dividends that
may be declared by our board of directors. If we liquidate or dissolve, holders
of our common stock are entitled to anything that is left after we have paid
all of our liabilities and the liquidation preference of our preferred stock.
Preferred Stock
Our charter allows our board of directors to issue our preferred stock in
different series and to establish by an amendment to our charter the dividend
rights and terms, conversion rights, voting rights, redemption rights and
terms, liquidation preferences and any other rights, preferences, privileges
and restrictions that apply to each series.
Shareholder Agreements
On September 24, 1999, we entered into an agreement with the holders of
our class B common stock, including several members of the Henning family. The
agreement prevents us from adopting additional restrictions on our class B
common stock. It also gives piggyback registration rights to the stockholders
who have signed it. The registration rights terminate on September 24, 2005,
and the other provisions terminate on September 24, 2024, unless otherwise
extended by the terms of the agreement.
On October 29, 1999 and February 15, 2000, we entered into agreements with
four members of the Henning family and the former holders of our preferred
stock who now hold our common stock. These agreements:
. require the Henning family members to permit a former preferred holder
who holds at least 5% of our common stock to participate
proportionately in any sale by the family members of 20% or more of
their stock to a third party.
. require the Henning family members to vote with the former preferred
holders to elect up to two of our directors and to remove those
directors and elect their successors.
. prohibit us, the four Hennings and the former preferred holders from
taking any action, without specified stockholder approval, that would
make us ineligible to hold any of our FCC licenses.
Certain Charter, By-Law and Statutory Provisions
The following sections describe certain provisions of our articles of
incorporation and by-laws, and of the Louisiana Business Corporation Law.
Classified board of directors. Our articles of incorporation divide the
members of our board of directors into three classes, which are designated
Class I, Class II and Class III. The members of each class serve for a three-
year term. The terms are staggered, which means that each year the term
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of only one of the classes expires. The Class I directors are John A. Henning
and Thomas G. Henning, whose terms expire in 2001. The Class II directors are
William L. Henning, Sr. and Robert Piper, whose terms expire in 2002. The Class
III directors are William L. Henning, Jr., Lawrence C. Tucker and Andrew C.
Cowen, whose terms expire in 2003. Staggering directors' terms makes it more
difficult for a potential acquiror to seize control of a target company through
a proxy contest, even if the acquiror controls a majority of the company's
stock because only one-third of the directors stand for election in any one
year.
Special meetings of stockholders. Our articles of incorporation and by-
laws provide that any stockholder or stockholders holding at least 60% of our
total voting power may require us to hold a meeting of stockholders. In
addition, any stockholder or group of stockholders holding at least 60% of the
total voting power of any class or series of our stock may require us to hold a
meeting of stockholders of that class or series.
Advance notice requirements for director nominations. Our by-laws provide
that our board of directors may nominate candidates for election as directors
at a meeting of our stockholders. Our by-laws provide that these nominations
may also be made by any stockholder who is entitled to vote for the election of
directors at the meeting, but only if the stockholder has complied with
specified notice procedures contained in the by-laws.
Limitation of liability of directors and officers. Our articles of
incorporation provide that our directors and officers will not be liable to us
and our stockholders for monetary damages for breaches of their fiduciary
duties as directors or officers, except for:
. a breach of a director's or officer's duty of loyalty to us or our
stockholders.
. acts or omissions by directors or officers that are not in good faith
or that involve intentional misconduct or a knowing violation of law.
. liability for unlawful distributions of our assets to our stockholders,
or unlawful redemptions or repurchases of our shares from our
stockholders, to the extent provided in the Louisiana Business
Corporation Law.
. any transaction in which a director or officer receives an improper
personal benefit.
Indemnification of directors and officers. Our by-laws provide that we
must indemnify our directors and officers for claims made against them as our
directors or officers so long as they have acted in good faith and in a manner
they reasonably believed to be in, or not opposed to, our best interests. In
the case of a criminal proceeding they also must not have had a reasonable
cause to believe the conduct was unlawful.
Redemption of capital stock. Our articles of incorporation permit us to
purchase shares of our stock at fair market value from any stockholder whose
ownership of our stock:
. causes us to violate foreign ownership restrictions that apply to us as
a FCC licensee.
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. would prevent us from holding any governmental license or franchise
that is necessary to our business.
. would delay us in obtaining any necessary license or franchise.
. would materially increase our cost of obtaining or operating under any
necessary license or franchise.
Removal of directors. Our articles of incorporation provide that any
director may be removed, with or without cause, only by a vote of a majority of
the total voting power of the shares that would be entitled to elect the
successor to the removed director.
Adoption and amendment of by-laws. Our articles of incorporation and by-
laws provide that by-laws may be adopted by a majority vote of the board of
directors. The by-laws may be amended or repealed by a two-thirds vote of the
board of directors or, subject to limitations, by the affirmative vote of at
least two-thirds of the total voting power of our stock. Even though our
stockholders have the power to amend or repeal our by-laws, they do not have
the power to adopt new by-laws covering matters not expressly covered in the
by-laws prior to that adoption.
Special stockholder voting requirements. Our articles of incorporation
provide for special stockholder voting requirements to approve any of the
following:
. our merger or consolidation with another entity.
. a share exchange of our shares for shares of another entity.
. a sale of all or substantially all of our assets.
. our dissolution.
. an amendment to our articles of incorporation.
The vote required for these actions is either:
. two-thirds of our total voting power, voting together, or
. if the action has been approved by at least three-fourths of the number
of directors who constitute the full board of directors, then the
stockholder vote required to approve the action is a majority of our
total voting power, voting together.
The Louisiana Business Corporation Law provides that if a proposed amendment to
our articles of incorporation would adversely affect, within the meaning of the
Louisiana Business Corporation Law, the shares of any class or series of our
stock, then the amendment must also be approved by holders of the shares of
that class or series. Under our articles of incorporation, that approval would
require the affirmative vote of the holders of a majority of the voting power
of that class or series present at a meeting of that class or series.
Written consents of stockholders instead of a meeting of stockholders. Our
articles of incorporation permit our stockholders in specified instances to act
by a written consent instead of a meeting of stockholders. The written consent
need only be signed by stockholders who hold the voting power required to
approve the proposed actions by a written consent.
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Louisiana Fair Price and Control Share Laws
Our charter provides that the following do not apply to us:
. Louisiana's fair price law, which provides that a buyer must pay a
price to all stockholders that is generally equal to the highest price
paid to any stockholder.
. Louisiana's control share law, which provides that persons who acquire
specified levels of voting stock may not exercise the vote unless the
remaining stockholders vote to allow it.
Anti-takeover Provisions
Except for our staggered board of directors, we have not adopted typical
anti-takeover provisions. However, as long as the Henning family controls a
substantial portion of our voting power, it would not be possible for an
unwelcomed buyer to purchase us. The Henning family will control about 61.3%
of our voting power after this offering. That is sufficient for the family to
elect our entire board of directors, except for up to two directors that The
1818 Fund is entitled to elect. If our board of directors takes action with
which the Henning family disagrees, the family would be able to remove any or
all of our directors by written consent, without a meeting of stockholders,
except for up to two directors that The 1818 Fund is entitled to elect. In
that event, the Henning family could, by written consent, elect directors to
replace those that have been removed. Thus, the Henning family may choose not
to entertain offers to purchase us, even offers that are at a substantial
premium to the market price of our stock. Our stockholders may therefore be
deprived of opportunities to profit from a sale of control.
Transfer Agent and Registrar
The transfer agent and registrar for the class A common stock will be
Bank of New York.
We have applied to list our class A common stock for quotation on the
Nasdaq National Market under the symbol "UNWR."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market, or
the perception that substantial sales may occur, could adversely affect
prevailing market prices of our common stock from time to time.
When we complete this offering (based on shares outstanding at ,
2000, plus shares issuable upon the conversion of our convertible preferred
stock), we will have outstanding an aggregate of shares of common
stock. This assumes that:
. we issue shares of our class A common stock in this
offering.
. the underwriters do not exercise their over-allotment option.
. no options are exercised after , 2000. In addition, we
have in-the-money options.
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Of these outstanding shares, all of the shares sold in this offering
will be freely transferable without restriction or further registration under
the Securities Act, except that any shares purchased by persons who may be
deemed to be our "affiliates," as that term is defined in Rule 144 under the
Securities Act, may generally only be sold in compliance with the limitations
of Rule 144 described below.
Sales of Restricted Shares
We, our members of senior management and directors and our existing
stockholders have signed "lock-up" agreements under which they have agreed not
to transfer or dispose of, directly or indirectly, any shares of capital stock
or any securities convertible into, or exercisable or exchangeable for, that
capital stock for a period of 180 days after the date of this prospectus.
Transfers can be made sooner with the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. Donaldson, Lufkin & Jenrette may in
its sole discretion, at any time without notice release all or any portion of
the shares subject to the lock-up agreements. When the lock-up agreements
expire:
. shares will become eligible for sale pursuant to Rule
144(k).
. shares will become eligible for sale under Rule 144.
. shares will become eligible for sale under Rule 701.
Eligibility of Restricted Shares for Sale in the Public Market
After we complete of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
our class A common stock issued or reserved for future issuance under our 1999
Equity Incentive Plan. Based on the number of shares subject to outstanding
options as of , 2000 and currently reserved for issuance under
this plan, this registration statement would cover approximately shares.
Shares registered under the registration statement will generally be available
for sale in the open market immediately after the 180 day lock-up agreements
expire.
Also beginning six months after the date of this offering, holders of
shares of our common stock will be entitled to have their shares
registered for sale in the public market. Registration of these shares under
the Securities Act will permit these shares to be freely transferable without
restriction under the Securities Act immediately upon effectiveness of the
registration.
Rule 144
All of the shares of our class A common stock sold in this offering will
be freely transferable under the Securities Act, unless purchased by our
affiliates. In general, under Rule 144 as currently in effect, a person, or
persons whose shares are aggregated, including an affiliate, who has
beneficially owned restricted stock for at least one year is entitled to sell,
within any three-month period, a number of shares of stock that does not exceed
the greater of:
. 1% of the number of shares of our class A common stock then outstanding
(which will equal approximately shares immediately after this
offering), or
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<PAGE>
. the average weekly trading volume in our class A common stock during
the four calendar weeks preceding the date on which notice of that sale
is filed.
Sales under Rule 144 are generally subject to restrictions relating to:
. the manner of sale.
. notice.
. the availability of current public information about US Unwired.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to be an affiliate and is
not deemed to have been our affiliate for at least three months prior to a sale
and who has beneficially owned shares of restricted stock for at least two
years may resell those shares without having to comply with foregoing
requirements of Rule 144. In meeting the one and two year holding periods
described above, a holder of restricted stock can include the holding periods
of prior owners who were not an affiliate. Therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately upon the completion of this
offering.
Rule 701
Rule 701 generally permits any of our employees, directors, officers,
consultants or advisors who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering to sell those shares 180 days after the
effective date of this offering. They may rely on the exemption from
registration provided by Rule 144, but they need not comply with the holding
period and notice filing requirements of Rule 144 and, in the case of non-
affiliates, with the public information, volume limitation or notice filing
provisions of Rule 144.
The SEC 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 Securities Exchange Act of 1934, and to the shares acquired when the
options are exercised (including exercises after the date of this prospectus).
Securities issued in reliance on Rule 701 are restricted securities and may be
subject to the lock-up agreements described above.
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<PAGE>
IMPORTANT UNITED STATES FEDERAL TAX CONSEQUENCES
OF OUR COMMON STOCK TO NON-U.S. HOLDERS
This is a general discussion of United States federal tax consequences of
the acquisition, ownership, and disposition of our common stock by a holder
that, for U.S. federal income tax purposes, is not a U.S. person as we define
that term below. A holder of our common stock who is not a U.S. person is a
non-U.S. holder. We assume in the discussion that you will hold our common
stock issued pursuant to the offering as a capital asset, which generally is
property held for investment. We do not discuss all aspects of U.S. federal
taxation that may be important to your individual investment circumstances,
like special tax rules that would apply to you, for example, if you are a
dealer in securities, financial institution, bank, insurance company, tax-
exempt organization, partnership or owner of more than 5% of our common stock.
We base our discussion on current provisions of the Internal Revenue Code of
1986, Treasury regulations, judicial opinions, published positions of the IRS
and other applicable authorities, all as in effect on the date of this
prospectus and all of which are subject to differing interpretations or change,
possibly with retroactive effect. We have not sought, and shall not seek, any
ruling from the IRS with respect to the tax consequences discussed in this
prospectus. We cannot assure that the IRS will not take a position contrary to
the tax consequences discussed below or that any position taken by the IRS
would not be sustained. We urge you to consult your tax advisor about the U.S.
federal tax consequences of acquiring, holding, and disposing of our common
stock, as well as any tax consequences that may arise under the laws of any
foreign, state, local, or other taxing jurisdiction.
For purposes of this discussion, a U.S. person means any one of the
following:
. a citizen or resident of the U.S.
. a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of
the U.S.
. an estate, the income of which is includable in gross income for U.S.
federal income tax purposes regardless of its source.
. a trust, the administration of which is subject to the primary
supervision of a U.S. court and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust.
Dividends
Dividends paid to a non-U.S. holder will generally be subject to
withholding of U.S. federal income tax at the rate of 30%. If, however, the
dividend is effectively connected with the conduct of a trade or business in
the U.S. by the non-U.S. holder, the dividend will be subject to U.S. federal
income tax imposed on net income on the same basis that applies to U.S. persons
generally and, for corporate holders under certain circumstances, the branch
profits tax. Non-U.S. holders should consult any applicable income tax treaties
that may provide for a reduction of, or exemption from, withholding taxes. For
purposes of determining whether tax is to be withheld at a reduced rate as
specified by a treaty, we generally will presume that dividends we pay on or
before December 31, 2001, to an address in a foreign country are paid to a
resident of that country.
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<PAGE>
Under recently finalized Treasury regulations, which in general apply to
dividends that we pay after December 31, 2001, to obtain a reduced rate of
withholding under a treaty, a non-U.S. holder generally will be required to
provide certification as to that non-U.S. holder's entitlement to treaty
benefits. These regulations also provide special rules to determine whether,
for purposes of applying a treaty, dividends that we pay to a non-U.S. holder
that is an entity should be treated as paid to holders of interests in that
entity.
Gain on Disposition
A non-U.S. holder will generally not be subject to U.S. federal income
tax, including by way of withholding, on gain recognized on a sale or other
disposition of our common stock unless any one of the following is true:
. the gain is effectively connected with the conduct of a trade or
business in the U.S. by the non-U.S. holder.
. the non-U.S. holder is a nonresident alien individual present in the
U.S. for 183 or more days in the taxable year of the disposition and
other requirements are met.
. the non-U.S. holder is subject to tax pursuant to provisions of the
U.S. federal income tax law applicable to certain U.S. expatriates.
. we are or have been during certain periods a "United States real
property holding corporation" for U.S. federal income tax purposes.
If we are or have been a United States real property holding corporation,
a non-U.S. holder will generally not be subject to U.S. federal income tax on
gain recognized on a sale or other disposition of our common stock provided
that:
. the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding common
stock.
. our common stock is and continues to be traded regularly on an
established securities market for U.S. federal income tax purposes.
We believe that our common stock will be traded on an established
securities market for this purpose in any quarter during which it is included
for quotation on the Nasdaq National Market.
If we are or have been during certain periods a U.S. real property holding
corporation and the above exception does not apply, a non-U.S. holder will be
subject to U.S. federal income tax with respect to gain realized on any sale or
other disposition of our common stock. A non-U.S. holder will also be subject
to a withholding tax, generally at a rate of 10% of the proceeds if our common
stock is not traded regularly on an established securities market. Any amount
withheld pursuant to a withholding tax will be creditable against a non-U.S.
holder's federal income tax liability.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder will be subject to the U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally and, for corporate holders under certain circumstances, the branch
profits tax, but will generally not be subject to withholding. Non-U.S. holders
should consult any applicable income tax treaties that may provide for
different rules.
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<PAGE>
U.S. Federal Estate Taxes
Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the U.S., as specially defined for U.S. federal
estate tax purposes, on the date of that person's death will be included in his
or her estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
Information Reporting and Backup Withholding
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder and the amount of tax that we
withheld on those dividends. This information may also be made available to the
tax authorities of a country in which the non-U.S. holder resides.
Under current Treasury regulations, U.S. information reporting
requirements and backup withholding tax will generally not apply to dividends
that we pay on our common stock to a non-U.S. holder at an address outside the
U.S. Payments of the proceeds of a sale or other taxable disposition of our
common stock by a U.S. office or a broker are subject to both backup
withholding at a rate of 31% and information reporting, unless the holder
certifies as to its non-reporting requirements. Information reporting, but not
backup withholding tax, will also apply to payments of the proceeds of a sale
or other taxable disposition of our common stock by foreign offices of U.S.
brokers or foreign brokers with certain types of relationships to the U.S.,
unless the broker has documentary evidence in its records that the holder is a
non-U.S. holder and certain other conditions are met or the holder otherwise
established an exemption.
Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS.
The U.S. Treasury Department has promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
those regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify reliance standards. The final regulations are generally
effective for payments made after December 31, 2001, subject to transition
rules.
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<PAGE>
UNDERWRITING
US Unwired and the underwriters named below have entered into an
underwriting agreement dated , 2000 concerning the shares being
offered in this offering. Subject to the terms of this agreement, these
underwriters, who are represented by Donaldson, Lufkin & Jenrette Securities
Corporation, Credit Suisse First Boston Corporation and First Union Securities,
Inc. have severally agreed to purchase from us the number of shares of our
class A common stock set forth opposite their names below:
<TABLE>
<CAPTION>
Number
Underwriters: of Shares
------------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..............
Credit Suisse First Boston Corporation...........................
First Union Securities, Inc......................................
---
Total..........................................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
included in this offering are subject to the approval of legal matters by their
counsel and to customary conditions, including:
. the effectiveness of the registration statement.
. the continuing correctness of our representations.
. the receipt of a "comfort letter" from our accountants.
. the listing of the class A common stock for quotation on the Nasdaq
National Market.
. no occurrence of an event that would have a material adverse effect on
US Unwired.
The underwriters must purchase and accept delivery of all the shares of
our class A common stock, other than those shares covered by the over-allotment
option described below, if they purchase any of the shares of common stock.
The underwriters propose to offer initially some of the shares of our
class A common stock directly to the public at the initial offering price
stated on the cover page of this prospectus and some of the shares of our class
A common stock to dealers (including the underwriters) at the initial public
offering price less a discount not in excess of $ per share. The
underwriters may allow, and such dealers may re-allow, a discount not in excess
of $ share on sales to other dealers. After the initial offering of the
class A common stock to the public, the representative of the underwriters may
change the public offering price and these discounts. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The following table shows the underwriting fees that we will pay to the
underwriters in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our class A common stock.
<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
US Unwired:
Per share.............................................. $ $
Total.................................................. $ $
Selling Stockholders:
Per share.............................................. $ $
Total.................................................. $ $
</TABLE>
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<PAGE>
US Unwired and the selling stockholders have granted to the underwriters
an option to purchase up to additional shares of class A common stock
at the initial public offering price less the underwriting fees. The
underwriters may exercise this option for 30 days after the date of the
underwriting agreement. The underwriters may exercise this option only to cover
over-allotments, if any, made in connection with this offering. If the
underwriters exercise this option, each underwriter will become obligated to
purchase a number of additional shares approximately proportionate to that
underwriter's initial purchase commitment as shown in the table above. We
estimate expenses relating to this offering will be $ .
The underwriters, the selling stockholders and US Unwired have agreed to
indemnify each other against liabilities, including liabilities under the
Securities Act.
Our executive officers and directors and some of our stockholders have
agreed that from the date of this prospectus until , 2000, they
will not without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation:
. dispose of or hedge, directly or indirectly, any shares of common stock
or any securities convertible into or exercisable or exchangeable for
common stock.
. enter into any swap or other arrangement that transfers all or a
portion of the economic consequences associated with the ownership of
any common stock.
We have also agreed to these restrictions for a period commencing on the
date of this prospectus and ending 180 days after the date of this prospectus.
There are some exceptions to these restrictions.
The foregoing transfer restrictions will apply whether a covered
transaction is to be settled by the delivery of common stock or other
securities, in cash or otherwise. In addition, during this period and subject
to some exceptions, we have agreed not to file any registration statement with
respect to, and each of our executive officers and directors and the selling
stockholders, has agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of common stock or any securities
convertible into or exercisable for common stock without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation.
At our request, the underwriters have reserved up to percent of
the shares offered by this prospectus for sale at the initial public offering
price to our employees, officers and directors and other individuals associated
with us and members of their families. We will reduce the number of shares of
our class A common stock available for sale to the general public by the amount
of reserved shares that these individuals purchase or confirm for purchase
orally or in writing. The underwriters will offer to the general public any
reserve shares not purchased or confirmed for purchase on the same basis as the
other shares offered by this prospectus.
We have applied to list our class A common stock for quotation on the
Nasdaq National Market under the symbol "UNWR."
Other than in the United States, neither we, the selling stockholders nor
the underwriters have taken any action that would permit a public offering of
the shares of class A common stock included in this offering in any
jurisdiction where action for that purpose is required. The shares of class A
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common stock included in this offering may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisement in connection with the offer and sale of any shares of class A
common stock be distributed or published in any jurisdiction, except in
compliance with the applicable rules and regulations of that jurisdiction.
Persons who receive this prospectus should inform themselves about, and observe
any restrictions relating to, this offering of our class A common stock and
distribution of this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy any shares of our class A common stock included
in this offering in any jurisdiction where that would not be permitted or
legal.
Donaldson, Lufkin & Jenrette Securities Corporation or its affiliates have
provided and may in the future provide investment banking or other financial
advisory services to us and our affiliates in the ordinary course of business,
for which they have received and are expected to receive customary fees and
expenses. Donaldson, Lufkin & Jenrette Securities Corporation and First Union
Securities, Inc. were initial purchasers of the series A senior subordinated
discount notes issued by us in October 1999. See "Certain Indebtedness--Senior
Subordinated Discount Notes." First Union Securities, Inc. is the
administrative agent and an arranger, and First Union National Bank, an
affiliate of First Union Securities, Inc., is a lender, under our senior credit
facilities and, in such capacities, each receives customary fees for such
services. See "Certain Indebtedness--Senior Credit Facilities."
Stabilization
In connection with this offering, any of the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
class A common stock. Specifically, the underwriters may overallot this
offering, which creates a syndicate short position. The underwriters may bid
for and purchase shares of our class A common stock in the open market to cover
such syndicate short position or to stabilize the price of the class A common
stock. In addition, the underwriting syndicate may reclaim selling concessions
from syndicate members and selected dealers if Donaldson, Lufkin & Jenrette
Securities Corporation:
. repurchases previously distributed class A common stock in syndicate
covering transactions, in stabilization transactions or otherwise.
. receives a report that indicates that the clients of these syndicate
members have "flipped" the class A common stock.
These activities may stabilize or maintain the market price of the class A
common stock above independent market levels. The underwriters are not required
to engage in these activities, and may stop any of these activities at any
time.
Pricing of this Offering
Prior to this offering, there has been no established market for our
common stock. We and representatives of the underwriters together determined
the initial public offering price for the shares of our class A common stock
offered by this prospectus. We based the determination on several factors,
including:
. the history of, and the prospects for, the industry in which we
compete.
. our past and present operations.
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. our historical results of operations.
. our prospects for future earnings.
. the recent market prices of securities of generally comparable
companies.
. the general conditions of the securities market at the time of this
offering.
