<PAGE>
As filed with the Securities and Exchange Commission on April 25, 2000
Registration No. 333-32064
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1 to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
iPCS, Inc.
(Exact name of registrant as specified in its charter)
Delaware 4812 36-4350876
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification No.)
Classification Code
Number)
121 West First Street
Suite 200
Geneseo, Illinois 61254
(309) 945-1650
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Timothy M. Yager
iPCS, Inc.
121 West First Street
Suite 200
Geneseo, Illinois 61254
(309) 945-1650
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Paul W. Theiss Gary P. Cullen
Robert J. Wild Skadden, Arps, Slate, Meagher & Flom
Mayer, Brown & Platt (Illinois)
190 South LaSalle Street 333 West Wacker Drive
Chicago, Illinois 60603-3441 Chicago, Illinois 60606
(312) 782-0600 (312) 407-0700
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Title of each class of Amount maximum offering Proposed Amount of
securities to be to be price maximum aggregate registration
registered registered per security(2) offering price(2) fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value.................. 11,089,450(1) $15.00 $166,341,750 $43,915(3)
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</TABLE>
(1) Includes 1,446,450 shares that are issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933.
(3) Of such registration fee, $37,950 was previously paid to the Securities and
Exchange Commission.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this 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 law 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 , 2000
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Prospectus
, 2000
[IPCS LOGO]
9,643,000 Shares of Common Stock
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The Offering:
Proposed Symbol &
. We are offering Market:
9,643,000 shares
of our common
stock.
. IPCS/Nasdaq
National Market
. We have granted
the underwriters
an option to
purchase up to
1,446,450
additional shares
of our common
stock to cover
over-allotments.
. This is our
initial public
offering. We
anticipate the
initial public
offering price
will be between
$13.00 and $15.00
per share.
. Closing:
, 2000.
--------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
-------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to iPCS:
</TABLE>
--------------------------------------------
This investment involves risk. See "Risk Factors" beginning on page 5.
- --------------------------------------------------------------------------------
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
Bear, Stearns & Co. Inc. The Robinson-Humphrey Company
DLJdirect Inc.
<PAGE>
PICTURES
--PICTURES OF SPRINT PCS HANDSETS
--MAP OF OUR NETWORK COVERAGE AREA AND INSET MAP OF UNITED STATES
--SPRINT PCS STORE INTERIOR
--SPRINT PCS NETWORK OPERATIONS CONTROL CENTER
--CUSTOMERS USING SPRINT PCS PHONE
--LAPTOP COMPUTER DISPLAYING SPRINT PCS WIRELESS WEB
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................ 1
Risk Factors...................... 5
Forward-Looking Statements........ 19
Use of Proceeds................... 20
Dividend Policy................... 20
Capitalization.................... 21
Dilution.......................... 22
Selected Financial Data........... 24
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 26
Business.......................... 36
The Sprint PCS Agreements......... 58
Description of Our Indebtedness... 66
Management........................ 73
The Reorganization................ 81
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Principal Stockholders.............. 82
Certain Relationships and Related
Transactions....................... 83
Regulation of the Wireless
Telecommunications Industry........ 84
Description of Capital Stock........ 88
Shares Eligible for Future Sale..... 92
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Our Common Stock................ 94
Underwriting........................ 97
Legal Matters....................... 99
Experts............................. 99
Available Information............... 100
Index to Financial Statements....... F-1
</TABLE>
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 unauthorized
information. 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 of the sales made hereunder after the date of this prospectus shall create
an implication that the information contained herein or our affairs have not
changed since the date hereof.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights more detailed information appearing in other
sections of this prospectus. The other information is important, so please read
this entire prospectus carefully.
Unless otherwise indicated, the information in this prospectus assumes the
underwriters' over-allotment option will not be exercised.
The Company
Overview
Based upon the total population in our markets, we are one of the largest of
the 18 Sprint PCS affiliates, with the exclusive right to provide Sprint PCS
products and services to a total population of more than 7.0 million in the
midwestern United States. We market 100% digital, 100% personal communication
services, or PCS, under the Sprint and Sprint PCS brand names. We offer the
same bundled national pricing plans and use the same sales and marketing
strategies, national sales and distribution channels, centralized billing and
customer care that have made Sprint PCS the fastest growing wireless company in
the country. We began providing service in December 1999 and, as of March 31,
2000, had launched service in five markets covering approximately 1,147,000
residents and had over 6,600 customers.
In January 1999, we entered into our long-term affiliation agreements with
Sprint PCS, whereby we became the exclusive Sprint PCS affiliate for our
initial territory of 15 markets with a total population of over 2.8 million in
the states of Illinois and Iowa. We have completed all radio frequency design,
network design, site acquisition and engineering for each of these 15 markets.
By the end of September 2000, we plan to launch service in all of our remaining
initial markets thereby substantially completing our network build-out in our
initial territory. At such time, we will be providing coverage to approximately
2.1 million residents or approximately 75% of the 2.8 million total population
in our initial territory. Following our successful initial launch, Sprint PCS
selected us to be the exclusive Sprint PCS affiliate for 20 additional markets
with a total population of over 4.2 million in the states of Michigan, Iowa and
Nebraska. As part of this expansion, we have agreed to purchase from Sprint PCS
certain network assets under construction in three markets in Michigan. In
addition, we have been granted the option, but do not have the obligation, to
add to our territory the Iowa City and Cedar Rapids, Iowa markets that Sprint
PCS launched in February 1997 and to purchase from Sprint PCS related assets in
those markets. Those markets have a total population of approximately 405,000
and had over 6,600 Sprint PCS subscribers as of December 31, 1999.
Our territory includes markets in Illinois, including Peoria, Springfield,
Champaign-Urbana, Decatur-Effingham, Bloomington and the Quad Cities (Rock
Island and Moline, Illinois; and Davenport and Bettendorf, Iowa); Michigan,
including Grand Rapids, Saginaw-Bay City, Muskegon and Traverse City; Iowa,
including Waterloo-Cedar Falls and Dubuque; and eastern Nebraska. We anticipate
our territory will generate significant roaming revenues for us from Sprint PCS
subscribers not based in our territory who use our network because our
territory is adjacent to several important
1
<PAGE>
markets owned and operated by Sprint PCS including Chicago, Detroit, Des
Moines, Indianapolis, Omaha and St. Louis. We benefit from more than 1,700
miles of heavily traveled interstates in our territory which connect major
metropolitan and industrial areas of the midwestern United States. Over 40
colleges and universities are located in our territory with a total enrollment
of approximately 200,000 students.
From inception through March 31, 2000, we have not generated significant
revenues and have generated significant net operating losses. We expect to
continue to generate significant net operating losses until the end of 2002, at
which time we expect to have achieved break-even operating cash flow. By the
end of the third quarter of 2001, we plan to be providing coverage to
approximately 67% of the total population of over 7.0 million in our territory,
at which time our planned network build-out for all of our current markets will
be substantially complete.
Competitive Strengths
We receive substantial benefits from our long-term agreements with Sprint
PCS, including:
. the exclusive right to use the Sprint and Sprint PCS brand names,
royalty-free, and the exclusive right to use Sprint PCS' licensed
spectrum to provide Sprint PCS products and services in our territory;
. support from Sprint PCS' significant advertising expenditures and
national marketing and promotional programs;
. access to Sprint PCS' 100% digital, 100% PCS national network, including
Sprint PCS' Wireless Web service;
. access to over 300 retail locations for the sale and distribution of
Sprint PCS products and services in our territory under Sprint PCS'
existing sales and distribution agreements with leading national
retailers, including RadioShack, Best Buy, and Circuit City;
. the ability to purchase proven back office services, including customer
activation, billing and 24 hours a day, 7 days a week customer care from
Sprint PCS at rates reflecting Sprint PCS' economies of scale; and
. the ability to purchase network equipment, handsets and other subscriber
equipment based on Sprint PCS' significantly discounted rates and benefit
from Sprint PCS' extensive research and development effort.
In addition to the advantages provided by our strategic relationship with
Sprint PCS, we have:
. fewer competitors and fragmented competition within our markets;
. potential for significant Sprint PCS roaming revenue;
. significant Sprint PCS national accounts opportunities;
. the proven ability to execute our network build-out plan; and
. a fully-financed business plan.
2
<PAGE>
Business Strategy
We intend to become a leading PCS provider in our territory by continuing to
successfully execute our business strategy, which includes:
. leveraging our strategic relationship with Sprint PCS by marketing 100%
digital, 100% PCS under the Sprint and Sprint PCS brand names and
offering Sprint PCS' national pricing plans and using the same sales and
marketing strategies, distribution channels and back office services as
Sprint PCS;
. executing an integrated local marketing strategy which includes
establishing 19 Sprint PCS stores in our territory, advertising on local
radio, TV, and print media and sponsoring important local and regional
events;
. continuing to rapidly construct our network using experienced strategic
partners and third-generation compatible wireless technology; and
. continuing to evaluate opportunities to strategically expand our
territory.
We believe that the net proceeds of this offering, together with available
borrowings under our Nortel financing, will be adequate to fund our network
build-out, anticipated operating losses, working capital requirements and other
capital needs through 2002, at which point we expect to have achieved break-
even operating cash flow.
----------------
We are a Delaware corporation. Our principal executive offices are located
at 121 West First Street, Suite 200, Geneseo, Illinois 61254, and our telephone
number is (309) 945-1650.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock Offered......................... 9,643,000 shares
Common Stock to be Outstanding after the
Offering.................................... 54,512,643 shares
Proposed Nasdaq National Market Symbol....... "IPCS"
Risk Factors................................. See "Risk Factors" beginning on page 5 for
a discussion of the material factors that
you should consider before purchasing
shares of our common stock.
Dividend Policy.............................. We do not intend to pay cash dividends on
our common stock in the foreseeable future.
See "Dividend Policy" for more information.
Use of Proceeds.............................. We will use the proceeds from this sale of
our common stock, together with available
borrowings under our Nortel financing, to
fund the following:
.capital expenditures, including the build-
out of our network and the purchase of
network assets under construction in three
markets in Michigan from Sprint PCS in
connection with the recent expansion of our
territory;
. operating losses and working capital
requirements; and
. general corporate purposes.
See "Use of Proceeds" for more detailed
information.
</TABLE>
Unless otherwise indicated, the share information in this prospectus
excludes:
. up to 1,446,450 shares that may be issued to the underwriters to cover
over-allotments. See "Underwriting."
. 5,000,000 shares of our common stock reserved for issuance under our 2000
Long Term Incentive Stock Plan, including 865,000 options which we have
committed to grant. See "Management--2000 Long Term Incentive Stock
Plan."
. 1,112,500 shares of our common stock issuable to Sprint PCS upon the
exercise of a warrant to be issued at the closing date of this offering
at an exercise price of 90% of the initial public offering price. See
"Description of Capital Stock--Warrants."
. 1,152,857 shares, or 1,181,786 shares if the underwriters exercise their
over-allotment option, of our common stock issuable to Nortel upon the
exercise of warrants to be issued at the closing date of this offering at
an exercise price equal to the initial public offering price. These
warrants may be terminated prior to their exercise if we reduce the
amount of the Nortel financing before November 2001, which reduction we
may fund from the proceeds of a senior notes offering. See "Description
of Capital Stock--Warrants."
4
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information contained in this prospectus before purchasing the common
stock we are offering.
Risks Particular to iPCS
We may not achieve or sustain operating profitability or positive cash flow
from operating activities which may reduce the market value of our common stock
Our operating history is limited. We initiated commercial operations in our
first two markets in December 1999. We expect to incur significant operating
losses and to generate significant negative cash flow from operating activities
through 2002 while we develop and construct our network and build our customer
base. As we build out our network and provide services to increasing numbers of
customers, the achievement of break-even operating cash flow and our operating
profitability will depend upon many factors, including, among others, our
ability to market our services, achieve our projected market penetration and
manage customer turnover rates. If we do not achieve and maintain operating
profitability and positive cash flow from operating activities on a timely
basis, we may not be able to meet our debt service requirements.
If we fail to complete the build-out of our network, Sprint PCS may terminate
the Sprint PCS agreements, and we would no longer be able to offer the Sprint
PCS products and services from which we generate substantially all our revenues
Our long-term affiliation agreements with Sprint PCS, which we refer to as
the Sprint PCS agreements, require us to build our network in accordance with
Sprint PCS' technical and coverage requirements. The Sprint PCS agreements also
require that we provide network coverage in our initial 15 markets to a
specified percentage, ranging from 42% to 88%, of the population by specified
dates. In our 20 expansion markets we are required to build out specified
cities and traffic arteries by certain dates. A failure to meet our build-out
requirements for any one of the individual markets in our territory, or to meet
Sprint PCS' technical requirements, could constitute a breach of the Sprint PCS
agreements and could lead to their termination. If the Sprint PCS agreements
are terminated, we will no longer be able to offer Sprint PCS products and
services.
Buy-out provisions of the Sprint PCS agreements may diminish the valuation of
our company in the event of the termination or non-renewal of the Sprint PCS
agreements and the market value of our common stock
Provisions of the Sprint PCS agreements could affect the valuation of our
company, and could therefore, among other things, lead to a reduction in the
market price of our securities and decrease our ability to raise additional
capital. In the event the Sprint PCS agreements are terminated, then subject to
the requirements of applicable law, Sprint PCS may purchase our operating
assets or capital stock for 72% or, in the event of non-renewal, at least 80%
of the entire business value which is generally the fair market value of our
wireless business valued on a going concern basis as determined by an
independent appraiser. To the extent that the appraiser considers the trading
price of our common stock as a criteria of the fair market value, such trading
price may itself already have been discounted by investors because of this buy-
out provision and consequently this buy-out provision may operate to
disproportionately reduce the value. In addition, Sprint PCS must approve
5
<PAGE>
any change of control of our company and consent to any assignment of the
Sprint PCS agreements to another entity. Sprint PCS also has been granted a
right of first refusal if we decide to sell our operating assets. We are also
subject to a number of restrictions on the transfer of our business including a
prohibition on selling our company or our operating assets to a number of
identified and as yet to be identified competitors of Sprint PCS or Sprint.
These and other restrictions in the Sprint PCS agreements may limit the
saleability and/or reduce the value a buyer may be willing to pay for our
company or our operating assets and may reduce the entire business value of our
company. For further information on the buy-out provisions of the Sprint PCS
agreements, see "The Sprint PCS Agreements--The Management Agreement."
The termination of our strategic relationship with Sprint PCS or Sprint PCS'
failure to perform its obligations under the Sprint PCS agreements would
severely restrict our ability to conduct our business
Because we do not own any licenses to operate a wireless PCS network, our
ability to offer Sprint PCS products and services on the portion of the Sprint
PCS network located within our territory, which we refer to as our network, is
dependent on the Sprint PCS agreements remaining in effect and not being
terminated. The Sprint PCS agreements can be terminated for breach of any
number of material terms. We are also dependent on Sprint PCS' ability to
perform its obligations under the Sprint PCS agreements. The termination of the
Sprint PCS agreements or the failure of Sprint PCS to perform its obligations
under the Sprint PCS agreements would severely restrict our ability to conduct
our business.
If Sprint PCS does not complete the construction of its PCS network, we may
not be able to attract and retain customers, which would adversely affect our
revenues
Sprint PCS' network may not provide coverage to the same extent as its
competitors, which could adversely affect our ability to attract and retain our
customers. Sprint PCS is creating a PCS network through its own construction
efforts and those of its affiliates. Today, neither Sprint nor any other PCS
service provider offers PCS services in every area of the United States. Sprint
PCS has entered into affiliation agreements similar to ours with companies in
other territories pursuant to its nationwide PCS network build-out strategy.
Our business and results of operations are dependent on the development and
operation of the portions of the Sprint PCS national network located outside
our territory, consisting of Sprint PCS' own network and the networks of its
other affiliates. Sprint PCS and its affiliate program are subject, to varying
degrees, to the economic, administrative, logistical, regulatory and other
risks described in this prospectus. Sprint PCS' and its other affiliates' PCS
operations may not be successful.
We have a limited operating history and if we do not successfully manage our
anticipated rapid growth, we may not be able to complete our network by our
target date, if at all, which may result in the termination of the Sprint PCS
agreements
Our performance as a PCS provider will depend on our ability to successfully
manage the network build-out process, attract and retain customers, implement
operational and administrative systems, expand our base of employees and train
and manage our employees, including engineering, marketing and sales personnel.
As of March 31, 2000, we had launched Sprint PCS service in five of our initial
15 markets covering approximately 1,147,000 residents. In other portions of our
territory
6
<PAGE>
we have not yet completed our radio frequency design, network design and site
acquisition and cell site engineering, nor have we commenced construction of
portions of our network. We will require additional expenditures of significant
funds for the continued development, construction, testing, deployment and
operation of our network. These activities are expected to place significant
demands on our managerial, operational and financial resources.
The inability to use Sprint PCS' back office services and third-party vendors'
back office systems could disrupt our business resulting in a loss of our
customers and an increase in our operating expenses
Our operations could be disrupted if Sprint PCS is unable to maintain and
expand its internal support services to support the continued expansion of
Sprint PCS' business. These services include, customer activation, billing and
customer care. Additionally, Sprint PCS has relied on third-party vendors for a
significant number of important functions and components of its internal
support systems and may continue to rely on these vendors in the future. We
depend on Sprint PCS' willingness to continue to offer such services to us and
to provide these services at competitive rates. The Sprint PCS agreements
provide that, upon nine months' prior written notice, Sprint PCS may elect to
terminate any such service. If Sprint PCS terminates a service for which we
have not developed a cost-effective alternative, our operating costs may
increase beyond our expectations and impact our results of operations.
We depend on other telecommunications companies for certain services, which if
delayed could delay our planned network build-out, our planned addition of
customers and our planned increase in revenues
We depend on other telecommunications companies to provide facilities and
transport to interconnect portions of our network and to connect our network
with the landline telephone system. U.S. West Communications, Ameritech and GTE
are our primary suppliers of facilities and transport. Without these services,
we could not offer Sprint PCS services to our customers in certain areas.
From time to time we have experienced delays in obtaining facilities and
transport from these companies and we may continue to experience delays in the
future. If this happens, our build-out plans could be affected and our business
may suffer.
Sprint PCS may make business decisions that would not be in our best interests
which may adversely affect our relationships with our customers, increase our
expenses and/or decrease our revenues
Sprint PCS, under the Sprint PCS agreements, has a substantial amount of
control over the conduct of our business. Accordingly, Sprint PCS may make
decisions that adversely affect our business, such as the following:
. Sprint PCS could price its national plans based on its own objectives and
could set price levels that may not be economically sufficient for our
business;
. Sprint PCS could decide not to renew the Sprint PCS agreements or to no
longer perform its obligations, which would severely restrict our ability
to conduct our business;
7
<PAGE>
. Sprint PCS could change the per-minute rate for Sprint PCS roaming fees
and raise the costs for Sprint PCS to perform back office services;
. Sprint PCS may withhold its consent and prohibit us from selling non-
Sprint PCS approved equipment;
. Subject to limitations under the Sprint PCS agreements, Sprint PCS may
alter its network and technical requirements or request that we build out
additional areas within our territory, which could result in increased
equipment and build-out costs or in Sprint PCS terminating the Sprint PCS
agreements; and
. Sprint or Sprint PCS could make decisions which could adversely affect
the Sprint and Sprint PCS brand names, products or services.
Our relationship with Sprint or its successor may be adversely affected by the
proposed merger of Sprint and MCI WorldCom
On October 5, 1999, Sprint and MCI WorldCom announced that the boards of
directors of both companies had approved a definitive merger agreement whereby
the two companies would merge to form a new company called WorldCom. Although
the companies have approved the merger, the completion of the merger is still
subject to various conditions, including the approvals of the shareholders of
both companies, the Federal Communications Commission, generally referred to as
the FCC, the Justice Department, various state governmental bodies and foreign
regulatory and antitrust authorities. If the merger is not consummated for
these or other reasons, Sprint's business may be adversely affected, which
could have a negative impact on us as a Sprint PCS affiliate. If the merger is
successfully completed, we expect our relationship with Sprint and Sprint PCS
to continue; however, we cannot be sure that the merger will not have a
negative impact on us as an affiliate of Sprint PCS or that WorldCom will
continue to manage the Sprint PCS affiliate program in the same manner as
Sprint PCS.
We have substantial debt which we may not be able to service and which may
result in our lenders controlling our assets in an event of default
As of March 31, 2000, our outstanding long-term debt under the Nortel
financing was approximately $29.1 million. We have entered into an amended and
restated credit agreement with Nortel to increase the amount of the Nortel
financing to $200.0 million, which will be effective as of the closing of this
offering to provide funds for the build-out of our expansion territory. Under
our current business plan, we expect to incur substantial additional
indebtedness before achieving break-even operating cash flow, including $170.9
million of additional borrowings under the Nortel financing.
Incurring substantial debt will have a number of important consequences for
our operations and our investors, including the following:
. we will have to dedicate a substantial portion of any cash flow from
operations to the payment of interest on, and principal of, our debt,
which will reduce funds available for other purposes;
. we may not have sufficient funds to pay interest on, and principal of,
our debt;
. we may not be able to obtain additional financing for any unanticipated
capital requirements, capital expenditures, working capital requirements
or other corporate purposes;
8
<PAGE>
. due to the liens on substantially all of our assets and the pledges of
equity ownership of any existing subsidiary and any future subsidiaries
that secure our senior debt, lenders may control our assets or our
subsidiaries' assets upon a default; and
. some of our debt, including borrowings under our Nortel financing, will
be at variable rates of interest, which could result in higher interest
expense in the event of increases in market interest rates.
Sprint PCS has contractual rights that would be triggered by an acceleration
of the maturity of our borrowings under the Nortel financing, pursuant to which
Sprint PCS may purchase our obligations under our Nortel financing and obtain
the rights of a senior lender. To the extent Sprint PCS purchases these
obligations, Sprint PCS' rights as a senior lender would enable it to exercise
rights with respect to our assets and its continuing relationship with us in a
manner not otherwise permitted under the Sprint PCS agreements.
If we do not meet all of the conditions required under our Nortel financing,
we may not be able to draw down all of the funds under our Nortel financing
and, as a result, may not be able to complete the build-out of our network
which may result in the termination of the Sprint PCS agreements
Our amended and restated credit agreement with Nortel provides for aggregate
borrowings of $200.0 million under which approximately $29.1 million had been
drawn as of March 31, 2000. The additional $170.9 million available under the
Nortel financing as of May , 2000 is subject to our meeting all of the
conditions specified in the financing documents and, in addition, is subject at
each funding date to the following conditions:
. that the representations and warranties in the financing documents are
true and correct; and
. the absence of a default under our financing documents.
If we do not meet these conditions at each funding date, Nortel may choose not
to lend any or all of the remaining amounts, and if other sources of funds are
not available, we may not have sufficient funds to complete the build-out of
our network. If we do not have sufficient funds to complete our network build-
out, we may be in breach of the Sprint PCS agreements and in default under our
Nortel financing. We expect to be in compliance with the conditions to funding
for the foreseeable future although there is no assurance that we will be in
compliance at each such funding date.
We may need more capital than we currently project to build out our network
and a delay or failure to obtain additional capital could adversely affect our
revenues
The build-out of our network will require substantial capital. Additional
funds would be required in the event of:
. significant departures from the current business plan, including any
Sprint PCS approved expansion of our territory, whether through
acquisitions or the grant of additional licensed territories;
. unforeseen delays;
. cost overruns;
9
<PAGE>
. unanticipated expenses;
. regulatory changes;
. engineering design changes and required technological upgrades; and
. other technological risks.
Due to our leveraged capital structure, additional financing may not be
available or, if available, may not be obtained on a timely basis and on terms
acceptable to us or within limitations permitted under our Nortel financing.
Failure to obtain additional financing, should the need for it develop, could
result in the delay or abandonment of our build-out and expansion plans.
We may not receive as much Sprint PCS roaming revenue as we anticipate, our
non-Sprint PCS roaming revenue is likely to be low adversely affecting our
revenues, and we may have higher payments to Sprint PCS for usage by our
customers of the Sprint PCS network than we anticipate
We are paid a fee from Sprint PCS or a Sprint PCS affiliate for every minute
a Sprint PCS subscriber based outside of our territory uses our network.
Similarly, we pay a fee to Sprint PCS or a Sprint PCS affiliate for every
minute that a Sprint PCS subscriber based in our territory, which we refer to
as our customer, uses the Sprint PCS network outside our territory. Sprint PCS
roaming occurs whenever a Sprint PCS subscriber uses a portion of the Sprint
PCS network outside of the subscribers' assigned calling area. Our customers
may use the Sprint PCS network outside our territory more frequently than we
anticipate and Sprint PCS subscribers from outside our territory may use our
network less frequently than we anticipate. Sprint PCS could also change the
current fee for each Sprint PCS roaming minute billed. As a result, we may
receive less Sprint PCS roaming revenue attributable to the use of our network
by Sprint PCS subscribers who are not our customers than we anticipate or we
may have to pay more Sprint PCS roaming fees attributable to our customers'
usage of portions of the Sprint PCS network other than our network than we
anticipate.
A portion of our revenue may be derived from payments by other wireless
service providers for use by their subscribers of our network, which we refer
to as non-Sprint PCS roaming. However, the technology used in the Sprint PCS
network is not compatible with the technology used by certain other systems,
which diminishes the ability of other wireless service providers' subscribers
to use our network, and Sprint PCS has entered into few agreements that enable
customers of other wireless carriers to roam onto the Sprint PCS network. As a
result, the non-Sprint PCS roaming revenue that we will receive is likely to be
low relative to other wireless service providers. For more information on
roaming revenue, see "Business--Roaming Revenue." For further information on
the Sprint PCS network technology, see "Business--CDMA Technology."
We may have difficulty in obtaining infrastructure equipment and handsets
which are in short supply which could result in delays in our network build-
out, disruption of service or loss of customers
If we are not able to acquire the equipment required to build out our
network in a timely manner, we may be unable to provide wireless communications
services or to meet the requirements of the Sprint PCS agreements. The demand
for the equipment that we require to construct our network is considerable, and
manufacturers of this equipment could have substantial order backlogs.
Accordingly, the lead time for the delivery of this equipment may be longer
than anticipated. In
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<PAGE>
addition, the demand for specific types of handsets is strong and the
manufacturers of those handsets may have to distribute their limited supply of
products among their numerous customers. Some of our competitors purchase large
quantities of equipment and handsets and may have established relationships
with the manufacturers. Consequently, they may receive priority in the delivery
of equipment and handsets. If we cannot obtain equipment or handsets in a
timely manner, we could suffer delays in the build-out of our network,
disruptions in service and a reduction in customers.
Sprint PCS' vendor discounts may be discontinued, which would increase our
equipment costs and require more capital than we project to build out our
network
We intend to purchase our infrastructure equipment under Sprint PCS' vendor
agreements that include significant volume discounts. If Sprint PCS were unable
to continue to obtain vendor discounts for its affiliates, the loss of vendor
discounts would increase our equipment costs.
The failure of our vendors, consultants or contractors to perform their
obligations may delay the build-out of our network which may lead to a breach
of the Sprint PCS agreements
The failure by any of our vendors, consultants or contractors to fulfill
their contractual obligations to us could materially delay the build-out of our
network. In connection with the amended and restated credit agreement with
Nortel, we have committed to purchase an additional $103.3 million of equipment
from Nortel and have retained other consultants and contractors, and expect to
retain additional consultants and contractors, to assist in the design and
engineering of our systems, to construct cell sites, switch facilities and
towers, to lease cell sites from and to deploy our network systems, and we will
continue to be significantly dependent upon them in order to fulfill our build-
out obligations.
We may not be able to compete with larger, more established wireless providers
who have the resources to competitively price their products and services which
could impair our ability to attract customers
Our ability to compete will depend, in part, on our ability to anticipate
and respond to various competitive factors affecting the telecommunications
industry, including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors. We compete in each of our markets with two cellular
providers, both of which have their infrastructure in place and have been
operational for a number of years. They have significantly greater financial
and technical resources than we do and could offer more attractive pricing
options. We expect that existing cellular providers will upgrade their systems
and provide expanded, digital services to compete with the Sprint PCS products
and services that we offer. These cellular providers generally require their
customers to enter into long-term contracts, which may make it more difficult
for us to attract customers away from them. Sprint PCS generally does not
require its subscribers to enter into long-term contracts, which may make it
easier for other wireless providers to attract Sprint PCS subscribers away from
Sprint PCS. We will also compete with one or more PCS providers, other wireless
providers and other communications companies in certain of our markets. While
Sprint PCS has licenses covering 30 MHz of spectrum throughout most of our
territory, it has licenses covering only 10 MHz or 20 MHz in parts of Illinois.
Some of our competitors will have access to more licensed spectrum in parts of
Illinois where we offer service
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<PAGE>
and therefore provide greater network call volume capacity than our network
when network usage begins to reach or exceed the capacity of our licensed
spectrum. The inability to accommodate increases in call volume capacity
results in more dropped or disconnected calls . In addition, any competitive
difficulties that Sprint PCS may experience could also harm our competitive
position and success. For further information on the Sprint PCS licensed
spectrum in our markets, see "Business--Markets"
Our services may not be broadly used and accepted by consumers which could
result in fewer customers than we project in our business plan
PCS systems have a limited operating history. The extent of potential demand
for PCS in our markets cannot be estimated with any degree of certainty. If we
are unable to establish and successfully market PCS, we may not be able to
attract and retain customers in sufficient numbers to operate our business
successfully.
There is no uniform signal transmission technology and the technology used on
our network may become obsolete thereby substantially increasing our equipment
expenditures to replace it
The wireless telecommunications industry is experiencing significant
technological change and evolving industry standards. We employ a digital
wireless communications technology selected by Sprint PCS for its network. This
selected technology, code division multiple access, known as CDMA, is
relatively new. CDMA may not provide the advantages expected by Sprint PCS. In
addition to CDMA, there are two other principal signal transmission
technologies: time division multiple access, or TDMA, and global system for
mobile communications, or GSM. None of the signal transmission technologies are
compatible with each other. If one of these technologies, or another
technology, becomes the preferred industry standard, we would be at a
competitive disadvantage and competitive pressures may require Sprint PCS to
change its digital technology which, in turn, may require us to make changes in
our network equipment at substantially increased costs. We may not be able to
respond to such pressures and implement new technology on a timely basis, or at
an acceptable cost.
Our projected build-out plan does not cover all of our territory, which could
make it difficult to maintain a profitable customer base
Our projected build-out plan does not cover all areas of our territory. Upon
completion of our projected build-out plan, we expect to cover 67% of the
residents in our territory. As a result, our build-out plan may not adequately
serve the needs of the potential customers in our territory or attract enough
customers to operate our business successfully. Accordingly, we may have to
cover a greater percentage of our territory than we anticipate, which we may
not have the financial resources to complete or may be unable to do profitably.
Parts of our territory have limited licensed spectrum, and this may affect the
quality of our service or, in the event of termination of the Sprint PCS
agreements, restrict our ability to purchase spectrum licenses from Sprint PCS
in those areas, which would place us at a competitive disadvantage
While Sprint PCS has licenses covering 30 MHz of spectrum throughout most of
our territory, it has licenses covering only 10 MHz or 20 MHz in parts of
Illinois. In the future, as the number of our
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<PAGE>
customers in those areas increases, this limited licensed spectrum may not be
able to accommodate increases in call volume and may lead to more dropped calls
than in other parts of our territory. If Sprint PCS were to terminate the
Sprint PCS agreements, Sprint PCS would have no obligation to sell us spectrum
licenses in areas where Sprint PCS owns less than 20 MHz of spectrum.
Accordingly, it is likely that we would be unable to operate our business in
certain portions of Illinois.
If Sprint PCS subscribers are not able to roam efficiently onto other wireless
networks, prospective subscribers could be deterred from subscribing to Sprint
PCS services and thereby reduce our anticipated revenues and customers
The Sprint PCS network, of which we form a part, operates at a different
frequency and uses a different signal transmission technology than analog
cellular and other digital systems. To access another provider's analog
cellular, TDMA or GSM digital systems when outside the territory served by the
Sprint PCS network, a Sprint PCS subscriber is required to utilize a dual-
band/dual-mode handset compatible with that provider's system. Generally,
because dual-band/dual-mode handsets incorporate two radios rather than one,
they are more expensive and may be larger and heavier than single-band/single-
mode handsets. The Sprint PCS network does not allow for call hand-off between
the Sprint PCS network and another wireless network, thus requiring a
subscriber to end a call in progress on the Sprint PCS network and initiate a
new call when outside the territory served by the Sprint PCS network. In
addition, the quality of the service provided by a network provider during a
roaming call may not be the same as the quality of the service provided by the
Sprint PCS network. The price of a roaming call may not be competitive with
prices of other wireless companies for roaming calls, and Sprint PCS
subscribers may not be able to use Sprint PCS' advanced features, such as
voicemail notification, while roaming.
Non-renewal or revocation by the Federal Communications Commission of the
Sprint PCS licenses would significantly harm our business because we would no
longer be able to provide service
We do not own any licenses to operate a wireless network. We are dependent
on Sprint PCS' licenses, which are subject to renewal and revocation. Sprint
PCS' licenses in our territory will begin to expire in 2007 but may be renewed
for additional ten year terms. There may be opposition to renewal of Sprint
PCS' licenses upon their expiration and the Sprint PCS licenses may not be
renewed. The FCC has adopted specific standards that apply to PCS license
renewals. Failure by Sprint PCS to comply with these standards in our territory
could cause revocation or forfeiture of the Sprint PCS licenses for our
territory or the imposition of fines on Sprint PCS by the FCC.
If Sprint PCS does not maintain control over its licensed spectrum, the Sprint
PCS agreements may be terminated which would result in our inability to provide
service
The FCC requires that licensees like Sprint PCS maintain control of their
licensed spectrum and not delegate control to third-party operators or managers
like us. Although the Sprint PCS agreements reflect an arrangement that the
parties believe meets the FCC requirements for licensee control of licensed
spectrum, we cannot assure you that the FCC will agree with us. If the FCC were
to determine that the Sprint PCS agreements need to be modified to increase the
level of licensee
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<PAGE>
control, we have agreed with Sprint PCS to use our best efforts to modify the
Sprint PCS agreements to comply with applicable law. If we cannot agree with
Sprint PCS to modify the Sprint PCS agreements, they may be terminated. If the
Sprint PCS agreements are terminated, we would no longer be a part of the
Sprint PCS network and we would have extreme difficulty in conducting our
business.
The loss of our officers and skilled employees that we depend upon to operate
our business could reduce our ability to offer Sprint PCS products and services
and impair our financial performance
The loss of one or more key officers could impair our ability to offer
Sprint PCS products and services. Our business is managed by a small number of
executive officers. We believe that our future success will also depend in
large part on our continued ability to attract and retain highly qualified
technical and management personnel. We believe that there is and will continue
to be intense competition for qualified personnel in the PCS equipment and
services industry as the PCS market continues to develop. We may not be
successful in retaining our key personnel or in attracting and retaining other
highly qualified technical and management personnel.
Unauthorized use of our network could disrupt our business and increase our
costs of network operations
We will likely incur costs associated with the unauthorized use of our
network, including administrative and capital costs associated with detecting,
monitoring and reducing the incidence of fraud. Fraud impacts interconnection
costs, capacity costs, administrative costs, fraud prevention costs and
payments to other carriers for unbillable fraudulent roaming. Although we
believe that we have implemented appropriate controls to minimize the effect to
us of fraudulent usage, we cannot assure you that we will be successful.
Expanding our territory may have a material adverse effect on our business and
reduce the market value of our common stock
As part of our strategy, we may expand our territory through the grant of
additional markets from Sprint PCS or through acquisitions of other Sprint PCS
affiliates. We will evaluate strategic acquisitions and alliances principally
relating to our current operations. These transactions may require the approval
of Sprint PCS and commonly involve a number of risks, including:
. difficulty assimilating acquired operations and personnel;
. diversion of management attention;
. disruption of ongoing business;
. inability to retain key personnel;
. inability to successfully incorporate acquired assets and rights into our
service offerings;
. inability to maintain uniform standards, controls, procedures and
policies; and
. impairment of relationships with employees, customers or vendors.
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<PAGE>
Failure to overcome these risks or any other problems encountered in these
transactions could have a material adverse effect on our business. In
connection with these transactions, we may also issue additional equity
securities, incur additional debt or incur significant amortization expenses
related to goodwill and other intangible assets.
Our certificate of incorporation and by-laws include provisions that may
discourage, delay and/or restrict any sale of our operating assets or common
stock to the possible detriment of our stockholders
Provisions of our certificate of incorporation and by-laws could operate to
discourage, delay or make more difficult a change in control of our company.
Our certificate of incorporation, which contains a provision acknowledging the
terms of the Sprint PCS agreements and a consent and agreement pursuant to
which Sprint PCS may buy our operating assets, has been duly authorized and
approved by our board of directors and our stockholders. This provision is
intended to permit the sale of our operating assets pursuant to the terms of
the Sprint PCS agreements or a consent and agreement with our lenders without
further stockholder approval. These restrictions, in addition to the
restrictions in the Sprint PCS agreements could, among other things,
discourage, delay or make more difficult any sale of our operating assets or
common stock. This could have a material adverse effect on the value of our
operating assets and common stock and could reduce the price of our company in
the event of a sale. See "Description of Capital Stock."
Industry Risks
We may experience a high rate of customer turnover, which would increase our
costs of operations and reduce our revenue and prospects for growth
Our efforts to minimize customer turnover may not be successful. As a result
of customer turnover, we lose the revenue attributable to such customers and
increase our costs of establishing and growing our customer base. The PCS
industry has experienced a higher rate of customer turnover as compared to
cellular industry averages. The rate of customer turnover may be the result of
one or more of the following factors, several of which are not within our
ability to address:
. extent of network coverage;
. reliability issues such as blocked calls, dropped calls and handset
problems;
. non-use of phones;
. change of employment;
. non-use of customer contracts by PCS providers and the use of contracts
by other wireless providers;
. lack of affordability;
. customer care concerns; and
. other competitive factors.
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<PAGE>
Because the wireless industry has been historically dependent on fourth
calendar quarter results, our failure to acquire significantly more customers
in this quarter could have a disproportionately negative effect on the market
value of our common stock
The industry has experienced higher customer additions and handset sales in
the fourth calendar quarter as compared to the other three calendar 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 calendar
quarter for any reason, including the following:
. our inability to match or beat pricing plans offered by competitors;
. our failure to adequately promote Sprint PCS' products, services and
pricing plans;
. our inability to obtain an adequate supply or selection of handsets;
. a downturn in the economy of some or all of the markets in our territory;
or
. a poor holiday shopping season.
Wireless providers offering services based on lower cost structures or
alternative technologies may reduce demand for PCS and reduce our revenue
because of their ability to provide services at lower prices or their use of
more popular technologies
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of digital upgrades
in existing analog wireless systems, evolving industry standards, ongoing
improvements in the capacity and quality of digital technology, shorter
development cycles for new products and enhancements and changes in end-user
requirements and preferences. There is also uncertainty as to the extent of
customer demand as well as the extent to which airtime and monthly recurring
charges may continue to decline. As a result, our future prospects and those of
the industry, and the success of PCS and other competitive services, remain
uncertain.
Regulation by government agencies may increase our costs of providing service
or require us to change our services which could impair our financial
performance
The licensing, construction, use, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the FCC, the Federal Aviation Administration, generally referred to
as the FAA, and, depending on the jurisdiction, state and local regulatory
agencies and legislative bodies. Adverse decisions regarding these regulatory
requirements could negatively impact our operations and cost of doing business.
Use of hand-held phones may pose health risks which could result in the
reduced use of our services or liability for personal injury claims
Media reports have suggested that certain radio frequency emissions from
wireless handsets may be linked to various health problems, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. Concerns over radio frequency emissions may discourage use
of wireless handsets or expose us to potential litigation.
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Risks Relating to the Offering
Our existing stockholders, management and directors will be able to control
the outcome of significant matters presented to stockholders as a result of
their ownership position upon the completion of this offering and, as a result,
potentially impair the attractiveness of us as a take-over target
Upon completion of this offering, our existing stockholders, management and
directors will beneficially own approximately 78% of our outstanding common
stock on a diluted basis, or approximately 76% if the underwriters' over-
allotment option is exercised in full. Consequently, such persons, as a group,
may be able to control the outcome of matters submitted for stockholder action
including the election of members to our board of directors and the approval of
significant change in control transactions. This may have the effect of
delaying or preventing a change in control. See "Management" and "Principal
Stockholders."
An active market for the common stock may not develop which may inhibit the
ability of our stockholders to sell common stock and reduce its market value
following this offering
An active or liquid trading market in our common stock may not develop upon
completion of this offering, or if it does develop, it may not continue. The
initial public offering price of our common stock will be determined through
our negotiations with the underwriters and may be higher than the market price
of common stock after this offering. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
The price of our common stock may be more volatile than the equity securities
of established companies and such volatility may disproportionately reduce the
market value of our common stock at certain times
The market price of our common stock could be subject to significant
fluctuations in response to various factors, including:
. variations in our, or Sprint PCS', quarterly operating results;
. announcements of technological innovations or new products and services
by us, Sprint PCS or our competitors;
. our or Sprint PCS' failure to achieve operating results consistent with
securities analysts' projections;
. the operating and stock price performance of other companies that
investors may deem comparable to us or Sprint PCS;
. announcements by us or Sprint PCS of joint development efforts or
corporate partnerships in the wireless telecommunications market;
. market conditions in the technology, telecommunications and other growth
sectors; and
. rumors relating to us, Sprint PCS or our competitors.
The stock market has experienced extreme price volatility. Under these
market conditions, stock prices of many growth stage companies have often
fluctuated in a manner unrelated or
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<PAGE>
disproportionate to the operating performance of such companies. Since we are a
growth stage company, our common stock may be subject to greater price
volatility than the stock market as a whole.
Purchasers in this offering will experience dilution
The initial public offering price will be substantially higher than the net
tangible book value per share of the outstanding common stock immediately after
the offering. Any common stock you purchase in the offering will have a post-
offering net tangible book value of $2.62 per share which is $11.38 less per
share than the price you paid for the share, assuming an initial public
offering price of $14.00 per share, the midpoint of the range set forth on the
cover page of this prospectus. You will experience dilution in the event of the
exercise of employee and director stock options which we have committed to
issue, the Sprint PCS warrant, the Nortel warrants or warrants issued in
connection with any senior notes offering which we may determine is
appropriate. See "Dilution."
Possible future sales of our common stock by management and other affiliates
could cause the market price of our common stock to decrease
A substantial number of shares of our common stock could be sold into the
public market after this offering. The occurrence of such sales, or the
perception that such sales could occur, could materially and adversely affect
our stock price and could impair our ability to obtain capital through an
offering of equity securities. The shares of common stock being sold in this
offering will be freely transferable under the securities laws immediately
after issuance, except for any shares sold to our "affiliates." All of our
existing stockholders, our senior management and our directors have either
entered into or have agreed to enter into written "lock-up" agreements that
provide that, for a period of 180 days from the date of this prospectus, they
will not, among other things, sell their shares without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Upon the
expiration of the 180 day lock-up period, an additional 44,869,643 shares of
our common stock will be eligible for sale in the public market subject, in
most cases, to holding period requirements and volume and other restrictions
under federal securities laws. See "Description of Capital Stock" and "Shares
Eligible for Future Sale."
You may not receive a return on investment through dividend payments nor upon
the sale of your shares
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. Instead, we intend to retain future earnings to fund our
growth. Therefore, you will not receive a return on your investment in our
common stock through the payment of dividends. You also may not realize a
return on your investment upon selling your shares.
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FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events and expectations,
which are "forward-looking statements." Any statement in this prospectus that
is not a statement of historical fact may be deemed to be a forward-looking
statement. These statements include:
. forecasts of growth in the number of consumers using PCS services;
. statements regarding our plans for and costs of the build-out of our
network;
. statements regarding our anticipated revenues, expense levels, liquidity
and capital resources and projection of when we will achieve break-even
operating cash flow;
. statements regarding the year 2000 date change; and
. other statements, including statements containing words such as
"anticipate," "believe," "plan," "estimate," "expect," "seek," "intend"
and other similar words that signify forward-looking statements.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements.
Specific factors that might cause such a difference include, but are not
limited to:
. our dependence on our affiliation with Sprint PCS;
. the need to successfully complete the build-out of our network;
. our lack of operating history and anticipation of future losses;
. our dependence on Sprint PCS' back office services;
. potential fluctuations in our operating results;
. our potential need for additional capital;
. our potential inability to expand our services and related products in
the event of substantial increases in demand for these services and
related products;
. our competition; and
. our ability to attract and retain skilled personnel.
See additional discussion under "Risk Factors" beginning on page 5.
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USE OF PROCEEDS
The net proceeds from this offering, after deducting underwriting discounts
and commissions and estimated offering expenses, will be approximately $123.8
million, or approximately $142.6 million if the underwriters' over-allotment
option is exercised in full, assuming an initial public offering price of
$14.00 per share, the midpoint of the range set forth on the cover page of this
prospectus. We intend to use the net proceeds from this offering and borrowings
under the Nortel financing to fund:
. capital expenditures, including the build-out of our network, totaling
approximately $169.0 million, which include the purchase of network
assets under construction in three markets in Michigan from Sprint PCS in
connection with the recent expansion of our territory totaling
approximately $25.0 million;
. operating losses and working capital requirements totaling approximately
$66.2 million;
. Nortel interest payments and fees and expenses related to this offering
as well as the Nortel financing totaling approximately $46.7 million; and
. general corporate purposes.
Pending such uses, we expect to invest the net proceeds from this offering
in short-term investment grade securities.
We will retain broad discretion in the allocation of the net proceeds of
this offering. The foregoing discussion represents our best estimate of the
allocation of such net proceeds based upon our current business plan. Actual
expenditures may vary substantially from these estimates and we may find it
necessary or advisable to reallocate the net proceeds within the above-
described categories or to use portions thereof for other purposes. The timing
and the coverage of our build-out plan may change due to various reasons,
including shifts in populations or network focus, changes or advances in
technology, acquisition of other markets, businesses, products or technologies
and factors causing a delay in the build-out of some markets. Any changes in
the timing or build-out plan may cause changes in our use of the net proceeds.
Additionally, we may use a portion of the net proceeds to acquire or invest in
businesses, products or technologies that are complementary to our business.
DIVIDEND POLICY
We intend to retain our future earnings, if any, to fund the development and
growth of our business and, therefore, do not anticipate paying any cash
dividends in the foreseeable future. Our future decisions concerning the
payment of dividends on the common stock will depend upon our results of
operations, financial condition and capital expenditure plans, as well as such
other factors that the board of directors, in its sole discretion, may consider
relevant. In addition, our Nortel financing restricts, and we anticipate our
future indebtedness may restrict, our ability to pay dividends.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and actual
capitalization as of March 31, 2000 and as adjusted to reflect the following:
. the sale of 9,643,000 shares of our common stock in this offering,
assuming an initial public offering price of $14.00 per share, the
midpoint of the range set forth on the cover of this prospectus, less
underwriting discounts and commissions and estimated offering expenses of
$11.2 million;
. additional equity contributions of $10.0 million after March 31, 2000 but
prior to the closing of the offering;
. the purchase from Sprint PCS of network assets under construction in
three markets in Michigan estimated to be $25.0 million; and
. the borrowings for fees and expenses related to the Nortel financing.
<TABLE>
<CAPTION>
As of March 31,
2000
------------------
As
Actual(1) Adjusted
(In thousands)
<S> <C> <C>
Cash and cash equivalents.................................. $ 2,118 $110,920
======= ========
Long-term debt:
Nortel financing (2)..................................... $29,136 $ 33,636
Stockholders' equity:
Preferred stock, par value $.01 per share, 5,000,000
shares authorized; no shares issued and outstanding..... -- --
Common stock, par value $.01 per share, 95,000,000 shares
authorized; 44,869,643 shares outstanding, actual;
54,512,643 shares outstanding, as adjusted.............. 449 545
Additional paid-in capital (3)........................... 28,031 161,737
Accumulated deficit...................................... (19,452) (19,452)
------- --------
Total stockholders' equity............................. 9,028 142,830
------- --------
Total capitalization................................. $38,164 $176,466
======= ========
</TABLE>
- ---------------------
(1) Reflects the reorganization as if it had occurred as of March 31, 2000. For
more information on the reorganization, see "Reorganization."
(2) Actual reflects $29.1 million outstanding under the Nortel financing as of
March 31, 2000. As adjusted reflects $4.5 million of borrowings of the
Nortel financing for the payment of an origination fee and expenses related
to the Nortel financing. For more information on the Nortel financing, see
"Description of Our Indebtedness--The Nortel Credit Facility."
(3) Includes additional equity contributions of $10.0 million after March 31,
2000 but prior to the closing of the offering.
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DILUTION
Our net tangible book value at March 31, 2000 was $9.0 million or $0.20 per
share of common stock, after giving effect to the reorganization to form the
holding company. For more information on the reorganization, see
"Reorganization." Net tangible book value per share represents the amount of
total tangible assets less total liabilities, divided by the number of shares
outstanding. After giving effect to:
. the sale in this offering of 9,643,000 shares of our common stock
assuming an initial public offering price of $14.00 per share, the
midpoint of the range set forth on the cover page of this prospectus, and
the receipt of proceeds therefrom;
. the deduction of underwriting discounts and commissions and estimated
offering expenses of $11.2 million; and
. additional equity contributions of $10.0 million after March 31, 2000 but
prior to the closing of this offering.
our as-adjusted net tangible book value as of March 31, 2000 would have been
approximately $142.8 million, or $2.62 per share. This represents an immediate
dilution of $11.38 per share to new purchasers of our common stock in the
offering and an immediate increase in net tangible book value to existing
stockholders of $2.42 per share. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $14.00
Net tangible book value per share as of March 31, 2000......... $0.20
Increase in net tangible book value per share attributable to
the offering.................................................. 2.42
-----
As adjusted net tangible book value per share after the
offering...................................................... 2.62
------
Dilution per share to new purchasers of our common stock....... $11.38
======
</TABLE>
The following table summarizes, on an as-adjusted basis as of March 31,
2000, the number of shares of our common stock purchased, the total
consideration paid and the average price per share paid by our existing
stockholders and by new purchasers of our common stock in this offering
assuming an initial public offering price of $14.00 per share, the midpoint of
the range set forth on the cover page of this prospectus, before the deduction
of underwriting discounts and commissions and estimated offering expenses of
$11.2 million payable by us:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ ------------------- Per
Number Percent Amount Percent Share
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)... 44,869,643 82.3% $ 30,000,000 18.2% $ 0.67
New purchasers of our common
stock...................... 9,643,000 17.7 135,002,000 81.8 14.00
---------- ----- ------------ ----- ------
Total..................... 54,512,643 100.0% $165,002,000 100.0% $ 3.03
========== ===== ============ ===== ======
</TABLE>
- ---------------------
(1) Reflects the reorganization to form a holding company structure as if it
had occurred as of March 31, 2000 and includes the additional equity
contributions of $10.0 million after March 31, 2000 but prior to the
closing of this offering.
22
<PAGE>
The foregoing tables assume no exercise of the underwriters' over-allotment
option and no exercise of stock options, the Sprint PCS warrant or the Nortel
warrants because such options and warrants have not been granted. Neither the
employee and director stock options, the Sprint PCS warrant nor the Nortel
warrants are currently exercisable. In the event that we consummate an offering
of senior notes, either concurrently with this offering or thereafter, the
proceeds could be used to eliminate the Nortel warrants but we may be required
to issue additional warrants in connection with the senior notes if market
conditions so require. To the extent that any shares are issued in connection
with the underwriters' over-allotment option as well as any exercise of stock
options or warrants, you will experience dilution. See "Management--2000 Long
Term Incentive Stock Plan," "Management--Employment Agreements" and
"Description of Capital Stock--Warrants."
23
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data", for, and as of the end of, the
period from January 22, 1999 (date of inception) to December 31, 1999 are
derived from the financial statements of Illinois PCS, LLC, the predecessor to
iPCS, Inc., which have been audited by Deloitte & Touche LLP, independent
auditors.
It is important that you also read "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the financial statements for
the period from January 22, 1999 (date of inception) through December 31, 1999
and the related notes of Illinois PCS, LLC and the independent auditors' report
of Deloitte & Touche, LLP.
The selected unaudited financial data presented below as of March 31, 2000
and for the three months ended March 31, 2000 and the period ended March 31,
1999, are derived from our unaudited financial statements included in this
prospectus. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, that management considers necessary to
a fair presentation of financial position and results of operations. Operating
results for the three-month period ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 2000.
<TABLE>
<CAPTION>
Period from Period from For
January 22, 1999 January 22, 1999 the
(date of (date of three-month
inception) inception) period
through through ended
December 31, 1999 March 31, 1999 March 31, 2000
(In thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations
Data:
Revenues.................. $ 215 $ -- $ 1,592
Cost of service........... 1,695 59 1,746
Total operating expenses.. 4,858 393 16,492
Operating loss............ (4,643) (393) (14,900)
Net loss.................. (4,380) (392) (15,072)
Other Data:
Pro forma basic and
diluted loss per share of
common stock(1).......... $ (0.10) $ (0.01) $ (0.34)
</TABLE>
<TABLE>
<CAPTION>
As of As of March 31,
December 31, 2000
1999 -------------------
As
Actual Actual Adjusted(2)
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................... $ 2,733 $ 2,118 $110,920
Property and equipment including
construction in
progress, net.............................. 39,106 48,454 73,454
Total assets................................ 44,843 53,834 192,136
Long-term debt.............................. 27,571 29,136 33,636
Total liabilities........................... 35,723 44,806 49,306
Equity...................................... 9,120 9,028 142,830
</TABLE>
24
<PAGE>
- ---------------------
(1) Pro forma basic and diluted loss per share of common stock is computed by
dividing net loss by the assumed number of common shares outstanding as if
the reorganization had occurred upon the inception of Illinois PCS, LLC.
(2) As adjusted Balance Sheet Data reflects (a) the sale in this offering of
9,643,000 shares of common stock at an initial public offering price of
$14.00 per share, the midpoint of the range set forth on the cover page of
this prospectus, less underwriting discounts and commissions and estimated
offering expenses of $11.2 million, (b) additional equity contributions of
$10.0 million after March 31, 2000 but prior to the closing of this
offering, (c) the payment of $25.0 million of the offering proceeds to
purchase from Sprint PCS network assets under construction in three markets
in Michigan, and (d) $4.5 million of borrowings under the Nortel financing
related to the payment of an origination fee and expenses related to the
Nortel financing. For more information on the Nortel financing, see
"Description of Our Indebtedness--The Nortel Credit Facility."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and the related notes included elsewhere in this
prospectus.
Overview
On January 22, 1999 we entered into the Sprint PCS agreements whereby we
became the exclusive Sprint PCS affiliate with the right to market 100%
digital, 100% PCS wireless products and services under the Sprint and Sprint
PCS brand names in 15 markets in Illinois and Iowa. In March 2000, the Sprint
PCS agreements were amended to add 20 additional markets to our territory which
increased the size of our territory from a total population of 2.8 million to a
total population of 7.0 million.
Under the Sprint PCS agreements, we manage our network utilizing Sprint PCS'
licensed spectrum as well as using the Sprint and Sprint PCS brand names
royalty-free during our affiliation with Sprint PCS. We also have access to
Sprint PCS' national marketing support and distribution programs and we buy our
network equipment, handsets and accessories at the same discounted rates
offered by vendors to Sprint PCS based on its large volume purchases. We record
100% of the revenues from our customers, proceeds from the sale of handsets and
accessories, and roaming fees from Sprint PCS and other wireless service
providers when their customers use our network. Sprint PCS retains 8% of all
collected service revenue from our customers, excluding outbound roaming, and
fees from wireless providers other than Sprint PCS when their subscribers roam
onto our network. We report the amount retained by Sprint PCS as cost of
service.
Under the Sprint PCS agreements, we contract with Sprint PCS to provide back
office services such as customer activation, billing, collections and customer
care. We currently purchase these services from Sprint PCS to take advantage of
Sprint PCS' economies of scale, to accelerate our build-out and market launches
and to lower our initial capital requirements. The cost for these services is
primarily calculated on a per customer and per transaction basis and is
recorded as an operating expense.
Since the date of inception, we have incurred substantial costs to negotiate
the Sprint PCS agreements and the Nortel financing, to design, engineer and
build-out our network in our initial territory and to open retail stores. Prior
to launching service in Bloomington, Illinois and the Quad Cities (Rock Island
and Moline, Illinois; and Davenport and Bettendorf, Iowa) markets in December
1999, we did not have any markets in operation. We launched service in our
first two markets in December 1999 and have since commenced offering service in
three additional markets. Our network covers approximately 1,147,000 residents,
or approximately 80% of a total population of 1,440,000 in those markets, and
we have over 6,600 customers as of March 31, 2000. For the period January 22,
1999 (date of inception) through December 31, 1999, we had not generated
significant revenues from customers and our net loss was $4.4 million. Through
March 31, 2000, we had incurred $47.9 million of capital expenditures and
construction in progress expenses related to the build-out of our network.
While we anticipate operating losses to continue, based upon the subscriber
additions experienced by Sprint PCS and other affiliates and our limited
experience to date, we expect revenue
26
<PAGE>
to increase substantially as the number of our customers increases. All costs
of start-up and organizational activities have been expensed as incurred in
accordance with American Institute of Certified Public Accountants Statement of
Position No. 98-5, "Reporting on the Costs of Start-Up Activities."
Results of Operations
For the period January 22, 1999 (date of inception) through December 31, 1999
Net loss. From the date of inception through December 31, 1999, our
operating activities were directed towards the development of our business,
including executing our build-out plan and developing our network
infrastructure. In January 1999, we signed the Sprint PCS agreements to operate
as the exclusive affiliate of Sprint PCS in our initial territory. We launched
our first markets in December 1999. Our net loss from the date of inception
through December 31, 1999 was $4.4 million and was comprised primarily of
service and equipment expenses as well as selling, general and administrative
expenses associated with the preparation of our initial market launches.
Service revenues. Service revenues, which during the period totaled $71,000,
consisted of customer revenue of approximately $28,000, Sprint PCS roaming
revenue of approximately $41,000, and non-Sprint PCS roaming revenue and long
distance revenue of approximately $2,000, all of which relate to our initial
market launches in December 1999.
. Customer revenue consists of services billed to our customers for monthly
Sprint PCS service in our territory under a variety of service plans as
well as roaming and long distance revenues from our customers when they
roam on non-Sprint PCS networks.
. We receive Sprint PCS roaming revenue at a per-minute rate from Sprint
PCS or another Sprint PCS affiliate when Sprint PCS subscribers based
outside of our territory use our network. Pursuant to the Sprint PCS
agreements, Sprint PCS can change this per-minute rate after December 31,
2001.
. Non-Sprint PCS roaming revenue includes payments from wireless service
providers, other than Sprint PCS, when those providers' subscribers roam
on our network.
Equipment revenues. We record 100% of the revenue from the sale of
equipment, net of an allowance for returns, as equipment revenues. The amount
recorded during this period totaled $144,000.
Cost of service. Cost of service expenses totaled $1.7 million which related
to providing Sprint PCS services in our territory. Cost of service expenses
also include billing, network monitoring, cost of operations, fees related to
facilities and other transport lines, inter-connection fees, Sprint PCS roaming
fees, non-Sprint PCS roaming fees and other expenses related to operations. We
pay Sprint PCS roaming fees when our customers use the Sprint PCS network
outside of our territory. We pay non-Sprint PCS roaming fees to other wireless
service providers when our customers use their network. Also included in cost
of service expenses is the 8% of collected revenue retained by Sprint PCS.
Cost of equipment. Cost of equipment totaled $484,000 which includes the
cost of accessories, the cost of handsets and handset subsidies. Because we
subsidize the price of handsets for competitive reasons, we expect and have
budgeted for the cost of handsets to continue to exceed the retail sales price
for the foreseeable future.
27
<PAGE>
Selling expenses. Selling expenses totaling $778,000 during the period
included advertising expenses, promotion costs, sales commissions and expenses
related to our distribution channels.
General and administrative expenses. General and administrative expenses
totaling $1.5 million included administrative and executive salaries, employee
benefit costs, legal and other professional service fees, and loan commitment
fees.
Depreciation and amortization. Depreciation and amortization during the
period totaled $381,000. Depreciation is calculated using the straight line
method over the useful life of the asset. We begin to depreciate the assets for
each market only after we launch service in that market.
Interest income. Interest income totaling $89,000 was generated on
investment of funds during the period.
Interest expense. Interest expense, which totaled $471,000 during this
period, was capitalized and related primarily to the Nortel financing.
Gain on tower sales. For the period ended December 31, 1999, eighteen towers
were sold to American Tower for $4.5 million in cash, resulting in a gain of
$1.9 million, of which $174,000 was recognized at the time of the sale and the
remainder was deferred and is being amortized as a reduction in rental expense
over the initial lease term of ten years for the related towers.
For the three-month period ended March 31, 2000 compared with the period
January 22, 1999 (date of inception) through March 31, 1999
Net loss. From the date of inception, our operating activities have been
directed towards the development of our business, including executing our
build-out plan and developing our network infrastructure. For the three-month
period ended March 31, 2000, we recorded a loss of approximately $15.1 million
on total revenues of approximately $1.6 million. The loss was caused primarily
by costs of service revenues exceeding service revenues, handset subsidies,
selling, general and administrative expenses and depreciation and amortization
associated with the markets launched in 1999 and 2000 and the non-cash
compensation expense of approximately $8.5 million and related taxes of
approximately $1.6 million associated with the issuance of a 1.5% ownership
interest in Illinois PCS, LLC to our President and Chief Executive Officer. Our
net loss for the period ended March 31, 1999 was $392,000 and was comprised
primarily of selling, general and administrative expenses associated with the
preparation of our initial markets.
Service and equipment revenues. For the three-month period ended March 31,
2000, service revenue totaled approximately $1.2 million and was comprised of
customer revenue of $687,000,
Sprint PCS roaming revenue of approximately $492,000 and non-Sprint PCS roaming
and long distance revenue of $32,000. The number of our subscribers increased
from approximately 1,900 at December 31, 1999 to over 6,600 at March 31, 2000.
Our average monthly revenue per customer, including long distance and roaming
revenue, was $102.75 for the three-month period ended March 31, 2000. For the
period ended March 31, 1999 we had no service and equipment revenues because we
had not yet launched service.
28
<PAGE>
Equipment revenues. Equipment revenues totaled approximately $379,000 for
the three-month period ended March 31, 2000. For the period ended March 31,
1999 we had no equipment revenues because we had not yet launched service.
Cost of service. Cost of service expenses, which relates to providing Sprint
PCS services in our territory, for the three-month period ended March 31, 2000
totaled approximately $1.7 million and totaled approximately $59,000 for the
period ended March 31, 1999. Also included in the cost of service expenses is
the 8% fee of collected revenue retained by Sprint PCS in the amount of $53,000
for the three-month period ended March 31, 2000. There was no Sprint PCS fee
expense recorded for the period ended March 31, 1999 because we had not yet
launched service.
Cost of equipment. Cost of equipment sold for the three-month period ended
March 31, 2000 totaled approximately $982,000. There was no cost of equipment
expense recorded for the period ended March 31, 1999 because we had not yet
launched service. Because we subsidize the price of handsets for competitive
reasons, we expect and have budgeted for the cost of handsets to continue to
exceed the retail sales price for the foreseeable future.
Selling expenses. Selling expenses include advertising and promotional
costs, sales commissions, and expenses related to our distribution channels.
For the three-month period ended March 31, 2000, selling expenses totaled
approximately $1.1 million compared with $1,000 for the period ended March 31,
1999 and increased due to the costs related to the launch of operations in
December 1999 and in the first quarter of 2000.
General and administrative expenses. General and administrative expenses
were approximately $11.3 million for the three-month period ended March 31,
2000 and $333,000 for the period ended March, 31, 1999. Included in general and
administrative expenses are finance and executive salaries and bonuses,
employee benefit costs, legal and other professional service fees, and loan
commitment fees. The increase experienced in the three-month period ended March
31, 2000 was due to the hiring of additional personnel, the non-cash
compensation expense for the three-month period ended March 31, 2000 of
approximately $8.5 million which related to a one time charge for the issuance
of the 1.5% ownership interest to our President and Chief Executive Officer
based on the expected initial public offering price, and approximately $1.6
million related to the withholding taxes we have agreed to pay in connection
with the issuance of the 1.5% ownership interest.
Depreciation and amortization. Depreciation and amortization expense for the
three-month period ended March 31, 2000 totaled approximately $1.3 million. We
begin to depreciate the assets when we launch service in a market. There was no
depreciation and amortization expense recorded for the period ended March 31,
1999 because we had not yet launched service.
Interest income. For the three-month period ended March 31, 2000, interest
income totaled approximately $43,000 and was generated on the investment of
funds. For the period ended March 31, 1999, interest income totaled
approximately $1,000.
Interest expense. For the three-month period ended March 31, 2000, interest
of approximately $629,000 was capitalized and approximately $206,000 was
recorded as expense. Interest incurred relates primarily to the Nortel
financing.
29
<PAGE>
Gain on tower sales. For the three-month period ended March 31, 2000, eight
towers were sold to American Tower for approximately $2.0 million in cash,
resulting in a total gain of approximately $736,000 which is being amortized
over the initial lease term of ten years. We did not sell any towers to
American Tower during the period ended March 31, 1999.
Income Taxes
Our financial statements did not report any benefit for federal and state
income taxes because we had elected to be taxed as a partnership prior to our
reorganization from a limited liability company into a C corporation holding
company structure. For the period presented, the owners of our predecessor
limited liability company recorded our tax losses on their own income tax
returns. Subsequent to our reorganization, we will account for income taxes in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Had we applied the provisions of SFAS No. 109
for the period from the date of inception through December 31, 1999 and for the
three-month period ended March 31, 2000 and the period ended March 31, 1999,
the deferred tax asset generated, primarily from temporary differences related
to the treatment of start-up costs and from net operating loss carry forwards,
would have been offset by a full valuation allowance and therefore, there would
have been no difference to the financial statements had we been a corporation
for such period.
Liquidity and Capital Resources
Since the date of inception, we have financed our operations through equity
contributions from our owners and through financing provided by Nortel. As of
March 31, 2000 we had received $20.0 million of equity contributions from our
owners and had unfunded equity commitments of $10.0 million. As of March 31,
2000, we had a $48.0 million credit facility with Nortel, of which $29.1
million had been drawn. Since March 31, 2000, our owners have contributed $3.0
million and will contribute the remaining $7.0 million of their unfunded equity
commitments prior to the closing of this offering. On May , 2000, we entered
into an amended and restated credit agreement with Nortel to increase the
Nortel financing to $200.0 million which will be effective as of the closing of
this offering to provide funds for the build-out of our expansion territory.
As additional consideration, we have agreed to issue to Nortel warrants to
purchase 1,152,857 shares or 2% of our outstanding shares as of the closing
date of this offering on a fully-diluted basis. These warrants may be
terminated if we reduce the amount of the Nortel financing before November,
2001. For more information on the Nortel warrants, see "Description of Capital
Stock--Warrants."
The Nortel credit agreement provides for three different tranches of
borrowings totaling $200.0 million. The Tranche A Commitment provides for
borrowings up to $134.0 million, the Tranche B Commitment provides for
borrowings up to $46.0 million and the Tranche C Commitment provides for
borrowings up to $20.0 million. Commencing September 30, 2003, we must begin to
repay, in quarterly installments, the principal on all borrowings made under
the Tranche A, Tranche B, or Tranche C Commitment. A fixed percentage is due
each quarter as follows:
. for the first four quarters, 2.50% of the principal balance of the loan
is due per quarter;
. for quarters five through eight, 3.75% per quarter; and
. for quarters nine through the maturity date, 6.25% per quarter.
Based upon the amount outstanding as of March 31, 2000, the aggregate amount
required to be paid for each of the three periods above would be $2.9 million,
$4.3 million, and $21.9 million,
30
<PAGE>
respectively, and if we had borrowed the maximum amount, the aggregate amount
required to be paid would be $20.0 million, $30.0 million, and $150.0 million,
respectively.
Any principal that has not been paid by the maturity date is due at that time.
We may voluntarily prepay any of the loans at any time. This is not a
revolving credit agreement so amounts repaid cannot be reborrowed except that
borrowings under Tranche B may be reborrowed at any time prior to the earlier
to occur of (1) the second anniversary of the effectiveness of the credit
facility and (2) May , 2003.
We also must make mandatory prepayments under certain circumstances,
including among others:
. 50% of our excess cash flow as computed under the Nortel credit
agreement, commencing April, 2003; and
. any amount in excess of $1,000,000 per calendar year received as net
proceeds of asset sales outside the ordinary course of business or
insurance proceeds, to the extent not reinvested in property or assets
within a stated period of time.
All such prepayments are applied to the outstanding loan balances in the
inverse order of maturity.
We may borrow money at the lesser of either: (1) a base rate loan with an
interest rate equal to 2.75 percent plus the higher of (A) the prime rate of
Citibank, N.A. (New York) or (B) the federal funds effective rate plus 0.5%; or
(2) or a Eurodollar loan with an interest rate equal to the London interbank
offered rate, plus 3.75%. All borrowings to date have been based on the London
interbank offered rate plus 4 percent. At March 31, 2000, this rate was 10.13%.
As of March 31, 2000, we are in compliance with the covenants under the
Nortel financing.
The Nortel financing will be used to purchase equipment, pay interest and
cover approved working capital costs. For more information on the Nortel
facility, see "Description of Our Indebtedness--The Nortel Credit Facility."
Net cash used by operating activities was $3.9 million from the date of
inception through December 31, 1999 and $2.0 million for the three-month period
ended March 31, 2000. Cash used in operating activities was attributable to
operating losses and working capital needs.
Net cash used in investing activities was $32.8 million from the date of
inception through December 31, 1999 and $6.6 million for the three-month period
ended March 31, 2000. The expenditures were related primarily to the purchase
of our network infrastructure equipment.
Net cash provided by financing activities from the date of inception through
December 31, 1999 was $39.5 million and $8.1 million for the three-month period
ended March 31, 2000 and consisted primarily of equity contributions and
borrowings under the Nortel financing.
In May 1999, we signed a tower sale and leaseback agreement with American
Tower Corporation. We have agreed to construct between 60 and 80 wireless
communications towers, sell the towers to American Tower and then lease back
tower space from American Tower. We expect the average construction costs for
each tower to be approximately $150,000. Under the agreement we will receive
approximately $250,000 for each tower sold to American Tower and we will pay
rent in the amount of $1,100 per month (which increases at an annual rate of 3%
per annum) for tower space and no more than $350 per month for each
corresponding ground lease.
31
<PAGE>
Through March 31, 2000 we have received $6.5 million related to the sale of
towers under this agreement and have incurred $3.9 million to construct such
towers. American Tower has also provided us with a one time advance of $2.0
million. This advance is a prepayment of American Towers' obligations under the
agreement, and will be credited ratably toward the purchase price of the fifty-
third through sixtieth towers upon the sale of each such tower. In the event of
a default by us that results in a termination of the agreement prior to the
construction of the fifty-third tower, we must refund the entire amount of the
$2.0 million advance plus accrued interest at a rate of 5% per annum. The term
of this agreement will expire at the earlier of the final tower sale or
December 31, 2000. As of March 31, 2000, we had sold 26 towers to American
Tower.
As of March 31, 2000, our primary sources of liquidity were $2.1 million in
cash and $18.9 million of unused capacity under the $48.0 million Nortel credit
facility. We also had $10.0 million of unfunded equity commitments.
We anticipate that the proceeds from this offering, when combined with the
Nortel financing, will be adequate to fund our network build-out, including our
obligation to purchase an additional $103.3 million of equipment from Nortel,
the net cost of towers, the purchase of assets under construction in three
markets in Michigan and anticipated operating losses and working capital
requirements through year 2002, at which point we expect to have achieved
break-even operating cash flow. The following table sets forth our estimated
sources and uses from April 1, 2000 through December 31, 2002:
<TABLE>
<CAPTION>
Amount
Sources: (In millions)
<S> <C>
Cash on hand at April 1, 2000..................................... $ 2.1
Gross proceeds of this offering................................... 135.0
Proceeds from our Nortel financing................................ 170.9
Equity contributions.............................................. 10.0
------
Total sources................................................... $318.0
======
Uses:
Capital expenditures, net (1)..................................... $169.0
Working capital and operating losses (2).......................... 66.2
Nortel interest payments.......................................... 31.0
Fees and expenses (3)............................................. 15.7
------
Total uses...................................................... 281.9
Cash on hand at December 31, 2002............................... 36.1
------
Total uses and cash on hand at December 31, 2002.............. $318.0
======
</TABLE>
- ---------------------
(1) Capital expenditures, assumed to be net of the proceeds from the sale of 74
towers for $16.5 million, include the amounts related to the build-out of
our network and the purchase of assets under construction in three markets
in Michigan. We currently expect to pay approximately $25.0 million for
these Michigan network assets.
(2) Operating losses are defined as losses before interest, taxes, depreciation
and amortization.
(3) Fees and expenses include estimated offering expenses and underwriting
discounts and commissions for this offering and origination and other fees
related to the Nortel financing.
32
<PAGE>
The actual funds required to build-out our network and to fund operating
losses and working capital needs may vary materially from these estimates, and
additional funds could be required because of an expansion of our territory,
unforeseen delays, cost overruns, unanticipated expenses, regulatory changes,
engineering design changes and required technological upgrades and other
technological risks. In light of these considerations, we intend to monitor the
public and private debt markets for opportunities to advantageously issue
senior debt.
Option Territory
As part of the expansion of our territory, we have been granted the option,
but do not have the obligation, to add to our territory the Iowa City and Cedar
Rapids, Iowa markets that have already been launched by Sprint PCS and to
purchase from Sprint PCS related assets in those markets. These markets, which
were launched by Sprint PCS in February 1997, have a total population of
approximately 405,000 and had over 6,600 Sprint PCS subscribers as of December
31, 1999. Our option expires on January 31, 2001. The purchase price payable by
us for the purchase of assets upon exercise of the option would be payable
within 90 days of the date we exercise the option as a condition to adding the
Iowa City and Cedar Rapids Iowa markets to our territory. The purchase price
for the assets and subscriber accounts was initially $25.2 million and
increases monthly to a purchase price of $28.8 million in January, 2001. The
purchase price is subject to upward adjustment based upon the number of
subscribers in the two additional markets at the option exercise date, as
described more fully under "The Sprint PCS Agreements--Option Territory." We
would become the manager of all Sprint PCS subscribers in these markets upon
the closing of the asset purchase. We have not determined whether we will
exercise this option, and our decision will depend upon an ongoing analysis of
the option territory and whether exercising this option is our best use of
capital. We do not expect to reach a determination until after the completion
of this offering.
Regulatory Developments
See "Regulation of the Wireless Telecommunications Industry" for a
discussion of regulatory developments that could have a future impact on us.
Seasonality
The wireless industry has historically experienced higher customer additions
and handset sales in the fourth calendar quarter as compared to the other three
calendar quarters. A number of factors contribute to this including:
. the increasing use of retail distribution, which is dependent upon the
year-end holiday shopping season;
. competitive pricing pressures; and
. aggressive marketing and promotions initiated during the period.
33
<PAGE>
Impact of Year 2000 Issue on the Operations and Financial Condition of iPCS
The year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year. Consequently, such software has the potential to
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
We believe that our existing computer systems and software are year 2000
compliant. As we implement our own computer systems and software in the future,
we will assess year 2000 compliance prior to implementation. We have not
incurred any costs nor experienced any difficulties relating to year 2000
compliance. In the process of designing and constructing our network, we have
entered into material agreements with several third-party vendors. We rely on
them for all of our important operating, computer and non-information
technology systems. We are therefore highly dependent on Sprint PCS and other
vendors for remediation of their network elements, computer systems, software
applications and other business systems. We purchase critical back office
services from Sprint PCS, and our network infrastructure equipment is
contractually provided by Nortel. If either Sprint PCS or Nortel is not year
2000 compliant, our operations may be materially affected. We have contacted
our third-party vendors and believe that they are year 2000 compliant. However,
we have no contractual or other right to compel compliance by them.
Quantitative and Qualitative Disclosure about Market Risk
We do not engage in commodity futures trading activities and do not enter
into derivative financial instrument transactions for trading or other
speculative purposes. We also do not engage in transactions in foreign
currencies that could expose us to market risk.
We are subject to interest rate risk on our Nortel financing and any future
financing requirements. Our variable rate debt consists of borrowings made
under our Nortel financing. The Nortel financing requires us to enter into an
interest rate protection agreement within 90 days after the initial funding
date to fix the interest rate of at least 50% of the total debt. To date, we
have not entered into such an agreement and have received a waiver of this
requirement until the earlier of (1) five days after the Eurodollar interest
rate exceeds 6.75% or (2) June 30, 2000.
34
<PAGE>
The following table presents the estimated future outstanding long-term debt
at the end of each year and future required annual principal payments for each
year then ended associated with our Nortel financing based on our projected
level of long-term indebtedness:
<TABLE>
<CAPTION>
Years Ending December 31,
--------------------------------------------------------
1999 2000 2001 2002 2003 2004 Thereafter
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Nortel financing(1)..... $27,571 $34,900 $200,000 $200,000 $190,000 $165,000 --
Variable interest
rate(2)................ 10.0% 9.75% 9.75% 9.75% 9.75% 9.75% 9.75%
Principal payments...... -- -- -- -- $ 10,000 $ 25,000 $165,000
</TABLE>
- ---------------------
(1) The amounts presented for periods subsequent to December 31, 1999 represent
estimated year-end balances under our amended and restated Nortel financing
based upon a projection of the funds borrowed under that facility pursuant
to such current network build-out plan.
