<PAGE>
As filed with the Securities and Exchange Commission on October 10, 2000
Registration No. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
iPCS, Inc.
(Exact name of registrant as specified in its charter)
(For co-registrants, please see "Co-Registrant Information" on the following
page)
Delaware 4812 36-4350876
(State or other (Primary standard industrial (I.R.S. Employer
jurisdiction of classification code number) Identification No.)
incorporation or
organization)
1900 East Golf Road, Suite 900
Schaumburg, Illinois 60173
(847) 944-2900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Timothy M. Yager
1900 East Golf Road, Suite 900
Schaumburg, Illinois 60173
(847) 944-2900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Paul W. Theiss
Robert J. Wild
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Telephone No. (312) 782-0600
Facsimile No. (312) 701-7711
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to offering price aggregate registration
securities to be registered be registered per unit offering price fee
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14% Senior Discount Notes, due July 15,
2010.................................... $300,000,000 52.56%(1) $157,671,953(1) $41,626
-------------------------------------------------------------------------------------------------------
Subsidiary Guarantees of 14% Senior
Discount Notes, due July 15, 2010....... $300,000,000 None(2) None(2) None(2)
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1) Calculated based on the book value of the securities to be received by the
registrant in the exchange in accordance with Rule 457(f)(2) under the
Securities Act of 1933.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee
is payable for the subsidiary guarantees.
---------------
The co-registrants hereby amend this registration statement on such date or
dates as may be necessary to delay its effective date until the co-registrants
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.
<PAGE>
CO-REGISTRANT INFORMATION
(Exact name of Co- (State of (Primary Standard (I.R.S. Employer
Registrant as Incorporation) Industrial Identification No.)
Specified in its Classification Code
Charter) Delaware Number) 36-4364612
Delaware 4812 36-4364609
iPCS Wireless, Inc. c/o iPCS, Inc. 4812
iPCS Equipment, 1900 East Golf Road, Suite 900
Inc. Schaumburg, Illinois 60173
(847) 944-2900
(Address, including zip code, and telephone number, including area code,
of each of the co-registrant's principal executive offices)
---------------
Timothy M. Yager
1900 East Golf Road, Suite 900
Schaumburg, Illinois 60173
(847) 944-2900
(Name, address, including zip code, and telephone number, including area code,
of agent for service for each of the co-registrants)
Copy to:
Paul W. Theiss
Robert J. Wild
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Telephone No. (312) 782-0600
Facsimile No. (312) 701-7711
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is incomplete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject To Completion--October , 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Prospectus
$300,000,000
[LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING 14% SENIOR DISCOUNT NOTES DUE 2010
FOR
REGISTERED 14% SENIOR DISCOUNT NOTES DUE 2010
--------------------------------------------------------------------------------
. The exchange offer will expire at 5:00 p.m., New York City time, on
October , 2000, unless extended.
. The exchange offer is subject to customary conditions, including the
condition that the exchange offer not violate any applicable law or any
interpretation by the staff of the Securities and Exchange Commission.
. You may withdraw tenders of outstanding notes at any time before the
exchange offer expires.
. We will exchange all outstanding notes that are validly tendered and not
withdrawn.
. The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
. We will not receive any proceeds from the exchange offer.
. The terms of the registered notes to be issued are substantially identical
to the outstanding notes, except that the registered notes will not have
transfer restrictions and you will not have registration rights.
. No public market currently exists for the registered notes and we do not
intend to apply for listing of the registered notes on any securities
exchange.
--------------------------------------------------------------------------------
For a discussion of factors you should consider before you participate in the
exchange offer, see "Risk Factors" beginning on page 15 of this prospectus.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the registered notes or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is October , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Forward-Looking Statements......... ii
Prospectus Summary................. 1
Risk Factors....................... 15
Use of Proceeds.................... 34
Capitalization..................... 35
Selected Financial Data............ 36
The Exchange Offer................. 38
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 50
Business........................... 61
The Sprint PCS Agreements.......... 83
Description of Our Indebtedness.... 92
Management......................... 99
Principal Stockholders............. 108
Certain Relationships and Related
Transactions...................... 109
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Regulation of the Wireless
Telecommunications Industry........ 113
Description of the Registered Notes. 118
Description of Capital Stock........ 167
Certain United States Federal Income
Tax Considerations................. 174
Plan of Distribution................ 181
Where You Can Find More Information. 182
Legal Matters....................... 183
Experts............................. 183
Index to Financial Statements....... F-1
</TABLE>
i
<PAGE>
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; 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 .
ii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information that we believe is especially important
concerning our business and the exchange offer. It does not contain all of the
information that may be important to your investment decision. You should read
the entire prospectus, including "Risk Factors" and our financial statements
and related notes, before deciding to participate in the exchange offer.
Unless indicated otherwise, "iPCS, Inc." "we," "us" and "our" refers to
iPCS, Inc., and our subsidiaries iPCS Wireless, Inc. and iPCS Equipment, Inc.
which have both fully and unconditionally guaranteed the obligations under the
registered notes. Accordingly, we have provided our financial information in
this prospectus on a consolidated basis.
The Company
Overview
We are a Sprint PCS affiliate with the exclusive right to market 100%
digital personal communication services, or PCS, wireless phone service under
the Sprint and Sprint PCS brand names to a total population of more than 7.0
million in 35 markets consisting of mid-sized cities and rural areas in
Illinois, Michigan, Iowa and eastern Nebraska. We began providing service in
December 1999 and, as of September 30, 2000, had launched service in fifteen
markets covering approximately 2,097,000 residents and had over 25,000
customers. By the end of the third quarter of 2001, we plan to offer service on
our network, which we refer to as providing coverage, to the portions of our
territory where approximately 67% of the total population resides in our
territory, at which time our planned network build-out will be substantially
complete.
In January 1999, we entered into our long-term affiliation agreements with
Sprint PCS for our initial territory of 15 markets with a total population of
over 2.8 million in the states of Illinois and Iowa. 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
purchased from Sprint PCS network assets under construction in four 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.
We are among 18 companies which are referred to generally as "Sprint PCS
affiliates." Each Sprint PCS affiliate has the exclusive right to market PCS
under the Sprint and Sprint PCS brand names in certain portions of the United
States. We believe that the 18 companies are unrelated to Sprint PCS and
unrelated to each other except that one Sprint affiliate has announced
agreements to acquire two other Sprint PCS affiliates.
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, but does not include, several
1
<PAGE>
important markets owned and operated by Sprint PCS including Chicago, Detroit,
Des Moines, Indianapolis, Omaha and St. Louis and contains more than 1,700
miles of heavily traveled interstates. Our territory also includes over 40
colleges and universities with a total enrollment of approximately 200,000
students.
From our inception through June 30, 2000, we have not generated significant
revenues and have generated significant net operating losses. We expect to
continue to generate significant net operating losses through a portion of
2003, after which time we expect to have achieved break-even operating cash-
flow.
Business Strategy
Our business strategy is focused on fully leveraging our strategic
relationship with Sprint PCS and also includes:
. 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 high speed wireless data and Internet wireless technology
commonly referred to as "3G" technology; and
. continuing to evaluate opportunities for transactions to strategically
expand our territory and business combinations with other Sprint PCS
affiliates.
----------------
We are a Delaware corporation. Our principal executive offices are located
at 1900 East Golf Road, Suite 900, Schaumburg, Illinois 60173, and our
telephone number is (847) 944-2900.
2
<PAGE>
Summary Financial Data
The selected summary 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 summary unaudited financial data presented below as of June 30,
2000 and for the six months ended June 30, 2000 and the period ended June 30,
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 six-month period ended June 30, 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
January 22, 1999 January 22, 1999 For
(date of (date of the six-month
inception) inception) period
through through ended
December 31, 1999 June 30, 1999 June 30, 2000
(In thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues................... $ 215 $ -- $ 5,467
Cost of service............ 1,695 208 4,774
Total operating expenses... 4,858 798 25,582
Operating loss............. (4,643) (798) (20,115)
Net loss................... (4,380) (787) (20,416)
Other Data:
Pro forma basic and diluted
loss per share of common
stock(1).................. $ (0.10) $ (0.02) $ (0.46)
======= ======= ========
Deficiency of earnings
before fixed charges(2)... $(4,380) $ (787) $(19,822)
======= ======= ========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
As of
December 31, As of June 30, 2000
1999 -------------------
As
Actual Actual Adjusted(3)
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................. $ 2,733 $ 1,809 $143,756
Property and equipment including
construction in
progress, net............................. 39,106 59,646 72,327(4)
Total assets............................... 44,843 65,971 239,900
Long-term debt............................. 27,571 33,935 127,472
Total liabilities.......................... 35,723 52,287 145,824
Mandatory redeemable convertible preferred
stock..................................... -- -- 46,386
Equity..................................... 9,120 13,684 47,690
</TABLE>
--------------------
(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) For purposes of computing the deficiency of earnings before fixed charges,
fixed charges consist of interest expense, amortization of expense related
to indebtedness and preferred dividends.