LEGAL MATTERS
Correro Fishman Haygood Phelps Walmsley & Casteix, L.L.P., New Orleans,
Louisiana, will give an opinion that under the Louisiana Business Corporation
Law the shares offered have been duly authorized and that, upon their issuance
in accordance with the terms of this prospectus, they will be duly issued,
fully paid and non-assessable. Latham & Watkins, Los Angeles, California, will
pass upon particular legal matters for the underwriters.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act for the securities offered by this prospectus. This prospectus
is a part of that registration statement. The SEC does not require the
prospectus to have all of the information included in the registration
statement or the exhibits to the registration statement. You will find
additional information about us and the common stock in the registration
statement. You may inspect and copy our registration statement and related
exhibits at the SEC's public reference rooms located at its principal office,
450 Fifth Street, NW, Washington, DC 20549, and at its regional offices at 7
World Trade Center, 13th Floor, New York, New York 10048 and the Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Please call 1-800-SEC-0330 for further information on the public
reference rooms. You may inspect information about US Unwired also at the
offices of the Nasdaq National Market, Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006. The SEC also maintains a site on the World Wide Web
(http://www.sec.gov) that contains reports, proxy and information statements
and other information about companies that file electronically with the SEC.
Statements made in this prospectus about legal documents may not necessarily be
complete, and you should read the documents which are filed as exhibits or
schedules to the registration statement or otherwise filed with the SEC.
We recently filed a registration statement on Form S-4 with the SEC in
connection with the registration under the Securities Act of 1933 of our senior
subordinated discount notes. Upon effectiveness of that registration statement,
we became subject to the information and periodic reporting requirements of
Section 15(d) of the Exchange Act of 1934 and will file annual, quarterly and
current reports, proxy and information statements and other information with
the SEC. You may inspect and copy these reports, proxy and information
statements and other information at the addresses set forth above. This
information will be available also on the SEC's website.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of US Unwired Inc. at December 31, 1999 and 1998, and for
each of the three years in the period ended December 31, 1999, the financial
statements of Louisiana Unwired, LLC at December 31, 1999 and 1998 and for the
year ended December 31, 1999 and for the period from January 8, 1998
(inception) through December 31, 1998, and the financial statements of Meretel
Communications, L.P. at December 31, 1999 and 1998, and for the three years in
the period ended December 31, 1999, as set forth in their reports. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
US UNWIRED INC. AND SUBSIDIARIES
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
LOUISIANA UNWIRED, LLC
Report of Independent Auditors........................................... F-31
Balance Sheets........................................................... F-32
Statements of Operations................................................. F-33
Statements of Members' Equity............................................ F-34
Statements of Cash Flows................................................. F-35
Notes to Financial Statements............................................ F-36
MERETEL COMMUNICATIONS, L.P.
Report of Independent Auditors........................................... F-44
Balance Sheets........................................................... F-45
Statements of Operations................................................. F-46
Statements of Partners' Deficit.......................................... F-47
Statements of Cash Flows................................................. F-48
Notes to Financial Statements............................................ F-49
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
US Unwired Inc.
We have audited the accompanying consolidated balance sheets of US Unwired
Inc., as of December 31, 1999 and 1998, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of US Unwired Inc., at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Houston, Texas
February 9, 2000, except for the third paragraph of Note 1 as to which the date
is March 22, 2000
F-2
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
ASSETS 1999 1998
------ -------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 14,695 $32,475
Subscriber receivables, net of allowance for doubtful
accounts of $184 in 1999 and $217 in 1998................. 6,036 4,419
Other receivables.......................................... 1,055 27
Inventory.................................................. 6,021 2,541
Prepaid expenses........................................... 1,146 331
Income taxes receivable.................................... 10,296 5,524
Receivables from related parties........................... 654 197
Receivables from officers.................................. 110 92
-------- -------
Total current assets......................................... 40,013 45,606
Marketable securities........................................ 141,453 --
Property and equipment, net.................................. 106,067 22,565
Deferred financing costs, net of accumulated amortization of
$184 in 1999 and $-0- in 1998............................... 12,279 --
Licenses, net of accumulated amortization of $1,326 in 1999
and $-0- in 1998............................................ 10,462 --
Restricted cash in escrow.................................... 5,402 5,164
Investments in and advances to unconsolidated affiliates..... (1,860) 11,052
Net assets of discontinued operations ....................... -- 1,761
Note receivable from unconsolidated affiliate................ 1,582 --
Other assets................................................. 1,712 1,481
-------- -------
Total assets................................................. $317,110 $87,629
======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable........................................... $ 14,618 $ 2,972
Accrued expenses........................................... 2,048 1,188
Current maturities of long term debt....................... 188 1,341
Net liabilities of discontinued operations................. 573 --
-------- -------
Total current liabilities.................................... 17,427 5,501
Long term debt, net of current maturities.................... 215,892 27,726
Net liabilities of discontinued operations................... 1,341
Deferred income taxes........................................ 2,407 2,923
Minority interest............................................ 1,458 --
Mandatory redeemable preferred stock, authorized 40,000,000
shares; issued and outstanding 500,000 shares............... 50,000 --
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value:
Class A: Authorized 100,000,000 shares; none issued or
outstanding............................................. -- --
Class B: Authorized 60,000,000 shares; issued and
outstanding 11,250,000 shares........................... 113 113
Additional paid-in capital................................... 2,634 1,835
Accumulated other comprehensive income....................... 474 --
Retained earnings............................................ 25,364 49,531
-------- -------
Total stockholders' equity................................... 28,585 51,479
-------- -------
Total liabilities and stockholders' equity................... $317,110 $87,629
======== =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Service revenues:
Subscriber...................................... $ 39,734 $ 48,723 $53,255
Roaming......................................... 10,867 11,914 16,079
Merchandise sales............................... 5,371 3,915 2,685
Management fees................................. 2,365 4,455 1,376
Other revenue................................... 295 2,704 1,273
-------- -------- -------
Total revenue................................. 58,632 71,711 74,668
-------- -------- -------
Operating expenses:
Cost of services................................ 19,593 18,586 20,111
Merchandise cost of sales....................... 11,998 10,777 8,943
General and administrative...................... 20,076 17,156 12,682
Sales and marketing............................. 12,793 10,886 10,893
Depreciation and amortization................... 19,430 9,831 12,478
-------- -------- -------
Total operating expenses...................... 83,890 67,236 65,107
-------- -------- -------
Operating (loss) income........................... (25,258) 4,475 9,561
Other (expense) income:
Interest expense................................ (11,225) (6,157) (8,580)
Interest income................................. 2,949 1,778 1,690
Other income (expense).......................... 587 -- (1,082)
Loss on sale of assets.......................... -- (114) --
Gain on sale of certain markets................. 819 57,364 --
-------- -------- -------
Total other (expense) income.................. (6,870) 52,871 (7,972)
-------- -------- -------
(Loss) income before income taxes, extraordinary
item, minority interest, and equity in losses
of affiliates.................................. (32,128) 57,346 1,589
Income tax (benefit) expense...................... (9,014) 16,812 95
-------- -------- -------
(Loss) income before extraordinary item, minority
interest and equity in income (losses) of
affiliates..................................... (23,114) 40,534 1,494
Minority interest in losses of subsidiaries....... 10,350 -- 134
Equity in losses of affiliates.................... (4,870) (11,738) (3,137)
-------- -------- -------
Income (loss) from continuing operations.......... (17,634) 28,796 (1,509)
Loss from discontinued operations, net of income
tax benefit of $1,472 in 1999.................. (3,541) (1,246) --
Extraordinary item--early extinguishment of debt,
net of income tax benefit of $884.............. (2,992) -- --
-------- -------- -------
Net (loss) income ................................ $(24,167) $ 27,550 $(1,509)
======== ======== =======
Basic and diluted earnings (loss) per common
share:
Continuing operations........................... $ (1.57) $ 2.56 $ (0.13)
Discontinued operations, net of applicable taxes
............................................. (.31) (0.11) --
Extraordinary loss, net of applicable taxes..... (0.27) -- --
-------- -------- -------
Net earnings (loss) per common share.......... $ (2.15) $ 2.45 $ (0.13)
======== ======== =======
Weighted average outstanding common shares........ $ 11,250 $ 11,250 $11,250
======== ======== =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
US Unwired Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Class Class Accumulated
A B Additional Other
Common Common Paid-in Comprehensive Retained
Stock Stock Capital Income Earnings Total
------ ------ ---------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................. -- $113 $1,835 $ -- $ 23,490 $ 25,438
Net loss................ -- -- -- -- (1,509) (1,509)
--- ---- ------ ---- -------- --------
Balance at December 31,
1997................. -- 113 1,835 -- 21,981 23,929
Net income.............. -- -- -- -- 27,550 27,550
--- ---- ------ ---- -------- --------
Balance at December 31,
1998................. -- 113 1,835 -- 49,531 51,479
Stock Compensation...... -- -- 799 -- -- 799
Unrealized gain on
marketable
securities, net of
tax $316............. -- -- -- 474 -- 474
Net loss................ -- -- -- -- (24,167) (24,167)
--------
Comprehensive income.... (23,693)
--- ---- ------ ---- -------- --------
Balance at December 31,
1999................. -- $113 $2,634 $474 $ 25,364 $ 28,585
=== ==== ====== ==== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
US Unwired Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)............................. $ (24,167) $ 27,550 $ (1,509)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Extinguishment of debt....................... 3,876 -- --
Depreciation and amortization................ 19,430 9,831 12,478
Accretion of debt discount................... 4,822 -- --
Minority interest............................ (10,350) -- (134)
Unrealized gain on marketable securities..... (316) -- --
Provision for bad debts...................... 139 744 3,521
Deferred tax expense (benefit)............... (516) 3,687 (83)
Unearned revenue............................. -- (105) (136)
(Gain) loss on sale of assets................ -- (57,250) --
Equity in losses of affiliates............... 4,870 11,738 3,137
Non-cash compensation........................ 799 -- --
Interest income on restricted cash in
escrow...................................... (238) (164) --
Discontinued operations - noncash charges and
changes in operating assets and
liabilities................................. 177 1,246 --
Changes in operating assets and liabilities,
net of acquisitions, disposals and
discontinued operations:
Subscriber receivables....................... (1,517) (351) (4,123)
Other receivables............................ (1,028) 1,623 (458)
Inventory.................................... (3,131) (1,082) 922
Prepaid expenses............................. (570) (4,264) (1,095)
Receivables from related parties............. 1,228 (2,450) --
Other assets................................. (277) (298) (606)
Accounts payable............................. 4,004 (4,417) 2,333
Accrued expenses............................. 131 (704) (2,208)
Prepaid income taxes......................... (4,772) ---- --
--------- --------- --------
Net cash provided by (used in) operating
activities................................... (7,406) (14,666) 12,039
--------- --------- --------
Cash flows from investing activities
Purchases of property and equipment........... (49,894) (20,575) (12,559)
Distributions from unconsolidated affiliates.. 421 813 --
Investments in unconsolidated affiliates...... (1,204) (15,416) (5,040)
Purchase of marketable securities............. (140,663) -- --
Proceeds from sale of certain markets......... -- 154,877 --
Cash contributions from minority shareholder.. 2,500 -- --
Loan to unconsolidated affiliate.............. (1,582) -- --
Purchase of licenses & subscriber base........ (1,063) (6,514) --
Cash acquired from consolidation of previous
unconsolidated affiliates.................... 1,350 -- --
Discontinued operations....................... (8,219) -- --
--------- --------- --------
Net cash provided by (used in) investing
activities................................... (198,354) 113,185 (17,599)
--------- --------- --------
Cash flows from financing activities
Proceeds from long-term debt.................. 240,183 29,724 6,770
Principal payments on long-term debt.......... (98,350) (100,723) (2,604)
Debt issuance cost............................ (15,693) -- (225)
Proceeds from issuance of preferred stock..... 50,000 -- --
Discontinued operations - principal payments
on long-term debt............................ 11,840 -- --
--------- --------- --------
Net cash provided by (used in) financing
activities................................... 187,980 (70,999) 3,941
--------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................. (17,780) 27,520 (1,619)
Cash and cash equivalents at beginning of
year......................................... 32,475 4,955 6,574
--------- --------- --------
Cash and cash equivalents at end of year...... $ 14,695 $ 32,475 $ 4,955
========= ========= ========
Supplemental cash flow disclosures
Cash paid for interest........................ $ 8,390 $ 5,008 $ 9,410
========= ========= ========
Cash paid for income taxes.................... $ 778 $ 17,488 $ 1,248
========= ========= ========
Non-cash activities
Property purchases in accounts payable........ $ 9,522 $ 974 $ 5,495
========= ========= ========
Distribution receivable from affiliate........ $ -- $ 120 $ --
========= ========= ========
Contribution of assets to affiliate........... $ -- $ 506 $ --
========= ========= ========
Microwave relocation costs in accounts
payable..................................... $ 500 $ -- $ --
========= ========= ========
Contribution of net assets by member.......... $ 1,312 $ -- $ --
========= ========= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Description of Business and Summary of Significant Accounting Policies
Description of Organization
US Unwired Inc. (the "Company") is principally engaged in the ownership
and operation of wireless communications systems in Southwest Louisiana and
Southeast Texas. At December 31, 1999, the Company owns and operates PCS,
cellular, and paging communications systems. The Company was incorporated as
Mercury, Inc. in 1967 by the principal shareholders of Cameron Communications
Corporation ("Cameron") to provide complementary services to Cameron's local
and line telephone service.
On September 27, 1999, the Company completed a reorganization by which the
shareholders of "old" US Unwired Inc. exchanged all of their shares of common
stock for an equal number of shares with the same rights and privileges in
"new" US Unwired (the Holding Company) and "old" US Unwired changed its name to
Unwired Telecom Corp. All outstanding stock options were exchanged for stock
options of the Holding Company at the same exchange ratio. As a result, Unwired
Telecom Corp is now a wholly-owned subsidiary of the Holding Company. This
reorganization has been accounted for at historical cost in a manner similar to
that in pooling of interests accounting.
On March 22, 2000, the Company's Board of Directors adopted a plan to sell
its ownership interest in LEC Unwired, the Company's local exchange carrier
operating segment. The Company expects to complete the sale by the end of the
third quarter of 2000. The accompanying consolidated financial statements have
been restated to reflect the LEC Unwired business as discontinued operations in
compliance with APB 30. The Company does not expect a loss from the disposal of
LEC Unwired when taking into consideration the expected gain on the disposal
and the loss from operations during the disposal period. Therefore, the current
year operating losses are presented as loss from discontinued operations.
Revenues from LEC Unwired were $5.3 million for the year ended December 31,
1999. Prior to 1999, LEC Unwired was accounted for as an equity investment, and
there were no revenues recorded by the Company for LEC Unwired. The loss from
discontinued operations in 1998 represents the Company's minority interest in
LEC Unwired's losses for the year. There were no operations of LEC Unwired in
1997.
Consolidation Policy
The consolidated financial statements include the accounts of US Unwired
Inc. and its majority-owned subsidiaries. All significant intercompany balances
and transactions are eliminated in consolidation. Losses of subsidiaries
attributable to minority stockholders in excess of the minority interest in the
equity capital of the subsidiary are not eliminated in consolidation.
During 1999, the Company made a series of capital contributions (including
contributions made by Unwired Telecom) to Louisiana Unwired, LLC ("LA Unwired")
and LEC Unwired, L.L.C. ("LEC Unwired") which increased its ownership
percentages in LA Unwired and LEC Unwired to
F-7
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
93.66% and 56.67%, respectively. As a result, the Company's financial
statements for the year ended December 31, 1999 include the financial position
and results of operations of LA Unwired and LEC Unwired on a consolidated
basis.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.
Marketable Securities
The Company accounts for marketable securities in accordance with SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities. The
Company determines the appropriate classification of all marketable securities
as held-to-maturity, available-for-sale, or trading at the time of purchase and
re-evaluates such classification as of each balance sheet date. At December 31,
1999, all of the Company's investments in marketable securities are classified
as available-for-sale, and as a result, are reported at fair value. Unrealized
gains and losses, net of tax, are reported as a component of accumulated other
comprehensive income in stockholders' equity. The cost of investments sold is
based on the average cost method, and realized gains and losses are included in
other income (expense).
Inventory
Inventory consists of analog and digital telephones, pagers and related
accessories and is carried at cost. Cost is determined by the moving average
method, which approximates the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost and depreciated on a straight-
line basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Buildings.......................................................... 39
Leasehold improvements............................................. 3 to 5
Facilities and equipment........................................... 5
Furniture and fixtures............................................. 5 to 7
Vehicles........................................................... 5
</TABLE>
Licenses
Licenses consist primarily of costs incurred in connection with the
Company's acquisition of PCS licenses and systems. These assets are recorded at
cost and amortized using the straight-line method over an estimated useful life
of 20 years. Amortization expense charged to operations for licenses in 1999,
1998 and 1997 was $341,000, $-0- and $4,064,000, respectively.
F-8
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Deferred Financing Costs
Deferred financing costs include costs incurred in connection with the
issuance of the Company's long-term debt which are capitalized and amortized
over the terms of the related debt using the interest method. Amortization
expense charged to operations in 1999, 1998 and 1997 was $450,000, $49,000 and
$153,000, respectively.
Impairment of Long-Lived Assets
The Company assesses long-lived assets for impairment under Statement of
Financial Accounting Standards ("SFAS") 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used or disposed of by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company periodically evaluates the recoverability of
the carrying amounts of its licenses and property and equipment in each market,
as well as the depreciation and amortization periods based on estimated
undiscounted future cash flows and other factors to determine whether current
events or circumstances warrant reduction of the carrying amounts or
acceleration of the related amortization period. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
Investments in Unconsolidated Affiliates
The Company's investments in less than majority-owned affiliated companies
are accounted for using the equity method and equity in earnings (losses) are
reported as equity in losses of affiliates.
Revenue Recognition
The Company earns revenue by providing access to and usage of its
cellular, PCS and paging networks and sales of cellular, PCS and paging
merchandise. Service revenues include revenues for charges to subscribers for
both access to and usage of the Company's cellular, PCS and paging networks.
These revenues are recognized as they are earned by the Company. Revenues from
the sales of merchandise are recognized when the merchandise is provided to the
customer.
Advertising Costs
Advertising costs are charged to expenses as incurred. For the years ended
December 31, 1999, 1998, and 1997, approximately $5,160,000, $3,658,000, and
$2,203,000, respectively, of advertising costs were incurred.
F-9
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Commissions
Commissions are paid to sales agents for customer activations and are
expensed in the month the customer is activated within the cellular system.
Income Taxes
The Company accounts for deferred income taxes using the asset and
liability method, under which deferred tax assets and liabilities are
recognized for the differences between the financial statement carrying amounts
of assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled.
Earnings per Share
Earnings per share is calculated by dividing net income by the weighted
average number of shares outstanding during the period. The options and
preferred stock were not included in the computation of diluted earnings per
share in 1999 because the Company is in a net loss position and, therefore, the
effect would have been antidilutive.
Stock Compensation Arrangements
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, Accounting for Stock Issued to Employees.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. The Company places its cash and temporary cash investments with
high credit quality financial services companies. Collectibility of subscriber
receivables is impacted by economic trends in each of the Company's markets and
the Company has provided an allowance which it believes is adequate to absorb
losses from uncollectible accounts.
Reclassifications
Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform to the 1999 presentation.
F-10
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
2. Marketable Securities
As of December 31, 1999, the Company's investments in marketable
securities consist of debt securities with maturities ranging from 60 days to
90 days from the date of purchase. These marketable securities have been
classified as non-current as the Company intends to use these securities to
fund the purchase and development of its PCS network. The following is a
summary of the Company's available-for-sale marketable securities as of
December 31, 1999:
<TABLE>
<CAPTION>
(In thousands)
-----------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Commercial paper...................... $ 98,769 $790 $-- $ 99,559
Fixed income mutual funds............. 41,894 -- -- 41,894
-------- ---- --- --------
$140,663 $790 $-- $141,453
======== ==== === ========
</TABLE>
For the years ended December 31, 1999 and 1998, there were no net realized
gains and losses on sales of available-for-sale marketable securities.
3. Acquisitions and Dispositions of Markets
Effective July 1, 1998, the Company sold substantially all of the assets
related to its Kansas, Mississippi and Alabama markets, as well as its majority
ownership interest in MS 34 for approximately $161,500,000, subject to purchase
price adjustments as defined in the sale agreement. Approximately $5,000,000
was placed in escrow for two years from closing date to settle any adjustments
to the purchase price. The cash in escrow and related interest income has been
recorded as restricted cash in escrow in the accompanying consolidated balance
sheet.
In late 1997, the Company began marketing PCS, which is a new generation
of wireless communications offering customers advanced, secure, two-way digital
wireless services and applications. Effective August 1, 1998, the Company sold
certain PCS subscribers and related assets to Meretel Communications, L.P.
("Meretel") for $4.3 million in cash and $1.5 million in additional ownership
interest in Meretel. In connection with this transaction, the excess of the
consideration received above the costs of the assets sold of approximately $2.3
million has been reflected in the accompanying consolidated balance sheet as a
reduction in investments in and advances to unconsolidated affiliates.
On September 30, 1998, the Company acquired substantially all assets and
assumed certain liabilities of Maas.net, LLC, ("Maas.net"), a related party.
Maas.net is a provider of Internet access services. As consideration, the
Company assumed $620,000 of the indebtedness of Maas.net. On October 1, 1998,
the Company contributed these assets, with a fair value of $506,000, to LEC
Unwired, LLC (LEC Unwired), an unconsolidated affiliate.
F-11
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
4. Property and Equipment
Major categories of property and equipment were as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
Land.......................................................... $ 1,061 $ 1,061
Buildings..................................................... 2,011 1,946
Leasehold improvements........................................ 1,198 961
Facilities and equipment...................................... 127,587 34,680
Furniture and fixtures........................................ 1,769 1,477
Vehicles...................................................... 417 240
Construction in progress...................................... 12,729 1,328
-------- -------
146,772 41,693
Less accumulated depreciation................................. 40,705 19,128
-------- -------
$106,067
$22,565
======== =======
</TABLE>
The Company recorded depreciation expense of, $20,563,000, $6,444,000 and
$5,867,000, during the years ended December 31, 1999, 1998 and 1997,
respectively.
5. Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates at December 31 consists of the
following:
<TABLE>
<CAPTION>
Percentage
Ownership
------------
December
31, December 31,
------------ ----------------
1999 1998 1999 1998
----- ----- ------- -------
<S> <C> <C> <C> <C>
Meretel........................................ 24.33% 24.33% $(3,908) $ 1,007
Command Connect, LLC ("Command Connect")....... 50.00% 50.00% 1,081 1,361
GTE Mobilnet of Texas RSA #21 Limited
Partnership ("GTE #21")..................... 25.00% 25.00% 761 688
LA Unwired..................................... 93.66% 50.00% -- 7,996
Wireless Management Corporation................ 33.33% -- 206 --
------- -------
$(1,860) $11,052
======= =======
</TABLE>
Prior to June 1998, Meretel was the owner and operator of PCS licenses in
Lafayette, Louisiana; Baton Rouge, Louisiana; and Beaumont, Texas. On June 8,
1998, Meretel entered into an agreement with Sprint PCS in which Meretel agreed
to manage Sprint's PCS networks within each Basic Trading Area in which Meretel
operates. Pursuant to this agreement, Sprint PCS pays Meretel 92% of collected
revenues, as defined, from customers in these markets. The agreement requires
that Meretel build out the PCS networks in accordance with FCC requirements and
deadlines. Meretel and Sprint PCS will share equally the costs for any
necessary relocation of microwave sources that
F-12
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
interfere with Sprint's PCS spectrum. In conjunction with this agreement,
Meretel elected to participate in the FCC's amnesty program whereby Meretel
surrendered its licenses in exchange for extinguishment of all outstanding debt
and related accrued interest due to the FCC.
Command Connect and LA Unwired either own PCS licenses, or have rights to
use licenses owned by Sprint PCS under management agreements, in Louisiana,
Texas, Arkansas, Mississippi, and Oklahoma. As with Meretel, Sprint PCS pays
92% of collected revenues, as defined, from customers in these service areas.
Command Connect originally purchased the owned licenses, and holds the licenses
until such time as LA Unwired builds out the network for these licenses. At
that time, the license is transferred from Command Connect to LA Unwired, who
commences operations.
GTE #21 operates a cellular network in Texas RSA #21.