(2) Interest rate on our amended and restated Nortel financing equals the
lesser of either:
.a base rate loan with an interest rate equal to the higher of
.the prime rate of Citibank, N.A. (New York), plus 2.75% or
.the federal fund effective rate plus 0.5%; or
. the London interbank offered rate plus 3.75%. The London interbank
offered rate is assumed to equal 6.0% for all periods presented.
Our primary market risk exposure relates to:
. the interest rate risk on our long-term and short-term borrowings; and
. the impact of interest rate movements on our ability to meet interest
expense requirements and meet financial covenants.
We manage the interest rate risk on our outstanding long-term and short-term
debt through the use of fixed and variable rate debt and interest rate caps
under the Nortel credit agreement. While we cannot predict our ability to
refinance existing debt or the impact interest rate movements will have on our
existing debt, we continue to evaluate our financial position on an ongoing
basis.
Inflation
Management believes that inflation has not had, and will not have, a
material adverse effect on our results of operations.
Effect of Recently Issued Accounting Pronouncements
On July 8, 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 137, "Deferral of the Effective
Date of SFAS 133." SFAS No. 137 defers the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," to all fiscal
years beginning after June 15, 2000. We are currently evaluating the impact of
adoption of SFAS No. 133. Our adoption is not expected to have a material
effect on our results of operations, financial position, or cash flows.
35
<PAGE>
BUSINESS
References to total population and residents are based on January 1, 1999
population estimates compiled by Rand McNally Commercial Atlas & Marketing
Guide, 2000 Edition. References to markets reflect whole or partial basic
trading areas, or BTAs, as defined by the Federal Communications Commission.
Overview
Based upon the total population in our markets, we are one of the largest of
the 18 Sprint PCS affiliates, with the exclusive right to provide Sprint PCS
products and services to a total population of more than 7.0 million in the
midwestern United States. We market 100% digital, 100% personal communication
services, or PCS, under the Sprint and Sprint PCS brand names. We offer the
same bundled national pricing plans and use the same sales and marketing
strategies, national sales and distribution channels, centralized billing and
customer care that have made Sprint PCS the fastest growing wireless company in
the country. We began providing service in December 1999 and, as of March 31,
2000, had launched service in five markets covering approximately 1,147,000
residents and had over 6,600 customers.
In January 1999, we entered into the Sprint PCS agreements whereby we became
the exclusive Sprint PCS affiliate for our initial territory of 15 markets with
a total population of over 2.8 million in the states of Illinois and Iowa. We
have completed all radio frequency design, network design, site acquisition and
engineering for each of these 15 markets. We successfully launched commercial
operations in two markets covering over 590,000 residents in December 1999 and
in three additional markets covering approximately 557,000 residents during the
first quarter of 2000. By the end of September 2000, we plan to launch service
in all of our remaining initial markets thereby substantially completing our
network build-out in our initial territory. At such time, we will be providing
coverage to approximately 2.1 million residents or approximately 75% of the 2.8
million total population in our initial territory. Following our successful
initial launch, Sprint PCS selected us to be the exclusive Sprint PCS affiliate
for 20 additional markets with a total population of over 4.2 million in the
states of Michigan, Iowa and Nebraska. As part of this expansion, we have
agreed to purchase from Sprint PCS certain network assets under construction in
three markets in Michigan. In addition, we have been granted the option, but do
not have the obligation, to add to our territory the Iowa City and Cedar
Rapids, Iowa markets that Sprint PCS had launched in February 1997 and to
purchase from Sprint PCS related assets in those markets. Those markets have a
total population of approximately 405,000 and had over 6,600 Sprint PCS
subscribers as of December 31, 1999.
Our territory includes markets in Illinois, including Peoria, Springfield,
Champaign-Urbana, Decatur-Effingham, Bloomington and the Quad Cities (Rock
Island and Moline, Illinois; and Davenport and Bettendorf, Iowa); Michigan,
including Grand Rapids, Saginaw-Bay City, Muskegon and Traverse City; Iowa,
including Waterloo-Cedar Falls and Dubuque; and eastern Nebraska. We anticipate
our territory will generate significant roaming revenues for us from Sprint PCS
subscribers not based in our territory who use our network. Our territory is
adjacent to several important markets owned and operated by Sprint PCS
including Chicago, Detroit, Des Moines, Indianapolis, Omaha and St. Louis. We
benefit from more than 1,700 miles of heavily traveled interstates in our
territory which connect major metropolitan and industrial areas of the
midwestern United States. Over 40 colleges and universities are located in our
territory with a total enrollment of approximately 200,000 students.
36
<PAGE>
From inception through March 31, 2000, we have not generated significant
revenues and have generated significant net operating losses. We expect to
continue to generate significant net operating losses until the end of 2002, at
which time we expect to have achieved break-even operating cash flow. By the
end of the third quarter of 2001, we plan to be providing coverage to
approximately 67% of the total population of over 7.0 million in our territory,
at which time our planned network build-out for all of our current markets will
be substantially complete.
Competitive Strengths
Benefits of our Long-Term Strategic Relationship with Sprint PCS
Our long-term strategic relationship with Sprint PCS allows us to offer high
quality, nationally branded wireless services more quickly, at a lower cost and
with lower initial capital requirements than would otherwise be possible. The
benefits of our affiliation with Sprint PCS include the following:
Exclusive provider of Sprint PCS products and services. We are the exclusive
provider of Sprint PCS' 100% digital, 100% PCS wireless products and services
in our territory. We market these products and services exclusively under the
Sprint and Sprint PCS brand names.
Immediate brand name recognition and national advertising support. We
benefit from the strength and reputation of the Sprint and Sprint PCS brand
names. Sprint PCS' extensive national advertising campaigns and established
marketing programs are provided to us at no additional cost under our
agreements with Sprint PCS. We offer the same strategic pricing plans,
promotional campaigns and handset and accessory promotions as Sprint PCS, and
have the flexibility to add pricing plans and marketing promotions that target
local market needs.
Nationwide digital PCS network. Our network operates with Sprint PCS'
national network and will significantly extend Sprint PCS' coverage in the
midwestern United States, which we believe is important to Sprint PCS' regional
and national growth strategy. Our ability to provide our customers with access
to Sprint PCS' national network represents a competitive advantage over other
national and regional providers of wireless services.
Established and available distribution channels. We benefit from immediate
access to Sprint PCS' existing sales and distribution agreements with major
national retailers and Sprint PCS' other national sales and distribution
channels, including:
. a sales and distribution agreement with RadioShack, which provides us
with access to over 100 stores in our territory on an exclusive basis for
PCS;
. the sales and distribution agreements with other major national third-
party retailers such as Best Buy, Circuit City, Kmart, Staples, Target,
Office Max, Best Buy, Office Depot and Ritz Camera which collectively
provide us with access to over 200 stores in our territory;
. Sprint PCS' national inbound telemarketing sales force;
. Sprint PCS' national accounts sales team; and
. Sprint PCS' electronic commerce sales platform.
Sprint PCS back office services. We utilize Sprint PCS' established back
office services, including customer activation, billing and 24 hours a day, 7
days a week customer care to service our
37
<PAGE>
customers more effectively and economically. Use of these services has enabled
us to accelerate the launch of our commercial PCS operations and significantly
reduced our capital expenditures and operating costs compared with establishing
and operating our own back office systems.
Sprint PCS Wireless Web. We support and market the Sprint PCS Wireless Web
service on our network. The Sprint PCS Wireless Web allows customers with data
capable or web-browser enabled handsets to connect to the Internet and browse
specially designed text-based web sites, including Yahoo!, Amazon.com,
Bloomberg.com, CNN Interactive, MapQuest.com, Fox Sports, Ameritrade,
InfoSpace.com and Weather.com. For more information on the Sprint PCS Wireless
Web, see "--Products and Services--Access to the Sprint PCS Wireless Web."
Sprint PCS licenses and long-term commitment. Sprint PCS has funded the
purchases of the licenses covering our territory at a cost of over $40.5
million. As a Sprint PCS affiliate, we did not have to fund these expenditures,
thereby reducing our start-up costs. The Sprint PCS agreements are for a total
of 50 years, including an initial term of 20 years with three 10-year renewal
terms.
Better equipment availability and pricing. We are able to acquire our
network equipment, handsets and accessories more quickly and at a significantly
lower cost than we would without our strategic relationship with Sprint PCS. We
purchase our network equipment, handsets and accessories under Sprint PCS'
vendor contracts that provide for volume discounts. These discounts
significantly reduce the overall capital required to build our network and
significantly reduce our costs of handsets and accessories.
Availability of technology and service advances developed by Sprint PCS. We
benefit from Sprint PCS' extensive research and development effort, which
provides us with ongoing access to new technological products and enhanced
service features without significant research and development expenditures of
our own. We have immediate access to any developments produced by Sprint PCS
for use in our network.
Other Competitive Strengths
In addition to the advantages provided by our strategic relationship with
Sprint PCS, we have:
Fewer competitors and fragmented competition. We face fewer competitors in
our markets than is generally the case for wireless service providers operating
in larger metropolitan markets. Our markets have a limited presence of national
wireless service providers. No single cellular or PCS competitor or affiliated
group of competitors has existing operations covering more than 2.3 million of
the residents within our territory. We expect to be the first national PCS
entrant in all of our markets and the first or second PCS entrant in all but
four of our markets in central Illinois, where we are third. Existing PCS
competition is limited to regional carriers with small service territories and
PrimeCo, which only provides service in five of our markets in Illinois. AT&T
Wireless is the only cellular or PCS competitor to hold licenses in all of our
markets, although it is not currently operating in any of our markets. We
believe that our most extensive competition comes from the established regional
cellular carriers in each of our markets, although their coverage is
fragmented.
38
<PAGE>
Potential for significant Sprint PCS roaming revenue. We receive Sprint PCS
roaming revenue from Sprint PCS subscribers based outside our territory who
roam on our network. Our territory is adjacent to and connects several major
markets owned and operated by Sprint PCS, including Chicago, Detroit, St.
Louis, Indianapolis, Omaha and Des Moines. These market areas contain
approximately 20 million residents. Our network contains over 1,700 interstate
miles which connect these major Sprint PCS markets. The interstate corridors in
our territory include:
<TABLE>
<CAPTION>
Approximate Approximate
total interstate miles interstate
between major miles covered
Interstate Major Destination Cities destinations by iPCS
<S> <C> <C> <C>
I-57 Chicago, IL to Memphis, TN............ 524 244
I-74 Moline, IL to Cincinnati, OH.......... 421 220
I-55 Chicago, IL to St. Louis, MO.......... 285 179
I-80 Chicago, IL to Des Moines, IA......... 340 158
I-35 Minneapolis, MN to Kansas City, MO.... 440 133
I-80 Omaha, NE to Cheyenne, WY............. 497 131
I-75 Detroit, MI to Mackinaw City, MI...... 291 120
I-72 Springfield, IL to Champaign, IL...... 87 87
I-70 St. Louis, MO to Indianapolis, IN..... 234 84
I-64 St. Louis, MO to Louisville, KY....... 259 83
I-39 Rockford, IL to Bloomington, IL....... 130 77
I-29 Omaha, NE to Kansas City, MO.......... 187 77
I-96 Muskegon, MI to Detroit, MI........... 190 76
I-196 Benton Harbor, MI to Grand Rapids, MI. 78 46
I-380 Iowa City, IA to Waterloo, IA......... 82 33
----- -----
Total...................................... 4,045 1,748
===== =====
</TABLE>
For a more detailed description of Sprint PCS roaming revenue, see "--Roaming
Revenue."
Significant Sprint PCS national accounts opportunities. We participate in
Sprint PCS' national accounts program which targets large companies. Several
Fortune 500 companies such as State Farm Insurance, Archer Daniels Midland, Dow
Chemical, John Deere and Caterpillar, as well as a number of other large
companies, have their headquarters in our territory. Participation in Sprint
PCS' national accounts program provides us an opportunity to participate in
selling efforts focused on those companies. We have been working with Sprint
PCS' national accounts team to attract, service and retain large companies with
headquarters in our territory. In addition, we target other national account
companies with significant operations in our territory to offer service under
the terms of their national account agreements.
39
<PAGE>
Proven ability to execute our network build-out plan. In January 1999, we
entered into the Sprint PCS agreements for our initial territory in Illinois
and Iowa. Within ten months and ahead of the build-out requirements under the
Sprint PCS agreements, we completed network construction and began providing
commercial service in two of these markets covering over 590,000 residents. As
of March 31, 2000, we had launched Sprint PCS service in five markets covering
approximately 1,147,000 residents and had over 6,600 customers. We are using
the same implementation methodologies for the network construction in all
markets in our territory.
Fully financed business plan. We anticipate that the proceeds of this
offering, when combined with the available borrowings under our Nortel
financing, will be adequate to fund our network build-out, anticipated
operating losses and working capital requirements through 2002, at which time
we expect to have achieved break-even operating cash flow.
Business Strategy
We intend to become a leading PCS provider in our territory. We believe that
the following elements of our business strategy will enable us to continue to
rapidly build out our network and launch additional markets, distinguish our
wireless service offerings from those of our competitors and compete
successfully in the wireless communications marketplace.
Fully leverage our strategic relationship with Sprint PCS. We are
capitalizing on the extensive benefits of our strategic relationship with
Sprint PCS. These benefits allow us to provide a seamless offering of products
and services in our territory under the Sprint and Sprint PCS brand names that
are indistinguishable from those offered by Sprint PCS nationwide. We take full
advantage of Sprint PCS' national marketing programs and established sales and
distribution channels to increase our sales. We use Sprint PCS' back office
services, including customer activation, billing and 24 hours a day, 7 days a
week customer care, and Sprint PCS' national network control center, which is
responsible in conjunction with our switching centers for continually
monitoring the performance of our network and providing rapid response for
systems maintenance needs. The use of these back office services from Sprint
PCS significantly reduces our overhead costs. We take advantage of
significantly discounted prices for network equipment, handsets and accessories
under Sprint PCS' vendor contracts, which further reduces our costs.
Execute an integrated local marketing strategy. Our marketing strategy
leverages Sprint and Sprint PCS' nationwide presence and brand names while at
the same time establishing a strong local presence in each of our markets. We
emphasize the improved clarity and quality, enhanced features and favorable
pricing of Sprint PCS products and services and replicate the marketing
strategies that have resulted in Sprint PCS becoming the fastest growing U.S.
wireless carrier. In addition, on the local level, we are:
. establishing 19 Sprint PCS sales and service centers in markets within
our territory;
. establishing local third-party sales and distribution relationships on an
as-needed basis;
. directing our media efforts at the community level by advertising in
local publications, radio and television; and
. sponsoring local and regional events.
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<PAGE>
Continue to execute build-out plan and rapid deployment. We plan to continue
the rapid construction and build-out of our technologically advanced 100%
digital, 100% PCS wireless network. Our strategy is to build out network
service to metropolitan areas and the interstates and primary roads connecting
these areas, and then to cover the smaller population and business centers. We
intend to continue to rely on experienced third-party strategic partners for
radio frequency design, network engineering and optimization, site acquisition,
project management and construction management services.
Explore strategic opportunities to expand our territory. We continually
evaluate expansion opportunities and, subject to the availability of financing,
may strategically expand our territory. We have been granted the option, but do
not have the obligation, to purchase the Iowa City and Cedar Rapids, Iowa
markets that have already been launched by Sprint PCS. For more information on
the option, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Option Territory."
Sprint PCS
Sprint PCS, a wholly owned subsidiary of Sprint, operates the only
nationwide 100% digital, 100% PCS wireless network in the United States and has
licenses to provide wireless service nationwide including Hawaii, Puerto Rico
and the U.S. Virgin Islands. Sprint PCS operates its PCS network in major
metropolitan markets throughout the United States and has entered into
agreements with affiliates with territories ranging in total population from
300,000 to 9.9 million to build out and manage networks in smaller metropolitan
areas and along major highways. The Sprint PCS network uses CDMA technology
nationwide.
Sprint PCS launched its first commercial PCS service in the United States in
November 1995 and has experienced rapid growth, providing service to over 6.5
million customers as of March 31, 2000. For each of the six calendar quarters
prior to and including the quarter ended March 31, 2000, Sprint PCS has
recorded the largest number of new subscribers added by a U.S. wireless
services provider. In the fourth quarter of 1999, Sprint PCS added over 1
million subscribers, the largest single quarter ever recorded by a U.S.
wireless service provider. The Sprint PCS network (including the portions of
the network owned, constructed and operated by the 18 affiliates) operates the
largest 100% digital, 100% PCS nationwide wireless network in the United
States, already serving the majority of the nation's metropolitan areas
including more than 4,000 cities and communities across the country. Sprint PCS
has licensed PCS coverage of nearly 270 million people in all 50 states, Puerto
Rico and the U.S. Virgin Islands. The following table, showing the quarterly
end-of-period subscriber data for Sprint PCS, illustrates Sprint PCS'
subscriber growth from the beginning of 1998 to the end of 1999.
<TABLE>
<CAPTION>
1998 1999 2000
----------------------- ----------------------- -----------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total subscribers....... 1,114 1,370 1,750 2,586 3,350 3,967 4,687 5,723 6,554
</TABLE>
On October 5, 1999, Sprint and MCI WorldCom announced that the boards of
directors of both companies had approved a definitive merger agreement whereby
the two companies would 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, various state government
bodies and foreign regulatory and antitrust authorities.
41
<PAGE>
Statements in this prospectus regarding Sprint Corporation or the Sprint PCS
group of companies, which we refer to as Sprint PCS, are derived from
information contained in the periodic reports and other documents filed with
the Securities and Exchange Commission by Sprint and Sprint PCS, or press
releases issued by Sprint and Sprint PCS.
Markets
Our territory includes 35 markets containing a total population of over 7.0
million residents in Illinois, including Peoria, Springfield, Champaign-Urbana,
Decatur-Effingham, Bloomington and the Quad Cities (Rock Island and Moline,
Illinois; and Davenport and Bettendorf, Iowa); Michigan, including Grand
Rapids, Saginaw-Bay City, Muskegon and Traverse City; Iowa, including Waterloo-
Cedar Falls and Dubuque; and eastern Nebraska. We are the exclusive provider of
Sprint PCS products and services in these markets which are adjacent to several
major metropolitan operational markets in the midwestern United States which
are owned and operated by Sprint PCS including Chicago, Detroit, Des Moines,
Indianapolis, Omaha and St. Louis. We believe connecting existing Sprint PCS
markets is important to Sprint PCS' strategy to provide seamless, nationwide
PCS service. We have been granted the option, but do not have the obligation,
to add to our territory the Iowa City and Cedar Rapids, Iowa markets that
Sprint PCS launched in February 1997 and to purchase from Sprint PCS related
assets and subscriber accounts in those markets. These markets have a total
population of approximately 405,000 and had over 6,600 Sprint PCS subscribers
as of December 31, 1999.
The following table lists in order of the calendar quarter of actual or
expected commercial launch of network coverage, the market, megahertz of
spectrum, estimated total population, estimated covered population and
estimated covered population as a percentage of total population for each of
the markets that comprise our territory, but does not include the Iowa City and
Cedar Rapids, Iowa markets that we have the option to add to our territory as
described above. All of our current customers are located in markets launched
through the date of this prospectus.
42
<PAGE>
<TABLE>
<CAPTION>
Estimated
Estimated Covered Population as
Basic Trading Area Market MHz of Estimated Total Covered a Percentage of
(1) Spectrum Population (2) Population (3) Total Population
<S> <C> <C> <C> <C>
Davenport, IA/Moline, IL. 30 430,000 380,000 88%
Bloomington, IL.......... 10 232,000 210,000 91%
--------- ---------
Total Year 1999........ 662,000 590,000 89%
========= =========
Peoria, IL............... 10 465,000 320,000 69%
Springfield, IL.......... 10 266,000 215,000 81%
St. Louis, MO
(partial) (3)........... 30 47,000 22,000 47%
--------- ---------
Subtotal (Q1 2000)...... 778,000 557,000 72%
--------- ---------
LaSalle-Peru-Ottawa-
Streator, IL............ 20 152,000 120,000 79%
Decatur-Effingham, IL.... 10 248,000 176,000 71%
Champaign-Urbana, IL..... 10 219,000 190,000 87%
Kankakee, IL............. 20 135,000 96,000 71%
Galesburg, IL............ 10 74,000 47,000 64%
--------- ---------
Subtotal (Q2 2000)...... 828,000 629,000 76%
--------- ---------
Clinton, IA/Sterling, IL. 30 147,000 100,000 68%
Mt. Vernon-Centralia, IL. 30 122,000 62,000 51%
Danville, IL............. 20 112,000 68,000 61%
Jacksonville, IL......... 10 71,000 35,000 49%
Mattoon, IL.............. 10 63,000 56,000 89%
--------- ---------
Subtotal (Q3 2000)...... 515,000 321,000 62%
--------- ---------
Total Year 2000........ 2,783,000 2,097,000 75%
========= =========
Grand Rapids, MI......... 30 1,036,000 850,000 82%
Saginaw-Bay City, MI..... 30 632,000 400,000 63%
Muskegon, MI............. 30 220,000 140,000 64%
Lansing, MI (partial)
(3)..................... 30 62,000 43,000 69%
Battle Creek, MI
(partial)(3)............ 30 55,000 20,000 36%
--------- ---------
Subtotal (Q1 2001)...... 2,005,000 1,453,000 72%
--------- ---------
Waterloo-Cedar Falls, IA. 30 261,000 153,000 59%
Traverse City, MI........ 30 236,000 105,000 44%
Dubuque, IA.............. 30 178,000 107,000 60%
Des Moines, IA
(partial)(3)............ 30 171,000 82,000 48%
Burlington, IA........... 30 137,000 97,000 71%
Mount Pleasant, MI....... 30 129,000 79,000 61%
Ottumwa, IA.............. 30 124,000 66,000 53%
Marshalltown, IA......... 30 57,000 34,000 60%
--------- ---------
Subtotal (Q2 2001)...... 1,293,000 723,000 56%
--------- ---------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Estimated
Estimated Covered Population as
Basic Trading Area Market MHz of Estimated Total Covered a Percentage of
(1) Spectrum Population (2) Population (3) Total Population
<S> <C> <C> <C> <C>
Omaha, NE (partial) (3).. 30 249,000 118,000 47%
Grand Island-Kearney, NE. 30 147,000 95,000 65%
Fort Dodge, IA........... 30 128,000 47,000 37%
Mason City, IA........... 30 116,000 50,000 43%
Norfolk, NE.............. 30 112,000 40,000 36%
Lincoln, NE (partial)
(3)..................... 30 98,000 27,000 28%
Hastings, NE............. 30 72,000 39,000 54%
--------- ---------
Subtotal (Q3 2001)...... 922,000 416,000 45%
--------- ---------
Total Year 2001........ 7,003,000 4,689,000 67%
========= =========
</TABLE>
- ---------------------
(1) Expected commercial launch dates for these markets may change based on a
number of factors, including shifts in populations, target markets or
network focus, changes or advances in technology, acquisition of other
markets and delays in market build-out due to reasons identified in "Risk
Factors--Risks Particular to iPCS."
(2) Estimated population is based on January 1, 1999 estimates compiled by Rand
McNally Commercial Atlas & Marketing Guide, 2000 Edition.
(3) Estimated covered population for these markets reflects only those
residents which are covered under the Sprint PCS agreements, not the total
population in the entire basic trading area.
Network Build-Out Plan
In December 1999, we launched service in the Bloomington, Illinois and the
Quad Cities (Rock Island and Moline, Illinois; and Davenport and Bettendorf,
Iowa) markets covering over 590,000 residents. By the end of March 2000, we
launched service in the Peoria and Springfield, Illinois and St. Louis,
Missouri markets covering approximately 557,000 residents. By the end of
September 2000, we will have substantially completed the build-out of all
remaining metropolitan markets and major interstate routes in our initial
territory. After completing the build-out of our initial territory we will be
covering approximately 2.1 million residents or 75% of the total population of
our initial territory.
Following our successful build-out and initial launch, Sprint PCS agreed to
amend the Sprint PCS agreements to expand our territory to include 20
additional markets with a total population of approximately 4.2 million in the
states of Michigan, Iowa and Nebraska. As part of this expansion, we have
agreed to purchase from Sprint PCS network assets under construction in three
markets in Michigan. We anticipate closing on the purchase of those assets
concurrently with the closing of this offering.
By the end of the third quarter of 2001, we plan to be substantially
complete with our build-out and we anticipate covering 4.7 million residents,
or 67% of the total population, in our territory. Our build-out plan exceeds
the network build-out requirements under the Sprint PCS agreements.
As part of the expansion of our territory, we have been granted the option,
but do not have the obligation, to add to our territory the Iowa City and Cedar
Rapids, Iowa markets that have already been launched by Sprint PCS. These
markets have a total population of approximately 405,000 and had 6,600 Sprint
PCS subscribers as of December 31, 1999. Our option expires on January 31,
2001. The purchase price payable by us for the purchase of assets and
subscriber accounts upon exercise of
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the option was initially approximately $25.2 million and increases monthly to a
purchase price of approximately $28.8 million in January, 2001. The purchase
price is subject to upward adjustment based upon the number of subscribers in
the two additional markets at the option exercise date, as described more fully
under "The Sprint PCS Agreements--Option Territory." We would become the
manager of all Sprint PCS subscribers in these markets upon the closing of the
asset purchase.
As part of our network build-out strategy, we entered into certain
outsourcing relationships with third parties to assist us in building out our
network. We believe that these relationships have resulted in a more timely,
efficient and cost effective build-out process.
Radio frequency design. Wavelink Engineering has been contracted to provide
all radio frequency design, engineering and optimization for our initial
territory. Wavelink has performed radio frequency design services for Sprint
PCS as well as other Sprint PCS affiliates. Based upon its engineering designs,
Wavelink assisted us in determining the required number of cell sites to
operate the network and identified the general geographic areas in which each
of the required cell sites would be located. Wavelink has also performed
optimization tests prior to and after our market launches.
Site acquisition, project management and construction. Communications
Management Specialists, Inc., or CMS, was engaged to provide "turn-key" site
acquisition, project management and construction management services for our
initial territory. CMS has performed similar services for Sprint PCS as well as
other Sprint PCS affiliates.
CMS identifies and acquires the sites on which we locate the towers,
antennae and other equipment necessary for the operation of our network. After
radio frequency design identifies the general geographic area in which to
locate cell sites, CMS surveys potential sites to identify two potential tower
sites within each geographic search area. CMS evaluates the alternative sites
within each of the identified geographic search areas, giving consideration to
various engineering criteria as well as the costs to be incurred to acquire and
construct a tower on the site. We pay CMS fixed fees for its services.
We acquire and make operational a cell site in three ways:
. co-location on an existing tower owned by third parties;
. construction of a new tower ourselves; or
. construction of a new tower by an independent build-to-suit company.
Generally, we prefer to co-locate with other wireless carriers or tower
companies by leasing space on an existing tower or building. The advantages of
co-location are that there are lower construction costs to us associated with
the building of a tower and any zoning difficulties have likely already been
resolved. In situations where co-location is not appropriate, we will acquire
the site and hire third parties to construct the tower. Upon completion, we
generally sell the tower and lease it back from the buyer. We have entered into
a tower sale and lease-back agreement with American Tower Corporation, one of
the largest tower companies in the United States, for the towers that we
construct in our initial territory. We believe that we have a favorable lease
rate for the towers subject to the sale lease-back agreement. These leases run
for initial terms of ten years with three additional five-year renewal terms.
By structuring our sale and lease-back on this basis, we are able to retain
complete control of the tower site selection process and retain the flexibility
of not having our capital tied up in tower ownership.
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In situations where we determined that neither co-location nor site
acquisition was appropriate, we would arrange for the construction of a tower
on a build-to-suit basis by an independent tower construction company who would
acquire the site, build the tower and lease it to us. The principal advantage
of this method is that it reduces our capital expenditures.
We expect that approximately 580 sites will be required to achieve our
planned 67% coverage of the residents in our territory. Of those 580 sites, we
believe that approximately 350 will be co-location sites. We plan to construct
towers for the remaining 230 sites. Of the 230 towers, we plan to sell and
lease back 100 towers under our existing agreement with American Tower. The
remaining 130 new towers may be sold to a tower company or we may choose to
build in accordance with a traditional build-to-suit arrangement.
Microwave relocation. Prior to the FCC's auction of PCS licenses in the 1850
to 1970 MHz frequency bandwidths, various fixed microwave operators used these
frequencies. The FCC has established procedures for PCS licensees to relocate
these existing microwave paths, generally at the PCS licensee's expense. Sprint
PCS relocates the microwave paths that use bandwidth owned by Sprint PCS, and
is analyzing these relocations as we continue the build-out of our network.
Sprint PCS is also paying for a portion of the relocation costs. Sprint PCS has
completed relocation for all microwave paths in our initial territory. Some
microwave clearing has been completed in our expansion territory. After
adjusting for all cost sharing for relocations performed by other PCS licensees
and from Sprint PCS, we expect to spend a total of approximately $2.0 million
for microwave relocation expenses.
Switching centers. We will use three switching centers to provide service to
our network. Each switching center will serve several purposes, including,
among other things, routing calls, managing call handoff, managing access to
landlines and providing access to voice mail. In November 1999, we commenced
operations at our first switching center in Gridley, Illinois to support our
initial territory. We will construct an additional switching center in Michigan
and another in a location to be determined.
Interconnection. Our network connects to the landline telephone system
through local exchange carriers. Through our Sprint PCS agreements, we benefit
from Sprint PCS-negotiated interconnection agreements with local exchange
carriers.
Long distance and back haul. We have entered into an agreement with Sprint,
which provides us long distance services at the same preferred rates made
available to Sprint PCS.
Network communications equipment. Nortel supplies the radio base stations,
switches and other related PCS transmission equipment, software and services
necessary for our network build-out. Nortel has assigned a dedicated project
management team to assist us in the installation and testing of the
transmission equipment.
Network monitoring systems. We utilize Sprint PCS' Network Operations
Control Center for around-the-clock monitoring as well as our own switching
center capabilities for our network base stations and switches.
Nortel Equipment Agreement
On May , 2000, in connection with the amended and restated Nortel $200.0
million financing, we entered into a three year equipment purchase agreement
with Nortel for our network
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equipment and infrastructure, including switches and base station controllers
for our initial territory. Pursuant to the equipment agreement, Nortel also
provides installation services for the equipment and grants us a nonexclusive
license to use all the software associated with the Nortel equipment. In
connection with the amended and restated credit agreement with Nortel, during
the term of the agreement, we have committed to purchase an additional $103.3
million of equipment and services from Nortel. Nortel finances these purchases
pursuant to the Nortel financing described in "Description of Our
Indebtedness--The Nortel Credit Facility." We submit purchase orders to Nortel
for the equipment and services as needed. Under the agreement, we receive a
discount on the network equipment and services because of our affiliation with
Sprint PCS. If our affiliation with Sprint PCS ends, Nortel has the right to
either terminate the agreement or, with our consent, modify the agreement to
establish new prices, terms and conditions.
Products and Services
We offer established Sprint PCS products and services throughout our
territory under the Sprint and Sprint PCS brand names. Our products and
services are designed to mirror the service offerings of Sprint PCS and to
integrate with the Sprint PCS nationwide network. Sprint PCS operates the
largest 100% digital, 100% PCS nationwide wireless network in the United
States, already serving the majority of the nation's metropolitan areas
including more than 4,000 cities and communities across the country. Sprint PCS
has licensed PCS coverage of nearly 270 million people in all 50 states, Puerto
Rico and the U.S. Virgin Islands. The Sprint PCS service package we offer
includes the following:
100% digital wireless mobility with national service. Our network is part of
the largest 100% digital, 100% PCS wireless network in the nation. We offer
enhanced voice clarity, advanced features and simple, affordable Sprint PCS'
Free and Clear pricing plans. These plans include long distance and wireless
airtime minutes for use throughout the Sprint PCS network at no additional
charge.
Access to the Sprint PCS Wireless Web. We support and market the Sprint PCS
Wireless Web throughout our network. The Sprint PCS Wireless Web allows
subscribers with data capable handsets to connect their portable computers or
personal digital assistants to the Internet. Sprint PCS subscribers with data
capable handsets also have the ability to receive periodic information updates
such as stock prices, airline schedules, sports scores and weather reports
directly on their handsets. Sprint PCS subscribers with web-browser enabled
handsets have the ability to connect to and browse specially designed text-
based Internet sites on an interactive basis. Sprint PCS has agreements with
Internet providers including Yahoo!, Amazon.com, Bloomberg.com, CNN
Interactive, MapQuest.com, Fox Sports, Ameritrade, InfoSpace.com and
Weather.com to provide services for the Sprint PCS Wireless Web. Sprint PCS
offers various pricing options including a fixed number of updates or a bundle
of data minutes as add-ons to existing Sprint PCS' Free and Clear pricing plans
or a bundle of minutes for a set price that can be used for either data or
voice.
Nationwide service. Our customers are able to use Sprint PCS services
throughout the Sprint PCS network. Dual-band/dual-mode handsets allow roaming
on wireless networks where Sprint PCS is not available and with which Sprint
PCS has roaming agreements. When roaming outside the Sprint PCS network,
additional roaming fees are billed to Sprint PCS subscribers.
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Pricing and features. Sprint PCS' pricing plans are typically structured
with monthly recurring charges, large local calling areas, bundles of minutes
and service features such as voicemail, caller ID, call waiting, call
forwarding and three-way calling. The increased capacity of CDMA technology
allows Sprint PCS to offer high usage subscriber plans at per-minute rates
lower than analog cellular and certain digital products. All of Sprint PCS'
current national plans:
. include minutes that can be used on any portion of the nationwide Sprint
PCS network with no roaming charges for the subscriber;
. offer advanced features and generally require no long-term contracts;
. offer a selection of handsets to meet the needs of individual consumers
and businesses; and
. provide a limited-time, money back guarantee on Sprint PCS handsets.
In addition, Sprint PCS' Free and Clear pricing plans include long distance
calling from anywhere on the Sprint PCS network to anywhere in the United
States.
Advanced handsets and longer battery life. We primarily offer a selection of
dual-band handsets with various advanced features and technology, such as
Internet readiness described in "--Access to the Sprint PCS Wireless Web"
above. All handsets are equipped with pre-programmed features such as caller
ID, call waiting, phone books, speed dial and last number redial and are sold
under the Sprint and Sprint PCS brand names. CDMA handsets weighing
approximately 5 to 7 ounces offer up to five days of standby time and
approximately four hours of talk time. We also offer dual-band/dual-mode
handsets that allow customers to make and receive calls on both PCS and
cellular frequency bands with the applicable digital or analog technology.
These handsets allow roaming on cellular networks where Sprint PCS digital
service is not available. When roaming in analog markets, stand-by and talk
times are greatly reduced.
Improved voice clarity and quality. We believe that CDMA technology offers
significantly improved voice clarity and quality, compared to existing analog,
and TDMA and GSM digital networks, more powerful error correction, less
susceptibility to call fading and enhanced interference rejection, all of which
result in fewer dropped calls. See "--CDMA Technology" for a discussion of the
reasons CDMA technology offers improved voice clarity and quality.
Privacy and security. Sprint PCS provides secure voice transmissions encoded
into a digital form to prevent eavesdropping and unauthorized cloning of
subscriber identification numbers.
Easy activation. Customers can purchase a shrink-wrapped Sprint PCS handset
off the shelf at a retail location and activate their service by calling
customer service, which can activate the handset over the air. We believe over-
the-air activation reduces the training requirements for salespersons at the
national retailer locations. Our customers can also activate their service at
any of Sprint PCS sales and service centers with the assistance of trained
customer service representatives.
Customer care. Sprint PCS provides customer care services to our customers
under the Sprint PCS agreements. Sprint PCS offers 24 hours a day, seven days a
week customer care. Our customers can call the Sprint PCS toll-free customer
care number from anywhere. All Sprint PCS phones are
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pre-programmed with a speed dial feature that allows our customers to easily
reach customer care at any time on the Sprint PCS network. In addition, our
customers can also obtain customer service and assistance at any Sprint PCS
store throughout the country.
Other services. In addition to these services, we may also offer wireless
local loop services in our territory. Wireless local loop is both a wireless
alternative and supplemental service for the landline-based telephones in homes
and businesses. We also believe that new features and services will be
developed on the Sprint PCS nationwide network to take advantage of CDMA
technology. As a leading wireless provider, Sprint PCS conducts ongoing
research and development to produce innovative services that give Sprint PCS 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 provide a number of applications for wireless data
services including facsimile and Internet access.
Roaming Revenue
Sprint PCS Roaming
When Sprint PCS subscribers based outside of our territory use our network,
we collect roaming revenue from Sprint PCS based on a per-minute fee and when
our customers use the Sprint PCS network outside of our territory, we pay to
Sprint PCS roaming charges based on a per-minute fee. Pursuant to the Sprint
PCS agreements, Sprint PCS has the discretion to change the per-minute roaming
rate for Sprint PCS roaming fees after December 31, 2001. Because we serve
smaller metropolitan areas adjacent to larger metropolitan areas, we believe
inbound Sprint PCS roaming will exceed outbound Sprint PCS roaming. See "Risk
Factors--Risks Particular to iPCS--We may not receive as much Sprint PCS
roaming revenue as we anticipate, our non-Sprint PCS roaming revenue is likely
to be low adversely affecting our revenues, and we may have higher payments to
Sprint PCS for usage by our customers of the Sprint PCS network than we
anticipate."
Non-Sprint PCS Roaming
The term "non-Sprint PCS roaming" is used when non-Sprint PCS subscribers
use our network and when our customers use a non-Sprint PCS network. Pursuant
to roaming agreements between Sprint PCS and other wireless service providers,
when other wireless service provider subscribers use our network, we earn
roaming revenue. These wireless service providers must pay fees for their
subscribers' use of our network, and as part of our collected revenues, we are
entitled to 92% of the fees. Currently, pursuant to the Sprint PCS agreements,
Sprint PCS bills these wireless service providers for these fees. When wireless
service providers provide service to our customers, we pay those service
providers roaming fees and our customers incur roaming fees at rates specified
in their contracts. As a result, we retain the collection risk from our
customers for non-Sprint PCS roaming charges incurred by them. We are entitled
to 100% of the non-Sprint PCS roaming fees collected from our customers.
Currently, pursuant to the Sprint PCS agreements, Sprint PCS bills our
customers for the roaming fees, and pays us the fees it has collected on a
monthly basis.
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Marketing Strategy
Our marketing and sales strategy utilizes Sprint PCS' proven strategies and
developed national sales and distribution channels tailored to our specific
territory.
Use Sprint PCS' brand equity and marketing. We feature exclusively and
prominently the nationally recognized Sprint and Sprint PCS brand names in our
marketing effort. From our customers' point of view, they use our network and
the Sprint PCS national network seamlessly as a unified nationwide network.
Pricing. Our use of the Sprint PCS national pricing strategy offers our
customers simple, easy-to-understand service plans. Sprint PCS' pricing plans
are typically structured with monthly recurring charges, large local calling
areas, bundles of minutes and service features such as voicemail, caller ID,
call waiting, call forwarding and three-way calling. Lower per-minute rates
relative to analog cellular providers are possible in part because the CDMA
system that Sprint PCS utilizes has greater capacity than current analog
cellular systems, enabling Sprint PCS to market high usage customer plans at
lower prices. In addition, Sprint PCS' national Free and Clear plans, which
offer simple, affordable plans for every consumer and business customer,
include long distance calling from anywhere on its nationwide network.
Local focus. Our local focus enables us to supplement Sprint PCS' marketing
strategies with our own strategies tailored to each of our specific markets.
These include attracting local businesses as agents to enhance our sales and
distribution channels and drawing on our management team's experience in the
midwestern United States. We use local radio, television and newspaper
advertising to sell our products and services in each of our markets. We have
established a local sales force to execute our marketing strategy through our
Sprint PCS stores. We currently own and operate five Sprint PCS stores and plan
to open an additional 14 stores throughout our territory. We also employ a
direct sales force dedicated to business sales.
Advertising and promotions. Sprint PCS uses national as well as regional
television, radio, print, outdoor and other advertising campaigns to promote
its products. We benefit from this national advertising in our territory 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, free minutes of use for limited time periods or special prices on
handsets and other accessories. We are able to purchase promotional materials
related to these programs from Sprint PCS at their cost. In addition,
RadioShack and national third-party retail stores in our territory run numerous
promotional campaigns.
Sponsorships. Sprint PCS sponsors numerous 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
events and enhance our promotional efforts in our territory. Additionally, we
sponsor other local events in our territory to increase customer awareness of
the Sprint PCS network.
Bundling of services. We plan to take advantage of the complete array of
communications services offered by bundling Sprint PCS services with other
Sprint products, such as long distance and Internet access for homes and
businesses.
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Sales and Distribution
Our sales and distribution plan mirrors Sprint PCS' proven multiple channel
sales and distribution plan. Key elements of our sales and distribution plan
consist of the following:
Sprint store within a RadioShack store. Sprint has an exclusive arrangement
with RadioShack to install a "store within a store," making Sprint PCS the
exclusive brand of PCS sold through RadioShack stores where Sprint PCS service
is available. RadioShack has over 100 stores in our territory which will be
available to offer Sprint PCS products and services to our customers once we
have launched service in the market where the store is located.
Other national third-party retail stores. In addition to RadioShack, we
benefit from the sales and distribution agreements established by Sprint PCS
with other national retailers which currently include Best Buy, Circuit City,
Kmart, Staples, Target, Office Max, Office Depot and Ritz Camera. These
retailers and others have over 200 additional retail stores in our territory to
which we have access. We believe the number of stores will increase over time
as Sprint PCS adds national retailers and as these national retailers add
stores in our territory.
Local third-party retail stores. We benefit from the sales and distribution
agreements which we enter into with local retailers in our territory. We have
entered into sales and distribution agreements with over 16 local stores in our
territory and expect the number to increase.
Sprint PCS stores. We currently own and operate five Sprint PCS stores in
our territory and plan to open an additional 14 stores as we continue to launch
service in additional markets. These stores are located in metropolitan markets
within our territory, providing us with a strong local presence and a high
degree of visibility. We train our sales representatives to be informed and
persuasive advocates for Sprint PCS' services. Following the Sprint PCS model,
these stores have been designed to facilitate retail sales, bill collection and
customer service.
National accounts and direct selling. We participate in Sprint PCS' national
accounts program. Sprint PCS has a national accounts team which focuses on the
corporate headquarters of large companies. Several Fortune 500 companies such
as State Farm Insurance, Archer Daniels Midland, Dow Chemical, John Deere and
Caterpillar, as well as other large companies, have their headquarters in our
territory. In addition, once a Sprint PCS national account manager reaches an
agreement with any company headquartered outside of our territory, we service
the offices and subscribers of that company located in our territory.
Participation in Sprint PCS' national accounts program provides us an
opportunity to participate in selling efforts focused on these companies. Our
direct sales force will target the employees of these companies in our
territory and cultivate other local business customers.
Inbound telemarketing. Sprint PCS provides inbound telemarketing sales to
answer our prospective customers' calls. As the exclusive provider of Sprint
PCS products and services in our territory, we use the national Sprint 1-800-
480-4PCS number campaigns that generate call-in leads. These leads are then
handled by Sprint PCS' inbound telemarketing group and the new subscriber
becomes our customer.
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Electronic commerce. Sprint PCS launched an Internet site in December 1998
at www.sprintpcs.com, which contains information on Sprint PCS products and
services. A visitor to Sprint PCS' Internet site can order and pay for a
handset and select a rate plan. Subscribers visiting the site can review the
status of their account, including the number of minutes used in the current
billing cycle. Site visitors in our territory who purchase products and
services over the Sprint PCS Internet site will be our customers.
CDMA Technology
The Sprint PCS national network uses digital code division multiple access,
or CDMA, as its signal transmission technology. There are two other principal
signal transmission technologies: time division multiple access, or TDMA, and
global system for mobile communications, or GSM. Major wireless providers who
use TDMA technology include AT&T Wireless and SBC/CellularOne. Major wireless
providers who use GSM technology include BellSouth, VoiceStream Communications,
Omnipoint and Aerial. We believe that CDMA provides important system
performance benefits such as:
Greater capacity. We believe, based on studies by CDMA manufacturers, that
CDMA systems can provide system capacity that is approximately seven to ten
times greater than that of current analog technology and approximately three
times greater than TDMA or GSM systems.
Privacy and security. One of the benefits of CDMA technology is that it
combines a constantly changing coding scheme with a low power signal to enhance
call security and privacy.
Soft hand-off. CDMA systems transfer calls throughout the CDMA network using
a technique referred to as a soft hand-off, which connects a mobile customer's
call with a new base station while maintaining a connection with the base
station currently in use. CDMA networks monitor the quality of the transmission
received by multiple base stations simultaneously to select a better
transmission path and to ensure that the network does not disconnect the call
in one cell unless replaced by a stronger signal from another base station.
Analog, TDMA and GSM networks use a "hard hand-off" and disconnect the call
from the current base station as it connects with a new one without any
simultaneous connection to both base stations.
Simplified frequency planning. Frequency planning is the process used to
analyze and test alternative patterns of frequency use within a wireless
network to minimize interference and maximize capacity. Unlike TDMA and GSM-
based systems, CDMA-based systems can reuse the same subset of allocated
frequencies in every cell, substantially reducing the need for costly frequency
reuse patterning and constant frequency plan management.
Longer battery life. Due to their greater efficiency in power consumption,
CDMA handsets can provide longer standby time and more talk time availability
when used in the digital mode than handsets using alternative digital or analog
technologies.
While CDMA has the inherent benefits discussed above, TDMA networks are
generally less expensive when overlaying existing analog systems since the TDMA
spectrum usage is more
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compatible with analog spectrum planning. Multi-vendor equipment has only
recently become available for CDMA, while GSM has had the technology available;
as a result, GSM is used more widely throughout the world than CDMA and as a
result currently offers greater economies of scale for handset and equipment
purchases. A standards process is also underway which will allow wireless
handsets to support analog, TDMA and GSM technologies in a single unit.
Competition
We compete in our territory with regional and national cellular, PCS and
other wireless providers. The cellular providers in our territory serve
different geographic segments of our territory, with no cellular carrier
providing complete coverage throughout our territory. SBC/CellularOne covers
much of central Illinois and Nebraska but does not provide service in Peoria,
the Quad Cities or in Michigan. Other cellular providers such as ALLTEL,
Ameritech, CenturyTel, AirTouch and GTE Wireless all have similar limited
coverage areas. In addition, four cellular carriers (SBC/CellularOne,
Ameritech, GTE Wireless and ALLTEL) have entered into major transactions which
we believe will create confusion in the near term among their subscribers and
present opportunities for us to expand our customer base. Other PCS competitors
such as NPI Wireless, Omnipoint, Iowa Wireless, PrimeCo and Amica Wireless
operate in certain portions of our territory but none provides the scope of
coverage that we offer in these markets. Of the PCS providers, only AT&T
Wireless holds licenses to provide service in all of our markets, however it
currently does not provide service in any of the markets in our territory.
Nextel and Nextel Partners provide service in our Michigan markets, and we
believe are building networks in five of our Illinois markets.
Our ability to compete effectively with these other providers will depend on
a number of factors, including the continued success of CDMA technology in
providing better call clarity and quality as compared to analog cellular
systems, Sprint PCS' competitive pricing with various options suiting
individual customer's calling needs, the continued expansion and improvement of
the Sprint PCS nationwide network, our extensive direct and indirect sales
channels, our centralized Sprint PCS customer care systems, and our selection
of handset options.
Currently, we believe that our most formidable competition is from cellular
providers, many of which have been operating in our markets and building their
customer bases for a number of years and have greater financial resources and
customer bases. Some of our competitors have access to more licensed spectrum
than the 10 or 20 MHz licensed to Sprint PCS in certain markets in parts of
Illinois. Some of our competitors also have established infrastructures,
marketing programs and brand names. In addition, certain competitors may be
able to offer coverage in areas not served by our network, or, because of their
calling volumes or their affiliations with, or ownership of wireless providers,
may be able to offer roaming rates that are lower than those offered by Sprint
PCS. PCS operators will likely compete with us in providing some or all of the
services available through the Sprint PCS network and may provide services that
we do not. Additionally, we expect that existing cellular providers will
continue to upgrade their systems to provide digital wireless communication
services competitive with Sprint PCS.
The following table details our primary operational competitors within each
of our three primary geographical markets: Illinois and the Iowa Quad Cities
markets (total population of approximately 2.8 million), Michigan markets
(total population of approximately 2.4 million) and Iowa and
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Nebraska markets (total population of approximately 1.8 million) and the type
of wireless commercial service (cellular, PCS or enhanced specialized mobile
radio service, or ESMR), that each of our competitors deploys:
COMPETITORS BY GEOGRAPHIC MARKET
<TABLE>
<CAPTION>
Cellular/
PCS/
Primary ESMR
Geographic Market Competitors Service
<S> <C> <C>
Illinois (including Iowa Quad Cities markets) ALLTEL Cellular
Ameritech Cellular
CellularOne Cellular
GTE Wireless Cellular
USCellular Cellular
Amica Wireless PCS
Iowa Wireless PCS
PrimeCo PCS
Nextel ESMR
Michigan markets AirTouch Cellular
CenturyTel Cellular
NPI Wireless PCS
OmniPoint PCS
Nextel ESMR
Iowa and Nebraska markets ALLTEL Cellular
CellularOne Cellular
USCellular Cellular
Iowa Wireless PCS
</TABLE>
We also face limited competition from "resellers" which provide wireless
service to customers but do not hold FCC licenses or own facilities. Instead,
the reseller buys blocks of wireless telephone numbers and capacity from a
licensed carrier and resells service through its own distribution network to
the public. Thus, a reseller is both a customer of a wireless licensee's
services and also a competitor of that and other licensees. The FCC requires
all cellular and PCS licensees to permit resale of carrier service to a
reseller. Currently, we do not use resellers to market our services. Although
Sprint PCS is required to resell PCS in our markets, currently there is no
reseller of Sprint PCS in our markets. Any reseller of Sprint PCS could not use
the Sprint PCS service marks in our markets except for the limited purpose of
describing their handsets as operational on the Sprint PCS network.
In addition, we will compete with paging, dispatch and other mobile
telecommunications companies in our markets. Potential users of PCS systems may
find their communications needs satisfied by 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 customers who do not need immediate two-way voice communications.
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In the future, we expect to face increased competition from entities
providing similar services using other communications technologies, including
satellite-based telecommunications and wireless cable systems. While few of
these technologies and services are currently operational in areas outside our
territory, others are being developed or may be developed in the future.
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. Based upon increased competition, we anticipate that market prices for
two-way wireless voice and data services generally will decline in the future.
We will compete to acquire and retain customers principally on the basis of
services and features, the size and location of our territory, 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.
Industry Background
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the wireless communications industry
includes one-way radio applications, such as paging or beeper services, and
two-way radio applications, such as cellular telephone services, PCS and
enhanced specialized mobile radio services.
Since the introduction of commercial cellular service in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers for cellular, PCS and enhanced specialized mobile radio service has
increased from an estimated 203,600 in June 1985 to an estimated 86.0 million
as of December 1999, according to the Cellular Telecommunications Industry
Association, an international association for the wireless industry. The
following chart sets forth statistics for the domestic wireless telephone
industry as a whole, as published by the Cellular Telecommunications Industry
Association.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Wireless Industry Statistics(1)
Total service revenues (in billions). $14.2 $19.1 $23.6 $27.5 $33.1 $40.0
Wireless subscribers at end of period
(in millions)....................... 24.1 33.8 44.0 55.3 69.2 86.0
Subscriber growth.................... 50.8% 40.0% 30.4% 25.6% 25.1% 24.3%
Average local monthly bill(2)........ $56.21 $51.00 $47.70 $42.78 $39.43 $41.24
</TABLE>
- ---------------------
(1) Reflects domestic commercial cellular, enhanced specialized mobile radio
service and PCS providers.
(2) Does not include revenue from roaming and long distance.
Paul Kagan Associates, Inc., an independent media and telecommunications
research firm, estimates in its publication, Kagan's Wireless Telecom
Investor--September 1999, that the number of wireless users will increase to
approximately 169.1 million by the end of 2003 and 235.1 million by the end of
2009. This growth is expected to be driven largely by a substantial projected
increase in PCS users who are forecast to account for approximately 37.5% of
total wireless users in 2003 and
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47.9% in 2009, representing a significant increase from approximately 17.6% as
of the end of 1999. Paul Kagan Associates, Inc. projects that total wireless
industry penetration, defined as the number of wireless subscribers nationwide
divided by total United States population, will grow from an estimated 31.1% in
1999 to 77.6% in 2009.
We believe that a significant portion of the predicted growth in the
consumer market for wireless telecommunications will result from:
. anticipated declines in costs of service;
. increased product offerings; and
. increased awareness of the productivity, convenience and privacy benefits
associated with the services offered by PCS providers.
We also believe that the rapid growth in the use of notebook computers and
personal digital assistants, combined with emerging software applications for
wireless delivery of electronic mail, fax and database searching, will
contribute to the growing demand for wireless services.
Intellectual Property
"Sprint," the Sprint diamond design logo, "Sprint PCS," "Sprint Personal
Communications Services," "The Clear Alternative to Cellular" and "Experience
the Clear Alternative to Cellular Today" are service marks registered with the
United States Patent and Trademark Office. These service marks are owned by
Sprint. Pursuant to the Sprint PCS agreements we have the right to use royalty-
free these service marks and certain other service marks of Sprint in
connection with marketing, offering and providing licensed services to end-
users and resellers, solely within our territory.
Sprint PCS has agreed not to grant to any other person a right or license to
provide or resell, or act as agent for any person offering, licensed services
under these service marks within our territory except as to Sprint PCS'
marketing to national accounts and the limited right of resellers of Sprint PCS
to inform their customers of handset operation on the Sprint PCS network. In
all other instances, Sprint PCS reserves for itself and its affiliates the
right to use the licensed marks in providing its services, subject to its
exclusivity obligations described above, whether within or without our
territory.
The Sprint PCS agreements contain numerous restrictions with respect to the
use and modification of any of the Sprint service marks. See "The Sprint PCS
Agreements--The Trademark and Service Mark License Agreements."
This prospectus includes product names, trade names and trademarks of other
companies. We do not have any rights with respect to these product names, trade
names and trademarks.
Employees
As of March 31, 2000, we employed 68 full-time employees. None of our
employees is represented by a labor union. We believe that our relations with
our employees are good.
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Properties
We lease our principal executive offices at 121 West First Street, Suite
200, Geneseo, Illinois 61254. We also lease space in eight locations in
Illinois, primarily for our Sprint PCS stores, project offices and a switching
center. As of March 31, 2000, we leased space on 67 towers and owned 64 towers.
We believe our leased property is in good operating condition and is currently
suitable and adequate for our business operations. We are also seeking
executive office space in the Chicago metropolitan area.
Legal Proceedings
We are not aware of any pending legal proceedings against us which,
individually or in the aggregate, are likely, in the opinion of management, to
have a material adverse effect on our financial condition or results of
operations.
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THE SPRINT PCS AGREEMENTS
The following is a summary of the material terms and provisions of the
Sprint PCS agreements and the consent and agreement modifying the Sprint PCS
management agreement. We have filed the Sprint PCS agreements and will file a
consent and agreement as exhibits to the registration statement of which this
prospectus is a part and urge you to review them carefully.
Overview of Sprint PCS Relationship and Agreements
Under the Sprint PCS agreements, we will exclusively market PCS services
under the Sprint and Sprint PCS brand names in our territory. The Sprint PCS
agreements require us to interface with the Sprint PCS wireless network by
building our network to operate on the 10 to 30 MHz of PCS frequencies licensed
to Sprint PCS in the 1900 MHz range. The Sprint PCS agreements also give us
access to Sprint PCS' equipment discounts, roaming revenue from Sprint PCS
customers traveling into our territory, and various other back office services.
The Sprint PCS agreements provide strategic advantages, including avoiding the
need to fund up-front spectrum acquisition costs and the costs of establishing
billing and other customer services infrastructure. The Sprint PCS agreements
have initial terms of 20 years with three 10-year renewals which will lengthen
the contracts to a total term of 50 years. The Sprint PCS agreements will
automatically renew for each additional 10-year term unless we or Sprint PCS
provide the other with two years' prior written notice to terminate the Sprint
PCS agreements.
We have four major agreements with Sprint and Sprint PCS (collectively, the
"Sprint PCS agreements"):
. the management agreement;
. the services agreement;
. the trademark and service mark license agreement with Sprint; and
. the trademark and service mark license agreement with Sprint PCS.
In addition, Sprint PCS has entered into a consent and agreement that
modifies our management agreement for the benefit of Nortel and the holders of
any refinancing of our Nortel financing.
The Management Agreement
Under our management agreement with Sprint PCS, we have agreed to:
. construct and manage a network in our territory in compliance with Sprint
PCS' PCS licenses and the terms of the management agreement;
. distribute, during the term of the management agreement, Sprint PCS
products and services;
. use Sprint PCS' and our own distribution channels in our territory;
. conduct advertising and promotion activities in our territory; and
. manage that portion of Sprint PCS' customer base assigned to our
territory.
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Sprint PCS will monitor our network operations and has the right to
unconditional access to our network.
Exclusivity. We are designated as the only person or entity that can manage
or operate a PCS network for Sprint PCS in our territory. Sprint PCS is
prohibited from owning, operating, building or managing another wireless
mobility communications network in our territory while our management agreement
is in place and no event has occurred that would permit the agreement to
terminate. Sprint PCS is permitted under our agreement to make national sales
to companies in our territory, and as required by the FCC, to permit resale of
the Sprint PCS products and services in our territory.
Network build-out. The management agreement specifies the terms of the
Sprint PCS affiliation, including the required network build-out plan. We have
agreed to cover a specified percentage of the population at coverage levels
ranging from 42% to 88% within each of the 15 markets which make up our initial
territory by specified dates beginning December 1999 and ending December 2002.
The aggregate coverage requirement is 73% of the population in our initial
territory of 2.8 million residents by December 2002. For our 20 additional
markets containing 4.2 million residents in the states of Michigan, Iowa and
Nebraska which we acquired in March 2000, we are required to meet a build-out
schedule of cities and traffic arteries by certain dates beginning July 2001
and ending December 2004. We have agreed to operate our network, if technically
feasible and commercially reasonable, to provide for a seamless handoff of a
call initiated in our territory to a neighboring Sprint PCS network.
At any time after January 22, 2001, Sprint PCS can decide to expand the
coverage requirements of our territory by providing us with written notice as
long as the expanded coverage requirements are for proposed areas in which a
tower would cover at least 10,000 residents. We have 90 days after receiving
notice from Sprint PCS to determine whether we will build out the proposed
area. If we fail to build out the proposed area, we may be in breach of the
Sprint PCS agreements and Sprint will have the right to terminate the Sprint
PCS agreements and to purchase all of our operating assets at 80% of the entire
business value. As of January 22, 1999, Sprint PCS has identified nine cities
in our territory that meet the expanded coverage requirements criteria.
However, Sprint PCS cannot require us to build out these cities until after
December 31, 2002.
Products and services. The management agreement identifies the products and
services that we can offer in our territory. These services include, but are
not limited to, Sprint PCS consumer and business products and services
available as of the date of the agreement, or as modified by Sprint PCS. We are
allowed to sell wireless products and services that are not Sprint PCS products
and services if those additional products and services do not otherwise violate
the terms of the agreement, cause distribution channel conflicts, materially
impede the development of the Sprint PCS network or, in Sprint PCS' sole
determination, cause consumer confusion with Sprint PCS' products and services.
We may cross-sell services such as Internet access, customer premises
equipment, 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 name the Sprint owned local exchange
carrier as the exclusive distributor or Sprint PCS approves the terms and
conditions. However, there are no markets in our territory where Sprint is the
local telephone company.
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National sales programs. We will participate in the Sprint PCS sales
programs for national sales to customers, and will pay the expenses and receive
the compensation from national accounts located in our territory. We must use
Sprint's long distance service which we can buy at the same prices offered to
Sprint PCS.
Service pricing, roaming and fees. We must offer Sprint PCS subscriber
pricing plans designated for regional or national offerings, including Sprint
PCS' Free and Clear plans. We are permitted to establish our own local price
plans for Sprint PCS' products and services offered only in our territory,
subject to the terms of the agreement, consistency with Sprint PCS' regional
and national pricing plans, regulatory requirements and Sprint PCS' approval.
We are entitled to receive from Sprint PCS an amount equal to 92% of collected
revenues which relate to our customers' use of our network and to revenues from
non-Sprint PCS subscribers roaming onto our network. We are entitled to receive
100% of roaming revenues (except for taxes) which relate to our customers'
usage of the Sprint PCS network outside of our territory, our customers' usage
of a non-Sprint PCS network, and the usage of our network by Sprint PCS
subscribers. We are also entitled to receive 100% of the proceeds from the
sales of handsets and accessories and proceeds from sales not in the ordinary
course of business. Although many Sprint PCS subscribers will purchase a
bundled pricing plan that allows roaming anywhere on the Sprint PCS' and
affiliates' network without incremental roaming charges, we will earn roaming
revenues from every minute based on an established per-minute rate for Sprint
PCS' or its affiliates' subscribers roaming in our territory. Similarly, we
will pay for every minute our subscribers use the Sprint PCS nationwide network
outside our territory. The analog roaming rates applicable to use by our
customers of third-party providers' networks are set under Sprint PCS' third-
party roaming agreements.
Advertising and promotions. Sprint PCS is responsible for all national
advertising and promotion of the Sprint PCS products and services. We are
responsible for advertising and promotion in our territory, including the pro
rata cost of any promotion or advertising done by any third-party retailers in
our territory pursuant to a national cooperative advertising agreement with
Sprint. Sprint PCS' service area includes the urban markets around our
territory. Sprint PCS will pay for advertising in these markets. Given the
proximity of these markets to ours, we expect considerable spill-over from
Sprint PCS' advertising in surrounding urban markets.
Program requirements. We will comply with Sprint PCS' program requirements
for technical standards, customer service standards, national and regional
distribution and national accounts programs. Sprint PCS can adjust the program
requirements from time to time. We have the right to appeal to Sprint PCS'
management adjustments which could cause an unreasonable increase in cost to us
if the adjustment: (1) causes us to incur a cost exceeding 5% of the sum of our
equity plus our outstanding long-term debt, or (2) causes our operating
expenses to increase by more than 10% on a net present value basis. If Sprint
PCS denies our appeal, we must then comply with the program adjustment, or
Sprint PCS has the right to exercise the termination rights described below.
Non-competition. We may not offer Sprint PCS products and services outside
our territory without the prior written approval of Sprint PCS. Within our
territory we may offer, market or promote telecommunications products and
services only under the Sprint PCS brands, our own brand, brands of related
parties of ours or other products and services approved under the management
agreement, except that no brand of a significant competitor of Sprint PCS or
its related parties may be used for those products and services. To the extent
we have or obtain licenses to provide PCS
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services outside our territory, we may not use the spectrum to offer Sprint PCS
products and services without prior written consent from Sprint PCS.
Inability to use non-Sprint PCS brand. We may not market, promote,
advertise, distribute, lease or sell any of the Sprint PCS products and
services on a non-branded, "private label" basis or under any brand, trademark
or trade name other than the Sprint PCS brand, except for sales to resellers or
as otherwise permitted under the trademark and service mark license agreements.
Rights of first refusal. Sprint PCS has certain rights of first refusal to
buy our assets upon a proposed sale of all or substantially all of our assets.
Termination of management agreement. The management agreement can be
terminated as a result of:
. termination of Sprint PCS' PCS licenses;
. an uncured breach under the management agreement;
. 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; or
. our failure to obtain the financing necessary for the build-out of our
network and for our working capital needs.
The termination or non-renewal of the management agreement triggers certain
of our rights and those of Sprint PCS. The right of either party to require the
other to purchase or sell the operating assets, as discussed below, may not be
exercised, in the case of Sprint PCS, until January 21, 2002.
If we have the right to terminate the management agreement because of an
event of termination caused by a Sprint PCS breach under the management
agreement, we may generally:
. require Sprint PCS to purchase all of our operating assets used in
connection with our network for an amount equal to at least 80% of our
entire business value as defined below;
. if Sprint PCS is the licensee for 20MHz or more of the spectrum on the
date the management agreement was executed, require Sprint PCS to sell to
us, subject to governmental approval, up to 10MHz of licensed spectrum
for an amount equal to the greater of (1) the original cost to Sprint PCS
of the license plus any microwave relocation costs paid by Sprint PCS or
(2) 9% of our entire business value; or
. sue Sprint PCS for damages or submit the matter to arbitration and
thereby not terminate the management agreement.
If Sprint PCS has the right to terminate the management agreement because of
an event of termination caused by us, Sprint PCS may generally:
. require us to sell our operating assets to Sprint PCS for an amount equal
to 72% of our entire business value;
. require us to purchase, subject to governmental approval, up to 10MHz of
licensed spectrum for an amount equal to the greater of (1) the original
cost to Sprint PCS of the license plus any microwave relocation costs
paid by Sprint or (2) 10% of our entire business value;
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. take any action as Sprint PCS deems necessary to cure our breach of the
management agreement, including assuming responsibility for and operating
our network; or
. sue us for damages or submit the matter to arbitration and thereby not
terminate the management agreement.
Non-renewal. 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
connection with our network for an amount equal to 80% of our entire
business value; or
. if Sprint PCS is the licensee for 20MHz or more of the spectrum on the
date the management agreement was executed, require Sprint PCS to sell to
us, subject to governmental approval, up to 10MHz of licensed spectrum
for an amount equal to the greater of (1) the original cost to Sprint PCS
of the license plus any microwave relocation costs paid by Sprint PCS or
(2) 10% of our entire business value.
If we give Sprint PCS timely notice of non-renewal, or we both give notice
of non-renewal, or the management agreement can be terminated for failure to
comply with legal requirements or regulatory considerations, Sprint PCS may:
. purchase all of our operating assets for an amount equal to 80% of our
entire business value; or
. require us to purchase, subject to governmental approval, the licensed
spectrum for an amount equal to the greater of (1) the original cost to
Sprint PCS of the license plus any microwave relocation costs paid by
Sprint PCS or (2) 10% of our entire business value.
Determination of Entire Business Value. If the entire business value is to
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 based on the fair market value on a going
concern basis using the following guidelines:
. the entire business value is based on the price a willing buyer would pay
a willing seller for the entire on-going business;
. 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;
. that we own the spectrum and frequencies presently owned by Sprint PCS
that we use subject to the Sprint PCS agreements; and
. the valuation will not include any value for businesses not directly
related to the Sprint PCS products and services, and such businesses will
not be included in the sale.
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The rights and remedies of Sprint PCS outlined in the management agreement
resulting from an event of termination of the management agreement have been
materially amended by the consent and agreement for the benefit of the holder
of the Nortel financing as discussed below. For more information on the Nortel
financing, see "Description of Our Indebtedness."
Insurance. We are required to obtain and maintain workers' compensation
insurance, commercial general liability insurance, business automobile
insurance, umbrella excess liability insurance and "all risk" property
insurance with financially reputable insurers who are licensed to do business
in all jurisdictions where any work is performed under the management agreement
and who are reasonably acceptable to Sprint PCS.
Indemnification. We have agreed to indemnify Sprint PCS and its directors,
employees and agents, and related parties of Sprint PCS and their directors,
employees and agents against any and all claims against any of the foregoing
arising from our violation of any law, a breach by us of any representation,
warranty or covenant contained in the management agreement or any other
agreement between us and Sprint PCS, our ownership of the operating assets or
the actions or the failure to act of anyone who is employed or hired by us in
the performance of any work under this agreement, except we will not indemnify
Sprint PCS for any claims arising solely from the negligence or willful
misconduct of Sprint PCS. Sprint PCS has agreed to indemnify us and our
directors, employees and agents against all claims against any of the foregoing
arising from Sprint PCS' violation of any law and from Sprint PCS' breach of
any representation, warranty or covenant contained in this agreement or any
other agreement between Sprint PCS and us, except Sprint PCS will not indemnify
us for any claims arising solely from our negligence or willful misconduct.
The Services Agreement
The services agreement outlines various back office services provided by
Sprint PCS and available to us at established rates. Sprint PCS can change any
or all of the service rates one time in each 12 month period. Some of the
available services include: billing, customer care, activation, credit checks,
maintenance of a customer database for call billing, voice mail, prepaid
services, directory assistance, operator services, roaming fees, roaming
clearinghouse fees, interconnect fees and inter-service area fees. Sprint PCS
offers three packages of available services. Each package identifies which
services must be purchased from Sprint PCS and which may be purchased from a
vendor or provided in-house. Essentially, services such as billing, activation
and customer care must either all be purchased from Sprint PCS or we may
provide those services ourselves. We have chosen to initially buy these
services from Sprint PCS but may develop an independent capability with respect
to these services over time. Sprint PCS may contract with third parties to
provide expertise and services identical or similar to those to be made
available or provided to us. We have agreed not to use the services received
under the services agreement in connection with any other business or outside
our territory. We may discontinue use of any service upon three months' prior
written notice. Sprint PCS may discontinue a service provided that Sprint PCS
provides us with nine months' prior notice.
We have agreed with Sprint PCS to indemnify each other as well as officers,
directors, employees and certain other related parties and their officers,
directors and employees for violations
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of law or the services agreement except for any liabilities resulting from the
indemnitee's negligence or willful misconduct. The services agreement also
provides that no party to the agreement will be liable to the other party for
special, indirect, incidental, exemplary, consequential or punitive damages, or
loss of profits arising from the relationship of the parties or the conduct of
business under, or breach of, the services agreement except as may otherwise be
required by the indemnification provisions. The services agreement
automatically terminates upon termination of the management agreement and
neither party may terminate the services agreement for any reason other than
the termination of the management agreement.
The Trademark and Service Mark License Agreements
We have non-transferable, royalty-free licenses to use the Sprint and Sprint
PCS brand names and "diamond" symbol, and several other U.S. trademarks and
service marks such as "The Clear Alternative to Cellular" and "Clear Across the
Nation" on Sprint PCS products and services. We believe that the Sprint and
Sprint PCS brand names and symbols enjoy a very high degree of awareness,
providing us an immediate benefit in the market place. Our use of the licensed
marks is subject to our adherence to quality standards determined by Sprint and
Sprint PCS and use of the licensed marks in a manner which would not reflect
adversely on the image of quality symbolized by the licensed marks. We have
agreed to promptly notify Sprint and Sprint PCS of any infringement of any of
the licensed marks within our territory of which we become aware and to provide
assistance to Sprint and Sprint PCS in connection with Sprint's and Sprint PCS'
enforcement of their respective rights. We have agreed with Sprint and Sprint
PCS to indemnify each other for losses incurred in connection with a material
breach of the trademark license agreements. In addition, we have agreed to
indemnify Sprint and Sprint PCS from any loss suffered by reason of our use of
the licensed marks or marketing, promotion, advertisement, distribution, lease
or sale of any Sprint or Sprint PCS products and services other than losses
arising solely out of 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, materially breach the agreement or our
management agreement is terminated. We can terminate the trademark and service
mark license agreements upon Sprint's or Sprint PCS' abandonment of the
licensed marks or if Sprint or Sprint PCS files for bankruptcy, or the
management agreement is terminated.
Consent and Agreement for the Benefit of the Holder of Nortel Financing
Sprint PCS has entered into a consent and agreement for the benefit of
Nortel which we refer to as the Nortel Consent, which has been acknowledged by
us, that modifies Sprint PCS' rights and remedies under our management
agreement, for the benefit of Nortel and future holders of our Nortel financing
and any refinancing thereof which was a condition to the funding of any amounts
under our Nortel financing.
The Nortel Consent provides the following:
. Sprint PCS' consent to the pledge of substantially all of our assets,
including our rights in the Sprint PCS agreements;
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. that the Sprint PCS' agreements may not be terminated by Sprint PCS until
our Nortel financing is satisfied in full pursuant to the terms of the
Nortel Consent, unless our subsidiaries or assets are sold to a purchaser
who does not continue to operate the business as a Sprint PCS network,
which sale requires the approval of the administrative agent (Nortel is
the initial administrative agent as discussed in more detail in
"Description of Our Indebtedness--The Nortel Credit Facility");
. for Sprint PCS to maintain 10MHz of PCS spectrum in all of our markets
until our Nortel financing is satisfied or our operating assets are sold
after our default under our Nortel financing;
. for redirection of payments due to us under the management agreement from
Sprint PCS to the administrative agent during the continuation of our
default under our Nortel financing;
. for Sprint PCS and the administrative agent to provide to each other
notices of default by us under the Sprint PCS management agreement and
Nortel financing, respectively;
. the ability to appoint interim replacements, including Sprint PCS or a
designee of the administrative agent, to operate our portion of the
Sprint PCS network under the Sprint PCS agreements after an acceleration
of our financing from Nortel or an event of termination under the Sprint
PCS agreements;
. subject to certain requirements and limitations, the ability of the
administrative agent or Sprint PCS to assign the Sprint PCS agreements
and sell our assets or the partnership interests of our operating
subsidiaries to a qualified purchaser that is not a major competitor of
Sprint PCS or Sprint, free of the restrictions on assignment and change
of control in the management agreement, if our Nortel financing has been
accelerated after our default; and
. subject to certain requirements and limitations, that if Sprint PCS
enters consent and agreement documents with similarly situated lenders
that have provisions that are more favorable to the lender, Sprint PCS
will give the administrative agent written notice of the amendments and
will amend the Nortel Consent in the same manner at the administrative
agent's request.
Sprint PCS' Right to Purchase on Acceleration of Amounts Outstanding under our
Nortel Financing
Subject to the requirements of applicable law, so long as our Nortel
financing remains outstanding, Sprint PCS has the right to purchase our
operating assets or the partnership interests of our operating subsidiaries,
upon its receipt of notice of an acceleration of our Nortel financing, under
the following terms:
. Sprint PCS elects to make such a purchase within a specified period;
. the purchase price is the greater of an amount equal to 72% of our entire
business value or the amount we owe under our Nortel financing;
. if Sprint PCS has given notice of its intention to exercise the purchase
right, then the administrative agent is prohibited from enforcing its
security interest for a specified period after the acceleration or until
Sprint PCS rescinds its intention to purchase; and
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. if we receive a written offer that is acceptable to us to purchase our
operating assets or the partnership interests of our operating
subsidiaries after the acceleration, then Sprint PCS has the right to
purchase our operating assets or the partnership interests of our
operating subsidiaries on terms at least as favorable to us as the offer
we receive. Sprint PCS must agree to purchase the operating assets or the
partnership interests of our operating subsidiaries within 14 business
days of its receipt of the offer, on acceptable conditions, and in an
amount of time acceptable to us.
Sale of Operating Assets or the Interests of Our Operating Subsidiary to Third
Parties
If Sprint PCS does not purchase our operating assets or the partnership
interests of our operating subsidiaries after an acceleration of the
obligations under our Nortel financing, then the administrative agent may sell
the operating assets or partnership interests. Subject to the requirements of
applicable law (including the law relating to foreclosures of security
interests), the administrative agent has two options:
. to sell the assets or partnership interests to an entity that meets the
requirements to be our successor under the Sprint PCS agreements; or
. to sell the assets or partnership interests to any third-party, subject
to specified conditions.
Option Territory
As part of the expansion of our territory, we have been granted the option,
but do not have the obligation, to add to our territory the Iowa City and Cedar
Rapids, Iowa markets that have already been launched by Sprint PCS and to
purchase from Sprint PCS related assets and subscriber accounts in those
markets. These markets have a total population of approximately 405,000 and had
over 6,600 Sprint PCS subscribers as of December 31, 1999. Our option expires
on January 31, 2001. The purchase of these assets is a condition to adding
those markets to our territory, and would be payable within 90 days of the date
we exercise the option. The purchase price was initially $25.2 million and
increases monthly to a purchase price of $28.8 million in January, 2001;
provided, that the minimum purchase price will be (x) $19,945,600, plus (y) an
amount equal to the number of Sprint PCS subscribers in the two additional
markets at the time the option is exercised, multiplied by $700. We would
become the manager of all Sprint PCS subscribers in these markets upon the
closing of the asset purchase.
DESCRIPTION OF OUR INDEBTEDNESS
The Nortel Credit Facility
General
Illinois PCS, Inc. entered into a credit facility dated as of May , 2000
with Nortel for $200.0 million. As of March 31, 2000, Illinois PCS, LLC had
borrowed $29.1 million under the predecessor facility. This facility
constitutes senior debt secured by a first priority security interest in
substantially all of our assets. We have agreed that all of our current and
future subsidiaries (except those that are unrestricted subsidiaries) will
guarantee this facility. We have also agreed to issue to Nortel warrants to
purchase 1,152,857 shares or 2% of our outstanding shares as of the closing
date of this offering on a fully-diluted basis. These warrants may be
terminated if we reduce the amount of the Nortel financing before November,
2001. For more information on the Nortel warrants, see "Description of Capital
Stock--Warrants."