(3) As adjusted Balance Sheet Data reflects the effects of the following
transactions as if they had been consummated on June 30, 2000 (a) receipt
of gross proceeds of approximately $152.3 million ($146.3 million after
fees and expenses) from the senior discount note offering less a $24.9
million unrecognized discount associated with the value of warrants issued
in connection with our units offering, (b) receipt of $50.0 million ($46.4
million after fees and expenses) from our sale to an investor group led by
Blackstone of convertible preferred stock, (c) the payment of approximately
$12.7 million to purchase from Sprint PCS network assets under construction
in three markets in Michigan, (d) repayment of obligations owed under the
Nortel financing of $33.9 million at June 30, 2000, (e) payment of $4.1
million of deferred financing costs to the new senior secured credit
facility and (f) the value associated with the warrants issued to Sprint
PCS of $9.1 million. For more information on the senior secured facility,
see "Description of Our Indebtedness--The Senior Secured Credit Facility."
(4) Assumes the increase is equal to the purchase price of the Sprint PCS
network assets under construction in three markets in Michigan. The amount
actually to be included will be subject to our purchase price allocation
which will be based on the fair value market of the assets acquired with
any excess amount over fair market value being allocated to the intangible
asset representing the right to be the exclusive provider of Sprint PCS
services in twenty markets.
4
<PAGE>
The Exchange Offer
The following is a summary of the principal terms of the exchange offer. A
more detailed description is contained in this prospectus under the section
entitled "The Exchange Offer." The term "registered notes" refers to the
Registered 14% Senior Discount Notes due 2010 being offered in the exchange
offer. The term "outstanding notes" refers to our currently outstanding 14%
Senior Discount Notes due 2010 that are exchangeable for the registered notes.
The term "indenture" refers to the indenture that applies to both the
outstanding notes and the registered notes.
The Exchange Offer.................... We are offering to exchange $1,000
in principal amount of registered
notes which have been registered
under the Securities Act of 1933
for each $1,000 in principal amount
of outstanding notes. We issued the
outstanding notes on July 12, 2000
in a private offering. In order to
be exchanged, an outstanding note
must be properly tendered and
accepted before expiration of the
exchange offer. All outstanding
notes that are validly tendered and
not validly withdrawn will be
exchanged. We will issue the
registered notes promptly after the
expiration of the exchange offer.
As of the date of this prospectus,
there is $300,000,000 in principal
amount of outstanding notes.
Outstanding notes may be tendered
for exchange in whole or in part
for minimum denominations of $1,000
in principal amount.
Registration Rights Agreement......... Simultaneously with the sale of the
outstanding notes on July 12, 2000,
we entered into a registration
rights agreement under which we
committed to conduct the exchange
offer. You are entitled under the
registration rights agreement to
exchange your outstanding notes for
registered notes with substantially
identical terms. The exchange offer
is intended to satisfy these
rights. After the exchange offer is
complete, except as set forth in
the next paragraph, you will no
longer be entitled to any exchange
or registration rights with respect
to your outstanding notes.
5
<PAGE>
The registration rights agreement
requires us to file a registration
statement for a continuous offering
in accordance with Rule 415 under
the Securities Act of 1933 if:
. we are not permitted to consummate
the exchange offer because the
exchange offer is not permitted by
applicable law or SEC policy;
. you are prohibited by applicable law
or SEC policy from participating in
the exchange offer;
. you may not resell registered notes
you have acquired in the exchange
offer to the public without
delivering a prospectus and this
prospectus (including any amendment
or supplement thereto) is not
appropriate or available for resales
by you; or
. you are a broker-dealer who acquired
outstanding notes directly from us.
Resales of the Registered Notes....... We believe that registered notes to
be issued in the exchange offer may
be offered for resale, resold and
otherwise transferred by you
without compliance with the
registration and prospectus
delivery provisions of the
Securities Act of 1933 if you meet
the following conditions:
(1) the registered notes are acquired
by you in the ordinary course of
your business;
(2) you are not participating, and have
no arrangement or understanding
with any person to participate, in
a distribution (within the meaning
of the Securities Act of 1933) of
the registered notes;
(3) you are not a broker-dealer that
purchased outstanding notes from us
to resell them pursuant to Rule
144A under the Securities Act of
1933 or any other available
exemption under the Securities Act
of 1933; and
6
<PAGE>
(4) you are not an "affiliate" of ours,
as that term is defined in Rule 405
under the Securities Act of 1933.
However, the SEC has not considered
this exchange offer in the context
of a no-action letter and we cannot
be sure that the staff of the SEC
would make the same determination
with respect to the exchange offer
as in other circumstances.
Furthermore, if you do not meet the
above conditions, you may incur
liability under the Securities Act
of 1933 if you transfer any
registered note without delivering
a prospectus meeting the
requirements of the Securities Act
of 1933. We do not assume, or
indemnify you against, that
liability.
Each broker-dealer that receives
registered notes for its own
account in the exchange offer in
exchange for outstanding notes
which that broker-dealer acquired
as a result of market-making
activities or other trading
activities must acknowledge that it
will comply with the prospectus
delivery requirements of the
Securities Act of 1933 in
connection with any resale of the
registered notes. Broker-dealers
who acquired outstanding notes
directly from us or one of our
affiliates and not as a result of
market-making activities or other
trading activities may not
participate in the exchange offer
and must comply with the
registration and prospectus
delivery requirements of the
Securities Act of 1933 in order to
resell their outstanding notes.
Expiration Date....................... The exchange offer will expire at
5:00 p.m., New York City time, on
, 2000, unless we decide to
extend the exchange offer.
Withdrawal............................ You may withdraw the tender of your
outstanding notes at any time prior
to 5:00 p.m., New York City time,
on the expiration date.
Conditions to the Exchange Offer...... The only conditions to completing
the exchange offer are that the
exchange offer not violate
applicable law or SEC policy and no
injunction, order or decree has
been issued, or any action
7
<PAGE>
or proceeding has been instituted
or threatened that would reasonably
be expected to prohibit, prevent or
materially impair our ability to
proceed with the exchange offer.
If any of these conditions exist
prior to the expiration date, we:
. refuse to accept any outstanding
notes and return all previously
tendered outstanding notes;
. extend the duration of the exchange
offer; or
. waive such conditions to the extent
permissible under applicable law.
Procedures for Tendering Outstanding We issued the outstanding notes
Notes................................ as global securities in fully
registered form without coupons.
Beneficial interests in the
outstanding notes which are held by
direct or indirect participants in
The Depository Trust Company
through certificateless depositary
interests are shown on, and
transfers of the outstanding notes
can be made only through, records
maintained in book-entry form by
DTC with respect to its
participants.
If you are a holder of an
outstanding note held in the form
of a book-entry interest and you
wish to tender your outstanding
notes in the exchange offer, you
must transmit to BNY Midwest Trust
Company, as exchange agent, on or
prior to the expiration of the
exchange offer either:
. a written or facsimile copy of a
properly completed and executed
letter of transmittal and all other
required documents to the address set
forth on the cover page of the letter
of transmittal; or
. a computer-generated message
transmitted by means of DTC's
Automated Tender Offer Program system
in which you acknowledge and agree to
be bound by the terms of the letter
of transmittal.
8
<PAGE>
The exchange agent must also
receive on or prior to the
expiration of the exchange offer
either:
. a timely confirmation of book-entry
transfer of your outstanding notes
into the exchange agent's account at
DTC, in accordance with the procedure
described in this prospectus under
the heading "The Exchange Offer--
Book-Entry Transfer," or
. the documents necessary for
compliance with the guaranteed
delivery procedures described below.
A letter of transmittal accompanies
this prospectus. By executing the
letter of transmittal or delivering
a computer-generated message
through DTC's Automated Tender
Offer Program system, you will
represent to us that, among other
things:
(1) the registered notes are being
acquired by you in the ordinary
course of your business;
(2) you are not engaged in, and have no
arrangement or understanding with
any person to engage, in a
distribution (within the meaning of
the Securities Act of 1933) of the
registered notes; and
(3) you are not an "affiliate" of ours
as that term is defined in Rule 405
under the Securities Act of 1933.
Procedures for TenderingCertificated If you are a holder of book-entry
Outstanding Notes.................... interests in the outstanding notes,
you are entitled to receive, in
limited circumstances, in exchange
for your book-entry interests,
certificated notes which are in
equal principal amounts to your
book-entry interests. See "The
Exchange Offer--Procedures for
Tendering--Book-Entry Interests."