F-13
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
As discussed in Note 1, the Company increased its ownership in LA Unwired
and LEC Unwired during 1999. As a result, LA Unwired is presented on a
consolidated basis in 1999. Summary financial information for the above-
mentioned unconsolidated affiliates is as follows for the years ended December
31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Meretel:
Total assets.................................... $ 63,195 $ 52,552 $115,218
Total liabilities............................... 93,317 64,951 99,913
-------- -------- --------
Partners' capital............................... $(30,122) $(12,399) $ 15,305
======== ======== ========
Revenue......................................... $ 23,691 $ 8,353 $ 173
======== ======== ========
Operating expenses.............................. $ 39,876 $ 30,056 $ 8,772
======== ======== ========
Net loss........................................ $(20,535) $(29,704) $(12,707)
======== ======== ========
Command Connect:
Total assets.................................... $ 3,790 $ 5,178 $ 14,402
Total liabilities............................... $ 1,582 $ 2,456 $ 9,337
-------- -------- --------
Members' capital................................ $ 2,208 $ 2,722 $ 5,065
======== ======== ========
Revenue......................................... $ -- $ 11 $ --
======== ======== ========
Operating expenses.............................. $ 10 $ 463 $ 469
======== ======== ========
Net loss........................................ $ (563) $ (452) $ (860)
======== ======== ========
GTE #21:
Total assets.................................... $ 3,105 $ 3,285 $ 2,646
Total liabilities............................... $ 54 $ 51 $ 51
-------- -------- --------
Members' capital................................ $ 3,051 $ 3,234 $ 2,595
======== ======== ========
Revenue......................................... $ 2,913 $ 2,572 $ 2,877
======== ======== ========
Operating expenses.............................. $ 962 $ 798 $ 782
======== ======== ========
Net income...................................... $ 1,981 $ 1,808 $ 2,137
======== ======== ========
LA Unwired:
Total assets.................................... $ -- $ 67,248 $ --
Total liabilities............................... -- 51,256 --
-------- -------- --------
Members' capital................................ $ -- $ 15,992 $ --
======== ======== ========
Revenue......................................... $ -- $ 1,509 $ --
======== ======== ========
Operating expenses.............................. $ -- $ 9,633 $ --
======== ======== ========
Net loss........................................ $ -- $ (9,474) $ --
======== ======== ========
Wireless Management Corporation:
Total assets.................................... $ -- $ -- $ --
Total liabilities............................... 17 -- --
-------- -------- --------
Members' capital................................ $ (17) $ -- $ --
======== ======== ========
Revenue......................................... $ -- $ -- $ --
======== ======== ========
Operating expenses.............................. $ 2 $ -- $ --
======== ======== ========
Net loss........................................ $ (258) $ -- $ --
======== ======== ========
</TABLE>
F-14
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
6. Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1999 1998
------ ------
(In
thousands)
<S> <C> <C>
Accrued taxes, other than income................................. $ 555 $ 586
Accrued payroll.................................................. 450 121
Unearned revenue and customer deposits........................... 305 56
Accrued interest expense......................................... 21 121
Other............................................................ 717 304
------ ------
$2,048 $1,188
====== ======
</TABLE>
7. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
Debt outstanding under credit facilities:
Senior subordinated discount notes.......................... $214,045 $ --
FCC debt.................................................... 1,509 --
Vendor financing............................................ 526 567
Bank credit facility........................................ -- 28,500
-------- -------
Total long-term debt.......................................... 216,080 29,067
Less current maturities....................................... 188 1,341
-------- -------
Long-term obligations, excluding current maturities........... $215,892 $27,726
======== =======
</TABLE>
On October 29, 1999, US Unwired issued $400 million of 13 3/8% Senior
Subordinated Discount Notes due November 1, 2009 ("the Notes"). The Notes were
issued at a substantial discount such that the Company received gross proceeds
of approximately $209.2 million. Interest on the Notes will not begin to accrue
until November 1, 2004. Prior to that time, in lieu of interest, the Notes will
increase in value daily, compounded on each May 1 and November 1, at the rate
of 13 3/8% per year. The value of the Notes on November 1, 2004 will be equal
to the face amount of the Notes. On that date, the Notes will accrue interest
at the rate of 13 3/8% per year and the Company will be required to pay the
accrued interest beginning May 1, 2005, and on each November 1 and May 1
thereafter.
The Notes are fully, unconditionally, and joint and severally guaranteed
by one wholly owned and one non-wholly owned subsidiary (collectively
"Guarantor Subsidiaries" and individually "Guarantor"). Each of the guarantees
is a general unsecured obligation of the Guarantor and will rank equally in
right of payment to all of our existing and future senior subordinated
indebtedness and senior in right of payment of existing and future obligations
that are expressly subordinated in
F-15
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
right to payment to the Notes. The Notes will rank junior to all existing and
future senior debt. See Note 14 for the condensed consolidating balance sheets
as of December 31, 1999 and 1998 and the related condensed consolidating
statements of operations and cash flows for each of the three years in the
period ended December 31, 1999 related to the Guarantor and non-Guarantor
Subsidiaries.
In connection with the issuance of the above mentioned Notes, LA Unwired's
existing $130 million senior credit facilities and US Unwired's existing bank
credit facility were extinguished. As a result, the unamortized debt issuance
costs related to these existing credit facilities, totaling $3,262,000, were
written off, net of tax of $749,000, as an extraordinary item.
Effective October 1, 1999, US Unwired entered into senior credit
facilities for $130 million. The senior credit facilities provide for an $80
million reducing revolving credit facility, which matures on September 30,
2007, and a $50 million delay draw term loan, which matures on September 30,
2007. The reducing revolver will be permanently reduced in quarterly
installments beginning on June 30, 2000, in amounts which vary between $1.3
million and $6.0 million. The term loan will be amortized in quarterly
installments beginning on June 30, 2003, in quarterly amounts which vary
between $1.3 million and $3.7 million. Interest on all loans made under the
senior credit facilities bear interest at variable rates tied to the prime
rate, the federal funds rate or the LIBOR. At December 31, 1999, there are no
amounts outstanding under these senior credit facilities.
These senior credit facilities require US Unwired to pay an annual
commitment fee ranging from 1.5% to 1% of the unused commitment under the
senior credit facilities. The senior credit facilities are secured by a first
priority security interest in all tangible and intangible assets of US Unwired
(other than the corporate headquarters building), LA Unwired and Unwired
Telecom (including the owned PCS licenses, to the extent legally permitted); a
pledge by US Unwired and Cameron of 100% of the ownership interest in LA
Unwired, a pledge by US Unwired of its ownership interest in Unwired Telecom;
and an assignment by LA Unwired of all Sprint PCS agreements and any network
contract (including software rights). Additionally, the senior credit
facilities are subject to certain restrictive covenants. At December 31, 1999,
the Company was not in compliance with certain of these restrictive covenants.
The Company has obtained a waiver from the lender for such covenant violations.
In July 1998, LEC Unwired entered into a financing arrangement with a
financial institution. The credit facility provides for borrowings up to $18
million ($15 million in senior secured debt and $3 million in subordinated
debt) to be used for the construction of various telecommunications networks.
The arrangement includes several fixed and variable interest rate options. The
drawdown period of the facility is twenty-four months from closing. Repayment
of principal begins three years after closing and ends eight years after
closing, with interest payable on a quarterly basis. At December 31, 1999, the
effective interest rate for this debt was 10.8% and the total unfunded
commitment was approximately $6.2 million. The financing arrangement is
collateralized by
F-16
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
substantially all of the assets of the Company. Additionally, the debt is
subject to certain restrictive covenants. At December 31, 1999, the Company was
not in compliance with certain of these restrictive covenants.The Company has
obtained a waiver from the lender for such covenant violations. See Note 1 for
further information.
In December 1999, Command Connect contributed various PCS licenses to LA
Unwired. As part of this contribution, LA Unwired assumed the related debt of
$2,252,000 with the FCC. This debt bears interest at 8.75% and provides for
quarterly principal and interest payments of approximately $68,000 through
April 30, 2007. The contributed assets and assumed liabilities have been
recorded at their historical costs.
The notes outstanding under the bank credit facility provided for
quarterly interest payments with quarterly amortization of principal beginning
in June 1999 through June 2005. The notes outstanding under the vendor credit
facility provide for quarterly interest payments only through September 1997
when quarterly amortization of principal commenced with final maturity in
January 2003. Interest rates are comprised of a combination of fixed rates over
the term of the note or variable rates based on either a variable lending rate
established by a commercial bank plus a margin ranging up to 1% or the average
offering rate for three-month commercial paper of major corporations.
On June 23, 1999, LA Unwired entered into senior credit facilities for
$130 million with certain lenders. The senior credit facilities provided for an
$80 million reducing revolving credit facility, which was to mature on
September 30, 2007, and a $50 million delay draw term loan, which was to mature
on September 30, 2007. All loans made under the senior credit facilities bear
interest at variable rates tied to the prime rate, the federal funds rate or
the London Interbank Offering Rate ("LIBOR").
A portion of the proceeds from this new credit facility were used to
extinguish LA Unwired's existing credit facility. As a result, the unamortized
debt issuance costs related to this existing credit facility, totaling
$614,000, were written off, net of tax of $135,000, as an extraordinary item.
Maturities of long-term debt for the five years succeeding December 31,
1999 are as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
2000....................................................... $ 188
2001....................................................... 204
2002....................................................... 222
2003....................................................... 241
2004....................................................... 262
</TABLE>
F-17
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
8. Income Taxes
Income tax expense (benefit) for the years ended December 31, 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ----
(In thousands)
<S> <C> <C> <C>
Federal:
Current........................................ $(11,024) $ 11,287 $ --
Deferred....................................... (319) 3,243 (70)
-------- -------- ----
(11,343) 14,530 (70)
State:
Current........................................ 170 1,838 178
Deferred....................................... (197) 444 (13)
-------- -------- ----
(27) 2,282 165
-------- -------- ----
$(11,370) $ 16,812 $ 95
======== ======== ====
</TABLE>
Income tax expense differs from the amounts computed by applying
applicable U.S. federal income tax rate to income (loss) before income taxes,
minority interest and equity in losses of affiliates as a result of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
Computed "expected" tax expense............. $(13,552) $19,498 $ 540
Equity in loss of affiliates................ (1,705) (4,549) (1,066)
Minority interest........................... 4,176 -- --
Extraordinary item.......................... (884) -- --
Surtax...................................... -- 636 --
Permanent differences....................... 190 -- --
Change in valuation allowance............... -- -- 652
State income taxes, net of Federal income
taxes.................................... (27) 1,852 165
Other, net.................................. 432 (625) (196)
-------- ------- -------
$(11,370) $16,812 $ 95
======== ======= =======
</TABLE>
During 1998, the Company utilized all net operating losses that were
carried forward from 1997. The benefit realized from net operating loss carry
forwards totaled approximately $1,586,000.
F-18
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The tax effects of temporary differences that give rise to the significant
components of deferred tax assets and deferred tax liabilities at December 31,
are presented below:
<TABLE>
<CAPTION>
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
State net operating losses............................. $ 2,026 $ --
Interest on Notes...................................... 1,911 --
Stock compensation..................................... 320 --
Allowance for doubtful accounts........................ 54 90
Inventory reserve...................................... 136 64
Unearned revenue....................................... -- 40
Investment in unconsolidated affiliates................ -- 389
Intangible assets...................................... -- 240
Other.................................................. 23 209
------- -------
Deferred tax assets.................................... 4,470 1,032
Less valuation allowance .............................. 2,026 --
------- -------
2,444 1,032
------- -------
Deferred tax liabilities:
Fixed assets........................................... 1,992 2,927
Deferred gains......................................... -- 1,028
Unrealized gain on marketable securities............... 316 --
Interest on related party debt......................... 126 --
Investment in unconsolidated affiliates................ 2,417 --
------- -------
4,851 3,955
------- -------
Net deferred tax liability............................... $ 2,407 $ 2,923
======= =======
</TABLE>
In assessing the realizability of deferred tax assets at December 31,
1999, the Company considered whether it was more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. The Company considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. Based upon these considerations, the Company provided a
valuation allowance to reduce the carrying value of deferred tax assets related
to certain state net operating losses. These state net operating loss
carryforwards approximate $40,520,000 and begin to expire in 2013.
9. Stockholder's Equity
The Company is authorized by its Articles of Incorporation to issue
40,000,000 shares of preferred stock upon the authorization of the Company's
Board of Directors. The Board of Directors is authorized to fix the dividend
rights and terms, conversion and voting rights, redemption rights and other
privileges and restrictions applicable to the stock.
F-19
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The Company has two classes of authorized common stock, Class A Common
Stock and Class B Common Stock. Other than as to voting rights and transfer
restrictions applicable to the Class B shares, the Class A and Class B shares
have identical rights.
Class A shares have one vote per share and Class B shares have ten votes
per share. Shares of Class B Common Stock generally convert automatically into
shares of Class A Common Stock on a share-for-share basis upon the transfer of
the Class B shares to other than a "qualified holder," generally the original
holders of Class B shares. Class B shares are also subject to other transfer
restrictions.
In 1997, the Company withdrew from an initial public offering of its
common stock. As a result, costs totaling $1,082,000 which were previously
deferred were expensed and are included in other expenses.
Contemporaneously with the issuance of the Notes discussed in Note 7, the
Company issued 500,000 shares of Series A preferred stock for $50 million. The
present holder of the Series A preferred and any of its affiliates who become
holders may convert the preferred stock into Class B common stock, at any time,
at a price of $26.55 per share, and such holders have voting rights of Class B
common shareholders on an as-converted basis. Upon a sale or transfer of the
preferred stock by such holders to a nonaffiliate of such holders, the
preferred stock becomes convertible into Class A common stock and the
transferee holders will have voting rights of Class A common shareholders on an
as-converted basis. The Series A preferred stock has a mandatory redemption at
its stated value 91 days after the maturity of the Notes.
Additionally, the holders of the Series A preferred stock have demand
registration rights and are entitled to any dividends paid on our common stock,
as if the preferred had converted into common stock and are entitled to block
the Company from certain specified actions. The Company may force the holders
of Series A preferred stock to convert their preferred stock after an initial
public offering of the Company's common stock if such holders would receive an
internal rate of return of at least 20% per year based on the price of our
common stock. Further, if a certain holder of the Series A preferred stock
holds 50% or more of our common stock issued or issuable upon conversion of the
Series A preferred stock, it may elect two persons to our board of directors;
if such certain holder holds less than 50% but more than 25% of our common
stock issued or issuable upon conversion of the Series A preferred stock, it
may elect one person to our board of directors. Under specified circumstances,
the holders of the Series A preferred stock are entitled to a put option at the
undiscounted fair market value of the underlying Class B common stock at the
time of the put. If such put option cannot be performed due to contractual or
statutory restrictions, the holders of the Series A preferred stock are
entitled to special compensation in the form of warrants.
10. Stock Option Plan
During 1999, the Board of Directors amended and modified the 1998 Equity
Plan to the US Unwired Inc. 1999 Equity Incentive Plan (the "1999 Equity
Plan"). As part of this amendment, the
F-20
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
maximum aggregate amount of Common Stock with respect to which options or other
awards may be granted was increased from 1,600,000 to 2,300,000 shares. As of
December 31, 1998, the Company had not granted any options or other awards
under the 1998 Equity Plan. On July 16, 1999, the Company granted stock options
for a total of 664,600 shares under the 1999 Equity Plan. These options have a
ten year term and vest over a four year period and have an exercise price of
$6.00 per share, except for 166,600 options which have an exercise price of
$26.55 per share. All of the options were outstanding at December 31, 1999 and
none were exercisable. Additionally, another 425,400 shares were granted on
January 1, 2000 with an exercise price of $26.55 per share.
As allowed by SFAS No. 123, the Company has elected to continue to follow
APB Opinion No. 25, Accounting for Stock Issued to Employees, which does not
provide for compensation expense on the issuance of stock options if the option
terms are fixed and the exercise price equals the fair value of the underlying
stock on the grant date.
In connection with the above mentioned grant of options to purchase
498,000 shares of the Company's common stock at an exercise price of $6.00 per
share, the Company has total deferred stock compensation of $6,972,000, of
which $799,000 has been recognized as stock compensation expense for the year
ended December 31, 1999, as the exercise price of these options is less than
the estimated fair value of the Company's stock at the grant date.
As required by SFAS No. 123, the Company has determined the pro forma
information as if the Company had accounted for stock options granted under the
fair value method of SFAS No. 123. The minimum value option pricing model was
used with the following weighted-average assumptions, respectively: risk-free
interest rates of 6%; dividend yield of 0%; and a weighted-average expected
life of the options of five years. The weighted-average fair value of options
granted with $6.00 and $26.55 exercise prices were $5.55 and $.33 per share,
respectively.
Had compensation expense been recorded based on the fair values of the
stock option grants, the Company's 1999 pro forma net loss would have been
$24,224,000.
11. Commitments and Contingencies
Employees of the Company participate in a 401(k) retirement plan (the
"401(k) plan") sponsored by a related party. Employees are eligible to
participate in the 401(k) plan when the employee has completed six months of
service. Under the 401(k) plan, participating employees may defer a portion of
their pretax earnings up to certain limits prescribed by the Internal Revenue
Service. The Company contributes a discretionary match equal to a percentage of
the deferred by the employee and a discretionary amount determined by the
Company from current or accumulated net profits. The Company's contributions
are fully vested upon the completion of 5 years of service. Contribution
expense related to the 401(k) plan was approximately $283,000, $340,000 and
$264,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
F-21
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The Company is a party to various noncancellable operating leases for
facilities and equipment. Future minimum lease payments due under
noncancellable operating leases with terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
(In thousands)
Year ending December 31, -------------
<S> <C>
2000.................................................... 3,276
2001.................................................... 2,963
2002.................................................... 2,446
2003.................................................... 2,245
2004.................................................... 1,907
Thereafter.............................................. 6,320
------
19,157
</TABLE>
Rental expense was $2,859,000, $1,567,000 and $777,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
The Company is involved in, various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
The Company has agreed to guarantee repayment of up to $3,824,000, plus
interest and fees thereon, pursuant to a loan agreement dated May 16, 1997,
related to bank financing obtained by Meretel which matures in 2007.
On March 31, 1999, the Company entered into an undertaking agreement as
required by LEC Unwired's loan agreements entered into in July 1998. This
undertaking agreement obligates the Company to provide cash capital
contributions, not to exceed $4.5 million, to LEC Unwired if LEC Unwired is not
in compliance with specified financial covenants in its loan agreements. The
amount of cash that the Company is required to provide depends on the covenant
with which LEC Unwired has failed to comply.
12. Disclosure About Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, subscriber receivables,
accrued interest and other receivables, and accounts payable and accrued
expenses approximate fair value because of the short term nature of these
items. The estimated fair value of the Company's long-term debt at December 31,
1999 and 1998 was $234,078,000 and $29,040,000, compared to its carrying value
of $216,080,000 and $29,067,000. The fair value of long-term debt is valued at
future cash flows discounted using the current borrowing rate for loans of a
comparable maturity.
Fair value estimates are subject to inherent limitations. Estimates of
fair value are made at a specific point in time, based on relevant market
information and information about the financial
F-22
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
instrument. The estimated fair values of financial instruments presented above
are not necessarily indicative of amounts the Company might realize in actual
market transactions. Estimates of fair value are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
13. Related Party Transactions
During the years ended December 31, 1999, 1998 and 1997, the Company paid
$10,000, $290,000 and $318,000, respectively, to a company owned by certain of
the Company's principal stockholders for voice mail services which the Company
uses in its business and also resells to its cellular subscribers.
The Company contracts with Unibill, Inc. ("Unibill"), a subsidiary of
Cameron, for all subscriber billing. The aggregate amounts paid to Cameron for
such services during 1999, 1998 and 1997 totaled $2,784,000, $2,923,000 and
$2,674,000, respectively.
From October 1997 through July 1998, the Company purchased PCS wholesale
minutes from Meretel pursuant to an oral agreement and resold the minutes to
the Company's customers. The aggregate amounts paid to Meretel for these
minutes during the years ended December 31, 1999, 1998 and 1997 totaled $0,
$1,222,000 and $105,000, respectively.
The Company also purchases long distance services from Cameron pursuant to
an oral agreement and resells the service to the Company's customers. The
aggregate amounts paid to Cameron for such services during the years ended
December 31, 1999, 1998 and 1997, totaled $1,494,000, $764,000 and $951,000,
respectively.
The Company has entered into management agreements with several affiliated
entities. During 1999, 1998 and 1997, the Company recorded $2,366,000,
$4,455,000 and $1,375,000, respectively, in management fee revenues pursuant to
these agreements. During 1997, the Company entered into an agreement with
Meretel whereby the Company receives a commission for each customer activated
for Meretel. Commissions received under this agreement totaled approximately
$1,900,000 in 1998 and $1,200,000 in 1997.
In October 1999, the Company entered into consulting agreements with
William L. Henning, Sr. and John A. Henning, both of whom serve on the
Company's board of directors. The Company paid $250,000 to William L. Henning,
Sr. and $150,000 to John A. Henning for consulting services related to securing
certain bank financing and the senior subordinated discount notes.