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Amount and Purpose of Loans
The credit agreement provides for three different tranches of borrowings
totaling $200.0 million. The Tranche A commitment provides for borrowings up to
$134.0 million, the Tranche B commitment provides for borrowings up to $46.0
million and the Tranche C commitment provides for borrowings up to $20.0
million. This facility is used to purchase equipment and services from Nortel,
to fund other costs of the build-out of our network and to fund costs
associated with the financing. Nortel is the primary vendor of the equipment
and services necessary to install our network. See "Business--Nortel Equipment
Agreement."
The amounts that can be borrowed under Tranche B and under Tranche C are
further limited to a borrowing base that is computed by the administrative
agent at specified times, as provided in the credit agreement. The borrowing
base is defined as a specified percentage of the amount paid to Nortel to
purchase equipment and services used in our network. We have the option to
reduce the amount of any of the commitments, and to avoid the periodic fee
charged on those unborrowed amounts. Any reduction must be at least $3.0
million. Any such reduction cannot be reinstated. This is not a revolving
credit arrangement so amounts repaid cannot be reborrowed except that
borrowings under Tranche B may be reborrowed at any time prior to the earlier
to occur of (x) the second anniversary of the effectiveness of the credit
facility and (y) the date on which the Tranche B commitment is terminated.
Commitment Termination
The Tranche A commitment, the Tranche B commitment and the Tranche C
commitment are all scheduled to terminate on May , 2003. These commitments
may also terminate:
. when any commitment is fully funded;
. November , 2001 if we have borrowed less than an aggregate of $50.0
million under all three commitments as of that date;
. upon a change in control of our company;
. if we voluntarily terminate any commitment; and
. if the administrative agent terminates one or all of the commitments due
to the occurrence of an event of default under the credit agreement.
A change in control will occur if:
. any person or group acquires more than 35% of our equity (other than our
existing owners);
. our directors who were elected or approved by the owners as of May ,
2000 (or any directors who are approved by such directors), cease for any
reason to constitute at least a majority of our board of directors; or
. we cease to own all of the capital stock of Illinois PCS, Inc. or any
subsidiary of Illinois PCS, Inc.
. the completion of any transactions that result in any person or group
owning more of our equity than our existing owners.
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Syndication
Nortel is permitted to syndicate the loan to other lenders. If the loan is
syndicated, then Nortel may be replaced as administrative agent by any
successor administrative agent, acting on behalf of the lenders in the
syndicated group.
Loans and Interest Options
We have multiple interest rate options available under the credit agreement:
. we may borrow money as either (1) a base rate loan with an interest rate
equal to 2.75% plus the higher of (A) the prime or base rate of Citibank,
N.A. (New York), or (B) the federal funds effective rate plus 0.5%; or
(2) a Eurodollar loan with an interest rate equal to the London interbank
offered rate, plus 3.75%;
. we may convert a base rate loan to a Eurodollar loan if we meet specific
conditions, or a Eurodollar loan to a base rate loan, from time to time;
. we pay accrued interest either on the last day of each quarter for base
rate loans, the last day of the interest period for Eurodollar loans or,
in the case of an interest period greater than three months, at three
month intervals after the first day of such interest period;
. we may pay interest due on the loans with borrowings obtained under the
Tranche C commitment until May , 2002;
. we pay interest due upon any prepayment or conversion from one interest
type to another; and
. we pay all outstanding interest on the maturity date.
Payment of Principal
Scheduled Payments. Commencing September 30, 2003, we must begin to repay,
in quarterly installments, the principal on all borrowings. A fixed percentage
is due each quarter:
. for the first four quarters, 2.5% of the principal balance of the loan is
due per quarter;
. for quarters five through eight, 3.75% per quarter; and
. for quarters nine through the maturity date, 6.25% per quarter.
Any principal that has not been paid by the maturity date is due at that time.
Optional Prepayments. We may voluntarily prepay any of the loans at any
time, but any amount repaid may not be reborrowed, except Tranche B borrowings
until the earlier to occur of (x) the second anniversary of the effectiveness
of the credit facility and (y) the date on which the Tranche B commitment is
terminated, because there are no other revolving credit features.
Mandatory Prepayments. We also must make mandatory prepayments under certain
circumstances, including among others:
. 50% of our excess cash flow, commencing on April , 2003 for the fiscal
year ended December 31, 2002;
. any amount in excess of $1,000,000 per calendar year received as net
proceeds of asset sales or insurance proceeds, to the extent not
reinvested in property or assets within a stated period of time;
. we must prepay all obligations under the credit facility upon a sale of
all or a material portion of our network;
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. we must prepay the loans under the credit facility with the proceeds of
any senior notes we may issue in an amount equal to the least of (1) the
aggregate amount of such proceeds, (2) the aggregate amount of all such
loans outstanding, and (3) such amount of proceeds as is necessary to
reduce the senior debt (as defined in the credit agreement) plus all
unfunded commitments under the credit facility to no more than 40% of the
total capitalization (as defined in the credit agreement) of Illinois
PCS, Inc. and its subsidiaries; and
. in the event of a borrowing base shortfall.
Prepayments resulting from asset dispositions or excess cash flow are to be
applied to the Tranche A loans (or, in the case of net proceeds of the
disposition consisting of a tower sale, if we so request, to the Tranche B
loans), and then to the remaining obligations under the credit facility as
Nortel shall determine. All prepayments resulting from a borrowing base
shortfall shall be applied to the Tranche B loans and Tranche C loans and then
to the remaining obligations under the credit facility, as Nortel shall
determine, except that Illinois PCS, Inc. may elect to have such borrowing base
prepayment applied to the Tranche B loans. All prepayments described above are
applied to the outstanding loan balances in the inverse order of maturity. All
prepayments resulting from the issuance of any senior notes which we may issue
shall be applied pro rata to the remaining installments under all three
facilities. Any amount prepaid pursuant to the mandatory prepayment provisions
of the credit facility may not be reborrowed.
Board Observation Right
Until the earlier of (1) repayment of the credit facility and termination of
all commitments under the credit facility, and (2) the first time the amount of
all senior debt of Illinois PCS, LLC and its subsidiaries plus the amount of
all unfunded commitments under the credit facility is less than 40% of the
total capitalization of Illinois PCS, Inc. and its subsidiaries, Nortel is
entitled to receive notices of the annual meetings of our board of directors
and to have a non-voting observer in attendance at any of those meetings. Such
observer may share information learned at those meetings with Nortel, the
administrative agent and lenders, but the information must be kept confidential
by those persons.
Collateral
Our Nortel financing is secured by:
. a perfected first priority lien on substantially all of our current and
future assets, and the assets of future subsidiaries (other than the
stock and assets of unrestricted subsidiaries);
. a collateral assignment of our affiliation agreements with Sprint PCS and
all our other material contracts; and
. guarantees from all our future direct or indirect subsidiaries other than
unrestricted subsidiaries.
We are obligated to grant to the administrative agent a first lien mortgage
on any material real property we acquire other than real property of
unrestricted subsidiaries.
Conditions
We must meet certain conditions before we may obtain any future borrowings
under the credit agreement, including:
. that there has been no event of default that is continuing;
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. a reaffirmation of representations;
. that the total contributed equity capital of Illinois PCS, LLC be at
least $150.0 million and that this offering has been completed and has
raised net proceeds of at least $120.0 million; and
. that there has not been a material adverse change, as defined in the
credit agreement.
Negative Covenants
Other Debt. With limited exceptions such as purchase money debt not to
exceed $10.0 million in principal on terms satisfactory to Nortel, Illinois
PCS, Inc. has agreed not to, nor to permit any of its subsidiaries to, to incur
additional debt.
Organizational Issues and Capital Stock. We have agreed, with an exception
for mergers of subsidiaries of Illinois PCS, Inc. into Illinois PCS, Inc. or
its wholly owned subsidiaries and other limited exceptions, not to:
. become a party to a merger or a consolidation;
. wind-up, dissolve or liquidate; or
. acquire all or a material or substantial part of the business or
properties of another person except for acquisitions from Sprint PCS
which are currently permitted under the Sprint PCS agreements.
Restricted Payments. Illinois PCS, Inc. has agreed not to, nor to permit any
of its subsidiaries to, make any "restricted payments." Restricted payments
include the following, subject to limited exceptions:
. dividends or distributions on account of shares of capital stock, except
a dividend payable solely in shares of stock;
. any redemption, conversion, exchange, retirement, sinking fund, or other
similar purchase of shares of capital stock;
. any payment or prepayment of principal, premium, if any, or interest on,
any subordinated debt;
. any redemption, conversion, exchange, purchase, retirement or defeasance
of any subordinated debt; and
. any payment made to retire any outstanding warrants, options or other
rights to acquire capital stock.
The foregoing restriction will not prevent Illinois PCS, Inc. from making
dividends to us to service cash interest payments on senior notes which we may
issue, provided no event of default or event which, with the passage of time or
the giving of notice or both, would constitute an event of default under the
credit facility exists at the time of any such dividend or would result from
any such dividend.
Modification of Agreements. We have agreed that, with limited exceptions, we
will not consent to or implement any termination, amendment, modification,
supplement or waiver of:
. our affiliation agreements with Sprint PCS;
. our business plan;
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. any senior notes indenture or the senior notes; or
. any material contract.
Other Negative Covenants. We and the operating subsidiaries have agreed,
among other things, with limited exceptions, not to:
. dispose of property;
. enter into sale/leaseback transactions;
. engage in any line of business other than operation of our network, and
related ownership and financing activities;
. conduct any activity on real property that would violate environmental
laws;
. pay management fees other than to Sprint PCS and certain fees payable by
Illinois PCS, Inc. to us;
. terminate the agreement pursuant to which Nortel sells goods and services
to us relating to our network, before the earlier of September , 2003
or the date that we had satisfied our unfulfilled purchase obligations
which were $103.3 million at the date we entered into the amended and
restated Nortel credit agreement;
. take certain actions that would violate ERISA;
. prepay fees owed to Sprint PCS;
. grant liens on assets;
. make investments, loans or advances;
. prepay other debt, other than to prepay any senior notes and in
connection with certain refinancings and the prepayment of any senior
notes in limited circumstances and other limited exceptions ;
. permit subsidiaries to enter into dividend restrictions;
. enter into negative pledge or similar arrangements; or
. modify charter documents.
Financial and Operating Covenants
We are subject to financial and operating covenants including:
. a maximum ratio of total debt to total capitalization at both the
Illinois PCS, Inc. and our levels;
. a maximum ratio of senior debt to total capitalization of Illinois PCS,
Inc. and its subsidiaries;
. a maximum ratio of total debt to annualized earnings before interest,
taxes, depreciation and amortization, referred to as EBITDA, for Illinois
PCS, Inc. and its subsidiaries for each quarter;
. minimum annualized EBITDA for Illinois PCS, Inc. and its subsidiaries for
each quarter;
. minimum quarterly fixed charge coverage ratio for Illinois PCS, Inc. and
its subsidiaries, which is the ratio of EBITDA plus cash and the unused
portion of the loan to consolidated fixed charges;
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. maximum cumulative capital expenditures for Illinois PCS, Inc. and its
subsidiaries not to exceed a specified amount;
. minimum quarterly revenue for Illinois PCS, Inc. and its subsidiaries;
. minimum number of subscribers; and
. maximum yearly payments under operating leases for Illinois PCS, Inc. and
its subsidiaries.
Events of Default
In addition to failing to perform, observe or comply with the covenants,
agreements and terms of the credit agreement, it is an event of default under
the credit agreement if any party with financial responsibility for the loans,
Illinois PCS Inc. or any signatory to the Sprint PCS agreements, becomes
insolvent, commences or suffers bankruptcy or similar proceedings or suffers
other indicia of extreme financial duress.
Other events of default include:
. an attachment against our property that is not released within 30 days
and the amount claimed in the proceeding is greater than $1,000,000;
. a judgment against us of greater than $1,000,000 remains undischarged for
a period of time;
. failure to pay other loans as they become due or a default that permits
acceleration of other debt with respect to debt of at least $1,000,000;
. a breach by us under the supply agreement with Nortel, the consent and
agreement among Sprint, Nortel and Illinois PCS, Inc. or the Sprint PCS
agreements;
. any change in control of us; or
. any material adverse change occurs, which effect is broadly defined in
the credit agreement to include things that could reasonably be expected
to have a material adverse effect on our business or our ability to repay
the loan.
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MANAGEMENT
Directors and Executive Officers
The following table presents information with respect to our directors and
executive officers.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Timothy M. Yager 30 President, Chief Executive Officer and
Director
Linda K. Wokoun 44 Executive Vice President, Chief Operating
Officer
Stebbins B. Chandor, Jr. 40 Senior Vice President, Chief Financial
Officer
Anthony R. Muscato 52 Senior Vice President, Chief Technical
Officer
William W. King, Jr. 60 Vice President, Strategic Planning and
Director
Dow C. Costa 37 Vice President, Sales & Marketing
Patricia M. Greteman 38 Controller
Alan C. Anderson 62 Chairman of the Board of Directors
Donald L. Bell 54 Director
Brian J. Gernant 42 Director
Robert W. Schwartz 60 Director
George Patrick Tays 48 Director
</TABLE>
Timothy M. Yager has been President, Chief Executive Officer and Manager of
Illinois PCS, LLC since January 1999 and has been President, Chief Executive
Officer and Director of iPCS, Inc. since its formation. From January 1995 to
January 1999, he was the Senior Vice President of Geneseo Communications, Inc.,
an independent telephone company in Illinois. During this time, he founded and
was also the Chief Operating Officer, General Manager and later the President
of GenSoft Systems, Inc., a subsidiary of Geneseo Communications, Inc. that
designs software to provide information and billing services to the
telecommunications industry. Prior to January 1995, Mr. Yager was a Project
Manager at Geneseo Telephone Company. He was elected to the Board of Directors
of Cambridge Telcom in April 1997. Mr. Yager is the son-in-law of Mr. Anderson,
our Chairman.
Linda K. Wokoun has been Executive Vice President, Chief Operating Officer
of iPCS, Inc. since March 2000. From April 1996 to January 2000, she served as
Vice President--Wireless Operations for Ameritech Cellular, which prior to its
merger with SBC, served over 3 million cellular and 1.5 million paging
customers. Ms. Wokoun served as Ameritech Cellular's Vice President of
Marketing from November 1994 to April 1996 and Vice President--General Manager
Missouri (CyberTel, an Ameritech Company) from September 1992 to November 1994.
Ms. Wokoun has held a variety of operations, marketing and business development
roles in her 20 year telecommunications career.
Stebbins B. Chandor, Jr. has been Senior Vice President, Chief Financial
Officer of iPCS, Inc. since March 2000. From August 1995 to March 2000, he was
Senior Vice President and Chief Financial Officer for Metro One
Telecommunications, Inc., a publicly traded leading provider of enhanced
directory assistance and information services to the wireless
telecommunications industry.
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From June 1985 to August 1995, Mr. Chandor served in various corporate finance
capacities with BA Securities, Inc., a wholly-owned subsidiary of BankAmerica
Corporation, and affiliated or predecessor firms including Bank of America and
Continental Bank N.A.
Anthony R. Muscato, has been Senior Vice President, Chief Technology Officer
of iPCS, Inc. since March 2000. From October 1999 until March 2000, he served
as Vice President of Merger Integration for GTE Wireless. From February 1991 to
March 1999, Mr. Muscato served in a variety of positions with Ameritech
Cellular, most recently as Vice President of Business Transition for Ameritech
Cellular. From October 1997 to March 1999, he served as Vice President of
Network Planning, Engineering and Operations and from June 1996 to October
1997, he served as Vice President of Network Planning. From October 1992 to
June 1996, Mr. Muscato served as Director of Engineering and Operations for the
Illinois market and from February 1991 to October 1992, he served as Director
of Engineering. Prior to this Mr. Muscato served in a number of positions in
network operations, business marketing, corporate strategy, residence
installation and maintenance and information technology at Ameritech and its
predecessor company, Illinois Bell Telephone Company.
William W. King, Jr. has been Vice President, Strategic Planning of Illinois
PCS, LLC since February, 1999, and has been Vice President, Strategic Planning
and Director of iPCS, Inc. since its formation. From July 1994 to February
1999, he served as the Director of Wireless Services for Cathey, Hutton &
Associates, a telecommunications consultant to independent telephone and
wireless companies and other entrepreneurial clients. From July 1990 to March
1994, Mr. King was the President and Chief Operating Officer of Cellular
Communications of Puerto Rico. Prior to this, since July 1962, Mr. King has
held various leadership positions for AT&T where he rose to the level of Area
Vice President and Chief Operating Officer of AT&T of Puerto Rico/Virgin
Islands.
Dow C. Costa has been Vice President, Sales & Marketing of Illinois PCS, LLC
since July 1999 and has held the same position with iPCS, Inc. since its
formation. From March 1997 to July 1999, he was an employee of Sprint PCS where
he served as a Manager, Strategic Transactions until May 1998, and since then
as a Senior Manager, Affiliate Development. From September 1996 to January 1997
Mr. Costa was a wireless consultant for DC Consulting, serving the wireless
industry. From August 1994 to August 1996, Mr. Costa served as the Director,
Wireless Business Development for Paging Network, Inc. Prior to this, he held
various management positions at Geotek Communications, Inc., Lennox Industries
and Southwestern Bell Mobile Systems.
Patricia M. Greteman has been the Controller of Illinois PCS, LLC since May
1999 and has held the same position with iPCS, Inc. since its formation. From
May 1993 to April 1999, she served as the Controller of ACC of Kentucky, LLC, a
cellular carrier covering a territory with over 1 million total residents. From
November 1991 to April 1992, Ms. Greteman served as the Controller of Arch
Mineral Corporation's Catenary Coal Company. From August 1989 to October 1991,
she served as the Assistant Controller of Arch of Kentucky.
Alan C. Anderson has served as a representative of an owner of Illinois PCS,
LLC since January 1999 and as Chairman of the Board of Directors of iPCS, Inc.
since its formation March 2000. Mr. Anderson is President and CEO of Geneseo
Communications, Inc., a telecommunications holding company, and has served in
that position since November 1994. From 1981 through 1994, Mr. Anderson held
various positions, including General Manager, with Geneseo Telephone Company.
He
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has served as General Manager of Cambridge Telcom, Inc., a telecommunications
holding company, since 1987 and from 1985 to 1987 Mr. Anderson served as
Assistant General Manager of Cambridge Telephone Company. Since April 1996, Mr.
Anderson has served as Vice President, General Manager, Secretary and Treasurer
of Henry County Communications, Inc., and from July 1981 until April 1996 he
was Vice President and General Manager of Henry County Telephone Company. In
addition, Mr. Anderson serves on the Illinois Telephone Association Board of
Directors; he served as President of the Board of Directors in 1990 and 1991.
He has served on the Board of Directors of Central Trust and Savings Bank since
1992 and currently serves on the Board of Directors of Central Bank
Corporation, Celebrate Communications, LLC and GenSoft Systems, Inc. Prior to
July 1981, Mr. Anderson served as an officer of the U.S. Air Force. Mr.
Anderson is the father-in-law of Mr. Yager, our President, Chief Executive
Officer and a Director.
Donald L. Bell has served as a representative of an owner of Illinois PCS,
LLC since January 1999 and as a Director of iPCS, Inc. since its formation. He
also serves as Vice President and CEO of Cass Communications Management, Inc, a
telecommunications company, since January 1994. Mr. Bell has served in various
positions for Cass Communications for the past 30 years, including Plant
Manager, Operational Manager, Vice President of Cass Telephone Company and
President of Cass Long Distance Company. He served on the Board of Directors of
Illinois 4 Limited Partnership, a telecommunications company, from 1986 to
1993. In addition, Mr. Bell has served as President of Illinois Independent
Telephone Association since May 1994. Mr. Bell has served as a member of the
Board of Directors of the Illinois Telecommunications Association since June
1991 and he is also a Director of Cass Telephone Company, Cass Communications
Management and Cass Long Distance Company.
Brian J. Gernant has served as a Director of iPCS, Inc. since March 2000.
Mr. Gernant also serves as Director of Geneseo Communications, Inc., a
telecommunications holding company, and has served in that position since July
1998. Mr. Gernant is the Branch Manager, Vice President-Investments of the
Geneseo, Illinois office of A.G. Edwards & Sons Inc. Since March, 1995, Mr.
Gernant has been employed by A.G. Edwards and has been a Branch Manager since
January 1997. A.G. Edwards & Sons, Inc. has not performed any due diligence,
expresses no opinion and makes no recommendations regarding participation in
this offering.
Robert W. Schwartz has served as a representative of an owner of Illinois
PCS, LLC since January 1999 and as a Director of iPCS, Inc. since its
formation. Mr. Schwartz has served as President and Manager of Madison
Telephone Company, a telecommunications company, since August 1985. Mr.
Schwartz has served on the Board of Directors of Madison Telephone Company
since 1984. Since March 1997, he has served as President and Manager of Madison
Communications Company, a telecommunications company which he founded in 1997.
Mr. Schwartz is also the founder and President of Schwartz Ventures, Inc., a
position he has held since 1964. He has served on the Board of Directors of
Madison Communications Company since March 1994. Mr. Schwartz also has served
as a member of the Board of Directors and as President and Manager of Madison
Network Systems, since August 1995. Mr. Schwartz serves on the Board of
Directors of the Illinois Telephone Association where he is the current
Chairman, and of the Illinois Independent Telephone Association, and he has
served on the Board of Directors of Clover Leaf Bank since 1965. Mr. Schwartz
is the General Manager of Technology Group, L.L.C., which was formed in
December 1999.
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George Patrick Tays has served as a representative of an owner of Illinois
PCS, LLC since January 1999 and as a Director of iPCS, Inc. since its
formation. Mr. Tays has served as General Manager of Montrose Mutual Telephone
Company and Montrose Mutual PCS, Inc., a telecommunications company, since
September 1992. Prior to this and since November 1989 he has served as
Assistant Secretary and Assistant Treasurer of the Board of Directors of
Montrose Mutual Telephone Company. He served in the paging and cellular
department of Illinois Consolidated Telephone Company, a telecommunications
company, from June 1987 to September 1992.
Board of Directors
The board of directors is currently fixed at nine members. There are seven
directors currently comprising the board. Currently there are two vacancies on
the board. The board of directors are divided into three classes.
, and constitute Class I and will stand
for election at the annual meeting of stockholders to be held in 2001.
, and constitute Class II and will
stand for election at the annual meeting of stockholders to be held in 2002.
and the two directors who will fill the current vacancies on the
board will constitute Class III and will stand for election at the annual
meeting of stockholders to be held in 2003. After the initial term following
the offering, directors in each class will serve for a term of three years, or
until his or her successor has been elected and qualified and will be
compensated at the discretion of the board of directors.
The audit committee consists of . The compensation committee
consists of .
The audit committee is responsible for recommending to the board of
directors the engagement of our independent auditors and reviewing with the
independent auditors the scope and results of the audits, our internal
accounting controls, audit practices and the professional services furnished by
the independent auditors.
The compensation committee is responsible for reviewing and approving all
compensation arrangements for our officers, and is also responsible for
administering our incentive stock plan.
Compensation Committee Interlocks and Insider Participation
We did not have a compensation committee during the year ended December 31,
1999. Representatives of the owners of Illinois PCS, LLC made all compensation
decisions. Other than Mr. Yager, who is a Director, and Mr. Anderson who is a
director and the General Manager of Cambridge Telcom, Inc., none of our
executive officers served as a director or member of the compensation committee
or other board committee performing equivalent functions of another corporation
whose executive officers served as a representative of an owner.
Limitation on Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Our certificate of incorporation
provides that we shall indemnify our directors and executive officers and may
indemnify our other officers and employees and agents and other agents to the
fullest extent permitted by law. Our certificate of incorporation also permits
us to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in such capacity,
regardless or whether the certificate of incorporation would permit
indemnification.
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We have entered into agreements to indemnify our directors and officers in
addition to indemnification provided for in our certificate of incorporation.
These agreements, among other things, indemnify our directors and officers for
certain expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any
action by us or in our right, arising out of such person's services as a
director or officer of ours, any subsidiary of ours, or any other company or
enterprise to which the person provides services at our request. In addition,
we intend to obtain directors' and officers' insurance providing
indemnification for certain of our directors, officers and employees for
certain liabilities. We believe that these provisions, agreements and insurance
are necessary to attract and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of ours where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
Executive Compensation
The following table presents summary information with respect to the
compensation paid to our President, Chief Executive Officer and Director and
our Vice President, Strategic Planning and Director. None of our other
executive officers was paid salary and bonus which exceeded $100,000 during the
year ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------
Other Annual
Name and Principal Position Salary($) Bonus($) Compensation($)
<S> <C> <C> <C>
Timothy M. Yager........................... $100,295 $24,000 $909(1)
President, Chief Executive Officer and
Director
William W. King, Jr........................ 89,105 18,883 644(2)
Vice President, Strategic Planning and
Director
</TABLE>
- ---------------------
(1) Includes the imputed value of Mr. Yager's personal use of a company
automobile and life insurance premium.
(2) Includes life insurance premium.
As of February 29, 2000, Mr. Yager agreed to cancel his management agreement
with Illinois PCS, LLC in exchange for a 1.5% membership interest in Illinois
PCS, LLC and certain other consideration. We have recorded a non-cash
compensation expense for the three months ended March 31, 2000 in the amount of
approximately $8.5 million resulting from the issuance of this membership
interest to Mr. Yager.
Compensation of Directors
During 1999, we did not compensate the representatives of our owners who
functioned in a manner comparable to a board of directors. Following the
closing of this offering, non-employee directors will be reimbursed for their
expenses for attendance at board meetings. In connection with this offering,
each non-employee director will be granted stock options to purchase 1,000
shares of our common stock upon the closing of the offering at 90% of the
initial public offering price. Discretionary grants of stock options may be
made to non-employee directors under the 2000 Long Term Incentive Stock Plan
from time to time, subject to the approval of the full board.
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Employment Agreements
We have entered into a three year employment agreement with Timothy M.
Yager, our President and Chief Executive Officer on substantially the terms set
forth below. The term will be automatically renewed for successive one year
periods absent 90 days advance notice from one party to the other. Mr. Yager's
employment agreement provides for an initial minimum annual base salary of
$225,000. Under the employment agreement, Mr. Yager is also entitled to bonuses
in the discretion of the board of directors, benefits (such as retirement,
health and other fringe benefits) which are provided to other executive
employees, reimbursement of business expenses and limited reimbursement of
legal and financial planning expenses. Mr. Yager is also entitled to a car
allowance, reimbursement for certain relocation expenses and a company-paid
term life insurance policy. In connection with this offering, we have committed
to grant Mr. Yager a one-time grant of 300,000 stock options which have an
exercise price of 90% of the initial public offering price and stock options
under our long-term incentive plan in a number to be determined by the
compensation committee. The details regarding these options are discussed in
the next section.
Under the employment agreement, Mr. Yager's employment may be terminated by
him or us at any time and for any reason. If his employment is terminated for
any reason, he will be entitled to payment of his accrued but unpaid salary,
vacation pay, unreimbursed business expenses and other items earned and owed to
him by us. If his employment is terminated as a result of death or disability,
he (or in the event of his death, his estate) will be paid his salary through
the first anniversary of the date his death or termination for disability
occurs or through the end of the employment period, if earlier, and he will
receive a lump sum payment of his target incentive bonus. If Mr. Yager's
employment is terminated by us for reasons other than for cause, or if he
terminates his employment following a material breach by us of the employment
agreement which is not cured within 30 days, he will be entitled to continuing
payments of his salary through the first anniversary of his termination or the
last day of the employment period or his death, if earlier, continuation of
health benefits for him and his dependents for the same period and a lump sum
payment of his target incentive bonus. All severance payments pursuant to the
employment agreement terminate in the event Mr. Yager violates the
confidentiality, noncompetition or nonsolicitation provisions of the employment
agreement.
The employment agreement contains special provisions that apply in the event
of a change in control of the company. The agreement provides that if, during
the one year period following a change in control, Mr. Yager's employment is
terminated by us for reasons other than for cause or if he terminates for good
reason, he will be entitled to a lump sum payment equal to two years of his
salary, a lump sum payment of his target incentive bonus which will be set
annually by the compensation committee and continuation of his health benefits
(for him and his dependents) at the employee rate for a period of two years
following his termination. In the event that, in connection with a change in
control, any payments or benefits to which Mr. Yager is entitled from us
constitute excess golden parachute payments under applicable IRS rules, he will
receive a payment from us in an amount which is sufficient to pay the parachute
excise tax that he will have to pay on those parachute payments. In addition,
we will pay him an amount sufficient for him to pay the income tax and related
employment taxes that he will have to pay related to our reimbursement to him
of the parachute excise tax. For purposes of the employment agreement, the term
"change in control" has the same meaning as for the 2000 Long Term Incentive
Stock Plan, discussed below.
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If Mr. Yager's employment terminates for any reason other than those
discussed above, he is not entitled to any severance benefits under the
employment agreement.
Pursuant to the employment agreement, Mr. Yager has agreed to keep all of
our confidential information secret and he has agreed that, while he is
employed by us and for a period of 12 months after his termination of
employment, he will not compete with us in the wireless telecommunications
business in any of the basic trading areas in which we have been granted the
right to carry on the wireless telecommunications business, he will not solicit
our customers for a competitive business and he will not solicit our employees.
We have entered into an employment agreement with William W. King, Jr., our
Vice President, Strategic Planning and Director, which agreement is
substantially the same as Mr. Yager's agreement except for the compensation
package, job duties and the post-termination noncompetition and nonsolicitation
period which is 12 months. Mr. King's annual base salary is $150,000 and we
have committed to grant him 75,000 stock options which have an exercise price
of 90% of the initial public offering price.
We have entered into employment agreements with Ms. Wokoun, Messrs. Chandor,
Muscato and Costa and we plan to enter into an agreement with Ms. Greteman.
These agreements are (or will be) substantially similar to the proposed
employment agreement for Mr. Yager except for individual compensation packages
and job duties and post-termination noncompetition and nonsolicitation period
which is 12 months. Under these employment agreements, we have committed to
grant stock options to purchase an aggregate of 490,000 shares at an exercise
price of 90% of the initial public offering price.
2000 Long Term Incentive Stock Plan
On , 2000, the board of directors adopted, and on ,
2000 the stockholders approved, a 2000 Long Term Incentive Stock Plan, or the
2000 Plan. Under the 2000 Plan, we may grant stock options, stock appreciation
rights, shares of common stock and performance units to our employees,
consultants and directors. The total number of shares of our common stock that
we may award under the 2000 Plan is 5,000,000 shares, which will be increased
on December 31 of each year beginning on December 31, 2000 by a number of
shares equal to 1% of the number of our shares then outstanding, up to a
maximum of 8,000,000 shares. The number of shares (and the price at which
shares of stock may be purchased under the 2000 Plan) may be adjusted under
certain circumstances, such as in the event of a corporate restructuring. The
maximum number of shares of common stock that any individual participant may
receive each year under the 2000 Plan is 650,000, and there is no limit on cash
payouts for grants or awards under this plan each year to any of our key
executive officers.
Our compensation committee administers our 2000 Plan. The 2000 Plan
essentially gives the compensation committee sole discretion and authority to
select those employees to whom awards will be made, to designate the number of
shares covered by each award, to establish vesting schedules and terms of each
award, to specify all other terms of awards, and to interpret the 2000 Plan.
Options awarded under the 2000 Plan may be either incentive stock options or
nonqualified stock options; provided that incentive stock options may only be
awarded to our employees. Incentive stock options are intended to satisfy the
requirements of Section 422 of the Internal
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Revenue Code. Nonqualified stock options are not intended to satisfy Section
422 of the Internal Revenue Code. Stock appreciation rights may be granted in
connection with options, or may be granted as free-standing awards. Exercise of
an option will result in the corresponding surrender of the attached stock
appreciation right. At a minimum, the exercise price of an option or stock
appreciation right must be at least equal to the greater of (i) the fair market
value of a share of common stock on the date on which the option or stock
appreciation right is granted (90% of the initial public offering price in the
case of options which are to be granted effective as of the closing of this
offering), and (ii) the par value of a share of common stock on that date.
Options and stock appreciation rights will be exercisable in accordance with
the terms set by the compensation committee when granted and will expire on the
date determined by the compensation committee. All options and stock
appreciation rights must expire no later than ten years after they are granted
under our plan. If a stock appreciation right is issued in connection with an
option, the stock appreciation right will expire when the related option
expires. Special rules and limitations apply to stock options which are
intended to be incentive stock options.
Under our 2000 Plan, our compensation committee may grant common stock to
participants. During the period that a stock award is subject to restrictions
or limitations, the participants may receive dividend rights relating to the
shares.
The compensation committee may award participants performance units which
entitle the participant to receive value for the units at the end of a
performance period to the extent provided under the award. Our compensation
committee establishes the number of units and the performance measures and
periods when it makes an award.
All awards under the 2000 Plan will accelerate and become fully vested if a
change of control of our company occurs.
Agreements for grants of options under the option plan include
confidentiality and noncompetition provisions. These provisions require that
for so as long as the employee works for us, and for a period of two years
after the employee's termination for any reason, the employee may not disclose
in any way any confidential information. The agreements also provide that for
so long as the employee works for us and for a period of 18 months after the
employee's termination for any reason, the employee is prohibited from:
. engaging in the same business or in a similar capacity in our territory;
. soliciting business in competition with us; and
. hiring any of our employees or directly or indirectly causing any of our
employees to leave their employment to work for another employer.
For so long as the shares underlying the options are not registered with the
Securities and Exchange Commission, in the event of a breach of the
noncompetition provisions by an employee, we have the option to repurchase any
and all shares held by the employee at the employee's exercise price. We may,
at any time, pursue any other remedies provided by law or in equity.
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THE REORGANIZATION
We are currently Illinois PCS, LLC, an Illinois limited liability company.
Immediately prior to the closing of this offering, we will reorganize the
business into the holding company structure outlined below. In connection with
the reorganization, the owners of Illinois PCS, LLC will contribute their
limited liability company membership interests to iPCS, Inc. and in exchange
will receive 44,869,643 shares of common stock of iPCS, Inc. in the same
percentages as their membership interests in Illinois PCS, LLC immediately
prior to the closing of this offering. Unless otherwise indicated, information
throughout this prospectus assumes that the reorganization of our business from
a limited liability company into a holding company structure has already
occurred.
iPCS, Inc. is the legal entity that is selling its common stock in this
offering. Illinois PCS, LLC will be a wholly owned subsidiary of iPCS, Inc.
following the reorganization and we expect to merge Illinois PCS, LLC with and
into Illinois PCS, Inc. a newly-formed wholly owned subsidiary of IPCS, Inc.
Illinois PCS, Inc. is the legal entity that is the borrower under our Nortel
financing.
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PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of common stock as of March 31, 2000 and assumes that each owner of Illinois
PCS, LLC has received its proportionate number of shares of iPCS, Inc. common
stock as of such date, with respect to:
. each person who, to our knowledge, is the beneficial owner of 5% or more
of the outstanding common stock;
. each of the directors;
. the chief executive officer; and
. all executive officers and directors as a group.
<TABLE>
<CAPTION>
Number of Percentage of Percentage of
Shares Beneficially Ownership Ownership
Name and Address (1) Owned (2) Prior to Offering After Offering
<S> <C> <C> <C>
Geneseo Communications, 15,468,809 34.5% 28.4
Inc.......................
111 E. 1st Street
Geneseo, Illinois 61254
Cambridge Telcom, Inc..... 13,258,979 29.6 24.3
111 E. 1st Street
Geneseo, Illinois 61254
Cass Communications 4,419,660 9.9 8.1
Management, Inc...........
One Redbud Road
Virginia, Illinois 62691
Technology Group, LLC..... 4,419,660 9.9 8.1
118 E. State Street
Hamel, Illinois 62046
Montrose Mutual PCS, Inc.. 4,419,660 9.9 8.1
102 N. Main Street
Dieterich, Illinois 62424
Respond Communications, 4,419,660 9.9 8.1
Inc. .....................
102 N. Main Street
Dieterich, Illinois 62424
(3)
Timothy M. Yager.......... 673,045 1.5 1.2
William W. King, Jr. ..... -- -- --
Alan C. Anderson (4)...... 28,727,788 64.1 52.7
Donald L. Bell (5)........ 4,419,660 9.9 8.1
Brian J. Gernant.......... -- -- --
Gerald E. Gill (6)........ 4,419,660 9.9 8.1
Robert W. Schwartz (7).... 4,419,660 9.9 8.1
George Patrick Tays (8)... 4,419,660 9.9 8.1
All executive officers and
directors
as a group (12 persons)... 42,659,813 95.3 78.2
</TABLE>
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(1) Except as otherwise indicated below, the address for each executive officer
and director is 121 West First Street, Suite 200, Geneseo, Illinois 61254.
(2) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities Exchange Act. A person is deemed to be the beneficial owner of
any shares of common stock if such person has or shares the right to vote
or dispose of such common stock, or has the right to acquire beneficial
ownership at any time within 60 days of the date of the table.
(3) Consists of shares beneficially owned by Montrose Mutual PCS, Inc. Respond
Communications is a beneficial owner of these shares based on its 100%
ownership of Montrose Mutual PCS, Inc.
(4) Consists of shares beneficially owned by Geneseo Communications, Inc. and
Cambridge Telcom, Inc. Mr. Anderson is the President and CEO of Geneseo
Communications, Inc. and is the General Manager of Cambridge Telcom, Inc.,
and is the beneficial owner of the shares owned by each of these entities.
Mr. Anderson disclaims beneficial ownership of these shares. Mr. Anderson's
address is the same as the address for Geneseo Communications, Inc.
(5) Consists of shares beneficially owned by Cass Communications Management,
Inc. Mr. Bell is the Vice President and CEO of Cass Communications
Management, Inc., and is the beneficial owner of the shares owned by Cass
Communications Management, Inc. Mr. Bell disclaims beneficial ownership of
these shares. Mr. Bell's address is the same as the address for Cass
Communications, Inc.
(6) Consists of shares beneficially owned by Cass Communications, Inc. Mr. Gill
is the Chairman and majority shareholder of Cass Communications, Inc. and
is the beneficial owner of these shares. The address for Mr. Gill is the
same as the address for Cass Communications, Inc.
(7) Consists of shares beneficially owned by Technology Group, LLC. Mr.
Schwartz is a beneficial owner of the shares owned by Technology Group, LLC
by virtue of his position as Trustee of a family trust that owns
substantially all of the membership interests in Technology Group, LLC. Mr.
Schwartz disclaims beneficial ownership of these shares. Mr. Schwartz's
address is the same as the address for Technology Group, LLC.
(8) Consists of shares beneficially owned by Montrose Mutual PCS, Inc. Mr. Tays
is the General Manager of Montrose Mutual PCS, Inc., and is the beneficial
owner of the shares owned by Montrose Mutual PCS, Inc. Mr. Tays disclaims
beneficial ownership of these shares. Mr. Tays' address is the same as the
address for Montrose Mutual PCS, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Formation of Illinois PCS, LLC
Geneseo Communications, Inc., Cambridge Telcom, Inc., Cass Communications,
Inc., Schwartz Ventures, Inc. (which transferred its ownership to its affiliate
Technology Group, LLC), Montrose Mutual PCS, Inc., and Gridley Enterprises,
Inc. formed Illinois PCS, LLC in January 1999. Those investors received
membership interests in exchange for their capital contributions. As of
February 29, 2000 the members agreed to admit Timothy M. Yager, our President
and Chief Executive Officer, as a new member owning a 1.5% interest, and to
reduce their membership interests in aggregate by 1.5%. Mr. Yager agreed to
cancel his management agreement with Illinois PCS, LLC in exchange for his 1.5%
membership interest and certain other consideration. For the three-months ended
March 31, 2000, we have recorded compensation expense in the amount of
approximately $8.5 million resulting from the issuance of this membership
interest to Mr. Yager. For further information on the compensation expense, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
Prior to the closing of this offering, the members will contribute all
unfunded equity commitments. The obligations of the members of Illinois PCS,
LLC to contribute capital and the other provisions contained in the formation
documents of Illinois PCS, LLC will be eliminated when we reorganize from a
limited liability company to a holding company structure immediately prior to
the closing of this offering.
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REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
The FCC regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States.
The FCC has promulgated, and is in the process of promulgating, a series of
rules, regulations and policies to, among other things:
. grant or deny licenses for PCS frequencies;
. grant or deny PCS license renewals;
. rule on assignments and/or transfers of control of PCS licenses;
. govern the interconnection of PCS networks with other wireless and wireline
carriers;
. establish access and universal service funding provisions;
. possibly facilitate the offering of Calling Party Pays as an optional
wireless service for consumers;
. possibly permit commercial mobile radio service, commonly referred to as
CMRS, spectrum to be used for the transmission of programming material
targeted to a limited audience;
. impose fines and forfeitures for violations of any of the FCC's rules; and
. regulate the technical standards of PCS networks.
The FCC prohibits a single entity from having an attributable interest
(usually 20% or greater) in broadband PCS, cellular and specialized mobile
radio service, or SMR, licenses totaling more than 45 MHz in any urban areas,
and 55 MHz in rural areas. Interests held by passive institutional investors,
small companies and rural telephone companies are not usually deemed
attributable for purposes of this prohibition if such interests do not exceed
40%.
Transfers and Assignments of PCS Licenses
The FCC must give prior approval to the assignment of, or transfers
involving, substantial changes in ownership or control of a PCS license. Non-
controlling interests in an entity that holds a PCS license or operates PCS
networks generally may be bought or sold without prior FCC approval. In
addition, a recent FCC order requires only post-consummation notification of
certain pro forma assignments or transfers of control.
Conditions of PCS Licenses
All PCS licenses are granted for 10-year terms conditioned upon timely
compliance with the FCC's build-out requirements. Pursuant to the FCC's build-
out requirements, all 30 MHz broadband PCS licensees must construct facilities
that offer coverage to one-third of the population within 5 years and to two-
thirds of the population within 10 years, and all 10 MHz broadband PCS
licensees must construct facilities that offer coverage to at least one-quarter
of the population within 5 years or make a showing of "substantial service"
within that 5 year period. Rule violations could result in license revocations.
The FCC also requires licensees to maintain a certain degree of control over
their licenses. The Sprint PCS agreements reflect an alliance that the parties
believe meets the FCC
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requirements for licensee control of licensed spectrum. If the FCC were to
determine that the Sprint PCS agreements need to be modified to increase the
level of licensee control, the Sprint PCS agreements may be modified to cure
any purported deficiency regarding licensee control of the licensed spectrum.
PCS License Renewal
PCS licensees can renew their licenses for additional 10 year terms. PCS
renewal applications are not subject to auctions. However, under the FCC's
rules, third parties may oppose renewal applications and/or file competing
applications. If one or more competing applications are filed, a renewal
application will be subject to a comparative renewal hearing. The FCC's rules
afford PCS renewal applicants involved in comparative renewal hearings with a
"renewal expectancy." The renewal expectancy is the most important comparative
factor in a comparative renewal hearing and is applicable if the PCS renewal
applicant has: (1) provided "substantial service" during its license term; and
(2) substantially complied with all applicable laws and FCC rules and policies.
The FCC's rules define "substantial service" in this context as service that is
sound, favorable and substantially above the level of mediocre service that
might minimally warrant renewal.
Interconnection
The FCC has the authority to order interconnection between commercial mobile
radio service, or CMRS, providers (which includes us) and any other common
carrier. The FCC has ordered local exchange carriers to provide reciprocal
compensation to CMRS providers for the termination of traffic. Under these new
rules, we benefit from interconnection agreements negotiated by Sprint PCS for
our network with Ameritech, U.S. West, GTE and several smaller independent
local exchange carriers. Interconnection agreements are negotiated on a state-
wide basis. If an agreement cannot be reached, parties to interconnection
negotiations can submit outstanding disputes to state authorities for
arbitration. Negotiated interconnection agreements are subject to state
approval.
Other FCC Requirements
The FCC has divided the 120 MHz of spectrum allocated to Broadband PCS into
six frequency blocks, A through F. Through Sprint PCS, we operate under blocks
A, B and D. Broadband PCS providers generally are prohibited from unreasonably
restricting resale of their services and from unreasonably discriminating
against resellers. These prohibitions on a provider's restriction of resale
will expire November 24, 2002 unless the FCC extends them. The FCC recently
decided that these prohibitions apply to services and not to equipment such as
handsets, whether alone or in bundled packages.
The FCC also adopted rules that require local exchange and most CMRS
carriers, including us, to program their networks to allow customers to change
service providers without changing telephone numbers, which is referred to as
service provider number portability. Most CMRS carriers are required to
implement nationwide roaming by November 24, 2002 as well. The FCC currently
requires most CMRS providers to be able to deliver calls from their networks to
ported numbers anywhere in the country, and to contribute to the Local Number
Portability Fund.
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The FCC has adopted rules permitting broadband PCS and other CMRS providers
to provide wireless local loop and other fixed services that would directly
compete with the wireline services of local exchange carriers, or LECs. In June
1996, the FCC adopted rules requiring broadband PCS and other CMRS providers to
implement enhanced emergency 911 capabilities within 18 months after the
effective date of the FCC's rules. The full compliance with these rules must
occur by October 1, 2001. Further waivers of the enhanced emergency 911
capability requirements may be obtained by individual carriers by filing a
waiver request.
On June 10, 1999, the FCC initiated a regulatory proceeding seeking comment
from the public on a number of issues related to competitive access to
multiple-tenant buildings, including the following:
. the FCC's tentative conclusion that the Communications Act of 1934, as
amended, requires utilities to permit telecommunications carriers
access to rooftop and other rights-of-way in multiple tenant buildings
under just, reasonable and nondiscriminatory rates, terms and
conditions; and
. whether building owners that make access available to a
telecommunications carrier should be required to make access available
to all other telecommunications carriers on a nondiscriminatory basis,
and whether the FCC has the authority to impose such a requirement.
This proceeding could affect the availability and pricing of sites for our
antennae and those of our competitors.
Communications Assistance for Law Enforcement Act
The Communications Assistance for Law Enforcement Act was enacted in 1994 to
preserve electronic surveillance capabilities by law enforcement officials in
the face of rapidly changing telecommunications technology. The Communications
Assistance Act requires telecommunications carriers, including us, to modify
their equipment, facilities, and services to allow for authorized electronic
surveillance based on either industry or FCC standards. In 1997, industry
standard-setting organizations developed interim standards for wireline,
cellular, and broadband PCS carriers to comply with the Communications
Assistance Act. In August 1999, the FCC supplemented the interim industry
standards with additional standards. For interim industry standards, the
deadline for compliance is June 30, 2000, and for the additional standards
established by the FCC, the deadline is September 30, 2001. Although we will be
able to offer traditional electronic surveillance capabilities to law
enforcement agencies, we may not meet the compliance deadlines of either June
30, 2000 or September 30, 2001, due to required hardware changes that have not
yet been developed and implemented by switch manufacturers. We may be granted
extensions for compliance, or we may be subject to penalties if we fail to
comply, including being assessed fines or having conditions put on our
licenses.
Other Federal Regulations
Wireless systems, which we use in the provision of our services, must comply
with certain FCC and FAA regulations regarding the siting, lighting and
construction of transmitter towers and antennas. In addition, certain FCC
environmental regulations may cause certain cell site locations to
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become subject to regulation under the National Environmental Policy Act. The
FCC is required to implement this statute by requiring carriers to meet certain
land use and radio frequency standards.
Review of Universal Service Requirements
The FCC and the states are required to establish a universal service program
to ensure that affordable, quality telecommunications services are available to
all Americans. Sprint PCS is required to contribute to the federal universal
service program as well as existing state programs. The FCC has determined that
Sprint PCS' contribution to the federal universal service program is a variable
percentage of interstate end-user telecommunications revenues. Although many
states are likely to adopt a similar assessment methodology for intrastate
revenues, the states are free to calculate telecommunications service provider
contributions in any manner they choose as long as the process is not
inconsistent with the FCC's rules. At the present time it is not possible to
predict the extent of the Sprint PCS total federal and state universal service
assessments or its ability to recover from the universal service fund.
Partitioning; Disaggregation
The FCC has modified its rules to allow broadband PCS licensees to partition
their market areas and/or to disaggregate their assigned spectrum and to
transfer partial market areas or spectrum assignments to eligible third
parties.
Wireless Facilities Siting
States and localities are not permitted to regulate the placement of
wireless facilities so as to prohibit the provision of wireless services or to
discriminate among providers of such services. In addition, as long as a
wireless system complies with the FCC's rules, states and localities are
prohibited from using radio frequency health effects as a basis to regulate the
placement, construction or operation of wireless facilities. The FCC is
considering numerous requests for preemption of local actions affecting
wireless facilities siting.
Equal Access
Wireless providers are not required to provide equal access to common
carriers for toll services. However, the FCC is authorized to require unblocked
access to toll carriers subject to certain conditions.
State Regulation of Wireless Service
Section 332 of the Communications Act preempts states from regulating the
rates and entry of CMRS providers. However, states may petition the FCC to
regulate such providers and the FCC may grant such petition if the state
demonstrates that (1) market conditions fail to protect subscribers from unjust
and unreasonable rates or rates that are unjustly or unreasonably
discriminatory, or (2) when CMRS is a replacement for landline telephone
service within the state. To date, the FCC has granted no such petition. To the
extent we provide fixed wireless service, we may be subject to additional state
regulation.
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DESCRIPTION OF CAPITAL STOCK
General
The following summarizes all of the material terms and provisions of our
capital stock. Prior to the closing of the offering, we will have 100,000,000
shares of authorized capital stock, including 95,000,000 shares of common
stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par
value $0.01 per share. Immediately prior to the closing of this offering,
assuming the reorganization of our business into a holding company structure as
of March 31, 2000, there were 44,869,643 shares of common stock and no shares
of preferred stock issued and outstanding. As of that date there would have
been seven holders of record of the outstanding shares of common stock.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have any
cumulative rights. Subject to the rights of the holders of any series of
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. Holders of shares of common stock have no preemptive or
other similar rights. If we liquidate, dissolve or wind up, the holders of
shares of common stock are entitled to share ratably in the assets which are
legally available for distribution, if any, remaining after the payment or
provision for the payment of all debts and other liabilities and the payment
and setting aside for payment of any preferential amount due to the holders of
shares of any series of preferred stock.
Preferred Stock
Under our certificate of incorporation, the board of directors is
authorized, subject to certain limitations prescribed by law and without
further stockholder approval, to issue up to an aggregate of 5,000,000 shares
of preferred stock. The preferred stock may be issued in one or more series.
Each series may have different rights, preferences and designations and
qualifications, limitations and restrictions that may be established by our
board of directors without approval from the stockholders. These rights,
designations and preferences include:
. number of shares to be issued;
. dividend rights;
. dividend rates;
. conversion rights;
. voting rights;
. liquidation preferences; and
. terms of redemption.
If our board of directors decides to issue any preferred stock, it could
have the effect of delaying or preventing another party from taking control of
us. This is because the terms of the preferred stock
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could be designed to make it prohibitively expensive for any unwanted third-
party to make a bid for our shares. We have no present plans to issue any
shares of preferred stock.
Warrants
Sprint Warrants. As additional consideration to Sprint Spectrum L.P. for its
agreement to expand our initial territory by the additional 20 markets, we will
issue to Sprint Spectrum L.P., or any of its designees controlled by, or under
common control with, Sprint Spectrum L.P. warrants for 1,112,500 shares or 2%
of our outstanding shares as of the closing of this offering. The warrants will
be exercisable by Sprint Spectrum L.P. beginning on or after July 15, 2001 and
expiring on July 15, 2007. Upon completion of our offering, the exercise price
for the warrants will be 90% of the initial public offering price. Sprint
Spectrum L.P. may transfer its rights with respect to the warrants only to a
company that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with Sprint Spectrum
L.P., and any warrants so transferred will be subject to the exercise time
periods. At such time as we become eligible to file a registration statement on
Form S-3, Sprint Spectrum L.P. will be entitled to demand registration rights
for the underlying common stock until the common stock may be sold without
registration.
Nortel Warrants. As additional consideration to Nortel for the Nortel
financing, we are required under the terms of the amended and restated credit
facility to issue to Nortel warrants for 1,152,857 shares or 2% of our
outstanding shares as of the closing date of this offering on a fully-diluted
basis. The warrants will be exercisable by Nortel in November, 2001, unless,
among other things, we contribute to our subsidiary $ million of equity from
an equity or debt offering other than this offering to prepay indebtedness
outstanding under the Nortel facility. However, we cannot assure you that we
will have sufficient proceeds from an offering or that we will prepay any
portion of the Nortel financing. Other options to terminate the warrants
include:
. the assignment of a portion of the loans by Nortel to unrelated lenders;
. a minimum combination of loan prepayments and assignment of the loans; or
. a maximum ratio of our senior debt to total capitalization as of
November, 2001.
If we do not complete an additional offering of equity or debt, we do not
anticipate that the warrants will be terminated. The exercise price for the
warrants will be the price paid for our common stock in this offering. Nortel
may not transfer any of its rights with respect to the warrants before the
first anniversary of the closing date, and any warrants transferred after such
date but prior to the expiration date will be on the same terms that were in
effect prior to the transfer. In no event may the warrants be exercised after
April, 2008.
Nortel is entitled to registration rights for the common stock warrants.
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Delaware Law and Certain Charter and By-Law Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a certain period of time.
That period is three years after the date of the transaction in which the
person became an interested stockholder, unless the interested stockholder
attained that status with the approval of the board of directors or unless the
business combination is approved in a prescribed manner. A "business
combination" includes certain mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
his or her affiliates and associates, owns, or owned within three years prior,
15% or more of the corporation's voting stock.
Our certificate of incorporation and by-laws provide for the division of the
board of directors into three classes, as nearly equal in size as possible,
with each class beginning its three year term in a different year. See
"Management--Board of Directors." A director may be removed only for cause by
the affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of capital stock entitled to vote generally for
the election of directors voting together as a single class.
Our certificate of incorporation will also require a stockholder who intends
to nominate a candidate for election or to raise new business at a stockholder
meeting to give at least 90 days' advance notice to the Secretary. The notice
provision will require a stockholder who desires to raise new business to
provide us certain information concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director will need
to provide us with certain information concerning the nominee and the proposing
stockholder.
Our certificate of incorporation empowers our board of directors, when
considering a tender offer or merger or acquisition proposal, to take into
account factors in addition to potential economic benefits to stockholders.
These factors may include:
. comparison of the proposed consideration to be received by stockholders
in relation to the then current market price of our capital stock, our
estimated current value in a freely negotiated transaction and our
estimated future value as an independent entity; and
. the impact of a transaction on our employees, suppliers and customers and
its effect on the communities in which we operate.
The provisions described above could make it more difficult for a third-
party to acquire control of us and, furthermore, could discourage a third-party
from making any attempt to acquire control of us.
Our certificate of incorporation provides that any action required or
permitted to be taken by our stockholders may be taken only at a duly called
annual or special meeting of the stockholders, and that special meetings may be
called only by the chairman of the board, president and chief executive officer
or by the board pursuant to a resolution adopted by a majority of the board of
directors, or as otherwise provided in the by-laws. These provisions could have
the effect of delaying until the next
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<PAGE>
annual stockholders meeting stockholder actions that are favored by the holders
of a majority of the outstanding voting securities. These provisions may also
discourage another person or entity from making an offer to stockholders for
the common stock. This is because the person or entity making the offer, even
if it acquired a majority of our outstanding voting securities, would be unable
to call a special meeting of the stockholders and would further be unable to
obtain unanimous written consent of the stockholders. As a result, any meeting
as to matters they endorse, including the election of new directors or the
approval of a merger, would have to wait for the next duly called stockholders
meeting.
The DGCL provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
Our certificate of incorporation requires the affirmative vote of the holders
of at least 80% of the outstanding voting stock to amend or repeal any of the
provisions of the certificate of incorporation described above. The 80% vote is
also required to amend or repeal any of our by-law provisions described above.
The by-laws may also be amended or repealed by the board of directors. The 80%
stockholder vote would be in addition to any separate vote that each class of
preferred stock is entitled to that might in the future be required in
accordance with the terms of any preferred stock that might be outstanding at
the time any amendments are submitted to stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is
.
Listing
Application will be made to have our common stock quoted on the Nasdaq
National Market under the symbol "IPCS."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect market prices of the common stock prevailing from time to
time. Furthermore, because only a limited number of shares will be available
for sale shortly after the consummation of our offering due to certain
contractual and legal restrictions on resale, as described below, sales of
substantial amounts of common stock in the public market after the restrictions
lapse could adversely affect the prevailing market price of the common stock
and our ability to raise equity capital in the future.
Upon completion of our offering, we will have outstanding an aggregate of
54,512,643 shares of common stock, assuming no exercise of the underwriters'
over-allotment option.
Sales of Restricted Shares; Options
All of the shares of common stock sold in the offering will be freely
tradeable under the Securities Act, unless purchased by our "affiliates," as
the Securities Act defines that term. 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 such shares that
does not exceed the greater of:
. one percent of the then outstanding shares of common stock, or
. the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed.
In addition, under Rule 144(k), a person who is not an affiliate and has not
been an affiliate for at least three months prior to the sale and who has
beneficially owned shares of restricted stock for at least two years may resell
such shares without compliance with the foregoing requirements. In meeting the
one and two year holding periods described above, a holder of restricted stock
can include the holding periods of a prior owner who was not an affiliate.
Additional shares of common stock are available for future grants under our
stock option plan. See "Management--2000 Long Term Incentive Stock Plan." We
intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issuable pursuant to our stock option plans that
do not qualify for an exemption under Rule 701 from the registration
requirements of the Securities Act. We expect to file these registration
statements as soon as practicable following the closing of our offering, and
such registration statements are expected to become effective upon filing.
Shares covered by these registration statements will thereupon be eligible for
sale in the public markets subject to the lock-up agreements, to the extent
applicable.
Lock-up Agreements
We and all of our current stockholders, members of our senior management and
our directors have agreed, pursuant to lock-up agreements, during the period
beginning from the date of this prospectus and continuing and including the
date 180 days after the date of this prospectus, not to directly or indirectly
offer, pledge, sell, contract to sell, grant any option, right or warrant to
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<PAGE>
purchase, or otherwise dispose of any shares of common stock, including but not
limited to any common stock or securities convertible into or exercisable or
exchangeable for common stock which may be deemed to be beneficially owned in
accordance with the rules and regulations of the Securities and Exchange
Commission or enter into any swap or other agreement that transfers, in whole
or in part, the economic consequence of ownership of common stock, or make any
demand for, or exercise any right with respect to, the registration of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
Following the 180 day lock-up period, 44,869,643 shares of common stock will
become eligible for sale, subject to compliance with Rule 144 of the Securities
Act as described above.
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<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF OUR COMMON STOCK
The following is a general discussion of certain U.S. Federal tax
consequences of the ownership and disposition of a share of common stock by a
beneficial owner that is a non-U.S. holder. A non-U.S. holder is a person that
is not a citizen or resident of the United States, a corporation or partnership
created or organized in the United States or under the law of the United States
or of any State or political subdivision of the foregoing, any estate whose
income is includible in gross income for U.S. Federal income tax purposes
regardless of its source, or a United States trust. A United States trust is
any trust if:
. a court within the United States is able to exercise primary
supervision over the administration of the trust; and
. one or more U.S. persons have the authority to control all substantial
decisions of the trust.
The following summary does not furnish information in the level of detail or
with the attention to an investor's particular tax circumstances that would be
provided by an investor's own tax adviser. For example, this discussion does
not address state, local or non-U.S. tax considerations. Furthermore, the
following discussion is based on provisions of the U.S. Internal Revenue Code
of 1986, as amended, Treasury Regulations promulgated under the Internal
Revenue Code and administrative and judicial interpretations as of the date of
this prospectus, all of which are subject to change, possibly with retroactive
effect. Each prospective investor is urged to consult its own tax adviser with
respect to the U.S. Federal, state and local consequences of owning and
disposing of a share of common stock, as well as any tax consequences arising
under the laws of any other taxing jurisdiction.
U.S. Income and Estate Tax Consequences
Although it is not currently contemplated that we will pay dividends on
common stock, we may pay dividends in the future. Dividends paid to a non-U.S.
holder are subject to U.S. withholding tax at a 30% rate unless such non-U.S.
holder provides us or our paying agent, as the case may be, with a properly
executed:
. Internal Revenue Service Form W-8BEN, claiming an exemption from
withholding tax or a reduction in withholding tax under the benefit of a
tax treaty; or
. Internal Revenue Service Form W-8ECI, stating that the dividends paid by
us are not subject to withholding tax because they are effectively
connected with the conduct of a trade or business in the United States,
or if certain tax treaties apply, are attributable to a U.S. permanent
establishment of the non-U.S. holder.
In the case of a foreign partnership, the certification requirement would
generally be applied to the partners of the partnership unless the requirement
is applied to the foreign partnership itself under the applicable tax reporting
rules. A non-U.S. holder that is eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amount withheld by filing an appropriate claim for refund with the
Internal Revenue Service.
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<PAGE>
If you are a non-U.S. holder engaged in a trade or business in the United
States and dividends paid on the common stock are effectively connected with
the conduct of such trade or business or if you are a non-U.S. holder that
maintains a U.S. permanent establishment to which such dividends are
attributable, although you will be exempt from the withholding tax discussed
above, you will be subject to United States Federal income tax on your dividend
income on a net income basis in the same manner as if you were a United States
person. In addition, if you are a foreign corporation, you may be subject to a
branch profits tax equal to 30%, or if applicable, lower treaty rate, of your
effectively connected earnings and profits for the taxable year, subject to
certain adjustments.
Under current law, a non-U.S. holder generally will not be subject to U.S.
Federal income tax on any capital gain realized on a sale or other disposition
of a share of common stock, unless:
. we are or have been during the five-year period ending on the date of
sale or other disposition a United States real property holding
corporation for U.S. Federal income tax purposes, which we do not believe
that we have been or are currently, and do not anticipate becoming;
. the gain is effectively connected with the conduct of a trade or business
within the United States of the non-U.S. holder and, if certain tax
treaties apply, is attributable to a United States permanent
establishment maintained by the non-U.S. holder;
. the non-U.S. holder is an individual who has been present in the United
States for 183 days or more in the taxable year; or
. the non-U.S. holder is subject to tax pursuant to the Internal Revenue
Code provisions applicable to certain U.S. expatriates.
Common stock owned or treated as owned by an individual who is a citizen or
resident, as specially defined for United States Federal estate tax purposes
and which definition is different than the definition of resident for United
States Federal income tax purposes, of the United States at the date of death,
or common stock subject to certain lifetime transfers made by that individual,
will be included in such individual's estate for United States Federal estate
tax, unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting
Dividends
Except as provided below, we must report annually to the Internal Revenue
Service and to each non-U.S. holder the amount of dividends paid to and the tax
withheld with respect to each holder. These information reporting requirements
apply regardless of whether withholding was reduced or eliminated by an
applicable tax treaty. Copies of these information returns may also be
available under the provisions of a specific treaty or agreement with the tax
authorities in the country in which the non-U.S. holder resides. In general,
backup withholding at a rate of 31% and additional information reporting will
apply to dividends paid on shares of common stock to holders that are not
exempt recipients and that fail to provide in the manner required certain
identifying information, such as the holder's name, address and taxpayer
identification number. Generally, individuals are not exempt recipients,
whereas corporations and certain other entities generally are exempt
recipients.
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<PAGE>
However, dividends that are subject to U.S. withholding tax at the 30%
statutory rate or at a reduced tax treaty rate are exempt from backup
withholding of U.S. Federal income tax and such additional information
reporting.
Broker Sales
If a non-U.S. holder sells shares of common stock through a U.S. office of a
U.S. or foreign broker, the broker is required to file an information return
and is required to withhold 31% of the sale proceeds unless the non-U.S. holder
is an exempt recipient or has provided the broker with the information and
statements, under penalties of perjury, necessary to establish an exemption
from backup withholding. If payment of the proceeds of the sale of a share by a
non-U.S. holder is made to or through the foreign office of a broker, that
broker will not be required to backup withhold or, except as provided in the
next sentence, to file information returns. In the case of proceeds from a sale
of a share by a non-U.S. holder paid to or through the foreign office of a U.S.
broker or a foreign office of a foreign broker that is:
. a controlled foreign corporation for U.S. tax purposes; or
. a person 50% or more of whose gross income for the three-year period
ending with the close of the taxable year preceding the year of payment,
or for the part of that period that the broker has been in existence, is
effectively connected with the conduct of a trade or business within the
United States, referred to as a foreign U.S. connected broker,
information reporting is required unless the broker has documentary evidence in
its files that the payee is not a U.S. person and certain other conditions are
met, or the payee otherwise establishes an exemption.
Under the recently finalized withholding tax regulations, certification on
Internal Revenue Service Form W-8 or other certification in the case of common
stock held in an offshore account will be required if:
. the sale occurs within the United States; or
. if the sale is made through a foreign U.S. connected broker.
Refunds
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder may be refunded or credited against the non-U.S. holder's U.S.
Federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service.
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<PAGE>
UNDERWRITING
We and the underwriters named below have entered into an underwriting
agreement covering the common stock to be offered in this offering. Donaldson,
Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc., The
Robinson-Humphrey Company, LLC and DLJdirect Inc. are acting as representatives
of the underwriters. Each underwriter has severally agreed to purchase the
number of shares of common stock set forth opposite its name in the following
table.
<TABLE>
<CAPTION>
Underwriters Number of Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............
Bear, Stearns & Co. Inc. ......................................
The Robinson-Humphrey Company, LLC.............................
DLJdirect Inc..................................................
---------
Total........................................................ 9,643,000
=========
</TABLE>
The underwriting agreement provides that if the several underwriters take
any of the shares set forth in the table above, then they must take all of
these shares. No underwriter is obligated to take any shares allocated to a
defaulting underwriter except under limited circumstances.
The underwriters are offering the shares of common stock, subject to the
prior sale of such shares, and when, as and if such shares are delivered to and
accepted by them. The underwriters will initially offer to sell shares to the
public at the initial public offering price set forth on the cover page of this
prospectus. The underwriters may also sell shares to securities dealers at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell shares to certain other brokers or dealers
at a further discount of up to $ per share. After the initial public
offering, the underwriters may change the public offering price and other
selling terms. The underwriters do not intend to confirm sales to any accounts
over which they exercise discretionary authority.
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have the option to buy up to an additional
1,446,450 shares of common stock from us to cover such sales. They may exercise
this option during the 30-day period from the date of this prospectus. If any
shares are purchased with this option, the underwriters will purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions that we will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by iPCS
-------------------------
No exercise Full exercise
<S> <C> <C>
Per share............................................. $ $
-------- --------
Total............................................... $ $
======== ========
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be $11.2 million.
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<PAGE>
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments that the underwriters may be required to make in respect of any of
those liabilities.
At our request, the underwriters have reserved shares of common stock for
sale at the initial public offering price to directors, officers, employees,
business associates and related persons of iPCS who have expressed an interest
in participating in the offering. We expect these persons to purchase no more
than 5% of the common stock offered in the offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. The underwriters will offer unpurchased
reserved shares to the general public on the same basis as the other offered
shares.
We and all of our current stockholders, members of senior management and
directors have agreed that, for a period of 180 days from the date of this
prospectus, we will not, without the prior written consent of Donaldson, Lufkin
& Jenrette Securities Corporation, do either of the following:
. 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
. 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.
In addition, during such period, except for the registration of shares
underlying options in our stock option plan, we have also agreed not to file
any registration statement with respect to, and each of our executive officers
and directors and of our stockholders have 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 or exchangeable for
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
Either of the foregoing transaction restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise.
Application has been made to list our common stock for quotation on the
Nasdaq National Market under the symbol "IPCS." In order to meet the
requirements for listing the common stock on the Nasdaq National Market, the
underwriters have undertaken to sell lots of 100 to a minimum of 400 beneficial
owners.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares 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 such shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. This prospectus is not an offer to sell or a solicitation of an
offer to buy any shares of common stock included in this offering in any
jurisdiction where that would not be permitted or legal.
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<PAGE>
We expect that delivery of the shares will be made to investors on or about
, 2000.
The underwriters may purchase and sell shares of common stock in the open
market in connection with this offering. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or slowing a decline in the market price of the common
stock while the offering is in progress. The underwriters may also impose a
penalty bid, which means that an underwriter must repay to the other
underwriters a portion of the underwriting discount received by it. An
underwriter may be subject to a penalty bid if the representatives of the
underwriters, while engaging in stabilizing or short covering transactions,
repurchase shares sold by or for the account of that underwriter. These
activities may stabilize, maintain or otherwise affect the market price of the
common stock. As a result, the price of the common stock may be higher than the
price that otherwise might exist in the open market. If the underwriters
commence these activities, they may discontinue them at any time. The
underwriters may carry out these transactions on the Nasdaq National Market, in
the over-the-counter market or otherwise.
Pricing of this Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock
will be determined by negotiation among us and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price are:
. prevailing market conditions;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalization and stages of development of other companies
which the representatives of the underwriters believe to be comparable to
us; and
. estimates of our business potential.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of common
stock offered hereby will be passed upon for us by Mayer, Brown & Platt,
Chicago, Illinois and for the underwriters by Skadden, Arps, Slate, Meagher &
Flom (Illinois), Chicago, Illinois.
EXPERTS
The financial statements of Illinois PCS, LLC as of December 31, 1999, and
for the period from January 22, 1999 (date of inception) through December 31,
1999, included in the registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to this offering. This prospectus does not
contain all of the information set forth in the registration statement. For
further information about us and our securities, see the registration statement
and its exhibits. This prospectus contains a description of the material terms
and features of all material contracts, reports or exhibits to the registration
statement required to be disclosed. However, as the descriptions are summaries
of the contracts, reports or exhibits, we urge you to refer to the copy of each
material contract, report and exhibit attached to the registration statement.
Copies of the registration statement, including exhibits, may be examined
without charge in the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Room 1024, Washington, DC 20549, and the
Securities and Exchange Commission's Regional Offices located at 500 West
Madison Street, Suite 1400, Chicago, IL 60601, and 7 World Trade Center, 13th
Floor, New York, NY 10048 or on the Internet at http://www.sec.gov. You can get
information about the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0300. Copies of all or a
portion of the registration statement can be obtained from the Public Reference
Section of the Securities and Exchange Commission upon payment of prescribed
fees.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will be
required to file periodic reports, proxy statements and other information with
the Securities and Exchange Commission.
100
<PAGE>
ILLINOIS PCS, LLC
Index To Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheet as of December 31, 1999..................................... F-3
Statement of Operations for the Period from January 22, 1999 (date of
inception)
through December 31, 1999................................................ F-4
Statement of Members' Equity for the Period from January 22, 1999 (date of
inception) through December 31, 1999..................................... F-5
Statement of Cash Flows for the Period from January 22, 1999 (date of
inception)
through December 31, 1999................................................ F-6
Notes to Financial Statements............................................. F-7
Unaudited Balance Sheet as of March 31, 2000.............................. F-18
Unaudited Statements of Operations for the Three-Month Period Ended March
31, 2000 and for the Period from January 22, 1999 (date of inception)
through March 31, 1999................................................... F-19
Unaudited Statements of Cash Flows for the Three-Month Period Ended March
31, 2000 and for the Period from January 22, 1999 (date of inception)
through March 31, 1999................................................... F-20
Notes to Unaudited Financial Statements................................... F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Illinois PCS, LLC
Geneseo, Illinois
We have audited the accompanying balance sheet of Illinois PCS, LLC (the
"Company") as of December 31, 1999 and the related statements of operations,
members' equity, and cash flows for the period from January 22, 1999 (date of
inception) through 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999, and
the results of its operations and its cash flows for the period then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche llp
Davenport, Iowa
February 4, 2000, except for Note 10, as to which the date is April 24, 2000
F-2
<PAGE>
ILLINOIS PCS, LLC
BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
As of
December 31,
1999
Assets
<S> <C>
Current Assets:
Cash and cash equivalents......................................... $ 2,733
Accounts receivable, less allowance of $1......................... 92
Other receivables................................................. 39
Inventories....................................................... 927
Prepaid expenses and other assets................................. 432
-------
Total current assets............................................. 4,223
Property and equipment including construction in progress, net..... 39,106
Financing costs, less accumulated amortization of $66.............. 1,514
-------
$44,843
=======
<CAPTION>
Liabilities and Members' Equity
<S> <C>
Current Liabilities:
Accounts payable.................................................. $ 3,839
Accrued expenses.................................................. 393
Accrued interest.................................................. 265
Advance on tower sales............................................ 2,000
-------
Total current liabilities........................................ 6,497
Deferred gain on tower sales....................................... 1,655
Long-term debt..................................................... 27,571
-------
Total liabilities................................................ 35,723
-------
Commitments and Contingencies
Members' equity.................................................... 9,120
-------
$44,843
=======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ILLINOIS PCS, LLC
STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Period from
January 22, 1999
(date of inception)
through
December 31, 1999
<S> <C>
Revenues:
Service................................................... $ 71
Equipment................................................. 144
----------
Total revenues........................................... 215
----------
Operating Expenses:
Cost of service........................................... 1,695
Cost of equipment......................................... 484
Selling................................................... 778
General and administrative................................ 1,520
Depreciation and amortization............................. 381
----------
Total operating expenses................................. 4,858
----------
Loss from operations....................................... (4,643)
Other Income:
Interest income........................................... 89
Gain on tower sales....................................... 174
----------
Net loss................................................... $ (4,380)
==========
Pro forma basic and diluted loss per share of common stock
(unaudited)............................................... $ (0.10)
==========
Pro forma weighted average common shares outstanding
(unaudited)............................................... 44,869,643
==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ILLINOIS PCS, LLC
STATEMENT OF MEMBERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Balance
January 22, 1999 Transfer Balance
(date of Members' Net of December 31,
inception) Contributions Loss Interest 1999
<S> <C> <C> <C> <C> <C>
Geneseo Communications, Inc.. $-- $ 4,725 $(1,533) $ -- $3,192
Cambridge Telcom, Inc........ -- 4,050 (1,314) -- 2,736
Cass Communications, Inc..... -- 1,350 (438) -- 912
Schwartz Ventures, Inc....... -- 1,350 (438) (912) --
Technology Group, LLC........ -- -- -- 912 912
Montrose Mutual PCS, Inc..... -- 1,350 (438) -- 912
Gridley Enterprises, Inc..... -- 675 (219) -- 456
--- ------- ------- ----- ------
$-- $13,500 $(4,380) $ -- $9,120
=== ======= ======= ===== ======
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ILLINOIS PCS, LLC
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Period from
January 22, 1999
(date of inception)
through
December 31, 1999
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (4,380)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization............................ 381
Amortization of deferred gain on tower sales............. (22)
Gain on tower sales...................................... (174)
Changes in assets and liabilities:
Accounts receivable..................................... (92)
Other receivables....................................... (39)
Inventories............................................. (927)
Prepaid expenses and other assets....................... (432)
Accounts payable, accrued expenses and accrued interest. 1,758
--------
Net cash flows from operating activities............... (3,927)
--------
Cash Flows from Investing Activities:
Capital expenditures...................................... (39,331)
Proceeds from tower sales................................. 4,500
Advance on tower sales.................................... 2,000
--------
Net cash flows from investing activities............... (32,831)
--------
Cash Flows from Financing Activities:
Proceeds from long-term borrowings........................ 27,571
Debt issuance costs....................................... (1,580)
Capital contributions..................................... 13,500
--------
Net cash flows from financing activities............... 39,491
--------
Increase in cash and cash equivalents...................... 2,733
--------
Cash and cash equivalents at end of period................. $ 2,733
========
Supplemental Disclosure:
Cash paid for interest.................................... $ 206
========
Supplemental Schedule of Noncash Investing and Financing
Activities:
Accounts payable incurred for the acquisition of property,
equipment and construction in progress................... $ 2,739
========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS
For the Period from January 22, 1999 (Date of Inception) through December 31,
1999
1. ORGANIZATION AND BUSINESS OPERATIONS
Illinois PCS, LLC (the "Company" or "Illinois PCS") was formed in January
1999 as an Illinois limited liability company for the purpose of becoming a
provider of wireless personal communication services ("PCS"). In January 1999,
the Company entered into affiliation agreements (the "Sprint PCS Agreements")
with Sprint Communications Company, L.P. ("Sprint") and Sprint Spectrum L.P.
and SprintCom, Inc., entities controlled by the PCS Group of Sprint ("Sprint
PCS"). The Sprint PCS Agreements provide the Company with the exclusive right
to build, own and manage a wireless voice and data services network in 15
basic trading areas ("BTAs") located in Illinois and Iowa under the Sprint PCS
brand.
The Operating Agreement of Illinois PCS, entered into on February 10, 1999
by the Company's members, provides for the governance and administration of
the Company's business, allocation of profits and losses, tax allocations,
transactions with partners, disposition of ownership interests and other
matters. The Operating Agreement generally provides for the allocation of
profits and losses pro-rata based upon each member's percentage interest as
defined in the Operating Agreement. The members have committed to contribute a
total of $30 million, of which $13.5 million was paid as of December 31, 1999.
The members of the Company have the following ownership interests as of
December 31, 1999:
<TABLE>
<S> <C>
Geneseo Communications, Inc........................................... 35%
Cambridge Telcom, Inc................................................. 30%
Cass Communications, Inc.............................................. 10%
Technology Group, LLC................................................. 10%
Montrose Mutual PCS, Inc.............................................. 10%
Gridley Enterprises, Inc.............................................. 5%
</TABLE>
On December 29, 1999, Schwartz Ventures, Inc. transferred its ownership
interest to its related entity, Technology Group, LLC.