No certificated notes are currently
issued and outstanding. If you
acquire certificated outstanding
notes prior to the expiration of
the exchange offer, you must
9
<PAGE>
tender your certificated
outstanding notes in accordance
with the procedures described under
the heading "The Exchange Offer--
Procedures for Tendering--
Certificated Outstanding Notes."
Special Procedures for If you are the beneficial owner
BeneficialOwners..................... of outstanding notes and they are
registered in the name of a broker,
dealer, commercial bank, trust
company or other nominee, and you
wish to tender your outstanding
notes, you should promptly contact
the person in whose name your
outstanding notes are registered
and instruct them to tender on your
behalf. If you wish to tender on
your own behalf, you must, prior to
completing and executing the letter
of transmittal and delivering your
outstanding notes, either make
appropriate arrangements to
register ownership of the
outstanding notes in your name or
obtain a properly completed bond
power from the person in whose name
your outstanding notes are
currently registered. The transfer
of registered ownership may take
considerable time and it may not be
possible to complete prior to the
expiration date.
Guaranteed Delivery Procedures........ If you wish to tender your
outstanding notes and your
outstanding notes are not
immediately available or you cannot
deliver your outstanding notes, the
letter of transmittal or any other
documents required by the letter of
transmittal to the exchange agent,
or you cannot complete the
procedure for book-entry transfer,
then prior to the expiration date
you must tender your outstanding
notes according to the guaranteed
delivery procedures set forth in
"The Exchange Offer--Procedures for
Tendering--Guaranteed Delivery
Procedures."
Acceptance of Outstanding Notes and Except under the circumstances
Delivery of Registered Notes......... described above under "Conditions
to the Exchange Offer," we will
accept for exchange any and all
outstanding notes which are
properly tendered in the
10
<PAGE>
The exchange of the outstanding
notes generally will not be a
taxable exchange for federal income
tax purposes.
exchange offer before 5:00 p.m.,
New York City time, on the
expiration date. We will deliver
the registered notes promptly
following the expiration date. If
we do not accept any of your
outstanding notes for exchange we
will return them to you as promptly
as practicable after the expiration
or termination of the exchange
offer without any expense to you.
Consequences Of Not Exchanging Outstanding Notes
If you do not exchange your outstanding notes for registered notes in the
exchange offer, your outstanding notes will continue to be subject to the
restrictions on transfer contained in the legend on the outstanding notes. In
general, the outstanding notes may not be offered or sold unless they are
registered under the Securities Act of 1933. However, you may offer or sell
your outstanding notes under an exemption from, or in a transaction not subject
to, the Securities Act of 1933 and applicable state securities laws. We do not
currently anticipate that we will register your outstanding notes under the
Securities Act of 1933.
Interest and Accretion on the Cash interest will not be paid on
Registered Notes and the Outstanding the registered notes prior to July
Notes................................ 15, 2005. Prior to that date,
instead of cash interest, the
registered notes will accrete in
value at a rate of 14%, per annum,
compounded semi-annually. At that
time, interest will begin to accrue
and will be payable in cash semi-
annually on January 15 and July 15
of each year commencing on January
15, 2006. Interest will not be paid
on outstanding notes that are
tendered and accepted for exchange.
Exchange Agent........................ BNY Midwest Trust Company is
serving as the exchange agent in
connection with the exchange offer.
Use of Proceeds....................... We will not receive any cash
proceeds from the issuance of the
registered notes in the exchange
offer.
United States Federal Income Tax
Considerations.......................
11
<PAGE>
Terms Of The Registered Notes
Registered Notes Offered.............. $300,000,000 aggregate principal
amount at maturity of Registered
14% Senior Discount Notes due 2010.
The registered notes will evidence
the same debt as the outstanding
notes and will be issued under, and
entitled to the benefits of, the
same indenture. The terms of the
registered notes are the same as
the terms of the outstanding notes
in all material respects except
that the registered notes:
. have been registered under the
Securities Act of 1933;
. do not include rights to registration
under the Securities Act of 1933; and
. do not contain transfer restrictions
applicable to the outstanding notes.
Maturity Date......................... July 15, 2010.
Interest and Accretion................ The registered notes will accrete
in value at a rate of 14% per annum
until July 15, 2005, compounded
semi-annually. At that time,
interest will begin to accrue and
will be payable semi-annually on
January 15 and July 15 of each
year, commencing January 15, 2006.
Subsidiary Guarantees................. Our obligations under the
registered notes will be fully and
unconditionally guaranteed by our
current subsidiaries and all of our
future domestic restricted
subsidiaries.
Ranking............................... The registered notes will be:
. senior unsecured obligations;
. equal in right of payment to all of
our existing and future senior
indebtedness; and
. senior in right of payment to all of
our existing and future subordinated
indebtedness.
The guarantees will be unsecured
obligations of the guarantors and
will be:
. subordinate in right of payment to
all existing and future senior
indebtedness of the guarantors,
including each guarantor's
12
<PAGE>
obligations under the senior secured
credit facility and other credit
facilities with banks or institutional
lenders, referred to as designated
senior debt;
. equal in right of payment to all
existing and future senior
subordinated indebtedness of each
guarantor; and
. senior in right of payment to all of
the existing and future subordinated
indebtedness of each guarantor.
Our guarantors generate all of our
operating income, and we are
dependent on them to meet our
obligations with respect to the
registered notes.
Optional Redemption................... On or after July 15, 2005, we may
redeem all or part of the
registered notes at redemption
prices set forth under "Description
of the Registered Notes--Optional
Redemption," together with accrued
and unpaid interest, if any, and
liquidated damages, if any, thereon
to the date of redemption.
During the first 36 months after
the offering of the outstanding
notes, we may use the net proceeds
from certain equity offerings
(excluding the first $70.0 million
received from such offerings) to
redeem up to 35% of the accreted
value of the outstanding notes at a
redemption price of 114% of the
accreted value as of the date of
redemption, provided that at least
65% of the accreted value of the
registered notes originally issued
remains outstanding immediately
after the redemption. See
"Description of the Registered
Notes--Optional Redemption."
Change in Control..................... If we experience a change of
control, we will be required to
make an offer to repurchase your
registered notes at a price equal
to 101% of the accreted value, if
before July 15, 2005, or 101% of
the aggregate principal amount
thereafter, as applicable, together
with any accrued and unpaid
interest, if any, to the date of
repurchase.
13
<PAGE>
However, certain business
combinations with Sprint PCS
affiliates will not constitute a
change of control under the
registered notes. See "Description
of the Registered Notes--Repurchase
at the Option of Holders--Change of
Control."
Certain Covenants..................... The indenture contains covenants
that, among other things, limit our
ability to:
. incur additional debt or issue
disqualified stock;
. pay dividends, redeem capital stock
or make other restricted payments or
investments;
. create liens on assets;
. merge, consolidate or dispose of
assets;
. enter into transactions with
affiliates; and
. enter into sale and leaseback
transactions.
See "Description of the Registered
Notes--Selected Covenants."
Original Issue Discount............... The registered notes are being
issued with original issue discount
for U.S. federal income tax
purposes. Thus, although interest
will not be payable on the
registered notes prior to January
15, 2006, U.S. holders will be
required to include original issue
discount amounts in gross income
for U.S. federal income tax
purposes over the term of the
registered notes in advance of
receipt of cash payments to which
such income is attributable. See
"Certain United States Federal
Income Tax Considerations."
14
<PAGE>
RISK FACTORS
You should consider carefully the risk factors below as well as other
information in this prospectus before tendering your outstanding notes for
registered notes in the exchange offer. The cautionary statements set forth
below and elsewhere in this prospectus should be read in conjunction with
accompanying forward-looking statements included under "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus. Unless otherwise indicated, the outstanding notes
and the registered notes are collectively referred to as the "notes" in the
following risk factors.
Risks Particular to iPCS
We have substantial debt which we may not be able to service and which could
adversely affect our financial health and prevent us from fulfilling our
obligations under the registered notes
As of June 30, 2000, our outstanding long-term debt under the Nortel
financing was approximately $33.9 million. We have entered into an amended and
restated credit agreement with Toronto Dominion (Texas), Inc. and GE Capital
Corporation to provide a new senior secured credit facility with an aggregate
commitment of $140.0 million. Under our current business plan, we expect to
incur substantial additional indebtedness before achieving break-even operating
cash flow, including $140.0 million of borrowings under the senior secured
credit facility in addition to the $300.0 million of principal amount at
maturity of our senior discount notes currently outstanding.
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;
. 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 senior secured credit
facility, will be at variable rates of interest, which could result in
higher interest expense in the event of increases in market interest
rates.