F-23
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
14. Guarantor and Non-Guarantor Financial Information
As discussed in Note 7, the following condensed consolidating balance
sheets, statements of operations and cash flows set forth certain financial
information regarding the Guarantor and Non-Guarantor Subsidiaries:
Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
Year ended December 31, 1999
---------------------------------------------------------------------
Guarantor
Subsidiaries
----------------
Unwired LA Non-
US Telecom Unwired, Guarantor Consolidated
Unwired Inc. Corp. LLC Subsidiaries Eliminations Total
------------ ------- -------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ -- $12,851 $ 1,844 $ -- $ -- $ 14,695
Subscriber receivables,
net................... -- 4,780 1,256 -- -- 6,036
Other accounts
receivable............ 641 83 810 -- (479) 1,055
Inventory.............. -- 3,832 2,189 -- -- 6,021
Prepaid expenses....... 97 195 854 -- -- 1,146
Income taxes
receivable............ 3,520 6,776 -- -- -- 10,296
Receivables from
related parties....... (4,160) 4,294 665 -- (145) 654
Receivables from
officers.............. -- 110 -- -- -- 110
-------- ------- -------- ------ --------- --------
Total current assets... $ 98 $32,921 7,618 -- (624) $ 40,013
Marketable securities... 26,599 -- 114,854 -- -- 141,453
Property and equipment,
net.................... -- 20,762 85,305 -- -- 106,067
Deferred financing
costs, net............. 12,279 -- -- -- -- 12,279
Licenses, net........... -- -- 10,462 -- -- 10,462
Restricted cash escrow.. -- 5,402 -- -- -- 5,402
Investments in
subsidiaries........... 189,337 12,833 -- -- (204,030) (1,860)
Note receivable from
unconsolidated
affiliate.............. -- 1,582 -- -- -- 1,582
Other assets............ 30,332 27 46 -- (28,693) 1,712
-------- ------- -------- ------ --------- --------
Total assets........... $258,645 $73,527 $218,285 $ -- $(233,347) $317,110
======== ======= ======== ====== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 172 $ 5,434 $ 9,012 $ -- $ -- $ 14,618
Accrued expenses....... -- 1,040 1,568 -- (560) 2,048
Current maturities of
long term debt........ -- 48 140 -- -- 188
Net liabilities of
discontinued
operations............ -- -- -- 635 (62) 573
-------- ------- -------- ------ --------- --------
Total current
liabilities........... 172 6,522 10,720 635 (622) 17,427
Long term debt, net of
current maturities..... 214,045 29,171 1,369 -- (28,693) 215,892
Net liabilities of
discontinued
operations............. -- -- -- 1,341 -- 1,341
Deferred income taxes... -- 2,411 -- -- (4) 2,407
Minority Interest....... -- -- -- -- 1,458 1,458
Mandatory redeemable
preferred stock........ 50,000 -- -- -- -- 50,000
Stockholders' equity:
Common stock........... 113 113 -- -- (113) 113
Additional paid-in
capital............... -- 1,835 -- -- 799 2,634
Accumulated other
comprehensive income.. 81 -- 709 -- (316) 474
Partners' Capital...... -- -- 251,561 7,582 (259,143) --
Retained earnings
(deficit)............. (5,766) 33,475 (46,074) (9,558) 53,287 25,364
-------- ------- -------- ------ --------- --------
Total stockholders'
equity (deficit)...... (5,572) 35,423 206,196 (1,976) (205,486) 28,585
-------- ------- -------- ------ --------- --------
Total liabilities and
stockholders' equity
(deficit)............. $258,645 $73,527 $218,285 $ -- $(233,347) $317,110
======== ======= ======== ====== ========= ========
</TABLE>
F-24
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
Year ended December 31, 1998
---------------------------------------------------------------------
Guarantor
Subsidiaries
----------------
Unwired LA Non-
US Telecom Unwired, Guarantor Consolidated
Unwired Inc. Corp. LLC Subsidiaries Eliminations Total
------------ ------- -------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ -- $32,475 $ 1,350 $ -- $ (1,350) $32,475
Subscriber receivables,
net................... -- 4,419 362 -- (362) 4,419
Other receivables...... -- 27 -- -- -- 27
Inventory.............. -- 2,541 350 -- (350) 2,541
Prepaid expenses....... -- 331 244 -- (244) 331
Income taxes
receivable............ -- 5,524 -- -- -- 5,524
Receivables from
related parties....... -- 197 872 -- (872) 197
Receivables from
officers.............. -- 92 -- -- -- 92
---- ------- ------- ------- -------- -------
Total current assets... -- 45,606 3,178 -- (3,178) 45,606
Property and equipment,
net.................... -- 22,565 57,581 -- (57,581) 22,565
Net assets of
discontinued
operations............. -- 1,761 -- 4,701 (4,701) 1,761
Licenses, net........... -- -- 5,684 -- (5,684) --
Restricted cash escrow.. -- 5,164 -- -- -- 5,164
Investments in
subsidiaries........... 113 11,052 -- -- (113) 11,052
Other assets............ -- 1,481 805 -- (805) 1,481
---- ------- ------- ------- -------- -------
Total assets........... $113 $87,629 $67,248 $ 4,701 $(72,062) $87,629
==== ======= ======= ======= ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ -- $ 2,972 $12,414 $ -- $(12,414) $ 2,972
Accrued expenses....... -- 1,188 712 -- (712) 1,188
Current maturities of
long term debt........ -- 1,341 -- -- -- 1,341
Net liabilities of
discontinued
operations............ -- -- -- 1,686 (1,686) --
---- ------- ------- ------- -------- -------
Total current
liabilities........... -- 5,501 13,126 1,686 (14,812) 5,501
Long term debt, net of
current maturities..... -- 27,726 38,130 -- (38,130) 27,726
Deferred income taxes... -- 2,923 -- -- -- 2,923
Stockholders' equity:
Common stock........... 113 113 -- -- (113) 113
Additional paid-in
capital............... -- 1,835 -- -- -- 1,835
Members' capital....... -- -- 25,466 5,506 (30,972) --
Retained earnings
(deficit)............. -- 49,531 (9,474) (2,491) 11,965 49,531
---- ------- ------- ------- -------- -------
Total stockholders'
equity................ 113 51,479 15,992 3,015 (19,120) 51,479
---- ------- ------- ------- -------- -------
Total liabilities and
stockholders' equity.. $113 $87,629 $67,248 $ 4,701 $(72,062) $87,629
==== ======= ======= ======= ======== =======
</TABLE>
F-25
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Condensed Consolidating Statement of Operations
<TABLE>
<CAPTION>
Year ended December 31, 1999
-----------------------------------------------------------------------
Guarantor
Subsidiaries
------------------
Unwired LA Non-
US Telecom Unwired, Guarantor Consolidated
Unwired Inc. Corp. LLC Subsidiaries Eliminations Total
------------ -------- -------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 46,158 $ 18,108 $ -- $(5,634) $ 58,632
Operating expenses...... 115 40,478 47,658 -- (4,361) 83,890
------- -------- -------- ------- ------- --------
Operating income
(loss)................ (115) 5,680 (29,550) -- (1,273) (25,258)
Other income (expense):
Interest expense....... (5,157) (2,331) (4,297) -- 560 (11,225)
Interest income........ 1,444 1,717 348 -- (560) 2,949
Other income........... -- -- 587 -- -- 587
Gain on sale of
assets............... -- 819 -- -- -- 819
------- -------- -------- ------- ------- --------
(Loss) income before
income taxes,
extraordinary items,
minority interest, and
equity in losses of
affiliates............ (3,828) 5,885 (32,912) -- (1,273) (32,128)
Income tax (benefit)
expense................ (3,520) (7,530) -- -- 2,036 (9,014)
------- -------- -------- ------- ------- --------
(Loss) income before
extraordinary items,
minority interest and
equity in losses of
affiliates............. (308) 13,415 (32,912) -- (3,309) (23,114)
Minority interest in
losses of affiliates.. -- -- -- -- 10,350 10,350
Equity in losses of
affiliates............ (5,458) (29,283) -- -- 29,871 (4,870)
------- -------- -------- ------- ------- --------
Income (loss) from
continuing operations
...................... (5,766) (15,868) (32,912) -- 36,912 (17,634)
Loss from discontinued
operations............ -- -- -- (7,067) 3,526 (3,541)
Extraordinary item-early
extinguishment of
debt.................. -- (188) (3,688) -- 884 (2,992)
------- -------- -------- ------- ------- --------
Net loss................ $(5,766) $(16,056) $(36,600) $(7,067) $41,322 $(24,167)
======= ======== ======== ======= ======= ========
<CAPTION>
Year ended December 31, 1998
-----------------------------------------------------------------------
Guarantor
Subsidiaries
------------------
Unwired LA Non-
US Telecom Unwired, Guarantor Consolidated
Unwired Inc. Corp. LLC Subsidiaries Eliminations Total
------------ -------- -------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 67,735 $ 1,509 $ 3,976 $(1,509) $ 71,711
Operating expenses...... -- 63,704 9,633 3,532 (9,633) 67,236
------- -------- -------- ------- ------- --------
Operating income
(loss)................ -- 4,031 (8,124) 444 8,124 4,475
Interest expense....... -- (5,455) (1,580) (702) 1,580 (6,157)
Interest income........ -- 1,754 230 24 (230) 1,778
Loss on sale of
assets............... -- (114) -- -- -- (114)
Gain on sale of certain
markets.............. -- 57,364 -- -- -- 57,364
------- -------- -------- ------- ------- --------
Income (loss) before
income taxes and
equity in losses of
affiliates............ -- 57,580 (9,474) (234) 9,474 57,346
Income tax expense...... -- 16,812 -- -- -- 16,812
------- -------- -------- ------- ------- --------
Income (loss) before
equity in losses of
affiliates............. -- 40,768 (9,474) (234) 9,474 40,534
Equity in losses of
affiliates............. -- (11,738) -- -- -- (11,738)
------- -------- -------- ------- ------- --------
Income (loss) from
continuing operations.. -- 29,030 (9,474) (234) 9,474 28,796
Loss from discontinued
operations............. -- (1,246) -- (2,491) 2,491 (1,246)
------- -------- -------- ------- ------- --------
Net income (loss)....... $ -- $ 27,784 $ (9,474) $(2,725) $11,965 $ 27,550
======= ======== ======== ======= ======= ========
</TABLE>
F-26
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Condensed Consolidating Statement of Operations
<TABLE>
<CAPTION>
Year ended December 31, 1997
--------------------------------------------------------------
Guarantor
Subsidiary
----------
Unwired Non-
US Telecom Guarantor
Unwired Inc. Corp. Subsidiaries Eliminations Consolidated
------------ ---------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $49,618 $36,632 $(11,582) $74,668
Operating expenses...... -- 42,151 34,538 (11,582) 65,107
----- ------- ------- -------- -------
Operating income ....... -- 7,467 2,094 -- 9,561
Interest expense....... -- (2,110) (6,470) -- (8,580)
Interest income........ -- 247 1,443 -- 1,690
Other expenses......... -- (1,082) -- -- (1,082)
----- ------- ------- -------- -------
Income (loss) before
income taxes, minority
interest, and equity
in losses of
affiliates............ -- 4,522 (2,933) -- 1,589
Income tax (benefit)
expense................ -- 730 (635) -- 95
----- ------- ------- -------- -------
Income (loss) before
minority interest and
equity in losses of
affiliates............. -- 3,792 (2,298) -- 1,494
Minority interest in
losses of subsidiary... -- -- -- 134 134
Equity in losses of
affiliates............. -- (2,894) -- (243) (3,137)
----- ------- ------- -------- -------
Net income (loss)....... $ -- $ 898 $(2,298) $ (109) $(1,509)
===== ======= ======= ======== =======
</TABLE>
F-27
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Condensed Consolidating Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31, 1999
----------------------------------------------------------------------
Guarantor
Subsidiaries
-----------------
Unwired LA Non-
US Telecom Unwired, Guarantor
Unwired Inc. Corp. LLC Subsidiaries Eliminations Consolidated
------------ ------- -------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............ $ (2,406) $16,134 $(21,222) $(5,373) $ 5,461 $ (7,406)
Cash flows from
investing activities:
Purchases of property
and equipment........ -- (4,129) (45,765) -- -- (49,894)
Distributions from
unconsolidated
affiliates........... -- 421 -- -- -- 421
Investments in
affiliates........... (189,224) (30,554) -- -- 218,574 (1,204)
Purchase of marketable
securities........... (26,518) -- (114,145) -- -- (140,663)
Cash contributions from
minority
shareholder.......... -- -- -- -- 2,500 2,500
Loan to unconsolidated
affiliate............ -- (1,582) -- -- -- (1,582)
Loan to consolidated
affiliate............ (28,693) -- -- -- 28,693 --
Purchase of licenses
and subscriber base.. -- -- (1,063) -- -- (1,063)
Cash acquired from
consolidation of
previous
unconsolidated
affiliate............ -- -- -- -- 1,350 1,350
Discontinued
operations........... -- -- -- (8,219) -- (8,219)
-------- ------- -------- ------- --------- --------
Net cash provided by
(used in) investing
activities............ (244,435) (35,844) (160,973) (8,219) 251,117 (198,354)
Cash flows from
financing activities:
Capital contributions.. -- -- 224,783 -- (224,783) --
Proceeds from long-term
debt................. 209,224 28,693 30,959 -- (28,693) 240,183
Principal payments on
long-term debt....... -- (28,542) (69,808) -- -- (98,350)
Debt issuance cost..... (12,383) (65) (3,245) -- -- (15,693)
Proceeds from issuance
of preferred stock... 50,000 -- -- -- -- 50,000
Discontinued
operations--principal
payments on long-term
debt................. -- -- -- 13,592 (1,752) 11,840
-------- ------- -------- ------- --------- --------
Net cash provided by
(used in) financing
activities............ 246,841 86 182,689 13,592 (255,228) 187,980
-------- ------- -------- ------- --------- --------
Net increase (decrease)
in cash and cash
equivalents........... -- (19,624) 494 -- 1,350 (17,780)
Cash and cash
equivalents at
beginning of year..... -- 32,475 1,350 -- (1,350) 32,475
-------- ------- -------- ------- --------- --------
Cash and cash
equivalents at end of
year.................. $ -- $12,851 $ 1,844 $ -- $ -- $ 14,695
======== ======= ======== ======= ========= ========
</TABLE>
F-28
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Condensed Consolidating Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31, 1998
-----------------------------------------------------------------------
Guarantor
Subsidiaries
------------------
Unwired LA Non-
US Telecom Unwired, Guarantor
Unwired Inc. Corp. LLC Subsidiaries Eliminations Consolidated
------------ -------- -------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............ $ -- $(13,480) $ (9,866) $(2,277) $ 10,957 $ (14,666)
Cash flows from
investing activities:
Purchases of property
and equipment........ -- (20,380) (44,749) (2,074) 46,628 (20,575)
Distributions from
unconsolidated
affiliates........... -- 813 -- -- -- 813
Payments for microwave
relocation costs..... -- -- (755) -- 755 --
Investments in
unconsolidated
affiliates........... -- (15,416) -- -- -- (15,416)
Net proceeds from sale
of certain markets... -- 154,944 -- (67) -- 154,877
Purchase of licenses... -- (6,514) -- -- -- (6,514)
----- -------- -------- ------- -------- ---------
Net cash provided by
(used in) investing
activities............ -- 113,447 (45,504) (2,141) 47,383 113,185
Cash flows from
financing activities:
Capital contributions.. -- (9,894) 23,303 14,894 (28,303) --
Proceeds from long-term
debt................. -- 29,724 38,131 -- (38,131) 29,724
Principal payments on
long-term debt....... -- (91,156) (4,302) (9,567) 4,302 (100,723)
Other.................. -- -- (412) (345) 757 --
----- -------- -------- ------- -------- ---------
Net cash provided by
(used in) financing
activities............ -- (71,326) 56,720 4,982 (61,375) (70,999)
----- -------- -------- ------- -------- ---------
Net increase (decrease)
in cash............... -- 28,641 1,350 564 (3,035) 27,520
Cash at beginning of
year.................. -- 3,834 -- 1,121 -- 4,955
----- -------- -------- ------- -------- ---------
Cash at end of year..... $ -- $ 32,475 $ 1,350 $ 1,685 $ (3,035) $ 32,475
===== ======== ======== ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
-----------------------------------------------------------------------
Guarantor
Subsidiaries
-------------------
Unwired Mercury Non-
US Telecom Cellular, Guarantor
Unwired Inc. Corp. Inc. Subsidiaries Eliminations Consolidated
------------ -------- --------- ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............ $ -- $ 18,791 $ -- $ (6,752) $ -- $ 12,039
Cash flows from
investing activities:
Purchases of property
and equipment........ -- (179) -- (12,380) -- (12,559)
Investments in
unconsolidated
affiliates........... -- (5,040) -- -- -- (5,040)
----- -------- ----- -------- ----- --------
Net cash used in
investing activities.. -- (5,219) -- (12,380) -- (17,599)
Cash flows from
financing activities:
Proceeds from long-term
debt................. -- (11,903) -- 18,673 -- 6,770
Principal payments on
long-term debt....... -- (2,410) -- (194) -- (2,604)
Debt issuance costs.... -- 416 -- (641) -- (225)
----- -------- ----- -------- ----- --------
Net cash provided by
(used in) financing
activities............ -- (13,897) -- 17,838 -- 3,941
----- -------- ----- -------- ----- --------
Net decrease in cash.... -- (325) -- (1,294) -- (1,619)
Cash at beginning of
year.................. -- 4,159 -- 2,415 -- 6,574
----- -------- ----- -------- ----- --------
Cash at end of year..... $ -- $ 3,834 $ -- $ 1,121 $ -- $ 4,955
===== ======== ===== ======== ===== ========
</TABLE>
F-29
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999
15. Subsequent Events
Effective January 1, 2000, the Company executed an agreement with Meretel
to receive an 80% interest in each of the Beaumont and Lufkin BTA markets in
exchange for a reduction in the Company's ownership interest in Meretel from
24.33% to 13.28%. The Company contributed these net assets to a new
partnership, Texas Unwired, for which the Company received an 80% ownership
interest. The contributed net assets were recorded at fair value. Additionally,
this transaction will result in a similar reduction in the Company's guarantee
of Meretel's debt.
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Louisiana Unwired, LLC
We have audited the accompanying balance sheets of Louisiana Unwired, LLC
as of December 31, 1999 and 1998, and the related statements of operations,
members' equity, and cash flows for the year ended December 31, 1999 and for
the period from January 8, 1998 (inception) through December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Louisiana Unwired, LLC at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for the year ended December 31, 1999 and for the period from January 8,
1998 (inception) through December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Houston, Texas
February 9, 2000
F-31
<PAGE>
LOUISIANA UNWIRED, LLC
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,844 $ 1,350
Accounts receivable, net of allowance for doubtful
accounts of $48 in 1999 and $-0- in 1998............... 1,256 362
Other receivables......................................... 810 --
Inventories............................................... 2,189 350
Prepaid expenses.......................................... 854 244
Due from members.......................................... -- 217
Due from affiliates....................................... 788 655
-------- -------
Total current assets.................................... 7,741 3,178
Marketable securities....................................... 114,854 --
Property and equipment, net................................. 85,305 57,581
Licenses, net of accumulated amortization of $1,326 in 1999
and $448 in 1998......................................... 10,462 5,684
Deferred financing costs, net of accumulated amortization of
$87 in 1998 ............................................. -- 692
Other assets................................................ 46 113
-------- -------
Total assets............................................ $218,408 $67,248
======== =======
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 9,012 $12,414
Due to members............................................ 123 --
Accrued expenses and other liabilities.................... 1,568 712
Current maturities of long-term debt...................... 140 --
-------- -------
Total current liabilities............................... 10,843 13,126
Long-term debt.............................................. 1,369 38,130
Commitments and contingencies
Members' equity:
Members' capital.......................................... 251,561 25,466
Accumulated other comprehensive income.................... 709 --
Accumulated deficit....................................... (46,074) (9,474)
-------- -------
Total members' equity................................... 206,196 15,992
-------- -------
Total liabilities and members' equity................... $218,408 $67,248
======== =======
</TABLE>
See accompanying notes.
F-32
<PAGE>
LOUISIANA UNWIRED, LLC
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Period from
January 8,
1998
(inception)
Year ended through
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Subscriber revenue................................. $ 10,311 $ 444
Roaming revenues................................... 3,631 343
Merchandise sales revenue.......................... 4,032 722
Other revenue...................................... 134 --
-------- -------
Total revenues................................... 18,108 1,509
Operating expenses:
Cost of service.................................... 10,252 1,912
Merchandise cost of sales.......................... 9,163 1,422
Administrative expenses............................ 14,745 3,045
Depreciation and amortization...................... 13,498 3,254
-------- -------
Total operating expenses......................... 47,658 9,633
-------- -------
Operating loss....................................... (29,550) (8,124)
Other income (expense):
Interest expense................................... (4,297) (1,580)
Interest income.................................... 348 230
Other income....................................... 587 --
-------- -------
Total other expense.............................. (3,362) (1,350)
-------- -------
Loss before extraordinary item....................... (32,912) (9,474)
Extraordinary item-early extinguishments of debt..... (3,688) --
-------- -------
Net loss............................................. $(36,600) $(9,474)
======== =======
</TABLE>
See accompanying notes.
F-33
<PAGE>
LOUISIANA UNWIRED, LLC
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
US Unwired Cameron Other
Unwired Telecom Communications Command Comprehensive
Inc. Corp. Corporation Connect Income Total
-------- ------- -------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Capital contributions... $ -- $12,733 $12,733 $ -- -- $ 25,466
Net loss................ -- (4,737) (4,737) -- -- (9,474)
-------- ------- ------- ------ ------ --------
Balance at December 31,
1998................. -- 7,996 7,996 -- -- 15,992
Capital contributions... 194,683 27,600 2,500 1,312 -- 226,095
Unrealized gain on
marketable
securities........... 709 709
Net loss................ (5,459) (20,792) (10,334) (15) -- (36,600)
--------
Comprehensive loss...... (35,891)
-------- ------- ------- ------ ------ --------
Balance at December 31,
1999................. $189,224 $14,804 $ 162 $1,297 $ 709 $206,196
======== ======= ======= ====== ====== ========
</TABLE>
See accompanying notes.
F-34
<PAGE>
LOUISIANA UNWIRED, LLC
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period from
January 8,
1998
(inception)
Year ended through
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss............................................ $ (36,600) $ (9,474)
Adjustments to reconcile net loss to net cash used
in operating activities:
Extraordinary item................................ 3,688 --
Depreciation and amortization..................... 13,498 3,254
Changes in operating assets and liabilities:
Accounts receivable............................. (894) (362)
Other receivables............................... (810) --
Inventories..................................... (1,839) (350)
Prepaid expenses................................ (610) (242)
Due to/from members............................. 340 (281)
Due from affiliates............................. (133) (2,225)
Accounts payable................................ 1,231 (514)
Accrued expenses and other liabilities.......... 840 440
Other assets.................................... 67 (112)
--------- --------
Net cash used in operating activities............... (21,222) (9,866)
Cash flows from investing activities
Purchase of marketable securities................... (114,145) --
Payments for microwave relocation costs............. (1,063) (755)
Payments for the purchase of equipment.............. (45,765) (44,749)
--------- --------
Net cash used in investing activities............... (160,973) (45,504)
Cash flows from financing activities
Capital contributions from members.................. 224,783 23,303
Proceeds from long-term debt........................ 30,959 38,131
Principal payments of long-term debt................ (69,808) (4,302)
Payments for financing costs........................ (3,245) (412)
--------- --------
Net cash provided by financing activities........... 182,689 56,720
--------- --------
Net increase in cash and cash equivalents........... 494 1,350
Cash and cash equivalents at beginning of year...... 1,350 --
--------- --------
Cash and cash equivalents at end of year............ $ 1,844 $ 1,350
========= ========
Supplemental cash flow disclosures:
Cash paid for interest............................ $ 2,694 $ 1,617
========= ========
Noncash transactions:
Purchases of equipment in accounts payable........ $ 7,215 $ 12,348
========= ========
Microwave relocation costs in accounts payable.... $ 500 $ --
========= ========
Contributions of net assets by members............ $ 1,312 $ 2,163
========= ========
</TABLE>
See accompanying notes.
F-35
<PAGE>
LOUISIANA UNWIRED, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Description of Business and Summary of Significant Accounting Policies
Description of Organization
Louisiana Unwired, LLC (the "Company"), is principally engaged in
providing access to and usage of its personal communications service ("PCS")
networks in Louisiana. PCS is a new generation of wireless communications,
offering customers advanced, secure, two-way digital wireless services and
applications. As of December 31, 1999, the Company has been primarily engaged
in the build-out of its networks.
In April 1998, the Company's members contributed PCS licenses in four
Louisiana markets to the Company from an affiliated company with common
ownership. Additionally, certain related assets and liabilities, including debt
used to finance the purchase of these four licenses, were also contributed.
These contributed assets and liabilities were recorded at their historical
costs. The Company commenced operations in one of these markets in April 1998
and in three of these markets in September 1998. The Company is currently in
the process of building out PCS networks in other markets for which its members
hold licenses through the above mentioned affiliated company. At the point
these networks become operational, the Company's members plan to contribute the
applicable license to the Company prior to commencement of operations.
Additionally, during 1998, the Company entered into an agreement with
Sprint PCS in which the Company has agreed to manage Sprint PCS's network in
BTAs for which the Company does not have a PCS license. In consideration for
managing Sprint PCS's network, Sprint PCS has agreed to pay 92% of collected
revenues, as defined, to the Company. The agreement requires that the Company
build out the PCS network in accordance with FCC requirements and deadlines.
The Company and Sprint PCS will share equally the costs for any necessary
future relocation of microwave sources that interfere with Sprint PCS's
spectrum.
At December 31,1999, the Company is 77.39% owned by US Unwired Inc. ("US
Unwired"), 16.03% owned by Unwired Telecom Corp. ("Unwired Telecom"), 0.52%
owned by Command Connect ("Command Connect"), and 6.06% by Cameron
Communications Corporation ("Cameron").
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Marketable Securities
The Company accounts for marketable securities in accordance with SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities. The
Company determines the appropriate classification of all marketable securities
as held-to-maturity, available-for-sale, or trading
F-36
<PAGE>
LOUISIANA UNWIRED, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
at the time of purchase and re-evaluates such classification as of each balance
sheet date. At December 31, 1999, all of the Company's investments in
marketable securities are classified as available-for-sale, and as a result,
are reported at fair value. Unrealized gains and losses are reported as a
component of accumulated other comprehensive income in stockholders' equity.
The cost of investments sold is based on the average cost method, and realized
gains and losses are included in other income (expense).