The PCS market is characterized by significant risks as a result of rapid
changes in technology, increasing competition and the cost associated with the
build-out of a PCS network. The Company's continuing operations are dependent
upon Sprint PCS' ability to perform its obligations under the Sprint PCS
Agreements and the ability of the Company to raise sufficient capital to fund
operating losses, to meet debt service requirements, and to complete the
build-out of its PCS network. Additionally, the Company's ability to attract
and maintain a sufficient customer base is critical to achieving breakeven
operating cash flow. Changes in technology, increased competition, or the
inability to obtain required financing or achieve breakeven operating cash
flow, among other factors, could have an adverse effect on the Company's
financial position and results of operations.
F-7
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Risk
The Company's operations as currently conducted rely heavily on critical
functions performed by Sprint PCS. The termination of the Company's strategic
relationship with Sprint PCS or Sprint PCS' failure to perform its obligations
under the Sprint PCS Agreements (see Note 3) would severely restrict the
Company's ability to conduct its business.
The Company maintains cash and cash equivalents in accounts with a financial
institution in excess of the amount insured by the Federal Deposit Insurance
Corporation. The Company monitors the financial stability of this institution
regularly and management does not believe there is significant credit risk
associated with deposits in excess of federally insured amounts.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid investments, with an original maturity of three months or less at the
time of purchase, to be a cash equivalent.
Inventories
Inventories consist of handsets and related accessories. Inventories
purchased for resale will be carried at the lower of cost, determined using
weighted average cost, or market, determined using replacement cost.
Property, Equipment and Construction in Progress
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Asset lives used by the Company are as
follows:
<TABLE>
<CAPTION>
Useful life:
<S> <C>
Network assets............................................. 3 to 15 years
Computer equipment......................................... 3 to 5 years
Furniture, fixtures, office equipment and leasehold
improvements.............................................. 5 to 7 years
</TABLE>
Construction in progress includes expenditures for the purchase of capital
equipment, design services, and construction services of the Company's network.
The Company capitalizes interest on
F-8
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
its construction in progress activities. Interest capitalized for the period
ended December 31, 1999 totaled approximately $471,000. When the network assets
are placed in service, the Company transfers the assets from construction in
progress to network assets and depreciates those assets over their estimated
useful life.
Financing Costs
Deferred financing costs are amortized as interest expense over the term of
the respective financing using the effective interest method.
Income Taxes
At December 31, 1999, Illinois PCS is organized as an Illinois limited
liability company. Therefore, the results of operations of the Company are
included in the income tax returns of its members. Accordingly, no provision
for income taxes has been recorded in the accompanying financial statements.
If the Company had been a C Corporation (see Note 10) subject to federal and
state income taxes from inception through December 31, 1999, Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109") would have resulted in a deferred tax asset primarily from temporary
differences related to the treatment of start-up costs and from net operating
loss carryforwards. The deferred tax asset would have been offset by a full
valuation allowance as there is not currently sufficient positive evidence as
required by SFAS No. 109 to substantiate recognition of the asset. The Company
has not provided any pro forma income tax information because such information
would not be significant to the accompanying financial statements due to the
Company's net loss.
Revenue Recognition
The Company began offering service to customers in December 1999.
The Company recognizes revenue as services are performed. Sprint PCS
collects all revenues from the Company's customers and remits the net amount to
the Company. An affiliation fee of 8% of collected service revenues from Sprint
PCS subscribers based in Illinois PCS' territory, excluding outbound roaming,
and from non-Sprint PCS subscribers who roam onto Illinois PCS' network is
retained by Sprint PCS and recorded as a cost of service. Revenues generated
from the sale of handsets and accessories, inbound and outbound Sprint PCS
roaming fees, and from roaming services provided to Sprint PCS customers who
are not based in Illinois PCS' territory are not subject to the 8% affiliation
fee.
Sprint PCS pays Illinois PCS a Sprint PCS roaming fee for each minute that a
Sprint PCS subscriber based outside of Illinois PCS' territory roams onto the
Company's network. Revenues from these services are recognized as the services
are performed. Similarly, Illinois PCS pays roaming fees to Sprint PCS when a
Sprint PCS subscriber based in Illinois PCS' territory roams on the Sprint PCS
network outside of Illinois PCS' territory. These costs are included as cost of
services when incurred.
F-9
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Equipment revenues consisting of proceeds from sales of handsets and
accessories was recorded net of an allowance for sales returns. The allowance
is estimated based on Sprint PCS' handset return policy during 1999, which
allowed customers to return handsets for a full refund within 30 days of
purchase. When handsets are returned to the Company, the Company may be able to
reissue the handsets in the future to other customers at little additional
cost. However, when handsets are returned to Sprint PCS for refurbishing, the
Company receives a credit from Sprint PCS, which is less than the amount the
Company originally paid for the handset.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. 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. The
Company has identified no such impairment losses.
Advertising Costs
The Company expenses advertising costs when the advertisement occurs. Total
advertising expense was approximately $171,000 for the period ended December
31, 1999.
Start-Up Activities
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities." This statement became effective January 1, 1999 and requires that
costs of start-up activities and organization costs be expensed as incurred.
The Company has expensed all costs of start-up activities and organization
costs.
Comprehensive Income
A statement of comprehensive income has not been included in the
accompanying financial statements since the Company does not have any "Other
Comprehensive Income" to report.
Impact of Recently Issued Accounting Pronouncements
On July 8, 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 137, "Deferral of the Effective
Date of SFAS 133." SFAS No. 137 defers the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," to all fiscal
years beginning after June 15, 2000. The Company is currently evaluating the
impact of adoption of SFAS No. 133. The adoption is not expected to have a
material effect on the Company's results of operations, financial position, or
cash flows.
F-10
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. SPRINT PCS AGREEMENTS
In January 1999, the Company signed the following four agreements with
Sprint and Sprint PCS: management agreement, services agreement, trademark and
service license agreement with Sprint PCS, and the trademark and service
license agreement with Sprint. These agreements allow the Company to
exclusively offer Sprint PCS services in the Company's territory.
The management agreement has an initial term of 20 years with three 10-year
automatic renewals. The management agreement can be terminated as a result of
a number of events including an uncured breach of the management agreement or
bankruptcy of either party to the agreement. In the event that the management
agreement is terminated or not renewed, certain formulas apply to the
valuation and disposition of the Company's assets. The key clauses of the
management agreement are summarized as follows:
(a) Exclusivity: The Company is designated as the only person or entity
that can manage or operate a PCS network for Sprint PCS in the Company's
territory. Sprint PCS is prohibited from owning, operating, building or
managing another wireless mobility communications network in the Company's
territory while the management agreement is in place.
(b) Network build-out: The Company has agreed to build out the service
area network in accordance with build-out plans developed jointly by Sprint
PCS and the Company. Sprint PCS and the Company intend to expand network
coverage to build all cells that cover population areas of at least ten
thousand pops and all interstate and major highways.
(c) Products and services offered for sale: The management agreement
identifies the products and services that can be offered for sale in the
Company's territory. The Company cannot offer wireless local loop services
specifically designed for the competitive local market in areas where
Sprint owns the local exchange carrier unless the Sprint-owned local
exchange carrier is named as the exclusive distributor or Sprint PCS
approves the terms and conditions.
(d) Service pricing: The Company must offer Sprint PCS subscriber
pricing plans designated for regional or national offerings. With prior
approval from Sprint PCS, the Company is permitted to establish local price
plans for Sprint PCS products and services offered only in the Company's
territory. Sprint PCS will pay to the Company 92% of the Company's
collected service revenues and of its roaming revenues from nonSprint PCS
subscribers but will remit 100% of revenues derived from roaming of other
Sprint PCS customers and sales of handsets and accessories and proceeds
from sales not in the ordinary course of business.
(e) Roaming: When a Sprint PCS customer from outside of the Company's
territory roams onto the Company's network, the Company will earn roaming
revenues based on established rates. Similarly, the Company will pay Sprint
PCS when the Company's own subscribers use the Sprint PCS nationwide
network outside the Company's territory.
(f) Advertising and Promotion: Sprint PCS is responsible for all
national advertising and promotion of Sprint PCS products and services. The
Company is responsible for advertising and promotion in the Company's
territory.
F-11
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(g) Program requirements including technical and customer care
standards: The Company will comply with Sprint PCS' program requirements
for technical standards, customer service standards, national and regional
distribution and national accounts programs.
(h) Non-competition: The Company may not offer Sprint PCS products and
services outside the Company's territory.
(i) Inability to use non-Sprint PCS brands: The Company may not market,
promote, advertise, distribute, lease or sell any of the Sprint PCS
products on a non-branded, "private label" basis or under any brand,
trademark or trade name other than the Sprint PCS brand, except for sales
to resellers.
(j) Rights of first refusal: Sprint PCS has certain rights of first
refusal to buy the Company's assets upon a proposed sale.
The services agreement outlines various support services such as activation,
billing, collections and customer care that will be provided to the Company by
Sprint PCS. These services are available to the Company at established rates.
Sprint PCS can change any or all of the service rates one time in each twelve
month period. The Company may discontinue the use of any service upon three
months written notice. Sprint PCS may discontinue a service provided that
Sprint PCS provides the Company with nine months' prior written notice. The
services agreement automatically terminates upon termination of the management
agreement.
The trademark and service mark license agreements with Sprint and Sprint PCS
provide the Company with non-transferable, royalty free licenses to use the
Sprint and Sprint PCS brand names, the "diamond" symbol and several other
trademarks and service marks. The Company's use of the licensed marks is
subject to adherence to quality standards determined by Sprint and Sprint PCS.
Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if the Company files for bankruptcy, materially breaches the
agreement or if the management agreement is terminated.
Amounts related to the Sprint PCS Agreements which were charged to cost of
services, cost of equipment, selling, and general and administrative expenses
for the period ended December 31, 1999 are approximately $115,000, $222,000,
$81,000 and $7,000, respectively. Inventory and property and equipment
purchases from Sprint PCS for the period ended December 31, 1999 are
approximately $918,000 and $108,000, respectively. Amounts due from and due to
Sprint PCS as of December 31, 1999 are approximately $92,000 and $663,000,
respectively.
F-12
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. PROPERTY AND EQUIPMENT INCLUDING CONSTRUCTION IN PROGRESS
Property and equipment including construction in progress consists of the
following at December 31, 1999 (dollars in thousands):
<TABLE>
<S> <C>
Network assets.................................................. $22,737
Computer equipment.............................................. 675
Furniture, fixtures, office equipment and leasehold
improvements................................................... 626
-------
Total property and equipment.................................... 24,038
Less accumulated depreciation and amortization.................. (315)
-------
Property and equipment, net..................................... 23,723
Construction in progress (network build-out).................... 15,383
-------
Property and equipment including construction in progress, net.. $39,106
=======
</TABLE>
5. LEASE COMMITMENTS
The Company is obligated under noncancelable operating lease agreements for
offices, stores, network equipment space and cell sites. Future minimum annual
lease payments under these noncancelable operating lease agreements for the
next five years and in the aggregate at December 31, 1999 are as follows
(dollars in thousands):
<TABLE>
<S> <C>
Years:
2000.............................................................. $1,255
2001.............................................................. 1,242
2002.............................................................. 1,221
2003.............................................................. 1,165
2004.............................................................. 733
Thereafter........................................................ 1,673
------
Total............................................................ $7,289
======
</TABLE>
Rental expense was approximately $446,000 for the period ended December 31,
1999, of which $31,000 was paid to one of the Company's members. Included in
minimum lease commitments is approximately $527,000 payable to one of the
Company's members.
6. FINANCING AGREEMENT
Effective May 14, 1999, the Company entered into a credit facility agreement
(the "Credit Facility") with Nortel Networks Inc. ("Nortel"). The proceeds are
to be used to purchase equipment and to fund the construction of the Company's
portion of the Sprint PCS network. The financing terms permit Illinois PCS to
borrow $48 million through three commitment tranches (Tranche A--$32 million,
Tranche B--$11 million and Tranche C--$5 million) through May 14, 2002, and
will require minimum equipment purchases of $32 million (see Note 9). Tranche B
and Tranche C can be borrowed to pay third party expenses, as defined in the
Credit Facility, but Tranche B is limited to a
F-13
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
borrowing base calculation that is computed as 50% of the amount paid to Nortel
to purchase equipment and services used in the Company's network.
The Credit Facility is collateralized by all of the Company's assets and
assignment of the Sprint PCS Agreements.
Each of the Company's members has pledged its ownership interest in the
Company to Nortel to collateralize the Company's obligations under the Credit
Facility. In addition, Nortel required the members to execute capital
contribution agreements to confirm their collective obligations to make capital
contributions of at least $30 million.
The Company may borrow money at the lesser of either: (1) a base rate loan
with an interest rate equal to 3 percent plus the higher of (A) the prime rate
of Citibank, N.A. (New York) or (B) the federal fund effective rate plus one
half of a percent; or (2) a London interbank offered rate (Libor), as adjusted
for reserve requirements, plus 4 percent. All borrowings to date have been
based on the Libor rate plus 4 percent (10% at December 31, 1999). Accrued
interest is generally payable quarterly. Interest incurred and capitalized for
the period ended December 31, 1999 totaled $471,000. The Credit Facility
requires the Company to enter into an interest rate protection agreement within
90 days after the initial funding date to fix the interest rate of at least 50%
of the total debt. The Company has not entered into such an agreement as of
February 4, 2000 and has received a waiver of this requirement until April 1,
2000.
An unused facility commitment fee ranging from 0.75% to 1.5% on the daily
average unused portion of the Credit Facility is due on a quarterly basis. The
commitment fee expense for the period ended December 31, 1999 was $81,000.
Principal is payable in 20 quarterly installments beginning September 30,
2002. Illinois PCS may voluntarily prepay any of the loans at any time, but any
amount repaid on Tranche A and Tranche C may not be reborrowed since there are
no revolving credit features. The Company may borrow, repay and reborrow the
Tranche B loans up to a maximum of $11 million through the second anniversary
of the closing date. The Company must make mandatory prepayments under certain
circumstances, including an annual amount payable, beginning March 31, 2002,
equal to 50% of its excess annual cash flow (as computed under the credit
agreement). All prepayments are applied to the outstanding loan balances in the
inverse order of maturity.
As a condition of the financing, Sprint PCS has entered into a consent and
agreement with Nortel that modifies Sprint PCS' rights and remedies under its
management agreement with the Company. Among other things, Sprint PCS consented
to the pledge of substantially all of the Company's assets, including the
management agreement, to Nortel. In addition, Sprint PCS may not terminate the
management agreement with the Company and must maintain 10 MHz of PCS spectrum
in the Company's markets until the Nortel financing is satisfied or Illinois
PCS' assets are sold pursuant to the terms of the consent and assignment with
Nortel.
F-14
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company incurred approximately $1.6 million of a loan origination fee
and debt issue costs associated with obtaining the Nortel financing which have
been capitalized.
Principal payments under the Nortel Credit Facility are due as follows for
the years ending December 31 (dollars in thousands):
<TABLE>
<S> <C>
2000.............................................................. $ --
2001.............................................................. --
2002.............................................................. 1,379
2003.............................................................. 3,446
2004.............................................................. 5,514
Thereafter........................................................ 17,232
-------
$27,571
=======
</TABLE>
The Company is required to maintain certain financial ratios and other
financial conditions including debt coverage ratios, minimum levels of revenue
and wireless subscribers, and limitations on capital expenditures.
Additionally, the Company has agreed not to merge, dispose of its assets, make
restricted payments, including dividends, and certain other matters as defined
in the Credit Facility. At December 31, 1999, the Company was in compliance
with those covenants or received a waiver of noncompliance for the interest
rate protection agreement described above.
7. EMPLOYEE BENEFITS
The Company has established a 401(k) plan (the "Plan") in which
substantially all employees may participate. The Plan allows eligible employees
to contribute up to 15% of their compensation and provides that the Company
will make matching contributions of 50% up to the first eight percent of an
employee's contribution. In addition, the Company may make discretionary
contributions to the Plan. Company contributions to the Plan were approximately
$14,000 for the period ended December 31, 1999.
8. AGREEMENT WITH AMERICAN TOWER
On May 28, 1999 the Company signed a tower sale and leaseback agreement with
American Tower Corporation ("American Tower"). Under the agreement, the Company
will locate sites for, develop and construct between sixty and eighty wireless
communication towers and then sell the towers to American Tower. The term of
this agreement will expire at the earliest of the final tower sale or December
31, 2000. The purchase price of each tower is $250,000. For the period ended
December 31, 1999, eighteen towers were sold to American Tower for $4.5 million
in cash, resulting in a gain of $1.9 million, of which $174,000 was recognized
at the time of the sale and the remainder
F-15
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Concluded)
was deferred and is being amortized as a reduction to rental expense over the
initial lease term of ten years. American Tower has advanced $2,000,000 to the
Company for the purchases of the fifty-third through sixtieth towers. Should
the Company not construct and sell the required number of towers to American
Tower by December 31, 2000, the Company will be required to repay the advance
plus accrued interest at 5%.
Upon the sale of a tower, the Company leases a portion, generally one-third,
of the tower to collocate antennas and other network communication equipment.
The leases are operating leases. The monthly rent to be paid by the Company for
tower space on each tower is $1,100 plus an annual 3 percent escalator for a
ten-year initial term with three five-year renewal option periods, subject to
the terms of the underlying ground leases.
9. COMMITMENTS
On March 12, 1999, the Company entered into a management agreement (the
"Management Agreement") with Mr. Yager to act as the Manager of Illinois PCS,
LLC. The Management Agreement entitled Mr. Yager to a cash bonus equal to 2.5%
of the fair market value of the Company in the event of a Transfer (as defined
in the Management Agreement) of all or substantially all of the assets of the
Company, or 2.5% of the fair market value of any transferred interests in the
Company, in excess of the applicable member's cumulative contributions. (see
Note 10).
On May 24, 1999 the Company entered into a three-year $32 million agreement
with Nortel for network equipment and infrastructure, including switches and
base station controllers. Nortel provides financing to the Company for these
purchases pursuant to the Credit Facility discussed in Note 6. Under the
agreement, the Company receives a discount on the network equipment and
services because of the Sprint PCS affiliation, but pays a slight premium to
the discounted price on any equipment and services financed by Nortel. If the
Company's affiliation with Sprint PCS ends, Nortel has the right to either
terminate the agreement or, with the Company's consent, modify the agreement to
establish new prices, terms and conditions.
10. SUBSEQUENT EVENTS
Effective as of February 29, 2000, Mr. Yager and the Company agreed to
terminate Mr. Yager's Management Agreement, and in exchange therefor Mr. Yager
received a 1.5% ownership interest in Illinois PCS, LLC. In addition, the
Company agreed to pay the withholding tax obligation arising by reason of the
issuance of the 1.5% ownership interest to Mr. Yager, and the federal and state
taxes on the issuance of the ownership interest and payment of the withholding
tax obligation. Based upon the expected offering price of the initial public
offering as determined on April 24, 2000, the Company recorded non-cash
compensation expense of approximately $8,480,000 related to the ownership
interest granted and recorded general and administrative expense of
approximately $1,567,000 related to taxes to be paid by the Company on behalf
of Mr. Yager. In addition, the Company granted a bonus of $400,000 on March 7,
2000 to Mr. Yager.
F-16
<PAGE>
On March 8, 2000, the Company entered into an amendment to the Sprint PCS
agreements to expand its service area to include 20 BTAs located in Michigan,
Iowa and Nebraska (the "Expansion"). In connection with the Expansion, the
Company agreed to purchase certain network assets under construction in three
BTAs in Michigan, for a purchase price to be determined on the closing date
based upon the assets to be purchased and the stage of completion of those
assets as of the closing date. In addition, in connection with the Expansion,
the Company was granted an option, exercisable by the Company at any time prior
to January 31, 2001, to add the Iowa City and Cedar Rapids, Iowa BTAs to its
service area, for a purchase price equal to approximately $25.2 million if the
option is exercised during March 2000, escalating monthly to a purchase price
of $28.8 million, subject to upward adjustment in the event the number of
subscribers significantly increases, if the option is exercised during January
2001. As part of the Expansion, the Company committed to grant to Sprint PCS a
warrant to acquire 2% of the equity of the Company at the earliest of July 15,
2000, the closing of the initial public offering, or the consummation of a
private placement of equity in an amount equal to at least $70 million. The
warrant's exercise price will be 90% of the per share issuance price realized
through a private placement of equity or an initial public offering.
The Company has expressed its intention to grant options to employees and
directors to acquire 865,000 shares of iPCS, Inc.'s common stock, subject to
the consummation of the initial public offering, which will have an exercise
price of 90% of the initial public offering price.
11. REORGANIZATION AND PRO FORMA LOSS PER SHARE (UNAUDITED)
iPCS, Inc. filed a registration statement for equity financing through an
initial public offering on March 9, 2000. Immediately prior to the closing of
the initial public offering, the Company plans to reorganize its business into
a C Corporation in which members of Illinois PCS, LLC will receive shares of
common stock of iPCS, Inc. in exchange for their ownership interests in the
Company. The number of shares to be exchanged is determined by a formula which
can be affected by the valuation of the Company and, at April 24, 2000, the
number of shares was 44,869,643. The ownership percentages among the Company's
members following the reorganization will remain consistent with the ownership
percentages described in Note 1 as adjusted for the effects of the agreement
described in the first paragraph of Note 10. iPCS, Inc. plans to utilize the
proceeds from the aforementioned offering to fund the build-out of the network
and acquire certain network assets.
Pro forma basic and diluted loss per share are calculated by dividing the
net loss by the pro forma weighted average number of shares of common stock as
if the number of shares of common stock of iPCS, Inc. into which the Company's
members' interests are convertible had been outstanding for all of the periods
presented. The calculation was made in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." The pro forma basic and
diluted loss per share are the same because the inclusion of the incremental
potential common shares is antidilutive.
F-17
<PAGE>
ILLINOIS PCS, LLC
BALANCE SHEET
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
As of
March 31,
2000
Assets
<S> <C>
Current Assets:
Cash and cash equivalents............................................ $ 2,118
Accounts receivable, less allowance of $23........................... 229
Other receivables.................................................... 32
Inventories.......................................................... 741
Prepaid expenses and other assets.................................... 843
-------
Total current assets................................................ 3,963
Property and equipment including construction in progress, net........ 48,454
Financing costs, less accumulated amortization of $170................ 1,417
-------
$53,834
=======
<CAPTION>
Liabilities and Members' Equity
<S> <C>
Current Liabilities:
Accounts payable..................................................... $ 8,550
Accrued expenses..................................................... 2,480
Accrued interest..................................................... 275
Advance on tower sales............................................... 2,000
-------
Total current liabilities........................................... 13,305
Deferred gain on tower sales.......................................... 2,365
Long-term debt........................................................ 29,136
-------
Total liabilities................................................... 44,806
-------
Commitments and Contingencies
Members' equity....................................................... 9,028
-------
$53,834
=======
</TABLE>
See notes to unaudited financial statements.
F-18
<PAGE>
ILLINOIS PCS, LLC
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Period from
January 22, 1999
For the Three-Month (date of inception)
Period Ended through
March 31, 2000 March 31, 1999
<S> <C> <C>
Revenues:
Service............................... $ 1,213 $ --
Equipment............................. 379 --
---------- ----------
Total revenues....................... 1,592 --
---------- ----------
Operating Expenses:
Cost of service....................... 1,746 59
Cost of equipment..................... 982 --
Selling............................... 1,096 1
General and administrative:
Non-cash compensation................ 8,480 --
Taxes on non-cash compensation....... 1,567 --
Other general and administrative..... 1,277 333
Depreciation and amortization......... 1,344 --
---------- ----------
Total operating expenses............. 16,492 393
---------- ----------
Loss from operations................... (14,900) (393)
Other Income (Expense):
Interest income....................... 43 1
Interest expense...................... (206) --
Other income (expense)................ (9) --
---------- ----------
Net loss............................... $ (15,072) $ (392)
========== ==========
Pro forma basic and diluted loss per
share of common stock................. $ (0.34) $ (0.01)
========== ==========
Pro forma weighted average common
shares outstanding.................... 44,869,643 44,869,643
========== ==========
</TABLE>
See notes to unaudited financial statements.
F-19
<PAGE>
ILLINOIS PCS, LLC
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the For the Period
Three-Month from January 22, 1999
Period Ended (date of inception)
March 31, 2000 through March 31, 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................ $(15,072) $ (392)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization of
property and equipment................ 1,344 --
Amortization of deferred gain on tower
sales................................. (29) --
Amortization of financing costs........ 103 --
Non-cash compensation.................. 8,480 --
Changes in assets and liabilities:
Accounts receivable................... (137) --
Other receivables..................... 7 --
Inventories........................... 186 --
Prepaid expenses and other assets..... (411) (76)
Accounts payable, accrued expenses and
accrued interest..................... 3,469 133
-------- ------
Net cash flows from operating
activities.......................... (2,060) (335)
-------- ------
Cash Flows from Investing Activities:
Capital expenditures.................... (8,614) (549)
Proceeds from tower sales............... 2,000 --
-------- ------
Net cash flows from investing
activities.......................... (6,614) (549)
-------- ------
Cash Flows from Financing Activities:
Proceeds from long-term borrowings...... 1,565 --
Debt issuance costs..................... (6) --
Capital contributions................... 6,500 1,800
-------- ------
Net cash flows from financing
activities.......................... 8,059 1,800
-------- ------
Increase (decrease) in cash and cash
equivalents............................. (615) 916
Cash and cash equivalents at beginning of
period.................................. 2,733 --
-------- ------
Cash and cash equivalents at end of
period.................................. $ 2,118 $ 916
======== ======
Supplemental Disclosure:
Cash paid for interest.................. $ 720 $ --
======== ======
Supplemental Schedule of Noncash
Investing and Financing Activities:
Accounts payable incurred for the
acquisition of property, equipment and
construction in progress............... $ 6,078 $ --
======== ======
</TABLE>
See notes to unaudited financial statements.
F-20
<PAGE>
ILLINOIS PCS, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2000 and 1999
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with rules issued by the Securities and Exchange Commission for
preparing interim financial information and, therefore, do not include all
information and footnotes necessary for a presentation of financial position,
results of operations, and cash flows in conformity with generally accepted
accounting principles. All adjustments, consisting of normal recurring
accruals, which, in the opinion of management, are necessary for a fair
presentation of financial position and results of operations have been
included. The accompanying unaudited financial statements should be read in
conjunction with the Company's audited financial statements and related notes
appearing elsewhere herein.
2. PRO FORMA LOSS PER SHARE
iPCS, Inc. filed a registration statement for equity financing through an
initial public offering on March 9, 2000. Immediately prior to the closing of
the initial public offering, the Company plans to reorganize its business into
a C Corporation in which members of Illinois PCS, LLC will receive shares of
common stock of iPCS, Inc. in exchange for their ownership interests in the
Company. The number of shares to be exchanged is determined by a formula which
can be affected by the valuation of the Company and, at April 24, 2000, the
number of shares was 44,869,643. The ownership percentages among the Company's
members following the reorganization will remain consistent with the ownership
percentages at December 31, 1999 as adjusted for the effects of the agreement
described in Note 3. Pro forma basic and diluted loss per share are calculated
by dividing the net loss by the pro forma weighted average number of shares of
common stock as if the number of shares of common stock of iPCS, Inc. into
which the Company's members' interests are convertible had been outstanding for
all of the periods presented. The calculation was made in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The
pro forma basic and diluted loss per share are the same because the inclusion
of the incremental potential common shares is antidilutive.
3. MEMBERS' EQUITY AND TRANSACTIONS
On March 12, 1999, the Company entered into a management agreement (the
"Management Agreement") with Mr. Yager to act as the Manager of Illinois PCS,
LLC. The Management Agreement entitled Mr. Yager to a cash bonus equal to 2.5%
of the fair market value of the Company in the event of a Transfer (as defined
in the Management Agreement) of all or substantially all of the assets of the
Company, or 2.5% of the fair market value of any transferred interests in the
Company, in excess of the applicable member's cumulative contributions.
Effective as of February 29, 2000, Mr. Yager and the Company agreed to
terminate Mr. Yager's Management Agreement, and in exchange therefor Mr. Yager
received a 1.5% ownership interest in Illinois PCS, LLC. In addition, the
Company agreed to pay the withholding tax obligation arising by reason of the
issuance of the 1.5% ownership interest to Mr. Yager, and the federal and state
taxes on the issuance of the ownership interest and payment of the withholding
tax obligation. Based upon the expected offering
F-21
<PAGE>
ILLINOIS PCS, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(Continued)
price of the initial public offering as determined on April 24, 2000, the
Company recorded non-cash compensation expense of approximately $8,480,000
related to the ownership interest granted and recorded general and
administrative expense of approximately $1,567,000 related to taxes to be paid
by the Company on behalf of Mr. Yager. In addition, the Company granted a bonus
of $400,000 on March 7, 2000 to Mr. Yager.
On March 8, 2000, the Company entered into an amendment to the Sprint PCS
agreements to expand its service area to include 20 BTAs located in Michigan,
Iowa and Nebraska (the "Expansion"). In connection with the Expansion, the
Company agreed to purchase certain network assets under construction in three
BTAs in Michigan, for a purchase price to be determined on the closing date
based upon the assets to be purchased and the stage of completion of those
assets as of the closing date. In addition, in connection with the Expansion,
the Company was granted an option, exercisable by the Company at any time prior
to January 31, 2001, to add the Iowa City and Cedar Rapids, Iowa BTAs to its
service area, for an initial purchase price of $25.2 million escalating monthly
to a purchase price of $28.8 million, subject to upward adjustment in the event
the number of subscribers significantly increases, if the option is exercised
during January 2001. As part of the Expansion, the Company committed to grant
to Sprint PCS a warrant to acquire 2% of the equity of the Company at the
earliest of July 15, 2000, the closing of the initial public offering, or the
consummation of a private placement of equity in an amount equal to at least
$70 million. The warrant's exercise price will be 90% of the per share issuance
price realized through a private placement of equity or an initial public
offering.
The members contributed $6.5 million during the three-month period ended
March 31, 2000 raising the inception to date members' contribution to a total
of $20 million.
The Company has expressed its intention to grant options to employees and
directors to acquire 865,000 shares of iPCS, Inc.'s common stock, subject to
the consummation of the initial public offering, which will have an exercise
price of 90% of the initial public offering price.
4. DEBT
The Company's long-term debt facility requires the Company to enter into an
interest rate protection agreement within 90 days after the initial funding
date to fix the interest rate of at least 50% of the total debt. The Company
has received a waiver of this requirement until the earlier of (1) five days
after the Eurodollar interest rate exceeds 6.75% or (2) June 30, 2000.
5. AGREEMENT WITH AMERICAN TOWER
During the three-month period ended March 31, 2000, eight towers were sold
to American Tower for $2.0 million in cash, resulting in a gain of
approximately $736,000, which is being amortized as a reduction to rental
expense over the initial lease term of ten years. At March 31, 2000, a total of
twenty-six towers have been sold to American Tower.
F-22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
, 2000
9,643,000 Shares of Common Stock
----------------
PROSPECTUS
----------------
Donaldson, Lufkin & Jenrette
Bear, Stearns & Co. Inc.
The Robinson-Humphrey Company
DLJdirect Inc.
- -------------------------------------------------------------------------------
Until (25 days after the date of this prospectus), all dealers
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 or 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 Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $43,915
National Association of Securities Dealers, Inc. filing fee...... 17,135
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>
- ---------------------
*To be supplied by amendment
Item 14. Indemnification of Directors and Officers
The Certificate of Incorporation of iPCS, Inc. ("iPCS") provides that the
liability of the directors of iPCS to iPCS or any of its stockholders for
monetary damages arising from acts or omissions occurring in their capacity as
directors shall be limited to the fullest extent permitted by the laws of
Delaware or any other applicable law. This limitation does not apply with
respect to any action in which a director would be liable under Section 174 of
the General Corporation Law of the State of Delaware nor does it apply with
respect to any liability in which a director:
. breached his duty of loyalty to iPCS or its stockholders;
. did not act in good faith or, in failing to act, did not act in good
faith;
. acted in a manner involving intentional misconduct or a knowing violation
of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law; or
. derived an improper personal benefit.
iPCS's Certificate of Incorporation provides that iPCS shall indemnify its
directors, officers and employees and former directors, officers and employees
to the fullest extent permitted by the laws of Delaware or any other applicable
law. Pursuant to the provisions of Section 145 of the General Corporation Law
of the State of Delaware, iPCS has the power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than an action by or in the right
of iPCS) by reason of the fact that he is or was a
<PAGE>
director, officer, employee or agent of iPCS, against any and all expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding. The power to
indemnify applies only if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of iPCS and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of iPCS
as well, but only to the extent of defense and settlement expenses and not to
any satisfaction of a judgment or settlement of the claim itself and with the
further limitation that in such actions no indemnification shall be made in the
event of any adjudication of negligence or misconduct unless the court, in its
discretion, believes that in light of all the circumstances indemnification
should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
Reference is made to the Form of Underwriting Agreement, to be filed as
Exhibit 1.1 to this registration statement, which provides for indemnification
by the Underwriters under certain circumstances of the directors and officers
of iPCS signing the registration statement and certain controlling persons of
iPCS against certain liabilities, including those arising under the Securities
Act.
iPCS has directors' and officers' liability insurance covering its directors
and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling iPCS pursuant to
the foregoing provisions, iPCS has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Item 15. Recent Sales of Unregistered Securities
iPCS, Inc., a Delaware corporation ("iPCS") was formed on March 7, 2000. It
has no assets and has not issued any shares of common stock. Immediately prior
to the closing of this initial public offering, Illinois PCS, LLC will become a
wholly owned subsidiary of iPCS, Inc. as described in the prospectus. In
connection with this reorganization into a holding company structure, iPCS will
issue unregistered shares of common stock to the owners of Illinois PCS, LLC in
exchange for their limited liability company membership interests of Illinois
PCS, LLC.
The persons to receive iPCS common stock in connection with the
reorganization, the consideration to be received by iPCS for such common stock
and the number of shares of common stock to be received are set forth in the
table below.
II-2
<PAGE>
Commencement of the Reorganization
<TABLE>
<CAPTION>
Number of Percentage of
Shares of Membership Interest
our Received in
Nature of Common Stock Exchange for our
Party Receiving Securities Consideration to be Issued Common Stock (1)
<S> <C> <C> <C>
Geneseo Communications,
Inc...................... Membership Interest 34.5%
Cambridge Telcom, Inc..... Membership Interest 29.6%
Cass Communications, Inc.. Membership Interest 9.9%
Technology Group, LLC..... Membership Interest 9.9%
Montrose Mutual PCS, Inc.. Membership Interest 9.9%
Gridley Enterprises, Inc.. Membership Interest 4.9%
Timothy M. Yager.......... Membership Interest 1.5%
</TABLE>
- ---------------------
(1) Exceeds 100% because of rounding.
None of the foregoing transactions will involve any public offering, and
issuances of securities in connection with such transactions will be made in
reliance on Section 4(2) under the Securities Act of 1933 (the "Act") and/or
Regulation D promulgated under the Act. These sales were made without general
solicitation or advertising. The recipients in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to sell or for sale in connection with any distribution
thereof. All recipients had adequate access, through their relationship with
us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
<C> <S> <C>
1.1* --Form of Underwriting Agreement.
2.1* --Form of Contribution Agreement to be entered into among
iPCS, Inc. and owners of Illinois PCS, LLC.
3.1* --Certificate of Incorporation of iPCS.
3.2* --Form of Bylaws of iPCS.
4.1* --Specimen Common Stock Certificate.
5.1* --Form of opinion of Mayer, Brown & Platt, regarding
legality of the Common Stock being issued.
10.1 --Sprint PCS Management Agreement, as amended, dated as of
January 22, 1999 by and between Sprint Spectrum, LP,
SprintCom, Inc., WirelessCo, LP and Illinois PCS, LLC, as
amended by Addendum I, Addendum II and Amended and
Restated Addendum III thereto.
10.2 --Sprint PCS Services Agreement dated as of January 22,
1999 by and between Sprint Spectrum, LP and Illinois PCS,
LLC.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S> <C>
10.3 --Sprint Trademark and Service Mark License Agreement
dated as of January 22, 1999 by and between Sprint
Communications Company, LP and Illinois PCS, LLP.
10.4 --Sprint Spectrum Trademark and Service Mark License
Agreement dated as of January 22, 1999 by and between
Sprint Spectrum, LP and Illinois PCS, LLP.
10.5* --Consent and Agreement dated as of by and
between Nortel Networks, Inc., Sprint Spectrum, LP,
Sprint Communications Company, LP, WirelessCo, LP, and
SprintCom, Inc.
10.6* --Form of Credit Agreement by and between Illinois PCS,
Inc., as borrower, and Nortel Networks, Inc., as
administrative agent, for a $200.0 million credit
facility, to be executed prior to the closing of this
offering.
10.7* --Form of iPCS, Inc. 2000 Long Term Incentive Plan.
10.8* --Employment Agreement effective as of by
and between iPCS and Timothy M. Yager.
10.9* --Employment Agreement effective as of by
and between iPCS and William W. King, Jr.
10.10 --Form of Warrant Agreement by and between Sprint Spectrum
L.P. and iPCS, Inc., to be executed prior to the closing
of this offering (included in Exhibit 10.1).
10.11* --Agreement Regarding Construction, Sale and Leaseback of
Towers dated as of May 28, 1999 by and between American
Tower Corporation and Illinois PCS, LLC.
10.12 --Lease dated as of June 1, 1999 by and between Gridley
Enterprises, Inc. and Illinois PCS, LLC.
10.13* --Warrant Agreement dated as of May , 2000 by and
between iPCS, Inc. and Nortel Networks, Inc.
10.14* --Registration Rights Agreement dated as of May , 2000
by and among iPCS, Inc. and Nortel Networks, Inc.
21.1* --Subsidiaries of iPCS.
23.1 --Consent of Deloitte & Touche LLP.
23.2 --Consent of Mayer, Brown & Platt (contained in legal
opinion filed as Exhibit 5.1).
24.1 --Powers of Attorney (set forth on the signature page
hereto).
27.1* --Financial Data Schedule.
</TABLE>
- ---------------------
*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 financial statements or
related notes.
II-4
<PAGE>
Item 17. Undertakings
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 iPCS 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.
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 Securities
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 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on the 25th day of April, 2000.
iPCS, INC.
/s/ Timothy M. Yager
By: _________________________________
Timothy M. Yager
President, Chief Executive Officer
and Director
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Timothy M. Yager President, Chief Executive April 25, 2000
____________________________________ Officer (Principal Executive
Timothy M. Yager Officer) and Director
/s/ Stebbins B. Chandor, Jr. Senior Vice President, Chief April 25, 2000
____________________________________ Financial Officer
Stebbins B. Chandor, Jr. (Principal Financial and
Accounting Officer)
/s/ William W. King, Jr.* Vice President, Strategic April 25, 2000
____________________________________ Planning and Director
William W. King, Jr.
/s/ Alan C. Anderson* Director April 25, 2000
____________________________________
Alan C. Anderson
/s/ Donald L. Bell* Director April 25, 2000
____________________________________
Donald L. Bell
/s/ Brian J. Gernant* Director April 25, 2000
____________________________________
Brian J. Gernant
/s/ Robert W. Schwartz* Director April 25, 2000
____________________________________
Robert W. Schwartz
/s/ George Patrick Tays* Director April 25, 2000
____________________________________
George Patrick Tays
</TABLE>
Timothy M. Yager, by signing his name hereto, does sign and execute this
first amendment to the registration statement on behalf of each of the above-
named officers and directors of the registrant on this 25th day of April, 2000,
pursuant to powers of attorneys executed on behalf of each of such officers and
directors and previously filed with the Securities and Exchange Commission.
/s/ Timothy M. Yager
*By: ____________________________
Timothy M. Yager
Attorney-in-Fact
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
<C> <S> <C>
1.1* --Form of Underwriting Agreement.
2.1* --Form of Contribution Agreement to be entered into among
iPCS, Inc. and owners of Illinois PCS, LLC.
3.1* --Certificate of Incorporation of iPCS.
3.2* --Form of Bylaws of iPCS.
4.1* --Specimen Common Stock Certificate.
5.1* --Form of opinion of Mayer, Brown & Platt, regarding legality
of the Common Stock being issued.
10.1 --Sprint PCS Management Agreement, as amended, dated as of
January 22, 1999 by and between Sprint Spectrum, LP,
SprintCom, Inc., WirelessCo, LP and Illinois PCS, LLC, as
amended by Addendum I, Addendum II and Amended and Restated
Addendum III thereto.
10.2 --Sprint PCS Services Agreement dated as of January 22, 1999
by and between Sprint Spectrum, LP and Illinois PCS, LLC.
10.3 --Sprint Trademark and Service Mark License Agreement dated as
of January 22, 1999 by and between Sprint Communications
Company, LP and Illinois PCS, LLP.
10.4 --Sprint Spectrum Trademark and Service Mark License Agreement
dated as of January 22, 1999 by and between Sprint Spectrum,
LP and Illinois PCS, LLP.
10.5* --Consent and Agreement dated as of by and
between Nortel Networks, Inc., Sprint Spectrum, LP, Sprint
Communications Company, LP, WirelessCo, LP, and SprintCom,
Inc.
10.6* --Form of Credit Agreement by and between Illinois PCS, Inc.,
as borrower, and Nortel Networks, Inc., as administrative
agent, for a $200.0 million credit facility, to be executed
prior to the closing of this offering.
10.7* --Form of iPCS, Inc. 2000 Long Term Incentive Plan.
10.8* --Employment Agreement effective as of by and
between iPCS and Timothy M. Yager.
10.9* --Employment Agreement effective as of by and
between iPCS and William W. King, Jr.
10.10 --Form of Warrant Agreement by and between Sprint Spectrum
L.P. and iPCS, Inc., to be executed prior to the closing of
this offering (included in Exhibit 10.1).
10.11* --Agreement Regarding Construction, Sale and Leaseback of
Towers dated as of May 28, 1999 by and between American Tower
Corporation and Illinois PCS, LLC.
10.12 --Lease dated as of June 1, 1999 by and between Gridley
Enterprises, Inc. and Illinois PCS, LLC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
<C> <S> <C>
10.13* --Warrant Agreement dated as of May , 2000 by and between
iPCS, Inc. and Nortel Networks, Inc.
10.14* --Registration Rights Agreement dated as of May , 2000 by
and among iPCS, Inc. and Nortel Networks, Inc.
21.1* --Subsidiaries of iPCS.
23.1 --Consent of Deloitte & Touche LLP.
23.2 --Consent of Mayer, Brown & Platt (contained in legal opinion
filed as Exhibit 5.1).
24.1 --Powers of Attorney (set forth on the signature page hereto).
27.1* --Financial Data Schedule.
</TABLE>
- ---------------------
*to be filed by amendment.
2
<PAGE>
EXHIBIT 10.1
SPRINT PCS
MANAGEMENT AGREEMENT
BETWEEN
WIRELESSCO, L.P.
SPRINT SPECTRUM L.P.
and
ILLINOIS PCS, LLC
Dated as of January 22, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. MANAGER................................................................. 2
1.1 Hiring of Manager........................................... 2
1.2 Program Requirements........................................ 3
1.3 Vendor Purchase Agreements.................................. 3
1.4 Interconnection............................................. 3
1.5 Seamlessness................................................ 4
1.6 Forecasting................................................. 4
1.7 Financing................................................... 4
1.8 Ethical Conduct and Related Covenants....................... 4
2. BUILD-OUT OF NETWORK.................................................... 4
2.1 Build-out Plan.............................................. 4
2.2 Compliance with Regulatory Rules............................ 4
2.3 Exclusivity of Service Area................................. 5
2.4 Restriction................................................. 5
2.5 Coverage Enhancement........................................ 6
2.6 Purchase of Assets by Manager............................... 7
2.7 Microwave Relocation........................................ 8
2.8 Determination of pops....................................... 8
3. PRODUCTS AND SERVICES; IXC SERVICES..................................... 8
3.1 Sprint PCS Products and Services............................ 8
3.2 Other Products and Services................................. 8
3.3 Cross-selling with Sprint................................... 9
3.4 IXC Services................................................ 9
3.5 Resale of Products and Services............................. 9
3.5.1 Mandatory Resale of Products and Services............ 9
3.5.2 Voluntary Resale of Products and Services............ 10
3.6 Non-competition............................................. 10
3.7 Right of Last Offer......................................... 11
4. MARKETING AND SALES ACTIVITIES.......................................... 11
4.1 Sprint PCS National or Regional Distribution
Program Requirements........................................ 11
4.1.1 Territorial Limitations on Manager's
Distribution Activities.............................. 11
4.1.2 Settlement of Equipment Sales........................ 12
4.1.3 Use of Third-Party Distributors...................... 12
4.2 Sprint PCS National Accounts Program Requirements........... 13
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4.3 Sprint PCS Roaming and Inter Service Area Program
Requirements................................................ 13
4.4 Pricing..................................................... 13
4.5 Home Service Area........................................... 14
5. USE OF BRANDS........................................................... 14
5.1 Use of Brands............................................... 14
5.2 Conformance to Marketing Communications Guidelines.......... 15
5.3 Joint Marketing With Third Parties.......................... 15
5.4 Prior Approval of Use of Brands............................. 16
5.5 Duration of Use of Brand.................................... 16
6. ADVERTISING AND PROMOTION............................................... 16
6.1 National Advertising and Promotion.......................... 16
6.2 In-Territory Advertising and Promotion...................... 16
6.3 Review of Advertising and Promotion Campaigns............... 17
6.4 Public Relations............................................ 17
7. SPRINT PCS TECHNICAL PROGRAM REQUIREMENTS............................... 17
7.1 Conformance to Sprint PCS Technical Program Requirements.... 17
7.2 Establishment of Sprint PCS Technical Program Requirements.. 18
7.3 Handoff to Adjacent Networks................................ 18
8. SPRINT PCS CUSTOMER SERVICE PROGRAM REQUIREMENTS........................ 18
8.1 Compliance With Sprint PCS Customer Service Program
Requirements................................................ 18
9. SPRINT PCS PROGRAM REQUIREMENTS......................................... 19
9.1 Program Requirements Generally.............................. 19
9.2 Amendments to Program Requirements.......................... 19
9.3 Manager's Right to Request Review of Changes................ 20
9.4 Sprint PCS' Right to Implement Changes...................... 21
9.5 Rights of Inspection........................................ 21
9.6 Manager's Responsibility to Interface with Sprint PCS....... 21
10. FEES.................................................................... 21
10.1 Fees and Payments........................................... 21
10.1.1 Fee Based on Collected Revenues..................... 21
10.1.2 Payment of Universal Service Funds.................. 22
10.1.3 Inter Service Area Fees............................. 22
10.1.4 Interconnect Fees................................... 22
10.1.5 Outbound Roaming Fees............................... 22
10.1.6 Reimbursements...................................... 22
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10.2 Monthly True Up............................................. 22
10.3 Taxes....................................................... 23
10.4 Collected Revenues Definition............................... 23
10.5 Late Payments............................................... 24
10.6 Setoff Right If Failure To Pay Amounts Due.................. 24
11. TERM; TERMINATION; EFFECT OF TERMINATION................................ 25
11.1 Initial Term................................................ 25
11.2 Renewal Terms............................................... 25
11.2.1 Non-renewal Rights of Manager........................ 25
11.2.1.1 Manager's Put Right........................ 25
11.2.1.2 Manager's Purchase Right................... 26
11.2.2 Non-renewal Rights of Sprint PCS........... 27
11.2.2.1 Sprint PCS' Purchase Right................. 27
11.2.2.2 Sprint PCS' Put Right...................... 27
11.2.3 Extended Term Awaiting FCC Approval.................. 28
11.3 Events of Termination....................................... 28
11.3.1 Termination of License.............................. 28
11.3.2 Breach of Agreement: Payment of Money Terms......... 29
11.3.3 Breach of Agreement: Other Terms.................... 29
11.3.4 Regulatory Considerations........................... 29
11.3.5 Termination of Trademark License Agreements......... 29
11.3.6 Financing Considerations............................ 30
11.3.7 Bankruptcy of a Party............................... 30
11.4 Effect of an Event of Termination........................... 31
11.5 Manager's Event of Termination Rights and Remedies.......... 32
11.5.1 Manager's Put Right................................. 32
11.5.2 Manager's Purchase Right............................ 33
11.5.3 Manager's Action for Damages or Other Relief........ 34
11.6 Sprint PCS' Event of Termination Rights and Remedies........ 34
11.6.1 Sprint PCS' Purchase Right.......................... 34
11.6.2 Sprint PCS' Put Right............................... 34
11.6.3 Sprint PCS' Right to Cause A Cure................... 35
11.6.4 Sprint PCS' Action for Damages or Other Relief...... 37
11.7 Determination of Entire Business Value...................... 37
11.7.1 Appointment of Appraisers........................... 37
11.7.2 Manager's Operating Assets.......................... 37
11.7.3 Entire Business Value............................... 38
11.7.4 Calculation of Entire Business Value................ 39
11.8 Closing Terms and Conditions................................ 39
11.9 Contemporaneous and Identical Application................... 39
12. BOOKS AND RECORDS; CONFIDENTIAL INFORMATION; INSURANCE.................. 39
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12.1 Books and Records........................................... 39
12.1.1 General.............................................. 39
12.1.2 Audit................................................ 40
12.1.3 Contesting an Audit.................................. 40
12.2 Confidential Information.................................... 41
12.3 Insurance .................................................. 42
12.3.1 General.............................................. 42
12.3.2 Waiver of Subrogation................................ 43
12.3.3 Certificates of Insurance............................ 43
13. INDEMNIFICATION........................................................ 43
13.1 Indemnification by Sprint PCS............................... 43
13.2 Indemnification by Manager.................................. 43
13.3 Procedure................................................... 44
13.3.1 Notice............................................... 44
13.3.2 Defense by Indemnitor................................ 44
13.3.3 Defense by Indemnitee................................ 44
13.3.4 Costs................................................ 45
14. DISPUTE RESOLUTION..................................................... 45
14.1 Negotiation................................................. 45
14.2 Unable to Resolve........................................... 45
14.3 Attorneys and Intent........................................ 46
14.4 Tolling of Cure Periods..................................... 47
15. REPRESENTATIONS AND WARRANTIES......................................... 47
15.1 Due Incorporation or Formation; Authorization of Agreements. 47
15.2 Valid and Binding Obligation................................ 47
15.3 No Conflict; No Default..................................... 47
15.4 Litigation.................................................. 47
16. REGULATORY COMPLIANCE.................................................. 47
16.1 Regulatory Compliance....................................... 47
16.2 FCC Compliance.............................................. 48
16.3 Marking and Lighting........................................ 50
16.4 Regulatory Notices.......................................... 50
16.5 Regulatory Policy-Setting Proceedings....................... 50
17. GENERAL PROVISIONS..................................................... 50
17.1 Notices..................................................... 50
17.2 Construction................................................ 51
17.3 Headings.................................................... 51
17.4 Further Action.............................................. 51
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17.5 Counterpart Execution....................................... 51
17.6 Specific Performance........................................ 51
17.7 Entire Agreement; Amendments................................ 51
17.8 Limitation on Rights of Others.............................. 52
17.9 Waivers..................................................... 52
17.9.1 Waivers--General.................................... 52
17.9.2 Waivers--Manager.................................... 52
17.9.3 Force Majeure....................................... 52
17.10 Waiver of Jury Trial........................................ 52
17.11 Binding Effect.............................................. 53
17.12 Governing Law............................................... 53
17.13 Severability. ............................................. 53
17.14 Limitation of Liability..................................... 53
17.15 No Assignment; Exceptions................................... 53
17.15.1 General............................................. 53
17.15.2 Assignment Right of Manager to Financial Lender..... 54
17.15.3 Change of Control Rights............................ 55
17.15.4 Right of First Refusal.............................. 56
17.15.5 Transfer of Sprint PCS Network...................... 57
17.16 Provision of Services by Sprint Spectrum.................... 57
17.17 Number Portability.......................................... 57
17.18 Disclaimer of Agency........................................ 57
17.19 Independent Contractors..................................... 58
17.20 Expense..................................................... 58
17.21 General Terms............................................... 58
17.22 Conflicts with Other Agreements............................. 58
17.23 Survival Upon Termination................................... 59
17.24 Announced Transaction....................................... 59
17.25 Additional Terms and Provisions............................. 59
17.26 Master Signature Page....................................... 59
17.27 Agent Authorization......................................... 59
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<PAGE>
SPRINT PCS MANAGEMENT AGREEMENT
This SPRINT PCS MANAGEMENT AGREEMENT is made January 22, 1999, between
WirelessCo., L.P., a Delaware limited partnership, Sprint Spectrum L.P., a
Delaware limited partnership, SprintCom, Inc., a Kansas corporation, and
Illinois PCS, LLC, an Illinois limited liability company (but not any Related
Party) ("Manager"). The definitions for this agreement are set forth on the
"Schedule of Definitions".
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RECITALS
A. Sprint Spectrum L.P., a Delaware limited partnership, WirelessCo,
L.P., a Delaware limited partnership, SprintCom, Inc., a Kansas corporation,
American PCS Communications, LLC, a Delaware limited liability company, APC PCS,
LLC, a Delaware limited liability company, PhillieCo Partners I, L.P., a
Delaware limited partnership, PhillieCo, L.P., a Delaware limited partnership,
Cox Communications PCS, L.P., a Delaware limited partnership, and Cox PCS
License, L.L.C., a Delaware limited liability company, hold and exercise,
directly or indirectly, control over licenses to operate wireless services
networks.
B. The entity or entities named in Recital A that execute this agreement
hold, directly or indirectly, the Licenses for the areas identified on the
Service Area Exhibit and are referred to in this agreement as "Sprint PCS."
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Because this agreement addresses the rights and obligations of each license
holder with respect to each of its Licenses, each reference in this agreement to
"Sprint PCS" refers to the entity that owns, directly or indirectly, the License
referred to in that particular instance or application of the provision of this
agreement. If Sprint Spectrum does not own the License, it will provide on
behalf of Sprint PCS most or all of the services required under this agreement
to be provided by Sprint PCS.
C. The Sprint PCS business was established to use the Sprint PCS Network,
a nationwide wireless services network, to offer seamless, integrated voice and
data services using wireless technology. The Sprint PCS Network offers the
services to customers under the Brands.
D. This agreement, therefore, includes provisions defining Manager's
obligations with respect to:
. The design, construction and management of the Service Area Network;
. Offering and promoting products and services designated by Sprint PCS
as the Sprint PCS Products and Services of the Sprint PCS Network;
. Adherence to Program Requirements established by Sprint PCS to ensure
seamless interoperability throughout the Sprint PCS Network and
uniform and consistent quality of product and service offerings;
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. Adherence to Customer Service Program Requirements established by
Sprint PCS to ensure consistency in interactions with customers
(including billing, customer care, etc.); and
. Adherence to Program Requirements relating to the marketing, promotion
and distribution of Sprint PCS Products and Services.
E. The Sprint PCS Network is expanding with the assistance of "managers"
(companies such as Manager that manage Service Area Networks that offer Sprint
PCS Products and Services under a license owned by Sprint PCS or one of the
entities named in Recital A) and "affiliates" (companies that manage Service
Area Networks that offer Sprint PCS Products and Services under a license owned
by the affiliate).
F. Manager wishes to enter into this agreement to help construct,
operate, manage and maintain for Sprint PCS a portion of the Sprint PCS Network
in the Service Area. Sprint PCS has determined that permitting Manager to
manage a portion of the Sprint PCS Network in accordance with the terms of this
agreement will facilitate Sprint PCS' expansion of fully digital, wireless
coverage under the License and will enhance the wireless service for customers
of Sprint PCS.
G. All managers of a portion of the business of Sprint PCS, including
Manager, must construct facilities and operate in accordance with Program
Requirements established by Sprint PCS with respect to certain aspects of the
development and offering of wireless products and services and the presentation
of the products and services to customers, to establish and operate the Sprint
PCS Network successfully by providing seamless, integrated voice and data
services, using wireless technology.
AGREEMENT
In consideration of the recitals and mutual covenants and agreements
contained in this agreement, the sufficiency of which are hereby acknowledged,
the parties, intending to be bound, agree as follows:
1. MANAGER
1.1 Hiring of Manager. Sprint PCS hires Manager:
(a) to construct and manage the Service Area Network in compliance
with the License and in accordance with the terms of this agreement;
(b) to distribute continuously during the Term the Sprint PCS
Products and Services and to establish distribution channels in the Service
Area;
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(c) to conduct continually during the Term advertising and promotion
activities in the Service Area (including mutual decisions to "go dark",
with respect to advertising and promotion activities, for reasonable
periods of time); and
(d) to manage that portion of the customer base of Sprint PCS that
has the NPA-NXXs assigned to the Service Area Network.
Sprint PCS has the right to unfettered access to the Service Area Network
to be constructed by Manager under this agreement. The fee to be paid to
Manager by Sprint PCS under Section 10 is for all obligations of Manager under
this agreement.
1.2 Program Requirements. Manager must adhere to the Program
Requirements established by Sprint PCS and as modified from time to time, to
ensure uniform and consistent operation of all wireless systems within the
Sprint PCS Network and to present the Sprint PCS Products and Services to
customers in a uniform and consistent manner under the Brands.
1.3 Vendor Purchase Agreements. Manager may participate in discounted
volume-based pricing on wireless-related products and services and in the
warranties Sprint PCS receives from its vendors, as is commercially reasonable
and to the extent permitted by applicable procurement agreements (e.g.,
agreements related to network infrastructure equipment, subscriber equipment,
interconnection, and collocation). Sprint PCS will use commercially reasonable
efforts to obtain for managers the same price Sprint PCS receives from vendors;
this does not prohibit Sprint PCS from entering into procurement agreements that
do not provide managers with the Sprint PCS prices.
Manager must purchase subscriber and infrastructure equipment from a Sprint
PCS approved list of products, which will include a selection from a variety of
manufacturers. Where required, the products must include proprietary software
developed by the manufacturers for Sprint PCS or by Sprint PCS to allow seamless
interoperability in the Sprint PCS Network. Sprint PCS or the vendor may require
Manager to execute a separate license agreement for the software prior to
Manager's use of the software.
Manager may only make purchases under this Section 1.3 for items to be used
exclusively in the Service Area (e.g., Manager may not purchase base stations
under a Sprint PCS contract for use in a system not affiliated with Sprint PCS).
1.4 Interconnection. If Manager desires to interconnect a portion of the
Service Area Network with another carrier and Sprint PCS can interconnect with
that carrier at a lower rate, then to the extent permitted by applicable laws,
tariffs and contracts, Sprint PCS may arrange for the interconnection under its
agreements with the carrier and if it does so, Sprint PCS will bill the
interconnection fees to Manager.
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1.5 Seamlessness. Manager will design and operate its systems, platforms,
products and services in the Service Area and the Service Area Network so as to
seamlessly interface them into the Sprint PCS Network.
1.6 Forecasting. Manager and Sprint PCS will work cooperatively to
generate mutually acceptable forecasts of important business metrics including
traffic volumes, handset sales, subscribers and Collected Revenues for the
Sprint PCS Products and Services. The forecasts are for planning purposes only
and do not constitute Manager's obligation to meet the quantities forecast.
1.7 Financing. The construction and operation of the Service Area Network
requires a substantial financial commitment by Manager. The manner in which
Manager will finance the build-out of the Service Area Network and provide the
necessary working capital to operate the business is described in detail on
Exhibit 1.7. Manager will allow Sprint PCS an opportunity to review before
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filing any registration statement or prospectus or any amendment or supplement
thereto before distributing any offering memorandum or amendment or supplement
thereto, and agrees not to file or distribute any such document if Sprint PCS
reasonably objects in writing on a timely basis to any portion of the document
that refers to Sprint PCS, its Related Parties, their respective businesses,
this agreement or the Services Agreement.
1.8 Ethical Conduct and Related Covenants. Each party must perform its
obligations under this agreement in a diligent, legal, ethical, and professional
manner.
2. BUILD-OUT OF NETWORK
2.1 Build-out Plan. Manager will build-out the Service Area Network in
the Service Area in accordance with a Build-out Plan. Sprint PCS and Manager
will jointly develop each Build-out Plan, except the initial Build-out Plan and
any modifications, additions or expansions of the Build-out Plan will be subject
to prior written approval by Sprint PCS. Manager will report to Sprint PCS its
performance regarding the critical milestones included in the Build-out Plan on
a periodic basis as mutually agreed to by the parties, but no less frequently
than quarterly. The Build-out Plan and the Service Area Network as built must
comply with Sprint PCS Program Requirements and federal and local regulatory
requirements.
Sprint PCS approves the Build-out Plan in effect as of the date of this
agreement, which Build-out Plan is attached as Exhibit 2.1. Each new or amended
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Build-out Plan will also become part of Exhibit 2.1.
-----------
2.2 Compliance with Regulatory Rules. During the build-out of the Service
Area Network, Sprint PCS authorizes Manager to make all filings with regulatory
authorities regarding the build-out, including filings with the Federal Aviation
Administration, environmental authorities, and historical districts. Manager
may further delegate its duty under this Section 2.2 to a qualified site
acquisition company. Manager must ensure that a copy of every filing is given
to Sprint PCS. Manager must ensure that Sprint PCS is notified in writing
4
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of any contact by a regulatory agency including the FCC with Manager or
Manager's site acquisition company regarding any filing. Sprint PCS has the
right to direct any proceeding, inquiry, dispute, appeal or other activity with
a regulatory or judicial authority regarding any filing made on behalf of Sprint
PCS. Manager will amend, modify, withdraw, refile and otherwise change any
filing as Sprint PCS requires. Notwithstanding the preceding sentences in this
Section 2.2, and in conjunction with Section 16, Sprint PCS is solely
responsible for making any and all filings with the FCC regarding the build-out.
Manager will notify Sprint PCS of any activity, event or condition related to
the build-out that might require an FCC filing.
2.3 Exclusivity of Service Area. Manager will be the only person or
entity that is a manager or operator for Sprint PCS with respect to the Service
Area and neither Sprint PCS nor any of its Related Parties will own, operate,
build or manage another wireless mobility communications network in the Service
Area so long as this agreement remains in full force and effect and there is no
Event of Termination that has occurred giving Sprint PCS the right to terminate
this agreement, except that:
(a) Sprint PCS may cause Sprint PCS Products and Services to be sold
in the Service Area through the Sprint PCS National Accounts Program
Requirements and Sprint PCS National or Regional Distribution Program
Requirements;
(b) A reseller of Sprint PCS Products and Services may sell its
products and services in the Service Area so long as such resale is not
contrary to the terms and conditions of this agreement; and
(c) Sprint PCS and its Related Parties may engage in the activities
described in Sections 2.4(a) and 2.4(b) with Manager in the geographic
areas within the Service Area in which Sprint PCS or any of its Related
Parties owns an incumbent local exchange carrier as of the date of this
agreement.
2.4 Restriction. In geographic areas within the Service Area in which
Sprint PCS or any of its Related Parties owns an incumbent local exchange
carrier as of the date of this agreement, Manager must not offer any Sprint PCS
Products or Services specifically designed for the competitive local exchange
market ("fixed wireless local loop"), except that:
(a) Manager may designate the local exchange carrier that is a
Related Party of Sprint PCS to be the exclusive distributor of the fixed
wireless local loop product in the territory served by the local exchange
carrier, even if a portion of its territory is within the Service Area; or
(b) Manager may sell the fixed wireless local loop product under the
terms and conditions specified by Sprint PCS (e.g., including designation
by Sprint PCS of an exclusive distribution agent for the territory).
5
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This restriction exists with respect to a particular geographic area only
so long as Sprint PCS or its Related Party owns such incumbent local exchange
carrier.
Nothing in this Section 2.4 prohibits Manager from offering Sprint PCS
Products and Services primarily designed for mobile functionality. The
restricted markets as of the date of this agreement are set forth on Exhibit
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2.4.
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2.5 Coverage Enhancement. Sprint PCS and Manager agree that maintaining a
high standard of customer satisfaction regarding network capacity and footprint
is a required element of the manager and affiliate programs. Sprint PCS intends
to expand network coverage to build all cells that cover at least 5,000 pops and
all interstate and major highways in the areas not operated by Manager or Other
Managers. Accordingly, Manager agrees to build-out New Coverage when directed
by Sprint PCS as set forth in this Section 2.5. Sprint PCS agrees not to
require any New Coverage build-out during the first two years of this Agreement,
nor any New Coverage that exceeds the capacity and footprint parameters that
Sprint PCS has adopted for all of its comparable markets.
Sprint PCS will give to Manager a written notice of any New Coverage within
the Service Area that Sprint PCS decides should be built-out. Such notice will
include an analysis completed by Sprint PCS demonstrating that such required
build-out should be economically advantageous to Manager. Such analysis will be
generated in good faith and will be based on then-currently available
information, however Sprint PCS makes no warranties or representations regarding
the accuracy of, nor will Sprint PCS be bound by, or guarantee the accuracy of,
such analysis. Manager must confirm to Sprint PCS within 90 days after receipt
of the notice that Manager will build-out the New Coverage and deliver to Sprint
PCS with such confirmation Manager's proposed amendment to the Build-out Plan
and a description of the manner and timing in which it will finance such build-
out.
If Manager confirms, within such 90-day period, its intention to build-out
the New Coverage, then Manager and Sprint PCS will diligently finalize an
amendment to the Build-out Plan and proceed as set forth in Sections 2.1 and
2.2. The amended Build-out Plan will contain critical milestones that provide
Manager a commercially reasonable period in which to construct and implement the
New Coverage. In determining what constitutes a "commercially reasonable
period" as used in this paragraph, the parties will consider several factors,
including local zoning processes and other legal requirements, weather
conditions, equipment delivery schedules, the need to arrange additional
financing, and other construction already in progress by Manager. Manager will
construct and operate the New Coverage in accordance with the terms of this
Agreement, and the New Coverage will be included in the Service Area Network for
purposes of this agreement.
If Manager fails to confirm, within such 90-day period, its intention to
build-out the New Coverage, declines to complete such build-out, or fails to
complete such build-out in accordance with the amended Build-out Plan, then an
Event of Termination will be deemed to have occurred
6
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under Section 11.3.3, Manager will not have a right to cure such breach, and
Sprint PCS may exercise its rights and remedies under Section 11.2.2.1.
Notwithstanding the preceding paragraphs in this Section 2.5, the capacity
and footprint parameters contained in the amended Build-out Plan will not be
required to exceed the parameters adopted by Sprint PCS in building out all of
its comparable service areas, unless such build-out relates to an obligation
regarding the Service Area Network mandated by law. When necessary for reasons
related to new technical standards, new equipment or strategic reasons, Sprint
PCS can require Manager to build-out the New Coverage concurrently with Sprint
PCS' build-out, in which case Sprint PCS will reimburse Manager for its costs
and expenses if Sprint PCS discontinues its related build-out.
If Sprint PCS requires build-out of New Coverage that will:
(a) cause the Manager to spend an additional amount greater than 5%
of Manager's shareholder's equity or capital account plus Manager's long-
term debt (i.e., notes that mature more than one year from the date
issued), as reflected on Manager's books; or
(b) cause the long-term operating expenses of Manager on a per unit
basis using a 10-year time frame to increase by more than 10% on a net
present value basis,
then Manager may give Sprint PCS a written notice requesting Sprint PCS to
reconsider the required New Coverage.
The Sprint PCS Vice President or the designee of the Sprint PCS Chief
Officer in charge of the group that manages the Sprint PCS relationship with
Manager will review Manager's request and render a decision regarding the New
Coverage. If after the review and decision by the Vice President or designee,
Manager is still dissatisfied, then Manager may ask that the Chief Officer to
whom the Vice President or designee reports review the matter. If Sprint PCS
still requires Manager to complete the New Coverage following the Chief
Officer's review, then if Manager and Sprint PCS fail to agree to an amended
Build-out Plan within 15 days after completion of the reconsideration process
described above in this paragraph or the end of the 90-day period described in
the second paragraph of this Section 2.5, whichever occurs first, then an Event
of Termination will be deemed to have occurred under Section 11.3.3, Manager
will not have a right to cure such breach, and Sprint PCS may exercise its
rights and remedies under Section 11.2.2.1.
2.6 Purchase of Assets by Manager. If Sprint PCS has assets located in
the Service Area that Manager could reasonably use in its construction of the
Service Area Network and if Sprint PCS is willing to sell such assets, then
Manager agrees to purchase from Sprint PCS and Sprint PCS agrees to sell to
Manager the assets in accordance with the terms and conditions of the asset
purchase agreement attached as Exhibit 2.6.
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2.7 Microwave Relocation. Sprint PCS will relocate interfering microwave
sources in the spectrum in the Service Area to the extent necessary to permit
the Service Area Network to carry the anticipated call volume as set out in the
Build-out Plan. If the spectrum cleared is not sufficient to carry the actual
call volume then Sprint PCS will clear additional spectrum of its choosing to
accommodate the call volume. Sprint PCS may choose to clear spectrum one
carrier at a time. The parties will share equally all costs associated with
clearing spectrum under this Section 2.7.
2.8 Determination of pops. If any provision in this agreement requires
the determination of pops in a given area, then the pops will be determined
using the census block group pop forecast then used by Sprint PCS, except that a
different forecast will be used for any FCC filing and in preparing the Build-
out Plan if required by the FCC. Sprint PCS presently uses the forecast of
Equifax/NDS, but it may choose in its sole discretion to use another service
that provides comparable data.
3. PRODUCTS AND SERVICES; IXC SERVICES
3.1 Sprint PCS Products and Services. Manager must offer for sale,
promote and support all Sprint PCS Products and Services within the Service
Area, unless the parties otherwise agree in advance in writing. Within the
Service Area, Manager may only sell, promote and support wireless products and
services that are Sprint PCS Products and Services or are other products and
services authorized under Section 3.2. The Sprint PCS Products and Services as
of the date of this agreement are attached as Exhibit 3.1. Sprint PCS may modify
-----------
the Sprint PCS Products and Services from time to time in its sole discretion by
delivering to Manager a new Exhibit 3.1. If Sprint PCS begins offering
-----------
nationally a Sprint PCS Product or Service that is a Manager's Product or
Service, such Manager's Product or Service will become a Sprint PCS Product or
Service under this agreement.
3.2 Other Products and Services. Manager may offer wireless products and
services that are not Sprint PCS Products and Services, on the terms Manager
determines, if the offer of the additional products and services:
(a) does not violate the obligations of Manager under this agreement;
(b) does not cause distribution channel conflict with or consumer
confusion regarding Sprint PCS' regional and national offerings of Sprint
PCS Products and Services;
(c) complies with the Trademark License Agreements; and
(d) does not materially impede the development of the Sprint PCS
Network.
Manager will not offer any products or services under this Section 3.2 that
are confusingly similar to Sprint PCS Products and Services. Manager must
request that Sprint PCS
8
<PAGE>
determine whether Sprint PCS considers a product or service to be confusingly
similar to any Sprint PCS Products and Services by providing advance written
notice to Sprint PCS that describes those products and services that could be
interpreted to be confusingly similar to Sprint PCS Products and Services. If
Sprint PCS fails to provide a response to Manager within 30 days after receiving
the notice, then the products and services are deemed to create confusion with
the Sprint PCS Products and Services and the request therefore rejected. In
rejecting any request Sprint PCS must provide the reasons for the rejection. If
the rejection is based on Sprint PCS' failure to respond within 30 days and
Manager requests an explanation for the deemed rejection, then Sprint PCS must
provide within 30 days the reasons for the rejection.
3.3 Cross-selling with Sprint. Manager and Sprint and Sprint's Related
Parties may enter into arrangements to sell Sprint's services, including long
distance service (except those long distance services governed by Section 3.4),
Internet access, customer premise equipment, prepaid phone cards, and any other
services that Sprint or its Related Parties make available from time to time.
Sprint's services may be packaged with the Sprint PCS Products and Services.
If Manager chooses to resell the long distance services, Internet access or
competitive local telephone services including prepaid phone cards, of third
parties (other than Manager's Related Parties), Manager will give Sprint the
right of last offer to provide those services on the same terms and conditions
as the offer to which Manager is prepared to agree, subject to the terms of any
existing agreements Manager was subject to prior to execution of this agreement.
If Sprint sells Sprint PCS Products and Services in the Service Area,
Manager will provide such Sprint PCS Products and Services to such customers in
accordance with the terms and conditions of the Sprint PCS National or Regional
Distribution Program Requirements.
3.4 IXC Services. Manager must purchase from Sprint long distance
telephony services for the Sprint PCS Products and Services at wholesale rates.
Long distance telephone calls are those calls between the local calling area for
the Service Area Network and areas outside the local calling area. The local
calling area will be defined by mutual agreement of Sprint PCS and Manager. If
the parties cannot agree on the extent of the local calling area they will
resolve the matter through the dispute resolution process in Section 14. Any
arrangement must have terms at least as favorable to Manager (in all material
respects) as those offered by Sprint to any wholesale customer of Sprint in
comparable circumstances (taking into consideration volume, traffic patterns,
etc.). If Manager is bound by an agreement for these services and the agreement
was not made in anticipation of this agreement, then the requirements of this
Section 3.4 do not apply during the term of the other agreement. If the other
agreement terminates for any reason then the requirements of this Section 3.4 do
apply.
3.5 Resale of Products and Services
3.5.1 Mandatory Resale of Products and Services. Sprint PCS is
subject to FCC rules that require it to allow its service plans to be resold by
a purchaser of the service plan. Sprint PCS will not grant the purchaser of a
service plan the right to use any of the support
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services offered by Sprint PCS, including customer care, billing, collection,
and advertising, nor the right to use the Brands. The reseller only has the
right to use the service purchased. Consequently, Manager agrees not to
interfere with any purchaser of the Sprint PCS Products or Services who resells
the service plans in accordance with this agreement and applicable law. Manager
will notify purchaser that the purchaser does not have a right to use the Brands
or Sprint PCS' support services. In addition, Manager will notify Sprint PCS if
it reasonably believes a reseller of retail service plans is using the support
services or Brands.
3.5.2 Voluntary Resale of Products and Services. Sprint PCS may
choose to offer a resale product under which resellers will resell Sprint PCS
Products and Services under brand names other than the Brands, except Sprint PCS
may permit the resellers to use the Brands for limited purposes related to the
resale of Sprint PCS Products and Services (e.g., to notify people that the
handsets of the resellers will operate on the Sprint PCS Network). The resellers
may also provide their own support services (e.g., customer care and billing) or
may purchase the support services from Sprint PCS.
If Sprint PCS chooses to offer a voluntary resale product, it will adopt a
program that will be a Program Requirement under this agreement and that
addresses the manner in which Manager and Other Managers interact with the
resellers. Manager must agree to comply with the terms of the program,
including its pricing provisions, if Manager wants handsets of subscribers of
resellers with NPA-NXXs of Manager to be activated. Usage of telecommunications
services while in the Service Area by subscribers of resellers with NPA-NXXs
from outside the Service Area will be subject to the pricing provisions of the
Sprint PCS Roaming and Inter Service Area Program for roaming and inter service
area pricing between Manager and Sprint PCS unless Manager agrees in writing to
different pricing.
Except as required under the regulations and rules concerning mandatory
resale, Manager may not sell Sprint PCS Products and Services for resale unless
Sprint PCS consents to such sales in advance in writing.
3.6 Non-competition. Neither Manager nor any of its Related Parties may
offer Sprint PCS Products and Services outside of the Service Area without the
prior written approval of Sprint PCS.
Within the Service Area, Manager and Manager's Related Parties may offer,
market or promote telecommunications products or services only under the
following brands:
(a) products or services with the Brands;
(b) other products and services approved under Section 3.2;
(c) products or services with Manager's brand; or
(d) products or services with the brands of Manager's Related
Parties,
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except no brand of a significant competitor of Sprint PCS or its Related Parties
in the telecommunications business may be used by Manager or Manager's Related
Parties on these products and services.
If Manager or any of its Related Parties has licenses to provide broadband
personal communication services outside the Service Area, neither Manager nor
such Related Party may utilize the spectrum to offer Sprint PCS Products and
Services without prior written consent from Sprint PCS. Additionally, when
Manager's customers from inside the Service Area travel or roam to other
geographic areas, Manager will route the customers' calls, both incoming and
outgoing, according to the Sprint PCS Network Roaming and Inter Service Area
Program Requirements, without regard to any wireless networks operated by
Manager or its Related Parties. For example, Manager will program the preferred
roaming list for handsets sold in the Service Area to match the Sprint PCS
preferred roaming list.
3.7 Right of Last Offer. Manager will offer to Sprint the right to make
to Manager the last offer to provide backhaul and transport services for call
transport for the Service Area Network, if Manager decides to use third parties
for backhaul and transport services rather than self-provisioning the services
or purchasing the services from Related Parties of Manager. Sprint will have a
reasonable time to respond to Manager's request for last offer to provide
backhaul and transport pricing and services, which will be no greater than 5
Business Days after receipt of the request for the services and pricing from
Manager.
If Manager has an agreement in effect as of the date of this agreement for
these services and the agreement was not made in anticipation of this agreement,
then the requirements of this Section 3.7 do not apply during the term of the
other agreement. If the other agreement terminates for any reason then the
requirements of this Section 3.7 do apply.