Our ability to make payments on our debt depends upon our future operating
performance which is subject to general economic and competitive conditions and
to financial, business and other factors, many of which we cannot control. If
the cash flow from our operating activities is insufficient, we may take
actions, such as delaying or reducing capital expenditures, attempting to
restructure or refinance our debt, selling assets or operations or seeking
additional equity capital. Any or all of these actions may not be sufficient to
allow us to service our debt obligations. Further, we may be unable to take any
of these actions on satisfactory terms, in a timely manner or at all. The
senior
15
<PAGE>
secured credit facility and the indenture governing the registered notes may
limit our ability to take some of these actions. Under our current business
plan, we expect to incur substantial debt before achieving break-even cash
flow.
Sprint PCS has contractual rights that would be triggered by an acceleration
of the maturity of our borrowings under the senior secured credit facility,
pursuant to which Sprint PCS may purchase our obligations under the senior
secured credit facility 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 receive gross proceeds of at least $70.0 million in additional
equity financing prior to December 31, 2000, an event of default will occur
under the indenture
The commitment from the investor group led by Blackstone to purchase an
additional $70.0 million of our convertible preferred stock is subject to a
number of conditions, and we cannot assure you that these conditions will be
satisfied. If we complete an initial public offering with gross proceeds of at
least $30.0 million, the investor group will not be required to make any
investment in our convertible preferred stock.
If, prior to December 31, 2000, we do not receive the additional $70.0
million investment from the investor group and we are not able to raise $70.0
million in equity financing from one or more alternate sources, an event of
default under the indenture governing the registered notes would occur, which
would in turn result in a default under the senior secured credit facility. In
that event, we cannot assure you that we will have sufficient resources or be
able to obtain alternate sources of financing required to satisfy our
obligations under the senior secured credit facility and the registered notes.
If we do not meet all of the conditions required under the senior secured
credit facility, we may not be able to draw down any or all of the funds under
such facility and, as a result, we may not be able to complete the build-out of
our network which may result in the termination of the Sprint PCS agreements
and we would no longer be able to offer Sprint PCS products and services or
conduct our business as it is presently conducted
Our senior secured credit facility provides for aggregate borrowings of
$140.0 million. Borrowings under the senior secured credit facility are subject
to our meeting all of the borrowing conditions specified in the financing
documents. No borrowing under the senior secured credit facility will be
available unless we have contributed as equity or loaned on a subordinated
basis to our wholly owned subsidiary, iPCS Wireless, Inc., the net proceeds
from a $70.0 million equity offering.
The amended and restated credit agreement for the senior secured credit
facility provides that funding at each funding date will be subject to certain
conditions, including the following:
. the absence of any default or event of default;
. the continuing accuracy of all other representations and warranties; and
. no material adverse change.
16
<PAGE>
If these conditions are not satisfied at each funding date, our senior lenders
are not required 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 senior secured credit facility.
If we default under our new senior secured credit facility or the indenture,
our lenders may declare our debt immediately due and payable and result in our
lenders controlling our assets and the termination of the Sprint PCS Agreements
Our senior secured credit agreement and the indenture require that we comply
with specified financial ratios, performance covenants and not be in breach of
our Sprint PCS agreements. If we were to breach our Sprint PCS agreements or
fail to comply with the covenants in either the indenture or the senior secured
credit agreement, our lenders may accelerate all of our obligations under both
the senior secured credit facility and the senior discount notes. If this were
to occur, we would be unable to pay our all of our debts and our lenders would
acquire control of our assets, subject to Sprint PCS' right to purchase amounts
outstanding under our senior secured credit facility. Further, Sprint PCS may
terminate the Sprint PCS agreements and we would no longer be able to offer
Sprint PCS products and services or conduct our business as it is presently
conducted.
Our new indebtedness will place restrictions on us which may limit our
operating flexibility and which will limit our ability to pay principal,
interest and liquidated damages on the registered notes
The indenture governing the registered notes and the senior secured credit
agreement impose material operating and financial restrictions on us. These
restrictions, subject to ordinary course of business exceptions, may limit our
ability to engage in some transactions, including the following:
. designated types of mergers or consolidations;
. paying dividends or other distributions to our stockholders;
. making investments;
. selling assets;
. repurchasing our common stock;
. changing lines of business;
. borrowing additional money; and
. transactions with affiliates.
These restrictions could limit our ability to obtain debt financing,
repurchase stock, refinance or pay principal or interest on our outstanding
debt, consummate acquisitions for cash or debt or react to changes in our
operating environment.
An event of default under the senior secured credit facility may prohibit us
and our wholly owned subsidiaries which are our guarantors from paying the
registered notes or the guarantees of the registered notes as well as
liquidated damages with respect to our failure to file or cause or maintain the
effectiveness of certain registration statements with respect to the
outstanding notes.
17
<PAGE>
The terms of our convertible preferred stock and related agreements may be
adverse to your interests
The terms of the convertible preferred stock provide the investor group led
by Blackstone the right, among other things, to:
. designate two members of our board of directors;
. approve or disapprove certain significant corporate actions and
transactions;
. receive dividends in the form of additional shares of our convertible
preferred stock, which may increase and accelerate upon a change in
control; and
. require us to redeem the convertible preferred stock or to force the sale
of the company in certain circumstances.
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 or result in the termination of the Sprint PCS agreements
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;
. 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 senior secured
credit facility or the covenants with respect to the registered notes. 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. If we do not
have sufficient funds to complete our build-out, we may be in breach of the
Sprint PCS agreements.
We may not achieve or sustain operating profitability or positive cash flow
from operating activities
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 a portion of 2003 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
18
<PAGE>
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, or if our build-out is
delayed, Sprint PCS may terminate the Sprint PCS agreements, and we would no
longer be able to offer the Sprint PCS products and services or conduct our
business as it is presently conducted
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. Regulatory changes, engineering
design changes and/or required technological upgrades could all affect the
number and location of our towers as well as our ability to obtain sufficient
rights to meet our build-out requirements. A failure to meet our build-out
requirements or if our build-out is delayed 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 would no longer be
able to offer Sprint PCS products and services or conduct our business as it is
presently conducted.
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 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."
19
<PAGE>
If Sprint PCS fails to perform its obligations under the Sprint PCS agreements
resulting in the termination of our strategic relationship with Sprint PCS, we
would no longer be able to conduct our business as it is presently conducted
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 if Sprint PCS failed to perform its obligations under
the Sprint PCS agreements would severely restrict our ability to conduct our
business as it is presently conducted.
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, and we would no longer be able to offer Sprint PCS products and
services or conduct our business as it is presently conducted
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 September 30, 2000, we had launched Sprint PCS service in all of our
initial 15 markets covering approximately 2,097,000 residents. In other
portions of our territory 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.
If we fail to meet the technical standards described in the Sprint PCS
agreements, Sprint PCS may terminate the Sprint PCS agreements and purchase our
operating assets or capital stock at a
20
<PAGE>
discount, and we would no longer be able to offer Sprint PCS products and
services or conduct our business as it is presently conducted
The Sprint PCS agreements require us to build out our network in accordance
with Sprint PCS' technical requirements. Sprint PCS can, at any time with at
least 30 days' prior notice to us, adjust the technical requirements for the
network. A failure to meet these technical requirements would constitute a
breach of the Sprint PCS agreements and could lead to their termination. If the
Sprint PCS agreements are terminated, we may be required to sell our operating
assets or capital stock at a price equal to 72% of our entire business value.
In addition, we would no longer be able to offer Sprint PCS products and
services or conduct our business as it is presently conducted.
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;
21
<PAGE>
. 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;
. 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.
We may not receive as much Sprint PCS roaming revenue as we anticipate and 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
22
<PAGE>
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 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. As of June 30, 2000, we have a remaining commitment to purchase $35.9
million of equipment and services 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
23
<PAGE>
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 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
have an adverse effect on our results of operations
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
24
<PAGE>
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 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.
25
<PAGE>
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 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 employees 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 notes, warrants and 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. These transactions may require the approval of Sprint PCS and
commonly involve a number of risks, including:
. difficulty of assimilating acquired operations and personnel;
. diversion of management attention;
. disruption of ongoing business;
26
<PAGE>
. 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.
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;
27
<PAGE>
. customer care concerns; and
. other competitive factors.
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.
We may not be able to respond to the recent trend in the consolidation of the
wireless communications industry, or compete with potential acquirors for
acquisitions, which could result in a reduction of our subscribers, decline in
prices for our products and services
There has been a recent trend in the wireless communications industry
towards consolidation of wireless service providers through joint ventures,
mergers and acquisitions. We expect this consolidation to lead to larger
competitors over time. Several large competitors already exist, such as AT&T
Wireless with over 12 million subscribers and Verizon Wireless, the recent
partnership of Bell Atlantic-GTE and Vodafone AirTouch with over 26 million
subscribers. We may not be able to respond to pricing pressures that may result
from a consolidation in our industry, which could result in a reduction of new
subscribers and cause market prices for our products and services to decline in
the future. Also, if we expand our operations through acquisitions, we will
compete with other potential acquirors, some of which may have greater
financial or operational resources than us.