Inventory
Inventory consists of PCS telephones and related accessories and is
carried at cost. Cost is determined by the average cost method, which
approximates the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost and depreciation is provided on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
Year
------
<S> <C>
Facilities and equipment............................................ 5
Office equipment and fixtures....................................... 5 to 7
Vehicles............................................................ 5
Leasehold improvements.............................................. 3 to 5
</TABLE>
Licenses
Licenses consist primarily of costs incurred in connection with the
acquisition of PCS licenses. These assets are recorded at cost and amortized
using the straight-line method over an estimated useful life of 20 years.
Amortization expense charged to operations in 1999 and 1998 was $341,000 and
$270,000, respectively.
Long-Lived Assets
The Company assesses long-lived assets for impairment under Statement of
Financial Accounting Standards ("SFAS") 121, Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS 121 requires
that long-lived assets and certain identifiable intangibles to be held or
disposed of by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company periodically evaluates the recoverability of the
carrying amounts of its licenses and property and equipment in each market, as
well as the depreciation and amortization periods, based on estimated
undiscounted future cash flows and other factors to determine whether current
events or circumstances warrant reduction of the carrying amounts or
acceleration of the related amortization period. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
F-37
<PAGE>
LOUISIANA UNWIRED, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Deferred Financing Costs
Deferred financing costs include costs incurred in connection with the
issuance of the Company's long-term debt which are amortized over the term of
the related debt. Amortization expense charged to operations in 1999 and 1998
was $249,000 and $87,000, respectively.
Revenue Recognition
The Company earns revenue by providing access to and usage of its PCS
networks and sales of PCS merchandise. Service revenues include revenues for
charges to subscribers for both access to and usage of the Company's networks.
These revenues are recognized as they are earned by the Company. Revenues from
the sales of merchandise are recognized when the merchandise is delivered.
Advertising Cost
Advertising costs are expensed as incurred. For the year ended December
31, 1999 and for the period from January 8, 1998 (inception) through December
31, 1998, approximately $3,361,000 and $935,000 of advertising costs were
incurred, respectively.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
No provision for income taxes is provided as the Company's federal and
state income and/or loss is included in the income tax returns of its members.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. The Company places its cash and temporary cash investments with
high credit quality financial services companies. Collectibility of receivables
is impacted by economic trends in the Company's markets.
Disclosure About Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivables,
other receivables, and accounts payable and accrued expenses approximate fair
value because of the short term nature of these items. The estimated fair value
of the Company's long-term debt at December 31, 1999 and
F-38
<PAGE>
LOUISIANA UNWIRED, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
1998 was $1,566,000 and $38,130,000, compared to its carrying value of
$1,509,000 and $38,130,000. The fair value of long-term debt is valued at
future cash flows discounted using the current borrowing rate for loans of a
comparable maturity.
Fair value estimates are subject to inherent limitations. Estimates of
fair value are made at a specific point in time, based on relevant market
information and information about the financial instrument. The estimated fair
values of financial instruments presented above are not necessarily indicative
of amounts the Company might realize in actual market transactions. Estimates
of fair value are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
2. Marketable Securities
As of December 31, 1999, the Company's investments in marketable
securities consist of debt securities with maturities ranging from 60 days to
90 days from the date of purchase. These marketable securities have been
classified as non-current as the Company intends to use these securities to
fund the purchase and development of its PCS network. The following is a
summary of the Company's available-for-sale marketable securities as of
December 31, 1999:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Commercial paper................ $ 88,892 $709 $-- $ 89,601
Fixed income mutual funds....... 25,253 -- -- 25,253
-------- ---- --- --------
$114,145 $709 $-- $114,854
======== ==== === ========
</TABLE>
For the years ended December 31, 1999 and 1998, there were no net realized
gains and losses on sales of available-for-sale marketable securities.
3. Property and Equipment
The major categories of property and equipment at December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Facilities and equipment.................................. $86,438 $43,352
Office equipment and fixtures............................. 1,645 145
Vehicles.................................................. 140 32
Leasehold improvements.................................... 350 39
Construction in progress.................................. 12,537 16,910
------- -------
101,110 60,478
Less accumulated depreciation............................. 15,805 2,897
------- -------
$85,305 $57,581
======= =======
</TABLE>
F-39
<PAGE>
LOUISIANA UNWIRED, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The Company recorded depreciation expense of $12,908,000 and $2,897,000
for the year ended December 31, 1999 and the period from January 8, 1998
(inception) through December 31, 1998.
4. Long-Term Debt
In May 1998, the Company executed a $48,600,000 bank credit facility. The
notes outstanding under this bank credit facility provided for quarterly
interest only payments through December 2001 with quarterly principal and
interest payments commencing March 2002 through December 2006. Interest rates
were comprised of a combination of variable rates based on either a variable
lending rate established by a commercial bank plus a margin ranging up to .375%
or London Interbank Offering Rate ("LIBOR") plus a margin ranging up to 2.375%.
At December 31, 1998, the effective interest rate for these notes was 7.55% and
the total unfunded commitment was approximately $10,470,000. Substantially all
of the assets of the Company were pledged to secure the Company's obligation
including a security interest in all property and equipment, and pledge
agreements for all membership interests in the Company. Additionally, the
members guaranteed a portion of the credit facility. The debt was subject to
certain restrictive covenants including maintaining certain financial ratios,
reaching defined subscriber growth goals, and limiting annual capital
expenditures. At December 31, 1998, the Company was not in compliance with the
restrictive covenants related to the number of subscribers and capital
expenditures. The Company obtained a waiver from the lender for such covenant
violations.
On June 23, 1999, the Company entered into senior credit facilities for
$130 million with certain lenders. The senior credit facilities provided for an
$80 million reducing revolving credit facility, which was to mature on
September 30, 2007, and a $50 million delay draw term loan, which was to mature
on September 30, 2007. All loans made under the senior credit facilities bear
interest at variable rates tied to the prime rate, the federal funds rate or
the LIBOR. The senior credit facilities were secured by a first priority
security interest in all tangible and intangible assets of the Company and its
subsidiaries (including the owned PCS licenses, if legally permitted); a pledge
by US Unwired and Cameron of 100% of the ownership interests in the Company; a
pledge by the Company of its ownership interest in any of the Company's present
and future subsidiaries; and an assignment of all Sprint PCS agreements and any
network contract (including software rights).
A portion of the proceeds from this new credit facility were used to
extinguish the Company's May 1998 credit facility. As a result, the unamortized
debt issuance costs related to the May 1998 credit facility, totaling $614,000,
were written off as an extraordinary item.
During the fourth quarter of 1999, US Unwired contributed approximately
$194.7 million to the Company and the Company used a portion of these
contributions to extinguish the June 1999 senior credit facilities. As a
result, the unamortized debt issuance costs related to the June 1999 senior
credit facilities, totaling $3,074,000, were written off as an extraordinary
item.
F-40
<PAGE>
LOUISIANA UNWIRED, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
In December 1999, Command Connect contributed various PCS licenses to the
Company. As part of this contribution, the Company assumed the related debt of
$2,252,000 with the FCC. This debt bears interest at 8.75% and provides for
quarterly principal and interest payments of approximately $68,000 through
April 30, 2007. The contributed assets and assumed liabilities have been
rewarded at their historical costs.
Maturities of long-term debt for the five years succeeding December 31,
1999 are as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
2000........................................................ $140
2001........................................................ 153
2002........................................................ 167
2003........................................................ 182
2004........................................................ 198
</TABLE>
During 1998, the Company entered into an interest rate swap agreement with
a commercial bank to reduce the impact of changes in interest rates on its May
1998 bank credit facility floating rate debt. As the notional amount in the
swap agreement corresponded to the principal amount outstanding on the debt and
the variable rates in the swap and the debt use the same index, this agreement
effectively changed the Company's interest rate exposure on $16 million of
floating rate notes to a fixed 8.37%. During 1999, the Company extinguished the
bank credit facility that this interest rate swap was hedging. As a result, the
Company recorded this interest rate swap at its fair market value. In December
1999, the Company settled this obligation for $587,000 which is included in
other income in the statement of operations.
5. Commitments and Contingencies
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 its Basic Trading Areas ("BTAs") within five years from
the grant of the licenses and to at least two-thirds of the population within
10 years from the grant of the licenses. 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. The PCS buildout in each BTA is subject to the
successful completion of the 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.
On October 29, 1999, US Unwired issued $400 million of 13 3/8% Senior
Subordinated Notes due November 1, 2009 ("the Notes"). The Notes are fully and
unconditionally guaranteed by the Company.
The Company has open purchase orders totaling approximately $15,240,632
outstanding at December 31, 1999. These purchase orders are primarily
commitments to purchase fixed assets.
F-41
<PAGE>
LOUISIANA UNWIRED, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The Company is a party to various operating leases for facilities and
equipment. Rent expense for the year ended December 31, 1999 and 1998 was
$1,641,000 and $713,000, respectively. Future minimum annual lease payments due
under noncancelable operating leases with terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
2000........................................................ $ 2,331
2001........................................................ 2,324
2002........................................................ 2,345
2003........................................................ 2,318
2004........................................................ 2,019
Thereafter.................................................. 6,720
-------
$18,057
=======
</TABLE>
A PCS licensee, such as the Company, is 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 sufficient amount of unencumbered
spectrum to operate its PCS network efficiently, the Company has negotiated
agreements to pay for the microwave relocation of many of these existing
licensees, which costs have been capitalized. The Company also may be required
to contribute to the costs of relocation under agreements reached with other
PCS licenses if such relocation benefits the Company's license areas. Depending
on the terms of such agreements, the Company's ability to operate its PCS
network profitably could be adversely affected.
Employees of the Company participate in a 401(k) retirement plan (the
"401(k) plan") sponsored by a related party. Employees are eligible to
participate in the 401(k) plan when the employee has completed six months of
service. Under the 401(k) plan, participating employees may defer a portion of
their pretax earnings up to certain limits prescribed by the Internal Revenue
Service. The Company contributes a discretionary match equal to a percentage of
the amount deferred by the employee and a discretionary amount determined by
the Company from current or accumulated net profits. The Company's
contributions are fully vested upon the completion of 5 years of service.
Contribution expense related to the 401(k) plan was approximately $19,000 and
$1,300 for the year ended December 31, 1999 and for the period from January 8,
1998 (inception) through December 31, 1998, respectively.
6. Supplemental Cash Flow Disclosure
During 1999, Command Connect contributed various PCS licenses to the
Company. In connection with this contribution, the following assets were
received and liabilities assumed:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Licenses.................................................... $3,556
Accrued expenses............................................ 17
Long-term debt.............................................. 2,227
------
Contribution of net assets by a member...................... $1,312
======
</TABLE>
F-42
<PAGE>
LOUISIANA UNWIRED, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
7. Related Party Transactions
During the year ended December 31, 1998, the Company incurred management
fees of $960,000 and $240,000 to Unwired Telecom and Cameron, respectively.
During the year ended December 31, 1999, the Company incurred management fees
of $4,772,000 to Unwired Telecom.
The Company contracts with UniBill, Inc. ("UniBill"), a subsidiary of
Cameron, for all subscriber billing and accounts receivable data processing.
UniBill charges a $2.50 fee per bill processed. Billing expenses totaled
approximately $515,000 and $22,000 in 1999 and 1998, respectively, of which
$3,000 is included in accounts payable at December 31, 1999.
F-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Meretel Communications, L.P.
We have audited the accompanying balance sheets of Meretel Communications,
L.P. as of December 31, 1999 and 1998, and the related statements of
operations, partners' deficit, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Meretel Communications,
L.P. at December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 9, 2000
F-44
<PAGE>
MERETEL COMMUNICATIONS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
ASSETS 1999 1998
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 605,757 $ 1,104,577
Trade accounts receivable, net of allowance for
doubtful accounts of $37,595 in 1999 and $35,391
in 1998.......................................... 1,424,118 137,805
Other accounts receivables........................ 142,627 200,738
Inventories....................................... 3,724,247 372,566
Receivable from partners.......................... 45,494 640,383
Prepaid expenses.................................. 284,378 214,171
------------ ------------
Total current assets................................ 6,226,621 2,670,240
Property and equipment, net......................... 36,417,782 46,154,521
Facilities and equipment under capital lease, net of
accumulated depreciation of $480,679 in 1999....... 17,719,321 --
Other assets, net of accumulated amortization of
$256,065 in 1999 and $259,857 in 1998.............. 1,150,906 985,737
Subscriber base, net of accumulated amortization of
$1,503,597 in 1999 and $442,234 in 1998............ 1,680,490 2,741,853
------------ ------------
Total assets........................................ $ 63,195,120 $ 52,552,351
============ ============
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 4,358,460 $ 5,673,373
Accrued expenses.................................. 1,854,249 2,031,883
Due to partners................................... 7,747,441 5,428,443
Due to affiliates................................. 55,221 85,897
Current portion of long-term debt................. -- 650,482
Current portion of capital lease obligations...... 815,041 --
------------ ------------
Total current liabilities........................... 14,830,412 13,870,078
Deferred gain....................................... 11,280,694 --
Long-term debt...................................... 50,095,476 51,081,061
Capital lease obligations, less current portion..... 17,110,799 --
Commitments and contingencies
Partners' deficit:
General partner................................... (423,751) (88,113)
Limited partners.................................. (20,948,511) (4,310,676)
Amounts due from limited partner.................. (8,749,999) (7,999,999)
------------ ------------
(30,122,261) (12,398,788)
------------ ------------
Total liabilities and partners' deficit............. $ 63,195,120 $ 52,552,351
============ ============
</TABLE>
See accompanying notes.
F-45
<PAGE>
MERETEL COMMUNICATIONS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Service revenues.................. $ 20,235,491 $ 6,907,266 $ 160,523
Merchandise sales revenues........ 3,343,935 1,419,526 --
Other revenues.................... 111,299 26,359 12,225
------------ ------------ ------------
Total revenues...................... 23,690,725 8,353,151 172,748
Operating expenses:
Cost of service................... 9,777,750 4,128,073 2,370,560
Merchandise cost of sales......... 6,626,346 3,411,213 --
Administrative expenses........... 4,691,939 3,059,439 2,796,903
Sales and marketing expenses...... 7,691,801 8,944,064 --
Depreciation and amortization..... 11,087,877 10,513,148 3,604,694
------------ ------------ ------------
Total operating expenses............ 39,875,713 30,055,937 8,772,157
------------ ------------ ------------
Operating loss...................... (16,184,988) (21,702,786) (8,599,409)
Other income (expense):
Interest expenses................. (5,009,962) (4,921,515) (4,403,733)
Interest income................... 357,612 381,777 296,157
Gain on sale of assets............ 302,820 -- --
------------ ------------ ------------
Total other income (expense)........ 4,349,530 (4,539,738) (4,107,576)
------------ ------------ ------------
Loss before extraordinary item...... (20,534,518) (26,242,524) (12,706,985)
Extraordinary item--loss on
extinguishment of debt............. -- (3,461,696) --
------------ ------------ ------------
Net loss............................ $(20,534,518) $(29,704,220) $(12,706,985)
============ ============ ============
</TABLE>
See accompanying notes.
F-46
<PAGE>
MERETEL COMMUNICATIONS, L.P.
STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
--------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996............. $ 335,248 $ 12,339,669 $ 12,674,917
Capital contributions.................. 374,862 20,062,637 20,437,499
Net loss............................... (254,140) (12,452,845) (12,706,985)
Amount due from partner................ -- (5,099,999) (5,099,999)
--------- ------------ ------------
Balance at December 31, 1997............. 455,970 14,849,462 15,305,432
Capital contributions.................. 50,001 2,449,999 2,500,000
Net loss............................... (594,084) (29,110,136) (29,704,220)
Amount due from partner................ -- (500,000) (500,000)
--------- ------------ ------------
Balance at December 31, 1998............. (88,113) (12,310,675) (12,398,788)
Capital contributions.................. 75,000 3,486,045 3,561,045
Net loss............................... (410,638) (20,123,880) (20,534,518)
Amount due from partner................ -- (750,000) (750,000)
--------- ------------ ------------
Balance at December 31, 1999............. $(423,751) $(29,698,510) $(30,122,261)
========= ============ ============
</TABLE>
See accompanying notes.
F-47
<PAGE>
MERETEL COMMUNICATIONS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $(20,534,518) $(29,704,220) $(12,706,985)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization..... 11,087,877 10,513,148 3,604,694
Extraordinary loss on
extinguishment of debt........... -- 3,461,696 --
Gain on sale-leaseback
transaction...................... (302,431) -- --
Provision for losses on accounts
receivable....................... 2,204 12,680 22,711
Changes in operating assets and
liabilities:
Trade accounts receivable....... (1,288,515) (144,502) (28,694)
Other accounts receivable....... 58,111 (200,738) --
Inventories..................... (3,351,681) (372,566) --
Prepaid expenses and other
assets......................... (253,645) (251,328) (993,642)
Accounts payable................ 1,246,279 (804,402) 1,863,471
Accrued expenses................ (177,634) 3,269,481 2,862,647
Due to partners................. 6,430,145 834,249 1,087,250
Due to related parties.......... (76,170) 85,897 --
Deferred gain on sale-lease back
transaction.................... 11,583,125 -- --
------------ ------------ ------------
Net cash provided by (used in)
operating activities................ 4,423,147 (13,300,605) (4,288,548)
Cash flows from investing activities:
Acquisition of property and
equipment......................... (5,744,810) (14,408,816) (35,753,734)
Acquisition of licenses............ -- -- (2,724,669)
(Increase) decrease in cash held by
partner........................... -- 7,773,020 (841,093)
Increase in due from partners...... -- (590,039) (50,344)
(Increase) decrease in due from
related parties................... -- 1,570,037 (1,570,037)
------------ ------------ ------------
Net cash used in investing
activities.......................... (5,744,810) (5,655,798) (40,939,877)
Cash flows from financing activities:
Net borrowing under line of
credit............................ (1,636,067) 18,786,008 30,000,000
Proceeds from capital contributions
by partners....................... 2,811,045 2,000,000 15,337,500
Payments made on capital lease
obligation........................ (274,160) -- --
Payments on long-term debt......... -- (1,235,200) --
Cash paid for debt acquisition
costs............................. (77,975) -- --
------------ ------------ ------------
Net cash provided by financing
activities.......................... 822,843 19,550,808 45,337,500
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents.................... (498,820) 594,405 109,075
Cash and cash equivalents at
beginning of year................... 1,104,577 510,172 401,097
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 605,757 $ 1,104,577 $ 510,172
============ ============ ============
Supplemental cash flow disclosures:
Cash paid for interest............. $ 1,847,239 $ 3,115,910 $ 1,789,939
============ ============ ============
Supplemental disclosure of non-cash
activities:
Acquisition of licenses and related
costs with long term debt......... $ -- $ -- $ 4,180,735
============ ============ ============
Purchase of property and equipment
financed by accounts.............. $ 2,052,279 $ 4,613,986 $ 4,382,425
============ ============ ============
Purchase of property and equipment
under capital lease............... $ 18,200,000 $ -- $ --
============ ============ ============
Purchase of assets financed by due
to partner........................ $ -- $ 3,470,764 $ --
============ ============ ============
Debt and accrued interest
forgiven.......................... $ -- $ 59,599,876 $ --
============ ============ ============
Relinquishment of assets for
forgiveness of debt............... $ -- $ 63,061,572 $ --
============ ============ ============
</TABLE>
See accompanying notes.
F-48
<PAGE>
MERETEL COMMUNICATIONS. L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Description of Business and Summary of Significant Accounting Policies
Description of Organization
Meretel Communications, L.P. (the "Partnership"), is a Louisiana limited
partnership in commendam which was formed on July 27, 1995, and was in the
development stage through December 31, 1997. Prior to August 1, 1998, the
Partnership was primarily engaged in providing wholesale Personal
Communications Services ("PCS") minutes of use ("MOUs") in southern Louisiana
and eastern Texas to US Unwired, Inc. ("US Unwired"), and EATELCORP, Inc.
("EATEL"), two of its limited partners and operating managers. PCS is a new
generation of wireless communications, offering customers advanced, secure,
two-way digital wireless services and applications.
Effective August 1, 1998, the Partnership purchased all of US Unwired's
PCS subscribers. Effective December 8, 1999, EATEL contributed all of its PCS
subscribers to the Partnership. As a result of these transactions, the
Partnership no longer provides wholesale MOUs to US Unwired and EATEL; the
Partnership now services those customers directly.
The Partnership is economically dependent on the continued funding of its
operations by certain of its partners and such partners have committed to
provide such funding.
Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventory
Inventory consists of PCS telephones and related accessories and is
carried at cost. Cost is determined by the moving average method, which
approximates the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost and depreciation is provided on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Facilities and equipment............................................... 5
Computer equipment..................................................... 5
Computer software...................................................... 5
Furniture and fixtures................................................. 7
</TABLE>
F-49
<PAGE>
MERETEL COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Licenses
The Partnership relinquished all of its licenses during 1998 under the
Federal Communications Commission's ("FCC's") amnesty program in exchange for
forgiveness of debt used to finance the purchases of the licenses. See Note 2.
Other Assets
Other assets primarily include deferred financing costs incurred in
connection with the issuance of the Partnership's long-term debt which are
capitalized and amortized over the terms of the related debt.
Long-Lived Assets
The Partnership assesses long-term assets for impairment under Statement
of Financial Accounting Standards ("SFAS") No. 121, Accounting of the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used or disposed of by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Partnership
periodically evaluates the recoverability of the carrying amounts of property
and equipment and other related assets in each market, as well as the
depreciation and amortization periods, based on estimated undiscounted future
cash flows and other factors to determine whether current events or
circumstances warrant reduction to the carrying amounts or acceleration of the
related amortization period. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
Revenue Recognition
The Partnership earns revenue by providing wholesale PCS minutes of use,
by providing access to and usage of its PCS network directly to subscribers,
and by sales of PCS merchandise. Wholesale usage revenues and service revenues
for access to and usage of the Partnership's PCS network by subscribers are
recognized as they are earned. Revenues from the sales of merchandise are
recognized when the merchandise is delivered.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-50
<PAGE>
MERETEL COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Concentrations of Credit Risk
Financial instruments which potentially expose the Partnership to
concentrations of credit risk consist primarily of cash and accounts
receivable. The Partnership places its cash and temporary cash investments with
high credit quality financial services companies. Collectibility of reseller
and subscriber receivables is impacted by economic trends in the Partnership's
markets. The Partnership has provided an allowance, which it believes is
adequate, to absorb losses from uncollectible accounts.
Income Taxes
No provision for income taxes is provided as the Partnership's taxable
income or loss is included in the income tax returns of its partners.
Advertising Costs
Advertising costs are charged to expense as incurred. For the years ended
December 31, 1999, 1998 and 1997, approximately $2,700,000, $1,602,000 and $-0-
, respectively, of advertising costs were incurred.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
2. Management Agreement
On June 8, 1998, the Partnership entered into an agreement with Sprint PCS
in which the Partnership agreed to manage Sprint PCS's PCS network within each
BTA for which the partnership originally held a PCS license prior to the return
of the licenses to the FCC. In consideration for managing Sprint PCS's network,
Sprint PCS agreed to pay 92% of collected revenues, as defined, to the
Partnership. The agreement requires that the Partnership build out the PCS
network in accordance with FCC requirements and deadlines. The Partnership and
Sprint PCS will share equally the costs for any necessary future relocation of
microwave sources that interfere with Sprint PCS's spectrum. In conjunction
with this agreement, the Partnership entered into an agreement with the FCC to
surrender its current licenses in exchange for the forgiveness of all
outstanding debt and accrued interest due to the FCC.
F-51
<PAGE>
MERETEL COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
3. Property and Equipment
The major categories of property and equipment at December 31 were as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Facilities and equipment............................ $46,156,353 $50,555,693
Computer equipment.................................. 145,079 71,443
Computer software................................... 2,918 928
Furniture and fixtures.............................. 378,626 59,302
Construction in progress............................ 6,402,234 4,392,739
Vehicles............................................ 61,820 --
----------- -----------
53,147,030 55,080,105
Less accumulated depreciation and amortization...... 16,729,248 8,925,584
----------- -----------
$36,417,782 $46,154,521
=========== ===========
</TABLE>
Depreciation expense, which includes amortization of assets recorded under
capital leases for the years ended December 31, 1999, 1998 and 1997, was
$9,450,000, $8,521,000 and $385,000, respectively.