4. MARKETING AND SALES ACTIVITIES
4.1 Sprint PCS National or Regional Distribution Program Requirements.
During the term of this agreement, Manager must participate in any Sprint PCS
National or Regional Distribution Program (as in effect from time to time), and
will pay or receive compensation for its participation in accordance with the
terms and conditions of that program. The Sprint PCS National or Regional
Distribution Program Requirements in effect as of the date of this agreement are
attached as Exhibit 4.1.
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4.1.1 Territorial Limitations on Manager's Distribution Activities.
Neither Manager nor any of its Related Parties will market, sell or distribute
Sprint PCS Products and Services outside of the Service Area, except:
(a) as otherwise agreed upon by the parties in advance in writing; or
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(b) Manager may place advertising in media that has distribution
outside of the Service Area, so long as that advertising is intended by
Manager to reach primarily potential customers within the Service Area.
4.1.2 Settlement of Equipment Sales. Sprint PCS will establish a
settlement policy and process that will be included in the Sprint PCS National
or Regional Distribution Program Requirements to:
(a) reconcile sales of subscriber equipment made in the service areas
of Sprint PCS or Other Managers of Sprint PCS, that result in activations
in the Service Area; and
(b) reconcile sales of subscriber equipment made in the Service Area
that result in activations in service areas of Sprint PCS or Other
Managers.
In general, the policy will provide that the party in whose service area
the subscriber equipment is activated will be responsible for the payment of any
subsidy (i.e., the difference between the price paid to the manufacturer and the
suggested retail price for direct channels or the difference between the price
paid to the manufacturer and the wholesale price for third party retailers) and
for other costs associated with the sale, including logistics, inventory
carrying costs, direct channel commissions and other retailer compensation.
4.1.3 Use of Third-Party Distributors.
(a) Manager may request that Sprint PCS and a local distributor enter
into Sprint PCS' standard distribution agreement regarding the purchase
from Sprint PCS of handsets and accessories. Sprint PCS will use
commercially reasonable efforts to reach agreement with the local
distributor. Sprint PCS may refuse to enter into a distribution agreement
with a distributor for any reasonable reason, including that the
distributor fails to pass Sprint PCS' then current credit and background
checks or the distributor fails to agree to the standard terms of the
Sprint PCS distribution agreement. Any local distributor will be subject
to the terms of the Trademark License Agreements or their equivalent.
Manager will report to Sprint PCS the activities of any local distributor
that Manager believes to be in violation of the distribution agreement.
(b) Manager may establish direct local distribution programs in
accordance with the Sprint PCS National or Regional Distribution Program
Requirements, subject to the terms and conditions of the Trademark License
Agreements and the non-competition and other provisions contained in this
agreement. If Manager sells Sprint PCS handsets and accessories directly
to a local distributor:
(i) Sprint PCS has the right to approve or disapprove a
particular distributor,
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(ii) Manager is responsible for such distributor's compliance
with the terms of the Trademark License Agreements and the other provisions
contained in this agreement, and
(iii) Manager must retain the right to terminate the distribution
rights of the local distributor when so instructed by Sprint PCS (even if
Sprint PCS initially approved or did not exercise its right to review the
distributor).
4.2 Sprint PCS National Accounts Program Requirements. During the term of
this agreement, Manager must participate in the Sprint PCS National Accounts
Program (as in effect from time to time), and will be entitled to compensation
for its participation and will be required to pay the expenses of the program in
accordance with the terms and conditions of that program. The Sprint PCS
National Accounts Program Requirements in effect as of the date of this
agreement are attached as Exhibit 4.2.
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4.3 Sprint PCS Roaming and Inter Service Area Program Requirements.
Manager will participate in the Sprint PCS Roaming and Inter Service Area
Program established and implemented by Sprint PCS, including roaming price plans
and inter-carrier settlements. The Sprint PCS Roaming and Inter Service Area
Program Requirements in effect as of the date of this agreement are attached as
Exhibit 4.3.
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As part of the Sprint PCS Roaming and Inter Service Area Program
Requirements, Sprint PCS will establish a settlement policy and process to
equitably distribute between the members making up the Sprint PCS Network (i.e.,
Sprint PCS, Manager and all Other Managers) the revenues received by one member
for services used by its customers when they travel into other members' service
areas.
4.4 Pricing. Manager will offer and support all Sprint PCS pricing plans
designated for regional or national offerings of Sprint PCS Products and
Services (e.g., national inter service area rates, regional home rates, and
local price points). The Sprint PCS pricing plans as of the date of this
agreement are attached as Exhibit 4.4. Sprint PCS may modify the Sprint PCS
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pricing plans from time to time in its sole discretion by delivering to Manager
a new Exhibit 4.4.
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Additionally, with prior approval from Sprint PCS, which approval will not
be unreasonably withheld, Manager may establish price plans for Sprint PCS
Products and Services that are only offered in its local market, subject to:
(a) the non-competition and other provisions contained in this
agreement;
(b) consistency with regional and national pricing plans;
(c) regulatory requirements; and
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(d) capability and cost of implementing rate plans in Sprint PCS
systems (if used).
Manager must provide advance written notice to Sprint PCS with details of
any pricing proposal for Sprint PCS Products or Services in the Service Area.
If Sprint PCS fails to respond to Manager within 10 Business Days after
receiving such notice, then the price proposed for those Sprint PCS Products or
Services is deemed approved.
At the time Sprint PCS approves a pricing proposal submitted by Manager,
Sprint PCS will provide Manager an estimate of the costs and expenses and
applicable time frames required for Sprint PCS to implement the proposed pricing
plan. Manager agrees to promptly reimburse Sprint PCS for any cost or expense
incurred by Sprint PCS to implement such a pricing plan, which will not exceed
the amount estimated by Sprint PCS if Manager waited for Sprint PCS' response to
Manager's proposal.
4.5 Home Service Area. Sprint PCS and Manager will agree to the initial
home service area for each base station in the Service Area Network prior to the
date the Service Area Network goes into commercial operation. If the parties
cannot agree to the home service area for each base station in the Service Area
Network, then the parties will use the dispute resolution process in Section 14
of this agreement to assign each base station to a home service area.
5. USE OF BRANDS
5.1 Use of Brands.
(a) Manager must enter into the Trademark License Agreements on or
before the date of this agreement.
(b) Manager must use the Brands exclusively in the marketing,
promotion, advertisement, distribution, lease or sale of any Sprint PCS
Products and Services within the Service Area, except Manager may use other
brands to the extent permitted by the Trademark License Agreements and not
inconsistent with the terms of this agreement.
(c) Neither Manager nor any of its Related Parties may market,
promote, advertise, distribute, lease or sell any of the Sprint PCS
Products and Services or Manager's Products and Services on a non-branded,
"private label" basis or under any brand, trademark, trade name or trade
dress other than the Brands, except (i) for sales to resellers required
under this agreement, or (ii) as permitted under the Trademark License
Agreements.
(d) The provisions of this Section 5.1 do not prohibit Manager from
including Sprint PCS Products and Services under the Brands within the
Service Area as part of a package with its other products and services that
bear a different brand or trademark.
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The provisions of this Section 5.1 do not apply to the extent that they are
inconsistent with applicable law or in conflict with the Trademark License
Agreements.
5.2 Conformance to Marketing Communications Guidelines. Manager must
conform to the Marketing Communications Guidelines in connection with the
marketing, promotion, advertisement, distribution, lease and sale of any of the
Sprint PCS Products and Services. The Marketing Communications Guidelines in
effect as of the date of this agreement are attached as Exhibit 5.2. Sprint and
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Sprint Spectrum may amend the Marketing Communications Guidelines from time to
time in accordance with the terms of the Trademark License Agreements.
5.3 Joint Marketing With Third Parties.
(a) Manager may engage in various joint marketing activities (e.g.,
promotions with sports teams and entertainment providers or tournament
sponsorships) with third parties in the Service Area from time to time
during the term of this agreement with respect to the Sprint PCS Products
and Services, except that Manager may engage in the joint marketing
activities only if the joint marketing activities:
(i) are conducted in accordance with the terms and conditions
of the Trademark License Agreements and the Marketing Communications
Guidelines;
(ii) do not violate the terms of this agreement;
(iii) are not likely (as determined by Sprint PCS, in its sole
discretion) to cause confusion between the Brands and any other trademark
or service mark used in connection with the activities;
(iv) are not likely (as determined by Sprint, in its sole
discretion) to cause confusion between the Sprint Brands and any other
trademark or service mark used in connection with the activities; and
(v) are not likely (as determined by Sprint PCS, in its sole
discretion) to give rise to the perception that the Sprint PCS Products and
Services are being advertised, marketed or promoted under any trademark or
service mark other than the Brands, except as provided in the Trademark
License Agreements. Manager will not engage in any activity that includes
co-branding involving use of the Brands (that is, the marketing, promotion,
advertisement, distribution, lease or sale of any of the Sprint PCS
Products and Services under the Brands and any other trademark or service
mark), except as provided in the Trademark License Agreements.
(b) Manager must provide advance written notice to Sprint PCS
describing any joint marketing activities that may:
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(i) cause confusion between the Brands and any other trademark
or service mark used in connection with the proposed activities; or
(ii) give rise to the perception that the Sprint PCS Products
and Services are being advertised, marketed or promoted under any trademark
or service mark other than the Brands, except as provided in the Trademark
License Agreements.
(c) If Sprint PCS fails to provide a response to Manager within 20
days after receiving such notice, then the proposed activities are deemed,
as the case may be:
(i) not to create confusion between the Brands and any other
trademark or service mark; or
(ii) not to give rise to the perception that Manager's products
and services are being advertised, marketed or promoted under any trademark
or service mark other than the Brands, except as provided in the Trademark
License Agreements.
5.4 Prior Approval of Use of Brands. Manager must obtain advance written
approval from Sprint for use of the Sprint Brands to the extent required by the
Sprint Trademark and Service Mark License Agreement and from Sprint PCS for use
of the Sprint PCS Brands to the extent required by the Sprint Spectrum Trademark
and Service Mark License Agreement. Sprint PCS will use commercially reasonable
efforts to facilitate any review of Manager's use of the Brands, if Sprint PCS
is included in the review process.
5.5 Duration of Use of Brand. Manager is entitled to use the Brands only
during the term of the Trademark License Agreements and any transition period
during which Manager is authorized to use the Brands following the termination
of the Trademark License Agreements.
6. ADVERTISING AND PROMOTION
6.1 National Advertising and Promotion. Sprint PCS is responsible for (a)
all national advertising and promotion of the Sprint PCS Products and Services,
including the costs and expenses related to national advertising and promotions,
and (b) all advertising and promotion of the Sprint PCS Products and Services in
the markets where Sprint PCS operates without the use of an Other Manager.
6.2 In-Territory Advertising and Promotion. Manager must advertise and
promote the Sprint PCS Products and Services in the Service Area (and may do so
in the areas adjacent to the Service Area so long as Manager intends that such
advertising or promotion primarily reach potential customers within the Service
Area). Manager must advertise and promote the Sprint PCS Products and Services
in accordance with the terms and conditions of this agreement, the Trademark
License Agreements and the Marketing Communication Guidelines. Manager is
responsible for the costs and expenses incurred by Manager with respect to
Manager's advertising and promotion activities in the Service Area.
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Manager will be responsible for a portion of the cost of any promotion or
advertising done by third party retailers in the Service Area (e.g., Best Buy)
in accordance with any cooperative advertising arrangements based on per unit
handset sales.
Sprint PCS has the right to use in any promotion or advertising done by
Sprint PCS any promotion or advertising materials developed by Manager from time
to time with respect to the Sprint PCS Products and Services. Sprint PCS will
reimburse Manager for the reproduction costs related to such use.
Sprint PCS will make available to Manager the promotion or advertising
materials developed by Sprint PCS from time to time with respect to Sprint PCS
Products and Services in current use by Sprint PCS (e.g., radio ads, television
ads, design of print ads, design of point of sale materials, retail store
concepts and designs, design of collateral). Manager will bear the cost of
using such materials (e.g., cost of local radio and television ad placements,
cost of printing collateral in quantity, and building out and finishing retail
stores).
6.3 Review of Advertising and Promotion Campaigns. Sprint PCS and Manager
will jointly review the upcoming marketing and promotion campaigns of Manager
with respect to Sprint PCS Products and Services (including advertising and
promotion expense budgets) and will use good faith efforts to coordinate
Manager's campaign with Sprint PCS' campaign to maximize the market results of
both parties. Sprint PCS and Manager may engage in cooperative advertising or
promotional activities during the term of this agreement as the parties may
agree in writing.
6.4 Public Relations. If Manager conducts local public relations
efforts, then Manager must conduct the local public relations efforts consistent
with the Sprint PCS Communications Policies. The Sprint PCS Communications
Policies as of the date of this agreement are attached as Exhibit 6.4. Sprint
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PCS may modify the Sprint PCS Communications Policies from time to time by
delivering to Manager a new Exhibit 6.4.
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7. SPRINT PCS TECHNICAL PROGRAM REQUIREMENTS
7.1 Conformance to Sprint PCS Technical Program Requirements.
(a) Manager must meet or exceed the Sprint PCS Technical Program
Requirements established by Sprint PCS from time to time for the Sprint PCS
Network. Manager will be deemed to meet the Sprint PCS Technical Program
Requirements if:
(i) Manager operates the Service Area Network at a level equal
to or better than the lower of the Operational Level of Sprint PCS or the
operational level contemplated by the Sprint PCS Technical Program
Requirements; or
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(ii) Sprint PCS is responsible under the Services Agreement to
ensure the Service Area Network complies with the Sprint PCS Technical
Program Requirements.
(b) Manager must demonstrate to Sprint PCS that Manager has complied
with the Sprint PCS Technical Program Requirements prior to connecting the
Service Area Network to the rest of the Sprint PCS Network. Once the
Service Area Network is connected to the Sprint PCS Network, Manager must
continue to comply with the Sprint PCS Technical Program Requirements.
Sprint PCS agrees that the Sprint PCS Technical Program Requirements
adopted for Manager will be the same Sprint PCS Technical Program
Requirements applied by Sprint PCS to the Sprint PCS Network.
7.2 Establishment of Sprint PCS Technical Program Requirements. Sprint
PCS has delivered to Manager a copy of the current Sprint PCS Technical Program
Requirements, attached as Exhibit 7.2. Sprint PCS drafted the Sprint PCS
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Technical Program Requirements to ensure a minimum, base-line level of quality
for the Sprint PCS Network. The Sprint PCS Technical Program Requirements
include standards relating to voice quality, interoperability, consistency
(seamlessness) of coverage, RF design parameters, system design, capacity, and
call blocking ratio. Sprint PCS has selected code division multiple access as
the initial air interface technology for the Sprint PCS Network (subject to
change in accordance with Section 9.1).
7.3 Handoff to Adjacent Networks. If technically feasible and
commercially reasonable, Manager will operate the Service Area Network in a
manner that permits a seamless handoff of a call initiated on the Service Area
Network to any adjacent PCS network that is part of the Sprint PCS Network, as
specified in the Sprint PCS Technical Program Requirements. Sprint PCS agrees
that the terms and conditions for seamless handoffs adopted for the Service Area
Network will be the same as the terms Sprint PCS applies to the other parts of
the Sprint PCS Network for similar configurations of equipment.
8. SPRINT PCS CUSTOMER SERVICE PROGRAM REQUIREMENTS
8.1 Compliance With Sprint PCS Customer Service Program Requirements.
Manager must comply with the Sprint PCS Customer Service Program Requirements in
providing the Sprint PCS Products and Services to any customer of Manager,
Sprint PCS or any Sprint PCS Related Party. Manager will be deemed to meet the
standards if:
(a) Manager operates the Service Area Network at a level equal to or
better than the lower of the Operational Level of Sprint PCS or the
operational level contemplated by the Program Requirements; or
(b) Manager has delegated to Sprint PCS under the Services Agreement
responsibility to ensure the Service Area Network complies with the Sprint
PCS Customer Service Standards.
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Sprint PCS has delivered to Manager a copy of the Sprint PCS Customer
Service Standards, which are attached as Exhibit 8.1.
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9. SPRINT PCS PROGRAM REQUIREMENTS
9.1 Program Requirements Generally. This agreement contains numerous
references to Sprint PCS National and Regional Distribution Program
Requirements, Sprint PCS National Accounts Program Requirements, Sprint PCS
Roaming and Inter Service Area Program Requirements, Sprint PCS Technical
Program Requirements and Sprint PCS Customer Service Program Requirements. This
agreement also provides under Section 3.5.2 for the offering by Sprint PCS of a
voluntary resale product through a program, which program, if adopted, will be a
Program Requirement under this agreement. Sprint PCS may unilaterally amend
from time to time in the manner described in Section 9.2 all Program
Requirements mentioned in this agreement. The most current version of the
Program Requirements mentioned in the first sentence of this Section 9.1 have
been provided to Manager. Manager has reviewed the Program Requirements and
adopts them for application in the Service Area.
9.2 Amendments to Program Requirements. Sprint PCS may amend any of the
Program Requirements, subject to the following conditions:
(a) The applicable Program Requirements, as amended, will apply
equally to Manager, Sprint PCS and each Other Manager, except if Manager
and Sprint PCS agree otherwise or if Sprint PCS grants a waiver to Manager.
Sprint PCS may grant waivers to Other Managers without affecting Manager's
obligation to comply with the Program Requirements;
(b) Each amendment will be reasonably required to fulfill the
purposes set forth in Section 1.2 with respect to uniform and consistent
operations of the Sprint PCS Network and the presentation of Sprint PCS
Products and Services to customers in a uniform and consistent manner;
(c) Each amendment will otherwise be on terms and conditions that
are commercially reasonable with respect to the construction, operation and
management of the Sprint PCS Network. With respect to any amendment to the
Program Requirements, Sprint PCS will provide for reasonable transition
periods and, where appropriate, may provide for grandfathering provisions
for existing activities by Manager that were permitted under the applicable
Program Requirements before the amendment;
(d) Sprint PCS must give Manager reasonable, written notice of the
amendment, but in any event the notice will be given at least 30 days prior
to the effective date of the amendment; and
(e) Manager must implement any changes in the Program Requirements
within a commercially reasonable period of time unless otherwise consented
to by Sprint
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PCS. Sprint PCS will determine what constitutes a commercially reasonable
period of time taking into consideration relevant business factors,
including the strategic significance of the changes to the Sprint PCS
Network, the relationship of the changes to the yearly marketing cycle, and
the financial demands on and capacity generally of Other Managers.
Notwithstanding the preceding two sentences, Manager will not be required
to implement any change in the Service Area Network or the business of
Manager required by an amendment to a Program Requirement until Sprint PCS
has implemented the required changes in substantially all of that portion
of the Sprint PCS Network that Sprint PCS operates without the use of a
manager or affiliate, unless the amendment to the Program Requirement
relates to an obligation regarding the Service Area Network mandated by
law. When necessary for reasons related to new technical standards, new
equipment or strategic reasons, Sprint PCS can require Manager to implement
the changes in the Service Area Network or Manager's business concurrently
with Sprint PCS, in which case Sprint PCS will reimburse Manager for its
costs and expenses if Sprint PCS discontinues the Program Requirement
changes prior to implementation.
Sprint PCS may grant Manager appropriate waivers and variances from the
requirements of any Program Requirements. Sprint PCS has the right to adopt any
Program Requirements that implement any obligation regarding the Service Area
Network mandated by law.
Any costs and expenses incurred by Manager in connection with conforming to
any change to the Program Requirements during the term of this agreement are the
responsibility of Manager.
9.3 Manager's Right to Request Review of Changes. If Sprint PCS announces
a change to a Program Requirement that will:
(a) cause the Manager to spend an additional amount greater than 5% of
Manager's shareholder's equity or capital account plus Manager's long-term
debt (i.e., notes that mature more than one year from the date issued), as
reflected on Manager's books; or
(b) cause the long term operating expenses of Manager on a per unit
basis using a 10-year time frame to increase by more than 10% on a net
present value basis,
then Manager may give Sprint PCS a written notice requesting Sprint PCS to
reconsider the change.
The Sprint PCS Vice President or the designee of the Sprint PCS Chief
Officer in charge of the group that manages the Sprint PCS relationship with
Manager will review Manager's request and render a decision regarding the
change. If after the review and decision by the Vice President or designee,
Manager is still dissatisfied, then Manager may ask that the Chief Officer to
whom the Vice President or designee reports review the matter. If Sprint PCS
still requires Manager to implement the change to the Program Requirement
following the Chief Officer's
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review, then upon Manager's failure to implement the change an Event of
Termination will be deemed to have occurred under Section 11.3.3, Manager will
not have a right to cure such breach, and Sprint PCS may exercise its rights and
remedies under Section 11.6.
9.4 Sprint PCS' Right to Implement Changes. If Manager requests Sprint
PCS to reconsider a change to a Program Requirement as permitted under Section
9.3 and Sprint PCS decides it will not require Manager to make the change,
Sprint PCS may, but is not required to, implement the change at Sprint PCS'
expense, in which event Manager will be required to operate the Service Area
Network, as changed, but Sprint PCS will be entitled to any revenue derived from
the change.
9.5 Rights of Inspection. Sprint PCS and its authorized agents and
representatives may enter upon the premises of any office or facility operated
by or for Manager at any time, with reasonable advance notice to Manager if
possible, to inspect, monitor and test in a reasonable manner the Service Area
Network, including the facilities, equipment, books and records of Manager, to
ensure that Manager has complied or is in compliance with all covenants and
obligations of Manager under this agreement, including Manager's obligation to
conform to the Program Requirements. The inspection, monitoring and testing may
not disrupt the operations of the office or facility, nor impede Manager's
access to the Service Area Network.
9.6 Manager's Responsibility to Interface with Sprint PCS. Manager will
use platforms fully capable of interfacing with the Sprint PCS platforms in
operating the Service Area Network and in providing Sprint PCS Products and
Services. Manager will pay the expense of making its platforms fully capable of
interfacing with Sprint PCS, including paying for the following:
(i) connectivity;
(ii) any changes that Manager requests Sprint PCS to make to
Sprint PCS systems to interconnect with Manager's systems that Sprint PCS,
in its sole discretion, agrees to make;
(iii) equipment to run Manager's software;
(iv) license fees for Manager's software; and
(v) Manager's upgrades or changes to its platforms.
10. FEES
10.1 Fees and Payments.
10.1.1 Fee Based on Collected Revenues. Sprint PCS will pay to
Manager a weekly fee equal to 92% of Collected Revenues for the week for all
obligations of Manager
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under this Agreement. The fee will be due on Thursday of the week following the
week for which the fee is calculated.
10.1.2 Payment of Universal Service Funds. Sprint PCS and Manager
will share any federal and state subsidy funds (e.g., payments by a state of
universal service fund subsidies to Sprint PCS or Manager), if any, received by
Sprint PCS or Manager for customers who reside in the portion of the Service
Area served by the Service Area Network. Manager is entitled to 92% of any
amount received by either party and Sprint PCS is entitled to 8% of such
amounts.
10.1.3 Inter Service Area Fees. Sprint PCS will pay to Manager
monthly a fee as set out in the Sprint PCS Roaming and Inter Service Area
Program, for each minute of use that a customer of Sprint PCS or one of the
Other Managers whose NPA-NXX is not assigned to the Service Area Network uses
the Service Area Network. Manager will pay to Sprint PCS a fee, as set out in
the Sprint PCS Roaming and Inter Service Area Program, for each minute of use
that a customer whose NPA-NXX is assigned to the Service Area Network uses a
portion of the Sprint PCS Network other than the Service Area Network. Manager
acknowledges that the manner in which the NPA-NXX is utilized could change,
which will require a modification in the manner in which the inter service area
fees, if any, will be calculated.
10.1.4 Interconnect Fees. Manager will pay to Sprint PCS (or to
other carriers as appropriate) monthly the interconnect fees, if any, as
provided under Section 1.4.
10.1.5 Outbound Roaming Fees. If not otherwise provided under any
Program Requirement:
(a) Sprint PCS will pay to Manager monthly the amount of Outbound
Roaming fees that Sprint PCS collects for the month from end users whose
NPA-NXX is assigned to the Service Area; and
(b) Manager will pay to Sprint PCS (or to a clearinghouse or other
carrier as appropriate) the direct cost of providing the capability for the
Outbound Roaming, including any amounts payable to the carrier that handled
the roaming call and the clearinghouse operator.
10.1.6 Reimbursements. Manager will pay to or reimburse Sprint PCS
for any amounts that Sprint PCS is required to pay to a third party (e.g., a
telecommunications carrier) to the extent Sprint PCS already paid such amount to
Manager under this Section 10.
10.2 Monthly True Up. Manager will report to Sprint PCS monthly the
amount of Collected Revenues received directly by the Manager (e.g., customer
mails payment to the business address of Manager rather than to the lockbox or a
customer pays a direct sales force representative in cash). Sprint PCS will on
a monthly basis true up the fees and payments due under Section 10.1 against the
actual payments made by Sprint PCS to Manager. Sprint PCS
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will provide to Manager a true up report each month showing the true up and the
net amount due from one party to the other, if any. If the weekly payments made
to Manager exceed the actual fees and payments due to Manager, then Manager will
remit the amount of the overpayment to Sprint PCS within 5 Business Days after
receiving the true up report from Sprint PCS. If the weekly payments made to
Manager are less than the actual fees and payments due to Manager, then Sprint
PCS will remit the shortfall to Manager within 5 Business Days after sending the
true up report to Manager.
If a party disputes any amount on the true up report, the disputing party
must give the other party written notice of the disputed amount and the reason
for the dispute within 90 days after it receives the true up report. The
dispute will be resolved through the dispute resolution process in Section 14.
The parties must continue to pay to the other party any undisputed amounts owed
under this agreement during the dispute resolution process. The dispute of an
item does not stay or diminish a party's other rights and remedies under this
agreement.
10.3 Taxes. Manager will pay or reimburse Sprint PCS for any sales, use,
gross receipts or similar tax, administrative fee, telecommunications fee or
surcharge for taxes or fees levied by a governmental authority on the fees and
charges payable by Sprint PCS to Manager.
Manager will report all taxable property to the appropriate taxing
authority for ad valorem tax purposes. Manager will pay as and when due all
taxes, assessments, liens, encumbrances, levies, and other charges against the
real estate and personal property owned by Manager or used by Manager in
fulfilling its obligations under this agreement.
Manager is responsible for paying all sales, use, or similar taxes on the
purchase and use of its equipment, advertising, and other goods or services in
connection with this agreement.
10.4 Collected Revenues Definition. "Collected Revenues" means actual
payments received by or on behalf of Sprint PCS or Manager for Sprint PCS
Products and Services from others, including the customers, whose NPA-NXX is the
same as that for the portion of the Service Area served by the Service Area
Network. In determining Collected Revenues the following principles will apply.
(a) The following items will be treated as follows:
(i) Collected Revenues do not include revenues from federal
and state subsidy funds; they are handled separately as noted in Section
10.1.2;
(ii) Collected Revenues do include any amounts received for the
payment of Inbound Roaming charges and interconnect fees when calls are
carried on the Service Area Network; and
(iii) Collected Revenues do not include any amounts received
with respect to any changes made by Sprint PCS under Section 9.4.
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(b) The following items are not Collected Revenues; Sprint PCS is
obligated to remit the amounts received with respect to such items, if any,
to Manager, as follows:
(i) inter service area payments will be paid as provided under
Section 10.1.3;
(ii) Outbound Roaming and related charges will be paid as
provided under Section 10.1.5;
(iii) proceeds from the sale or lease of subscriber equipment
and accessories will be paid to Manager, subject to the equipment
settlement process in Section 4.1.2;
(iv) proceeds from sales not in the ordinary course of business
(e.g., sales of switches, cell sites, computers, vehicles or other fixed
assets);
(v) any amounts collected with respect to sales and use taxes,
gross receipts taxes, transfer taxes, and similar taxes, administrative
fees, telecommunications fees, and surcharges for taxes and fees that are
collected by a carrier for the benefit of a governmental authority, subject
to Manager's obligation under Section 10.3; and
(vi) Manager will be entitled to 100% of all revenues received
by Sprint PCS with respect to sales of Manager's Products and Services.
(c) The following items are not Collected Revenues; neither party is
obligated to remit any amounts respecting such items:
(i) reasonable adjustments of a customer's account (e.g., if
Sprint PCS or Manager reduces a customer's bill, then the amount of the
adjustment is not Collected Revenues); and
(ii) amount of bad debt and fraud associated with customers
whose NPA-NXX is assigned to the Service Area (e.g., if Sprint PCS or
Manager writes off a customer's bill as a bad debt, there are no Collected
Revenues on which a fee is due to Manager).
10.5 Late Payments. Any amount due under this Section 10 that is not paid
by one party to the other party in accordance with the terms of this agreement
will bear interest at the Default Rate beginning (and including) the 3rd day
after the due date until (and including) the date paid.
10.6 Setoff Right If Failure To Pay Amounts Due. If Manager fails to pay
any undisputed amount due Sprint PCS or a Related Party of Sprint PCS under this
agreement, the
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Services Agreement, or any other agreement with Sprint PCS or a Related Party of
Sprint PCS, then Sprint PCS may setoff against its payments to Manager under
this Section 10, the following amounts:
(a) any amount that Manager owes to Sprint PCS or a Related Party of
Sprint PCS, including amounts due under the Services Agreement; and
(b) any amount that Sprint PCS reasonably estimates will be due to
Sprint PCS for the current month under the Services Agreement (e.g., if
under the Services Agreement customer care calls are billed monthly, Sprint
PCS can deduct from the weekly payment to Manager an amount Sprint PCS
reasonably estimates will be due Sprint PCS on account of such customer
care calls under the Services Agreement).
On a monthly basis Sprint PCS will true up the estimated amounts deducted
against the actual amounts due Sprint PCS and Sprint PCS' Related Parties. If
the estimated amounts deducted by Sprint PCS exceed the actual amounts due to
Sprint PCS and Sprint PCS' Related Parties, then Sprint PCS will remit the
excess to Manager with the next weekly payment. If the estimated amounts
deducted are less than the actual amounts due to Sprint PCS and its Related
Parties, then Sprint PCS may continue to setoff the payments to Manager against
the amounts due to Sprint PCS and Sprint PCS' Related Parties. This right of
setoff is in addition to any other right that Sprint PCS may have under this
agreement.
11. TERM; TERMINATION; EFFECT OF TERMINATION
11.1 Initial Term. This agreement commences on the date of execution and,
unless terminated earlier in accordance with the provisions of this Section 11,
continues for a period of 20 years (the "Initial Term").
11.2 Renewal Terms. Following expiration of the Initial Term, this
agreement will automatically renew for 3 successive 10-year renewal periods (for
a maximum of 50 years including the Initial Term), unless at least 2 years prior
to the commencement of any renewal period either party notifies the other party
in writing that it does not wish to renew this agreement.
11.2.1 Non-renewal Rights of Manager. If this agreement will
terminate because Sprint PCS gives Manager timely written notice of non-renewal
of this agreement, then Manager may exercise its rights under Section 11.2.1.1
or, if applicable, its rights under Section 11.2.1.2.
11.2.1.1 Manager's Put Right. Manager may within 30 days
after the date Sprint PCS gives notice of non-renewal put to Sprint PCS all
of the Operating Assets. Sprint PCS will pay to Manager for the Operating
Assets an amount equal to 80% of the Entire Business Value. The closing of
the purchase of the Operating Assets will occur within 20 days after the
later of (a) the receipt by Sprint PCS of the written
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notice of determination of the Entire Business Value provided by the
appraisers under Section 11.7 or (b) the receipt of all materials required
to be delivered to Sprint PCS under Section 11.8. Upon closing the purchase
of the Operating Assets this agreement will be deemed terminated. The
exercise of the put, the determination of the Operating Assets, the
representations and warranties made by Manager with respect to the
Operating Assets and the business, and the process for closing the purchase
will be subject to the terms and conditions set forth in Section 11.8.
11.2.1.2 Manager's Purchase Right.
(a) If Sprint PCS owns 20 MHz or more of PCS spectrum
in the Service Area under the License on the date this agreement is
executed, then Manager may within 30 days after the date Sprint PCS
gives notice of non-renewal declare its intent to purchase the
Disaggregated License. Subject to receipt of FCC approval of the
necessary disaggregation and partition, Manager may purchase from
Sprint PCS the Disaggregated License for an amount equal to the
greater of (1) the original cost of the License to Sprint PCS (pro
rated on a pops and spectrum basis) plus the microwave relocation
costs paid by Sprint PCS or (2) 10% of the Entire Business Value.
(b) Upon closing the purchase of the spectrum this
agreement will be deemed terminated. The closing of the purchase of
the Disaggregated License will occur within the later of:
(1) 20 days after the receipt by Manager of the
written notice of determination of the Entire Business Value by
the appraisers under Section 11.7; or
(2) 10 days after the approval of the sale of the
Disaggregated License by the FCC.
(c) The exercise of the purchase right, the
determination of the geographic extent of the Disaggregated License
coverage, the representations and warranties made by Sprint PCS with
respect to the Disaggregated License, and the process for closing the
purchase will be subject to the terms and conditions set forth in
Section 11.8.
(d) After the closing of the purchase Manager will
allow:
(1) subscribers of Sprint PCS to roam on
Manager's network; and
(2) Sprint PCS to resell Manager's Products and
Services.
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Manager will charge Sprint PCS a MFN price in either case.
11.2.2 Non-renewal Rights of Sprint PCS. If this agreement will
terminate because of any of the following five (5) events, then Sprint PCS may
exercise its rights under Section 11.2.2.1 or, if applicable, its rights under
Section 11.2.2.2:
(a) Manager gives Sprint PCS timely written notice of non-renewal
of this agreement;
(b) both parties give timely written notices of non-renewal;
(c) this agreement expires with neither party giving a written
notice of non-renewal;
(d) either party elects to terminate this agreement under Section
11.3.4(a); or
(e) Manager elects to terminate this agreement under Section
11.3.4(b).
11.2.2.1 Sprint PCS' Purchase Right. Sprint PCS may
purchase from Manager all of the Operating Assets. Sprint PCS will pay to
Manager an amount equal to 80% of the Entire Business Value. The closing of
the purchase of the Operating Assets will occur within 20 days after the
later of (a) the receipt by Sprint PCS of the written notice of
determination of the Entire Business Value provided by the appraisers under
Section 11.7 or (b) the receipt of all materials required to be delivered
to Sprint PCS under Section 11.8. Upon closing the purchase of the
Operating Assets this agreement will be deemed terminated. The exercise of
the purchase right, the determination of the Operating Assets, the
representations and warranties made by Manager with respect to the
Operating Assets and the business, and the process for closing the purchase
will be subject to the terms and conditions set forth in Section 11.8.
11.2.2.2 Sprint PCS' Put Right.
(a) Sprint PCS may, subject to receipt of FCC
approval, put to Manager the Disaggregated License for a purchase
price equal to the greater of (1) the original cost of the License to
Sprint PCS (pro rated on a pops and spectrum basis) plus the microwave
relocation costs paid by Sprint PCS or (2) 10% of the Entire Business
Value.
(b) Upon closing the purchase of the Disaggregated
License this agreement will be deemed terminated. The closing of the
purchase of the Disaggregated License will occur within the later of:
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(1) 20 days after the receipt by Sprint PCS of
the written notice of determination of the Entire Business
Value by the appraisers under Section 11.7; or
(2) 10 days after the approval of the sale of the
Disaggregated License by the FCC.
(c) The exercise of the put, the determination of the
geographic extent of the Disaggregated License coverage, the
representations and warranties made by Sprint PCS with respect to the
Disaggregated License, and the process for closing the purchase will
be subject to the terms and conditions set forth in Section 11.8.
(d) Manager may, within 10 days after it receives
notice of Sprint PCS' exercise of its put, advise Sprint PCS of the
amount of spectrum (not to exceed 10 MHz) it wishes to purchase. After
the purchase Manager will allow:
(1) subscribers of Sprint PCS to roam on
Manager's network; and
(2) Sprint PCS to resell Manager's Products and
Services.
Manager will charge Sprint PCS a MFN price in either case.
11.2.3 Extended Term Awaiting FCC Approval. If Manager is buying
the Disaggregated License as permitted or required under Sections 11.2.1.2 or
11.2.2.2, then the Term of this agreement will extend beyond the original
expiration date until the closing of the purchase of the Disaggregated License.
The parties agree to exercise their respective commercially reasonable efforts
to obtain FCC approval of the transfer of the Disaggregated License.
11.3 Events of Termination. An "Event of Termination" is deemed to occur
when a party gives written notice to the other party of the Event of Termination
as permitted below:
11.3.1 Termination of License.
(a) At the election of either party this agreement may be
terminated at the time the FCC revokes or fails to renew the License.
Unless Manager has the right to terminate this agreement under Section
11.3.1(b), neither party has any claim against the other party if the FCC
revokes or fails to renew the License, even if circumstances would
otherwise permit one party to terminate this agreement based on a different
Event of Termination, except that the parties will have the right to pursue
claims against each other as permitted under Section 11.4(b).
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(b) If the FCC revokes or fails to renew the License because of a
breach of this agreement by Sprint PCS, then Manager has the right to
terminate this agreement under Section 11.3.3 and not this Section 11.3.1.
11.3.2 Breach of Agreement: Payment of Money Terms. At the election
of the non-breaching party this agreement may be terminated upon the failure by
the breaching party to pay any amount due under this agreement or any other
agreement between the parties or their respective Related Parties, if the breach
is not cured within 30 days after the breaching party's receipt of written
notice of the nonpayment from the non-breaching party.
11.3.3 Breach of Agreement: Other Terms. At the election of the non-
breaching party this agreement may be terminated upon the material breach by the
breaching party of any material term contained in this agreement that does not
regard the payment of money, if the breach is not cured within 30 days after the
breaching party's receipt of written notice of the breach from the non-breaching
party, except the cure period will continue for a reasonable period beyond the
30-day period, but will under no circumstances exceed 180 days after the
breaching party's receipt of written notice of the breach, if it is unreasonable
to cure the breach within the 30-day period, and the breaching party takes
action prior to the end of the 30-day period that is reasonably likely to cure
the breach and continues to diligently take action necessary to cure the breach.
11.3.4 Regulatory Considerations.
(a) At the election of either party this agreement may be
terminated if this agreement violates any applicable law in any material
respect where such violation (i) is classified as a felony or (ii) subjects
either party to substantial monetary fines or other substantial damages,
except that before causing any termination the parties must use best
efforts to modify this agreement, as necessary to cause this agreement (as
modified) to comply with applicable law and to preserve to the extent
possible the economic arrangements set forth in this agreement.
(b) At the election of Manager this agreement may be terminated
if the regulatory action described under 11.3.4(a) is the result of a
deemed change of control of the License and the parties are unable to agree
upon a satisfactory resolution of the matter with the regulatory authority
without a complete termination of this agreement.
11.3.5 Termination of Trademark License Agreements. If either
Trademark License Agreement terminates under its terms, then:
(a) Manager may terminate this agreement if the Trademark License
Agreement terminated because of a breach of the Trademark License Agreement
by Sprint PCS or Sprint; and
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(b) Sprint PCS may terminate this agreement if the Trademark
License Agreement terminated because of a breach of the Trademark License
Agreement by Manager.
11.3.6 Financing Considerations. At the election of Sprint PCS this
agreement may be terminated upon the failure of Manager to obtain the financing
described in Exhibit 1.7 by the deadline(s) set forth on such Exhibit.
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11.3.7 Bankruptcy of a Party. At the election of the non-bankrupt
party, this agreement may be terminated upon the occurrence of a Voluntary
Bankruptcy or an Involuntary Bankruptcy of the other party.
"Voluntary Bankruptcy" means:
(a) the inability of a party generally to pay its debts as
the debts become due, or an admission in writing by a party of its
inability to pay its debts generally or a general assignment by a
party for the benefit of creditors;
(b) the filing of any petition or answer by a party seeking
to adjudicate itself a bankrupt or insolvent, or seeking any
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition for itself or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking, consenting to, or acquiescing in the entry of an
order for relief or the appointment of a receiver, trustee, custodian
or other similar official for itself or for substantially all of its
property; or
(c) any action taken by a party to authorize any of the
actions set forth above.
"Involuntary Bankruptcy" means, without the consent or acquiescence of
a party:
(a) the entering of an order for relief or approving a
petition for relief or reorganization;
(b) any petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other similar
relief under any present or future bankruptcy, insolvency or similar
statute, law or regulation;
(c) the filing of any petition against a party, which
petition is not dismissed within 90 days; or
(d) without the consent or acquiescence of a party, the
entering of an order appointing a trustee, custodian, receiver or
liquidator of the party or of
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all or any substantial part of the property of the party, which order
is not dismissed within 90 days.
11.4 Effect of an Event of Termination.
(a) Upon the occurrence of an Event of Termination, the party with
the right to terminate this agreement or to elect the remedy upon the Event
of Termination, as the case may be, may:
(i) in the case of an Event of Termination under Sections
11.3.1(a) or 11.3.7, give the other party written notice that the agreement
is terminated effective as of the date of the notice, in which case neither
party will have any other remedy or claim for damages (except any claim the
non-bankrupt party has against the bankrupt party and any claims permitted
under Section 11.4(b)); or
(ii) in the case of an Event of Termination other than under
Section 11.3.1(a), give the other party written notice that the party is
exercising one of its rights, if any, under Section 11.5 or Section 11.6.
(b) If the party terminates this agreement under Section 11.4(a)(i)
then all rights and obligations of each party under this agreement will
immediately cease, except that:
(i) any rights arising out of a breach of any terms of this
agreement will survive any termination of this agreement;
(ii) the provisions described in Section 17.23 will survive any
termination of this agreement;
(iii) the payment obligations under Section 10 will survive any
termination of this agreement if, and to the extent, any costs or fees have
accrued or are otherwise due and owing as of the date of termination of
this agreement from Manager to Sprint PCS or any Sprint PCS Related Party
or from Sprint PCS to Manager or any Manager Related Party;
(iv) either party may terminate this agreement in accordance
with the terms of this agreement without any liability for any loss or
damage arising out of or related to such termination, including any loss or
damage arising out of the exercise by Sprint PCS of its rights under
Section 11.6.3;
(v) Manager will use all commercially reasonable efforts to
cease immediately all of their respective efforts to market, sell, promote
or distribute the Sprint PCS Products and Services;
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(vi) Sprint PCS has the option to buy from Manager any new
unsold subscriber equipment and accessories, at the prices charged to
Manager;
(vii) the parties will immediately stop making any statements
or taking any action that might cause third parties to infer that any
business relationship continues to exist between the parties, and where
necessary or advisable, the parties will inform third parties that the
parties no longer have a business relationship; and
(viii) if subscriber equipment and accessories are in transit
when this agreement is terminated, Sprint PCS may, but does not have the
obligation to, cause the freight carrier to not deliver the subscriber
equipment and accessories to Manager but rather to deliver the subscriber
equipment and accessories to Sprint PCS.
(c) If the party exercises its rights under Section 11.4(a)(ii),
this agreement will continue in full force and effect until otherwise
terminated.
(d) If this agreement terminates for any reason other than
Manager's purchase of the Disaggregated License, Manager will not, for 3
years after the date of termination compile, create, or use for the purpose
of selling merchandise or services similar to any Sprint PCS Products and
Services, or sell, transfer or otherwise convey to a third party, a list of
customers who purchased, leased or used any Sprint PCS Products and
Services. Manager may use such a list for its own internal analysis of its
business practices and operations. If this agreement terminates because of
Manager's purchase of the Disaggregated License, then Sprint PCS will
transfer to Manager the Sprint PCS customers with a MIN assigned to the
Service Area covered by the Disaggregated License, but Sprint PCS retains
the customers of a national account and any resellers who have entered into
a resale agreement with Sprint PCS. Manager agrees not to solicit, directly
or indirectly, any customers of Sprint PCS not transferred to Manager under
this Section 11.4(d) for 2 years after the termination of this agreement,
except that Manager's advertising through mass media will not be considered
a solicitation of Sprint PCS customers.
11.5 Manager's Event of Termination Rights and Remedies. In addition to any
other right or remedy that Manager may have under this agreement, the parties
agree that Manager will have the rights and remedies set forth in this Section
11.5 and that such rights and remedies will survive the termination of this
agreement. If Manager has a right to terminate this agreement as the result of
the occurrence of an Event of Termination under Sections 11.3.2, 11.3.3, 11.3.5
or 11.3.7 (if Manager is the non-bankrupt party), then Manager has the right to
elect one of the following three (3) remedies, except Manager cannot elect its
remedies under Sections 11.5.1 or 11.5.2 during the first 2 years of the Initial
Term with respect to an Event of Termination under Section 11.3.3.
11.5.1 Manager's Put Right. Manager may put to Sprint PCS within 30
days after the Event of Termination all of the Operating Assets. Sprint PCS
will pay to Manager an
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amount equal to 80% of the Entire Business Value. The closing of the purchase of
the Operating Assets will occur within 20 days after the later of:
(a) the receipt by Sprint PCS of the written notice of
determination of the Entire Business Value by the appraisers under Section
11.7; or
(b) the receipt of all materials required to be delivered to
Sprint PCS under Section 11.8.
Upon closing the purchase of the Operating Assets this agreement will be
deemed terminated. The exercise of the put, the determination of the Operating
Assets, the representations and warranties made by the Manager with respect to
the Operating Assets and the business, and the process for closing the purchase
will be subject to the terms and conditions set forth in Section 11.8.
11.5.2 Manager's Purchase Right.
(a) If Sprint PCS owns 20 MHz or more of PCS spectrum in the
Service Area under the License on the date this agreement is executed, then
Manager may, subject to receipt of FCC approval, purchase from Sprint PCS
the Disaggregated License for the greater of (1) the original cost of the
License to Sprint PCS (pro rated on a pops and spectrum basis) plus the
microwave relocation costs paid by Sprint PCS or (2) 9% (10% minus a 10%
penalty) of the Entire Business Value.
(b) Upon closing the purchase of the Disaggregated License this
agreement will be deemed terminated. The closing of the purchase of the
Disaggregated License will occur within the later of:
(1) 20 days after the receipt by Manager of the written
notice of determination of the Entire Business Value by the appraisers
under Section 11.7; or
(2) 10 days after the approval of the sale of the
Disaggregated License by the FCC.
The exercise of the purchase right, the determination of the geographic
extent of the Disaggregated License coverage, the representations and
warranties made by Sprint PCS with respect to the Disaggregated License,
and the process for closing the purchase will be subject to the terms and
conditions set forth in Section 11.8.
(c) After the closing of the purchase Manager will allow:
(1) subscribers of Sprint PCS to roam on Manager's network;
and
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(2) Sprint PCS to resell Manager's Product and Services.
Manager will charge Sprint PCS a MFN price in either case.
11.5.3 Manager's Action for Damages or Other Relief. Manager, in
accordance with the dispute resolution process in Section 14, may seek damages
or other appropriate relief.
11.6 Sprint PCS' Event of Termination Rights and Remedies. In addition to
any other right or remedy that Sprint PCS may have under this agreement, the
parties agree that Sprint PCS will have the rights and remedies set forth in
this Section 11.6 and that such rights and remedies will survive the termination
of this agreement. If Sprint PCS has a right to terminate this agreement as the
result of the occurrence of an Event of Termination under Sections 11.3.2,
11.3.3, 11.3.5, 11.3.6 or 11.3.7 (if Sprint PCS is the non-bankrupt party), then
Sprint PCS has the right to elect one of the following four (4) remedies, except
that (i) if Sprint PCS elects the remedies under Sections 11.6.1, 11.6.2 or
11.6.4, Sprint PCS may pursue its rights under Section 11.6.3 concurrently with
its pursuit of one of the other three remedies, (ii) Sprint PCS cannot elect its
remedies under Sections 11.6.1 or 11.6.2 during the first 2 years of the Initial
Term with respect to an Event of Termination under Section 11.3.3 (unless the
Event of Termination is caused by a breach related to the Build-out Plan or the
build-out of the Service Area Network), and (iii) Sprint PCS cannot elect its
remedy under Section 11.6.2 during the first 2 years of the Initial Term with
respect to an Event of Termination under Section 11.3.6.
11.6.1 Sprint PCS' Purchase Right. Sprint PCS may purchase from
Manager all of the Operating Assets. Sprint PCS will pay to Manager an amount
equal to 72% (80% minus a 10% penalty) of the Entire Business Value. The closing
of the purchase of the Operating Assets will occur within 20 days after the
later of:
(a) the receipt by Sprint PCS of the written notice of
determination of the Entire Business Value by the appraisers pursuant to
Section 11.7; or
(b) the receipt of all materials required to be delivered to
Sprint PCS under Section 11.8.
Upon closing the purchase of the Operating Assets this agreement will be
deemed terminated. The exercise of the purchase right, the determination of the
Operating Assets, the representations and warranties made by Manager with
respect to the Operating Assets and the business, and the process for closing
the purchase will be subject to the terms and conditions set forth in Section
11.8.
11.6.2 Sprint PCS' Put Right.
(a) Sprint PCS may, subject to receipt of FCC approval, put to
Manager the Disaggregated License for a purchase price equal to the greater
of (1) the original cost of
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the License to Sprint PCS (pro rated on a pops and spectrum basis) plus the
microwave relocation costs paid by Sprint PCS or (2) 10% of the Entire
Business Value.
(b) Upon closing the purchase of the Disaggregated License this
agreement will be deemed terminated. The closing of the purchase of the
Disaggregated License will occur within the later of:
(1) 20 days after the receipt by Sprint PCS of the written
notice of determination of the Entire Business Value by the appraisers
under Section 11.7; or
(2) 10 days after the approval of the sale of the
Disaggregated License by the FCC.
(c) The exercise of the put, the determination of the geographic
extent of the Disaggregated License coverage, the representations and
warranties made by Sprint PCS with respect to the Disaggregated License,
and the process for closing the purchase will be subject to the terms and
conditions set forth in Section 11.8.
(d) Manager may, within 10 days after it receives notice of Sprint
PCS' exercise of its put, advise Sprint PCS of the amount of spectrum (not
to exceed 10 MHz) it wishes to purchase. After the closing of the purchase
Manager will allow:
(1) subscribers of Sprint PCS to roam on Manager's network;
and
(2) Sprint PCS to resell Manager's Products and Services.
Manager will charge Sprint PCS a MFN price in either case.
11.6.3 Sprint PCS' Right to Cause A Cure.
(a) Sprint PCS' Right. Sprint PCS may, but is not
obligated to, take such action as it deems necessary to cure Manager's
breach of this agreement, including assuming operational
responsibility for the Service Area Network to complete construction,
continue operation, complete any necessary repairs, implement changes
necessary to comply with the Program Requirements and terms of this
agreement, or take such other steps as are appropriate under the
circumstances, or Sprint PCS may designate a third party or parties to
do the same, to assure uninterrupted availability and deliverability
of Sprint PCS Products and Services in the Service Area, or to
complete the build-out of the Service Area Network in accordance with
the terms of this agreement. In the event that Sprint PCS elects to
exercise its right under this Section 11.6.3, Sprint PCS will give
Manager written notice of such election. Upon giving such notice:
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(1) Manager will collect and make available at a
convenient, central location at its principal place of business,
all documents, books, manuals, reports and records related to the
Build-out Plan and required to operate and maintain the Service
Area Network; and
(2) Sprint PCS, its employees, contractors and
designated third parties will have the unrestricted right to
enter the facilities and offices of Manager for the purpose of
curing the breach and, if Sprint PCS deems necessary, operate the
Service Area Network.
Manager agrees to cooperate with and assist Sprint PCS to the extent
requested by Sprint PCS to enable Sprint PCS to exercise its rights
under this Section 11.6.3.
(b) Liability. Sprint PCS' exercise of its rights under
this Section 11.6.3 will not be deemed an assumption by Sprint PCS of
any liability attributable to Manager or any other party, except that,
without limiting the provisions of Section 13, during the period that
Sprint PCS is curing a breach under this agreement or operating any
portion of the Service Area Network pursuant to this Section 11.6.3,
Sprint PCS will indemnify and defend Manager and its directors,
partners, officers, employees and agents from and against, and
reimburse and pay for, all claims, demands, damages, losses,
judgments, awards, liabilities, costs and expenses (including
reasonable attorneys' fees, court costs and other expenses of
litigation), whether or not arising out of third party claims, in
connection with any suit, claim, action or other legal proceeding
relating to the bodily injury, sickness or death of persons or the
damage to or destruction of property, real or personal, resulting from
or arising out of Sprint PCS' negligence or willful misconduct in
curing the breach or in the operation of the Service Area Network.
Sprint PCS' obligation under this Section 11.6.3(b) will not apply to
the extent of any claims, demands, damages, losses, judgments, awards,
liabilities, costs and expenses resulting from the negligence or
willful misconduct of Manager or arising from any contractual
obligation of Manager.
(c) Costs and Payments. During the period that Sprint PCS
is curing a breach or operating the Service Area Network under this
Section 11.6.3, Sprint PCS and Manager will continue to make any and
all payments due to the other party and to third parties under this
agreement, the Services Agreement and any other agreements to which
such party is bound, except that Sprint PCS may deduct from its
payments to Manager all reasonable costs and expenses incurred by
Sprint PCS in connection with the exercise of its right under this
Section 11.6.3. Sprint PCS' operation of the Service Area Network
pursuant to this Section 11.6.3 is not a substitution for Manager's
performance of its obligations under this agreement and does not
relieve Manager of its other obligations under this agreement.
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(d) Length of Right. Sprint PCS may continue to
operate the Service Area Network in accordance with Section 11.6.3
until (i) Sprint PCS cures all breaches by Manager under this
agreement; (ii) Manager cures all breaches and demonstrates to Sprint
PCS' satisfaction that it is financially and operationally willing,
ready and able to perform in accordance with this agreement and
resumes such performance; (iii) Sprint PCS consummates the purchase
of the Operating Assets under Section 11.6.1 or the sale of the
Disaggregated License under Section 11.6.2; or (iv) Sprint PCS
terminates this agreement.
(e) Not Under Services Agreement. The exercise by
Sprint PCS of its right under this Section 11.6.3 does not represent
services rendered under the Services Agreement, and therefore it does
not allow Manager to be deemed in compliance with the Program
Requirements under Sections 7.1(a)(ii), 8.1(b).
11.6.4 Sprint PCS' Action for Damages or Other Relief. Sprint PCS,
in accordance with the dispute resolution process in Section 14, may seek
damages or other appropriate relief.
11.7 Determination of Entire Business Value.
11.7.1 Appointment of Appraisers. Sprint PCS and Manager must each
designate an independent appraiser within 30 days after giving the Purchase
Notice under Exhibit 11.8. Sprint PCS and Manager will direct the two appraisers
------------
to jointly select a third appraiser within 15 days after the day the last of
them is appointed. Each appraiser must be an expert in the valuation of wireless
telecommunications businesses. Sprint PCS and Manager must direct the three
appraisers to each determine, within 45 days after the appointment of the last
appraiser, the Entire Business Value. Sprint PCS and Manager will each bear the
costs of the appraiser appointed by it, and they will share equally the costs of
the third appraiser.
11.7.2 Manager's Operating Assets. The following assets are
included in the Operating Assets (as defined in the Schedule of Definitions):
-----------------------
(a) network assets, including all personal property,
real property interests in cell sites and switch sites, leasehold
interests, collocation agreements, easements, and rights-of-way;
(b) all of the real, personal, tangible and intangible
property and contract rights that Manager owns and uses in conducting
the business of providing the Sprint PCS Products and Services,
including the goodwill resulting from Manager's customer base;
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(c) sale and distribution assets primarily dedicated
(i.e., at least 80% of their revenue is derived from the sale of
Sprint PCS Products and Services) to the sale by Manager of Sprint
PCS Products and Services. For example, a retail store that derives
at least 80% of its revenue from the sale of Sprint PCS Products and
Services is an Operating Asset. A store that derives 65% of its
revenue from Sprint PCS Products and Services is not an Operating
Asset;
(d) customers, if any, that use both the other
products and services approved under Section 3.2 and the Sprint PCS
Products and Services;
(e) handset inventory;
(f) books and records of the wireless business,
including all engineering drawings and designs and financial records;
and
(g) all contracts used by Manager in operating the
wireless business including T1 service agreements, service contracts,
interconnection agreements, distribution agreements, software license
agreements, equipment maintenance agreements, sales agency agreements
and contracts with all equipment suppliers.
11.7.3 Entire Business Value. Utilizing the valuation principles
set forth below and in Section 11.7.4, "Entire Business Value" means the fair
market value of Manager's wireless business in the Service Area, valued on a
going concern basis.
(a) The fair market value is based on the price a
willing buyer would pay a willing seller for the entire on-going
business.
(b) The appraisers will use the then-current customary
means of valuing a wireless telecommunications business.
(c) The business is conducted under the Brands and
existing agreements between the parties and their respective Related
Parties.
(d) Manager owns the Disaggregated License (in the
case where Manager will be buying the Disaggregated License under
Sections 11.2.1.2, 11.2.2.2, 11.5.2 or 11.6.2) or Manager owns the
spectrum and the frequencies actually used by Manager under this
agreement (in the case where Sprint PCS will be buying the Operating
Assets under Sections 11.2.1.1, 11.2.2.1, 11.5.1 or 11.6.1).
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(e) The valuation will not include any value for the
business represented by Manager's Products and Services or any
business not directly related to Sprint PCS Products and Services.
11.7.4 Calculation of Entire Business Value. The Entire Business
Value to be used to determine the purchase price of the Operating Assets or the
Disaggregated License under this agreement is as follows:
(a) If the highest fair market value determined by the
appraisers is within 10% of the lowest fair market value, then the
Entire Business Value used to determine the purchase price under this
agreement will be the arithmetic mean of the three appraised fair
market values.
(b) If two of the fair market values determined by the
appraisers are within 10% of one another, and the third value is not
within 10% of the other fair market values, then the Entire Business
Value used to determine the purchase price under this agreement will
be the arithmetic mean of the two more closely aligned fair market
values.
(c) If none of the fair market values is within 10% of
the other two fair market values, then the Entire Business Value used
to determine the purchase price under this agreement will be the
middle value of the three fair market values.
11.8 Closing Terms and Conditions. The closing terms and conditions for
the transactions contemplated in this Section 11 are attached as Exhibit 11.8.
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11.9 Contemporaneous and Identical Application. The parties agree that
any action regarding renewal or non-renewal and any Event of Termination will
occur contemporaneously and identically with respect to all Licenses. For
example, if Manager exercises its purchase right under Section 11.5.2, it must
exercise such right with respect to all of the Licenses under this agreement.
The Term of this agreement will be the same for all Licenses; Manager will not
be permitted to operate a portion of the Service Area Network with fewer than
all of the Licenses.
12. BOOKS AND RECORDS; CONFIDENTIAL INFORMATION; INSURANCE
12.1 Books and Records.
12.1.1 General. Each party must keep and maintain books and
records to support and document any fees, costs, expenses or other charges due
in connection with the provisions set forth in this agreement. The records must
be retained for a period of at least 3 years after the fees, costs, expenses or
other charges to which the records relate have accrued and have been paid, or
such other period as may be required by law.
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12.1.2 Audit. On reasonable advance notice, each party must
provide access to appropriate records to the independent auditors selected by
the other party for purposes of auditing the amount of fees, costs, expenses or
other charges payable in connection with the Service Area with respect to the
period audited. The auditing party will conduct the audit no more frequently
than annually. If the audit shows that Sprint PCS was underpaid then, unless the
amount is contested, Manager will pay to Sprint PCS the amount of the
underpayment within 10 Business Days after Sprint PCS gives Manager written
notice of the determination of the underpayment. If the audit determines that
Sprint PCS was overpaid then, unless the amount is contested, Sprint PCS will
pay to Manager the amount of the overpayment within 10 Business Days after
Sprint PCS determines Sprint PCS was overpaid. The auditing party will pay all
costs and expenses related to the audit unless the amount owed to the audited
party is reduced by more than 10% or the amount owed by the audited party is
increased by more than 10%, in which case the costs and expenses related to the
audit will be paid by the audited party.
Notwithstanding the above provisions of this Section 12.1.2, rather than
allow Manager's independent auditors access to Sprint PCS' records, Sprint PCS
may provide a report issued in conformity with Statement of Auditing Standard
No. 70 "Reports on the Processing of Transactions by Service Organizations"
("Type II Report" or "Manager Management Report"). Such report will be prepared
by independent auditors and will provide an opinion on the controls placed in
operation and tests of operating effectiveness of those controls in effect at
Sprint PCS over the Manager Management Processes. "Manager Management Processes"
include those services generally provided within the Management Agreement,
primarily billing and collection of Collected Revenues.
12.1.3 Contesting an Audit. If the party that did not select the
independent auditor does not agree with the findings of the audit, then such
party can contest the findings by providing notice of such disagreement to the
other party (the "Dispute Notice"). The date of delivery of such notice is the
"Dispute Notice Date." If the parties are unable to resolve the disagreement
within 10 Business Days after the Dispute Notice Date, they will resolve the
disagreement in accordance with the following procedures.
The two parties and the auditor that conducted the audit will all agree on
an independent certified public accountant with a regional or national
accounting practice in the wireless telecommunications industry (the "Arbiter")
within 15 Business Days after the Dispute Notice Date. If, within 15 Business
Days after the Dispute Notice Date, the three parties fail to agree on the
Arbiter, then at the request of either party to this agreement, the Arbiter will
be selected pursuant to the rules then in effect of the American Arbitration
Association. Each party will submit to the Arbiter within 5 Business Days after
its selection and engagement all information reasonably requested by the Arbiter
to enable the Arbiter to independently resolve the issue that is the subject of
the Dispute Notice. The Arbiter will make its own determination of the amount of
fees, costs, expenses or other charges payable under this agreement with respect
to the period audited. The Arbiter will issue a written report of its
determination in reasonable detail and will deliver a copy of the report to the
parties within 10 Business Days after the Arbiter receives all of the
information reasonably requested. The determination made by the Arbiter will be
final
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and binding and may be enforced by any court having jurisdiction. The parties
will cooperate fully in assisting the Arbiter and will take such actions as are
necessary to expedite the completion of and to cause the Arbiter to expedite its
assignment.
If the amount owed by a contesting party is reduced by more than 10% or the
amount owed to a contesting party is increased by more than 10% then the non-
contesting party will pay the costs and expenses of the Arbiter, otherwise the
contesting party will pay the costs and expenses of the Arbiter.
12.2 Confidential Information.
(a) Except as specifically authorized by this agreement, each of the
parties must, for the Term and 3 years after the date of termination of
this agreement, keep confidential, not disclose to others and use only for
the purposes authorized in this agreement, all Confidential Information
disclosed by the other party to the party in connection with this
agreement, except that the foregoing obligation will not apply to the
extent that any Confidential Information:
(i) is or becomes, after disclosure to a party, publicly known
by any means other than through unauthorized acts or omissions of the party
or its agents; or
(ii) is disclosed in good faith to a party by a third party
entitled to make the disclosure.
(b) Notwithstanding the foregoing, a party may use, disclose or
authorize the disclosure of Confidential Information that it receives that:
(i) has been published or is in the public domain, or that
subsequently comes into the public domain, through no fault of the
receiving party;
(ii) prior to the effective date of this agreement was properly
within the legitimate possession of the receiving party, or subsequent to
the effective date of this agreement, is lawfully received from a third
party having rights to publicly disseminate the Confidential Information
without any restriction and without notice to the recipient of any
restriction against its further disclosure;
(iii) is independently developed by the receiving party through
persons or entities who have not had, either directly or indirectly, access
to or knowledge of the Confidential Information;
(iv) is disclosed to a third party consistent with the terms of
the written approval of the party originally disclosing the information;
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(v) is required by the receiving party to be produced under
order of a court of competent jurisdiction or other similar requirements of
a governmental agency, and the Confidential Information will otherwise
continue to be Confidential Information required to be held confidential
for purposes of this agreement;
(vi) is required by the receiving party to be disclosed by
applicable law or a stock exchange or association on which the receiving
party's securities (or those of its Related Parties) are or may become
listed; or
(vii) is disclosed by the receiving party to a financial
institution or accredited investor (as that term is defined in Rule 501(a)
under the Securities Act of 1933) that is considering providing financing
to the receiving party and which financial institution or accredited
investor has agreed to keep the Confidential Information confidential in
accordance with an agreement at least as restrictive as this Section 12.2.
(c) Notwithstanding the foregoing, Manager and Sprint PCS authorize
each other to disclose to the public in regulatory filings the other's
identity and the Service Area to be developed and managed by Manager, and
Manager authorizes Sprint PCS to mention Manager and the Service Area in
public relations announcements.
(d) The party making a disclosure under Sections 12.2(b)(v),
12.2(b)(vi) or 12.2(b)(vii) must inform the disclosing party as promptly as
is reasonably necessary to enable the disclosing party to take action to,
and use the party's reasonable best efforts to, limit the disclosure and
maintain confidentiality to the extent practicable.
(e) Manager will not except when serving in the capacity of Manager
under this agreement, use any Confidential Information of any kind that it
receives under or in connection with this agreement. For example, if
Manager operates a wireless company in a different license area, Manager
may not use any of the Confidential Information received under or in
connection with this agreement in operating the other wireless business.
12.3 Insurance
12.3.1 General. During the term of this agreement, Manager must
obtain and maintain, and will cause any subcontractors to obtain and maintain,
with financially reputable insurers licensed to do business in all jurisdictions
where any work is performed under this agreement and who are reasonably
acceptable to Sprint PCS, the insurance described in the Sprint PCS Insurance
Requirements. The Sprint PCS Insurance Requirements as of the date of this
agreement are attached as Exhibit 12.3. Sprint PCS may modify the Sprint PCS
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Insurance Requirements as is commercially reasonable from time to time by
delivering to Manager a new Exhibit 12.3.
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12.3.2 Waiver of Subrogation. Manager must look first to any
insurance in its favor before making any claim against Sprint PCS or Sprint, and
their respective directors, officers, employees, agents or representatives for
recovery resulting from injury to any person (including Manager's or its
subcontractor's employees) or damage to any property arising from any cause,
regardless of negligence. Manager does hereby release and waive to the fullest
extent permitted by law, and will cause its respective insurers to waive, all
rights of recovery by subrogation against Sprint PCS or Sprint, and their
respective directors, officers, employees, agents or representatives.
12.3.3 Certificates of Insurance. Manager and all of its
subcontractors, if any, must, as a material condition of this agreement and
prior to the commencement of any work under and any renewal of this agreement,
deliver to Sprint PCS a certificate of insurance, satisfactory in form and
content to Sprint PCS, evidencing that the above insurance, including waiver of
subrogation, is in force and will not be canceled or materially altered without
first giving Sprint PCS at least 30 days prior written notice and that all
coverages are primary to any insurance carried by Sprint PCS, its directors,
officers, employees, agents or representatives.
Nothing contained in this Section 12.3.3 will limit Manager's liability to
Sprint PCS, its directors, officers, employees, agents or representatives to the
limits of insurance certified or carried.
13. INDEMNIFICATION
13.1 Indemnification by Sprint PCS. Sprint PCS agrees to indemnify,
defend and hold harmless Manager, its directors, managers, officers, employees,
agents and representatives from and against any and all claims, demands, causes
of action, losses, actions, damages, liability and expense, including costs and
reasonable attorneys' fees, against Manager, its directors, managers, officers,
employees, agents and representatives arising from or relating to the violation
by Sprint PCS of any law, regulation or ordinance applicable to Sprint PCS or by
Sprint PCS' breach of any representation, warranty or covenant contained in this
agreement or any other agreement between Sprint PCS or Sprint PCS' Related
Parties and Manager or Manager's Related Parties except where and to the extent
the claim, demand, cause of action, loss, action, damage, liability and/or
expense results solely from the negligence or willful misconduct of Manager.
13.2 Indemnification by Manager. Manager agrees to indemnify, defend and
hold harmless Sprint PCS and Sprint, and their respective directors, managers,
officers, employees, agents and representatives from and against any and all
claims, demands, causes of action, losses, actions, damages, liability and
expense, including costs and reasonable attorneys' fees, against Sprint PCS or
Sprint, and their respective directors, managers, officers, employees, agents
and representatives arising from or relating to Manager's violation of any law,
regulation or ordinance applicable to Manager, Manager's breach of any
representation, warranty or covenant contained in this agreement or any other
agreement between Manager or Manager's Related Parties and Sprint PCS and Sprint
PCS' Related Parties, Manager's ownership of the
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Operating Assets or the operation of the Service Area Network, or the actions or
failure to act of any of Manager's contractors, subcontractors, agents,
directors, managers, officers, employees and representatives of any of them in
the performance of any work under this agreement, except where and to the extent
the claim, demand, cause of action, loss, action, damage, liability and expense
results solely from the negligence or willful misconduct of Sprint PCS or
Sprint, as the case may be.
13.3 Procedure.
13.3.1 Notice. Any party being indemnified ("Indemnitee") will
give the party making the indemnification ("Indemnitor") written notice as soon
as practicable but no later than 5 Business Days after the party becomes aware
of the facts, conditions or events that give rise to the claim for
indemnification if:
(a) any claim or demand is made or liability is
asserted against Indemnitee; or
(b) any suit, action, or administrative or legal
proceeding is instituted or commenced in which Indemnitee is involved
or is named as a defendant either individually or with others.
Failure to give notice as described in this Section 13.3.1 does not modify
the indemnification obligations of this provision, except if Indemnitee is
harmed by failure to provide timely notice to Indemnitor, then Indemnitor does
not have to indemnify Indemnitee for the harm caused by the failure to give the
timely notice.
13.3.2 Defense by Indemnitor. If within 30 days after giving
notice Indemnitee receives written notice from Indemnitor stating that
Indemnitor disputes or intends to defend against the claim, demand, liability,
suit, action or proceeding, then Indemnitor will have the right to select
counsel of its choice and to dispute or defend against the claim, demand,
liability, suit, action or proceeding, at its expense.
Indemnitee will fully cooperate with Indemnitor in the dispute or defense
so long as Indemnitor is conducting the dispute or defense diligently and in
good faith. Indemnitor is not permitted to settle the dispute or claim without
the prior written approval of Indemnitee, which approval will not be
unreasonably withheld. Even though Indemnitor selects counsel of its choice,
Indemnitee has the right to retain additional representation by counsel of its
choice to participate in the defense at Indemnitee's sole cost and expense.
13.3.3 Defense by Indemnitee. If no notice of intent to dispute or
defend is received by Indemnitee within the 30-day period, or if a diligent and
good faith defense is not being or ceases to be conducted, Indemnitee has the
right to dispute and defend against the claim, demand or other liability at the
sole cost and expense of Indemnitor and to settle the claim, demand or other
liability, and in either event to be indemnified as provided in this Section
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13.3.3. Indemnitee is not permitted to settle the dispute or claim without the
prior written approval of Indemnitor, which approval will not be unreasonably
withheld.
13.3.4 Costs. Indemnitor's indemnity obligation includes
reasonable attorneys' fees, investigation costs, and all other reasonable costs
and expenses incurred by Indemnitee from the first notice that any claim or
demand has been made or may be made, and is not limited in any way by any
limitation on the amount or type of damages, compensation, or benefits payable
under applicable workers' compensation acts, disability benefit acts, or other
employee benefit acts.
14. DISPUTE RESOLUTION
14.1 Negotiation. The parties will attempt in good faith to resolve any
dispute arising out of or relating to this agreement promptly by negotiation
between or among representatives who have authority to settle the controversy.
Either party may escalate any dispute not resolved in the normal course of
business to the appropriate (as determined by the party) officers of the parties
by providing written notice to the other party.
Within 10 Business Days after delivery of the notice, the appropriate
officers of each party will meet at a mutually acceptable time and place, and
thereafter as often as they deem reasonably necessary, to exchange relevant
information and to attempt to resolve the dispute.
Either party may elect, by giving written notice to the other party, to
escalate any dispute arising out of or relating to the determination of fees
that is not resolved in the normal course of business or by the audit process
set forth in Sections 12.1.2 and 12.1.3, first to the appropriate financial or
accounting officers to be designated by each party. The designated officers will
meet in the manner described in the preceding paragraph. If the matter has not
been resolved by the designated officers within 30 days after the notifying
party's notice, either party may elect to escalate the dispute to the
appropriate (as determined by the party) officers in accordance with the prior
paragraphs of this Section 14.1.
14.2 Unable to Resolve. If a dispute has not been resolved within 60 days
after the notifying party's notice, either party may continue to operate under
this agreement and sue the other party for damages or seek other appropriate
remedies as provided in this agreement. If, and only if, this agreement does not
provide a remedy (as in the case of Sections 3.4 and 4.5, where the parties are
supposed to reach an agreement), then either party may give the other party
written notice that it wishes to resolve the dispute or claim arising out of the
parties' inability to agree under such Sections of this agreement by using the
arbitration procedure set forth in this Section 14.2. Such arbitration will
occur in Kansas City, Missouri, unless the parties otherwise mutually agree,
with the precise location being as agreed upon by the parties or, absent such
agreement, at a location in Kansas City, Missouri selected by Sprint PCS. Such
arbitration will be conducted pursuant to the procedures prescribed by the
Missouri Uniform Arbitration Act, as amended from time to time, or, if none,
pursuant to the rules then in effect of the American Arbitration Association (or
at any other place and by any other form of arbitration mutually
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acceptable to the parties). Any award rendered in such arbitration will be
confidential and will be final and conclusive upon the parties, and a judgment
on the award may be entered in any court of the forum, state or federal, having
jurisdiction. The expenses of the arbitration will be borne equally by the
parties to the arbitration, except that each party must pay for and bear the
cost of its own experts, evidence, and attorneys' fees.
The parties must each, within 30 days after either party gives notice to
the other party of the notifying party's desire to resolve a dispute or claim
under the arbitration procedure in this Section 14.2, designate an independent
arbitrator, who is knowledgeable with regard to the wireless telecommunications
industry, to participate in the arbitration hearing. The two arbitrators thus
selected will select a third independent arbitrator, who is knowledgeable with
regard to the wireless telecommunications industry, who will act as chairperson
of the board of arbitration. If, within 15 days after the day the last of the
two named arbitrators is appointed, the two named arbitrators fail to agree upon
the third, then at the request of either party, the third arbitrator shall be
selected pursuant to the rules then in effect of the American Arbitration
Association. The three independent arbitrators will comprise the board of
arbitration, which will preside over the arbitration hearing and will render all
decisions by majority vote. If either party refuses or neglects to appoint an
independent arbitrator within such 30-day period, the independent arbitrator who
has been appointed as of the 31st day after the notifying party's notice will be
the sole independent arbitrator and will solely preside over the arbitration
hearing. The arbitration hearing will commence no sooner than 30 days after the
date the last arbitrator is appointed and no later than 60 days after such date.
The arbitration hearing will be conducted during normal working hours on
Business Days without interruption or adjournment of more than 2 Business Days
at any one time or 6 Business Days in the aggregate.
The arbitrators will deliver their decision to the parties in writing
within 10 days after the conclusion of the arbitration hearing. The arbitration
award will be accompanied by findings of fact and a statement of reasons for the
decision. There will be no appeal from the written decision, except as permitted
by applicable law. The arbitration proceedings, the arbitrators' decision, the
arbitration award, and any other aspect, matter, or issue of or relating to the
arbitration are confidential, and disclosure of such confidential information is
an actionable breach of this agreement.
Notwithstanding any other provision of this agreement, arbitration will not
be required of any issue for which injunctive relief is properly sought by
either party.
14.3 Attorneys and Intent. If an officer intends to be accompanied at a
meeting by an attorney, the other party's officer will be given at least 3
Business Days prior notice of the intention and may also be accompanied by an
attorney. All negotiations under Section 14.1 are confidential and will be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Civil Procedure and state rules of evidence and civil procedure.
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14.4 Tolling of Cure Periods. Any cure period under Section 11.3 that is
less than 90 days will be tolled during the pendency of the dispute resolution
process. Any cure period under Section 11.3 that is 90 days or longer will not
be tolled during the pendency of the dispute resolution process.
15. REPRESENTATIONS AND WARRANTIES
Each party for itself makes the following representations and warranties to
the other party:
15.1 Due Incorporation or Formation; Authorization of Agreements. The
party is either a corporation, limited liability company, or limited partnership
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Manager is qualified to do business and in
good standing in every jurisdiction in which the Service Area is located. The
party has the full power and authority to execute and deliver this agreement and
to perform its obligations under this agreement.
15.2 Valid and Binding Obligation. This agreement constitutes the valid
and binding obligation of the party, enforceable in accordance with its terms,
except as may be limited by principles of equity or by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
15.3 No Conflict; No Default. Neither the execution, delivery and
performance of this agreement nor the consummation by the party of the
transactions contemplated in this agreement will conflict with, violate or
result in a breach of (a) any law, regulation, order, writ, injunction, decree,
determination or award of any governmental authority or any arbitrator,
applicable to such party, (b) any term, condition or provision of the articles
of incorporation, certificate of limited partnership, certificate of
organization, bylaws, partnership agreement or limited liability company
agreement (or other governing documents) of such party or of any material
agreement or instrument to which such party is or may be bound or to which any
of its material properties or assets is subject.
15.4 Litigation. No action, suit, proceeding or investigation is pending
or, to the knowledge of the party, threatened against or affecting the party or
any of its properties, assets or businesses in any court or before or by any
governmental agency that could, if adversely determined, reasonably be expected
to have a material adverse effect on the party's ability to perform its
obligations under this agreement. The party has not received any currently
effective notice of any default that could reasonably be expected to result in a
breach of the preceding sentence.