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.
28
<PAGE>
Risks Relating to the Notes
The registered notes may not have an active market and the price may be
volatile, so you may be unable to sell your registered notes at the price you
desire or at all
We cannot ensure that a liquid market will develop for the registered notes
or that you will be able to sell any of your registered notes at a particular
time if at all or that the price that you receive when you sell will be
favorable. The Initial Purchasers have advised us that they intend to make a
market in the registered notes but they are not obligated to do so. The Initial
Purchasers may discontinue any market-making in the registered notes at any
time in their sole discretion. Future trading prices of the registered notes
will depend on many factors, including our operating performance and financial
condition, prevailing interest rates and the market for similar securities.
We are a holding company and because the guarantees are unsecured and
subordinated to debt that encumbers our guarantor subsidiaries' assets, you may
not be fully repaid if we or our guarantor subsidiaries become insolvent
The registered notes will be unsecured obligations of iPCS, Inc. We are a
holding company that will derive all our operating income from our
subsidiaries. We are dependent on the earnings and cash flow of our
subsidiaries to meet our obligations with respect to the registered notes. If
we or our guarantor subsidiaries become insolvent, we or our guarantor
subsidiaries may not have sufficient assets to make payments on amounts due on
any or all of the registered notes or the subsidiary guarantees. In addition,
the right to payment on the guarantees will be subordinated to all of our
guarantor subsidiaries' existing and future senior debt. The senior secured
credit facility is secured by liens on substantially all of the assets of our
guarantor subsidiaries. If our guarantor subsidiaries were to default on the
senior secured credit facility, such lenders could foreclose on the collateral
regardless of any default with respect to the registered notes. These assets
would first be used to repay in full all amounts outstanding under the senior
secured credit facility. If our guarantor subsidiaries become bankrupt,
liquidate, dissolve, reorganize or undergo a similar proceeding, such guarantor
subsidiaries' assets will be available to pay obligations on the registered
notes or the applicable guarantee only after all outstanding senior debt of
such party has been paid in full. In addition, an event of default under the
senior secured credit facility may prohibit us and the guarantors of the
registered notes from paying the registered notes or the guarantees of the
registered notes.
Our agreements with Sprint PCS and the infrastructure equipment used in our
network create the value of our assets. These asset are highly specialized and,
taken individually, have limited marketability, particularly as a result of
some of the provisions in the Sprint PCS agreements. Therefore, in a
foreclosure sale, these assets are likely to be sold as an entirety, and the
lender may not realize enough money to satisfy all senior debt.
Because federal and state statutes may allow courts to void the guarantees of
the registered notes, you may not have the right to receive any money pursuant
to the guarantees
Although the guarantees of the registered notes provide you with a direct
claim against the assets of the applicable guarantor, creditors of a bankrupt
guarantor may challenge the guarantee. If a
29
<PAGE>
challenge to a guarantee were upheld, then the applicable guarantee would be
invalid and unenforceable, junior to all creditors, including trade creditors,
of that guarantor.
The creditors of a bankrupt guarantor could challenge a guarantee on the
grounds that the guarantee constituted a fraudulent conveyance under bankruptcy
law. If a court were to rule that the guarantee did constitute a fraudulent
conveyance, then the court could void the obligations under the guarantee or
subordinate the guarantee to other debt of the guarantor or take other action
detrimental to holders of the registered notes. In addition, any of the
guarantees could be subject to the claim that, since the guarantee was incurred
for our benefit, and only indirectly for the benefit of our subsidiary that
provided the guarantee, the obligations of the applicable guarantor were
incurred for less than fair consideration.
The indenture and the senior secured credit agreement contain provisions and
requirements that could limit our ability to pursue borrowing opportunities
The restrictions contained in the indenture governing the registered notes,
and the restrictions contained in the senior secured credit agreement, may
limit our ability to implement our business plan, finance future operations,
respond to changing business and economic conditions, secure additional
financing, if needed, and engage in opportunistic transactions. The senior
secured credit facility also restricts our ability and the ability of our
subsidiaries and our future subsidiaries to do the following:
. create liens;
. make certain payments, including payments of dividends and distributions
in respect of capital stock;
. consolidate, merge and sell assets;
. engage in certain transactions with affiliates; and
. fundamentally change our business.
In addition, the senior secured credit facility requires us to maintain certain
ratios, including:
. leverage ratios;
. an interest coverage ratio; and
. a fixed charges ratio;
and to satisfy certain tests, including tests relating to:
. minimum number of subscribers to our services; and
. minimum revenues.
We may not satisfy the financial ratios and tests under the senior secured
credit facility due to events that are beyond our control. If we fail to
satisfy any of the financial ratios and tests, we could be in a default under
the senior secured credit facility or may be limited in our ability to access
additional funds under our senior secured credit facility which could result in
our being unable to make payments on the registered notes.
30
<PAGE>
Because the notes were issued with original issue discount, you will have to
include interest in your taxable income before you receive cash
The notes were issued at a substantial discount from their principal amount
at maturity. Consequently, although cash interest on the notes generally will
not be payable prior to January 15, 2006, original issue discount will be
includible in the gross income of holders of notes for U.S. federal income tax
purposes in advance of the receipt of such cash payments on the notes. The
amount of original issue discount will be greater than the difference between
the stated principal amount at maturity of the notes and the issue price of the
notes. See "Certain United States Federal Income Tax Considerations."
We will not be able to deduct a portion of our borrowing expense for federal
income tax purposes because the original issue discount on the notes exceeds
certain limitations
The notes will be classified as "applicable high yield discount obligations"
for United States federal income tax purposes, as described below under
"Certain United States Federal Income Tax Considerations--U.S. Holders--
Applicable High Yield Discount Obligations." We will not be entitled to deduct
original issue discount accruing on the notes until such amounts are actually
paid. In addition, because the yield to maturity of the notes is in excess of
the sum of the applicable federal rate plus six percentage points, we will be
permanently precluded from deducting the original issue discount equal to such
excess.
The bankruptcy laws may reduce your claim in the event of our insolvency
If a bankruptcy case were commenced by or against us under the United States
Bankruptcy Code after the issuance of the notes, your claim with respect to the
principal amount of the notes may be limited to an amount equal to the sum of
the initial offering price and that portion of the original issue discount that
is not deemed to constitute unmatured interest for purposes of the United
States Bankruptcy Code. Any original issue discount that had not amortized as
of the date of the bankruptcy filing could constitute unmatured interest for
purposes of the United States Bankruptcy Code. To the extent that the United
States Bankruptcy Code differs from the Internal Revenue Code in determining
the method of amortization of original issue discount, you may recognize
taxable gain or loss upon payment of your claim in bankruptcy.
If an event constituting a change in control of us occurs, we may be unable to
fulfill our obligation to purchase your registered notes
Our senior secured financing restricts distributions to us from our
subsidiaries and we may not have other sources of funds to purchase any of the
registered notes before their stated maturity. In addition, the senior secured
facility prohibits us from prepaying debt, including the registered notes.
Under the indenture, upon a change in control we will be required to make an
offer to repurchase all of the registered notes. In the event we become subject
to a change in control at a time when we do not have funds to purchase the
registered notes or when any such prepayment would otherwise not be permitted,
we may seek consent under the senior secured credit facility to have our
subsidiary make a distribution to us so that we would have sufficient funds to
purchase the registered notes and consent to make the prepayment or attempt to
refinance the senior secured credit facility that contains the
31
<PAGE>
prohibition. Moreover, a change of control under the indenture governing the
notes constitutes an event of default under the senior secured credit facility.
If we do not obtain a consent, a waiver or repay the senior secured credit
facility, our failure to purchase the tendered registered notes would
constitute an event of default under the indenture, which would in turn result
in a default under the senior secured credit facility. Even if we obtain the
consent, we cannot assure you that we will have sufficient resources to
repurchase the registered notes following the change in control.
Certain business combinations with Sprint PCS affiliates may not result in a
change of control that obligates us to repurchase your registered notes
Consistent with our business strategy, we from time to time in the past and
currently are discussing potential strategic business combinations with other
Sprint PCS affiliates. We have not reached any agreements or understandings
with respect to such a business combination or other transaction. We cannot
assure you as to whether we will enter into any such business combination or as
to the terms of any such business combination. Under the registered notes,
certain business combinations that might otherwise be a change of control that
triggers your repurchase rights would not trigger the repurchase rights if the
business combination involved another Sprint PCS affiliate.