4. Accrued Expenses
Accrued expenses consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accrued taxes, other than income...................... $ 211,525 $ 350,437
Accrued payroll....................................... 77,822 68,013
Unearned revenue...................................... 308,047 62,730
Accrued interest expense.............................. 298,178 149,000
Accrued commission.................................... 162,916 862,650
Other................................................. 795,761 539,053
---------- ----------
$1,854,249 $2,031,883
========== ==========
</TABLE>
5. Long-Term Debt
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Debt outstanding under credit facilities:
Bank financing.................................... $47,149,941 $48,786,008
Microwave relocation obligations.................... 2,945,535 2,945,535
----------- -----------
50,095,476 51,731,543
Less current portion................................ -- 650,482
----------- -----------
$50,095,476 $51,081,061
=========== ===========
</TABLE>
F-52
<PAGE>
MERETEL COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
In June 1998, the Partnership relinquished its licenses in exchange for
forgiveness of the related debt of approximately $55,100,000 under the FCC's
amnesty program. This transaction resulted in an extraordinary loss of
$3,461,696.
In November 1996, the Partnership executed a $57,000,000 bank credit
facility. The notes outstanding under this bank credit facility provide for
quarterly interest only payments through March 2001 and quarterly principal
payments ranging from $1,220,000 to $2,440,000 plus interest commencing June
2001 through March 2007. Interest rates are comprised of a combination of fixed
rates over the term of the note or variable rates based on either a variable
lending rate established by a commercial bank plus a margin ranging up to 1% or
the average offering rate for three-month commercial paper of major
corporations. At December 31, 1999, the effective interest rate for these notes
was 8.57% and the total unfunded commitment was approximately $196,000.
Substantially all of the assets of the Partnership are pledged to secure the
Partnership's obligation, including a security interest in all property, plant
and equipment, and pledge agreements for all partnership interests in the
Partnership. Additionally, the limited partners have guaranteed a portion of
the credit facility.
Certain agreements for microwave relocation costs provide for financing
arrangements with interest at 6.5% per annum. These financing arrangements
required principal payments totaling approximately $650,000 in 1999, interest
only payments totaling approximately $149,000 due annually thereafter through
2003, annual payments of approximately $574,000 plus interest due beginning
2004 through 2007. As a result of the relinquishment of the Partnership's FCC
licenses in June 1998, the Partnership is of the opinion that it is no longer
obligated to fund these microwave relocation costs. At December 31, 1999, the
Partnership is working to obtain a formal release of these obligations.
Maturities of long-term obligations for the five succeeding years are as
follows:
<TABLE>
<S> <C>
2000.......................................................... $ --
2001.......................................................... 4,275,000
2002.......................................................... 7,831,500
2003.......................................................... 8,550,000
2004.......................................................... 10,687,500
</TABLE>
6. Leases
In July 1999, the Partnership entered into a sale transaction for 73 of
its cell sites for approximately $19,000,000, subject to certain adjustments as
defined by the sales agreement. These proceeds were used to reduce the
Partnership's outstanding indebtedness. In connection with the sale, the
Partnership entered into lease agreements to leaseback a portion of these cell
sites for approximately $2,000 per month for an initial lease term of 15 years.
These transactions have been accounted for as sale-leaseback transaction. As a
result, the gain on the sale of cell site,
F-53
<PAGE>
MERETEL COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
approximately $11,600,000, has been deferred and will be amortized over the
term of the related leases, 15 years. As of December 31, 1999, the Partnership
had executed the sale and leaseback of 70 of 73 towers. The sale and leaseback
of the remaining towers is expected to occur during the first quarter of 2000.
The Partnership also leases certain facilities and equipment under
noncancelable operating leases. Rent expense for the years ended December 31,
1999, 1998 and 1997 was approximately $1,428,000, $660,000 and $167,000,
respectively. Future minimum annual lease payments due under capital leases and
noncancelable operating leases with initial terms in excess of one year
consisted of the following at December 31, 1999:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- ----------
<S> <C> <C>
2000............................................ $ 1,680,000 $ 658,000
2001............................................ 1,680,000 633,000
2002............................................ 1,680,000 503,000
2003............................................ 1,680,000 405,000
2004............................................ 1,680,000 146,000
Thereafter...................................... 17,001,884 423,000
----------- ----------
25,401,884 $2,768,000
==========
Amounts representing interest................... (7,476,044)
-----------
Present value of minimum lease payments
(including current portion of $815,041....... $17,925,840
===========
</TABLE>
7. Related Party Transactions
On August 1, 1996, the Partnership executed management and construction
service agreements with US Unwired and EATEL, two of its partners. Management
fees to EATEL were $756,000, $1,137,000 and $1,080,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. Management fees to US Unwired
were $2,245,000, $1,354,000 and $1,080,000 for the years ended December 31,
1999, 1998, and 1997, respectively. These fees are presented in the
accompanying statements of operations as general and administrative expenses.
During 1997 the Partnership provided an incentive program to US Unwired
and EATEL related to the acquisition of customers for the Partnership's PCS
system. The Partnership incurred obligations and expenses under this incentive
program to US Unwired and EATEL totaling $217,000, $5,651,000 and $2,038,000
for the years ended December 31, 1999, 1998 and 1997, respectively, which is
included in costs of sales in the accompanying statements of operations. As of
December 31, 1999 and 1998, the unpaid portion of these obligations was $3,000
and $608,000, respectively.
From October 1997 through July 1998, the Partnership sold PCS minutes to
US Unwired pursuant to an oral agreement. The aggregate amounts received from
US Unwired for these minutes during the years ended December 31, 1998 and 1997
totaled $1,222,000 and $105,000, respectively.
F-54
<PAGE>
MERETEL COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
During the years ended December 31, 1999, 1998 and 1997, the Partnership sold
PCS wholesale minutes to EATEL pursuant to an oral agreement. The aggregate
amounts received from EATEL for these minutes during the years ended December
31, 1999, 1998 and 1997 totaled $3,153,000, $2,248,000 and $33,000,
respectively. As of December 31, 1999, EATEL owes the Partnership $74,000 for
these minutes.
Effective August 1, 1998, the Partnership purchased certain of US
Unwired's PCS subscribers, property and equipment, and inventory for cash of
approximately $4,300,000 and an additional ownership interest in the
Partnership of approximately 3.9%. Of the total cash purchase price, $3,184,000
has been allocated to the PCS subscriber base and is being amortized over its
estimated useful life of three years. The issuance of the additional ownership
is contingent upon the occurrence of certain future events.
The Partnership contracts with Unibill, Inc. ("Unibill"), a subsidiary of
Cameron Communications Corporation ("Cameron"), for all subscriber billing. The
aggregate amounts paid to Cameron for such services during 1999 and 1998
totaled $774,000 and $352,000 respectively.
8. Subsequent Event
Effective January 1, 2000, the Partnership distributed all of the assets
and related liabilities of its Beaumont and Lufkin BTA markets to certain
limited partners in exchange for a reduction in these limited partners'
ownership interests in the Partnership.
F-55
<PAGE>
[photographs showing Sprint PCS(R) stores, phones and subscribers]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[LOGO OF US UNWIRED APPEARS HERE]
Shares of Class A Common Stock
-----------------------------
PROSPECTUS
-----------------------------
Donaldson, Lufkin & Jenrette
Credit Suisse First Boston
First Union Securities, Inc.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on any unauthorized
information or representations. This prospectus is not an offer to sell these
securities or our solicitation of your offer to buy the securities in any
jurisdiction where that would not be permitted or legal. Neither the delivery
of this prospectus nor any sales made hereunder after the date of this
prospectus should create an implication that the information contained in this
prospectus or the affairs of US Unwired have not changed since the date of this
prospectus.
Until , 2000 (25 days after the date of this prospectus), all dealers,
whether or not participating in this offering, that effect transactions in
these securities may be required to deliver a prospectus. This is in addition
to the dealer's obligation to deliver a prospectus when acting as an
underwriter in this offering and when selling previously unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities to be registered. All of
the amounts shown are estimated except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $36,432
NASD filing fee.................................................. 14,300
Nasdaq National Market listing fees..............................
Printing and engraving expenses..................................
Legal fees and expenses..........................................
Accounting fees and expenses.....................................
Transfer agent and registrar fees................................
Miscellaneous expenses...........................................
Total.......................................................... $
</TABLE>
Item 14. Indemnification of Officers and Directors.
Section 83A(1) of the Louisiana Business Corporation Law permits a
corporation to indemnify any person who was or is a party or is threatened to
be made a party to any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, including any action by or in the right of
the corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another business,
foreign or nonprofit corporation, partnership, joint venture, or other
enterprise, against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 83A(2) provides that, in case of actions by or in the right of the
corporation, the indemnity shall be limited to expenses, including attorneys'
fees and amounts paid in settlement not exceeding, in the judgment of the board
of directors, the estimated expense of litigating the action to conclusion,
actually and reasonably incurred in connection with the defense or settlement
of such action, and that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable for willful or intentional misconduct in the performance of his duty
to the corporation, unless, and only to the extent that the court shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, he is fairly and reasonably entitled
to indemnity for such expenses which the court shall deem proper.
Section 83(B) provides that to the extent that a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in defense of any such action, suit or
II-1
<PAGE>
proceeding, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Any indemnification under Section 83A, unless ordered by the court, shall
be made by the corporation only as authorized in a specific case upon a
determination that the applicable standard of conduct has been met, and such
determination shall be made:
. by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit, or proceeding, or
. if such a quorum is not obtainable and the board of directors so
directs, by independent legal counsel, or
. by the stockholders.
The indemnification provided for by Section 83 shall not be deemed
exclusive of any other rights to which the person indemnified is entitled under
any bylaw, agreement, authorization of stockholders or directors, regardless of
whether directors authorizing such indemnification are beneficiaries thereof,
or otherwise, both as to action in his 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 a director, officer, employee, or agent and shall inure to
the benefit of his heirs and legal representative; however, no such other
indemnification measure shall permit indemnification of any person for the
results of such person's willful or intentional misconduct.
Section 24 of the Louisiana Business Corporation Law provides that the
articles of incorporation of a corporation may contain a provision eliminating
or limiting the personal liability of a director or officer to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director or officer, provided that such provision shall not eliminate or limit
the liability of a director or officer:
. for any breach of the director's or officer's duty of loyalty to the
corporation or its stockholders.
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law.
. who knowingly or without the exercise of reasonable care and inquiry
votes in favor of a dividend paid in violation of Louisiana law, any
other unlawful distribution, payment or return of assets to be made to
the stockholders or stock purchases or redemptions in violation of
Louisiana law.
. for any transaction from which the director or officer derived an
improper personal benefit.
Article VI of US Unwired's Articles of Incorporation contains the
provisions permitted by Section 24 of the Louisiana Business Corporation Law
and permits the Board of Directors to take further action to provide
indemnification to, and limit the liability of, to the full extent permitted by
law, the directors and officers of US Unwired by causing US Unwired to enter
into contracts with its directors and officers, adopting by-laws or
resolutions, and causing US Unwired to procure and maintain directors' and
officers' liability insurance or other similar arrangements, notwithstanding
II-2
<PAGE>
that some or all of the members of the Board of Directors acting with respect
to the foregoing may be parties to such contracts or beneficiaries of such by-
laws or resolutions or insurance or arrangements.
Article VI permits the Board of Directors to cause US Unwired to approve
for its direct and indirect subsidiaries limitation of liability and
indemnification provisions comparable to the foregoing.
Section 11 of US Unwired's by-laws makes mandatory the indemnification of
any of its officers and directors against any expenses, costs, attorneys' fees,
judgments, punitive or exemplary damages, fines and amounts paid in settlement
actually and reasonably incurred by him (as they are incurred) by reason of his
position as director or officer of US Unwired or any subsidiary or other
specified positions if he is successful in his defense of the matter on the
merits or otherwise or has been found to have met the applicable standard of
conduct.
The standard of conduct is met when the director or officer is found to
have acted in good faith and in a manner that he reasonably believed to be in,
or not opposed to, the best interest of US Unwired, and, in the case of a
criminal action or proceeding, with no reasonable cause to believe that his
conduct was unlawful. No indemnification is permitted in respect of any matter
as to which a director or officer shall have been finally adjudged by a court
of competent jurisdiction to be liable for willful or intentional misconduct or
to have obtained an improper personal benefit, unless, and only to the extent
that the court shall determine upon application that, in view of all the
circumstances of the case, he is fairly and reasonably entitled to indemnity
for such expenses which the court shall deem proper.
Section 11 further provides that indemnification granted pursuant to this
section shall not be deemed exclusive of any other rights to which a director
or officer is or may become entitled under any statute, article of
incorporation, by-law, authorization of stockholders or directors, agreement or
otherwise; and that US Unwired intends by this section to indemnify and hold
harmless a director or officer to the fullest extent permitted by law.
Pursuant to the sale of US Unwired's preferred stock, which will have been
converted to common stock at the completion of this offering, two individuals
became members of the Board of Directors of US Unwired. These individuals are
entitled to the foregoing indemnification. In connection with the issuance of
the preferred stock, US Unwired entered into a registration rights agreement
with the former holders of its preferred stock pursuant to which a seller of
registrable securities may be required to indemnify US Unwired and its officers
and directors under specified circumstances.
US Unwired maintains a directors' and officers' liability insurance
policy.
Item 15. Recent Sales of Unregistered Securities.
In the three years prior to the date of this registration statement, US
Unwired sold the following unregistered securities:
. On February 15, 2000, US Unwired issued $5.0 million of its senior
redeemable convertible preferred stock, series B, to the following
affiliates of Trust Company of the
II-3
<PAGE>
West: TCW Leveraged Income Trust, L.P., TCW Leveraged Income Trust II,
L.P., TCW Shared Opportunity Fund II, L.P., TCW Shared Opportunity
Fund, IIB, LLC, TCW Shared Opportunity Fund III, L.P., TCW/Crescent
Mezzanine Partners II, L.P., TCW/Crescent Mezzanine Trust II and Brown
University Third Century Fund. The stock was issued in a transaction
not involving a public offering in reliance on Section 4(2) of the
Securities Act.
. On October 29, 1999, US Unwired issued $400 million in aggregate
principal amount at maturity of its 13 3/8% series A senior
subordinated discount notes due 2009. US Unwired sold these notes at a
discount and received gross proceeds of approximately $209.2 million
from their sale. All of these notes were either issued in transactions
not involving a public offering in reliance on the exemption provided
by Rule 144A under the Securities Act of 1933 or offered and sold
outside the United States pursuant to Regulation S under the Securities
Act of 1933. Donaldson Lufkin & Jenrette Securities Corporation, First
Union Securities, Inc. and BNY Capital Markets, Inc. acted as placement
agents for this offering. US Unwired is currently offering to exchange
these notes for its 13 3/8% series B senior subordinated discount notes
due 2009 pursuant to a registration statement on Form S-4 which was
declared effective as of , 2000, Registration Nos. 333-
92271, 333-92271-01 and 333-92271-02.
. On October 29, 1999, US Unwired issued $50.0 million of its senior
redeemable convertible preferred stock, series A, to The 1818 Fund III,
L.P., a Delaware private equity partnership managed by Brown Brothers
Harriman & Co. The stock was issued in a transaction not involving a
public offering in reliance on Section 4(2) of the Securities Act.
. On September 23, 1999, US Unwired was formed as a holding company. US
Unwired exchanged all of the issued and outstanding capital stock of
its operating company, which is now Unwired Telecom, for an equal
number of shares of US Unwired. These shares were issued in a
transaction not involving a public offering in reliance on Section 4(2)
of the Securities Act.
. On July 16, 1999, US Unwired granted to some of its directors and
officers, pursuant to the US Unwired Inc. 1999 Equity Incentive Plan,
stock options to purchase an aggregate of 664,000 shares of class A
common stock of US Unwired. On January 1, 2000, US Unwired granted to
some of its directors and officers additional stock options to purchase
an aggregate of 425,400 shares of class A common stock pursuant to the
1999 Equity Incentive Plan. These stock options were granted in
transactions exempt from registration under the Securities Act in
reliance on Section 4(2) of the Securities Act as a transaction not
involving a public offering and on Rule 701 under the Securities Act.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a)Exhibits
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
------- ---------------------- ------------
<C> <S> <C>
3.1* Articles of Incorporation of US Unwired Inc. dated as
of September 23, 1999.
3.2* Articles of Amendment to Articles of Incorporation of
US Unwired Inc. dated as of October 25, 1999.
3.3* By-laws of US Unwired Inc. adopted September 30, 1999.
3.4** Articles of Organization of Louisiana Unwired, LLC
dated as of January 2, 1998.
3.5** Operating Agreement of Louisiana Unwired, LLC dated as
of February 23, 1998.
3.6** Articles of Incorporation of Unwired Telecom Corp., as
amended.
3.7** By-laws of Unwired Telecom Corp. dated as of January
16, 1997.
3.8** Articles of Amendment to Articles of Incorporation of
US Unwired Inc. dated as of February 15, 2000.
4.1* Indenture dated as of October 29, 1999 among US Unwired
Inc., the Guarantors (as defined therein) and State
Street Bank and Trust Company.
4.2* Pledge and Security Agreement dated as of October 29,
1999 by and between Louisiana Unwired, LLC and State
Street Bank and Trust Company.
4.3* Intercreditor Agreement dated as of October 29, 1999
between CoBank, ACB and State Street Bank and Trust
Company.
4.4* A/B Exchange Registration Rights Agreement dated as of
October 29, 1999 by and among US Unwired Inc.;
Louisiana Unwired, LLC; Unwired Telecom Corp.;
Donaldson, Lufkin & Jenrette Securities Corporation;
First Union Securities, Inc. and BNY Capital Markets,
Inc.
5.1+ Opinion of Correro Fishman Haygood Phelps Walmsley &
Casteix, L.L.P.
10.1* Purchase Agreement dated as of October 26, 1999 among
US Unwired Inc.; Louisiana Unwired, LLC; Unwired
Telecom Corp.; Donaldson, Lufkin & Jenrette Securities
Corporation; First Union Securities, Inc. and BNY
Capital Markets, Inc.
10.2* Shareholders Agreement dated as of September 24, 1999
among US Unwired Inc. and the shareholders of US
Unwired Inc. who are signatories thereto.
10.3* US Unwired Inc. 1999 Equity Incentive Plan.
10.4*** Sprint PCS Management Agreement dated February 8, 1999
among Wirelessco, L.P., Sprint Spectrum L.P.,
SprintCom, Inc. and Louisiana Unwired, LLC, including
Sprint Trademark and Service Mark License Agreement and
Sprint Spectrum Trademark and Service Mark License
Agreement.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
------- ---------------------- ------------
<C> <S> <C>
10.5*** Sprint PCS Management Agreement dated June 8, 1998
among Wirelessco, L.P., Sprint Spectrum L.P.,
SprintCom, Inc. and Louisiana Unwired, LLC, including
Sprint Trademark and Service Mark License Agreement and
Sprint Spectrum Trademark and Service Mark License
Agreement.
10.6* Securities Purchase Agreement dated as of October 29,
1999 between US Unwired Inc. and The 1818 Fund III,
L.P.
10.7* Registration Rights Agreement dated as of October 29,
1999 between US Unwired Inc. and The 1818 Fund, L.P.
10.8* Shareholders Agreement dated as of October 29, 1999 by
and among US Unwired Inc., The 1818 Fund III, L.P. and
the shareholders of US Unwired Inc. who are signatories
thereto.
10.9** Headquarters Building Lease between Calcasieu Marine
National Bank of Lake Charles and Mercury, Inc., as
amended.
10.10* Credit Agreement dated as of October 1, 1999 by and
among US Unwired Inc., as Borrower, and CoBank, ACB, as
Administrative Agent and a Lender, First Union Capital
Markets Corp., as Syndication Agent and a Co-Arranger,
The Bank of New York, as Documentation Agent and a
Lender, BNY Capital Markets, Inc., as a Co-Arranger,
First Union National Bank, as a Lender, and the other
Lenders referred to therein.
10.11** Management and Construction Agreement dated as of
January 1, 1999 by and between US Unwired Inc. and
Louisiana Unwired, LLC.
10.12** Authorized Dealer Agreement dated as of May 13, 1998 by
and between US Unwired Inc. and Louisiana Unwired, LLC.
10.13** Agreement dated as of May 13, 1998 by and between US
Unwired Inc. and Louisiana Unwired, LLC for Louisiana
Unwired, LLC to do business as US Unwired Inc.
10.14** Billing Agreement dated as of May 13, 1998 by and
between Unibill, Inc. and Louisiana Unwired, LLC.
10.15** Long Distance Agreement dated as of June 10, 1998 by
and between Cameron Communications Corporation and US
Unwired Inc.
10.16** Omnibus Agreement dated as of September 7, 1999 by and
among US Unwired Inc., EATELCORP, Inc., Fort Bend
Telephone Company, XIT Leasing, Inc., Wireless
Management Corporation, Meretel Communications Limited
Partnership and Meretel Wireless, Inc.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
-------- ---------------------- ------------
<C> <S> <C>
10.17** Securities Purchase Agreement dated as of February 15,
2000 by and among US Unwired Inc., TCW Leveraged
Income Trust, L.P., TCW Leveraged Income Trust II,
L.P., TCW Shared Opportunity Fund II, L.P., TCW Shared
Opportunity Fund IIB, LLC, TCW Shared Opportunity Fund
III, L.P., TCW/Crescent Mezzanine Partners II, L.P.,
TCW/Crescent Mezzanine Trust II and Brown University
Third Century Fund.
10.18** First Amendment to Shareholders Agreement dated as of
February 15, 2000 by and among US Unwired Inc., The
1818 Fund III, L.P., TCW Leveraged Income Trust, L.P.,
TCW Leveraged Income Trust II, L.P., TCW Shared
Opportunity Fund II, L.P., TCW Shared Opportunity Fund
IIB, LLC, TCW Shared Opportunity Fund III, L.P.,
TCW/Crescent Mezzanine Trust II, TCW/Crescent
Mezzanine Partners II, L.P. and Brown University Third
Century Fund.
10.19** First Amendment to Registration Rights Agreement dated
as of February 15, 2000 by and among US Unwired Inc.,
The 1818 Fund III, L.P., TCW Leveraged Income Trust,
L.P., TCW Leveraged Income Trust II, L.P., TCW Shared
Opportunity Fund II, L.P., TCW Shared Opportunity Fund
IIB, LLC, TCW Shared Opportunity Fund III, L.P.,
TCW/Crescent Mezanine Trust II, TCW/Crescent Mezzanine
Partners II, L.P. and Brown University Third Century
Fund.
10.20*** Sprint PCS Management Agreement dated as of January 7,
2000 among Wirelessco, L.P. Sprint Spectrum L.P.,
SprintCom, Inc. and Texas Unwired, including Sprint
Trademark and Service Mark License Agreement and
Sprint Spectrum Trademark and Service Mark License
Agreement.
10.21*** Consent and Agreement dated as of June 23, 1999
between Sprint Spectrum L.P., SprintCom, Inc., Sprint
Communications Company, L.P., Wirelessco, L.P. and
CoBank, ACB.
10.22*** Consent and Agreement dated as of October 26, 1999
between Sprint Spectrum L.P., SprintCom, Inc., Sprint
Communications Company, L.P., Wirelessco, L.P. and
CoBank, ACB.
10.23*** First Amendment to Omnibus Agreement dated as of
February 9, 2000 by and among Unwired Telecom Corp.,
EATELCORP, Inc., Fort Bend Telephone Company, XIT
Leasing, Inc., Wireless Management Corporation,
Meretel Communications Limited Partnership and Meretel
Wireless, Inc.
10.24*** Telecom Distribution Agreement dated as of January 1,
2000 between Unwired Telecom Corp. and US Unwired Inc.
10.25*** Telecom Contribution Agreement dated as of January 1,
2000 between US Unwired Inc. and Louisiana Unwired,
LLC.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
--------- ---------------------- ------------
<C> <S> <C>
10.26*** Loan Agreement dated as of January 1, 2000 by and
between Texas Unwired and Louisiana Unwired, LLC.