16. REGULATORY COMPLIANCE
16.1 Regulatory Compliance. Manager will construct, operate, and manage
the Service Area Network in compliance with applicable federal, state, and local
laws and
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regulations, including Siting Regulations. Nothing in this Section 16.1 will
limit Manager's obligations under Section 2.2 and the remainder of this Section
16. Manager acknowledges that failure to comply with applicable federal, state,
and local laws and regulations in its construction, operation, and management of
the Service Area Network may subject the parties and the License to legal and
administrative agency actions, including forfeiture penalties and actions that
affect the License, such as license suspension and revocation, and accordingly,
Manager agrees that it will cooperate with Sprint PCS to maintain the License in
full force and effect.
Manager will write and implement practices and procedures governing
construction and management of the Service Area Network in compliance with
Siting Regulations. Manager will make its Siting Regulations practices and
procedures available upon request to Sprint PCS in the manner specified by
Sprint PCS for its inspection and review, and Manager will modify those Siting
Regulations practices and procedures as may be requested by Sprint PCS. Every
six months, and at the request of Sprint PCS, Manager will provide a written
certification from one of Manager's chief officers that Manager's Service Area
Network complies with Siting Regulations. Manager's first certification of
compliance with Siting Regulations will be provided to Sprint PCS six months
after the date of this agreement.
Manager will conduct an audit and physical inspection of its Service Area
Network at the request of Sprint PCS to confirm compliance with Siting
Regulations, and Manager will report the results of the audit and physical
inspection to Sprint PCS in the form requested by Sprint PCS. Manager will bear
the cost of Siting Regulations compliance audits and physical inspections
requested by Sprint PCS.
Manager will retain for 3 years records demonstrating compliance with
Siting Regulations, including compliance audit and inspection records. Manager
will make those records available upon request to Sprint PCS for production,
inspection, and copying in the manner specified by Sprint PCS. Sprint PCS will
bear the cost of production, inspection, and copying.
16.2 FCC Compliance. The parties agree to comply with all applicable FCC
rules governing the License or the Service Area Network and specifically agree
as follows:
(a) The party billing a customer will advise the customer that
service is provided over spectrum licensed to Sprint PCS. Neither Manager
nor Sprint PCS will represent itself as the legal representative of the
other before the FCC or any other third party, but will cooperate with each
other with respect to FCC matters concerning the License or the Service
Area Network.
(b) Sprint PCS will use commercially reasonable efforts to maintain
the License in accordance with the terms of the License and all applicable
laws, policies and regulations and to comply in all material respects with
all other legal requirements applicable to the operation of the Sprint PCS
Network and its business. Sprint PCS
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has sole responsibility, except as specifically provided otherwise in
Section 2.2, for keeping the License in full force and effect and for
preparing submissions to the FCC or any other relevant federal, state or
local authority of all reports, applications, interconnection agreements,
renewals, or other filings or documents. Manager must cooperate and
coordinate with Sprint PCS' actions to comply with regulatory requirements,
which cooperation and coordination must include, without limitation, the
provision to Sprint PCS of all information that Sprint PCS deems necessary
to comply with the regulatory requirements. Manager must refrain from
taking any action that could impede Sprint PCS from fulfilling its
obligations under the preceding sentence, and must not take any action that
could cause Sprint PCS to forfeit or cancel the License.
(c) Sprint PCS and Manager are familiar with Sprint PCS'
responsibility under the Communications Act of 1934, as amended, and
applicable FCC rules. Nothing in this agreement is intended to diminish or
restrict Sprint PCS' obligations as an FCC Licensee and both parties desire
that this agreement and each party's obligations under this agreement be in
compliance with the FCC rules.
(d) Nothing in this agreement will preclude Sprint PCS from
permitting or facilitating resale of Sprint PCS Products and Services to
the extent required or elected under applicable FCC regulations. Manager
will take the actions necessary to facilitate Sprint PCS' compliance with
FCC regulations. To the extent permitted by applicable regulations, Sprint
PCS will not authorize a reseller that desires to sell services and
products in only the Service Area to resell Sprint PCS wholesale products
and services, unless Manager agrees in advance to such sales.
(e) If a change in FCC policy or rules makes it necessary to obtain
FCC consent for the implementation, continuation or further effectuation of
any term or provision of this agreement, Sprint PCS will use all
commercially reasonable efforts diligently to prepare, file and prosecute
before the FCC all petitions, waivers, applications, amendments, rule-
making comments and other related documents necessary to secure and/or
retain FCC approval of all aspects of this agreement. Manager will use
commercially reasonable efforts to provide to Sprint PCS any information
that Sprint PCS may request from Manager with respect to any matter
involving Sprint PCS, the FCC, the License, the Sprint PCS Products and
Services or any other products and services approved under Section 3.2.
Each party will bear its own costs of preparation of the documents and
prosecution of the actions.
(f) If the FCC determines that this agreement is inconsistent with
the terms and conditions of the License or is otherwise contrary to FCC
policies, rules and regulations, or if regulatory or legislative action
subsequent to the date of this agreement alters the permissibility of this
agreement under the FCC's rules or other applicable law, rules or
regulations, then the parties must use best efforts to modify this
agreement as necessary to cause this agreement (as modified) to comply with
the
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FCC policies, rules, regulations and applicable law and to preserve to the
extent possible the economic arrangements set forth in this agreement.
(g) Manager warrants and represents to Sprint PCS that Manager is
and at all times during the Term of this agreement will be in compliance
with FCC rules and regulations regarding limits on classes and amounts of
spectrum that may be owned by Manager. Manager agrees that in the event
that Manager is or at any time becomes in violation of such rules and
regulations, Manager will promptly take all action necessary and
appropriate (other than terminating this agreement) to cure such violation
and comply with such rules and regulations, including without limitation
disposing of its direct or indirect interests in cellular licenses.
16.3 Marking and Lighting. Manager will conform to applicable FAA
standards when Siting Regulations require marking and lighting of Manager's
Service Area Network cell sites. Manager will cooperate with Sprint PCS in
reporting lighting malfunctions as required by Siting Regulations.
16.4 Regulatory Notices. Manager will, within 2 Business Days after its
receipt, give Sprint PCS written notice of all oral and written communications
it receives from regulatory authorities (including but not limited to the FCC,
the FAA, state public service commissions, environmental authorities, and
historic preservation authorities) and complaints respecting Manager's
construction, operation, and management of the Service Area Network that could
result in actions affecting the License as well as written notice of the details
respecting such communications and complaints, including a copy of any written
material received in connection with such communications and complaints.
Manager will cooperate with Sprint PCS in responding to such communications and
complaints received by Manager. Sprint PCS has the right to respond to all such
communications and complaints, with counsel and consultants of its own choice.
If Sprint PCS chooses to respond to such communications and complaints, Manager
will not respond to them without the consent of Sprint PCS, and Manager will pay
the costs of Sprint PCS' responding to such communications and complaints,
including reasonable attorneys' and consultants' fees, investigation costs, and
all other reasonable costs and expenses incurred by Sprint PCS.
16.5 Regulatory Policy-Setting Proceedings. Manager will not intervene in
or otherwise participate in a rulemaking, investigation, inquiry, contested
case, or similar regulatory policy setting proceedings before a regulatory
authority concerning the License or construction, operation, and management of
the Service Area Network and the Sprint PCS business operated using the Service
Area Network.
17. GENERAL PROVISIONS
17.1 Notices. Any notice, payment, demand, or communication required or
permitted to be given by any provision of this agreement must be in writing and
mailed (certified or registered mail, postage prepaid, return receipt
requested), sent by hand or
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overnight courier, or sent by facsimile (with acknowledgment received and a copy
sent by overnight courier), charges prepaid and addressed as described on the
Notice Address Schedule attached to the Master Signature Page, or to any other
address or number as the person or entity may from time to time specify by
written notice to the other parties.
All notices and other communications given to a party in accordance with
the provisions of this agreement will be deemed to have been given when
received.
17.2 Construction. This agreement will be construed simply according to
its fair meaning and not strictly for or against either party.
17.3 Headings. The table of contents, section and other headings
contained in this agreement are for reference purposes only and are not intended
to describe, interpret, define, limit or expand the scope, extent or intent of
this agreement.
17.4 Further Action. Each party agrees to perform all further acts and
execute, acknowledge, and deliver any documents that may be reasonably
necessary, appropriate, or desirable to carry out the intent and purposes of
this agreement.
17.5 Counterpart Execution. This agreement will be executed by affixing
the parties' signatures to the Master Signature Page, which Master Signature
Page, and thus this agreement, may be executed in any number of counterparts
with the same effect as if both parties had signed the same document. All
counterparts will be construed together and will constitute one agreement.
17.6 Specific Performance. Each party agrees with the other party that
the party would be irreparably damaged if any of the provisions of this
agreement were not performed in accordance with their specific terms and that
monetary damages alone would not provide an adequate remedy. Accordingly, in
addition to any other remedy to which the non-breaching party may be entitled,
at law or in equity, the non-breaching party will be entitled to injunctive
relief to prevent breaches of this agreement and specifically to enforce the
terms and provisions of this agreement.
17.7 Entire Agreement; Amendments. The provisions of this agreement, the
Services Agreement and the Trademark License Agreements (including the exhibits
to those agreements) set forth the entire agreement and understanding between
the parties as to the subject matter of this agreement and supersede all prior
agreements, oral or written, and other communications between the parties
relating to the subject matter of this agreement. Except for Sprint PCS' right
to amend the Program Requirements in accordance with Section 9.2 and its right
to unilaterally modify and amend certain other provisions as expressly provided
in this agreement, this agreement may be modified or amended only by a written
amendment signed by persons or entities authorized to bind each party and, with
respect to the sections set forth for Sprint on the Master Signature Page, the
persons or entities authorized to bind Sprint.
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17.8 Limitation on Rights of Others. Except as set forth on the Master
Signature Page for Sprint, nothing in this agreement, whether express or
implied, will be construed to give any person or entity other than the parties
any legal or equitable right, remedy or claim under or in respect of this
agreement.
17.9 Waivers.
17.9.1 Waivers--General. The observance of any term of this
agreement may be waived (whether generally or in a particular instance and
either retroactively or prospectively) by the party entitled to enforce the
term, but any waiver is effective only if in a writing signed by the party
against which the waiver is to be asserted. Except as otherwise provided in this
agreement, no failure or delay of either party in exercising any power or right
under this agreement will operate as a waiver of the power or right, nor will
any single or partial exercise of any right or power preclude any other or
further exercise of the right or power or the exercise of any other right or
power.
17.9.2 Waivers--Manager. Manager is not in breach of any covenant
in this agreement and no Event of Termination will have occurred as a result of
the occurrence of any event, if Manager had delegated to Sprint Spectrum under
the Services Agreement (or any successor to that agreement) responsibility for
taking any action necessary to ensure compliance with the covenant or to prevent
the occurrence of the event.
17.9.3 Force Majeure. Neither Manager nor Sprint PCS, as the case
may be, is in breach of any covenant in this agreement and no Event of
Termination will occur as a result of the failure of such party to comply with
such covenant, if such party's non-compliance with the covenant results
primarily from:
(i) any FCC order or any other injunction issued by any
governmental authority impeding the party's ability to comply with the
covenant;
(ii) the failure of any governmental authority to grant any
consent, approval, waiver, or authorization or any delay on the part of any
governmental authority in granting any consent, approval, waiver or
authorization;
(iii) the failure of any vendor to deliver in a timely
manner any equipment or services; or
(iv) any act of God, act of war or insurrection, riot,
fire, accident, explosion, labor unrest, strike, civil unrest, work
stoppage, condemnation or any similar cause or event not reasonably within
the control of such party.
17.10 Waiver of Jury Trial. EACH PARTY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
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TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
17.11 Binding Effect. Except as otherwise provided in this agreement, this
agreement is binding upon and inures to the benefit of the parties and their
respective and permitted successors, transferees, and assigns, including any
permitted successor, transferee or assignee of the Service Area Network or of
the License. The parties intend that this agreement bind only the party signing
this agreement and that the agreement is not binding on the Related Parties of a
party unless the agreement expressly provides that Related Parties are bound.
17.12 Governing Law. The internal laws of the State of Missouri (without
to principles of conflicts of law) govern the validity of this agreement,
the construction of its terms, and the interpretation of the rights and duties
of the parties.
17.13 Severability. The parties intend every provision of this agreement
to be severable. If any provision of this agreement is held to be illegal,
invalid, or unenforceable for any reason, the parties intend that a court
enforce the provision to the maximum extent permissible so as to effect the
intent of the parties (including the enforcement of the remaining provisions).
If necessary to effect the intent of the parties, the parties will negotiate in
good faith to amend this agreement to replace the unenforceable provision with
an enforceable provision that reflects the original intent of the parties.
17.14 Limitation of Liability. NO PARTY WILL BE LIABLE TO THE OTHER PARTY
FOR SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES,
OR LOSS OF PROFITS, ARISING FROM THE RELATIONSHIP OF THE PARTIES OR THE CONDUCT
OF BUSINESS UNDER, OR BREACH OF, THIS AGREEMENT, EXCEPT WHERE SUCH DAMAGES OR
LOSS OF PROFITS ARE CLAIMED BY OR AWARDED TO A THIRD PARTY IN A CLAIM OR ACTION
AGAINST WHICH A PARTY TO THIS AGREEMENT HAS A SPECIFIC OBLIGATION TO INDEMNIFY
ANOTHER PARTY TO THIS AGREEMENT.
17.15 No Assignment; Exceptions.
17.15.1 General. Neither party will, directly or indirectly, assign
this agreement or any of the party's rights or obligations under this agreement
without the prior written consent of the other party, except as otherwise
specifically provided in this Section 17.15. Sprint PCS may deny its consent to
any assignment or transfer in its sole discretion except as otherwise provided
in this Section 17.15.
Any attempted assignment of this agreement in violation of this Section
17.15 will be void and of no effect.
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A party may assign this agreement to a Related Party of the party, except
that Manager cannot assign this agreement to a Related Party that is a
significant competitor of Sprint, Sprint PCS or their respective Related Parties
in the telecommunications business. Except as provided in Section 17.15.5, an
assignment does not release the assignor from its obligations under this
agreement unless the other party to this agreement consents in writing in
advance to the assignment and expressly grants a release to the assignor.
Except as provided in Section 17.15.5, Sprint PCS must not assign this
agreement to any entity that does not also own the License covering the Service
Area directly or indirectly through a Related Party. Manager must not assign
this agreement to any entity (including a Related Party), unless such entity
assumes all rights and obligations under the Services Agreement, the Trademark
License Agreements and any related agreements.
17.15.2 Assignment Right of Manager to Financial Lender. If Manager
is no longer able to satisfy its financial obligations and other duties, then
Manager has the right to assign its obligations and rights under this agreement
to its Financial Lender, if:
(a) Manager or Financial Lender provides Sprint PCS at least 10 days
advance written notice of such assignment;
(b) Financial Lender cures or commits to cure any outstanding
material breach of this agreement by Manager prior to the end of any
applicable cure period. If Financial Lender fails to make a timely cure
then Sprint PCS may exercise its rights under Section 11;
(c) Financial Lender agrees to serve as an interim trustee for the
obligations and duties of Manager under this agreement for a period not to
exceed 180 days. During this interim period, Financial Lender must identify
a proposed successor to assume the obligations and rights of Manager under
this agreement;
(d) Financial Lender assumes all of Manager's rights and obligations
under the Services Agreement, the Trademark License Agreements and any
related agreements; and
(e) Financial Lender provides to Sprint PCS advance written notice
of the proposed successor to Manager that Financial Lender has identified
("Successor Notice"). Sprint PCS may give to Financial Lender written
notice of Sprint PCS' decision whether to consent to such proposed
successor within 30 days after Sprint PCS' receipt of the Successor Notice.
Sprint PCS may not unreasonably withhold such consent, except that Sprint
PCS is not required to consent to a proposed successor that:
(i) has, in the past, materially breached prior agreements
with Sprint PCS or its Related Parties;
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(ii) is a significant competitor of Sprint PCS or its Related
Parties in the telecommunications business;
(iii) does not meet Sprint PCS' reasonable credit criteria;
(iv) fails to execute an assignment of all relevant documents
related to this agreement including the Services Agreement and the
Trademark License Agreements; or
(v) refuses to assume the obligations of Manager under this
Agreement, the Services Agreement, the Trademark License Agreements and any
related agreements.
If Sprint PCS fails to provide a response to Financial Lender within 30
days after receiving the Successor Notice, then the proposed successor is deemed
rejected. Any Financial Lender disclosed on the Build-out Plan on Exhibit 2.1 is
-----------
deemed acceptable to Sprint PCS.
17.15.3 Change of Control Rights. If there is a Change of Control
of Manager, then:
(a) Manager must provide to Sprint PCS advance written notice
detailing relevant and appropriate information about the new ownership
interests effecting the Change of Control of Manager.
(b) Sprint PCS must provide to Manager written notice of its
decision whether to consent to or reject the proposed Change of Control
within 30 days after its receipt of such notice. Sprint PCS may not
unreasonably withhold such consent, except that Sprint PCS is not required
to consent to a Change of Control in which:
(i) the final controlling entity or any of its Related Parties
has in the past materially breached prior agreements with Sprint PCS or its
Related Parties;
(ii) the final controlling entity or any of its Related Parties
is a significant competitor of Sprint PCS or its Related Parties in the
telecommunications business;
(iii) the final controlling entity does not meet Sprint PCS'
reasonable credit criteria;
(iv) the final controlling entity fails to execute an
assignment of all relevant documents related to this agreement including
the Services Agreement and the Trademark License Agreements; or
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(v) the final controlling entity or its Related Parties refuse
to assume the obligations of Manager under this agreement.
(c) In the event that Sprint PCS provides notice that it does not
consent to the Change of Control, Manager is entitled to either:
(i) contest such determination pursuant to the dispute
resolution procedure in Section 14; or
(ii) abandon the proposed Change of Control.
(d) Nothing in this agreement requires Sprint PCS' consent to:
(i) a public offering of Manager that does not result in a
Change of Control (i.e., a shift from one party being in control to no
party being in control is not a Change of Control); or
(ii) a recapitalization or restructuring of the ownership
interests of Manager that Manager determines is necessary to:
(A) facilitate the acquisition of commercial financing
and lending arrangements that will support Manager's operations and
efforts to fulfill its obligations under this agreement; and
(B) that does not constitute a Change of Control.
(e) "Change of Control" means a situation where in any one
transaction or series of related transactions occurring during any 365-day
period, the ultimate parent entity of the Manager changes. The ultimate
parent entity is to be determined using the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 rules. A Change of Control does not occur if:
(i) a party changes the form of its organization without
materially changing their ultimate ownership (e.g., converting from a
limited partnership to a limited liability company); or
(ii) one of the owners of the party on the date of this
agreement or on the date of the closing of Manager's initial equity
offering for purposes of financing its obligations under this agreement
ultimately gains control over the party, unless such party is a significant
competitor of Sprint PCS or Sprint PCS' Related Parties in the
telecommunications business.
17.15.4 Right of First Refusal. Notwithstanding any other provision
in this agreement, Manager grants Sprint PCS the right of first refusal
described below. If Manager
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determines it wishes to sell an Offered Interest, upon receiving any Offer to
purchase an Offered Interest, Manager agrees to promptly deliver to Sprint PCS
an Offer Notice. The Offer Notice is deemed to constitute an offer to sell to
Sprint PCS, on the terms set forth in the Offer, all but not less than all of
the Offered Interest. Sprint PCS will have a period of 60 days from the date of
the Offer Notice to notify Manager that it agrees to purchase the Offered
Interest on such terms. If Sprint PCS timely agrees in writing to purchase the
Offered Interest, the parties will proceed to consummate such purchase not later
than the 180th day after the date of the Offer Notice. If Sprint PCS does not
agree within the 60-day period to purchase the Offered Interest, Manager will
have the right, for a period of 120 days after such 60th day, subject to the
restrictions set forth in this Section 17, to sell to the person or entity
identified in the Offer Notice all of the Offered Interest on terms and
conditions no less favorable to Manager than those set forth in the Offer. If
Manager fails to sell the Offered Interest to such person or entity on such
terms and conditions within such 120-day period, Manager will again be subject
to the provisions of this Section 17.15.4 with respect to the Offered Interest.
17.15.5 Transfer of Sprint PCS Network. Sprint PCS may sell,
transfer or assign the Sprint PCS Network or any of the Licenses, including its
rights and obligations under this agreement, the Services Agreement and any
related agreements, to a third party without Manager's consent so long as the
third party assumes the rights and obligations under this agreement and the
Services Agreement. Manager agrees that Sprint PCS and Sprint PCS' Related
Parties will be released from any and all obligations under and with respect to
any and all such agreements upon such sale, transfer or assignment in accordance
with this Section 17.15.5, without the need for Manager to execute any document
to effect such release.
17.16 Provision of Services by Sprint Spectrum. As described in the
Recitals, the party or parties to this agreement that own the Licenses are
referred to in this agreement as "Sprint PCS." Sprint Spectrum will provide most
or all of the services required to be provided by Sprint PCS under this
agreement on behalf of Sprint PCS, other than the services to be rendered by
Manager. For example, Sprint Spectrum is the party to the contracts relating to
the national distribution network, the roaming and long distance services, and
the procurement arrangements. Accordingly, Sprint PCS and Manager will deal with
Sprint Spectrum to provide many of the attributes of the Sprint PCS Network.
17.17 Number Portability. Manager understands that the manner in which
customers are assigned to the Service Area Network could change as telephone
numbers become portable without any relation to the service area in which they
are initially activated. To the extent the relationship between NPA-NXX and the
Service Area changes, Sprint PCS will develop an alternative system to attempt
to assign customers who primarily live and work in the Service Area to the
Service Area. The terms of this agreement will be deemed to be amended to
reflect the new system that Sprint PCS develops.
17.18 Disclaimer of Agency. Neither party by this agreement makes the
other party a legal representative or agent of the party, nor does either party
have the right to obligate the
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other party in any manner, except if the other party expressly permits the
obligation by the party or except for provisions in this agreement expressly
authorizing one party to obligate the other.
17.19 Independent Contractors. The parties do not intend to create any
partnership, joint venture or other profit-sharing arrangement, landlord-tenant
or lessor-lessee relationship, employer-employee relationship, or any other
relationship other than that expressly provided in this agreement. Neither party
to this agreement has any fiduciary duty to the other party.
17.20 Expense. Each party bears the expense of complying with this
agreement except as otherwise expressly provided in this agreement. The parties
must not allocate any employee cost or other cost to the other party, except as
otherwise provided in the Program Requirements or to the extent the parties
expressly agree in advance to the allocation.
17.21 General Terms. (a) This agreement is to be interpreted in accordance
with the following rules of construction:
(i) The definitions in this agreement apply equally to both
the singular and plural forms of the terms defined unless the context
otherwise requires.
(ii) The words "include," "includes" and "including" are deemed
to be followed by the phrase "without limitation".
(iii) All references in this agreement to Sections and Exhibits
are references to Sections of, and Exhibits to, this agreement, unless
otherwise specified; and
(iv) All references to any agreement or other instrument or
statute or regulation are to it as amended and supplemented from time to
time (and, in the case of a statute or regulation, to any corresponding
provisions of successor statutes or regulations), unless the context
otherwise requires.
(b) Any reference in this agreement to a "day" or number of "days"
(without the explicit qualification of "Business") is a reference to a
calendar day or number of calendar days. If any action or notice is to be
taken or given on or by a particular calendar day, and the calendar day is
not a Business Day, then the action or notice may be taken or given on the
next Business Day.
17.22 Conflicts with Other Agreements. The provisions of this Management
Agreement govern over those of the Services Agreement if the provisions
contained in this agreement conflict with analogous provisions in the Services
Agreement. The provisions of each Trademark License Agreement governs over those
of this agreement if the provisions contained in this agreement conflict with
analogous provisions in a Trademark License Agreement.
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17.23 Survival Upon Termination. The provisions of Sections 10, 11.4,
11.5, 11.6, 12.2, 13, 14, 16 and 17 of this agreement will survive any
termination of this agreement.
17.24 Announced Transaction. Sprint Enterprises, L.P., TCI Telephony
Services, Inc., Comcast Telephony Services and Cox Telephony Partnership have
executed a Restructuring and Merger Agreement and related agreements that
provide for restructuring the ownership of Sprint Spectrum L.P., SprintCom,
Inc., PhillieCo Partners I, L.P., and Cox Communications PCS, L.P. Upon
consummation of the transactions contemplated by those agreements, Sprint would
control each of the four entities. While Sprint and Sprint PCS anticipate the
proposed transactions will be consummated, there can be no assurances.
17.25 Additional Terms and Provisions. Certain additional and supplemental
terms and provisions of this agreement, if any, are set forth in the Addendum to
Sprint PCS Management Agreement attached hereto and incorporated herein by this
reference. Manager represents and warrants that the Addendum also describes all
existing contracts and arrangements (written or verbal) that relate to or affect
the rights of Sprint PCS or Sprint under this agreement (e.g., agreements
relating to long distance telephone services (Section 3.4) or backhaul and
transport services (Section 3.7)).
17.26 Master Signature Page. Each party agrees that it will execute the
Master Signature Page that evidences such party's agreement to execute, become a
party to and be bound by this agreement, which document is incorporated herein
by this reference.
17.27 Agent Authorization. Because of the close operational relationship
between the parties listed together below, each entity authorizes the other
entity to act on its behalf in every capacity under this agreement: (a)
WirelessCo, L.P. and Sprint Spectrum L.P.; (b) Cox PCS License, L.L.C. and Cox
Communications PCS, L.P.; (c) APC PCS, LLC and American PCS Communications, LLC;
and (d) PhillieCo, L.P. and PhillieCo Partners I, L.P.
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SPRINT COMMUNICATIONS COMPANY, L.P.
-----------------------------------
For and in consideration of the covenants contained in the Management
Agreement, Sprint Trademark and Service Mark License Agreement, and Addendum I
to the Management Agreement (collectively, the "Executed Agreements"), and for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Sprint Communications Company, L.P. executes, becomes a party to,
and agrees to be bound by and to perform its obligations under each of the
Executed Agreements as of the Effective Date; provided, that Sprint
Communications Company, L.P. only agrees to be bound by and perform its
obligations under, and will enjoy the benefits given to it with respect to only
those provisions that expressly apply to Sprint Communications Company, L.P.,
including its obligations and benefits under Sections 2, 3, and 10. The
execution by Sprint Communications Company, L.P. of this Master Signature Page
has the same force and effect as if Sprint Communications Company, L.P. executed
individually each of the Executed Agreements.
SPRINT COMMUNICATIONS COMPANY, L.P.
By: /s/ William R. Blessing
--------------------------------
William R. Blessing
Vice President, Wireless
ILLINOIS PCS, LLC
-----------------
For and in consideration of the covenants contained in the Management
Agreement, Services Agreement, Sprint Trademark and Service Mark License
Agreement, Sprint Spectrum Trademark and Service Mark License Agreement, and
Addendum I to the Management Agreement (collectively, the "Executed
Agreements"), and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Illinois PCS, LLC executes,
becomes a party to, and agrees to be bound by and to perform its obligations
under each of the Executed Agreements as of the Effective Date. The execution by
Illinois PCS, LLC of this Master Signature Page has the same force and effect as
if SprintCom, Inc. executed individually each of the Executed Agreements.
ILLINOIS PCS, LLC
By: /s/ Tim Yager
--------------------------------
Tim Yager
President
<PAGE>
SPRINTCOM, INC.
---------------
For and in consideration of the covenants contained in the Management
Agreement and Addendum I to the Management Agreement (collectively, the
"Executed Agreements"), and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, SprintCom, Inc. executes, becomes
a party to, and agrees to be bound by and to perform its obligations under each
of the Executed Agreements as of the Effective Date. The execution by
SprintCom, Inc. of this Master Signature Page has the same force and effect as
if SprintCom, Inc. executed individually each of the Executed Agreements.
SPRINTCOM, INC.
By: /s/ William R. Blessing
--------------------------------
William R. Blessing
Vice President, Wireless
<PAGE>
B
Schedule of Definitions
(Management, Services,
and Trademark License Agreements)
<PAGE>
Schedule of Definitions
This Schedule of Definitions is the "Schedule of Definitions" referred to
-----------------------
in and incorporated by reference under the Management Agreement, Services
Agreement, and Trademark License Agreements (as such agreements are defined
below). Whenever the phrase "this agreement" is used below, such phrase refers
to the particular agreement under whose terms this Schedule of Definitions is
being applied in that instance. If citations to sections or exhibits of
different agreements are included in a definition, the citation to the
particular agreement under whose terms this Schedule of Definitions is being
applied controls to the exclusion of the citations to different agreements.
The following words and phrases used in this agreement have the following
meanings:
"Addendum" means any addendum attached to this agreement that contains the
amendments to this agreement; such Addendum is expressly incorporated as a part
of this agreement.
"Affiliation Agreement" means any and all of the agreements, known as
Sprint PCS Affiliation Agreements, whereby an affiliate and Sprint PCS and/or
one or more of Sprint PCS' Related Parties agree to the terms and conditions
under which such affiliate will manage the Service Area Network identified in
such agreement, using such Affiliate's own PCS license issued by the FCC and any
documents incorporated by reference in such agreement.
"Agent" has the meaning set forth in Section 3.1 of the Sprint Spectrum
Trademark and Service Mark License Agreement or Section 3.1 of the Sprint
Trademark and Service Mark License Agreement.
"Arbiter" has the meaning set forth in Section 12.1.3 of the Management
Agreement or Section 5.1.3 of the Services Agreement.
"Available Services" means those categories of services listed on Exhibit
-------
2.1.1 to the Services Agreement (as the same may be amended from time to time by
- -----
Sprint Spectrum and made available to Manager under the terms of the Services
Agreement).
"Available Services and Fees Schedule" means that schedule set forth on
Exhibit 2.1.1 to the Services Agreement, which sets forth the Available Services
- -------------
offered from time to time and the fees charged for such Available Services.
"Bankruptcy" means, for the purposes of the Trademark License Agreements,
either a Voluntary Bankruptcy or an Involuntary Bankruptcy.
"Brands" means the Sprint PCS Brands and the Sprint Brands.
<PAGE>
"BTA" means a Basic Trading Area for which a Basic Trading Area (BTA)
license is issued by the FCC.
"Build-out Plan" means the plan agreed upon by Manager and Sprint PCS,
along with any modifications and updates to the plan, respecting the
construction and design of the Service Area Network, a copy of which is attached
as Exhibit 2.1 to the Management Agreement.
-----------
"Business Day" means a day of the year that banks are not required or
authorized to close in the State of New York.
"Cancelled Service" has the meaning set forth in Section 3.2 of the
Services Agreement.
"CDMA" means code division multiple access.
"Change of Control" has the meaning set forth in Section 17.15.3 of the
Management Agreement.
"Collected Revenues" has the meaning set forth in Section 10.4 of the
Management Agreement.
"Confidential Information" means all Program Requirements, guidelines,
standards, and programs, the technical, marketing, financial, strategic and
other information provided by each party under the Management Agreement,
Services Agreement, and Trademark License Agreements, and any other information
disclosed by one party to the other party pursuant to the Management Agreement,
Services Agreement, and Trademark License Agreements that is not specifically
excluded by Section 12.2 of the Management Agreement. In addition to the
preceding sentence, "Confidential Information" has the meaning set forth in
Section 3.1 of the Sprint Spectrum Trademark and Service Mark License Agreement
or Section 3.1 of the Sprint Trademark and Service Mark License Agreement.
"Controlled Related Party" means the Parent of any Person and each
Subsidiary of such Parent. As used in Section 1.2 and Article 3 of the Sprint
Spectrum Trademark and Service Mark License Agreement or Section 1.2 and Article
3 of the Sprint Trademark and Service Mark License Agreement, the term
"Controlled Related Party" will also include any Related Party of a Person that
such Person or its Parent can directly or indirectly unilaterally cause to take
or refrain from taking any of the actions required, prohibited or otherwise
restricted by such Section, whether through ownership of voting securities,
contractually or otherwise.
"Default Rate" means the rate per annum (computed on the basis of the
actual number of days elapsed in a year of 365 or 366 days, as applicable),
compounded monthly, equal to the Prime Rate (adjusted as and when changes in the
Prime Rate occur) plus five percent (5%).
"Disaggregated License" means that portion of the License that Manager may
or is required to purchase under Section 11 of the Management Agreement from
Sprint PCS under
2
<PAGE>
certain circumstances, after Sprint PCS' receipt of FCC approval of the
necessary disaggregation and partition, which portion comprises no less than the
amount of spectrum sufficient to operate one duplex CDMA carrier (including the
required guard bands) within the PCS Spectrum, and no more than 10 MHz of the
Spectrum (at Manager's designation) covering the Service Area, and which
includes the frequencies then in use in the Service Area Network and, if
applicable, adjacent frequencies, so long as such frequencies in the aggregate
do not exceed 10 MHz.
"Dispute Notice" has the meaning set forth in Section 12.1.3 of the
Management Agreement or Section 5.1.3 of the Services Agreement.
"Dispute Notice Date" has the meaning set forth in Section 12.1.3 of the
Management Agreement or Section 5.1.3 of the Services Agreement.
"Encumbrances" has the meaning set forth in Section 5.1(a) of the Sprint
Spectrum Trademark and Service Mark License Agreement or Section 5.1(a) of the
Sprint Trademark and Service Mark License Agreement.
"Entire Business Value" has the meaning set forth in Section 11.7.3 of the
Management Agreement.
"Event of Termination" means any of the events described in Section 11.3 of
the Management Agreement. For the purposes of the Sprint Spectrum Trademark and
Service Mark License Agreement only, "Event of Termination" has the meaning set
forth in Section 13.2 of that agreement. For the purposes of the Sprint
Trademark and Service Mark License Agreement only, "Event of Termination" has
the meaning set forth in Section 13.2 of that agreement.
"FAA" means the Federal Aviation Administration.
"FCC" means the Federal Communications Commission.
"Financial Lender" means any and all of those commercial and financial
institutions that provide material credit to Manager for the purpose of
assisting Manager with the fulfillment of its obligations and duties under this
agreement.
"fixed wireless local loop" has the meaning set forth in Section 2.4 of the
Management Agreement.
"home service area" means the geographic area within which a customer can
make a local call on the customer's PCS phone (i.e., the customer does not incur
an extra charge).
"Inbound Roaming" means calls placed by a non-Sprint PCS Network customer
on the Sprint PCS Network.
3
<PAGE>
"Indemnitee" and "Indemnitor" have the meanings set forth in Section 13.3.1
of the Management Agreement or Section 6.3.1 of the Services Agreement.
"Initial Term" has the meaning set forth in Section 11.1 of the Management
Agreement.
"Involuntary Bankruptcy" has the meaning set forth in Section 11.3.7 of the
Management Agreement.
"Law" means all laws (statutory or otherwise), ordinances, rules,
regulations, bylaws, Orders and codes of all governmental and regulatory
authorities, whether United States Federal, state or local, which are applicable
to the Sprint PCS Products and Services.
"License" means the PCS license(s) issued by the FCC described on the
Service Area Exhibit to the Management Agreement.
- --------------------
"Licensed Marks" means the trademarks and service marks referred to in the
Recitals section of the Trademark License Agreement under whose terms this
definition is being applied, and such other marks as may be adopted and
established under said agreement from time to time.
"Licensee" has the meaning set forth in the introductory paragraph to the
particular agreement under whose terms this definition is being applied.
"Licensor" has the meaning set forth in the introductory paragraph to the
particular agreement under whose terms this definition is being applied.
"local calling area" means the geographic area within which a customer can
make a local call on the customer's PCS handset without incurring a long
distance charge.
"Loss" means any and all damage, loss, liability, claim, out-of-pocket cost
and expense, including reasonable expenses of investigation and reasonable
attorneys' fees and expenses, but excluding consequential or special damages.
"Management Agreement" means that certain Sprint PCS Management Agreement
executed by Manager and Sprint PCS and any documents incorporated by reference
in said agreement.
"Manager" means the party to this agreement as indicated in the
introductory paragraph of this agreement.
"Manager Management Report" has the meaning set forth in Section 12.1.2 of
the Management Agreement.
4
<PAGE>
"Manager's Products and Services" means all types and categories of
wireless communications services and associated products that are offered by
Manager in the Service Area under Section 3.2 of the Management Agreement.
"Marketing Communications Guidelines" means the guidelines issued by Sprint
or Sprint PCS in accordance with Section 5.2 of the Management Agreement with
respect to the marketing, promotion, advertising, distribution, lease and sale
of Sprint PCS Products and Services, as they may be amended from time to time by
Sprint or Sprint PCS in accordance with the terms of the Trademark License
Agreements.
"Master Signature Page" means the document that the parties to the
Management Agreement, Services Agreement and/or one or more of the Trademark
License Agreements sign to evidence their agreement to execute, become a party
to and be bound by each of the agreements, or parts thereof, listed above the
particular party's signature on such Master Signature Page.
"MFN price" or "Most Favored Nation price" means, with respect to resale,
the best local market price offered to any third party for the purchase of air
time on Manager's network including but not limited to any third party who may
use the air time for its own wireless communications services or resell the air
time, and, with respect to roaming, the lowest roaming charge of Manager to
other wireless carriers when their customers roam on the Service Area Network.
"MIN" means the 24-bit mobile identification number corresponding to the 7-
digit telephone number assigned to the handset, used for both billing and
receiving calls.
"MTA" means a Major Trading Area for which a MTA license is issued by the
FCC.
"New Coverage" means the build-out in the Service Area that is in addition
to the build-out required under the then-existing Build-out Plan, which build-
out Sprint PCS or Manager decides should be built-out.
"Notice Address Schedule" means the schedule attached to the Master
Signature Page that provides the mailing and courier delivery addresses, and the
facsimile number, for giving notices to each of the parties signing the Master
Signature Page. The Notice Address Schedule may include supplemental addresses
that serve as additional or alternate notice addresses for use by the parties in
specifically prescribed situations.
"NPA-NXX" means as follows: "NPA" means numbering plan area, which is the
area code for a telephone number. "NXX" refers to the first three digits of a
telephone number, which identify the specific telephone company central office
that serves that number.
5
<PAGE>
"Offer" means an offer received by Manager to sell substantially all of the
assets comprising or used in connection with the operation and management of the
Service Area Network or any portion of the Service Area Network.
"Offer Notice" means a written notice given by Manager to Sprint PCS that
sets forth in detail the terms and conditions of an Offer and the name and
address of the person or entity making the Offer.
"Offered Interest" means the assets that Manager proposes to sell pursuant
to an Offer.
"Operating Assets" means the assets Manager or its Related Parties owns and
uses in connection with the operation of the Service Area Network, at the time
of termination, to provide the Sprint PCS Products and Services. Operating
Assets does not include items such as furniture, fixtures and buildings that
Manager or its Related Parties use in connection with other businesses. Examples
of Operating Assets include without limitation: switches, towers, cell sites,
systems, records and retail stores.
"Operational Level of Sprint PCS" means the average operational level of
all the service area networks operated by Sprint PCS and its Related Parties
without the use of a manager or affiliate, as measured by Sprint PCS, unless the
operational level, as measured by Sprint PCS, of all of the service area
networks operated by Sprint PCS and its Related Parties without the use of a
manager or affiliate that are contiguous to the Service Area are below the
national average, in which case "Operational Level of Sprint PCS" means the
average operational level of those contiguous service area networks.
"Order" means any order, writ, injunction, decree, judgment, award or
determination of any court or governmental or regulatory authority.
"Other Managers" means any person or entity with which Sprint PCS has
entered into an agreement similar to this agreement or an Affiliation Agreement,
including without limitation an affiliate under an Affiliation Agreement or a
manager under another Management Agreement, under which the person or entity
designs, constructs and manages a service area network and offers and promotes
Sprint PCS Products or Services.
"Outbound Roaming" means calls placed by a Sprint PCS Network customer on a
non-Sprint PCS network.
"Parent" means, with respect to any Person, the ultimate parent entity (as
determined in accordance with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and the rules and regulations promulgated thereunder) of such Person;
except that if such ultimate parent entity is an individual, the Parent will be
the highest entity in the ownership chain from the ultimate parent entity to and
including such Person that is not an individual.
6
<PAGE>
"parties" means, with respect to the Management Agreement, Sprint PCS and
Manager. For the purpose of the services Agreement only, "parties" means Sprint
Spectrum and Manager. Sprint is not a party to the Management Agreement, except
to the limited extent described on the signature page executed on behalf of
Sprint. For the purpose of the Trademark License Agreements only, "parties"
means Licensor and Licensee.
"PCS" means a radio communication system authorized under the rules for
broadband personal communications services designated as Subpart E of Part 24 of
the FCC's rules, including the network, marketing, distribution, sales, customer
interface and operations functions relating thereto.
"PCS Spectrum" means the range of frequencies that Sprint PCS is authorized
to use under the License.
"Permitted Assignee" means any assignee of the rights and obligations of
Licensee pursuant to an assignment consented to in writing by Licensor, in its
sole discretion, in accordance with Section 14.1 of the Sprint Spectrum
Trademark and Service Mark License Agreement or Section 14.1 of the Sprint
Trademark and Service Mark License Agreement, or any subsequent permitted
assignee of any such permitted assignee.
"Person" means any individual, partnership, limited partnership, limited
liability company, corporation, trust, other business association or business
entity, estate, or other entity.
"pops" means the population covered by a license or group of licenses.
Unless otherwise noted, as used in the Management Agreement, pops means the most
recent Rand-McNally Population Survey estimate of the population of a geographic
area.
"Premium and Promotional Items" means all items, including clothing,
memorabilia and novelties, used to display the Licensed Marks for the purpose of
promoting the awareness, sale or image of the Sprint PCS Products and Services;
provided, however, that Premium and Promotional Items does not include marketing
and advertising materials prepared by Licensee that are subject to the Marketing
Communications Guidelines (e.g. printed materials such as bill stuffers,
brochures and similar materials).
"Prime Rate" means the rate announced from time to time by The Chase
Manhattan Bank, or its successor(s), as its prime rate.
"Program Requirements" means the standards, guidelines, plans, policies and
programs established by Sprint PCS from time to time regarding the operation and
management of the Service Area Network and the Sprint PCS business operated
using the Service Area Network, including the Program Requirements set forth in
Sections 4.1, 4.2, 4.3, 7.2 and 8.1 of the Management Agreement. Sprint PCS may
also implement Program Requirements respecting a voluntary resale program, as
defined in Section 3.5.2 of the Management Agreement.
7
<PAGE>
"Purchase Notice" has the meaning set forth in Section 1.2 of Exhibit 11.8
------------
to the Management Agreement.
"Quality Standards" has the meaning set forth in Section 2.1(a) of the
Sprint Spectrum Trademark and Service Mark License Agreement or Section 2.1(a)
of the Sprint Trademark and Service Mark License Agreement.
"Rand-McNally Population Survey" means the most recent population survey
published by Rand-McNally or, if Rand-McNally no longer publishes the surveys,
then the most recent population survey published by any successor organization
to Rand-McNally or, if no such organization exists, an organization selected by
Sprint PCS that provides surveys similar to the Rand-McNally surveys.
"Receiving Party" has the meaning set forth in Section 3.1 of the Sprint
Spectrum Trademark and Service Mark License Agreement or Section 3.1 of the
Sprint Trademark and Service Mark License Agreement.
"Related Equipment" means customer-controlled equipment for use in
connection with the Sprint PCS Products and Services including telephones,
wireless handsets and related accessories, PCMCIA cards, "smart" cards, PDA's,
PBX's, set-top boxes and data terminals.
"Related Party" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with the Person. For purposes of the
Management Agreement, Sprint Spectrum, SprintCom, American PCS Communications,
LLC, PhillieCo Partners I, L.P., and Cox Communications PCS, L.P. will be deemed
to be Related Parties. For purposes of this definition, the term "controls"
(including its correlative meanings "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Restricted Party" has the meaning set forth in Section 3.1 of the Sprint
Spectrum Trademark and Service Mark License Agreement or Section 3.1 of the
Sprint Trademark and Service Mark License Agreement.
"Selected Services" means those Available Services selected by Manager to
be provided by Sprint Spectrum under Section 2.1 of the Services Agreement. An
Available Service will not be treated as a Selected Service until Sprint
Spectrum begins providing that service.
"Service Area" means the geographic area described on the Service Area
------------
Exhibit to the Management Agreement.
- -------
"Service Area Network" means the network and business activities managed by
Manager under the Management Agreement in the Service Area under the License.
8
<PAGE>
"Services Agreement" means that certain Sprint PCS Services Agreement
executed by Manager and Sprint Spectrum and any documents incorporated by
reference in said agreement, whereby Manager may delegate the performance of
certain services to Sprint PCS for fees that represent an adjustment of the fees
paid by Sprint PCS to Manager under Section 10 of the Management Agreement.
"Siting Regulations" means:
(1) FCC regulations governing tower siting, lighting, marking,
monitoring, and reporting of lighting malfunctions as set forth in 47 CFR
(S)(S)17.1 through 17.58, and as may be amended;
(2) FAA regulations governing tower siting, lighting, marking,
monitoring, and reporting of lighting malfunctions as set forth in 14 CFR
(S)(S)77.1 through 77.75, and as may be amended;
(3) FCC land use regulations as set forth in 47 CFR (S)(S)1.1301
through 1.1319, and as may be amended; and
(4) FCC radio frequency exposure regulations as set forth in 47 CFR
(S)(S)1.1301 through 1.1319, and as may be amended.
"spectrum" has the same meaning as PCS Spectrum.
"Sprint" means Sprint Communications Company, L.P., a Delaware limited
partnership.
"Sprint Brands" means the "Licensed Marks" as that term is defined under
the Sprint Trademark and Service Mark License Agreement.
"Sprint PCS" means any or all of the following Related Parties who are
License holders and signatories to the Management Agreement: Sprint Spectrum
L.P., a Delaware limited partnership, SprintCom, Inc., a Kansas corporation,
PhillieCo Partners I, L.P., a Delaware limited partnership, Cox Communications
PCS, L.P., a Delaware limited partnership, and American PCS Communications, LLC,
a Delaware limited liability company. Each entity listed above is a Related
Party to each of the other listed entities.
"Sprint PCS Affiliation Agreement" has the same meaning as Affiliation
Agreement.
"Sprint PCS Brands" means the "Licensed Marks" as that term is defined
under the Sprint Spectrum Trademark and Service Mark License Agreement.
"Sprint PCS Communications Policies" means the policies established in
accordance with Section 6.4 of the Management Agreement with respect to public
relations development,
9
<PAGE>
maintenance and management, as they may be amended from time to time by Sprint
PCS in accordance with the terms of the Management Agreement.
"Sprint PCS Customer Service Program Requirements" means the program and
requirements established in accordance with Section 8.1 of the Management
Agreement with respect to customer service development, maintenance and
management, as it may be amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement.
"Sprint PCS Customer Service Standards" means those customer service
standards developed by Sprint PCS with respect to customer service and
maintenance as described in Section 8.2 of the Management Agreement, as it may
be amended from time to time by Sprint PCS in accordance with the terms of the
Management Agreement.
"Sprint PCS Insurance Requirements" means the insurance requirements
developed by Sprint PCS as described in Section 12.3 of the Management
Agreement, as they may be amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement.
"Sprint PCS Management Agreement" has the same meaning as Management
Agreement.
"Sprint PCS National Accounts Program Requirements" means the program and
requirements established in accordance with Section 4.2 of the Management
Agreement with respect to national accounts development, maintenance and
management, as it may be amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement.
"Sprint PCS National or Regional Distribution Program Requirements" means
any distribution program and requirements established in accordance with Section
4.1 of the Management Agreement, as it may be amended from time to time by
Sprint PCS in accordance with the terms of the Management Agreement, and entered
into by Sprint PCS or its Related Parties and a third-party distributor (for
example, a national chain of retail electronics stores) from time to time, under
which the third party will distribute, lease, or sell Sprint PCS Products and
Services on a national or regional basis. The term "distributor" means a
reseller of Sprint PCS Products and Services, or an agent of Sprint PCS
authorized to sell Sprint PCS Products and Services on behalf of Sprint PCS, or
a person engaged in any other means of wholesale or retail distribution of
Sprint PCS Products and Services.
"Sprint PCS Network" means the national wireless network and business
activities to be developed by Sprint PCS, Manager and Other Managers in the
United States and certain of its territories and possessions, which network
includes the Service Area Network.
"Sprint PCS Products and Services" means all types and categories of
wireless communications services and associated products that are designated by
Sprint PCS (whether now existing or developed and implemented in the future) as
products and services to be offered by Sprint PCS, Manager and all Other
Managers as the products and services of the Sprint PCS
10
<PAGE>
Network for fixed and mobile voice, short message and other data services under
the FCC's rules for broadband personal communications services, including all
local area service plans. Sprint PCS Products and Services do not include
wireline products or services, including local exchange service, wireline long
distance service, and wireline based Internet access.
"Sprint PCS Roaming and Inter Service Area Program Requirements" means:
(i) the roaming program and requirements established in accordance
with Section 4.3 of the Management Agreement, as amended from time to time by
Sprint PCS in accordance with the terms of the Management Agreement, to provide
for customers from a carrier not associated with the Sprint PCS Network to
operate the customer's handset on the Sprint PCS Network and for customers from
the Sprint PCS Network (whether customers of Sprint PCS, Manager or an Other
Manager) to operate the customer's handset on a network of a carrier not
associated with the Sprint PCS Network, and
(ii) the program established in accordance with Section 4.3 of the
Management Agreement, as amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement, to provide for customers from one
Service Area on the Sprint PCS Network, whether managed by Sprint PCS, Manager,
or an Other Manager, to operate the customer's handsets and otherwise receive
seamless service, regardless of whether the customer makes its call to or from
the Sprint PCS Network and regardless of whether the customer is a customer of
Sprint PCS, Manager or an Other Manager.
"Sprint PCS Technical Program Requirements" means the operating and
technical performance standards established by Sprint PCS, in accordance with
Section 7.2 of the Management Agreement, as amended from time to time by Sprint
PCS in accordance with the terms of the Management Agreement, for the Sprint PCS
Network as they may be amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement.
"Sprint Spectrum" means Sprint Spectrum L.P., a Delaware limited
partnership.
"Sprint Spectrum Brands" means the "Licensed Marks" as that term is defined
under the Sprint Spectrum Trademark and Service Mark License Agreement.
"Sprint Spectrum Trademark and Service Mark License Agreement" means that
certain Sprint Spectrum Trademark and Service Mark License Agreement executed by
Manager and Sprint Spectrum and any documents incorporated by reference in said
agreement.
"Sprint Trademark and Service Mark License Agreement" means that certain
Sprint Trademark and Service Mark License Agreement executed by Manager and
Sprint and any documents incorporated by reference in said agreement.
"SprintCom" means SprintCom, Inc., a Kansas corporation.
11
<PAGE>
"Subsidiary" of any Person as of any relevant date means a corporation,
company or other entity (i) more than 50% of whose outstanding shares or equity
securities are, as of such date, owned or controlled, directly or indirectly
through one or more Subsidiaries, by such Person, and the shares or securities
so owned entitle such Person and/or Subsidiaries to elect at least a majority of
the members of the board of directors or other managing authority of such
corporation, company or other entity notwithstanding the vote of the holders of
the remaining shares or equity securities so entitled to vote or (ii) which does
not have outstanding shares or securities, as may be the case in a partnership,
joint venture or unincorporated association, but more than 50% of whose
ownership interest is, as of such date, owned or controlled, directly or
indirectly through one or more Subsidiaries, by such Person, and in which the
ownership interest so owned entitles such Person and/or Subsidiaries to make the
decisions for such corporation, company or other entity.
"Successor Notice" has the meaning set forth in Section 17.15.2(e) of the
Management Agreement.
"Term" means during the term of the Management Agreement, including the
Initial Term and any renewal terms.
"Trademark and Service Mark Usage Guidelines" means the rules governing the
depiction and presentation of the Licensed Marks then generally in use by
Licensor, to be furnished by Licensor to Licensee, as the same may be amended
and updated from time to time by Licensor.
"Trademark License Agreements" means the Sprint Trademark and Service Mark
License Agreement and the Sprint Spectrum Trademark and Service Mark License
Agreement.
"Type II Report" has the meaning set forth in Section 12.1.2 of the
Management Agreement.
"Voluntary Bankruptcy" has the meaning set forth in Section 11.3.7 of the
Management Agreement.
"wireless mobility communications network" means a radio communications
system operating in the 1900 MHz spectrum range under the rules designated as
Subpart E of Part 24 of the FCC's rules.
12
<PAGE>
C
Build-out of Network
(custom exhibits)
1.7 Build-out and Working Capital
Financing (custom exhibit)
2.1 Build-out Plan (custom exhibit)
2.4 Restricted Markets (custom exhibit)
2.6 Purchase of Assets by Manager
(custom exhibit)
<PAGE>
Exhibit 2.1
Build Out Plan
Illinois PCS
Phase 1 Coverage - December 1999
BTA 46 Bloomington
Coverage includes the cities of Bloomington, Lincoln, and Pontiac. I-55 coverage
from Springfield BTA to Chicago BTA.
BTA 86 Clinton-Sterling
Coverage includes city of Sterling. I-88 coverage from Davenport-Moline BTA to
Chicago BTA.
BTA 105 Davenport-Moline
Coverage of "Quad Cities" metro area. I-80 coverage from Cedar Rapids BTA to
LaSalle-Peru BTA.
BTA 161 Galesburg
Coverage of Galesburg. I-74 from Davenport-Moline BTA to Peoria BTA.
BTA 213 Jacksonville
Coverage of Jacksonville. I-72 from Jacksonville to Springfield BTA.
BTA 243 LaSalle-Peru-Ottawa-Streator
Coverage of LaSalle, Peru, Ottowa, and Mendota. I-80 from Davenport-Moline BTA
to Chicago BTA and Hwy 39 from Chicago BTA to Peoria BTA.
BTA 344 Peoria
Coverage of Peoria and Pekin. I-74 from Galesburg BTA to Bloomington BTA and I-
155 from Peoria to Bloomington BTA.
BTA 394 St. Louis (Macoupin County only)
Coverage of southern third of Macoupin County. I-55 from border of Macoupin
county and St. Louis BTA to Springfield BTA.
BTA 426 Springfield
Coverage of Springfield, Chatham, and Litchfield. I-55 from St. Louis BTA to
Bloomington BTA and I-72 from Jacksonville BTA to Decatur-Effingham BTA.
<PAGE>
Phase 1 - December 2000
BTA 46 Bloomington
Coverage of city of Clinton. Hwy 39 from Bloomington to Decatur BTA and I-74
from Bloomington to Champaign-Urbana BTA.
BTA 71 Champaign-Urbana
Coverage of Champaign and Urbana. I-74 from Bloomington BTA to Danville BTA, I-
72 from Decatur-Effingham BTA to Champaign, and I-57 from Kankakee BTA to
Mattoon BTA.
BTA 103 Danville
Coverage of city of Danville. I-74 from Champaign-Urbana BTA to Lafayette BTA.
BTA 109 Decatur-Effingham
Coverage of cities of Decatur, Effingham, and Vandalia. I-72 from Springfield
BTA to Champaign-Urbana BTA, I-70 from St. Louis BTA to Mattoon BTA, and I-57
from Mattoon BTA to Mt. Vernon-Centralia BTA.
BTA 225 Kankakee
Coverage of city of Kankakee. I-57 from Chicago BTA to Champaign-Urbana BTA.
BTA 286 Mattoon
Coverage of cities of Mattoon and Charleston. I-57 from Champaign-Urbana BTA to
Decatur-Effingham BTA and I-70 from Decatur-Effingham BTA to Terre Haute BTA.
BTA 308 Mt. Vernon-Centralia BTA
Coverage of cities of Mt. Vernon, Centralia, and Salem. I-64 from St. Louis BTA
to Evansville BTA and I-57 from Decatur-Effingham BTA to Carbondale-Marion BTA.
Phase 2 - December 2002
BTA 86 Clinton-Sterling
Coverage of city of Clinton. Hwy 61 from Davenport-Moline BTA to Dubuque BTA.
BTA 105 Davenport-Moline
Coverage of cities of Muscatine and Kewanee. Hwy 61 from Davenport to Burlington
BTA.
BTA Decatur-Effingham
Coverage of city of Olney.
BTA 225 Kankakee
Coverage of city of Watseka.
<PAGE>
BTA 243 LaSalle-Peru-Ottawa-Streator
Coverage of city of Streator.
BTA 344 Peoria
Coverage of cities of Macomb and Canton.
BTA 426 Springfield
Coverage of cities of Taylorville and Pana. Hwy 29 from Springfield to Decatur-
Effingham BTA.
<PAGE>
Exhibit 2.1
IL PCS POP Matrix
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Total Phase 1 Phase 1 Phase 2 Phase 2 Total % of
BTA Licensed Covered Covered Area Covered Covered Area Covered Licensed
Number License BTA Name POPs POPs (Sq Mi) POPs (Sq Mi) POPs POPs
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
46 D Bloomington 230,919 204,023 1,628 204,023 88%
71 D Champaign-Urbana 220,271 186,615 1,123 186,615 85%
86 B Clinton, Sterling 144,881 38,092 230 57,423 389 95,515 66%
103 D,E Danville 110,501 65,604 348 65,604 59%
105 B Davenport, Moline 432,990 316,749 786 57,322 438 374,071 86%
109 D Decatur-Effingham 248,452 157,077 1,059 11,873 70 168,950 68%
161 D Galesburg 73,288 42,113 247 42,113 57%
213 D Jacksonville 68,988 28,988 238 28,988 42%
225 D,E Kankakee 135,003 82,640 437 10,099 107 92,739 69%
243 D,E LaSalle-Peru-Ottawa-Streator 152,765 96,217 731 22,672 128 118,889 78%
286 D Mattoon 63,362 55,092 466 55,092 87%
308 B Mount Vernon-Centralia 121,639 57,393 873 57,393 47%
344 D Peoria 464,192 270,130 724 40,322 144 310,452 67%
394 B St. Louis (Macoupin County) 46,685 20,358 221 20,358 44%
426 D Springfield 264,606 184,692 775 25,018 292 209,710 79%
--------- --------- ----- ------- ----- --------- --
2,778,542 1,805,783 9,886 224,729 1,568 2,030,512 73%
</TABLE>
Page 1
<PAGE>
Service Area Exhibit
SERVICE AREA EXHIBIT
--------------------
Illinois PCS
------------
BTA Name BTA # License Holder License
- -------- ----- -------------- -------
Bloomington, IL 46 SprintCom D
Champaign-Urbana, IL 71 SprintCom D
Clinton, IA - Sterling, IL 86 SprintPCS B
Danville, IL 103 SprintCom D,E
Davenport, IA - Moline, IL 105 SprintPCS B
Decatur - Effingham, IL 109 SprintCom D
Galesburg, IL 161 SprintCom D
Jacksonville, IL 213 SprintCom D
Kankakee, IL 225 SprintCom D,E
LaSalle-Peru-Ottawa-Streator, IL 243 SprintCom D,E
Mattoon, IL 286 SprintCom D
Mt. Vernon - Centralia, IL 308 SprintPCS B
Peoria, IL 344 SprintCom D
St. Louis, MO (Macoupin County, IL only) 394 SprintPCS B
Springfield, IL 426 SprintCom D
Page 1
<PAGE>
D
Products and Services
3.1 Listing of Products and Services
4.4 Sprint PCS Pricing Plans for Regional
or National Offering
6.4 Sprint PCS Communications Policies
<PAGE>
E
4.1 Sprint PCS Regional or National
Distribution Program Requirements
Retail Store Guidelines (under development)
Handset Logistics and Distribution Requirements
(under development)
<PAGE>
F
4.2 Sprint PCS National Accounts
Program Requirements
. Attachment I - Segmentation and Roles and Responsibilities &
Customer Decision Making Matrix
. Methods and Procedures to Provide Transfer of Service (under
development)
. Sales Reporting Form
. Sprint PCS National Term Service Agreement
<PAGE>
G
4.3 Sprint PCS Roaming and Inter Service Area Program
Requirements
<PAGE>
H
7.2 Sprint PCS Technical Program
Requirements
<PAGE>
I
8.1 Sprint PCS Customer Service
Program Requirements
. Minimum Standards, Requirements and Metrics for Customer Care
. Minimum Standards, Requirements and Metrics for Revenue
Operations
. Attachment I - Invoice Presentation (Mandatory Elements)
. Attachment II - Billing Cycles and Intervals and Taffic
Reconciliation
. Attachment III - Cycle Processing Timeliness and Accuracy
. Attachment IV - Required Monthly Revenue Reports
. Minimum Standards, Requirements and Metrics for Fraud/Receivables
Management
. Attachment I - Collections Treatment Schedule
. Attachment II - Process & Time Frames for Responding to
Suspicious Usage Activity
. Minimum Standards and Requirements for IT Management
. Attachment I - Disaster Recovery Plan
. Attachment II - Data Backup
<PAGE>
J
11.8 Closing Terms and Conditions
<PAGE>
K
12.3 Insurance Requirements
<PAGE>
ADDENDUM I
TO
SPRINT PCS MANAGEMENT AGREEMENT
Manager: Illinois PCS, LLC
Service Area: Bloomington, IL BTA # 46
Champaign-Urbana, IL BTA # 71
Clinton, IA-Sterling, IL BTA # 86
Danville, IL BTA #103
Davenport, IA-Moline, IL BTA #105
Decatur-Effingham, IL BTA #109
Galesburg, IL BTA #161
Jacksonville, IL BTA #213
Kankakee, IL BTA #225
LaSalle-Peru-Ottawa-Streator, IL BTA #243
Mattoon, IL BTA #286
Mt. Vernon-Centralia, IL BTA #308
Peoria, IL BTA #344
St. Louis, MO (Macoupin County, IL only) BTA #394
Springfield, IL BTA #426
This Addendum contains certain additional and supplemental terms and
provisions of that certain Sprint PCS Management Agreement (the "Management
Agreement") entered into contemporaneously with and by the same parties as this
Addendum. The terms and provisions of the Addendum control, supersede and amend
any conflicting terms and provisions contained in the Management Agreement.
Except for express modifications made in this Addendum, the Management Agreement
continues in full force and effect.
Capitalized terms used and not otherwise defined in this Addendum have the
meaning ascribed to them in the Schedule of Definitions. Section and Exhibit
references are to Sections and Exhibits of the Management Agreement unless
otherwise noted.
The Management Agreement is modified as follows:
1. Exclusivity of Service Area. The first sentence of Section 2.3 is
amended by amending the phrase "will own, operate, build or manage another
wireless mobility communications network" to read as follows: "will directly or
indirectly own, operate, build or manage another wireless mobility
communications network or sell Sprint PCS Products and Services".
2. Coverage Enhancement. The following language is added to Section 2.5:
<PAGE>
Sprint PCS hereby confirms that Manager will be required to build-out New
Coverage in the Service Area under this Section 2.5 only to the extent that
each cell will provide radio frequency coverage for a minimum of 10,000
covered pops per cell site and provide for coverage of all interstate and
major highways. Manager will not be required under this Section 2.5 to
build coverage of lesser density than 10,000 covered pops per cell site
until the adoption of less dense build-out requirements under and pursuant
to the terms of Section 2.5.
The following cities (i) have been identified as meeting this build-out
requirement of greater than 10,000 pops per cell site as of the signing of
this Agreement, (ii) are the only cities in the Service Area not included
in Phase 1 of the initial Build Plan Exhibit 2.1 that meet this build-out
requirement, and (iii) will be exempted from this Section 2.5 build-out
requirement until January 1, 2003:
City Pops Covered BTA
---- ------------ ---
Clinton, IA 36,891 86 Clinton-Sterling
Kewanee, IL 14,013 105 Davenport-Moline
Muscatine, IA 26,120 105 Davenport-Moline
Olney, IL 11,873 109 Decatur-Effingham
Watseka, IL 10,099 225 Kankakee
Streator, IL 21,560 243 LaSalle-Peru-Ottawa-Streator
Canton, IL 17,155 344 Peoria
Macomb, IL 23,167 344 Peoria
Taylorville, IL 13,379 426 Springfield
This is also to confirm that the highway coverage to be built by Manager as
provided for in Exhibit 2.1 of the Management Agreement meets the
interstate and major highway coverage requirements as required under this
Section 2.5.
3. IXC Services. The first sentence of Section 3.4 is deleted and, in
its place, the following is inserted:
Manager must purchase from Sprint long distance telephony services for the
Sprint PCS Products and Services at wholesale rates, except that Manager
may purchase long distance telephony services that utilize the networks of
one or more of AT&T or MCI/WorldCom (or their successors) if Sprint fails
to exercise a right of last offer within 30 days after Manager gives Sprint
a copy of the wholesale rate proposal. Manager may also purchase
<PAGE>
long distance telephony services that utilize the network of another inter-
exchange carrier (IXC) (or its successors) (alone or in conjunction with
AT&T or MCI/WorldCom networks) under the circumstances described in the
preceding sentence, so long as such IXC (or its successors) substantially
meets Sprint's network reliability and voice quality standards in force at
the time Sprint receives the proposal. Manager agrees it will not submit a
wholesale rate proposal to Sprint more often than once during any twelve
month period.
4. Taxes and Fees. The following Section 10.4(d) is added to the
Management Agreement:
(d) Taxes. It is the intention of Sprint PCS and Manager that taxes and
fees imposed by federal, state and local governments and their agencies
upon customer service revenues (for example, sales and use taxes, gross
receipts taxes, telecommunication surcharges, utility fees, right-of way
fees which are not charged on property value or property cost and universal
service fees) be passed through to customers in their entirety and be
excluded from Collected Revenues under Section 10.4(b)(v) of the Sprint PCS
Management Agreement. In the event that any such taxes or fees assessed on
services provided to customers are not passed through to customers, Sprint
PCS and Manager will bear the cost of such taxes and fees in a ratio of 8%
and 92%, respectively.
5. Regulatory Notices (Response Period). In the first sentence of
Section 16.4, the phrase "2 Business Days" is replaced by the phrase "5 Business
Days".
6. Regulatory Notices (Costs). The following two sentences replace the
last sentence of Section 16.4:
If Sprint PCS chooses to respond to such communications and complaints,
Manager will not respond to them without the consent of Sprint PCS. Sprint
PCS will bear the cost of responding to any such communications and
complaints unless (i) such response is primarily the result of Manager's
acts or omissions that constitute negligence, willful misconduct, or breach
of any provision of this agreement (in which case Manager will pay the
costs of Sprint PCS' response), or (ii) Manager's response is not requested
by Sprint PCS.
7. Number Portability. The following sentence replaces the second
sentence of Section 17.17:
To the extent the relationship between NPA-NXX and the Service Area
changes, Sprint PCS will develop an alternative system to attempt to assign
customers who primarily live and work in the Service Area to the Service
Area, in a manner that preserves the economic benefits of this Agreement to
each party.
<PAGE>
8. Subsequent Acquisition of Additional Spectrum. In BTAs where Sprint
PCS owns 10MHz of spectrum or less, if Sprint PCS acquires additional spectrum
in the entirety of those BTAs in the Service Area, then Sprint PCS may amend the
Service Area Exhibit to the Management Agreement, in its sole discretion, to add
- --------------------
such newly acquired spectrum to said Exhibit. Such additional spectrum will,
-------
upon inclusion in the Service Area Exhibit, become part of the License, as such
--------------------
term is defined in the Schedule of Definitions. If additional spectrum is
included in the Service Area Exhibit and the License is then for 20MHz or more
--------------------
of PCS spectrum in the Service Area, then the word "executed" is replaced by the
word "terminated" in the first sentence of each of Sections 11.2.1.2 and 11.5.2
of the Management Agreement. Further, Sprint PCS and Manager may exercise any
and all rights under the Management Agreement, and in particular Section
11.2.2.2 and 11.6.2 thereof, that are available to the parties when a
Disaggregated License is sold to Manager. If the stipulations of this paragraph
are met then the reference in Section 11.5.1 to 80% will remain 80% (i.e., the
change from 80% to 88% pursuant to paragraph 9 of this Addendum is amended).
9. Manager's Put Right. The reference in Section 11.5.1 to 80% is
changed to 88%, except as provided in paragraph 8 of this Addendum.
10. Financing Arrangements. Sprint PCS agrees to propose modifications to
the Management Agreement, and perhaps to the Schedule of Definitions, the
Services Agreement, the Sprint Trademark and Service Mark License Agreement, and
the Sprint Spectrum Trademark and Service Mark License Agreement, that will
enhance Manager's ability to obtain financing for the Service Area Network.
Sprint PCS will not be required to offer the Manager subsequent modifications
offered or agreed to with Other Managers subsequent to the initial set of
modifications.
11. Federal Contractor Compliance. A new Section 17.28, the text of which
is attached to this Addendum as Exhibit A, is added to the agreement.
---------
12. Year 2000 Compliance. The following Section 17.29 is added to the
agreement:
Section 17.29 Year 2000 Compliance. Sprint PCS and Manager each
separately represents and warrants that any system or equipment acquired,
operated or designated by it for use in the Service Area Network or for use
to support the Service Area Network, including (without limitation)
billing, ordering and customer service systems, will be capable of
correctly processing and receiving date data, as well as properly
exchanging date data with all products (for example, hardware, software and
firmware) with which the Service Area Network is designed to be used, and
will not malfunction or fail to function due to an ability to process
correctly date data in conformance with Sprint PCS requirements for "Year
2000 Compliance." If the Service Area Network or any system used to support
the Service Area Network fails to operate as warranted due to defects or
failures in any system or equipment selected by Manager (including systems
or equipment of third party vendors and subcontractors selected by Manager
rather than by Sprint PCS) Manager will, at its own expense, make the
repairs, replacements or upgrades necessary
<PAGE>
to correct the failure and provide a Year 2000 Compliant Service Area
Network. If the Service Area Network or any system used to support the
Service Area Network fails to operate as warranted due to defects or
failures in any system or equipment selected by Sprint PCS (including
systems or equipment of third party vendors and subcontractors which Sprint
PCS selects and requires Manager to use), Sprint PCS will, at its own
expense, make the repairs replacements or upgrades necessary to correct the
failure and provide a Year 2000 Compliant Service Area Network.
"Year 2000 Compliance" means the functions, calculations, and other
computing processes of the Service Area Network (collectively "Processes")
which perform and otherwise process, date arithmetic, display, print or
pass date/time data in a consistent manner, regardless of the date in time
on which the Processes are actually performed or the dates used in such
data or the nature of the date/time data input, whether before, during or
after January 1, 2000 and whether or not the date/time data is affected by
leap years. To the extent any part of the Service Area Network is intended
to be used in combination with other software, hardware or firmware, it
will properly exchange date/time data with such software, hardware or
firmware. The Service Area Network will accept and respond to two-digit
year-date input, correcting or supplementing as necessary, and store,
print, display or pass date/time data in a manner that is unambiguous as to
century. No date/time data will cause any part of the Service Area Network
to perform an abnormally ending routine or function within the Processes or
generate incorrect final values or invalid results.
13. Inter Service Area Fees. In Exhibit 4.3, the first sentence under the
heading Inter Service Area Requirements is amended to read as follows: "The
reciprocal fee per minute for Inter Service Area usage will be $0.20 through
December 31, 2001, but thereafter is subject to amendment pursuant to Section
9.2 of the Management Agreement."
14. Change regarding Payment Fees in Service Agreement. The second
sentence of Section 3.1 of the Services Agreement is deleted in its entirety and
replaced by the following two sentences: "Except with respect to fees paid for
billing-related services, the monthly charge for any fees based on the number of
subscribers of the Service Area Network will be determined based on the number
of subscribers as of the 15th day of the month for which the charge is being
calculated. With respect to fees paid for billing-related services, the monthly
charge for any fees based on the number of subscribers will be based on the
number of gross activations in the month for which the charge is being
calculated plus the number of subscribers of the Service Area Network on the
last day of the prior calendar month.
<PAGE>
Exhibit A
---------
Section 17.28. Federal Contractor Compliance. (1) The Manager will not
discriminate against any employee or applicant for employment because of race,
color, religion, sex, or national origin. The Manager will take affirmative
action to ensure that applicants are employed, and that employees are treated
during employment without regard to their race, color, religion, sex, or
national origin. Such action shall include, but not be limited to the following:
Employment, upgrading, demotion, or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of compensation;
and selection for training, including apprenticeship. The Manager agrees to post
in conspicuous places, available to employees and applicants for employment,
notices to be provided setting forth the provisions of this nondiscrimination
clause.
(2) The Manager will, in all solicitations or advertisements for employees
placed by or on behalf of the Manager, state that all qualified applicants will
receive considerations for employment without regard to race, color, religion,
sex, or national origin.
(3) The Manager will send to each labor union or representative of workers
with which he has a collective bargaining agreement or other contract or
understanding, a notice to be provided advising the said labor union or workers'
representatives of the Manager's commitments under this section, and shall post
copies of the notice in conspicuous places available to employees and applicants
for employment.
(4) The Manager will comply with all provisions of Executive Order 11246
of September 24, 1965, and of the rules, regulations, and relevant orders of the
Secretary of Labor.
(5) The Manager will furnish all information and reports required by
Executive Order 11246 of September 24, 1965, and by rules, regulations, and
orders of the Secretary of Labor, or pursuant thereto, and will permit access to
his books, records, and accounts by the administering agency and the Secretary
of Labor for purposes of investigation to ascertain compliance with such rules,
regulations, and orders.
(6) In the event of the Manager's noncompliance with the nondiscrimination
clauses of this contract or with any of the said rules, regulations, or orders,
this contract may be canceled, terminated, or suspended in whole or in part and
the Manager may be declared ineligible for further Government contracts or
federally assisted construction contracts in accordance with procedures
authorized in Executive Order 11246 of September 24, 1965, and such other
sanctions may be imposed and remedies invoked as provided in Executive Order
11246 of September 24, 1965, or by rule, regulation, or order of the Secretary
of Labor, or as otherwise provided by law.
(7) The Manager will include the portion of the sentence immediately
preceding paragraph (1) and the provisions of paragraphs (1) through (7) in
every subcontract or purchase order unless exempted by rules, regulations, or
orders of the Secretary of Labor issued pursuant to section 204 of Executive
Order 11246 of September 24, 1965, so that such provisions will be
<PAGE>
binding upon each subcontractor or vendor. The Manager will take such action
with respect to any subcontract or purchase order as the administering agency
may direct as a means of enforcing such provisions, including sanctions for
noncompliance. Provided, however, that in the event a Manager becomes involved
in, or is threatened with, litigation with a subcontractor or vendor as a result
of such direction by the administering agency the Manager may request the United
States to enter into such litigation to protect the interests of the United
States.
(8) In consideration of contracts with Sprint PCS, the Manger agrees to
execute the Certificate of Compliance attached hereto as Attachment I and
------------
further agrees that this certification shall be part of each contract between
Sprint PCS and Manager. The Manager will include Attachment I in every
------------
subcontract or purchase order, so that such provisions will be binding upon each
subcontractor.
<PAGE>
ADDENDUM II
TO
SPRINT PCS MANAGEMENT AGREEMENT
Manager: ILLINOIS PCS, L.L.C.
Service Area BTAs: Bloomington, IL BTA# 46
Champaign-Urbana, IL BTA# 71
Clinton, IA-Sterling, IL BTA# 866
Danville, IL BTA# 103
Davenport, IA-Moline, IL BTA# 105
Decatur-Effingham, IL BTA# 109
Galesburg, IL BTA# 161
Jacksonville, IL BTA# 213
Kankakee, IL BTA# 225
LaSalle-Peru-Ottawa-Streator, IL BTA# 243
Mattoon, IL BTA# 286
Mt. Vernon-Centralia, IL BTA# 308
Peoria, IL BTA# 344
St. Louis, MO (Macoupin County, IL only) BTA# 394
Springfield, IL BTA# 426
This Addendum II ("this Addendum"), dated as of August 3, 1999,
contains certain additional and supplemental terms and provisions of that
certain Sprint PCS Management Agreement entered into as of January 26, 1999, by
the same parties as this Addendum, which Management Agreement was further
amended by that certain Addendum I entered into as of January 26, 1999 (the
Management Agreement, as amended by Addendum I, being the "Management
Agreement"). The terms and provisions of this Addendum control, supersede and
amend any conflicting terms and provisions contained in the Management
Agreement. Except for express modifications made in this Addendum, the
Management Agreement continues in full force and effect.
Capitalized terms used and not otherwise defined in this Addendum have
the meanings ascribed to them in the Management Agreement. Section and Exhibit
references are to Sections and Exhibits of the Management Agreement unless
otherwise noted.
The Management Agreement is modified as follows:
1. Use of Loan Proceeds. Sprint PCS is entering into that certain
Consent and Agreement with Nortel Networks Inc. ("Nortel") (which Consent
and Agreement, as amended and modified from time to time, is referred to as
the "Consent and Agreement") to enable Manager to obtain loans from Nortel
and its successors and
<PAGE>
assigns (collectively, the "Lenders"). Manager agrees that it will not use
the proceeds from any loan made to Manager to which the Consent and
Agreement relates or from any other loan or extension of credit to which
the Consent and Agreement relates for any purpose other than (a) to
construct and operate the wireless service within the Service Area (as may
be amended from time to time) as contemplated under the Management
Agreement, or (b) as expressly permitted under Section 2.10 of the Credit
Agreement between Nortel, Manager and certain other entities dated as of
May 14, 1999 (the "Credit Agreement"), as in effect as of the date of
execution thereof (a copy of which is attached to this Addendum as Exhibit
-------
A) without giving effect to any subsequent amendment, modification or
-
waiver of any term, condition, definition or other provision of the Credit
Agreement or to any course of dealing between Nortel and Manager that now
exists or may hereafter be established allowing a use of loan proceeds not
allowed under in Sections 2.10 of the Credit Agreement as in effect as of
the date hereof.