You may not be able to sell your outstanding notes if you do not exchange them
for registered notes in the exchange offer
If you do not exchange your outstanding notes for registered notes in the
exchange offer, your outstanding notes will continue to be subject to the
restrictions on transfer as stated in the legend on the outstanding notes. In
general, you may not offer or sell the outstanding notes unless they are:
. registered under the Securities Act of 1933;
. offered or sold pursuant to an exemption from the Securities Act of 1933
and applicable state securities laws; or
. offered or sold in a transaction not subject to the Securities Act of
1933 and applicable state securities laws.
We do not currently anticipate that we will register the outstanding notes
under the Securities Act of 1933. In addition, holders who do not tender their
outstanding notes, except for certain instances involving the initial
purchasers or holders of outstanding notes who are not eligible to participate
in the exchange offer or who do not receive freely transferrable registered
notes pursuant to the exchange offer, will not have any further registration
rights under the registration rights agreement or otherwise and will not have
rights to receive liquidated damages as provided in the registration rights
agreement.
Some persons who participate in this exchange offer must deliver a prospectus
in connection with resales of the registered notes
Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell or otherwise transfer the
registered notes without compliance with the registration and prospectus
delivery requirements of the Securities Act of 1933. However, in some instances
described in this prospectus under "The Exchange Offer," you will remain
obligated to
32
<PAGE>
comply with the prospectus delivery requirements of the Securities Act of 1933
to transfer your registered notes. In these instances, if you transfer any
registered note without delivering a prospectus meeting the requirements of the
Securities Act of 1933 or without an exemption from registration of your
registered notes under the Securities Act of 1933, you may incur liability
under this Act. We do not and will not assume, or indemnify you against, this
liability.
33
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the registered notes as contemplated in this prospectus, we will
receive in exchange the outstanding notes in like principal amount at maturity.
The outstanding notes surrendered in exchange for the registered notes will be
retired and cancelled and cannot be reissued. The issuance of the registered
notes will not result in any increase in our indebtedness.
34
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and actual
capitalization as of June 30, 2000 and as adjusted to reflect the following:
. receipt of gross proceeds of approximately $152.3 million from the senior
discount note offering less fees and expenses of approximately $6.0
million;
. receipt of gross proceeds of $50.0 million from our sale of convertible
preferred stock to an investor group led by Blackstone, less fees and
expenses of approximately $3.6 million;
. the purchase from Sprint PCS of network assets under construction in
three markets in Michigan at a purchase price of approximately $12.7
million;
. repayment of obligations owed under the Nortel financing of $33.9 million
at June 30, 2000; and
. payment of $4.1 million of deferred financing costs related to the new
senior secured credit facility
<TABLE>
<CAPTION>
As of June 30,
2000
-------------------
As
Actual(1) Adjusted
(In thousands)
<S> <C> <C>
Cash and cash equivalents.................................. $ 1,809 $143,756
======== ========
Long-term debt:
Nortel financing......................................... $ 33,935 $ --
Senior secured credit facility........................... -- --
Senior discount notes (2)................................ -- 127,472
-------- --------
Total long-term debt................................... 33,935 127,472
Mandatory redeemable convertible preferred stock, no shares
issued and outstanding, actual; 9,090,909 shares, as
adjusted (3).............................................. -- 46,386
Stockholders' equity:
Preferred stock, par value $.01 per share, 75,000,000
shares authorized; no shares issued and outstanding..... -- --
Common stock, par value $.01 per share, 300,000,000
shares authorized; 44,869,643 shares outstanding,
actual.................................................. 449 449
Additional paid-in capital (2)(4)........................ 38,031 72,037
Accumulated deficit...................................... (24,796) (24,796)
-------- --------
Total stockholders' equity............................. 13,684 47,690
-------- --------
Total capitalization................................. $ 47,619 $221,548
======== ========
</TABLE>
---------------------
(1) Reflects the reorganization as if it had occurred as of June 30, 2000. For
more information on the reorganization, see "Reorganization."
(2) As adjusted reflects $152.3 million of gross proceeds at issuance of the
notes less a $24.9 million unrecognized discount associated with the value
of warrants issued in connection with our units offering. The unrecognized
discount has been allocated to additional paid-in capital.
(3) As adjusted reflects the issuance of $50.0 million of our convertible
preferred stock to an investor group led by Blackstone. The investor group
is committed, subject to certain conditions, to purchase an additional
$70.0 million of our convertible preferred stock if we do not complete an
initial public offering with gross proceeds of at least $30.0 million by
December 31, 2000.
(4) As adjusted reflects the value associated with the warrants issued to
Sprint PCS of $9.1 million.
35
<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 June 30, 2000
and for the six months ended June 30, 2000 and the period ended June 30, 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 six-month period ended June 30, 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
January 22, 1999 January 22, 1999 For
(date of (date of the six-month
inception) inception) period
through through ended
December 31, 1999 June 30, 1999 June 30, 2000
(In thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues................... $ 215 $ -- $ 5,467
Cost of service............ 1,695 208 4,774
Total operating expenses... 4,858 798 25,582
Operating loss............. (4,643) (798) (20,115)
Net loss................... (4,380) (787) (20,416)
Other Data:
Pro forma basic and diluted
loss per share of common
stock(1).................. $ (0.10) $ (0.02) $ (0.46)
======= ======= ========
Deficiency of earnings
before fixed charges(2)... $(4,380) $ (787) $(19,822)
======= ======= ========
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
As of
December 31, As of June 30, 2000
1999 -------------------
As
Actual Actual Adjusted(3)
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................. $ 2,733 $ 1,809 $143,756
Property and equipment including
construction in
progress, net............................. 39,106 59,646 72,327(4)
Total assets............................... 44,843 65,971 239,900
Long-term debt............................. 27,571 33,935 127,472
Total liabilities.......................... 35,723 52,287 145,824
Mandatory redeemable convertible preferred
stock..................................... -- -- 46,386
Equity..................................... 9,120 13,684 47,690
</TABLE>
---------------------
(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) For purposes of computing the deficiency of earnings before fixed charges,
fixed charges consist of interest expense, amortization of expense related
to indebtedness and preferred dividends.
(3) As adjusted Balance Sheet Data reflects:
. receipt of gross proceeds of approximately $152.3 million ($146.3 million
after fees and expenses) from the senior discount note offering less a
$24.9 million unrecognized discount associated with the value of warrants
issued in connection with our unit offering;
. receipt of $50.0 million ($46.4 million after fees and expenses) from our
sale to an investor group led by Blackstone of convertible preferred
stock;
. the payment of approximately $12.7 million to purchase from Sprint PCS
network assets under construction in three markets in Michigan;
. repayment of obligations owed under the Nortel financing of $33.9 million
at June 30, 2000;
. payment of $4.1 million of deferred financing costs related to the new
senior secured facility; and
. the value associated with the warrants issued to Sprint PCS of $9.1
million.
For more information on the senior secured facility, see "Description of
Our Indebtedness--The Senior Secured Credit Facility."
(4) Assumes the increase is equal to the purchase price of the Sprint PCS
network assets under construction in three markets in Michigan. The amount
actually to be included will be subject to our purchase price allocation
which will be based on the fair value market of the assets acquired with
any excess amount over fair market value being allocated to the intangible
asset representing the right to be the exclusive provider of Sprint PCS
services in twenty markets.
37
<PAGE>
THE EXCHANGE OFFER
Purpose of the Exchange Offer
As a condition to the sale of the outstanding notes, we and the initial
purchasers of the outstanding notes entered into the registration rights
agreement. Under the registration rights agreement, we agreed to:
. file with the SEC an exchange offer registration statement under the
Securities Act of 1933 with respect to the registered notes no later than
October 10, 2000;
. use our best efforts to cause the exchange offer registration statement
to be declared effective under the Securities Act of 1933 no later than
January 8, 2001; and
. keep the exchange offer open for a period not less than 20 business days
after the date notice of the exchange offer is mailed to holders of the
outstanding notes; and
. cause the exchange offer to be consummated no later than the 30th
business day after it is declared effective under the Securities Act of
1933.
This exchange offer is intended to satisfy our obligations under the
registration rights agreement. However, you may be entitled to "shelf"
registration rights. In accordance with the registration rights agreement, we
are required to file a shelf registration covering your outstanding notes if:
. we are not permitted to consummate the exchange offer because the
exchange offer is not permitted by applicable law or SEC policy; or
. any holder of outstanding notes which are deemed to be transfer
restricted securities notifies us before the 20th business day following
the consummation of the exchange offer that:
. such holder is prohibited by law or SEC policy from participating in
the exchange offer;
. such holder may not resell the registered notes acquired by it in the
exchange offer to the public without delivering a prospectus, and this
prospectus is not appropriate or available for such resales; or
. such holder is a broker-dealer and holds outstanding notes acquired
directly from us.