10.27**** Letter Agreement dated November 19, 1999 between US
Unwired Inc. and Meretel Communications, L.P.
10.28 Form of Underwriting Agreement among US Unwired Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston and First Union
Securities, Inc.
21.1* Subsidiaries of US Unwired Inc.
23.1 Consent of Ernst & Young LLP.
23.3+ Consent of Correro, Fishman, Haygood, Phelps,
Walmsley & Casteix, LLP (included in Exhibit 5.1).
</TABLE>
- ---------------------
* Incorporated by reference to the registration statement on Form S-4,
Registration Nos. 333-92271, 333-92271-01 and 333-92271-02, filed by US
Unwired, Inc., Louisiana Unwired, LLC and Unwired Telecom Corp. on
December 7, 1999.
** Incorporated by reference to Amendment No. 2 to the registration statement
on Form S-4, Registration Nos. 333-92271, 333-92271-01 and 333-92271-02,
filed by US Unwired Inc., Louisiana Unwired, LLC and Unwired Telecom Corp.
on February 23, 2000.
*** Incorporated by reference to Amendment No. 3 to the registration statement
on Form S-4, Registration Nos. 333-92271, 333-92271-01 and 333-92271-02,
filed by US Unwired Inc., Louisiana Unwired, LLC and Unwired Telecom Corp.
on March 1, 2000.
**** Incorporated by reference to Amendment No. 4 to the registration statement
on Form S-4, Registration Nos. 333-92271, 333-92271-01 and 333-92271-02,
filed by US Unwired Inc., Louisiana Unwired, LLC and Unwired Telecom Corp.
on March 14, 2000.
+ To be filed by amendment.
(b)Financial Statement Schedules
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
II-8
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange
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 Securities Act
of 1933, 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 Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
undersigned registrant duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of Lake
Charles, State of Louisiana, on April 4, 2000.
US UNWIRED INC.
/s/ Robert W. Piper
By:
----------------------------------
Robert W. Piper
President and Chief Operating
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on April 4, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William L. Henning, Jr. Chairman of the Board of Directors,
______________________________________ Chief Executive Officer and Director
William L. Henning, Jr. (Principal Executive Officer)
/s/ Jerry E. Vaughn Chief Financial Officer (Principal
______________________________________ Financial Officer)
Jerry E. Vaughn
/s/ Don Loverich Controller (Principal Accounting
______________________________________ Officer)
Don Loverich
/s/ Robert W. Piper President, Chief Operating Officer and
______________________________________ Director
Robert W. Piper
/s/ William L. Henning, Sr. Director
______________________________________
William L. Henning, Sr.
/s/ Thomas G. Henning Director
______________________________________
Thomas G. Henning
Director
______________________________________
Lawrence C. Tucker
Director
______________________________________
Andrew C. Cowen
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
------- ---------------------- ------------
<C> <S> <C>
3.1* Articles of Incorporation of US Unwired Inc. dated as
of September 23, 1999.
3.2* Articles of Amendment to Articles of Incorporation of
US Unwired Inc. dated as of October 25, 1999.
3.3* By-laws of US Unwired Inc. adopted September 30, 1999.
3.4** Articles of Organization of Louisiana Unwired, LLC
dated as of January 2, 1998.
3.5** Operating Agreement of Louisiana Unwired, LLC dated as
of February 23, 1998.
3.6** Articles of Incorporation of Unwired Telecom Corp., as
amended.
3.7** By-laws of Unwired Telecom Corp. dated as of January
16, 1997.
3.8** Articles of Amendment to Articles of Incorporation of
US Unwired Inc. dated as of February 15, 2000.
4.1* Indenture dated as of October 29, 1999 among US Unwired
Inc., the Guarantors (as defined therein) and State
Street Bank and Trust Company.
4.2* Pledge and Security Agreement dated as of October 29,
1999 by and between Louisiana Unwired, LLC and State
Street Bank and Trust Company.
4.3* Intercreditor Agreement dated as of October 29, 1999
between CoBank, ACB and State Street Bank and Trust
Company.
4.4* A/B Exchange Registration Rights Agreement dated as of
October 29, 1999 by and among US Unwired Inc.;
Louisiana Unwired, LLC; Unwired Telecom Corp.;
Donaldson, Lufkin & Jenrette Securities Corporation;
First Union Securities, Inc. and BNY Capital Markets,
Inc.
5.1+ Opinion of Correro Fishman Haygood Phelps Walmsley &
Casteix, L.L.P.
10.1* Purchase Agreement dated as of October 26, 1999 among
US Unwired Inc.; Louisiana Unwired, LLC; Unwired
Telecom Corp.; Donaldson, Lufkin & Jenrette Securities
Corporation; First Union Securities, Inc. and BNY
Capital Markets, Inc.
10.2* Shareholders Agreement dated as of September 24, 1999
among US Unwired Inc. and the shareholders of US
Unwired Inc. who are signatories thereto.
10.3* US Unwired Inc. 1999 Equity Incentive Plan.
10.4*** Sprint PCS Management Agreement dated February 8, 1999
among Wirelessco, L.P., Sprint Spectrum L.P.,
SprintCom, Inc. and Louisiana Unwired, LLC, including
Sprint Trademark and Service Mark License Agreement and
Sprint Spectrum Trademark and Service Mark License
Agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
------- ---------------------- ------------
<C> <S> <C>
10.5*** Sprint PCS Management Agreement dated June 8, 1998
among Wirelessco, L.P., Sprint Spectrum L.P.,
SprintCom, Inc. and Louisiana Unwired, LLC, including
Sprint Trademark and Service Mark License Agreement and
Sprint Spectrum Trademark and Service Mark License
Agreement.
10.6* Securities Purchase Agreement dated as of October 29,
1999 between US Unwired Inc. and The 1818 Fund III,
L.P.
10.7* Registration Rights Agreement dated as of October 29,
1999 between US Unwired Inc. and The 1818 Fund, L.P.
10.8* Shareholders Agreement dated as of October 29, 1999 by
and among US Unwired Inc., The 1818 Fund III, L.P. and
the shareholders of US Unwired Inc. who are signatories
thereto.
10.9** Headquarters Building Lease between Calcasieu Marine
National Bank of Lake Charles and Mercury, Inc., as
amended.
10.10* Credit Agreement dated as of October 1, 1999 by and
among US Unwired Inc., as Borrower, and CoBank, ACB, as
Administrative Agent and a Lender, First Union Capital
Markets Corp., as Syndication Agent and a Co-Arranger,
The Bank of New York, as Documentation Agent and a
Lender, BNY Capital Markets, Inc., as a Co-Arranger,
First Union National Bank, as a Lender, and the other
Lenders referred to therein.
10.11** Management and Construction Agreement dated as of
January 1, 1999 by and between US Unwired Inc. and
Louisiana Unwired, LLC.
10.12** Authorized Dealer Agreement dated as of May 13, 1998 by
and between US Unwired Inc. and Louisiana Unwired, LLC.
10.13** Agreement dated as of May 13, 1998 by and between US
Unwired Inc. and Louisiana Unwired, LLC for Louisiana
Unwired, LLC to do business as US Unwired Inc.
10.14** Billing Agreement dated as of May 13, 1998 by and
between Unibill, Inc. and Louisiana Unwired, LLC.
10.15** Long Distance Agreement dated as of June 10, 1998 by
and between Cameron Communications Corporation and US
Unwired Inc.
10.16** Omnibus Agreement dated as of September 7, 1999 by and
among US Unwired Inc., EATELCORP, Inc., Fort Bend
Telephone Company, XIT Leasing, Inc., Wireless
Management Corporation, Meretel Communications Limited
Partnership and Meretel Wireless, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
-------- ---------------------- ------------
<C> <S> <C>
10.17** Securities Purchase Agreement dated as of February 15,
2000 by and among US Unwired Inc., TCW Leveraged
Income Trust, L.P., TCW Leveraged Income Trust II,
L.P., TCW Shared Opportunity Fund II, L.P., TCW Shared
Opportunity Fund IIB, LLC, TCW Shared Opportunity Fund
III, L.P., TCW/Crescent Mezzanine Partners II, L.P.,
TCW/Crescent Mezzanine Trust II and Brown University
Third Century Fund.
10.18** First Amendment to Shareholders Agreement dated as of
February 15, 2000 by and among US Unwired Inc., The
1818 Fund III, L.P., TCW Leveraged Income Trust, L.P.,
TCW Leveraged Income Trust II, L.P., TCW Shared
Opportunity Fund II, L.P., TCW Shared Opportunity Fund
IIB, LLC, TCW Shared Opportunity Fund III, L.P.,
TCW/Crescent Mezzanine Trust II, TCW/Crescent
Mezzanine Partners II, L.P. and Brown University Third
Century Fund.
10.19** First Amendment to Registration Rights Agreement dated
as of February 15, 2000 by and among US Unwired Inc.,
The 1818 Fund III, L.P., TCW Leveraged Income Trust,
L.P., TCW Leveraged Income Trust II, L.P., TCW Shared
Opportunity Fund II, L.P., TCW Shared Opportunity Fund
IIB, LLC, TCW Shared Opportunity Fund III, L.P.,
TCW/Crescent Mezanine Trust II, TCW/Crescent Mezzanine
Partners II, L.P. and Brown University Third Century
Fund.
10.20*** Sprint PCS Management Agreement dated as of January 7,
2000 among Wirelessco, L.P. Sprint Spectrum L.P.,
SprintCom, Inc. and Texas Unwired, including Sprint
Trademark and Service Mark License Agreement and
Sprint Spectrum Trademark and Service Mark License
Agreement.
10.21*** Consent and Agreement dated as of June 23, 1999
between Sprint Spectrum L.P., SprintCom, Inc., Sprint
Communications Company, L.P., Wirelessco, L.P. and
CoBank, ACB.
10.22*** Consent and Agreement dated as of October 26, 1999
between Sprint Spectrum L.P., SprintCom, Inc., Sprint
Communications Company, L.P., Wirelessco, L.P. and
CoBank, ACB.
10.23*** First Amendment to Omnibus Agreement dated as of
February 9, 2000 by and among Unwired Telecom Corp.,
EATELCORP, Inc., Fort Bend Telephone Company, XIT
Leasing, Inc., Wireless Management Corporation,
Meretel Communications Limited Partnership and Meretel
Wireless, Inc.
10.24*** Telecom Distribution Agreement dated as of January 1,
2000 between Unwired Telecom Corp. and US Unwired Inc.
10.25*** Telecom Contribution Agreement dated as of January 1,
2000 between US Unwired Inc. and Louisiana Unwired,
LLC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
--------- ---------------------- ------------
<C> <S> <C>
10.26*** Loan Agreement dated as of January 1, 2000 by and
between Texas Unwired and Louisiana Unwired, LLC.
10.27**** Letter Agreement dated November 19, 1999 between US
Unwired Inc. and Meretel Communications, L.P.
10.28 Form of Underwriting Agreement among US Unwired Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston and First Union
Securities, Inc.
21.1* Subsidiaries of US Unwired Inc.
23.1 Consent of Ernst & Young LLP.
23.3+ Consent of Correro, Fishman, Haygood, Phelps,
Walmsley & Casteix, LLP (included in Exhibit 5.1).
</TABLE>
- ---------------------
* Incorporated by reference to the registration statement on Form S-4,
Registration Nos. 333-92271, 333-92271-01 and 333-92271-02, filed by US
Unwired, Inc., Louisiana Unwired, LLC and Unwired Telecom Corp. on
December 7, 1999.
** Incorporated by reference to Amendment No. 2 to the registration statement
on Form S-4, Registration Nos. 333-92271, 333-92271-01 and 333-92271-02,
filed by US Unwired Inc., Louisiana Unwired, LLC and Unwired Telecom Corp.
on February 23, 2000.
*** Incorporated by reference to Amendment No. 3 to the registration statement
on Form S-4, Registration Nos. 333-92271, 333-92271-01 and 333-92271-02,
filed by US Unwired Inc., Louisiana Unwired, LLC and Unwired Telecom Corp.
on March 1, 2000.
**** Incorporated by reference to Amendment No. 4 to the registration statement
on Form S-4, Registration Nos. 333-92271, 333-92271-01 and 333-92271-02,
filed by US Unwired Inc., Louisiana Unwired, LLC and Unwired Telecom Corp.
on March 14, 2000.
+ To be filed by amendment.
<PAGE>
EXHIBIT 10.28
__________ Shares
US UNWIRED, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 2000
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
FIRST UNION SECURITIES, INC.
As representatives of the
several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
US Unwired, Inc., a Louisiana corporation (the "COMPANY"), proposes to
issue and sell ____________ shares of its Class A Common Stock, $.01 par value
(the "FIRM SHARES") to the several underwriters named in Schedule I hereto (the
"UNDERWRITERS"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional _______ shares of its Class A Common
Stock, $.01 par value (the "ADDITIONAL SHARES") if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the
Additional Shares are hereinafter referred to collectively as the "SHARES". The
shares of common stock of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "COMMON STOCK".
Section 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became
1
<PAGE>
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Act, is hereinafter referred to as the "REGISTRATION STATEMENT"; and the
prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "PROSPECTUS". If the Company has filed or is required
pursuant to the terms hereof to file a registration statement pursuant to Rule
462(b) under the Act registering additional shares of Common Stock (a "RULE
462(B) REGISTRATION STATEMENT"), then, unless otherwise specified, any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462(b) Registration Statement.
Section 2. Agreements to Sell and Purchase and Lock-Up Agreements . On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
at a price per Share of $______ (the "PURCHASE PRICE") the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. The Underwriters may exercise their right to purchase
Additional Shares in whole or in part from time to time by giving written notice
thereof to the Company within 30 days after the date of this Agreement. You
shall give any such notice on behalf of the Underwriters and such notice shall
specify the aggregate number of Additional Shares to be purchased pursuant to
such exercise and the date for payment and delivery thereof, which date shall be
a business day (i) no earlier than two business days after such notice has been
given (and, in any event, no earlier than the Closing Date (as hereinafter
defined)) and (ii) no later than ten business days after such notice has been
given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased from the Company as the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I bears to the total
number of Firm Shares.
The Company hereby agrees not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan and (ii) the Company may
issue shares of Common Stock upon the exercise of an option or warrant or the
2
<PAGE>
conversion of a security outstanding on the date hereof. The Company also
agrees not to file any registration statement with respect to any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock for a period of 180 days after the date of the Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. The Company shall, prior to or concurrently with the execution of
this Agreement, deliver an agreement executed by (i) each of the directors and
officers of the Company and (ii) each stockholder listed on Annex I hereto to
the effect that such person will not, during the period commencing on the date
such person signs such agreement and ending 180 days after the date of the
Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
The Company and the Underwriters agree that up to _________ of the Firm
Shares to be purchased by the Underwriters (the "RESERVED SHARES") shall be
reserved for sale by the Underwriters to certain eligible directors, officers,
employees, customers, subscribers and persons having business relationships with
the Company, as part of the distribution of the Shares by the Underwriters,
subject to the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. and all
other applicable laws, rules and regulations. To the extent that such Reserved
Shares are not orally confirmed for purchase by such eligible employees and
persons having business relationships with the Company by the end of the first
business day after the date of this Agreement, such Reserved Shares may be
offered to the public as part of the public offering contemplated hereby.
Section 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
Section 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Company shall deliver the Shares, with any transfer taxes thereon duly paid by
the respective Sellers, to Donaldson, Lufkin & Jenrette Securities Corporation
through the facilities of The Depository Trust Company ("DTC"), for the
respective accounts of the several Underwriters, against payment to the Company
of the Purchase Price therefore by wire transfer of Federal or other funds
immediately available in New York City. The certificates representing the
Shares shall be made available for inspection not later than 9:30 A.M., New York
City time, on the business day prior to the Closing Date or the applicable
Option Closing Date (as defined below), as the case may be, at the office of DTC
or its designated custodian (the "DESIGNATED OFFICE"). The time and date of
delivery and payment for the Firm Shares shall be 9:00 A.M., New York City time,
on ________, 2000 or such other time on the same or such other date as
Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree
in writing. The time and date of delivery for the Firm Shares are hereinafter
referred to as the "CLOSING DATE". The time and date of delivery
3
<PAGE>
and payment for any Additional Shares to be purchased by the Underwriters shall
be 9:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by you pursuant to Section 2 or such other time on the
same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation
and the Company shall agree in writing. The time and date of delivery for the
Option Shares are hereinafter referred to as an "OPTION CLOSING DATE".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 8 of this Agreement
shall be delivered at the offices of Latham & Watkins, 885 Third Avenue, Suite
1000, New York, New York 10022 and the Shares shall be delivered at the
Designated Office, all on the Closing Date or such Option Closing Date, as the
case may be.
Section 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such advice
in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the Company
will use its best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
(b) To furnish to you four signed copies of the Registration Statement as
first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised provided that such objections and
the rationale therefor shall have been delivered to the Company in writing and
counsel for the Company shall not have notified it in writing that such
amendment or supplement is nevertheless required by law despite such objections;
and, during such period, to prepare and file with the Commission, promptly upon
your reasonable request, any amendment to the Registration Statement or
amendment or supplement to the Prospectus which may be necessary or advisable in
connection
4
<PAGE>
with the distribution of the Shares by you, and to use its best efforts to cause
any such amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall occur
or condition shall exist as a result of which, in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may reasonably request, to continue such registration or qualification in
effect so long as required for distribution of the Shares and to file such
consents to service of process or other documents as may be necessary in order
to effect such registration or qualification; provided, however, that the
Company shall not be required in connection therewith to qualify as a foreign
corporation in any jurisdiction in which it is not now so qualified or to take
any action that would subject it to general consent to service of process or
taxation other than as to matters and transactions relating to the Prospectus,
the Registration Statement, any preliminary prospectus or the offering or sale
of the Shares, in any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending June
, 2001 that shall satisfy the provisions of Section 11(a) of the Act, and to
advise you in writing when such statement has been so made available.
(h) During the period of three years after the date of this Agreement, to
furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance
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of its obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel and the Company's accountants in
connection with the registration and delivery of the Shares under the Act and
all other fees and expenses (other than overhead expenses and legal fees of
counsel to the Underwriters) in connection with the preparation, printing,
filing and distribution of the Registration Statement (including financial
statements and exhibits), any preliminary prospectus, the Prospectus and all
amendments and supplements to any of the foregoing, including the mailing and
delivering of copies thereof to the Underwriters and dealers in the quantities
specified herein, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or other
taxes payable thereon, (iii) all costs of printing or producing this Agreement
and any other agreements or documents in connection with the offering, purchase,
sale or delivery of the Shares, (iv) all expenses in connection with the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states and all costs of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel for
the Underwriters in connection with such registration or qualification and
customary memoranda relating thereto), (v) the filing fees and disbursements of
counsel for the Underwriters in connection with the review and clearance of the
offering of the Shares by the National Association of Securities Dealers, Inc.,
(vi) all fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to the listing of the Shares on the Nasdaq National
Market, (vii) the cost of printing certificates representing the Shares, (viii)
the costs and charges of any transfer agent, registrar and/or depositary, and
(ix) all other costs and expenses incident to the performance of the obligations
of the Company hereunder for which provision is not otherwise made in this
Section.
(j) To use its best efforts to list for quotation the Shares on the Nasdaq
National Market and to maintain the listing of the Shares on the Nasdaq National
Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of this
Agreement does not cover all of the Shares, to file a Rule 462(b) Registration
Statement with the Commission registering the Shares not so covered in
compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any
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Rule 462(b) Registration Statement filed after the effectiveness of this
Agreement will become effective no later than 10:00 P.M., New York City time, on
the date of this Agreement; and no stop order suspending the effectiveness of
the Registration Statement is in effect, and no proceedings for such purpose are
pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration statement
as originally filed or as part of any amendment thereto, or filed pursuant to
Rule 424 under the Act, complied when so filed in all material respects with the
Act, and did not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in any preliminary
prospectus based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use therein.
(d) Each of the Company and its subsidiaries has been duly incorporated or
formed, as the case may be, is validly existing as a corporation, limited
liability company or partnership, as the case may be, in good standing under the
laws of its jurisdiction of incorporation or formation, as the case may be, and
has the corporate or other power and authority to carry on its business as
described in the Prospectus and to own, lease and operate its properties, and
each is duly qualified and is in good standing as a foreign corporation, limited
liability company or partnership, as the case may be, authorized to do business
in each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure to be
so qualified would not have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole (a "Material Adverse Effect").
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(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; and the Shares have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) The entities listed on Schedule II hereto are the only subsidiaries,
direct or indirect, of the Company. For purposes of this Agreement, a
subsidiary of the Company means any corporation, association or other business
entity of which the Company owns or controls, directly or indirectly, more than
50% of the voting power with respect to the election of directors, managers or
trustees thereof, and any partnership of which the Company or a subsidiary of
the Company is the sole general partner or the managing general partner or of
which the only general partners are the Company and one or more of its
subsidiaries. All of the outstanding shares of capital stock of, or other
ownership interests in each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and except
as set for in the Prospectus, are owned by the Company, directly or indirectly
through one or more subsidiaries, free and clear of any security interest,
claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of its
respective charter, by-laws, operating agreement or partnership agreement or in
default in the performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other agreement
or instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter, by-laws, operating agreement or partnership agreement of the
Company or any of its subsidiaries or any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or their
respective property is bound, (iii) violate
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or conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or threatened to
which the Company or any of its subsidiaries is or is threatened to be a party
or to which any of their respective property is or could be subject that are
required to be described in the Registration Statement or the Prospectus and are
not so described; nor are there any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each,
subject to the exception set forth in this sentence, an "Authorization") of, and
has made all filings with and notices to, all governmental or regulatory
authorities and self-regulatory organizations and all courts and other
tribunals, including, without limitation, under any applicable Environmental
Laws, as are necessary to own, lease, license and operate its respective
properties and to conduct its business, except where the failure to have any
such Authorization or to make any such filing or notice would not, singly or in
the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
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(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(o) This Agreement has been duly authorized, executed and delivered by the
Company.
(p) Ernst & Young LLP are independent public accountants with respect to
the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(r) The Company is not and, after giving effect to the offering and sale of
the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(s) Except for (i) registration rights granted in favor of certain holders
of Class B common stock of the Company pursuant to the shareholder agreement
dated September 24, 1999 (the "Shareholder Agreement") and (ii) registration
rights granted in favor of The 1818 Fund III, L.P. and its affiliates in
connection with the issuance of 500,000 shares of the Company's Senior
Redeemable Preferred Stock to The 1818 Fund III, L.P. on October 29, 1999 for
$50 million (the "Preferred Stock Offering"), there are no contracts, agreements
or understandings between the Company and any person granting such person the
right to require the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company to include
such securities with the Shares registered pursuant to the Registration
Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
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subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and delivered to
the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(v) The Company and its subsidiaries have good and marketable title to all
real property and good and marketable title to all personal property owned by
them which is material to the business of the Company and its subsidiaries, in
each case free and clear of all liens and defects, except such as are described
in the Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, in each case except as described
in the Prospectus.
(w) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("intellectual property") currently employed by
them in connection with the business now operated by them except where the
failure to own or possess or otherwise be able to acquire such intellectual
property would not, singly or in the aggregate, have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of such intellectual property which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(x) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any of its subsidiaries (i) has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order to
continue such insurance or (ii) has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers at a cost that would not
have a Material Adverse Effect.
(y) Except as disclosed in the Prospectus, no relationship, direct or
indirect, exists between or among the Company or any of its subsidiaries on the
one hand, and the directors, officers, stockholders, other affiliates, customers
or suppliers of the Company or any of its subsidiaries on the other hand, which
would be required by the Act to be described in the Prospectus if the Prospectus
were a prospectus included in a registration statement on Form S-1 filed with
the Commission.