2. Consent and Agreement Not Assignable. Except as expressly
required or permitted in the Consent and Agreement, Manager may not assign
the Consent and Agreement.
3. Notices. Manager agrees to promptly give Sprint PCS a copy of
any notice Manager receives from the Administrative Agent or any Lender (as
those terms are defined in the Consent and Agreement), and a copy of any
notice Manager gives to the Administrative Agent or any Lender. Sprint PCS
agrees to promptly give Manager a copy of any notice Sprint PCS receives
from the administrative Agent or any Lender, and a copy of any notice that
Sprint PCS gives to the Administrative Agent or any Lender.
4. No Default Under Credit Agreement or Management Agreement.
Manager warrants and represents that as of the date hereof, no Default or
Event of Default under the Credit Agreement has occurred, and no Event of
Termination under the Management Agreement or event that if not cured, or
it notice were to be provided, would constitute an Event of Termination
under the Management Agreement, has occurred.
5. No Known Breach Under Management Agreement. Sprint PCS warrants
and represents that, to the knowledge of its officers, as of the date
hereof, no Event of Termination under the Management Agreement has
occurred.
6. Sharing Confidential Information with Lenders. Section
12.2(b)(vii) of the Management Agreement is amended by inserting the words
"or has provided" between the words "is considering providing" and
"financing."
[The remainder of this page is intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum II to be
executed by their respective authorized officers as of the date and year first
above written.
SPRINT SPECTRUM L.P.
By: /s/ Andrew Sukawaty
----------------------------------
Name: Andrew Sukawaty
-----------------------------
Title: President
----------------------------
WIRELESSCO, L.P.
By: /s/ Andrew Sukawaty
----------------------------------
Name: Andrew Sukawaty
-----------------------------
Title: CEO
----------------------------
SPRINT COMMUNICATIONS COMPANY, L.P.
By: __________________________________
Thomas E. Weigman
Senior Vice President, Consumer
Market Strategy and Communications
SPRINTCOM, INC.
By: /s/ Andrew Sukawaty
----------------------------------
Name: Andrew Sukawaty
-----------------------------
Title: President
----------------------------
ILLINOIS PCS, L.L.C.
By: __________________________________
Name:_____________________________
Title:____________________________
<PAGE>
EXECUTION COPY
--------------
AMENDED AND RESTATED ADDENDUM III
TO
SPRINT PCS MANAGEMENT AGREEMENT
Dated as of March 8, 2000
Affiliate: Illinois PCS, LLC
New Service Area:
Nebraska Omaha, NE (partial)* BTA No. 332
--------
Lincoln, NE (partial)* BTA No. 256
Hastings, NE BTA No. 185
Norfolk, NE BTA No. 323
Grand Island - Kearney, NE BTA No. 167
Iowa Fort Dodge, IA BTA No. 150
----
Waterloo-Cedar Falls, IA BTA No. 462
Dubuque, IA BTA No. 118
Burlington, IA BTA No. 61
Ottumwa, IA BTA No. 337
Des Moines, IA (partial)* BTA No. 111
Marshalltown, IA BTA No. 283
Mason City, IA BTA No. 285
Michigan Traverse City, MI BTA No. 446
--------
Saginaw-Bay City, MI BTA No. 390
Muskegon, MI BTA No. 310
Grand Rapids, MI BTA No. 169
Mount Pleasant, MI BTA No. 307
Lansing, MI (partial)* BTA No. 241
Battle Creek, MI (partial)* BTA No. 33
This Amended and Restated Addendum III, dated as of March 8, 2000,
contains certain additional and supplemental terms and provisions to that
certain Sprint PCS Management Agreement entered into as of January 22, 1999, as
amended by that certain Addendum I to Sprint PCS Management Agreement dated
January 22, 1999, and Addendum II to Sprint PCS Management Agreement dated as of
August 3, 1999 (such agreement, as amended being the "Management Agreement").
This Amended and Restated Addendum III replaces and supersedes the previous
Addendum III executed by the parties on February 4, 2000, which is hereby made
void and of no force and effect.
<PAGE>
The terms and provisions of this Addendum control, supersede and amend any
conflicting terms and provisions contained in the Management Agreement. Except
for express modifications made in this Addendum, the Management Agreement
continues in full force and effect.
Capitalized terms used and not otherwise defined in this Addendum have the
meanings ascribed to them in the Management Agreement. Section and Exhibit
references in this Addendum are to Sections and Exhibits of the Management
Agreement unless otherwise noted.
1. Expansion of Service Area. Sprint PCS and Manager agree that Manager
will develop the BTAs set forth above in addition to the prior committed build
out of Manager in the following BTAs:
Bloomington, IL (BTA #46)
Champaign-Urbana, IL (BTA #71)
Clinton, IA-Sterling, IL (BTA #86)
Danville, IL (BTA #103)
Davenport, IA-Moline, IL (BTA #105)
Decatur-Effingham, IL (BTA #109)
Galesburg, IL (BTA #161)
Jacksonville, IL (BTA #213)
Kankakee, IL (BTA #225)
LaSalle-Peru-Ottawa-Streator, IL (BTA #243)
Mattoon, IL (BTA #286)
Mt. Vernon-Centralia, IL (BTA #308)
Peoria, IL (BTA #344)
Springfield, IL (BTA #426)
St Louis (BTA #394 Macoupin County, IL only)
(the combined new areas being called the "New Service Area" and the prior
committed build out being called the "Original Service Area"). Manager and
Sprint PCS agree that, subject to certain financing conditions as set forth
below in Section 2 of this Addendum, the Service Area is expanded to include
all, but not less than all, of the New Service Area.
As consideration for having its Service Area expanded to include the New
Service Area, Manager agrees that, on the earlier to occur of (i) the date on
which Manager, or if Manager is not the issuer, Manager's parent company that is
issuing public equity (either Manager or such issuing entity being referred to
as the "Issuer"), closes its initial public offering ("IPO"), (ii) the date on
which the Issuer completes a private placement of equity in an amount equal to
at least $70,000,000 ("Private Placement"), or (iii) the "Financing Date", as
defined in Section 2(c) below, the Issuer will grant to Sprint Spectrum L.P., or
any of its designees controlled by, or under common control with, Sprint
Spectrum L.P., the right to acquire the number of shares of common stock that
represent two percent (2%) of the value of the Issuer, pursuant to a warrant
agreement substantially in the form of the warrant agreement attached hereto as
Exhibit A. In the
- ---------
2
<PAGE>
case of an IPO of the Issuer's sole outstanding class of equity, the warrant
shares will represent two percent (2%) of the outstanding shares of the Issuer
at the time of the IPO. The purchase price for the shares under the warrant
agreement will be equal to 90% of the value of such shares. In the event of an
IPO or a Private Placement the value of the shares will be equal to the issuance
price of the shares. The value of the shares will be determined by the appraisal
process set forth on Exhibit B if the warrant agreement is entered into prior to
---------
an IPO or Private Placement.
2. Financing. (a) The word "and" is inserted between the words "thereto"
and "before" in the last sentence of Section 1.7.
(b) A revised and amended Exhibit 1.7, in the form attached to this Addendum,
-----------
is approved by Sprint PCS and Manager and is expressly made a part of the
Management Agreement.
(c) The parties agree that the Manager's closing of the financing described in
amended Exhibit 1.7 (the "New Service Area Financing") by July 15, 2000 (the
-----------
"Financing Date") is a material term of this Addendum to the Management
Agreement and that upon Manager's failure to obtain the New Service Area
Financing by the Financing Date Sprint PCS may declare Manager to be in breach
of the Management Agreement pursuant to Section 11.3.6 thereof; provided,
--------
however, that if, as of the Financing Date, Manager has financing sufficient to
- -------
complete the build-out of the Original Service Area, Sprint PCS may not use such
breach as a basis to terminate the Management Agreement with respect to the
Original Service Area. The parties further agree that, except for any
modification to the Service Area, the terms of this Addendum will survive any
termination with respect to the New Service Area. If Sprint PCS terminates
Manager's right to build out the New Service Area, then Sprint PCS will not be
entitled to any warrants under the warrant agreement described in paragraph 1.
3. Build-out Plan. A revised and amended Build-out Plan is incorporated
into Exhibit 2.1, in the form attached to this Addendum, and such revised and
-----------
amended Build-out Plan is approved by Sprint PCS and Manager and is expressly
made a part of the Management Agreement.
4. Purchase of Assets. The purchase of certain assets (the "Assets")
from Sprint PCS by Manager is provided for under and pursuant to the terms of
the Asset Purchase Agreement substantially in the form attached as Exhibit C and
---------
incorporated herein by this reference (the "Asset Purchase Agreement"). The
Assets to be purchased are listed on Exhibit A to the Asset Purchase Agreement.
---------
The parties recognize and acknowledge that a due diligence investigation will be
undertaken and completed by Manager as provided for under the terms of the Asset
Purchase Agreement prior to its determination of whether to make the asset
purchase contemplated under the Asset Purchase Agreement. If Manager does not
purchase the Assets pursuant to the terms of the Asset Purchase Agreement, then
the BTAs in which those Assets that are not transferred are located will be
excluded from the New Service Area. Manager shall be responsible for obtaining
any required consents and releases of the various landlords for any leases
acquired or assumed by Manager in connection with the purchase of the Assets.
3
<PAGE>
Sprint PCS will use commercially reasonable efforts to facilitate these
transfers. The purchase price for the Assets is set forth in the Asset Purchase
Agreement.
5. Manager's Option -- In addition to the New Service Area, Manager shall
have the option (the "Option"), exercisable in its sole discretion and pursuant
to the terms and conditions of this Section 5, to add to the Service Area both
of the following BTAs (herein, the "Optional Service Area"):
Cedar Rapids, IA BTA No. 70
Iowa City, IA BTA No. 205
The Option may be exercised by Manager at any time on or prior to January
31, 2001 (after which date the Option shall automatically expire unless
previously extended by mutual agreement of the parties) by executing the Option
Exercise Notice attached as Exhibit D-1 and the Asset Purchase Agreement
-----------
relating to the purchase of certain assets (the "Optional Service Area Assets")
from Sprint PCS by Manager in the Optional Service Area, substantially in the
form attached as Exhibit D-1 (the "Option Asset Purchase Agreement"), and
-----------
delivering the same to Sprint PCS by hand delivery or facsimile. The Option will
automatically expire if Manager loses the right to manage the New Service Area.
If Manager exercises the Option, Manager must add both the Cedar Rapids and Iowa
City BTAs. Upon receipt of the Option Exercise Notice and the Option Asset
Purchase Agreement executed by Manager, the Service Area shall be deemed to have
been expanded to include the Optional Service Area, and Sprint PCS shall
immediately countersign the Option Asset Purchase Agreement and deliver an
original counterpart thereof to Manager. The Optional Service Area Assets to be
purchased if the Option is exercised are listed on Exhibit A to the Option Asset
---------
Purchase Agreement, as the same may be updated by the parties promptly following
its execution to reflect changes and additions to such assets from the date
hereof to the date of its execution. In the event of any such additions, the
purchase price to be paid for the Optional Service Area Assets will increase as
determined in accordance with Exhibit C to the Option Asset Purchase Agreement.
The parties recognize and acknowledge that if the Option is exercised, a due
diligence investigation will be undertaken and completed by Manager as provided
for under the terms of the Option Asset Purchase Agreement prior to its
determination of whether to make the asset purchase contemplated under such
Option Asset Purchase Agreement. If Manager exercises the Option but does not
purchase the Optional Service Area Assets pursuant to the terms of the Option
Asset Purchase Agreement, then the BTAs in the Optional Service Area will be
excluded from the Service Area. Manager shall be responsible for obtaining any
required consents and releases of the various landlords for any leases acquired
or to be assumed by Manager in connection with the purchase of the Optional
Service Area Assets. Sprint PCS agrees that if the Option is exercised, it will
use commercially reasonable efforts to facilitate these transfers.
Unless and until the Option is exercised, Exhibit 2.1 attached hereto shall
-----------
be deemed not to contain any reference to the BTAs that comprise the Optional
Service Area. Upon such exercise, Exhibit 2.1 will be deemed to have been
amended at that time to include the references therein to the BTAs that comprise
the Optional Service Area. If the Option is exercised and the
4
<PAGE>
Option Asset Purchase Agreement is executed, the purchase price for the Optional
Service Area Assets (including the right to provide Sprint PCS Services to
Sprint PCS subscribers in the Optional Service Area at Closing) will be as set
forth in the Option Asset Purchase Agreement. In addition, upon the closing of
the Option Asset Purchase Agreement (if executed), Manager agrees to offer
employment to all Sprint Spectrum employees working in the BTAs that comprise
the Optional Service Area on comparable terms.
For each subscriber in the Optional Service Area who receives Sprint PCS
Products and Service using a Sprint PCS handset which is under warranty on the
Closing Date under the Option Asset Purchase Agreement, each such handset shall
be subject to the underlying handset purchase agreement and warranties of Sprint
PCS insofar as provided for in such agreements. From and after such Closing
Date, the cost and risk of loss from defective handsets and warranty exchanges
for any subscribers shall be borne by Manager.
6. Fixed Wireless Local Loop. As of the date of this Addendum, there are
no geographic areas within the New Service Area or the Optional Service Area in
which Sprint PCS or any of its Related Parties owns an incumbent local exchange
carrier.
7. Build-Out of Des Moines and Omaha MTAs. Manager's obligation to
complete the network build-out as described in Exhibit 2.1 for the Des Moines
and Omaha MTAs is material to Sprint PCS' compliance with the 10-year minimum
pops coverage requirement under the License for such MTAs, as required by the
FCC and, therefore, is a material term of the Management Agreement.
8. Expedite Fees. If Sprint PCS and Manager agree to pay additional fees
to a third party for any efforts associated with expediting completion of any
portion of Manager's Build Out Plan or Switch Integration to meet a Network
Ready Date (the "NRD") including, but not limited to, payment of expedited fees
for microwave relocation, and the NRD is later extended due to Manager action or
lack of action, then Manager will have full responsibility for the payment of
such fees.
9. Long-Distance Pricing. (a) The first sentence of Section 3.4 is
deleted in its entirety and replaced by the following language:
Manager must purchase long-distance telephony services from Sprint
through Sprint PCS both (i) to provide long-distance telephony service
to users of the Sprint PCS Network and (ii) to connect the Service
Area Network with the national platforms used by Sprint PCS to provide
services to Manager under the agreement and/or the Services Agreement.
Sprint will bill Sprint PCS for such services rendered to Sprint PCS,
Manager and all Other Managers, and in turn, Sprint PCS will bill
Manager for the services used by Manager. Manager will be charged the
same price for such long-distance service as Sprint PCS is charged by
Sprint (excluding interservice area long-distance travel rates) plus
an additional administrative fee to cover Sprint PCS' processing
costs.
5
<PAGE>
(b) The following sentence is added as a second paragraph in Section 3.4:
"Manager may not resell the long-distance telephony services acquired from
Sprint under this Section 3.4."
10. Voluntary Resale of Products and Services. Section 3.5.2 is modified
by amending the second sentence of the second paragraph in its entirety to read
as follows: "If Manager wants handsets of subscribers of resellers with NPA-NXXs
of Manager to be activated, Manager must agree to comply with the terms of the
program, including its pricing provisions."
11. Right of Last Offer. Section 3.7 is modified by adding the following
language: "(other than backhaul services relating to national platform and IT
application connections, which Manager must purchase from Sprint)" both between
(i) "Service Area Network" and "if Manager decides to use" in the first sentence
of the first paragraph and (ii) "for these services" and "and the agreement was
not made" in the first sentence of the second paragraph.
12. Non-termination of Agreement. The following language is added at the
end of Section 11.5.3 and Section 11.6.4: "but such action does not terminate
this agreement."
13. Announced Transactions. Section 17.24 is deleted in its entirety.
14. Additional Terms and Provisions. The phrase "the Addendum also
describes" is deleted from the second sentence of Section 17.25, and the
following language is inserted at the end of that second sentence: "have been
disclosed verbally or in writing to Sprint PCS, and photocopies of any such
written agreements will be delivered to Sprint PCS upon its request".
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date first above written.
Illinois PCS, LLC
By: /s/ Timothy M. Yager
Name: Timothy M. Yager
Title: President and CEO
WirelessCo, L.P.
By: /s/ Bernard A. Bianchino
Bernard A. Bianchino
Chief Business Development Officer
Sprint Spectrum L.P.
By: /s/ Bernard A. Bianchino
Bernard A. Bianchino
Chief Business Development Officer
Sprint Communications Company, L.P.
By: /s/ Don A. Jensen
Don A. Jensen
Vice President - Law
7
<PAGE>
EXECUTION COPY
--------------
Exhibit B
---------
Method for Determining Equity Value Prior to an IPO by Issuer
-------------------------------------------------------------
(i) Each party engages an nationally recognized investment bank to provide a
valuation at the Issuer's fair market value.
(ii) If the higher valuation is equal to or less than 110% of the lower
valuation, the mean of the two valuations is used.
(iii) If the higher valuation is greater than 110% of the lower valuation, and
the selling party's valuation is the lower valuation, the mean of the two
valuations is used.
(iv) If the higher valuation is greater than 110% of the lower valuation, and
the acquiring party's valuation is the lower valuation, the respective
investment banks engaged by the parties will agree upon a third
independent investment bank to provide a third valuation.
(v) If the third valuation falls outside of the two initial valuations, the
initial valuation closest to the third valuation is used.
(vi) If the third valuation falls within the initial valuation range and is
within 5% of the mean of the initial valuations, the third valuation is
used.
(vii) If the third valuation falls within the initial valuation range, but is
not within 5% of the mean of the initial valuations, the mean of the third
valuation and the nearest initial valuation is taken.
<PAGE>
Exhibit 2.1
Illinois PCS Addendum III
Limited Service Areas
- ---------------------
Manager has partial responsibility, or Limited Service Area, in selected BTAs in
the Service Area. The Manager's Limited Service Area BTAs are defined below. In
all areas where it is noted that Manager will meet Sprint PCS current or planned
coverage, Manager will work with Sprint PCS RF staff to determine the exact
location of Manager's sites in order to provide contiguous coverage with Sprint
PCS.
Des Moines, IA BTA 111
. Adams County
. Taylor County
. Union County
. Ringgold County
. Clarke County
. Decatur County
. Lucas County
. Wayne County
. Warren and Madison Counties only area along I-35 on the boundaries of these
counties
. Carroll County
. Greene County
. Audubon County excluding Sprint PCS current coverage
. Story County excluding Sprint PCS current coverage and the small area
Southwest of Sprint PCS coverage near the city of Huxley
. Hardin County
. Marion County
. Jasper County along IA 163 from Sprint PCS current coverage towards the
city of Pella
Omaha, NE BTA 332
. Colfax County
. Butler County
. Cuming County
. Burt County
. Saunders County only along US 30 from Columbus, NE East to Freemont, NE
. Dodge County
. Washington County excluding Sprint PCS current coverage
. Douglass County excluding Sprint PCS current coverage
<PAGE>
. Crawford County
. Otoe County
. Nemaha County
. Freemont County
. Mills County excluding Sprint PCS current coverage
. Montgomery County
. Page County
. Platte County
. Polk County
. Cass County only as it borders along I-29 to meet Sprint PCS current
coverage
. Richardson County
Lincoln, NE BTA 256
. All counties except Lancaster County. Lancaster County only includes areas
----
along I-80 from Western Lancaster County border to Sprint PCS current
coverage
Battle Creek, MI BTA 33
. Barry County only
Lansing, MI BTA 241
. Ionia County only
Phase I - To be completed by 7/1/2001
- -------------------------------------
Grand Rapids BTA 169
. Major Cities covered include: Grand Haven, Grand Rapids, Wyoming, Holland,
Wayland
. Major traffic arteries covered include: US 131 from Southern BTA border to
MI 57; I-96 from Eastern BTA border to Western BTA border; I-196 from
Southern BTA border to US 131
Muskegon BTA 310
. Major Cities covered include: Muskegon
. Major traffic arteries covered include: I-96 from US 31 to Eastern BTA
border
Saginaw-Bay City BTA 390
. Major Cities covered include: Saginaw, Bay City, Midland, Birch Run
. Major traffic arteries covered include: 1-75 from the Southern BTA border
to US 10; US 10 from Sanford to Essexville
<PAGE>
Lansing BTA 241
. Major Cities covered include: Ionia
. Major traffic arteries covered include I-96 from coverage Phase I Grand
Rapids BTA 169 to Eastern Ionia County border; MI 21 from I-96 to and
including Ionia
Battle Creek BTA 33
. Major Cities Covered include: Hastings
. Major traffic arteries covered include: MI 37 from coverage in Phase I
Grand Rapids BTA 169 to MI 43 in Hastings
Cedar Rapids BTA 70 *
. Expansion and fill in of Cedar Rapids metropolitan area
. Major Cities covered include: Cedar Rapids, Marion
. I-80 from Southwestern BTA border (East of Iowa City in "right leg" of BTA)
to Southeastern BTA border (East of Iowa City in "right leg" of BTA); I-80
from Southwestern BTA border (West of Iowa City in "left leg" of BTA) to
Southeastern BTA border (West of Iowa City in "left leg" of BTA)
Iowa City BTA 205 *
. Expansion and fill in of Iowa City metropolitan area
. Major Cities covered include: Iowa City
. I-80 from Western BTA border to Eastern BTA border; I-380 from Iowa City to
IA 22
Phase II - To be completed by 10/1/2001
- ---------------------------------------
Grand Rapids BTA 169
. Major Cities covered include: Big Rapids
. Major traffic arteries covered include: US 131 from MI 57 (Phase I build)
to Northern BTA border
Traverse City BTA 446
. Major Cities covered include: Traverse City, Cadillac, Elk Rapids
. Major traffic arteries covered include: US 131 from Southern BTA border to
MI 72; US 31 from MI 37 to Grand Traverse County line; MI 72 from Traverse
City to Eastern BTA border; US 31 north out of Traverse City to Elk Rapids
Saginaw-Bay City BTA 390
. Major Cities covered include: Grayling; Roscommon
<PAGE>
. Major traffic arteries covered include: I-75 from Phase I build at US 10 to
MI 72; MI 72 from Western BTA border to I-75; US 27 from I-75 to Southern
BTA border
Mount Pleasant BTA 307
. Major Cities covered include: Alma, Mount Pleasant
. major traffic arteries covered include: US 27 from Northern BTA border to
Southern BTA border
Cedar Rapids BTA 70 *
. Major Cities covered include: Anamosa, Independence
. Major traffic arteries covered include: I-380 from Cedar Rapids to Northern
BTA border; US 151 Out of Cedar Rapids to Northern BTA border; US 20 from
Northwestern BTA border to Northeastern BTA border
Waterloo-Cedar Falls BTA 462
. Major Cities covered include: Waterloo, Cedar Falls, Waverly
. Major traffic arteries covered include: I-380 from Southern BTA border to
US 20; US 218 from Waterloo to Waverly; US 20 from Waterloo/Cedar Falls to
Eastern BTA border
Dubuque BTA 118
. Major Cities covered include: Dubuque, Platteville
. Major traffic arteries covered include: US 20 from Western BTA border to
Dubuque; US 151 from Southern BTA border to Eastern BTA border
Phase III - To be completed by 10/01/2001
- -----------------------------------------
Iowa City BTA 205 *
. Major Cities covered include: Washington
. Major traffic arteries covered include: US 218 from IA 22 to Southern BTA
border
Burlington BTA 61
. Major Cities covered include: Keokuk; Burlington, Mount Pleasant
. Major traffic arteries covered include: US 218 from Northern BTA border to
US 34; US 34 from Western BTA border to Burlington; US 61 from Burlington
to Keokuk
Ottumwa BTA 337
. Major Cities covered include: Prairie City, Ottumwa, Fairfield; Oskaloosa,
Pella, Monroe
<PAGE>
. Major traffic arteries covered include: US 34 from Eastern BTA border to
Ottumwa; IA 163 from Western BTA border to Oskaloosa
Des Moines BTA 111
. Major Cities covered include: Pella, Knoxville
. Major traffic arteries covered include: IA 163 from Eastern BTA border to
current Sprint PCS coverage; US 30 from Eastern BTA border to current
Sprint PCS coverage
Marshalltown BTA 283
. Major Cities covered include: Marshalltown
. Major traffic arteries covered include: US 30 from Marshalltown to Western
BTA border
Phase IV - To be completed by 12/1/2001
- ---------------------------------------
Norfolk BTA 323
. Major Cities covered include: Norfolk
. Major traffic arteries covered include: US 81 from Southern BTA border to
Norfolk; US 275 from Norfolk to Eastern BTA border
Omaha BTA 332
. Major Cities covered include: Fremont, Columbus
. Major traffic arteries covered include: I 29 from Southern BTA border to
current Sprint PCS coverage; I 29 from Northern BTA border to current
Sprint PCS coverage; US 275 from Omaha metropolitan area to Fremont; US 30
from Fremont to Columbus; US 81 from Columbus to Northern BTA border; US
275 from Winslow/Fremont to Western BTA border
Des Moines BTA 111
. Major Cities covered include:
. Major traffic arteries covered include: I-35 from Northern BTA border to
current Sprint PCS coverage; I 35 from Southern BTA border to current
Sprint PCS coverage
Mason City BTA 285
. Major Cities covered include: Clear Lake
. Major traffic arteries covered include: I 35 from Southern BTA border to
Northern BTA border
Fort Dodge BTA 150
. Major Cities covered include:
<PAGE>
. Major traffic arteries covered include: I 35 from Southern BTA border to
Eastern BTA border
Phase V - To be completed no later than 12/31/2004
- --------------------------------------------------
Mason City BTA 285
. Major Cities covered include: Iowa Falls, Mason City
. Major traffic arteries covered include: US 20 from I 35 to Iowa Falls; US
18 from I 35 to Mason City
Fort Dodge BTA 150
. Major Cities covered include: Ft Dodge, Webster City
. Major traffic arteries covered include: US 20 from I 35 to Ft Dodge
Des Moines BTA 111
. Major Cities covered include: Carroll
. Major traffic arteries covered include US 71 from I 80 to Carroll
Lincoln BTA 256
. Major Cities covered include: York
. Major traffic arteries covered include: I 80 from current Sprint PCS
coverage to Western BTA border
Grand Island-Kearney BTA 167
. Major Cities covered include: Grand Island, Kearney, Aurora
. Major traffic arteries covered include: I 80 from Eastern BTA border to
Western BTA border; US 281 from Grand Island to Southern BTA border
Hastings BTA 185
. Major Cities covered include: Hastings, Minden, Holdrege
. Major traffic arteries covered include: US 281 from Northern BTA border to
Hastings; US 183 from I 80 to Holdrege; NE 10 from I 80 to Minden; I 80
within Hastings BTA
Des Moines MTA
As a material term of this Exhibit 2.1 and the Management Agreement Manager
shall, in addition to the pops covered in the foregoing build plan, cover an
additional 18,000 pops within the Des Moines MTA on or before 12/31/2004.
<PAGE>
Lansing BTA 241
Sprint PCS shall retain the right to build coverage in the Lansing BTA along US
27 from it's current coverage to the Northern border of the Lansing BTA or to
direct Illinois PCS to build this coverage. Sprint PCS shall provide to Illinois
PCS written notice of it's determination of which party shall build this area on
or before 6/1/2000. Upon direction by Sprint PCS to Illinois PCS requiring
Illinois PCS to build this area Illinois PCS shall complete the build of this
area on or before 7/01/2001.
* To be completed by 12/1/01 if related asset purchase agreement closes after
1/1/01.
<PAGE>
EXHIBIT 10.2
Sprint PCS
Services Agreement
between
Sprint Spectrum L.P.
and
Illinois PCS, LC
Dated as of January 22, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. ENGAGEMENT OF SPRINT SPECTRUM................................................................. 1
1.1 Engagement of Sprint Spectrum.................................................. 1
1.2 Reliance on Manager............................................................ 1
1.3 Non-exclusive Service.......................................................... 2
1.4 Manager's Use of Services...................................................... 2
2. SERVICES...................................................................................... 2
2.1 Available Services; Selected Services.......................................... 2
2.1.1 Available Services............................................... 2
2.1.2 Selected Services................................................ 2
2.1.3 Changes to Selected Services..................................... 3
2.1.4 Performance of Selected Services................................. 3
2.2 Third Party Vendors............................................................ 3
2.3 Contracts...................................................................... 3
3. FEES FOR SELECTED SERVICES.................................................................... 4
3.1 Payment of Fees................................................................ 4
3.2 Adjustment of Fees............................................................. 4
3.3 Late Payments.................................................................. 4
3.4 Taxes.......................................................................... 4
4. TERM; TERMINATION; EFFECT OF TERMINATION...................................................... 4
4.1 Term........................................................................... 4
4.2 Effect of Termination.......................................................... 5
5. BOOKS AND RECORDS; CONFIDENTIAL INFORMATION................................................... 5
5.1 Books and Records.............................................................. 5
5.1.1 General.......................................................... 5
5.1.2 Audit............................................................ 5
5.1.3 Contesting an Audit.............................................. 5
5.2 Confidential Information....................................................... 6
6. INDEMNIFICATION............................................................................... 8
6.1 Indemnification by Sprint Spectrum............................................. 8
6.2 Indemnification by Manager..................................................... 8
6.3 Procedure...................................................................... 8
6.3.1 Notice........................................................... 8
6.3.2 Defense by Indemnitor............................................ 9
6.3.3 Defense by Indemnitee............................................ 9
6.3.4 Costs............................................................ 9
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
7. DISPUTE RESOLUTION............................................................................ 9
7.1 Negotiation.................................................................... 9
7.2 Unable to Resolve.............................................................. 10
7.3 Attorneys and Intent........................................................... 10
8. REPRESENTATIONS AND WARRANTIES................................................................ 10
8.1 Due Incorporation or Formation; Authorization of Agreements.................... 10
8.2 Valid and Binding Obligation................................................... 10
8.3 No Conflict; No Default........................................................ 11
8.4 Litigation..................................................................... 11
9. GENERAL PROVISIONS............................................................................ 11
9.1 Notices........................................................................ 11
9.2 Construction................................................................... 11
9.3 Headings....................................................................... 11
9.4 Further Action................................................................. 11
9.5 Specific Performance........................................................... 11
9.6 Entire Agreement; Amendments................................................... 12
9.7 Limitation on Rights of Others................................................. 12
9.8 Waivers; Remedies.............................................................. 12
9.9 Waiver of Jury Trial........................................................... 13
9.10 Binding Effect................................................................. 13
9.11 Governing Law.................................................................. 13
9.12 Severability................................................................... 13
9.13 Limitation of Liability........................................................ 13
9.14 No Assignment; Exceptions...................................................... 13
9.15 Disclaimer of Agency........................................................... 13
9.16 Independent Contractors........................................................ 14
9.17 Expense........................................................................ 14
9.18 General Terms.................................................................. 14
9.19 Conflicts with Management Agreement............................................ 14
9.20 Master Signature Page.......................................................... 14
</TABLE>
(ii)
<PAGE>
SPRINT PCS SERVICES AGREEMENT
This SERVICES AGREEMENT is made January 22, 1999, by and between Sprint
Spectrum L.P., a Delaware limited partnership ("Sprint Spectrum"), and Illinois
PCS, LLC, an Illinois limited liability company (but not any Related Party)
("Manager"). The definitions for this agreement are set forth on the "Schedule
--------
of Definitions".
- --------------
RECITALS
A. Manager and the holder of the License ("Sprint PCS") are entering into
a Management Agreement contemporaneously with the execution of this agreement,
under which Manager will design, construct, operate, manage and maintain a
wireless services network in the Service Area in accordance with Sprint PCS
standards and will offer and promote Sprint PCS Products and Services that
operate on the Sprint PCS Network.
B. Manager desires to enter into this agreement with Sprint Spectrum,
under which Sprint Spectrum may furnish certain services to Manager to assist
Manager to build out, operate, manage and maintain the Service Area Network
under the License.
AGREEMENT
In consideration of the recitals and mutual covenants and agreements
contained in this agreement, the sufficiency of which are hereby acknowledged,
the parties, intending to be bound, agree as follows:
1. ENGAGEMENT OF SPRINT SPECTRUM
1.1 Engagement of Sprint Spectrum. Manager engages Sprint Spectrum to
assist Manager with certain specified services in connection with the operations
of Manager and in building out, operating, managing and maintaining the Service
Area Network, subject to the terms and conditions of this agreement. Sprint
Spectrum accepts the engagement and will use the same effort and demonstrate the
same care in performing its obligations under this agreement as it uses in
conducting its own business. Manager will use the efforts and demonstrate the
care necessary for Sprint Spectrum to meet its obligations under this agreement.
When providing the Selected Services, Sprint Spectrum will provide those
services to Manager in the same manner it provides those services to its own
business, including the use of third party vendors to provide certain Selected
Services.
1.2 Reliance on Manager. Manager understands that Sprint Spectrum's
ability to provide the Selected Services will depend largely on Manager's
compliance with the Sprint PCS Program Requirements under the Management
Agreement and cooperation with Sprint Spectrum. Manager agrees to comply with
such requirements and to cooperate with Sprint Spectrum to enable Sprint
Spectrum to perform its obligations under this agreement.
<PAGE>
1.3 Non-exclusive Service. Nothing contained in this agreement confers
upon Manager an exclusive right to any of the Available Services. Sprint
Spectrum may contract with others to provide expertise and services identical or
similar to those to be made available or provided to Manager under this
agreement.
1.4 Manager's Use of Services. Manager agrees it will only use the
Selected Services in connection with its Service Area Network. Manager will not
use the Selected Services outside the Service Area or in connection with any
other business.
2. SERVICES
2.1 Available Services; Selected Services.
2.1.1 Available Services. Subject to the terms of this agreement,
Manager may obtain any of the Available Services from Sprint Spectrum in
accordance with the provisions of this Section 2.1. The Available Services
offered from time to time and the fees charged for such Available Services will
be set forth on the then-current Exhibit 2.1.1 (the "Available Services and Fees
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Schedule"). If Sprint Spectrum offers any new Available Service, it will deliver
a new Exhibit 2.1.1 indicating the new service and the fee for the new service.
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Manager may select one or more of the categories of Available
Services. If Manager selects a particular category of services it must take and
pay for all of the services under the category selected; Manager may not select
only particular services within that category.
If Sprint Spectrum determines to no longer offer an Available Service
and the service is not a Selected Service, then Sprint Spectrum may give Manager
written notice at any time during the term of this agreement that Sprint
Spectrum no longer offers the Available Service.
Sprint Spectrum may modify Exhibit 2.1.1 from time to time. Exhibit
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2.1.1 will be deemed amended upon delivery of the new Exhibit 2.1.1 to Manager.
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2.1.2 Selected Services. During the term of this agreement, and
subject to the terms of this agreement, Manager has selected, and Sprint
Spectrum has agreed to furnish or cause to be furnished to Manager, the
Available Services listed on Exhibit 2.1.2 (which listed services will be the
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Selected Services). Sprint Spectrum may require from time to time that certain
Available Services be Selected Services where necessary to comply with legal or
regulatory requirements (e.g., mandatory provision of emergency 911 service) or
applicable operating constraints (e.g., delivery of merchandise to the regional
distribution centers of national retail distributors).
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2.1.3 Changes to Selected Services. If Manager determines it no
longer requires a Selected Service, then Manager must give Sprint Spectrum
written notice at least 3 months prior to the date on which Manager wishes to
discontinue its use of such Selected Service.
If Sprint Spectrum determines to no longer offer an Available Service
and such service is one of Manager's Selected Services, then Sprint Spectrum
must give Manager written notice at least 9 months prior to its discontinuance
of such Available Service that Sprint Spectrum will no longer offer such
Available Service. If the Available Service to be discontinued is required by
Sprint Spectrum to be a Selected Service, then Sprint Spectrum will use
commercially reasonable efforts to (a) help Manager provide the service itself
or find another vendor to provide the service, and (b) facilitate Manager's
transition to the new service provider.
2.1.4 Performance of Selected Services. Sprint Spectrum may select
the method, location and means of providing the Selected Services. If Sprint
Spectrum wishes to use Manager's facilities to provide the Selected Services,
Sprint Spectrum must obtain Manager's prior written consent.
2.2 Third Party Vendors. Some of the Available Services might be provided
by third party vendors under arrangements between Sprint Spectrum and the third
party vendors. In some instances, Manager may receive Available Services from a
third party vendor under the same terms and conditions that Sprint Spectrum
receives such services. In other instances, Manager may receive Available
Services under the terms and conditions set forth in an agreement between
Manager and the third party vendor. If Manager wishes to engage a third party
vendor to provide Available Services, Selected Services, or Available Services
that Sprint Spectrum will no longer offer, Manager must first obtain Sprint
Spectrum's prior written consent, which consent will not be unreasonably
withheld. Before Manager may obtain from the third party vendor any Available
Services, Selected Services, or Available Services that Sprint Spectrum will no
longer offer, such vendor must execute an agreement prepared by Sprint Spectrum
that obligates the vendor to maintain the confidentiality of any proprietary
information and that prohibits the vendor from using any proprietary technology,
information or methods for its benefit or the benefit of any other person or
entity. Manager's use of a third party vendor that is not providing Available
Services to Manager on behalf of Sprint PCS under the Management Agreement will
not qualify for assumed compliance with the Program Requirements under Sections
7.1(a)(ii) or 8.1(b) of the Management Agreement.
2.3 Contracts. Manager will notify Sprint Spectrum of any contract or
other arrangement Manager has with any other party that will affect how Sprint
Spectrum is to provide the Selected Services.
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3. FEES FOR SELECTED SERVICES
3.1 Payment of Fees. Sprint Spectrum and Manager agree that the fees for
the Available Services will initially be those set forth on Exhibit 2.1.1, which
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fees represent an adjustment to any fees paid by Sprint PCS to Manager under
Section 10 of the Management Agreement. The monthly charge for any fees based on
the number of subscribers of the Service Area Network will be determined based
on the number of subscribers as of the 15th day of the month for which the
charge is being calculated. Manager agrees to pay the fees to Sprint Spectrum
within 20 days after the date of the invoice. If Manager enters into an
agreement with a third party vendor under Section 2.2, Manager agrees to pay the
fees for the services rendered by the third party vendor in accordance with the
terms and conditions of such agreement.
3.2 Adjustment of Fees. Sprint Spectrum may change the fee for any
service it provides once during any 12-month period by delivering a new Exhibit
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2.1.1 to Manager. Exhibit 2.1.1 will be deemed amended on the effective date
- ----- -------------
noted on the new Exhibit 2.1.1, which will be at least 30 days after delivering
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the new Exhibit 2.1.1. Manager must notify Sprint Spectrum in writing before
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the effective date of the new Exhibit 2.1.1 if Manager wishes to discontinue a
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Selected Service for which the price is being increased (a "Cancelled Service").
If Manager discontinues a Selected Service under this Section 3.2, Sprint
Spectrum will, at Manager's option, continue to provide the Cancelled Service
and to charge Manager the current fee (i.e., the fee under the Exhibit 2.1.1 in
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effect on the date Manager gives its cancellation notice to Sprint Spectrum) for
the Cancelled Service for up to 9 months from the date Sprint Spectrum gives
Manager notice of the price change or until Manager no longer needs the
Cancelled Service, whichever occurs first. If Sprint Spectrum continues to
provide the Cancelled Service after the 9-month period, Sprint Spectrum will
apply the new fee, under the new Exhibit 2.1.1, and such fee will be applied
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retroactively as of the effective date of the new schedule. Manager agrees to
pay such retroactive charge within 10 days after the date of the invoice for
such charge.
3.3 Late Payments. Any payment due under this Section 3 that is not paid
by Manager to Sprint Spectrum in accordance with the terms of this agreement
will bear interest at the Default Rate beginning (and including) the 6th day
after the due date until (and including) the date on which such payment is made.
3.4 Taxes. Manager will pay or reimburse Sprint Spectrum for any sales,
use, gross receipts or similar tax, administrative fee, telecommunications fee
or surcharge for taxes or fees levied by a governmental authority on the fees
and charges payable to Sprint Spectrum by Manager.
4. TERM; TERMINATION; EFFECT OF TERMINATION
4.1 Term. This agreement commences on the date of execution and continues
until the Management Agreement terminates. This agreement automatically
terminates upon
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termination of the Management Agreement. Neither party may terminate this
agreement for any reason other than the termination of the Management Agreement.
4.2 Effect of Termination. Upon the termination of this agreement, all
rights and obligations of each party under this agreement will immediately
cease, except that:
(a) Any rights arising out of a breach of any terms of this agreement
will survive any termination of this agreement;
(b) The provisions of this Section 4.2 and Sections 5.2, 6, 7, and 9
will survive any termination of this agreement; and
(c) The payment obligations under Section 3 will survive any
termination of this agreement if, and to the extent, any fees have accrued or
are otherwise due and owing from Manager to Sprint Spectrum or any Sprint
Spectrum Related Party as of the date of termination of this agreement.
5. BOOKS AND RECORDS; CONFIDENTIAL INFORMATION
5.1 Books and Records.
5.1.1 General. Each party must keep and maintain books and records to
support and document any fees, costs, expenses or other charges due in
connection with the provisions set forth in this agreement. The records must be
retained for a period of at least 3 years after the fees, costs, expenses or
other charges to which the records relate have accrued and have been paid, or
such other period as may be required by law.
5.1.2 Audit. On reasonable advance written notice by the Manager, but
no more frequently than annually, Sprint PCS will provide a report issued in
conformity with Statement of Auditing Standard No. 70 "Reports on the Processing
of Transactions by Service Organizations" ("Type II Report" or "Manager
Management Report"). Such report will be prepared by independent auditors and
will provide an opinion on the controls placed in operation and tests of
operating effectiveness of those controls in effect at Sprint PCS over the
Manager Management Processes. "Manager Management Processes" include those
services generally provided within the Management Agreement, primarily billing
and collection of Collected Revenues. The Manager is responsible for costs
incurred attributable to such requested procedures with respect to the services
provided under this agreement, including without limitation discussion of the
billing and collection of Collected Revenues. This report will be made available
to the other party upon such other party's request.
5.1.3 Contesting an Audit. If the party that did not select the
independent auditor does not agree with the findings of the audit, then such
party can contest the findings by providing notice of such disagreement to the
other party (the "Dispute Notice"). The date of delivery of such notice is the
"Dispute Notice Date." If the parties are unable to
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resolve the disagreement within 10 Business Days after the Dispute Notice Date,
they will resolve the disagreement in accordance with the following procedures.
The two parties and the auditor that conducted the audit will all agree on
an independent certified public accountant with a regional or national
accounting practice in the wireless telecommunications industry (the "Arbiter")
within 15 Business Days after the Dispute Notice Date. If, within 15 Business
Days after the Dispute Notice Date, the three parties fail to agree on the
Arbiter, then at the request of either party to this agreement, the Arbiter will
be selected pursuant to the rules then in effect of the American Arbitration
Association. Each party will submit to the Arbiter within 5 Business Days after
its selection and engagement all information reasonably requested by the Arbiter
to enable the Arbiter to independently resolve the issue that is the subject of
the Dispute Notice. The Arbiter will make its own determination of the amount of
fees, costs, expenses or other charges payable under this agreement with respect
to the period audited. The Arbiter will issue a written report of its
determination in reasonable detail and will deliver a copy of the report to the
parties within 10 Business Days after the Arbiter receives all of the
information reasonably requested. The determination made by the Arbiter will be
final and binding and may be enforced by any court having jurisdiction. The
parties will cooperate fully in assisting the Arbiter and will take such actions
as are necessary to expedite the completion of and to cause the Arbiter to
expedite its assignment.
If the amount owed by a contesting party is reduced by more than 10% or the
amount owed to a contesting party is increased by more than 10% then the non-
contesting party will pay the costs and expenses of the Arbiter, otherwise the
contesting party will pay the costs and expenses of the Arbiter.
5.2 Confidential Information.
(a) Except as specifically authorized by this agreement, each of the
parties must, for the term of this agreement and 3 years after the date of
termination of this agreement, keep confidential, not disclose to others and use
only for the purposes authorized in this agreement, all Confidential Information
disclosed by the other party to the party in connection with this agreement,
except that the foregoing obligation will not apply to the extent that any
Confidential Information:
(i) is or becomes, after disclosure to a party, publicly known
by any means other than through unauthorized acts or omissions of the party
or its agents; or
(ii) is disclosed in good faith to a party by a third party
entitled to make the disclosure.
(b) Notwithstanding the foregoing, a party may use, disclose or
authorize the disclosure of Confidential Information that it receives that:
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(i) has been published or is in the public domain, or that
subsequently comes into the public domain, through no fault of the
receiving party;
(ii) prior to the effective date of this agreement was properly
within the legitimate possession of the receiving party, or subsequent to
the effective date of this agreement, is lawfully received from a third
party having rights to publicly disseminate the Confidential Information
without any restriction and without notice to the recipient of any
restriction against its further disclosure;
(iii) is independently developed by the receiving party through
persons or entities who have not had, either directly or indirectly, access
to or knowledge of the Confidential Information;
(iv) is disclosed to a third party consistent with the terms of
the written approval of the party originally disclosing the information;
(v) is required by the receiving party to be produced under
order of a court of competent jurisdiction or other similar requirements of
a governmental agency, and the Confidential Information will otherwise
continue to be Confidential Information required to be held confidential
for purposes of this agreement;
(vi) is required by the receiving party to be disclosed by
applicable law or a stock exchange or association on which the receiving
party's securities (or those of its Related Parties) are or may become
listed; or
(vii) is disclosed by the receiving party to a financial
institution or accredited investor (as that term is defined in Rule 501(a)
under the Securities Act of 1933) that is considering providing financing
to the receiving party and which financial institution or accredited
investor has agreed to keep the Confidential Information confidential in
accordance with an agreement at least as restrictive as this Section 5.
(c) The party making a disclosure under Sections 5.2(b)(v),
5.2(b)(vi) or 5.2(b)(vii) must inform the non-disclosing party as promptly as is
reasonably necessary to enable the non-disclosing party to take action to, and
use the disclosing party's reasonable best efforts to, limit the disclosure and
maintain confidentiality to the extent practicable.
(d) Manager will not, except when serving in the capacity of Manager
under this agreement, use any Confidential Information of any kind that it
receives under or in connection with this agreement. For example, if Manager
operates a wireless company in a different licensed area, Manager may not use
any of the Confidential Information received under or in connection with this
agreement in operating its other wireless business.
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6. INDEMNIFICATION
6.1 Indemnification by Sprint Spectrum. Sprint Spectrum agrees to
indemnify, defend and hold harmless Manager, its directors, managers, officers
and employees from and against any and all claims, demands, causes of action,
losses, actions, damages, liability and expense, including costs and reasonable
attorneys' fees, against Manager, its directors, managers, officers and
employees arising from or relating to the violation by Sprint Spectrum, its
directors, officers, employees, contractors, subcontractors, agents or
representatives of any law, regulation or ordinance applicable to Sprint
Spectrum in its performance of the Selected Services, or by Sprint Spectrum's,
or its directors', officers', employees', contractors', subcontractors', agents'
or representatives' breach of any representation, warranty or covenant contained
in this agreement, except where and to the extent the claim, demand, cause of
action, loss, action, damage, liability and expense results from the negligence
or willful misconduct of Manager, its directors, managers, officers, employees,
agents or representatives. Sprint Spectrum's indemnification obligations under
this Section 6.1 do not apply to any third party vendors that provide services
(including Selected Services) directly to Manager or Manager's Related Parties
under a separate agreement.
6.2 Indemnification by Manager. Manager agrees to indemnify, defend and
hold harmless Sprint Spectrum, its directors, officers and employees from and
against any and all claims, demands, causes of action, losses, actions, damages,
liability and expense, including costs and reasonable attorneys' fees, against
Sprint Spectrum, its directors, officers and employees arising from or relating
to Manager's, or its directors', managers', officers', employees', contractors',
subcontractors', agents' or representatives' violation of any law, regulation or
ordinance applicable to Manager, or by Manager's, or its directors', managers',
officers', employees', contractors', subcontractors', agents' or
representatives' breach of any representation, warranty or covenant contained in
this agreement, Manager's ownership of the Operating Assets or the operation of
the Service Area Network, except where and to the extent the claim, demand,
cause of action, loss, action, damage, liability and expense results from the
negligence or willful misconduct of Sprint Spectrum, its directors, officers,
employees, contractors, subcontractors, agents or representatives.
6.3 Procedure.
6.3.1 Notice. Any party being indemnified ("Indemnitee") will give
the party making the indemnification ("Indemnitor") written notice as soon as
practicable but no later than 5 Business Days after the party becomes aware of
the facts, conditions or events that give rise to the claim for indemnification
if:
(1) any claim or demand is made or liability is asserted
against Indemnitee; or
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(2) any suit, action, or administrative or legal proceeding is
instituted or commenced in which Indemnitee is involved or is named as
a defendant either individually or with others.
Failure to give notice as described in this Section 6.3.1 does not modify
the indemnification obligations of this provision, except if Indemnitor is
harmed by failure to provide timely notice to Indemnitor, then Indemnitor does
not have to indemnify Indemnitee for the harm caused by the failure to give the
timely notice.
6.3.2 Defense by Indemnitor. If within 30 days after giving notice
Indemnitee receives written notice from Indemnitor stating that Indemnitor
disputes or intends to defend against the claim, demand, liability, suit, action
or proceeding, then Indemnitor will have the right to select counsel of its
choice and to dispute or defend against the claim, demand, liability, suit,
action or proceeding, at its expense.
Indemnitee will fully cooperate with Indemnitor in the dispute or defense
so long as Indemnitor is conducting the dispute or defense diligently and in
good faith. Indemnitor is not permitted to settle the dispute or claim without
the prior written approval of Indemnitee, which approval will not be
unreasonably withheld. Even though Indemnitor selects counsel of its choice,
Indemnitee has the right to retain additional representation by counsel of its
choice to participate in the defense at Indemnitee's sole cost and expense.
6.3.3 Defense by Indemnitee. If no notice of intent to dispute or
defend is received by Indemnitee within the 30-day period, or if a diligent and
good faith defense is not being or ceases to be conducted, Indemnitee has the
right to dispute and defend against the claim, demand or other liability at the
sole cost and expense of Indemnitor and to settle the claim, demand or other
liability, and in either event to be indemnified as provided in this Section 6.
Indemnitee is not permitted to settle the dispute or claim without the prior
written approval of Indemnitor, which approval will not be unreasonably
withheld.
6.3.4 Costs. Indemnitor's indemnity obligation includes reasonable
attorneys' fees, investigation costs, and all other reasonable costs and
expenses incurred by Indemnitee from the first notice that any claim or demand
has been made or may be made, and is not limited in any way by any limitation on
the amount or type of damages, compensation, or benefits payable under
applicable workers' compensation acts, disability benefit acts, or other
employee benefit acts.
7. DISPUTE RESOLUTION
7.1 Negotiation. The parties will attempt in good faith to resolve any
dispute arising out of or relating to this agreement promptly by negotiation
between or among representatives who have authority to settle the controversy.
Either party may escalate any dispute not resolved in the normal course of
business to the appropriate (as determined by the party) officers of the parties
by providing written notice to the other party.
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Within 10 Business Days after delivery of the notice, the appropriate
officers of each party will meet at a mutually acceptable time and place, and
thereafter as often as they deem reasonably necessary, to exchange relevant
information and to attempt to resolve the dispute.
Either party may elect, by giving written notice to the other party, to
escalate any dispute arising out of or relating to the determination of fees
that is not resolved in the normal course of business or by the audit process
set forth in Sections 5.1.2 and 5.1.3, first to the appropriate financial or
accounting officers to be designated by each party. The designated officers will
meet in the manner described in the preceding paragraph. If the matter has not
been resolved by the designated officers within 30 days after the notifying
party's notice, either party may elect to escalate the dispute to the
appropriate (as determined by the party) officers in accordance with the prior
paragraphs of this Section 7.1.
7.2 Unable to Resolve. If a dispute has not been resolved within 60 days
after the notifying party's notice, the parties will continue to operate under
this agreement and sue the other party for damages or seek other appropriate
remedies as provided in this agreement, except neither party may bring a suit
for damages based on an event that occurs during the first two years of this
agreement.
7.3 Attorneys and Intent. If an officer intends to be accompanied at a
meeting by an attorney, the other party's officer will be given at least 3
Business Days prior notice of the intention and may also be accompanied by an
attorney. All negotiations under this Section 7 are confidential and will be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Civil Procedure and state rules of evidence and civil procedure.
8. REPRESENTATIONS AND WARRANTIES
Each party for itself makes the following representations and warranties to
the other party:
8.1 Due Incorporation or Formation; Authorization of Agreements. The party
is either a corporation, limited liability company, or limited partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Manager is qualified to do business and in
good standing in every jurisdiction in which the Service Area is located. The
party has the full power and authority to execute and deliver this agreement and
to perform its obligations under this agreement.
8.2 Valid and Binding Obligation. This agreement constitutes the valid and
binding obligation of the party, enforceable in accordance with its terms,
except as may be limited by principles of equity or by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
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8.3 No Conflict; No Default. Neither the execution, delivery and
performance of this agreement nor the consummation by the party of the
transactions contemplated in this agreement will conflict with, violate or
result in a breach of (a) any law, regulation, order, writ, injunction, decree,
determination or award of any governmental authority or any arbitrator,
applicable to such party, or (b) any term, condition or provision of the
articles of incorporation, certificate of limited partnership, certificate of
organization, bylaws, partnership agreement or limited liability company
agreement (or other governing documents) of such party or of any material
agreement or instrument to which such party is or may be bound or to which any
of its material properties or assets is subject.
8.4 Litigation. No action, suit, proceeding or investigation is pending
or, to the knowledge of the party, threatened against or affecting the party or
any of its properties, assets or businesses in any court or before or by any
governmental agency that could, if adversely determined, reasonably be expected
to have a material adverse effect on the party's ability to perform its
obligations under this agreement. The party has not received any currently
effective notice of any default that could reasonably be expected to result in a
breach of the preceding sentence.
9. GENERAL PROVISIONS
9.1 Notices. Any notice, payment, demand, or communication required or
permitted to be given by any provision of this agreement must be in writing and
mailed (certified or registered mail, postage prepaid, return receipt
requested), sent by hand or overnight courier, or sent by facsimile (with
acknowledgment received and a copy sent by overnight courier), charges prepaid
and addressed described on the Notice Address Schedule attached to the Master
Signature Page, or to any other address or number as the person or entity may
from time to time specify by written notice to the other parties.
All notices and other communications given to a party in accordance with
the provisions of this agreement will be deemed to have been given when
received.
9.2 Construction. This agreement will be construed simply according to its
fair meaning and not strictly for or against either party.
9.3 Headings. The table of contents, section and other headings contained
in this agreement are for reference purposes only and are not intended to
describe, interpret, define, limit or expand the scope, extent or intent of this
agreement.
9.4 Further Action. Each party agrees to perform all further acts and
execute, acknowledge, and deliver any documents that may be reasonably
necessary, appropriate, or desirable to carry out the intent and purposes of
this agreement.
9.5 Specific Performance. Each party agrees with the other party that the
party would be irreparably damaged if any of the provisions of this agreement
were not performed
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in accordance with their specific terms and that monetary damages alone would
not provide an adequate remedy. Accordingly, in addition to any other remedy to
which the non-breaching party may be entitled, at law or in equity, the non-
breaching party will be entitled to injunctive relief to prevent breaches of
this agreement and specifically to enforce the terms and provisions of this
agreement.
9.6 Entire Agreement; Amendments. The provisions of this agreement and the
Management Agreement (if Sprint Spectrum is a party to that agreement)
(including the exhibits to those agreements) set forth the entire agreement and
understanding between the parties as to the subject matter of this agreement and
supersede all prior agreements, oral or written, and other communications
between the parties relating to the subject matter of this agreement. Except for
Sprint Spectrum's right to amend the Available Services and the fees charged for
such services as shown on Exhibit 2.1.1, and Manager's right to amend the
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Selected Services listed on Exhibit 2.1.2, this agreement may be modified or
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amended only by a written amendment signed by persons or entities authorized to
bind each party.
9.7 Limitation on Rights of Others. Nothing in this agreement, whether
express or implied, will be construed to give any person or entity other than
the parties any legal or equitable right, remedy or claim under or in respect of
this agreement.
9.8 Waivers; Remedies. The observance of any term of this agreement may be
waived (whether generally or in a particular instance and either retroactively
or prospectively) by the party entitled to enforce the term, but any waiver is
effective only if in a writing signed by the party against which the waiver is
to be asserted. Except as otherwise provided in this agreement, no failure or
delay of either party in exercising any power or right under this agreement will
operate as a waiver of the power or right, nor will any single or partial
exercise of any right or power preclude any other or further exercise of the
right or power or the exercise of any other right or power.
Sprint Spectrum is not in breach of any covenant in this agreement, if
failure of such party to comply with such covenant or Sprint Spectrum's non-
compliance with the covenant results primarily from:
(i) any FCC order or any other injunction issued by any
governmental authority impeding the ability to comply with the covenant;
(ii) the failure of any governmental authority to grant any
consent, approval, waiver, or authorization or any delay on the part of any
governmental authority in granting any consent, approval, waiver or
authorization;
(iii) the failure of any vendor to deliver in a timely manner
any equipment or service; or
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(iv) any act of God, act of war or insurrection, riot, fire,
accident, explosion, labor unrest, strike, civil unrest, work stoppage,
condemnation or any similar cause or event not reasonably within the
control of Sprint Spectrum.
9.9 Waiver of Jury Trial. EACH PARTY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
9.10 Binding Effect. Except as otherwise provided in this agreement, this
agreement is binding upon and inures to the benefit of the parties and their
respective and permitted successors, transferees, and assigns, including any
permitted successor, transferee or assignee of the Management Agreement. The
parties intend that this agreement bind only the party signing this agreement
and that the agreement is not binding on the Related Parties of a party unless
the agreement provides that Related Parties are bound.
9.11 Governing Law. The internal laws of the State of Missouri (without
regard to principles of conflicts of law) govern the validity of this agreement,
the construction of its terms, and the interpretation of the rights and duties
of the parties.
9.12 Severability. The parties intend every provision of this agreement to
be severable. If any provision of this agreement is held to be illegal, invalid,
or unenforceable for any reason, the parties intend that a court enforce the
provision to the maximum extent permissible so as to effect the intent of the
parties (including the enforcement of the remaining provisions). If necessary to
effect the intent of the parties, the parties will negotiate in good faith to
amend this agreement to replace the unenforceable provision with an enforceable
provision that reflects the original intent of the parties.
9.13 Limitation of Liability. NO PARTY WILL BE LIABLE TO THE OTHER PARTY
FOR SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES,
OR LOSS OF PROFITS, ARISING FROM THE RELATIONSHIP OF THE PARTIES OR THE CONDUCT
OF BUSINESS UNDER, OR BREACH OF, THIS AGREEMENT, EXCEPT WHERE SUCH DAMAGES OR
LOSS OF PROFITS ARE CLAIMED BY OR AWARDED TO A THIRD PARTY IN A CLAIM OR ACTION
AGAINST WHICH A PARTY TO THIS AGREEMENT HAS A SPECIFIC OBLIGATION TO INDEMNIFY
ANOTHER PARTY TO THIS AGREEMENT.
9.14 No Assignment; Exceptions. This agreement may only be assigned in
conjunction with and to the same party or parties to whom the Management
Agreement has been validly assigned under the Management Agreement's terms and
conditions.
9.15 Disclaimer of Agency. Neither party by this agreement makes the other
party a legal representative or agent of the party, nor does either party have
the right to obligate the other party in any manner, except if the other party
expressly permits the obligation by the
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party or except for provisions in this agreement expressly authorizing one party
to obligate the other.
9.16 Independent Contractors. The parties do not intend to create any
partnership, joint venture or other profit-sharing arrangement, landlord-tenant
or lessor-lessee relationship, employer-employee relationship, or any other
relationship other than that expressly provided in this agreement. Neither party
to this agreement has any fiduciary duty to the other party.
9.17 Expense. Each party bears the expense of complying with this
agreement except as otherwise expressly provided in this agreement.
9.18 General Terms.
(a) This agreement, including the attached Schedule of Definitions,
is to be interpreted in accordance with the following rules of construction:
(i) The definitions in this agreement apply equally to both
the singular and plural forms of the terms defined unless the context
otherwise requires;
(ii) The words "include," "includes" and "including" are deemed
to be followed by the phrase "without limitation";
(iii) All references in this agreement to Sections and Exhibits
are references to Sections of, and Exhibits to, this agreement, unless
otherwise specified; and
(iv) All references to any agreement or other instrument or
statute or regulation are to it as amended and supplemented from time to
time (and, in the case of a statute or regulation, to any corresponding
provisions of successor statutes or regulations), unless the context
otherwise requires.
(b) Any reference in this agreement to a "day" or number of "days"
(without the explicit qualification of "Business") is a reference to a calendar
day or number of calendar days. If any action or notice is to be taken or given
on or by a particular calendar day, and the calendar day is not a Business Day,
then the action or notice may be taken or given on the next Business Day.
9.19 Conflicts with Management Agreement. The provisions of the Management
Agreement govern over those of this Services Agreement if the provisions
contained in this agreement conflict with analogous provisions in the Management
Agreement.
9.20 Master Signature Page. Each party agrees that it will execute the
Master Signature Page that evidences such party's agreement to execute, become a
party to and be bound by this agreement, which document is incorporated herein
by this reference.
14
<PAGE>
EXHIBIT 10.3
Sprint
Trademark and Service Mark
License Agreement
between
Sprint Communications Company, L.P.
and
ILLINOIS PCS, LLC
Dated as of January 22, 1999
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<PAGE>
SPRINT TRADEMARK AND
SERVICE MARK LICENSE AGREEMENT
------------------------------
THIS AGREEMENT is made as of the 22nd day of January, 1999, by and between
Sprint Communications Company, L.P., a Delaware limited partnership, as licensor
("Licensor"), and Illinois PCS, LLC, an Illinois limited liability company, as
licensee ("Licensee"). The definitions for this agreement are set forth on the
"Schedule of Definitions".
-----------------------
RECITALS:
WHEREAS, Licensor is the owner of the U.S. trademarks and service marks
"Sprint", together with related "Diamond" logo, "Sprint PCS", "Sprint Personal
Communications Services" and the goodwill of the business symbolized thereby;
and
WHEREAS, Licensee desires to use the trademarks and service marks in
commerce;
NOW, THEREFORE, the parties, in consideration of the mutual agreements
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, do hereby agree as follows:
ARTICLE 1
GRANT OF TRADEMARK AND SERVICE MARK RIGHTS; EXCLUSIVITY
Section 1.1. License.
-------
(a) Grant of License. Subject to the terms and conditions hereof,
----------------
Licensor hereby grants to Licensee, and Licensee hereby accepts from
Licensor, for the term of this agreement, a non-transferable, royalty-
free license to use the Licensed Marks solely for and in connection
with the marketing, promotion, advertisement, distribution, lease or
sale of Sprint PCS Products and Services and Premium and Promotional
Items in the Service Area.
(b) Related Equipment. The rights granted hereunder to Licensee shall not
-----------------
include the right to manufacture equipment under the Licensed Marks.
However, subject to the terms and conditions hereof, Licensor hereby
grants to Licensee, and Licensee hereby accepts from Licensor, for the
term of this agreement, a non-transferable, royalty-free license to
market, promote, advertise, distribute and resell and lease Related
Equipment in connection with the marketing, promotion, advertisement,
distribution, lease or sale by Licensee of Sprint PCS Products and
Services, and to furnish services relating to such Related Equipment
(including installation, repair and maintenance of Related Equipment),
under the Licensed Marks.
<PAGE>
ARTICLE 2
QUALITY STANDARDS, MAINTENANCE
Section 2.1. Maintenance of Quality.
----------------------
(a) Adherence to Quality Standards. In the course of marketing,
------------------------------
promoting, advertising, distributing, leasing and selling Sprint PCS
Products and Services and Premium and Promotional Items under the
Licensed Marks, Licensee shall maintain and adhere to standards of
quality and specifications that conform to or exceed those quality
standards and technical and operational specifications adopted and/or
amended in the manner provided below ("Quality Standards") and those
imposed by Law. Such Quality Standards are designed to ensure that
the quality of the Sprint PCS Products and Services and Premium and
Promotional Items marketed, promoted, advertised, distributed, leased
and sold under the Licensed Marks are consistent with the high
reputation of the Licensed Marks and are in conformity with applicable
Laws.
(b) Establishment of Quality Standards. The parties acknowledge that the
----------------------------------
initial Quality Standards for the Sprint PCS Products and Services and
Premium and Promotional Items are attached to the Affiliation
Agreement as Exhibits 4.1, 4.2, 4.3, 7.2, and 8.1. The Quality
Standards shall (i) be consistent with the reputation for quality
associated with the Licensed Marks and (ii) be commensurate with a
high level of quality (taking into account Licensee's fundamental
underlying technology and standards), consistent with the level of
quality being offered in the market for products and services of the
same kind as the Sprint PCS Products and Services.
(c) Changes in Quality Standards. In the event that Licensor wishes to
----------------------------
change the Quality Standards, it will notify Licensee in writing of
such proposed amendments, and will afford Licensee a reasonable time
period in which to adopt such changes as may be required in order for
Licensee to conform to the amended Quality Standards.
Section 2.2. Rights of Inspection. In order to ensure that the Quality
--------------------
Standards are maintained, Licensor and its authorized agents and representatives
shall have the right, but not the obligation, with prior notice to Licensee, to
enter upon the premises of any office or facility operated by or for Licensee
with respect to Sprint PCS Products and Services and Premium and Promotional
Items at all reasonable times, to inspect, monitor and test in a reasonable
manner facilities and equipment used to furnish Sprint PCS Products and Services
and Premium and Promotional Items and, with prior written notice to Licensee, to
inspect the books and records of Licensee in a manner that does not unreasonably
interfere with the business and affairs of Licensee, all as they relate to the
compliance with the Quality Standards maintained hereunder.
Section 2.3. Marking; Compliance with Trademark Laws. Licensee shall
---------------------------------------
cause the appropriate designation "(TM)" or "(SM)" or the registration symbol
"(R)" to be placed adjacent to the Licensed Marks in connection with the use
thereof and to indicate such additional information as
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<PAGE>
Licensor shall reasonably specify from time to time concerning the license
rights under which Licensee uses the Licensed Marks. Licensee shall place the
following notice on all printed or electronic materials on which the Licensed
Marks appear: "SPRINT", the "DIAMOND" logo and "Sprint PCS", "Sprint Personal
Communications Services" are trademarks and/or service marks of Sprint
Communications Company, L.P., "used under license" or such other notice as
Licensor may specify from time to time.
Section 2.4. Other Use Restrictions. Licensee shall not use the
----------------------
Licensed Marks in any manner that would reflect adversely on the image of
quality symbolized by the Licensed Marks.
ARTICLE 3
CONFIDENTIAL INFORMATION
Section 3.1. Maintenance of Confidentiality. Each of Licensor and
------------------------------
Licensee and their respective Controlled Related Parties (each a "Restricted
Party"), shall cause their respective officers and directors (in their capacity
as such) to, and shall take all reasonable measures to cause their respective
employees, attorneys, accountants, consultants and other agents and advisors
(collectively, and together with their respective officers and directors,
"Agents") to, keep secret and maintain in confidence the terms of this agreement
and all confidential and proprietary information and data of the other party or
its Related Parties disclosed to it (in each case, a "Receiving Party") in
connection with the performance of its obligations under this agreement (the
"Confidential Information") and shall not, and shall cause their respective
officers and directors not to, and shall take all reasonable measures to cause
their respective other Agents not to, disclose Confidential Information to any
Person other than the parties, their Controlled Related Parties and their
respective Agents that need to know such Confidential Information. Each party
further agrees that it shall not use the Confidential Information for any
purpose other than determining and performing its obligations and exercising its
rights under this agreement. Each party shall take all reasonable measures
necessary to prevent any unauthorized disclosure of the Confidential Information
by any of their respective Controlled Related Parties or any of their respective
Agents. The measures taken by a Restricted Party to protect Confidential
Information shall be not deemed unreasonable if the measures taken are at least
as strong as the measures taken by the disclosing party to protect such
Confidential Information.
Section 3.2. Permitted Disclosures. Nothing herein shall prevent any
---------------------
Restricted Party or its Agents from using, disclosing, or authorizing the
disclosure of Confidential Information it receives and which:
(i) has been published or is in the public domain, or which subsequently
comes into the public domain, through no fault of the receiving
party;
(ii) prior to receipt hereunder was property within the legitimate
possession of the Receiving Party or, subsequent to receipt hereunder
is lawfully received from a third party having rights therein without
restriction of the third party's right to disseminate the
Confidential Information and without notice of any restriction
against its further disclosure;
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<PAGE>
(iii) is independently developed by the Receiving Party through Persons who
have not had, either directly or indirectly, access to or knowledge
of such Confidential Information;
(iv) is disclosed to a third party with the written approval of the party
originally disclosing such information, provided that such
--------
Confidential Information shall cease to be confidential and
proprietary information covered by this agreement only to the extent
of the disclosure so consented to;
(v) subject to the Receiving Party's compliance with Section 3.4 below,
is required to be produced under order of a court of competent
jurisdiction or other similar requirements of a governmental agency,
provided that such Confidential Information to the extent covered by
--------
a protective order or its equivalent shall otherwise continue to be
Confidential Information required to be held confidential for purpose
of this agreement; or
(vi) subject to the Receiving Party's compliance with Section 3.4 below,
is required to be disclosed by applicable Law or a stock exchange or
association on which such Receiving Party's securities (or those of
its Related Party) are listed.
Section 3.3. Financial Institutions. Notwithstanding this Article 3, any
----------------------
party may provide Confidential Information to any financial institution in
connection with borrowings from such financial institution by such party or any
of its Controlled Related Parties, so long as prior to any such disclosure such
financial institution executes a confidentiality agreement that provides
protection substantially equivalent to the protection provided the parties in
this Article 3.
Section 3.4. Procedures. In the event that any Receiving Party (i) must
----------
disclose Confidential Information in order to comply with applicable Law or the
requirements of a stock exchange or association on which such Receiving Party's
securities or those of its Related Parties are listed or (ii) becomes legally
compelled (by oral questions, interrogatories, requests for information or
documents, subpoenas, civil investigative demand or otherwise) to disclose any
Confidential Information, the Receiving Party shall provide the disclosing party
with prompt written notice so that in the case of clause (i), the disclosing
party can work with the Receiving Party to limit the disclosure to the greatest
extent possible consistent with legal obligations or in the case of clause (ii),
the disclosing party may seek a protective order or other appropriate remedy or
waive compliance with the provisions of this agreement. In the case of a clause
(ii), (A) if the disclosing party is unable to obtain a protective order or
other appropriate remedy, or if the disclosing party so directs, the Receiving
Party shall, and shall cause its employees to, exercise all commercially
reasonable efforts to obtain a protective order or other appropriate remedy at
the disclosing party's reasonable expense, and (B) failing the entry of a
protective order or other appropriate remedy or receipt of a waiver hereunder,
the Receiving Party shall furnish only that portion of the Confidential
Information which it is advised by opinion of its counsel is legally required to
be furnished and shall exercise all commercially reasonable efforts to obtain
reliable assurance that confidential treatment shall be accorded such
Confidential
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<PAGE>
Information, it being understood that such reasonable efforts shall be at the
cost and expense of the disclosing party whose Confidential Information has been
sought.
Section 3.5. Survival. The obligations under this Article 3 shall
--------
survive, as to any party, until two (2) years following the date of termination
of this agreement, and, as to any Controlled Related Party of a party, until two
(2) years following the earlier to occur of (A) the date that such Person is no
longer a Controlled Related Party of a party, or (B) the date of the termination
of this agreement; provided that such obligations shall continue indefinitely
--------
with respect to any trade secret or similar information which is proprietary to
a party or its Controlled Related Parties and provides such party or its
Controlled Related Parties with an advantage over its competitors.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSEE
Section 4.1. Licensor's Ownership. Licensee acknowledges Licensor's
--------------------
exclusive right, title and interest in and to the Licensed Marks and
acknowledges that nothing herein shall be construed to accord to Licensee any
rights in the Service Area in the Licensed Marks except as expressly provided,
herein. Licensee acknowledges that its use in the Service Area of the Licensed
Marks shall not create in Licensee any right, title or interest in the Service
Area in the Licensed Marks and that all use in the Service Area of the Licensed
Marks and the goodwill symbolized by and connected with such use of the Licensed
Marks will inure solely to the benefit of the Licensor.
Section 4.2. No Challenge by Licensee. Licensee covenants that (i)
------------------------
Licensee will not at any time challenge Licensor's rights, title or interest in
the Licensed Marks (other than to assert the specific rights granted to Licensee
under this agreement), (ii) Licensee will not do or cause to be done or omit to
do anything, the doing, causing or omitting of which would contest or in any way
impair or tend to impair the rights of Licensor in the Licensed Marks, and (iii)
Licensee will not represent to any third party that Licensee has any ownership
or rights in the Service Area with respect to the Licensed Marks other than the
specific rights conferred by this agreement.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSOR
Section 5.1. Title to the Licensed Marks. Licensor represents and
---------------------------
warrants that:
(a) Licensor has good title to the Licensed Marks and has the right to
grant the licenses provided for hereunder in accordance with the terms
and conditions hereof, free of any liabilities, charges, liens,
pledges, mortgages, restrictions, adverse claims, security interests,
rights of others, and encumbrances of any kind (collectively,
"Encumbrances"), other than Encumbrances which will not restrict or
interfere in any material respect with the exercise by Licensee of the
rights granted to Licensee hereunder.
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<PAGE>
(b) There is no claim, action, proceeding or other litigation pending or,
to the knowledge of Licensor, threatened with respect to Licensor's
ownership of the Licensed Marks or which, if adversely determined,
would restrict or otherwise interfere in any material respect with the
exercise by Licensee of the rights purported to be granted to Licensee
hereunder.
Except as expressly provided above in this Section 5.1, Licensor makes no
representation or warranty of any kind or nature whether express or implied with
respect to the Licensed Marks (including freedom from third party infringement
of the Licensed Marks).
The representations and warranties provided for in this Section 5.1 shall
survive the execution and delivery of this agreement.
Section 5.2. Other Licensees. In the event Licensor grants to any third
---------------
party any licenses or rights with respect to the Licensed Marks, Licensor shall
not, in connection with the grant of any such license or rights, take any
actions, or suffer any omission that would adversely affect the existence or
validity of the Licensed Marks or conflict with the rights granted to Licensee
hereunder.
Section 5.3. Abandonment. Licensor covenants and agrees that, during the
-----------
term of this agreement, it will not abandon the Licensed Marks.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BOTH PARTIES
Section 6.1. Representations and Warranties. Each party hereby
------------------------------
represents and warrants to the other party as follows:
(a) Due Incorporation or Formation; Authorization of Agreement. Such
----------------------------------------------------------
party is a corporation duly organized, a limited liability company
duly organized or a partnership duly formed, validly existing and, if
applicable, in good standing under the laws of the jurisdiction of its
incorporation or formation and has the corporate, company or
partnership power and authority to own its property and carry on its
business as owned and carried on at the date hereof and as
contemplated hereby. Such party is duly licensed or qualified to do
business and, if applicable, is in good standing in each of the
jurisdictions in which the failure to be so licensed or qualified
would have a material adverse effect on its financial condition or its
ability to perform its obligations hereunder. Such party has the
corporate, company or partnership power and authority to execute and
deliver this agreement and to perform its obligations hereunder and
the execution, delivery and performance of this agreement have been
duly authorized by all necessary corporate, company or partnership
action. Assuming the due execution and delivery by the other party
hereto, this agreement constitutes the legal, valid and binding
obligation of such party enforceable against such party in accordance
with its terms, subject as to enforceability to limits imposed by
bankruptcy,
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<PAGE>
insolvency or similar laws affecting creditors' rights generally and
the availability of equitable remedies.
(b) No Conflict with Restrictions; No Default. Neither the execution,
-----------------------------------------
delivery and performance of this agreement nor the consummation by
such party of the transactions contemplated hereby (i) will conflict
with, violate or result in a breach of any of the terms, conditions or
provisions of any law, regulation, order, writ, injunction, decree,
determination or award of any court, any governmental department,
board, agency or instrumentality, domestic or foreign, or any
arbitrator, applicable to such party or any of its Controlled Related
Parties, (ii) will conflict with, violate, result in a breach of or
constitute a default under any of the terms, conditions or provisions
of the articles of incorporation, articles of organization or
certificate of formation, bylaws, operating agreement or limited
liability company agreement, or partnership agreement of such party or
any of its Controlled Related Parties or of any material agreement or
instrument to which such party or any of its Controlled Related
Parties is a party or by which such party or any of its Controlled
Related Parties is or may be bound or to which any of its material
properties or assets is subject (other than any such conflict,
violation, breach or default that has been validly and unconditionally
waived), (iii) will conflict with, violate, result in a breach of,
constitute a default under (whether with notice or lapse of time or
both), accelerate or permit the acceleration of the performance
required by, give to others any material interests or rights or
require any consent, authorization or approval under any indenture,
mortgage, lease agreement or instrument to which such party or any of
its Controlled Related Parties is a party or by which such party or
any of its Controlled Related Parties is or may be bound, or (iv) will
result in the creation or imposition of any lien upon any of the
material properties or assets of such party or any of its Controlled
Related Parties, which in any such case could reasonably be expected
to materially impair such party's ability to perform its obligations
under this agreement or to have a material adverse effect on the
consolidated financial condition of each party or its Parent.