In the event that we are required to file a shelf registration statement, we
will keep the shelf registration statement effective until the later of two
years from the date the shelf registration is declared effective by the SEC or
the date on which all of the outstanding notes have been sold.
For purposes of the registration rights agreement, "transfer restricted
securities" means each outstanding note until the earlier of:
(1) the date on which such outstanding note is exchanged in the exchange
offer for a registered note and entitled to be resold to the public by the
holder without complying with the prospectus delivery requirements of the
Securities Act of 1933;
(2) the date on which such outstanding note has been disposed of in
accordance with the shelf registration statement;
(3) the date on which such outstanding note is disposed of by a broker-
dealer pursuant to the "Plan of Distribution" contemplated by this exchange
offer registration statement;
38
<PAGE>
(4) the date on which such outstanding note is distributed to the public
pursuant to Rule 144 under the Securities Act of 1933.
The registration rights agreement also provides that, upon the occurrence of
a registration default, which shall be deemed to have occurred:
(1) if we fail to file an exchange offer registration statement with the
SEC on or before October 10, 2000;
(2) if the exchange offer registration statement is not declared
effective within 180 days after the date of the closing of our offering of
the outstanding notes;
(3) if the exchange offer is not consummated on or before the 30th
business day after the exchange offer registration statement is declared
effective;
(4) if obligated to file the shelf registration statement and we fail to
do so before the 30th day after such filing obligation arises;
(5) if obligated to file a shelf registration statement and it is not
declared effective on or before the 60th day after the obligation arises;
or
(6) if the exchange offer registration statement or the shelf
registration statement, as the case may be, is declared effective but
subsequently ceases to be effective or useable in connection with resales
of the transfer restricted securities,
then we will pay to each affected holder of transfer restricted securities for
the first 90 day period immediately following a registration default liquidated
damages in an amount equal to $0.05 per week per $1,000 in principal amount for
each week or partial week that the registration default continues. The amount
of the liquidated damages shall increase by an additional $0.05 per week per
$1,000 in principal amount for each subsequent 90 day period until all
registration defaults have been cured, up to a maximum amount of $0.50 per week
per $1,000 in principal amount. We will not be required to pay liquidated
damages for more than one registration default at any given time. Following the
cure of all registration defaults, the accrual of liquidated damages will
cease.
We will pay all accrued liquidated damages to holders entitled thereto by
wire transfer to the accounts specified by them or by mailing checks to their
registered address if no such accounts have been specified.
Effect of the Exchange Offer
Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell and otherwise transfer the
registered notes issued to you under the exchange offer without further
compliance with the registration and prospectus delivery provisions of the
Securities Act of 1933, provided that you can represent that:
. you are acquiring the registered notes in the ordinary course of your
business;
39
<PAGE>
. you are not engaged in, and have no arrangement or understanding with any
person to engage in, in a distribution (within the meaning of the
Securities Act of 1933) of the registered notes; and
. you are not an "affiliate" of ours, as that terms is defined in Rule 405
under the Securities Act of 1933.
If you are not able to make these representations, you are a restricted
holder. As a restricted holder, you will not be able to participate in the
exchange offer, may not rely on the SEC staff positions set forth in the Exxon
Capital Holdings Corporation no-action letter and similar no-action letters and
may only sell your outstanding notes as part of a registration statement
containing the selling security holder information required by Item 507 or 508
of SEC Regulation S-K, as applicable, or under an exemption from the
registration requirements of the Securities Act of 1933.
In addition, each broker-dealer, other than a restricted holder, that
receives registered notes for its own account in exchange for outstanding notes
which were acquired by such broker-dealer as a result of market-making or other
trading activities may be a statutory underwriter and must acknowledge in the
letter of transmittal that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 upon any resale of such registered
notes. The letter of transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act of 1933. Based upon
interpretations by the SEC staff, we believe that a broker-dealer which
acquired outstanding notes as a result of market-making or other trading
activities may offer for resale, resell and otherwise transfer registered notes
issued under the exchange offer upon compliance with the prospectus delivery
requirements, but without compliance with the registration requirements, of the
Securities Act of 1933. This prospectus, as it may be amended or supplemented
from time to time, may be used by a such broker-dealers as part of their
resales. We have agreed that, for a period of one year after the completion of
the exchange offer, we will make this prospectus available to any broker-dealer
for use by the broker-dealer in any resale. For more information, please see
the section in this prospectus entitled "Plan of Distribution."
Terms of the Exchange Offer
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal, we will accept for exchange any and all
outstanding notes that are validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the expiration date. We will issue $1,000
principal amount at maturity of registered notes in exchange for each $1,000
principal amount at maturity of outstanding notes accepted in the exchange
offer. You may tender some or all of your outstanding notes under the exchange
offer. However, outstanding notes may be tendered only in minimum denominations
of $1,000 principal amount. As of the date of this prospectus, an aggregate of
$300,000,000 in principal amount at maturity of the outstanding notes are
outstanding. This prospectus, together with the accompanying letter of
transmittal, is first being sent on or about , 2000, to the nominee of
The Depository Trust Company, commonly referred to in this prospectus as DTC or
the Depository, and to others believed to have beneficial ownership in the
outstanding notes.
40
<PAGE>
The form and terms of the registered notes will be substantially identical
to the form and terms of the outstanding notes, except that:
. the offering of the registered notes has been registered under the
Securities Act of 1933;
. the registered notes will not be subject to transfer restrictions; and
. the registered notes will be issued free of any covenants regarding
registration rights and free of any provision for liquidated damages.
The registered notes will evidence the same debt as the outstanding notes
and will be issued under the same indenture.
You do not have any appraisal or dissenters rights under law or the
indenture in the exchange offer. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act of 1934.
Outstanding notes which are not tendered in, or are tendered but not accepted
in connection with the exchange offer, will remain outstanding.
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral notice, promptly confirmed in writing, or written
notice of the acceptance to the exchange agent. The exchange agent will act as
agent for the tendering holders for the purpose of receiving the registered
notes from us.
If we do not accept for exchange any tendered outstanding notes because of
an invalid tender, the occurrence of other events described in this prospectus
or otherwise, certificates for any such unaccepted outstanding notes will be
returned to you, without expense, as promptly as practicable after the
expiration date.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes relating to the exchange of
outstanding notes under the exchange offer. We will pay all charges and
expenses, other than underwriting discounts and commissions and transfer taxes,
as part of the exchange offer. See "--Fees and Expenses."
Expiration Date, Extensions, Termination
The term "expiration date" means 5:00 p.m., New York City time, on
, 2000, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date and time to
which the exchange offer is extended.
We have the right, subject to applicable law, in our reasonable discretion,
at any time and from time to time, (1) to extend the exchange offer or (2) to
terminate the exchange offer, if any of the conditions set forth below under
"--Conditions" shall not have been satisfied by giving oral or written notice
of such extension or termination to the exchange agent. Any such extension or
termination will be followed as promptly as practicable by a public
announcement.
41
<PAGE>
Any such termination or extension will be followed promptly by oral or
written notice to the exchange agent (any such oral notice to be promptly
confirmed in writing) and by making a public announcement, and such
announcement in the case of an extension will be made no later than 9:00 am..
New York City time, on the next business day after the previously scheduled
expiration date. Without limiting the manner in which we may choose to make any
public announcement, and subject to applicable laws, we shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement, other than by issuing a timely release to an appropriate news
agency.
Procedures for Tendering
Book-Entry Interests
The outstanding notes were issued as global securities in fully registered
form without interest coupons. Beneficial interests in the global securities,
held by direct or indirect participants in DTC, are shown on, and transfers of
these interests are effected only through, records maintained in book-entry
form by DTC with respect to its participants.
If you hold your outstanding notes in the form of book-entry interests and
you wish to tender your outstanding notes for exchange pursuant to the exchange
offer, you must transmit to the exchange agent on or prior to the expiration
date either:
(1) written or facsimile copy of a properly completed and duly executed
letter of transmittal, including all other documents required by the letter
of transmittal, to the exchange agent at the address set forth on the cover
page of the letter of transmittal; or
(2) computer-generated message transmitted by means of DTC's Automated
Tender Offer Program system and received by the exchange agent, in which
you acknowledge and agree to be bound by the terms of the letter of
transmittal.
In addition, in order to deliver outstanding notes held in the form of book-
entry interests:
(A) a timely confirmation of book-entry transfer of such notes into the
exchange agent's account at DTC pursuant to the procedure for book-entry
transfers described below under "--Book-Entry Transfer" must be received by
the exchange agent prior to the expiration date; or
(B) you must comply with the guaranteed delivery procedures described
below.