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(z) There is no (i) significant unfair labor practice complaint, grievance
or arbitration proceeding pending or, to the best knowledge of the Company,
threatened against the Company or any of its subsidiaries before the National
Labor Relations Board or any state or local labor relations board, (ii) strike,
labor dispute, slowdown or stoppage pending or, to the best knowledge of the
Company, threatened against the Company or any of its subsidiaries or (iii)
union representation question existing with respect to the employees of the
Company or any of its subsidiaries, except in the case of clauses (i), (ii) and
(iii) for such actions which, singly or in the aggregate, would not have a
Material Adverse Effect. To the best knowledge of the Company, no collective
bargaining organizing activities are taking place with respect to the Company or
any of its subsidiaries.
(aa) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(bb) All material tax returns required to be filed by the Company and each
of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(cc) The Company and each of its subsidiaries validly holds the Federal
Communication Commission ("FCC") licenses set forth opposite each entity's name
on Schedule 6(cc) attached hereto (the "PCS Licenses"). The PCS Licenses are in
full force and effect and are not subject to any conditions other than those
conditions listed thereon and those conditions generally applicable to entities
holding similar licenses issued by the FCC. The PCS Licenses constitute all of
the licenses, permits, consents or authorizations required by the FCC to permit
operation of a PCS system in each of the markets indicated opposite each license
on Schedule 6(cc). The PCS Licenses expire on April 28, 2007. The five-year
buildout periods for the PCS Licenses expire on April 28, 2002 and the ten-year
buildout periods expire on April 28, 2007. All applicable administrative and
judicial appeal, review and reconsideration periods of the orders granting the
PCS Licenses have expired, without the timely filing of any such appeal or
request for review or reconsideration and without the FCC having instituted
review of the grant of the PCS Licenses on its own motion.
(dd) The Company validly holds the FCC licenses listed on Schedule 6(dd)
attached hereto (the "Cellular Licenses"). The Cellular Licenses are in full
force and effect and are not subject to any conditions other than those
conditions listed thereon and those conditions generally applicable to entities
holding similar licenses issued by the FCC. The Cellular Licenses constitute
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all of the licenses, permits, consents or authorizations required by the FCC to
permit operation of the Company's cellular telephone system, as identified in
the Prospectus. The Cellular Licenses expire on the dates set forth opposite
each license listed on Schedule 6(dd). All applicable administrative and
judicial appeal, review and reconsideration periods of the orders granting the
Cellular Licenses have expired, without the timely filing of any such appeal or
request for review or reconsideration and without the FCC having instituted
review of the grant of the Cellular Licenses on its own motion.
(ee) There are no judgments, decrees or orders issued by the FCC that could
result in suspension, revocation, material impairment, termination prior to its
expiration date, non-renewal or adverse modification of the PCS Licenses or the
Cellular Licenses, or that could have a Material Adverse Effect upon, or cause
material disruption to, the PCS operations pursuant to the PCS Licenses or the
cellular operations pursuant to the Cellular Licenses. To the best of the
Company's knowledge, there is no complaint, investigation, action or proceeding
pending or threatened relative to the PCS Licenses relating to the PCS
operations or the Cellular Licenses relating to the cellular operations,
including, without limitation, any Notice of Violation, Notice of Apparent
Liability or Order to Show Cause, other than proceedings that affect the PCS or
the cellular telephone industry generally, that could result in a suspension,
revocation, material impairment, termination prior to its expiration date, non-
renewal or adverse modification of the PCS Licenses or the Cellular Licenses or
which could have a Material Adverse Effect upon, or cause material disruption
to, the Company's PCS or cellular operations.
(ff) The Company and each of its subsidiaries has, or has timely filed
applications for, all permits, license, franchises and other authorizations
("permits") of governmental or regulatory authorities (including, as
appropriate, the state public utilities commissions of Alabama, Arkansas,
Florida, Louisiana, Mississippi and Texas) necessary to engage in the wireless
and competitive local exchange businesses currently conducted by the Company,
except where the failure to hold such permits would not have a Material Adverse
Effect on the Company and its subsidiaries, taken as a whole; and there is no
reason to believe that any governmental body or agency is considering limiting,
suspending or revoking any such permit, except where the limitation, suspension
or revocation of such permits would not have a Material Adverse Effect on the
Company and its subsidiaries, taken as a whole. All such permits are valid and
in full force and effect, except where the limitation, suspension or revocation
of such permits would not have a Material Adverse Effect on the Company and its
subsidiaries, taken as a whole.
(gg) All fees required by the FCC in connection with the PCS Licenses,
including any and all down payments or installment payments required by FCC
rules to be paid as of the date hereof have been timely and fully paid.
(hh) The Company and each of its subsidiaries validly holds all FCC
licenses necessary for the operation of its paging system, as described in the
Prospectus (the "Paging Licenses"). Except as set forth in Schedule 6(hh), the
Paging Licenses are in full force and effect and are not subject to any
conditions other than those conditions listed thereon and those conditions
generally applicable to entities holding similar licenses issued by the FCC.
The Paging Licenses constitute
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all of the licenses, permits, consents or authorizations required by the FCC to
permit operation of the paging system, as described in the Prospectus.
(ii) There does not exist any FCC complaint, investigation, action or
proceeding pending or threatened relative to the Paging Licenses, including,
without limitation, any Notice of Violation, Notice of Apparent Liability or
Order to Show Cause, other than proceedings that affect the paging industry
generally, that could result in a denial of any of the Paging Licenses, or
suspension, revocation, material impairment, termination prior to its expiration
date, non-renewal or adverse modification of any of the Paging Licenses or which
could have a Material Adverse Effect upon, or cause material disruption to, the
Company's paging operations.
(jj) LA Unwired was qualified to participate in the FCC's PCS license
auctions as a "Small Business," as defined by FCC Rules, and is qualified to
hold the licenses for LA Unwired's PCS operations according to the rules of the
FCC. The Company's investment in LA Unwired does not violate the rules of the
FCC.
(kk) To the Company's best knowledge, Sprint Spectrum L.P. and SprintCom,
Inc. validly hold the FCC licenses set forth on Schedule 6(kk) (the "Sprint PCS
Licenses"). To the Company's best knowledge, the Sprint PCS Licenses are in
full force and effect and are not subject to any conditions other than those
conditions listed thereon and those conditions generally applicable to entities
holding similar licenses issued by the FCC. The Sprint PCS Licenses, together
with the PCS Licenses, constitute all of the licenses, permits, consents or
authorizations required by the FCC to permit operation of the PCS operations of
the Company and its subsidiaries, including the Company's planned PCS network
buildout, as described in the Prospectus. All applicable administrative and
judicial appeal, review and reconsideration periods of the orders granting the
Sprint PCS Licenses have expired, without the timely filing of any such appeal
or request for review or reconsideration and without the FCC having instituted
review of the grant of the Sprint PCS Licenses on its own motion.
(ll) Since the date of the Prospectus, there have been no material changes
to the Company's PCS network buildout plan, as described in the Prospectus. The
proceeds from the sale of the Series A Notes, together with the other existing
financing sources described in the Prospectus, are sufficient to fund the entire
PCS network buildout plan as set forth in the Prospectus.
Section 7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter, its
directors, its officers and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")(13), from and against any
and all losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action, that could give
rise to any such losses, claims, damages, liabilities or judgments) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus, or caused by
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any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Underwriter furnished in writing
to the Company by such Underwriter through you expressly for use therein;
provided, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter who
failed to deliver a Prospectus (as then amended or supplemented, provided by the
Company to the several Underwriters in the requested quantity and on a timely
basis to permit proper delivery on or prior to the Closing Date) to the person
asserting any losses, claims, damages and liabilities and judgments caused by
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if such material misstatement or omission
or alleged material misstatement or omission was cured in such Prospectus and
such Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person. In addition to the foregoing, in connection
with the offer and sale of the Reserved Shares, the Company agrees, promptly
upon a request in writing, to indemnify and hold harmless the Underwriters from
and against any and all losses, liabilities, claims, damages and expenses
incurred by them as a result of (i) the failure of purchasers of the Reserved
Shares (including eligible directors, officers, employees, customers,
subscribers and persons having business relationships with the Company) to pay
for and accept delivery of the Reserved Shares which, by the end of the first
business day following the date of this Agreement, were subject to a properly
confirmed application to purchase or (ii) any violation or alleged violation of
the Act or any other federal or state law or any liability based on common law,
in each case, arising out of or relating to the manner in which the Reserved
Shares are sold and pertaining to any actions or inactions by the Company (or by
the Company jointly with any other person), including without limitation any e-
mails or other communications by the Company (or by the Company jointly with any
other person) with customers or subscribers of the Company relating to the
Reserved Shares or possible opportunities to purchase Reserved Shares.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent
as the foregoing indemnity from the Company to such Underwriter but only with
reference to information relating to such Underwriter furnished in writing to
the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any
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action in respect of which indemnity may be sought pursuant to both Sections
7(a) and 7(b), the Underwriter shall not be required to assume the defense of
such action pursuant to this Section 7(c), but may employ separate counsel and
participate in the defense thereof, but the fees and expenses of such counsel,
except as provided below, shall be at the expense of such Underwriter). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by Donaldson, Lufkin
& Jenrette Securities Corporation, in the case of parties indemnified pursuant
to Section 7(a), and by the Company, in the case of parties indemnified pursuant
to Section 7(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, and such
unavailability or insufficiency is otherwise than in accordance with the express
terms of Section 7(a) or 7(b), then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and judgments (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by
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clause 7(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Company on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
shall be deemed to be in the same proportion as the total net proceeds from the
offering (after deducting underwriting discounts and commissions, but before
deducting expenses) received by the Company, and the total underwriting
discounts and commissions received by the Underwriters, bear to the total price
to the public of the Shares, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company on the one hand and
the Underwriters on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 7 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
Section 8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in this
Agreement shall be true and correct on the Closing Date with the same force and
effect as if made on and as of the Closing Date.
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(b) If the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement shall have become effective by 10:00 P.M., New York City time, on the
date of this Agreement; and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending before or contemplated by
the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Robert W. Piper and Jerry E. Vaughn, in their capacities
as the President and Chief Finance Officer of the Company, confirming the
matters set forth in Sections 6(t), 8(a) and 8(b) and that the Company has
complied with all of the agreements and satisfied all of the conditions herein
contained and required to be complied with or satisfied by the Company on or
prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 8(d)(i),
8(d)(ii) or 8(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of Correro
Fishman Haygood Phelps Walmsley & Casterix, L.L.P., counsel for the Company, to
the effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated or formed, as the case may be, is validly existing as a
corporation, partnership or limited liability company, as the case may be,
in good standing under the laws of Louisiana and has the corporate or other
power and authority to carry on its business as described in the Prospectus
and to own, lease and operate its properties, as described therein;
(ii) each of the Company and its subsidiaries is duly qualified and is
in good standing as a foreign corporation, partnership or limited liability
company, as the case may be, authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights;
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(iv) the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights;
(v) all of the outstanding shares of capital stock of or other
ownership interest in each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and
except as described in the Prospectus are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and delivered
by the Company;
(vii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the Act,
no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the best of such counsel's knowledge
after due inquiry, pending before or contemplated by the Commission;
(ix) the statements under the captions "Certain Relationships and
Related Transactions", "Sprint PCS Agreements", "Management-1999 Equity
Incentive Plan", "Certain Indebtedness", "Description of Capital Stock" and
"Underwriting" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of
the legal matters, contracts or legal proceedings referred to therein (but
not factual matters), fairly present the information called for with
respect to such legal contracts, documents and legal proceedings;
(x) to such counsel's knowledge, (i) neither the Company nor any of
its subsidiaries is in violation of its respective articles of
incorporation, by-laws, operating agreement or partnership agreement, (ii)
and neither the Company nor any of its subsidiaries is in default in the
performance of any obligation, agreement, covenant or condition contained
in any indenture, loan agreement, mortgage, lease or other agreement or
instrument known to us that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound;
(xi) the execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will not (A)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (B) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the articles of incorporation, by-laws,
operating agreement or partnership agreement of the
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Company or any of its subsidiaries or any indenture, loan agreement,
mortgage, lease or other agreement or instrument know by such counsel that
is material to the Company and its subsidiaries, taken as a whole, to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound, (C)
violate or conflict with any applicable Louisiana or federal law or any
rule, regulation, judgment, order or decree known to us of any court or any
governmental body or agency having jurisdiction over the Company, any of
its subsidiaries or their respective property or (D) result in the
suspension, termination or revocation of any Authorization (other than any
Authorization relating to federal taxation law or any communications
matters including without limitation matters regulated by the Federal
Communications Commission, the Communications Act of 1934 or the Louisiana
Public Service Commission) of the Company or any of its subsidiaries known
to us or any other impairment of the rights of the holder of any such
Authorization;
(xii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries party or to which any of their respective property is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described, or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not so described or filed as required;
(xiii) to such counsel's knowledge, neither the Company nor any of
its subsidiaries has violated any Environmental Law, any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any
provisions of the Foreign Corrupt Practices Act, or the rules and
regulations promulgated thereunder, except, in each case, for such
violations which, singly or in the aggregate, would not have a material
adverse effect on the business, prospects, financial condition or results
of operation of the Company and its subsidiaries, taken as a whole;
(xiv) to such counsel's knowledge, each of the Company and its
subsidiaries has such Authorizations of, and has made all filings with and
notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without
limitation, under any applicable Environmental Laws, as are necessary to
own, lease, license and operate its respective properties and to conduct
its business (excluding, in each case, those relating to communications),
except where the failure to have any such Authorization or to make any such
filing or notice would not, singly or in the aggregate, have a material
adverse effect on the business, prospects, financial condition or results
of operations of the Company and its subsidiaries, taken as a whole. To
such counsel's knowledge, (i) each such Authorization (excluding, in each
case, those relating to communications) is valid and in full force and
effect and each of the Company and its subsidiaries is in compliance with
all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect
thereto; (ii) no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows
or, after notice or lapse of time or
20
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both, would allow, revocation, suspension or termination of any such
Authorization (other than any Authorization relating to federal taxation
law or any communications matters including without limitation matters
regulated by the Federal Communications commission, the Communications Act
of 1934 or the Louisiana Public Service Commission) or results or, after
notice or lapse of time or both, would result in any other impairment of
the rights of the holder of any such Authorization; and (iii) Authorization
(other than any Authorization relating to federal taxation law or any
communications matters including without limitation matters regulated by
the Federal Communications commission, the Communications Act of 1934 or
the Louisiana Public Service Commission) contains no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance,
the occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a material adverse effect on
the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole;
(xv) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(xvi) to such counsel's knowledge, there are no contracts, agreements
or understandings between the Company and any person granting such person
the right to require the Company to file a registration statement under the
Act with respect to any securities of the Company or to require the Company
to include such securities with the Shares registered pursuant to the
Registration Statement, except for registration rights granted in favor of
certain holders of Class B common stock of the Company pursuant to the
Shareholder Agreement and registration rights granted in favor of The 1818
Fund III, L.P. and its affiliates in connection with the Preferred Stock
Offering; and
(xvii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and
other financial data included therein as to which no opinion need be
expressed) comply as to form with the Act, (B) such counsel has no reason
to believe that at the time the Registration Statement became effective or
on the date of this Agreement, the Registration Statement and the
prospectus included therein (except for the financial statements and other
financial data as to which such counsel need not express any belief)
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (C) such counsel has no reason to
believe that the Prospectus, as amended or supplemented, if applicable
(except for the financial statements and other financial data, as
aforesaid) contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
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The opinion of Correro Fishman Haygood Phelps Walmsley & Casterix, L.L.P.
described in Section 8(e) above shall be rendered to you at the request of the
Company and shall so state therein and shall be limited to the laws of the
United States of America and those of the state of Louisiana.
(f) You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of Lukas, Nace,
Gutierrez & Sachs, Chartered, special communications counsel for the Company, to
the effect that:
(i) the statements in the Prospectus under the captions "Risk
Factors -- Government Regulation" and "Business of the Company," insofar as
such statements constitute a summary of Communications Act of 1934, as
amended, and the rules and regulations of the FCC promulgated thereunder
(the "Communications Act"), are accurate in all material respects and
fairly summarize all matters referred to therein;
(ii) the Company holds the PCS Licenses, the Cellular Licenses and the
Paging Licenses (together, the "Licenses"). The Licenses are in full force
and effect and are not subject to any conditions other than those
conditions listed on the Licenses and those conditions generally applicable
to entities holding similar licenses issued by the FCC. All applicable
administrative and judicial appeal, review and reconsideration periods of
the FCC's grant of the Licenses have expired, without the timely filing of
any such appeal or request for review or reconsideration and without the
FCC having instituted review of the grant of the Licenses on its own
motion;
(iii) the Licenses (along with the Sprint PCS Licenses) provide all
necessary FCC certificates, orders, permits, licenses, authorizations,
consents or approvals required by the FCC for the Company to construct and
operate a wireless communications network in the respective markets
designated in the Licenses and to conduct its business in the manner
described in the Prospectus;
(iv) the Company has made all reports, filings and registrations with,
and paid all fees required by the FCC, including any and all down payments
or installment payments, except where such failure would not have Material
Adverse Effect on the Company's operations as a whole;
(v) to such counsel's knowledge, (a) there is no unsatisfied adverse
FCC order, decree or ruling outstanding against the Company, or any of the
Licenses; (b) there is no litigation, proceeding (including any rulemaking
proceeding), complaint, inquiry or investigation against the Company or in
respect of any of the Licenses, pending or threatened before the FCC
(including any pending judicial review of such an action by the FCC),
including without limitation, any Notice of Violation, Notice of Apparent
Liability or Order to Show Cause, except for proceedings affecting the
wireless industry generally to which the Company is not a specified party;
(c) neither the Company nor any Guarantor has received any notice of
proceedings relating to the violation, revocation or modification of any of
the Licenses, certificates, orders, permits, licenses, authorizations,
consents or approvals or the qualification or rejection of any FCC filing,
the effect of which, singly or in
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the aggregate, would have a Material Adverse Effect upon, or cause material
disruption to, the Company's operations, taken as a whole;
(vi) to such counsel's knowledge, the Company is not in violation of,
or in default under, the Communications Act, the effect of which, singly or
in the aggregate, would have a Material Adverse Effect on the Company or
the Licenses, taken as a whole;
(vii) the execution and delivery of the Transaction Documents and the
performance of the Company of their obligations thereunder, will not
violate the Communications Act or, to our such counsel's knowledge, the
terms of any order, writ, judgment, award, injunction or decree of the
FCC;.
(viii) except to the extent that prior FCC approval is required in
connection with the exercise of creditors' rights in the event of a
default, no consent or approval by the FCC is required for the execution
delivery or performance of the Transaction Documents by the Company or the
Guarantors or for the consummation of the transactions described therein;
(ix) LA Unwired was qualified to participate in the FCC's PCS license
auctions as a "Small Business," as defined by FCC Rules, and is qualified
to hold the licenses for LA Unwired's PCS operations according to the FCC's
rules. The Company's ownership interest in LA Unwired does not violate the
FCC's rules;
(x) to such counsel's knowledge, (i) the Sprint PCS Licenses are in
full force and effect and are not subject to any conditions other than
those conditions listed thereon and those conditions listed thereon and
those conditions generally applicable to entities holding similar licenses
issued by the FCC; (ii) all applicable administrative and judicial appeal,
review and reconsideration periods of the Sprint PCS Licenses have expired,
without the timely filing of any such appeal or request for review or
reconsideration and without the FCC having instituted review of the grant
of the Sprint PCS Licenses on its own motion; and
(xi) the Company and each of its subsidiaries has, or has timely filed
applications for, all permits of governmental or regulatory authorities
(including, as appropriate, the state public utilities commissions of
Alabama, Arkansas, Florida, Louisiana, Mississippi and Texas) necessary to
engage in the wireless and competitive local exchange businesses currently
conducted by the Company, except where the failure to hold such permits
would not have a Material Adverse Effect on the Company and its
subsidiaries, taken as a whole; and such counsel has no reason to believe
that any governmental body or agency is considering limiting, suspending or
revoking any such permit. All such permits are valid and in full force and
effect.
(g) You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of Jones, Walker,
Waechter, Poltevent, Carrere & Denegre LLP, tax counsel for the Company and the
Guarantors, to the effect that the statements under the caption "Important
United States Federal Tax Consequences of Our Common Stock to Non-U.S. Holders"
in the Prospectus, insofar as such statements constitute a summary of
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the legal matters, documents or proceedings referred to therein, fairly present
in all material respects such legal matters, documents and proceedings.
(h) The Underwriters shall have received on the Closing Date an opinion,
dated the Closing Date, of Latham & Watkins, counsel for the Underwriters, in
form and substance reasonably satisfactory to the Underwriters.
(i) In giving such opinions with respect to the matters covered by Section
8(e)(xvii) Correro Fishman Haygood Phelps Walmsley & Casterix, L.L.P. and Latham
& Watkins may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
(j) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(k) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(l) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(m) The Company shall not have failed on or prior to the Closing Date to
perform or comply with any of the agreements herein contained and required to be
performed or complied with by the Company on or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
Section 9. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange or the Nasdaq National Market or limitation on prices for
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securities or other instruments on any such exchange or the Nasdaq National
Market, (iii) the suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your opinion has a material adverse effect
on the financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you
and the Company for purchase of such Firm Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter and the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. If, on an Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than one-
tenth of the aggregate number of Additional Shares to be purchased on such date,
the non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase such Additional Shares or (ii) purchase not
less than the number of Additional Shares that such non-defaulting Underwriters
would have been obligated to purchase on such date in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of any such Underwriter
under this Agreement.
25
<PAGE>
Section 10. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to US
Unwired Inc., One Lakeshore Drive, Suite 1900, Lake Charles, Louisiana 70629,
Attention: General Counsel and (ii) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, the Company, the officers
or directors of the Company or any person controlling the Company, (ii)
acceptance of the Shares and payment for them hereunder and (iii) termination of
this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 9), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse
the several Underwriters, their directors and officers and any persons
controlling any of the Underwriters for any and all fees and expenses
(including, without limitation, the fees disbursements of counsel) incurred by
them in connection with enforcing their rights hereunder (including, without
limitation, pursuant to Section 7 hereof). The Underwriters agree, severally,
to reimburse the Company, and its officers, managers, directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act for any and all fees and expenses (including
without limitation the fees and expenses of counsel) incurred by them in
connection with enforcing their rights under this Agreement (including without
limitation their rights under Section 7).
Except as otherwise expressly provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, the Underwriters' directors and officers, any controlling persons
referred to herein, the Company's directors and the Company's officers who sign
the Registration Statement and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors
and assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
26
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
US UNWIRED INC.
By:
-----------------------------
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON
FIRST UNION SECURITIES, INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
-----------------------------
27
<PAGE>
SCHEDULE I
----------
Underwriters Number of Firm Shares
to be Purchased
Donaldson, Lufkin & Jenrette Securities Corporation
Credit Suisse First Boston
First Union Securities, Inc.
Total
28
<PAGE>
SCHEDULE II
SUBSIDIARIES
Louisiana Unwired, LLC
Unwired Telecom Corp.
LEC Unwired, LLC
Command Connect, LLC
Texas Unwired
29
<PAGE>
SCHEDULE 6(CC)
PCS LICENSES
30
<PAGE>
SCHEDULE 6(DD)
CELLULAR LICENSES
31
<PAGE>
SCHEDULE 6(HH)
PAGING LICENSES
Paging licenses KNKP448 and KNLM672 are now being operated under a Station
Temporary Authority and are expected to be renewed by the FCC in the ordinary
course.
32
<PAGE>
SCHEDULE 6(KK)
SPRINT PCS LICENSES
33
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 9, 2000, except for the third paragraph of
Note 1 as to which the date is March 22, 2000, with respect to the consolidated
financial statements of US Unwired Inc., our report dated February 9, 2000 with
respect to the financial statements of Louisiana Unwired, LLC, and our report
dated February 9, 2000 with respect to the financial statements of Meretel
Communications, L.P., in the Registration Statement (Form S-1) and related
Prospectus of US Unwired Inc. dated April 4,2000.
Houston, Texas
March 30, 2000