(c) Governmental Authorizations. Any registration, declaration or filing
---------------------------
with, or consent, approval, license, permit or other authorization or
order by, any governmental or regulatory authority, domestic or
foreign, that is required to be obtained by such party in connection
with the valid execution, delivery, acceptance and performance by such
party under this agreement or the consummation by such party of any
transaction contemplated hereby has been completed, made or obtained,
as the case may be.
(d) Litigation. There are no actions, suits, proceedings or
----------
investigations pending or, to the knowledge of such party, threatened
against or affecting such party or any of its Controlled Related
Parties or any of their properties, assets or businesses in any court
or before or by any governmental department, board, agency or
instrumentality, domestic or foreign, or any arbitrator which could,
if adversely determined (or, in the case of an investigation could
lead to any action, suit or
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<PAGE>
proceeding, which if adversely determined could), reasonably be
expected to materially impair such party's ability to perform its
obligations under this agreement or to have a material adverse effect
on the consolidated financial condition of such party or its parent;
and such party or any of its Controlled Related Parties has not
received any currently effective notice of any default, and such party
or any of its Controlled Related Parties is not in default, under any
applicable order, writ, injunction, decree, permit, determination or
award of any court, any governmental department, board, agency or
instrumentality, domestic or foreign, or any arbitrator, which default
could reasonably be expected to materially impair such party's ability
to perform its obligations under this agreement or to have a material
adverse effect on the consolidated financial condition of such party
or its Parent.
Section 6.2. Survival. The representations and warranties provided for
--------
under this Article 6 will survive the execution and delivery of this agreement.
ARTICLE 7
PROSECUTION OF INFRINGEMENT CLAIMS
Section 7.1. Notice and Prosecution of Infringement. Licensee agrees to
--------------------------------------
notify Licensor promptly, in writing, of any alleged, actual or threatened
infringement of any of the Licensed Marks within the Service Area of which
Licensee becomes aware. Licensor has the sole right to determine whether or not
to take any action on such infringements. Licensor has the sole right to employ
counsel of its choosing and to direct any litigation and settlement of
infringement actions. Any recoveries, damages and costs recovered through such
proceedings shall belong exclusively to Licensor, and Licensor shall be solely
responsible for all costs and expenses (including attorney fees) of prosecuting
such actions. Licensee agrees to provide Licensor with all reasonably requested
assistance in connection with such proceedings.
ARTICLE 8
LICENSEE DEFENSE AND INDEMNIFICATION OF LICENSOR
Section 8.1. Indemnification. (a) Each party hereby agrees to indemnify
---------------
the other party against and agrees to hold it harmless from any Loss incurred or
suffered by such other party arising out of or in connection with:
(i) the material breach of any representation or warranty made by
such party in this agreement; and
(ii) the material breach of any covenant or agreement by such party
contained in this agreement.
(b) In addition to the indemnification provided for in Section 8.1(a),
Licensee agrees to indemnify Licensor against and hold it harmless
from any Loss suffered or incurred by Licensor or its Controlled
Related Parties by reason of a third party claim arising out of or
relating to (i) the use of the Licensed Marks by Licensee;
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<PAGE>
or (ii) the marketing, promotion, advertisement, distribution, lease
or sale by Licensee ( or any permitted sublicensee) or by any
additional Licensee (or any permitted sublicensee) of any Sprint PCS
Products and Services, Related Equipment or Premium and Promotional
Items under the Licensed Marks pursuant to this agreement, including
unfair or fraudulent advertising claims, warranty claims and product
defect or liability claims, pertaining to the Sprint PCS Products and
Services, Related Equipment or Premium and Promotional Items.
Notwithstanding the foregoing, Licensee will not be required under
this paragraph (b) to indemnify any Loss arising solely out of
Licensee's use of the Licensed Marks in compliance with the terms of
the Trademark and Service Mark Usage Guidelines; provided that
Licensor shall have no obligation to indemnify for third-party claims
alleged to arise from the specifics of uses of third-party trademarks
or service marks, or the specifics of claims made, in marketing
materials prepared by or for Licensee, which marketing materials have
not been approved by Licensor prior to the publication out of which
such claims are alleged to have arisen.
ARTICLE 9
OBLIGATIONS/SETOFF
Section 9.1. Obligations/Setoff. The obligations of the parties as set
------------------
forth in this agreement shall be unconditional and irrevocable, and shall not be
subject to any defense or be released, discharged or otherwise affected by any
matter, including impossibility, illegality, impracticality, frustration of
purpose, force majeure, act of government, the bankruptcy or insolvency of any
party hereto, and the obligations of each party shall not be subject to any
right of setoff or recoupment which such party may not or hereafter have against
the other party.
ARTICLE 10
LIMITATION ON USE OF LICENSED MARKS
Section 10.1. Restrictions on Use. Licensee is not permitted to make any
-------------------
use of the Licensed Marks in connection with products or services other than the
Sprint PCS Products and Services, and as specifically authorized in Sections
1.1(b) above with respect to Related Equipment and Premium and Promotional
Items, nor to make any use of the Licensed Marks directed outside of the Service
Area.
Section 10.2 Adherence to Trademark and Service Mark Usage Guidelines.
--------------------------------------------------------
Licensee agrees to comply with and adhere to Trademark and Service Mark Usage
Guidelines for the depiction or presentation of the Licensed Marks, as furnished
by Licensor. Prior to Licensee depicting or presenting any of the Licensed Marks
on any type of marketing, advertising or promotional materials, Licensee agrees
to submit samples of such materials to Licensor for approval. Licensor shall
have fourteen (14) days from the date Licensor receives such materials to
approve or object to any such materials submitted to Licensor for review. In the
event Licensor does not object to such materials within such fourteen (14) day
period, such materials shall be deemed approved by Licensor. Thereafter,
Licensee shall not be obligated to submit to Licensor materials prepared in
accordance with the samples previously approved by Licensor
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<PAGE>
and the Trademark and Service Mark Usage Guidelines; provided, however, Licensee
shall, at the reasonable request of Licensor, continue to furnish samples of
such marketing, advertising and promotional materials to Licensor from time to
time during the term hereof at the request of Licensor.
Section 10.3. Use of Similar Trademarks and Service Marks. Licensee
-------------------------------------------
agrees not to use (a) any trademark or service mark which is confusingly similar
to, or a colorable imitation of, the Licensed Marks or any part thereof, or (b)
any work, symbol, character, or set of words, symbols, or characters, which in
any language would be identified as the equivalent of the Licensed Marks or that
are otherwise confusingly similar to, or a colorable imitation of, the Licensed
Marks, whether during the term of this agreement or at any time following
termination of this agreement. Licensee shall not knowingly engage in any
conduct which may place the Sprint PCS Products and Services, the Licensed Marks
or Licensor in a negative light or context.
Section 10.4. Services of Public Figures. Licensee agrees to obtain
--------------------------
Licensor's prior written approval (which approval will not be unreasonably
withheld) before engaging the services of any celebrity or publicly known
individual for endorsement of any Sprint PCS Products and Services or Premium
and Promotional Items.
ARTICLE 11
CONTROL OF BRAND IMAGE
Section 11.1 Exclusive Use of Licensed Marks. The Sprint PCS Products
-------------------------------
and Services shall be marketed by Licensee solely under the Licensed Marks.
Section 11.2. Consistency With Brand Image and Principles. Licensee shall
-------------------------------------------
use the Licensed Marks in a manner that is consistent with the brand image and
principles established by Licensor, and mechanics to ensure consistency will be
included in the Marketing Communications Guidelines.
Section 11.3 Management of Brand Image. Licensor shall be responsible
-------------------------
for the overall management of the brand image for the Licensed Marks. All
advertising, marketing and promotional materials using the Licensed Marks
prepared by Licensee shall, in addition to the provisions set forth in Section
11.2 above, comply with the Marketing Communications Guidelines to be furnished
by Licensor to Licensee as such Marketing Communications Guidelines may be
amended and updated by Licensor from time to time. Such Marketing Communications
Guidelines shall establish reasonable principles to be followed in the
development of advertising, marketing and promotional campaigns in order to
ensure a consistent and coherent brand image. All advertising, marketing and
promotional campaigns conducted by Licensee shall be conducted in a manner
consistent with the Marketing Communications Guidelines.
Section 11.4. Advertising Agencies; Promotions. Licensee may select its
--------------------------------
own advertising agencies for development of its advertising and promotional
campaigns; provided, however, that all media buys shall be coordinated by
Licensee with the buying agency of Licensor. Licensee and Licensor shall conduct
ongoing reviews of upcoming advertising,
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<PAGE>
marketing and promotional campaigns of each party and shall use good faith
efforts to coordinate their respective campaigns in a manner that will maximize
the advertising, marketing and promotional efforts of the parties and be
consistent with the Marketing Communications Guidelines. Licensee shall not
initiate any products or promotions under names which are confusingly similar to
any names of national product offerings or promotions by Licensor. Neither
Licensor nor any of its Controlled Related Parties shall initiate any products
or promotions under names which are confusingly similar to any names of national
product offerings or promotions by Licensee. In addition, Licensor will use its
commercially reasonable efforts to ensure that no third party licensee under the
Licensed Marks initiates any products or promotions in the Service Area under
names which are confusingly similar to any names of national product offerings
or promotions by Licensee.
Section 11.5 Ownership of Advertising Materials. All agreements entered
----------------------------------
into by Licensee with advertising agencies shall provide that Licensor shall own
all advertising materials (including concepts, themes, characters and the like)
created or developed thereunder. Subject to the terms and conditions set forth
herein, Licensee shall receive a perpetual, non-exclusive, royalty-free license
to use such materials in connection with advertising and promotional materials
developed by Licensee; provided, however, that the rights granted under such
perpetual license shall be limited solely to the use of such materials and shall
not extend the term of the license with respect to the Licensed Marks provided
for hereunder.
ARTICLE 12
RELATIONSHIP OF PARTIES
Section 12.1. Relationship of Parties. It is the express intention of the
-----------------------
parties that Licensee is and shall be an independent contractor and no
partnership shall exist between Licensee and Licensor pursuant hereto. This
agreement shall not be construed to make Licensee the agent or legal
representative of Licensor for any purpose whatsoever (except as expressly
provided in Articles 7 and 8), and Licensee is not granted any right or
authority to assume or create any obligations for, on behalf of, or in the name
of Licensor (except as expressly provided in Articles 7 and 8). Licensee agrees,
and shall require its permitted sublicensees to agree, not to incur or contract
any debt or obligation on behalf of Licensor, or commit any act, make any
representation, or advertise in any manner that may adversely affect any right
of Licensor in or with respect to the Licensed Marks or be detrimental to
Licensor's image.
ARTICLE 13
TERM; TERMINATION; EFFECTS OF TERMINATION
Section 13.1. Term. This agreement commences on the date of execution and
----
continues until the Management Agreement terminates, unless earlier terminated
in accordance with the terms set forth in this Article 13. This agreement
automatically terminates upon termination of the Management Agreement.
Section 13.2. Events of Termination. If any of the following events shall
---------------------
occur with respect to Licensee, each such occurrence shall be deemed an "Event
of Termination":
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<PAGE>
(a) Bankruptcy. The occurrence of a "Bankruptcy" with respect to
----------
Licensee.
(b) Breach of Agreements. Licensee fails to perform in accordance with
--------------------
any of the material terms and conditions contained herein in any
material respect.
(c) Material Misrepresentation. Licensee breaches any material
--------------------------
representation or warranty of Licensee made in Section 4.2 or Article
6 in any material respect.
(d) Termination of Management Agreement. The termination of the
-----------------------------------
Management Agreement, for whatever reason.
Section 13.3. Licensor's Right to Terminate Upon Event of Termination.
-------------------------------------------------------
Licensor may, at its option, without prejudice to any other remedies it may
have, terminate this agreement by giving written notice of such termination to
Licensee as follows: (a) immediately, upon the occurrence of any Event of
Termination pursuant to Section 13.2(a) with respect to Licensee; or (b) after
the expiration of thirty (30) days from Licensee's receipt of written notice
from Licensor of the occurrence of any Event of Termination pursuant to Sections
13.2(b) or 13.2(c), if such failure to perform or breach is then still uncured;
or (c) immediately upon the repeated or continuing occurrence of Events of
Termination pursuant to Section 13.2(b) (regardless of whether such continuing
failures to perform or breaches have been cured by Licensee in accordance with
the provisions of clause (b) or this Section 13.3); or (d) immediately upon the
occurrence of a termination pursuant to Section 13.2(d).
Section 13.4 Licensee's Right to Terminate. Licensee may, at its option,
-----------------------------
without prejudice to any other remedies it may have, terminate this agreement by
giving written notice of such termination to Licensor as follows: (a)
immediately, in the event that Licensor abandons the Licensed Marks or otherwise
ceases to support the Licensed Marks in Licensor's business; or (b) immediately
in the event of the occurrence of a Bankruptcy with respect to Licensor; or (c)
immediately in the event of an occurrence of termination pursuant to Section
13.2(d).
Section 13.5. Effects of Termination. Upon the termination of this
----------------------
agreement for any reason, all rights of Licensee in and to the Licensed Marks in
the Service Area shall cease within thirty (30) days following the date on which
this agreement terminates (except in the case of a termination resulting from an
Event of Termination described in Section 13.2(b), (c) or (d), in which case
such rights to use the Licensed Marks will terminate immediately upon the date
of termination); provided, however, that Licensee may thereafter sell, transfer
or otherwise dispose of any Related Equipment and Premium and Promotional Items
that are then in Licensee's inventory (or which Licensee has purchased or is
then legally obligated to purchase) for an additional reasonable period not to
exceed three (3) months. Licensee's right of disposal under this Section 13.5
shall not prohibit Licensor from granting to third parties during the disposal
period licenses and other rights with respect to the Licensed Marks. The
provisions of Articles 3, 4, 5, 6 and 8 will survive any termination of this
agreement.
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<PAGE>
ARTICLE 14
ASSIGNMENT; SUBLICENSING
Section 14.1. Licensee Right to Assign. Licensee, without the prior
------------------------
written consent of Licensor (in its sole discretion), shall have no right to
assign any of its rights or obligations hereunder.
Section 14.2. Licensor Right to Assign the Licensed Marks. Nothing herein
-------------------------------------------
shall be construed to limit the right of the Licensor to transfer or assign its
interests in the Licensed Marks, subject to the agreement of the assignee to be
bound by the terms and conditions of this agreement.
Section 14.3. Licenses to Additional Licensees; Sublicenses; Licenses to
----------------------------------------------------------
Additional Licensees. Licensee shall not sublicense (or attempt to sublicense)
- --------------------
any of its rights hereunder without the prior written consent of Licensor, in
the sole discretion of Licensor.
ARTICLE 15
MISCELLANEOUS
--------------
Section 15.1. Notices. Any notice, payment, demand, or communication
-------
required or permitted to be given by any provision of this agreement shall be in
writing and mailed (certified or registered mail, postage prepaid, return
receipt requested) or sent by hand or overnight courier, or by facsimile (with
acknowledgment received), charges prepaid and addressed as described on the
Notice Address Schedule attached to the Master Signature Page, or to such other
address or number as such party may from time to time specify by written notice
to the other party in accordance with the provisions of this Section 15.1. All
notices and other communications given to a party in accordance with the
provisions of this agreement shall be deemed to have been given and received (i)
four (4) Business Days after the same are sent by certified or registered mail,
postage prepaid, return receipt requested, (ii) when delivered by hand or
transmitted by facsimile (with acknowledgment received and, in the case of a
facsimile only, a copy of such notice is sent no later than the next Business
Day by a reliable overnight courier service, with acknowledgment of receipt) or
(iii) one (1) Business Day after the same are sent by a reliable overnight
courier service, with acknowledgment of receipt.
Section 15.2. Binding Effect. Except as otherwise provided in this
--------------
agreement, this agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, transferees, and assigns.
Section 15.3. Construction. This agreement shall be construed simply
------------
according to its fair meaning and not strictly for or against any party.
Section 15.4. Time. Time is of the essence with respect to this
----
agreement.
Section 15.5. Table of Contents; Headings. The table of contents and
---------------------------
section and other headings contained in this agreement are for reference
purposes only and are not intended to describe, interpret, define or limit the
scope, extent or intent of this agreement.
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<PAGE>
Section 15.6. Severability. Every provision of this agreement is intended
------------
to be severable. If any term or provision hereof is illegal, invalid or
unenforceable for any reason whatsoever, that term or provision will be enforced
to the maximum extent permissible so as to effect the intent of the parties, and
such illegality, invalidity or unenforceability shall not affect the validity or
legality of the remainder of this agreement. If necessary to effect the intent
of the parties, the parties will negotiate in good faith to amend this agreement
to replace the unenforceable language with enforceable language which as closely
as possible reflects such intent.
Section 15.7. Further Action. Each party, upon the reasonable request of
--------------
the other party, agrees to perform all further acts and execute, acknowledge,
and deliver any documents which may be reasonably necessary, appropriate, or
desirable to carry out the intent and purposes of this agreement.
Section 15.8. Governing Law. The internal laws of the State of Missouri
-------------
(without regard to principles of conflict of law) shall govern the validity of
this agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties.
Section 15.9. Specific Performance. Each party agrees with the other
--------------------
party that the other party would be irreparably damaged if any of the provisions
of this agreement are not performed in accordance with their specific terms and
that monetary damages would not provide an adequate remedy in such event.
Accordingly, in addition to any other remedy to which the nonbreaching party may
be entitled, at law or in equity, the nonbreaching party shall be entitled to
injunctive relief to prevent breaches of this agreement and specifically to
enforce the terms and provisions hereof.
Section 15.10. Entire Agreement. The provisions of this agreement set
----------------
forth the entire agreement and understanding between the parties as to the
subject matter hereof and supersede all prior agreements, oral or written, and
other communications between the parties relating to the subject matter hereof.
Section 15.11. Limitation on Rights of Others. Nothing in this agreement,
------------------------------
whether express or implied, shall be construed to give any party other than the
parties any legal or equitable right, remedy or claim under or in respect of
this agreement.
Section 15.12. Waivers; Remedies. The observance of any term of this
-----------------
agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) by the party or parties entitled to enforce such
term, but any such waiver shall be effective only if in writing signed by the
party or parties against which such waiver is to be asserted. Except as
otherwise provided herein, no failure or delay of any party in exercising any
power or right under this agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other
further exercise thereof or the exercise of any other right or power.
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<PAGE>
Section 15.13. Jurisdiction; Consent to Service of Process.
-------------------------------------------
(a) Each party hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of any Missouri
State court sitting in the County of Jackson or any Federal court of
the United States of America sitting in the Western District of
Missouri, and any appellate court from any such court, in any suit
action or proceeding arising out of or relating to this agreement, or
for recognition or enforcement of any judgment, and each party hereby
irrevocably and unconditionally agrees that all claims in respect of
any such suit, action or proceeding may be heard and determined in
such Missouri State Court or, to the extent permitted by law, in such
Federal court.
(b) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement in Missouri
State court sitting in the County of Jackson or any Federal court
sitting in the Western District of Missouri. Each party hereby
irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in any such court and further waives the right to
object, with respect to such suit, action or proceeding, that such
court does not have jurisdiction over such party.
(c) Each party irrevocably consents to service of process in the manner
provided for the giving of notices pursuant to this agreement,
provided that such service shall be deemed to have been given
--------
only when actually received by such party. Nothing in this agreement
shall affect the right of a party to serve process in another manner
permitted by law.
Section 15.14. Waiver of Jury Trial. Each party waives, to the fullest
--------------------
extent permitted by applicable law, any right it may have to a trial by jury in
respect of any action, suit or proceeding arising out of or relating to this
agreement.
Section 15.15. Consents. Whenever this agreement requires or permits
--------
consent by or on behalf of a party, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in Section 15.13, with appropriate notice in accordance with Section 15.1 of
this agreement.
Section 15.16. Master Signature Page. Each party agrees that it will
---------------------
execute the Master Signature Page that evidences such party's agreement to
execute, become a party to and be bound by this agreement, which document in
incorporated herein by this reference.
[The remainder of this page is intentionally left blank.]
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<PAGE>
EXHIBIT 10.4
SPRINT SPECTRUM
TRADEMARK AND SERVICE MARK
LICENSE AGREEMENT
Between
SPRINT SPECTRUM L.P.
and
ILLINOIS PCS, LLC
Dated as of January 22, 1999
<PAGE>
SPRINT SPECTRUM TRADEMARK AND
SERVICE MARK LICENSE AGREEMENT
------------------------------
THIS AGREEMENT is made as of the 22nd day of January, 1999, by and between
Sprint Spectrum L.P., a limited Delaware partnership, as licensor ("Licensor"),
and Illinois PCS, LLC, an Illinois limited liability company, as licensee
("Licensee"). The definitions for this agreement are set forth on the "Schedule
--------
of Definitions".
- --------------
RECITALS:
WHEREAS, Licensor is the owner of the U.S. trademarks and service marks
"THE CLEAR ALTERNATIVE TO CELLULAR" and "EXPERIENCE THE CLEAR ALTERNATIVE TO
CELLULAR TODAY" and such other marks as may be adopted and established from time
to time and the goodwill of the business symbolized thereby; and
WHEREAS, Licensee desires to use the trademarks and service marks in
commerce;
NOW, THEREFORE, the parties, in consideration of the mutual agreements
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, do hereby agree as follows:
ARTICLE 1
GRANT OF TRADEMARK AND SERVICE MARK RIGHTS; EXCLUSIVITY
Section 1.1. License.
-------
(a) Grant of License. Subject to the terms and conditions hereof,
----------------
Licensor hereby grants to Licensee, and Licensee hereby accepts from
Licensor, for the term of this agreement, a non-transferable, royalty-
free license to use the Licensed Marks solely for and in connection
with the marketing, promotion, advertisement, distribution, lease or
sale of Sprint PCS Products and Services and Premium and Promotional
Items in the Service Area.
(b) Related Equipment. The rights granted hereunder to Licensee shall
-----------------
not include the right to manufacture equipment under the Licensed
Marks. However, subject to the terms and conditions hereof, Licensor
hereby grants to Licensee, and Licensee hereby accepts from Licensor,
for the term of this agreement, a non-transferable, royalty-free
license to market, promote, advertise, distribute and resell and lease
Related Equipment in connection with the marketing, promotion,
advertisement, distribution, lease or sale by Licensee of Sprint PCS
Products and Services, and to furnish services relating to such
Related Equipment (including installation, repair and maintenance of
Related Equipment), under the Licensed Marks.
<PAGE>
ARTICLE 2
QUALITY STANDARDS, MAINTENANCE
Section 2.1. Maintenance of Quality.
----------------------
(a) Adherence to Quality Standards. In the course of marketing,
------------------------------
promoting, advertising, distributing, leasing and selling Sprint PCS
Products and Services and Premium and Promotional Items under the
Licensed Marks, Licensee shall maintain and adhere to standards of
quality and specifications that conform to or exceed those quality
standards and technical and operational specifications adopted and/or
amended in the manner provided below ("Quality Standards") and those
imposed by Law. Such Quality Standards are designed to ensure that the
quality of the Sprint PCS Products and Services and Premium and
Promotional Items marketed, promoted, advertised, distributed, leased
and sold under the Licensed Marks are consistent with the high
reputation of the Licensed Marks and are in conformity with applicable
Laws.
(b) Establishment of Quality Standards. The parties acknowledge that the
----------------------------------
initial Quality Standards for the Sprint PCS Products and Services and
Premium and Promotional Items are attached to the Management Agreement
as Exhibits 4.1, 4.2, 4.3, 7.2, and 8.1. The Quality Standards shall
(i) be consistent with the reputation for quality associated with the
Licensed Marks and (ii) be commensurate with a high level of quality
(taking into account Licensee's fundamental underlying technology and
standards), consistent with the level of quality being offered in the
market for products and services of the same kind as the Sprint PCS
Products and Services.
(c) Changes in Quality Standards. In the event that Licensor wishes to
----------------------------
change the Quality Standards, it will notify Licensee in writing of
such proposed amendments, and will afford Licensee a reasonable time
period in which to adopt such changes as may be required in order for
Licensee to conform to the amended Quality Standards.
Section 2.2. Rights of Inspection. In order to ensure that the Quality
--------------------
Standards are maintained, Licensor and its authorized agents and representatives
shall have the right, but not the obligation, with prior notice to Licensee, to
enter upon the premises of any office or facility operated by or for Licensee
with respect to Sprint PCS Products and Services and Premium and Promotional
Items at all reasonable times, to inspect, monitor and test in a reasonable
manner facilities and equipment used to furnish Sprint PCS Products and Services
and Premium and Promotional Items and, with prior written notice to Licensee, to
inspect the books and records of Licensee in a manner that does not unreasonably
interfere with the
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<PAGE>
business and affairs of Licensee, all as they relate to the compliance with the
Quality Standards maintained hereunder.
Section 2.3. Marking; Compliance with Trademark Laws. Licensee shall
---------------------------------------
cause the appropriate designation "/TM/" or "/SM/" or the registration symbol
"(R)" to be placed adjacent to the Licensed Marks in connection with the use
thereof and to indicate such additional information as Licensor shall reasonably
specify from time to time concerning the license rights under which Licensee
uses the Licensed Marks. Licensee shall place the following notice on all
printed or electronic materials on which the Licensed Marks appear: "THE CLEAR
ALTERNATIVE TO CELLULAR", "EXPERIENCE THE CLEAR ALTERNATIVE TO CELLULAR TODAY",
and such other marks as may be adopted and established from time to time, are
trademarks and/or service marks of Sprint Spectrum L.P., "used under license" or
such other notice as Licensor may specify from time to time.
Section 2.4. Other Use Restrictions. Licensee shall not use the Licensed
----------------------
Marks in any manner that would reflect adversely on the image of quality
symbolized by the Licensed Marks.
ARTICLE 3
CONFIDENTIAL INFORMATION
Section 3.1. Maintenance of Confidentiality. Each of Licensor and
------------------------------
Licensee and their respective Controlled Related Parties (each a "Restricted
Party") shall cause their respective officers and directors (in their capacity
as such) to, and shall take all reasonable measures to cause their respective
employees, attorneys, accountants, consultants and other agents and advisors
(collectively, and together with their respective officers and directors,
"Agents") to, keep secret and maintain in confidence the terms of this agreement
and all confidential and proprietary information and data of the other party or
its Related Parties disclosed to it (in each case, a "Receiving Party") in
connection with the performance of its obligations under this agreement (the
"Confidential Information") and shall not, and shall cause their respective
officers and directors not to, and shall take all reasonable measures to cause
their respective other Agents not to, disclose Confidential Information to any
Person other than the parties, their Controlled Related Parties and their
respective Agents that need to know such Confidential Information. Each party
further agrees that it shall not use the Confidential Information for any
purpose other than determining and performing its obligations and exercising its
rights under this agreement. Each party shall take all reasonable measures
necessary to prevent any unauthorized disclosure of the Confidential Information
by any of their respective Controlled Related Parties or any of their respective
Agents. The measures taken by a Restricted Party to protect Confidential
Information shall be not deemed unreasonable if the measures taken are at least
as strong as the measures taken by the disclosing party to protect such
Confidential Information.
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<PAGE>
Section 3.2. Permitted Disclosures. Nothing herein shall prevent any
---------------------
Restricted Party or its Agents from using, disclosing, or authorizing the
disclosure of Confidential Information it receives and which:
(i) has been published or is in the public domain, or which subsequently
comes into the public domain, through no fault of the receiving
party;
(ii) prior to receipt hereunder was property within the legitimate
possession of the Receiving Party or, subsequent to receipt
hereunder is lawfully received from a third party having rights
therein without restriction of the third party's right to
disseminate
the Confidential Information and without notice of any restriction against its
further disclosure.
(iii) is independently developed by the Receiving Party through Persons
who have not had, either directly or indirectly, access to or
knowledge of such Confidential Information;
(iv) is disclosed to a third party with the written approval of the party
originally disclosing such information, provided that such
--------
Confidential Information shall cease to be confidential and
proprietary information covered by this agreement only to the extent
of the disclosure so consented to;
(v) subject to the Receiving Party's compliance with Section 3.4 below,
is required to be produced under order of a court of competent
jurisdiction or other similar requirements of a governmental agency,
provided that such Confidential Information to the extent covered
--------
by a protective order or its equivalent shall otherwise continue to
be Confidential Information required to be held confidential for
purpose of this agreement; or
(vi) subject to the Receiving Party's compliance with Section 3.4 below,
is required to be disclosed by applicable Law or a stock exchange or
association on which such Receiving Party's securities (or those of
its Related Party) are listed.
Section 3.3. Financial Institutions. Notwithstanding this Article 3, any
----------------------
party may provide Confidential Information to any financial institution in
connection with borrowings from such financial institution by such party or any
of its Controlled Related Parties, so long as prior to any such disclosure such
financial institution executes a confidentiality agreement that provides
protection substantially equivalent to the protection provided the parties in
this Article 3.
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<PAGE>
Section 3.4. Procedures. In the event that any Receiving Party (i) must
----------
disclose Confidential Information in order to comply with applicable Law or the
requirements of a stock exchange or association on which such Receiving Party's
securities or those of its Related Parties are listed or (ii) becomes legally
compelled (by oral questions, interrogatories, requests for information or
documents, subpoenas, civil investigative demand or otherwise) to disclose any
Confidential Information, the Receiving Party shall provide the disclosing party
with prompt written notice so that in the case of clause (i), the disclosing
party can work with the Receiving Party to limit the disclosure to the greatest
extent possible consistent with legal obligations or in the case of clause (ii),
the disclosing party may seek a protective order or other appropriate remedy or
waive compliance with the provisions of this agreement. In the case of a clause
(ii), (A) if the disclosing party is unable to obtain a protective order or
other appropriate remedy, or if the disclosing party so directs, the Receiving
Party shall, and shall cause its employees to, exercise all commercially
reasonable efforts to obtain a protective order or other appropriate remedy at
the disclosing party's reasonable expense, and (B) failing the entry of a
protective order or other appropriate remedy or receipt of a waiver hereunder,
the Receiving Party shall furnish only that portion of the Confidential
Information which it is advised by opinion of its counsel is legally required to
be furnished and shall exercise all commercially reasonable efforts to obtain
reliable assurance that confidential treatment shall be accorded such
Confidential Information, it being understood that such reasonable efforts shall
be at the cost and expense of the disclosing party whose Confidential
Information has been sought.
Section 3.5. Survival. The obligations under this Article 3 shall
--------
survive, as to any party, until two (2) years following the date of termination
of this agreement, and, as to any Controlled Related Party of a party, until two
(2) years following the earlier to occur of (A) the date that such Person is no
longer a Controlled Related Party of a party, or (B) the date of the termination
of this agreement; provided that such obligations shall continue indefinitely
--------
with respect to any trade secret or similar information which is proprietary to
a party or its Controlled Related Parties and provides such party or its
Controlled Related Parties with an advantage over its competitors.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSEE
Section 4.1. Licensor's Ownership. Licensee acknowledges Licensor's
--------------------
exclusive right, title and interest in and to the Licensed Marks and
acknowledges that nothing herein shall be construed to accord to Licensee any
rights in the Service Area in the Licensed Marks except as expressly provided,
herein. Licensee acknowledges that its use in the Service Area of the Licensed
Marks shall not create in Licensee any right, title or interest in the Service
Area in the Licensed Marks and that all use in the Service Area of the Licensed
Marks
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<PAGE>
and the goodwill symbolized by and connected with such use of the Licensed Marks
will inure solely to the benefit of the Licensor.
Section 4.2. No Challenge by Licensee. Licensee covenants that (i)
------------------------
Licensee will not at any time challenge Licensor's rights, title or interest in
the Licensed Marks (other than to assert the specific rights granted to Licensee
under this agreement), (ii) Licensee will not do or cause to be done or omit to
do anything, the doing, causing or omitting of which would contest or in any way
impair or tend to impair the rights of Licensor in the Licensed Marks, and (iii)
Licensee will not represent to any third party that Licensee has any ownership
or rights in the Service Area with respect to the Licensed Marks other than the
specific rights conferred by this agreement.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSOR
Section 5.1. Title to the Licensed Marks. Licensor represents and
---------------------------
warrants that:
(a) Licensor has good title to the Licensed Marks and has the right to
grant the licenses provided for hereunder in accordance with the terms
and conditions hereof, free of any liabilities, charges, liens,
pledges, mortgages, restrictions, adverse claims, security interests,
rights of others, and encumbrances of any kind (collectively,
"Encumbrances"), other than Encumbrances which will not restrict or
interfere in any material respect with the exercise by Licensee of the
rights granted to Licensee hereunder.
(b) There is no claim, action, proceeding or other litigation pending or,
to the knowledge of Licensor, threatened with respect to Licensor's
ownership of the Licensed Marks or which, if adversely determined,
would restrict or otherwise interfere in any material respect with the
exercise by Licensee of the rights purported to be granted to Licensee
hereunder.
Except as expressly provided above in this Section 5.1, Licensor makes no
representation or warranty of any kind or nature whether express or implied with
respect to the Licensed Marks (including freedom from third party infringement
of the Licensed Marks).
The representations and warranties provided for in this Section 5.1 shall
survive the execution and delivery of this agreement.
Section 5.2. Other Licensees. In the event Licensor grants to any third
---------------
party any licenses or rights with respect to the Licensed Marks, Licensor shall
not, in connection with the grant of any such license or rights, take any
actions, or suffer any omission that would
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<PAGE>
adversely affect the existence or validity of the Licensed Marks or conflict
with the rights granted to Licensee hereunder.
Section 5.3. Abandonment. Licensor covenants and agrees that, during the
-----------
term of this agreement, it will not abandon the Licensed Marks.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BOTH PARTIES
Section 6.1. Representations and Warranties. Each party hereby represents
------------------------------
and warrants to the other party as follows:
(a) Due Incorporation or Formation; Authorization of Agreement. Such party
----------------------------------------------------------
is a corporation duly organized, a limited liability company duly
organized or a partnership duly formed, validly existing and, if
applicable, in good standing under the laws of the jurisdiction of its
incorporation or formation and has the corporate, company or
partnership power and authority to own its property and carry on its
business as owned and carried on at the date hereof and as
contemplated hereby. Such party is duly licensed or qualified to do
business and, if applicable, is in good standing in each of the
jurisdictions in which the failure to be so licensed or qualified
would have a material adverse effect on its financial condition or its
ability to perform its obligations hereunder. Such party has the
corporate, company or partnership power and authority to execute and
deliver this agreement and to perform its obligations hereunder and
the execution, delivery and performance of this agreement have been
duly authorized by all necessary corporate, company or partnership
action. Assuming the due execution and delivery by the other party
hereto, this agreement constitutes the legal, valid and binding
obligation of such party enforceable against such party in accordance
with its terms, subject as to enforceability to limits imposed by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and the availability of equitable remedies.
(b) No Conflict with Restrictions; No Default. Neither the execution,
-----------------------------------------
delivery and performance of this agreement nor the consummation by
such party of the transactions contemplated hereby (i) will conflict
with, violate or result in a breach of any of the terms, conditions or
provisions of any law, regulation, order, writ, injunction, decree,
determination or award of any court, any governmental department,
board, agency or instrumentality, domestic or foreign, or any
arbitrator, applicable to such party or any of its Controlled Related
Parties, (ii) will conflict with, violate, result in a breach of or
constitute a default under any of the terms, conditions or provisions
of the articles of
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<PAGE>
incorporation, articles of organization or certificate of formation,
bylaws, operating agreement or limited liability company agreement, or
partnership agreement of such party or any of its Controlled Related
Parties or of any material agreement or instrument to which such party
or any of its Controlled Related Parties is a party or by which such
party or any of its Controlled Related Parties is or may be bound or
to which any of its material properties or assets is subject (other
than any such conflict, violation, breach or default that has been
validly and unconditionally waived), (iii) will conflict with,
violate, result in a breach of, constitute a default under (whether
with notice or lapse of time or both), accelerate or permit the
acceleration of the performance required by, give to others any
material interests or rights or require any consent, authorization or
approval under any indenture, mortgage, lease agreement or instrument
to which such party or any of its Controlled Related Parties is a
party or by which such party or any of its Controlled Related Parties
is or may be bound, or (iv) will result in the creation or imposition
of any lien upon any of the material properties or assets of such
party or any of its Controlled Related Parties, which in any such case
could reasonably be expected to materially impair such party's ability
to perform its obligations under this agreement or to have a material
adverse effect on the consolidated financial condition of each party
or its Parent.
(c) Governmental Authorizations. Any registration, declaration or filing
---------------------------
with, or consent, approval, license, permit or other authorization or
order by, any governmental or regulatory authority, domestic or
foreign, that is required to be obtained by such party in connection
with the valid execution, delivery, acceptance and performance by such
party under this agreement or the consummation by such party of any
transaction contemplated hereby has been completed, made or obtained,
as the case may be.
(d) Litigation. There are no actions, suits, proceedings or
----------
investigations pending or, to the knowledge of such party, threatened
against or affecting such party or any of its Controlled Related
Parties or any of their properties, assets or businesses in any court
or before or by any governmental department, board, agency or
instrumentality, domestic or foreign, or any arbitrator which could,
if adversely determined (or, in the case of an investigation could
lead to any action, suit or proceeding, which if adversely determined
could), reasonably be expected to materially impair such party's
ability to perform its obligations under this agreement or to have a
material adverse effect on the consolidated financial condition of
such party or its parent; and such party or any of its Controlled
Related Parties has not received any currently effective notice of any
default, and such party or any of its Controlled Related Parties is
not in default,
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<PAGE>
under any applicable order, writ, injunction, decree, permit,
determination or award of any court, any governmental department,
board, agency or instrumentality, domestic or foreign, or any
arbitrator, which default could reasonably be expected to materially
impair such party's ability to perform its obligations under this
agreement or to have a material adverse effect on the consolidated
financial condition of such party or its Parent.
Section 6.2. Survival. The representations and warranties provided for
--------
under this Article 6 will survive the execution and delivery of this agreement.
ARTICLE 7
PROSECUTION OF INFRINGEMENT CLAIMS
Section 7.1. Notice and Prosecution of Infringement. Licensee agrees to
--------------------------------------
notify Licensor promptly, in writing, of any alleged, actual or threatened
infringement of any of the Licensed Marks within the Service Area of which
Licensee becomes aware. Licensor has the sole right to determine whether or not
to take any action on such infringements. Licensor has the sole right to employ
counsel of its choosing and to direct any litigation and settlement of
infringement actions. Any recoveries, damages and costs recovered through such
proceedings shall belong exclusively to Licensor, and Licensor shall be solely
responsible for all costs and expenses (including attorney fees) of prosecuting
such actions. Licensee agrees to provide Licensor with all reasonably requested
assistance in connection with such proceedings.
ARTICLE 8
LICENSEE DEFENSE AND INDEMNIFICATION OF LICENSOR
Section 8.1. Indemnification. (a) Each party hereby agrees to indemnify
---------------
the other party against and agrees to hold it harmless from any Loss incurred or
suffered by such other party arising out of or in connection with:
(i) the material breach of any representation or warranty made by
such party in this agreement; and
(ii) the material breach of any covenant or agreement by such party
contained in this agreement.
(b) In addition to the indemnification provided for in Section 8.1(a),
Licensee agrees to indemnify Licensor against and hold it harmless
from any Loss suffered or incurred by Licensor or its Controlled
Related Parties by reason of a third party claim arising out of or
relating to (i) the use of the Licensed Marks by Licensee; or (ii) the
marketing, promotion, advertisement,
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distribution, lease or sale by Licensee (or any permitted sublicensee)
or by any additional Licensee (or any permitted sublicensee) of any
Sprint PCS Products and Services, Related Equipment or Premium and
Promotional Items under the Licensed Marks pursuant to this agreement,
including unfair or fraudulent advertising claims, warranty claims and
product defect or liability claims, pertaining to the Sprint PCS
Products and Services, Related Equipment or Premium and Promotional
Items. Notwithstanding the foregoing, Licensee will not be required
under this paragraph (b) to indemnify any Loss arising solely out of
Licensee's use of the Licensed Marks in compliance with the terms of
the Trademark and Service Mark Usage Guidelines; provided that
Licensor shall have no obligation to indemnify for third-party claims
alleged to arise from the specifics of uses of third-party trademarks
or service marks, or the specifics of claims made, in marketing
materials prepared by or for Licensee, which marketing materials have
not been approved by Licensor prior to the publication out of which
such claims are alleged to have arisen.
ARTICLE 9
OBLIGATIONS/SETOFF
Section 9.1. Obligations/Setoff. The obligations of the parties as set
------------------
forth in this agreement shall be unconditional and irrevocable, and shall not be
subject to any defense or be released, discharged or otherwise affected by any
matter, including impossibility, illegality, impracticality, frustration of
purpose, force majeure, act of government, the bankruptcy or insolvency of any
party hereto, and the obligations of each party shall not be subject to any
right of setoff or recoupment which such party may not or hereafter have against
the other party.
ARTICLE 10
LIMITATION ON USE OF LICENSED MARKS
Section 10.1. Restrictions on Use. Licensee is not permitted to make any
-------------------
use of the Licensed Marks in connection with products or services other than the
Sprint PCS Products and Services, and as specifically authorized in Sections
1.1(b) above with respect to Related Equipment and Premium and Promotional
Items, nor to make any use of the Licensed Marks directed outside of the Service
Area.
Section 10.2. Adherence to Trademark and Service Mark Usage Guidelines.
--------------------------------------------------------
Licensee agrees to comply with and adhere to Trademark and Service Mark Usage
Guidelines for the depiction or presentation of the Licensed Marks, as furnished
by Licensor. Prior to Licensee depicting or presenting any of the Licensed
Marks on any type of marketing, advertising or promotional materials, Licensee
agrees to submit samples of such materials to Licensor for
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approval. Licensor shall have fourteen (14) days from the date Licensor receives
such materials to approve or object to any such materials submitted to Licensor
for review. In the event Licensor does not object to such materials within such
fourteen (14) day period, such materials shall be deemed approved by Licensor.
Thereafter, Licensee shall not be obligated to submit to Licensor materials
prepared in accordance with the samples previously approved by Licensor and the
Trademark and Service Mark Usage Guidelines; provided, however, Licensee shall,
at the reasonable request of Licensor, continue to furnish samples of such
marketing, advertising and promotional materials to Licensor from time to time
during the term hereof at the request of Licensor.
Section 10.3. Use of Similar Trademarks and Service Marks. Licensee
-------------------------------------------
agrees not to use (a) any trademark or service mark which is confusingly similar
to, or a colorable imitation of, the Licensed Marks or any part thereof, or (b)
any work, symbol, character, or set of words, symbols, or characters, which in
any language would be identified as the equivalent of the Licensed Marks or that
are otherwise confusingly similar to, or a colorable imitation of, the Licensed
Marks, whether during the term of this agreement or at any time following
termination of this agreement. Licensee shall not knowingly engage in any
conduct which may place the Sprint PCS Products and Services, the Licensed Marks
or Licensor in a negative light or context.
Section 10.4. Services of Public Figures. Licensee agrees to obtain
--------------------------
Licensor's prior written approval (which approval will not be unreasonably
withheld) before engaging the services of any celebrity or publicly known
individual for endorsement of any Sprint PCS Products and Services or Premium
and Promotional Items.
ARTICLE 11
CONTROL OF BRAND IMAGE
Section 11.1. Exclusive Use of Licensed Marks. The Sprint PCS Products
-------------------------------
and Services shall be marketed by Licensee solely under the Licensed Marks.
Section 11.2. Consistency With Brand Image and Principles. Licensee shall
-------------------------------------------
use the Licensed Marks in a manner that is consistent with the brand image and
principles established by Licensor, and mechanics to ensure consistency will be
included in the Marketing Communications Guidelines.
Section 11.3. Management of Brand Image. Licensor shall be responsible
-------------------------
for the overall management of the brand image for the Licensed Marks. All
advertising, marketing and promotional materials using the Licensed Marks
prepared by Licensee shall, in addition to the provisions set forth in Section
11.2 above, comply with the Marketing Communications Guidelines to be furnished
by Licensor to Licensee as such Marketing Communications
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Guidelines may be amended and updated by Licensor from time to time. Such
Marketing Communications Guidelines shall establish reasonable principles to be
followed in the development of advertising, marketing and promotional campaigns
in order to ensure a consistent and coherent brand image. All advertising,
marketing and promotional campaigns conducted by Licensee shall be conducted in
a manner consistent with the Marketing Communications Guidelines.
Section 11.4. Advertising Agencies; Promotions. Licensee may select its
--------------------------------
own advertising agencies for development of its advertising and promotional
campaigns; provided, however, that all media buys shall be coordinated by
Licensee with the buying agency of Licensor. Licensee and Licensor shall
conduct ongoing reviews of upcoming advertising, marketing and promotional
campaigns of each party and shall use good faith efforts to coordinate their
respective campaigns in a manner that will maximize the advertising, marketing
and promotional efforts of the parties and be consistent with the Marketing
Communications Guidelines. Licensee shall not initiate any products or
promotions under names which are confusingly similar to any names of national
product offerings or promotions by Licensor. Neither Licensor nor any of its
Controlled Related Parties shall initiate any products or promotions under names
which are confusingly similar to any names of national product offerings or
promotions by Licensee. In addition, Licensor will use its commercially
reasonable efforts to ensure that no third party licensee under the Licensed
Marks initiates any products or promotions in the Service Area under names which
are confusingly similar to any names of national product offerings or promotions
by Licensee.
Section 11.5. Ownership of Advertising Materials. All agreements entered
----------------------------------
into by Licensee with advertising agencies shall provide that Licensor shall own
all advertising materials (including concepts, themes, characters and the like)
created or developed thereunder. Subject to the terms and conditions set forth
herein, Licensee shall receive a perpetual, non-exclusive, royalty-free license
to use such materials in connection with advertising and promotional materials
developed by Licensee; provided, however, that the rights granted under such
perpetual license shall be limited solely to the use of such materials and shall
not extend the term of the license with respect to the Licensed Marks provided
for hereunder.
ARTICLE 12
RELATIONSHIP OF PARTIES
Section 12.1. Relationship of Parties. It is the express intention of the
-----------------------
parties that Licensee is and shall be an independent contractor and no
partnership shall exist between Licensee and Licensor pursuant hereto. This
agreement shall not be construed to make Licensee the agent or legal
representative of Licensor for any purpose whatsoever (except as expressly
provided in Articles 7 and 8), and Licensee is not granted any right or
authority to
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<PAGE>
assume or create any obligations for, on behalf of, or in the name of Licensor
(except as expressly provided in Articles 7 and 8). Licensee agrees, and shall
require its permitted sublicensees to agree, not to incur or contract any debt
or obligation on behalf of Licensor, or commit any act, make any representation,
or advertise in any manner that may adversely affect any right of Licensor in or
with respect to the Licensed Marks or be detrimental to Licensor's image.
ARTICLE 13
TERM; TERMINATION; EFFECTS OF TERMINATION
Section 13.1. Term. This agreement commences on the date of execution and
----
continues until the Affiliation Agreement terminates, unless earlier terminated
in accordance with the terms set forth in this Article 13. This agreement
automatically terminates upon termination of the Affiliation Agreement.
Section 13.2. Events of Termination. If any of the following events shall
---------------------
occur with respect to Licensee, each such occurrence shall be deemed an "Event
of Termination":
(a) Bankruptcy. The occurrence of a "Bankruptcy" with respect to
----------
Licensee.
(b) Breach of Agreements. Licensee fails to perform in accordance with
--------------------
any of the material terms and conditions contained herein in any
material respect.
(c) Material Misrepresentation. Licensee breaches any material
--------------------------
representation or warranty of Licensee made in Section 4.2 or Article
6 in any material respect.
(d) Termination of Affiliation Agreement. The termination of the
------------------------------------
Affiliation Agreement, for whatever reason.
Section 13.3. Licensor's Right to Terminate Upon Event of Termination.
-------------------------------------------------------
Licensor may, at its option, without prejudice to any other remedies it may
have, terminate this agreement by giving written notice of such termination to
Licensee as follows: (a) immediately, upon the occurrence of any Event of
Termination pursuant to Section 13.2(a) with respect to Licensee; or (b) after
the expiration of thirty (30) days from Licensee's receipt of written notice
from Licensor of the occurrence of any Event of Termination pursuant to Sections
13.2(b) or 13.2(c), if such failure to perform or breach is then still uncured;
or (c) immediately upon the repeated or continuing occurrence of Events of
Termination pursuant to Section 13.2(b) (regardless of whether such continuing
failures to perform or breaches have been cured by Licensee in accordance with
the provisions of clause (b) or this Section 13.3); or (d) immediately upon the
occurrence of a termination pursuant to Section 13.2(d).
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<PAGE>
Section 13.4. Licensee's Right to Terminate. Licensee may, at its option,
-----------------------------
without prejudice to any other remedies it may have, terminate this agreement by
giving written notice of such termination to Licensor as follows: (a)
immediately, in the event that Licensor abandons the Licensed Marks or otherwise
ceases to support the Licensed Marks in Licensor's business; or (b) immediately
in the event of the occurrence of a Bankruptcy with respect to Licensor; or (c)
immediately in the event of an occurrence of termination pursuant to Section
13.2(d).
Section 13.5. Effects of Termination. Upon the termination of this
----------------------
agreement for any reason, all rights of Licensee in and to the Licensed Marks in
the Service Area shall cease within thirty (30) days following the date on which
this agreement terminates (except in the case of a termination resulting from an
Event of Termination described in Section 13.2(b), (c) or (d), in which case
such rights to use the Licensed Marks will terminate immediately upon the date
of termination); provided, however, that Licensee may thereafter sell, transfer
or otherwise dispose of any Related Equipment and Premium and Promotional Items
that are then in Licensee's inventory (or which Licensee has purchased or is
then legally obligated to purchase) for an additional reasonable period not to
exceed three (3) months. Licensee's right of disposal under this Section 13.5
shall not prohibit Licensor from granting to third parties during the disposal
period licenses and other rights with respect to the Licensed Marks. The
provisions of Articles 3, 4, 5, 6 and 8 will survive any termination of this
agreement.
ARTICLE 14
ASSIGNMENT; SUBLICENSING
Section 14.1. Licensee Right to Assign. Licensee, without the prior
------------------------
written consent of Licensor (in its sole discretion), shall have no right to
assign any of its rights or obligations hereunder.
Section 14.2. Licensor Right to Assign the Licensed Marks. Nothing herein
-------------------------------------------
shall be construed to limit the right of the Licensor to transfer or assign its
interests in the Licensed Marks, subject to the agreement of the assignee to be
bound by the terms and conditions of this agreement.
Section 14.3. Licenses to Additional Licensees; Sublicenses; Licenses to
----------------------------------------------------------
Additional Licensees. Licensee shall not sublicense (or attempt to sublicense)
- --------------------
any of its rights hereunder without the prior written consent of Licensor, in
the sole discretion of Licensor.
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<PAGE>
ARTICLE 15
MISCELLANEOUS
Section 15.1. Notices. Any notice, payment, demand, or communication
-------
required or permitted to be given by any provision of this agreement shall be in
writing and mailed (certified or registered mail, postage prepaid, return
receipt requested) or sent by hand or overnight courier, or by facsimile (with
acknowledgment received), charges prepaid and addressed as described on the
Notice Address Schedule attached to the Master Signature Page, or to such other
address or number as such party may from time to time specify by written notice
to the other party. All notices and other communications given to a party in
accordance with the provisions of this agreement shall be deemed to have been
given and received (i) four (4) Business Days after the same are sent by
certified or registered mail, postage prepaid, return receipt requested, (ii)
when delivered by hand or transmitted by facsimile (with acknowledgment received
and, in the case of a facsimile only, a copy of such notice is sent no later
than the next Business Day by a reliable overnight courier service, with
acknowledgment of receipt) or (iii) one (1) Business Day after the same are sent
by a reliable overnight courier service, with acknowledgment of receipt.
Section 15.2. Binding Effect. Except as otherwise provided in this
--------------
agreement, this agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, transferees, and assigns.
Section 15.3. Construction. This agreement shall be construed simply
------------
according to its fair meaning and not strictly for or against any party.
Section 15.4. Time. Time is of the essence with respect to this
----
agreement.
Section 15.5. Table of Contents; Headings. The table of contents and
---------------------------
section and other headings contained in this agreement are for reference
purposes only and are not intended to describe, interpret, define or limit the
scope, extent or intent of this agreement.
Section 15.6. Severability. Every provision of this agreement is intended
------------
to be severable. If any term or provision hereof is illegal, invalid or
unenforceable for any reason whatsoever, that term or provision will be enforced
to the maximum extent permissible so as to effect the intent of the parties, and
such illegality, invalidity or unenforceability shall not affect the validity or
legality of the remainder of this agreement. If necessary to effect the intent
of the parties, the parties will negotiate in good faith to amend this agreement
to replace the unenforceable language with enforceable language which as closely
as possible reflects such intent.
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<PAGE>
Section 15.7. Further Action. Each party, upon the reasonable request of
--------------
the other party, agrees to perform all further acts and execute, acknowledge,
and deliver any documents which may be reasonably necessary, appropriate, or
desirable to carry out the intent and purposes of this agreement.
Section 15.8. Governing Law. The internal laws of the State of Missouri
-------------
(without regard to principles of conflict of law) shall govern the validity of
this agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties.
Section 15.9. Specific Performance. Each party agrees with the other
--------------------
party that the other party would be irreparably damaged if any of the provisions
of this agreement are not performed in accordance with their specific terms and
that monetary damages would not provide an adequate remedy in such event.
Accordingly, in addition to any other remedy to which the nonbreaching party may
be entitled, at law or in equity, the nonbreaching party shall be entitled to
injunctive relief to prevent breaches of this agreement and specifically to
enforce the terms and provisions hereof.
Section 15.10. Entire Agreement. The provisions of this agreement set
----------------
forth the entire agreement and understanding between the parties as to the
subject matter hereof and supersede all prior agreements, oral or written, and
other communications between the parties relating to the subject matter hereof.
Section 15.11. Limitation on Rights of Others. Nothing in this agreement,
------------------------------
whether express or implied, shall be construed to give any party other than the
parties any legal or equitable right, remedy or claim under or in respect of
this agreement.
Section 15.12. Waivers; Remedies. The observance of any term of this
-----------------
agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) by the party or parties entitled to enforce such
term, but any such waiver shall be effective only if in writing signed by the
party or parties against which such waiver is to be asserted. Except as
otherwise provided herein, no failure or delay of any party in exercising any
power or right under this agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other
further exercise thereof or the exercise of any other right or power.
Section 15.13. Jurisdiction; Consent to Service of Process.
-------------------------------------------
(a) Each party hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of any Missouri
State court sitting in the County of Jackson or any Federal court of
the United States of America
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<PAGE>
sitting in the Western District of Missouri, and any appellate court
from any such court, in any suit action or proceeding arising out of
or relating to this agreement, or for recognition or enforcement of
any judgment, and each party hereby irrevocably and unconditionally
agrees that all claims in respect of any such suit, action or
proceeding may be heard and determined in such Missouri State Court
or, to the extent permitted by law, in such Federal court.
(b) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement in Missouri
State court sitting in the County of Jackson or any Federal court
sitting in the Western District of Missouri. Each party hereby
irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in any such court and further waives the right to
object, with respect to such suit, action or proceeding, that such
court does not have jurisdiction over such party.
(c) Each party irrevocably consents to service of process in the manner
provided for the giving of notices pursuant to this agreement,
provided that such service shall be deemed to have been given only
--------
when actually received by such party. Nothing in this agreement shall
affect the right of a party to serve process in another manner
permitted by law.
Section 15.14. Waiver of Jury Trial. Each party waives, to the fullest
--------------------
extent permitted by applicable law, any right it may have to a trial by jury in
respect of any action, suit or proceeding arising out of or relating to this
agreement.
Section 15.15. Consents. Whenever this agreement requires or permits
--------
consent by or on behalf of a party, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in Section 15.13, with appropriate notice in accordance with Section 15.1 of
this agreement.
Section 15.16. Master Signature Page. Each party agrees that it will
---------------------
execute the Master Signature Page that evidences such party's agreement to
execute, become a party to and be bound by this agreement, which document is
incorporated herein by this reference.
[The remainder of this page is intentionally left blank.]
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<PAGE>
Exhibit 10.12
LEASE
-----
THIS LEASE, made this 1st day of June, 1999, by and between GRIDLEY
ENTERPRISES, INC., an Illinois Corporation, hereinafter referred to as "Lessor,"
and ILLINOIS PCS, L.L.C., an Illinois Limited Liability Company, hereinafter
referred to as "Lessee."
WITNESSETH
WHEREAS, Lessor is the owner of certain Premises located at 207 East Third
Street in the Village of Gridley, County of McLean, State of Illinois, including
a building consisting of approximately 4620 square feet, hereinafter referred to
as the "Premises," and
WHEREAS, Lessee desires to occupy and utilize the Premise for placement of
its telecommunications facilities and the conduct of its telecommunications
business, and
WHEREAS, Lessor has made specialized improvements to the building on the
Premises to facilitate Lessee's telecommunications operations and the housing of
Lessee's electronic switching and associated equipment, all at the request of
Lessee and as designed, designated and specified by Lessee and its consultant,
Communications Management Specialists, and
WHEREAS, Lessor has agreed to let, lease and demise the Premises to Lessee,
and Lessee has agreed to accept a lease of the Premises as hereinafter set
forth.
NOW THEREFORE, in consideration of the covenants and agreements hereinafter
set forth, Lessor hereby lets, leases and demises the Premises unto Lessee, and
Lessee hereby accepts the lease of the Premises on the terms, stipulations and
covenants hereinafter set forth and covenants and agrees to perform the same as
follows:
<PAGE>
1. Leased Premises and Term of Lease
---------------------------------
Lessor does hereby let, lease and demise unto Lessee, its successors and
assigns, the following described Premises in the Village of Gridley, County of
McLean, State of Illinois:
Lot 3 and the East 1/2 of Lot 4 in Block 26 in the Original
Town, now Village, of Gridley, as platted by Kent and
Carlisle, in McLEAN COUNTY, ILLINOIS
Commonly known as 207 East Third Street, Gridley, Illinois,
with all appurtenances and rights thereto belonging, including the right of
ingress and egress, for itself, its servants, agents and employees to have and
to hold for a term of ten (10) years, commencing on or about the 1st day of June
1999 and continuing to and including the 31st day of May, 2009. At the
expiration of said term, Lessee shall have the right and option to renew this
Lease on the same terms and conditions for a period of five (5) years, provided
however, that not less than 90 days prior to the expiration of the term of the
Lease, Lessee shall give written notice to Lessor of its election to exercise
said option. At the expiration of the lease renewal term provided above, if
that option was exercised, Lessee shall have the right and option to again renew
this Lease on the same terms and conditions for a period of five (5) years,
provided however, that not less than 90 days prior to the expiration of the term
of the renewal, Lessee shall give written notice to Lessor of its election to
exercise said option.
2. Rent
----
This monthly and annual base rent shall be as follows, payable in advance
on or before the first day of each month during the term of this Lease or any
extension or renewal thereof:
2
<PAGE>
<TABLE>
<CAPTION>
Monthly Annual
Rent Period Base Rent Base Rent
------------------------------- ----------- -----------
<S> <C> <C>
June 1, 1999 - May 31, 2004 $4,425.00 $53,100.00
June 1, 2004 - May 31, 2009 $4,867.50 $58,410.00
June 1, 2009 - May 31, 2014 $5,354.25 $64,251.00
June 1, 2004 - May 31, 2019 $5,889.68 $70,676.16
</TABLE>
All payments of rent by Lessee shall be made to Lessor at such place or
places as Lessor may in writing designate or direct.
3. Real Estate Taxes
-----------------
Lessee shall be responsible for and shall pay all real estate taxes
associated with the Premises during the term of this Lease or any extension or
renewal thereof. Lessor shall pay all real estate taxes for calendar year 1998
which are payable in calendar year 1999 and shall pay 5/12 of the real estate
taxes for the calendar year 1999 which are payable in calendar year 2000.
4. Utilities, Security System and Refuse Removal
---------------------------------------------
Lessee shall be responsible for and shall pay any and all charges
associated with utility services provided to the Premises during the term of the
Lease or any extension or renewal thereof, including electric, natural gas,
telephone, water and sewer. Lessee shall also be responsible for and shall pay
any and all charges associated with any security system installed on the
Premises and the security service rendered to Lessee in connection therewith.
Lessee shall also be responsible for and shall pay any and all refuse removal
charges.
5. Maintenance
-----------
Lessor agrees to repair and maintain the structural and exterior portion of
the Premises, including the roof thereof. Lessor shall have no other
obligations except as expressly provided in this lease. Lessee shall be
responsible for maintaining all interior portions of the building and all
3
<PAGE>
equipment, fixtures or systems which it has, itself, provided, including but not
limited to the Liebert climate control units, the 300 KW diesel generator, the
transfer switch, and the FM200 fire suppression equipment.
Lessor's employees, representatives and contractors shall have the right to
enter upon the Premises at any time during reasonable business hours for the
purpose of examining or inspecting the same or making any repairs.
6. Quiet Enjoyment and Non-Disturbance
-----------------------------------
Lessor covenants and warrants that, subject to any trust deeds or mortgages
now of record or hereafter placed on record, it is the owner of the Premises.
Lessee, upon payment of rents as herein provided and performance of the
provisions hereof on its part to be performed, shall peacefully possess and
enjoy the Premises during the term hereof and any extension of renewal thereof
without any interruption or disturbance.
7. Defense of Suit
---------------
Lessee agrees that in the event Lessor is joined in any suit instituted
against Lessee arising out of the possession by Lessee of the Premises, Lessee
shall defend such suit for itself and Lessor, and Lessee agrees to pay all
costs, expenses and attorneys fees which may be incurred in defending such suit,
as well as, any judgment which may be awarded against Lessor and/or Lessee.
8. Specialized Improvements
------------------------
Lessee acknowledges that the building on the Premises was designed and
constructed as a storage building and that the intended use under this lease is
other than the buildings intended purpose. Lessee acknowledges that Lessor has
made specialized improvements to the building on the Premises to facilitate
Lessee's telecommunications operations and the housing of Lessee's
4
<PAGE>
electronic switching and associated equipment, including but not limited to the
specialized electrical system, ground field and lightning protection. Lessee
shall provide the pad and housing for Lessee's backup generator and shall
install the 300 kW diesel generator and transfer switch provided by Lessee in
connection therewith. Lessee shall provide and pay all costs associated with
installation of the electrical services and ground field. Lessee acknowledges
that it shall provide and install its own FM200 fire suppression system and
Liebert climate control devises.
Lessee acknowledges that the improvements made to conform the building to
Lessee's purposes were designed and the modifications to the building were made
as designated and specified by Lessee and its consultant, Communications
Management Specialists ("CMS"). Therefore, Lessee assumes all risk associated
with the design and use of the building for Lessee's telecommunications
operations and the housing of Lessee's electronic switching and associated
equipment, and Lessee acknowledges and agrees that Lessor shall have no
liability whatsoever for or arising out of the redesign of the building by
Lessee and its consultant.
9. Responsibility for Modifications to Building
--------------------------------------------
Lessee was responsible for the design of the modifications, renovating and
remodeling of the building on the Premises to meet its needs and has accepted,
individually or through its consultant, CMS, all such modifications, renovating
and remodeling as constructed by Lessor and its contractors. Lessee hereby
agrees to forever release and hold Lessor harmless for any and all loss,
liability, deficiency or damage, direct or indirect, suffered or incurred in
respect of any claim relative to, arising out of, involving or claimed to be
related to, arising out of or involving the possession, design, construction,
modifications, renovating and remodeling of the building on the Premises,
including the ground field.
5
<PAGE>
10. Condition of Premises
---------------------
Lessee accepts the Premises in their present condition which was modified
for Lessee, at Lessor's expense, as designed and specified by Lessee and its
consultant, CMS. Lessee agrees at its own expense to do any and all additional
renovating and remodeling which may be necessary to place the Premises in such
condition that said Premises may be occupied by Lessee for business purposes.
Lessee further acknowledges and agrees that all of the design, construction,
renovating and remodeling necessary to place the Premises in its present
condition was done under the supervision and direction of Lessee. Lessee
further agrees it will promptly pay for all additional materials and labor
required to place the Premises in satisfactory condition for use so that no
person, firm or corporation shall be entitled to a mechanic's lien for labor and
materials furnished in the renovation and repair and remodeling of the
improvements on the Premises. Lessee further agrees that it will obtain
approval in writing of the Lessor prior to the commencement of further
renovation, repair or remodeling.
11. Fixtures and Equipment
----------------------
Lessee may install at its own expense on the Premises any fixtures,
equipment or facilities necessary to conduct its business. Upon the expiration
of the original term of this Lease or any extended term thereof, Lessee shall
remove from the Premises any fixtures, equipment or facilities installed by
Lessee and shall repair any damage occasioned by such removal.
12. Alterations
-----------
Lessee agrees that it will make no alterations on or to the Premises
without the prior written consent of the Lessor, and such consent shall not be
unreasonably withheld or delayed. Such alterations will be paid for by Lessee.
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13. Ordinances and Rules Compliance
-------------------------------
Lessee covenants and agrees that it will comply with all ordinances and
building rules and regulations of the Village of Gridley, County of McLean and
State of Illinois.
14. Insurance
---------
The Lessee shall pay and maintain insurance on its own equipment.
Lessee, at its own cost and expense, throughout the term of this Lease
shall maintain (or reimburse Landlord for maintaining, if such be the case) the
following insurance with respect to the Premises:
a) General public liability insurance against claims for
personal injury, death, or property damage occurring
upon, in or about the Premises, such insurance to
afford protection to the limit of not less than One
Million Dollars ($1,000,000) in respect to injury or
death to a single person, and to the limit of not less
than One Million dollars ($1,000,000) in respect to any
one accident, and to the limit of not less than Five
Hundred Thousand Dollars ($500,000) in respect to
property damage;
b) fire with full extended coverage insurance for Lessee's
personal property and contents.
Lessor, at its own cost and expense, throughout the term of this Lease
shall maintain insurance for the full replacement value of the building on the
Premises.
15. Hazardous Conditions
--------------------
Lessee covenants that it will not knowingly allow any condition to exist
which will damage the improvements on the Premises or create a fire hazard.
16. Damage or Destruction
---------------------
Lessor agrees that if the building in which the Premises are located is
damaged or destroyed and Lessee provides written notice thereof, Lessor shall
notify Lessee within five (5) days from the
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date of written notice of such destruction or damage whether or not Lessor
intends to restore the Premises, and if Lessor so elects to restore said
Premises, Lessor shall promptly undertake to replace or repair any improvements
which were damaged or destroyed and shall diligently proceed to complete such
replacement and/or repair within a reasonable time. If Lessor fails to notify
Lessee within said five (5) day period, or notify Lessee that Lessor does not
intend to restore the Premises, or if Lessor fails to restore the same to usable
condition within a reasonable time, then this Lease shall terminate.
17. Return of Possession
--------------------
Lessee covenants with Lessor that at the expiration of the Lease,
possession of said Premises shall be given to Lessor. Lessee further covenants
with Lessor that upon non-payment of the whole or any part of the rent at the
time when the same is promised to be paid and the expiration of a ten (10) day
grace period thereafter, Lessor, at its election, may either sue for said rent
due, or declare this lease in default and all rent due during the term of the
lease shall immediately become due and payable.
18. Vacation of Premises
--------------------
In case the Premises shall be vacated during the term of this lease, and
Lessee neglects to pay the rent on said Premises, Lessor shall have the right to
take immediate possession of the Premises and in their discretion may re-let the
same and apply the proceeds upon this Lease, said Lessee to remain liable for
that portion of the rent and any costs which Lessor is unable to recover from
any re-letting of the Premises, including reasonable attorneys fees incurred in
connection with the collection of any amounts owed to Lessor under this lease.
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19. Default of Lessor
-----------------
In the event of any default by Lessor of any condition, agreement, term or
provision of this lease and the continuance of such default for thirty (30) days
after written notice thereof has been given by Lessee to Lessor, then and in
such event, Lessee shall have the right then or at any time thereafter while
such default or defaults shall continue, to elect:
(a) To cure the default by taking whatever action or making
any payment that may be required to cure the default and in the
event that Lessee makes any such payment, then Lessee may deduct
such payment from the rent due under this lease; or
(b) To declare this lease forfeited and the term ended.
20. Default of Lease
----------------
If Lessee shall default in the payment of rent when due or in the
performance of any of the covenants and agreements of Lessee herein, or if
Lessee shall abandon the Premises, or if a receiver be appointed for Lessee's
property, or if the interest of Lessee herein shall be levied upon, Lessor may,
in addition to all other remedies provided by the lease, exercise and enforce
any of the following remedies, and the election of one remedy shall not preclude
enforcement of any other remedy, and failure of Lessor to insist on strict
compliance shall not preclude enforcement of any subsequent similar breach. No
default under this lease shall be enforced until thirty (30) days after written
notice shall have been sent by Lessor to Lessee stating the nature of the breach
complained of, and Lessee may, within said thirty (30) days, remedy any breach
of the terms of this lease, otherwise such breach shall be in full force and
effect and Lessor may prosecute the remedies herein or as provided by law.
(a) In the event of any such default, Lessor may elect to
cancel this lease and terminate the right of Lessee to possession
of said Premises and without further notice or demand may, by its
officers or agent, re-enter into and upon said Premises
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or any part thereof with or without process of law and repossess
the same and without relinquishing Lessor's right to past and
future rents.
(b) In the event of the default of payment of rent, Lessor
may declare the full amount of rent then due and all rent to
become due for the remaining period of the lease immediately due
and payable.
(c) Lessor may re-enter and relet said Premises for such
rent and upon such terms as may then prevail and such re-entry
shall not be deemed a cancellation of this lease, and Lessee
shall be entitled to credit for the sum realized from such
reletting and shall be liable for the balance as provided in the
lease and the terms and conditions thereof, for the unexpired
term, but in no event shall Lessor be liable to Lessee for any
excess in rents, if any, obtained through such reletting.
21. Holdover Tenancy
----------------
If Lessee shall remain in the demised Premises after the expiration of the
term, such holding over shall not constitute a renewal or extension of this
Lease other than on a month-to-month basis terminable by either party on thirty
(30) days notice to the other. Such month-to-month lease shall be on all of the
same terms and conditions as in this Lease contained except for the term.
22. Waiver
------
The failure of Lessor to insist upon strict performance of the terms,
covenants, agreements or conditions herein contained, or any of them, shall not
constitute or be construed as a waiver or relinquishment of Lessor's right to
thereafter enforce any such term, covenant, agreement, or condition, but the
same shall be continued in full force and effect.
23. Assignment or Sublease Prohibited
---------------------------------
Lessee may not assign this lease, or any interest thereunder, nor may it
sublease the Premises or any part thereof without prior written approval from
Lessor. In addition, Lessor shall be given notice of any change of control of
Lessor or any change in its organizational structure.
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24. Successors and Assigns
----------------------
The conditions, covenants and agreements in this Lease set forth shall be
binding upon the parties hereto, and upon their successors and assigns.
Notwithstanding anything herein to the contrary, Lessee may pledge its interests
in this Lease to any lender to secure financing for Lessee's business
operations.
25. Notice
------
Notices under this lease shall be sent by U.S. Mail, postage prepaid and
addressed as follows:
Lessor: Gridley Enterprises, Inc.
108 East Third Street
P.O. Box 129
Gridley, Illinois 61744-0129
Attn: Eric Kaufman
Lessee: Illinois PCS, L.L.C.
111 East First Street
Geneseo, Illinois 61254
Attn: Tim Yager
26. No Oral Agreements
------------------
It is expressly agreed between Lessor and Lessee that there is no verbal
understanding or agreement which in any way changes the terms, covenants and
conditions herein set forth, and that no modification of this lease shall be
effective unless made in writing and duly executed by the Lessor and Lessee.
27. Force Majeure
-------------
Neither Lessor nor Lessee shall be responsible for failure to perform their
obligations under this Lease, nor be liable for loss or damage resulting from
such failure, where the same arises from or through acts of God, explosions,
sabotage, accidents, riots, civil commotions, act of any foreign
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country, fire or other casualty, legal requirements, energy shortages, or causes
beyond reasonable control.
28. Option to Purchase Premises
---------------------------
The Lessor hereby grants to Lessee the option to purchase the Premises from
Lessor at the expiration of the fifth year of this Lease for the sum of Four
Hundred Fifty Thousand Dollars ($450,000.00), provided Lessee will have fully
performed the Lease and made all payments required up to that time, and provided
further that written notice of Lessee's election to exercise the option is
received by Lessor on or before March 1, 2004. If Lessee fails, neglects or
refuses to exercise this option within the time prescribed therefore for any
reason, then and in that event this option shall lapse and cease to be of any
legal effect.
The Lessor also grants to Lessee the option to purchase the Premises from
Lessor at the end of the term of this Lease or the end of any extension or
renewal thereof, provided Lessee will have fully performed the Lease and made
all payments required up to that time, and provided further that written notice
of Lessee's election to exercise the option is received by Lessor at least 90
days prior to the expiration of the term of this Lease or any extension or
renewal thereof. If Lessee fails, neglects or refuses to exercise this option
within the time prescribed therefore for any reason, then and in that event this
option shall lapse and cease to be of any legal effect.
The purchase price for the option if exercised at the end of the lease or
any extension or renewal thereof shall be the appraisal value of the Premises as
determined by an independent appraiser agreeable to both parties. If the
parties cannot agree upon a single independent appraiser, then the purchase
price shall be the appraised value as determined by three appraisers (or the
average
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thereof), one of which is selected by Lessor, one by Lessee and the third
appraiser selected by the first two appraisers so selected.
In the event of the exercise of either option as provided in this Section
of this Lease, Lessor will convey at closing the property to Lessee by warranty
deed free and clear of all encumbrances except the taxes and assessments which
under this Lease are to be paid by Lessee. Nothing herein, however, will be
construed to prevent, prior to consummation of the sale, Lessor's placing such
mortgages or deeds of trust on the property as it may see fit. The Lessor will
protect and defend Lessee and the property against foreclosure or loss because
of any encumbrances created by or through the Lessor. The purchase price will
be completed by conveyance of the property and payment of the purchase price
within 90 days from the deadline for notice of intent to exercise the option
hereunder. Notwithstanding the giving of notice of intent to exercise the
option hereunder, Lessee shall remain obligated to pay rent to Lessor and to
otherwise perform all of its obligations under the Lease until the closing on
the purchase occurs and the purchase price is paid to Lessor.
29. Right of First Refusal
----------------------
Notwithstanding the foregoing, if at any time during the term of this Lease
or any extension or renewal thereof Lessor shall receive a bona fide offer to
purchase the Premises and Lessor, in its sole discretion, intends to accept said
offer, then Lessee shall have the first right of refusal to purchase the
Premises for the price and on the same terms and conditions contained in the
bona fide offer.
If Lessor receives a bona fide request that it intends to accept, it shall
first give written notice to Lessee of the offer to purchase and its intention
to accept said offer. Such notice shall include the name and address of the
prospective purchaser, the purchase price and the terms and conditions of
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such desired sale. Upon receipt of said notice, Lessee shall have the exclusive
right for a period of sixty (60) days thereafter to offer to purchase the
Premises for the price and on the same terms and conditions contained in the
bona fide offer. If the Lessee fails to exercise its right of first refusal
within the said sixty (60) days, then Lessor may proceed to sell and transfer
the Premises to the proposed purchaser identified in the notice for the price
and on the same terms and conditions contained in the bona fide offer.
The right of first refusal in this Section 29 and the options to purchase
in Section 28 are mutually exclusive rights granted in the alternative. If the
Premises are sold and transferred as provided in this Section 29 to other than
Lessee, then the options granted in Section 28 above shall terminate and become
void and of no further effect.
30. Memorandum of Lease
-------------------
The parties shall cooperate in executing a Memorandum of Lease which shall
be recorded in the McLean County Recorder's Office.
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IN WITNESS WHEREOF, Lessor and Lessee have hereunto caused this Lease to be
executed by their authorized representatives on the day and year above written.
LESSOR: GRIDLEY ENTERPRISES, INC.,
an Illinois Corporation
By: _________________________
Its President
ATTEST:
By: _________________________
Its Secretary
LESSEE: ILLINOIS PCS, L.L.C.,
an Illinois Limited Liability Company
By:_________________________
Its Manager
ATTEST:_________________________
By:_________________________
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Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-32064 of iPCS, Inc. of our report dated February 4, 2000, except for
Note 10, as to which the date is April 24, 2000, relating to the financial
statements of Illinois PCS, LLC appearing in the Prospectus, which is a part of
such Registration Statement, and to the references to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Davenport, Iowa
April 25, 2000