The method of delivery of outstanding notes and the letter of transmittal
and all other required documents to the exchange agent is at your election and
risk. Instead of delivery by mail, we recommend that you use an overnight or
hand delivery service. In all cases, sufficient time should be allowed to
assure delivery to the exchange agent before the expiration date. You should
not send the letter of transmittal or outstanding notes to us. You may request
your broker, dealer, commercial bank, trust company, or nominee to effect the
above transactions for you.
Certificated Outstanding Notes
Only registered holders of certificated outstanding notes may tender those
notes in the exchange offer. If your outstanding notes are certificated notes
and you wish to tender those notes for exchange
42
<PAGE>
pursuant to the exchange offer, you must transmit to the exchange agent on or
prior to the expiration date, a written or facsimile copy of a properly
completed and duly executed letter of transmittal, including all other required
documents, to the address set forth below under "--Exchange Agent." In
addition, in order to validly tender your certificated outstanding notes:
(1) the certificates representing your outstanding notes must be
received by the exchange agent prior to the expiration date, or
(2) you must comply with the guaranteed delivery procedures described
below.
Procedures Applicable to all Holders
If you validly tender outstanding notes and you do not withdraw the tender
prior to the expiration date, you will have made an agreement with us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
If your outstanding notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender your
notes, you should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing the letter of transmittal
and delivering your outstanding notes, either make appropriate arrangements to
register ownership of the outstanding notes in your name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:
(A) outstanding notes tendered in the exchange offer are tendered either:
(1) "Special Delivery Instructions" on the letter of transmittal; or
(2) for the account of an eligible institution; and
(B) the box entitled "Special Registration Instructions" on the letter of
transmittal has not been completed.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a financial institution,
which includes most banks, savings and loan associations and brokerage houses,
that is a participant in the Securities Transfer Agents Medallion Program. the
New York Stock Exchange Medallion Program or the Stock Exchanges Medallion
Program.
If the letter of transmittal is signed by a person other than you, your
outstanding notes must be endorsed or accompanied by a properly completed bond
power and signed by you as your name appears on those outstanding notes.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless we waive this
requirement, in this instance you must submit with the letter of transmittal
proper evidence satisfactory to us of their authority to act on your behalf.
43
<PAGE>
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered outstanding notes. This determination will be final and
binding. We reserve the absolute right to reject any and all outstanding notes
not properly tendered or any outstanding notes our acceptance of which would,
in the opinion of our counsel, be unlawful. We also reserve the right to waive
any defects, irregularities or conditions of tender as to particular
outstanding notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will
be final and binding on all parties.
You must cure any defects or irregularities in connection with tenders of
your outstanding notes within the time period we will determine unless we waive
that defect or irregularity. Although we intend to notify you of defects or
irregularities with respect to your tender of outstanding notes, neither we,
the exchange agent nor any other person will incur any liability for failure to
give this notification. Your tender will not be deemed to have been made and
your notes will be returned to you if:
(1) you improperly tender your outstanding notes;
(2) you have not cured any defects or irregularities in your tender;
and
(3) we have not waived those defects, irregularities or improper
tender.
The exchange agent will return your outstanding notes, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration of the exchange offer.
By tendering, you will represent to us that, among other things:
(1) you are acquiring the registered notes in the ordinary course of
your business;
(2) you are not participating in, and have no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act of 1933) of the registered notes; and
(3) you are not an "affiliate" of ours, as that terms is defined in
Rule 405 under the Securities Act of 1933.
In all cases, issuance of registered notes for outstanding notes that are
accepted for exchange in the exchange offer will be made only after timely
receipt by the exchange agent of certificates for your outstanding notes or a
timely book-entry confirmation of your outstanding notes into the exchange
agent's account at DTC, a properly completed and duly executed letter of
transmittal, or a computer-generated message instead of the letter of
transmittal, and all other required documents. If any tendered outstanding
notes are not accepted for any reason set forth in the terms and conditions of
the exchange offer or if outstanding notes are submitted for a greater
principal amount than you desire to exchange, the unaccepted or non-exchanged
outstanding notes will be returned without expense to you. In addition, in the
case of outstanding notes tendered by book-entry transfer into the exchange
agent's account at DTC pursuant to the book-entry transfer procedures described
below, the non-exchanged outstanding notes will be credited to your account
maintained with DTC, as promptly as practicable after the expiration or
termination of the exchange offer.
44
<PAGE>
Guaranteed Delivery Procedures
If you desire to tender your outstanding notes and your outstanding notes
are not immediately available or one of the situations described in the
immediately preceding paragraph occurs, you may tender if:
(1) you tender through an eligible financial institution;
(2) on or prior to 5:00 p.m., New York City time, on the expiration
date, the exchange agent receives from an eligible institution, a written
or facsimile copy of a properly completed and duly executed letter of
transmittal and notice of guaranteed delivery, substantially in the form
provided by us; and
(3) the certificates for all certificated outstanding notes, in proper
form for transfer, or a book-entry confirmation, and all other documents
required by the letter of transmittal, are received by the exchange agent
within three NYSE trading days after the date of execution of the notice of
guaranteed delivery.
The notice of guaranteed delivery may be sent by facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery must set forth:
(1) your name and address;
(2) the amount of outstanding notes you are tendering; and
(3) a statement that your tender is being made by the notice of
guaranteed delivery and that you guarantee that within three New York Stock
Exchange trading days after the execution of the notice of guaranteed
delivery, the eligible institution will deliver the following documents to
the exchange agent:
(A) the certificates for all certificated outstanding notes being
tendered, in proper form for transfer or a book-entry confirmation of
tender;
(B) a written or facsimile copy of the letter of transmittal, or a
book-entry confirmation instead of the letter of transmittal; and
(C) any other documents required by the letter of transmittal.
Book-entry Transfer
The exchange agent will establish an account with respect to the book-entry
interests at DTC for purposes of the exchange offer promptly after the date of
this prospectus. You must deliver your book-entry interest by book-entry
transfer to the account maintained by the exchange agent at DTC. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of book-entry interests by causing DTC to transfer the book-entry interests
into the exchange agent's account at DTC in accordance with DTC's procedures
for transfer.
If one of the following situations occur:
(1) you cannot deliver a book-entry confirmation of book-entry delivery
of your book-entry interests into the exchange agent's account at DTC; or
(2) you cannot deliver all other documents required by the letter of
transmittal to the exchange agent prior to the expiration date.
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
45
<PAGE>
Withdrawal of Tenders
Tenders of outstanding notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the expiration date.
To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address listed in this prospectus prior to 5:00 p.m., New York
City time, on the expiration date. Any notice of withdrawal must:
. specify the name of the person having deposited the outstanding notes to
be withdrawn;
. identify the outstanding notes to be withdrawn, including the certificate
number or numbers and principal amount of such outstanding notes;
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee register the
transfer of the outstanding notes into the name of the person withdrawing
the tender; and
. specify the name in which any outstanding notes are to be registered if
different from that of the person that deposited the outstanding notes to
be withdrawn.
If the outstanding notes have been delivered under the book-entry procedure
set forth above under "--Procedures for Tendering," any notice of withdrawal
must specify the name and number of the participant's account at DTC to be
credited with the withdrawn outstanding notes.
We will determine, in our sole discretion, all questions as to the validity,
form and eligibility, including time of receipt, of withdrawal notices. Our
determination shall be final and binding on all parties. Any outstanding notes
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and registered notes will not be issued in exchange for such
withdrawn outstanding notes unless the withdrawn outstanding notes are validly
retendered. Properly withdrawn outstanding notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the expiration date.
Any outstanding notes that are tendered but not accepted due to withdrawal,
rejection of tender or termination of the exchange offer will be returned as
soon as practicable to the holder without cost to the holder. In the case of
outstanding notes tendered by book-entry transfer into the exchange agent's
account at the book-entry transfer facility under the book-entry transfer
procedures described above, these outstanding notes will be credited to an
account maintained with such book-entry transfer facility for the outstanding
notes.
Conditions
We are not required to accept for exchange any outstanding notes, and may
terminate the exchange offer as provided in this prospectus before the
acceptance of any outstanding notes, if:
. the exchange offer will violate applicable law or any applicable
interpretation of the SEC staff;
. the outstanding notes are not tendered in accordance with the exchange
offer;
46
<PAGE>
. you do not represent that you are acquiring the registered notes in the
ordinary course of your business, that you are not engaging in and do not
intend to engage in a distribution of the registered notes, that you are
not a broker-dealer that purchased the outstanding notes from us to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act of 1933 and you are not an "affiliate" of ours, as defined
in Rule 405 under the Securities Act of 1933; or
. any action or proceeding is instituted or threatened by any governmental
agency with respect to the exchange offer which would reasonably be
expected to impair our ability to proceed with the exchange offer.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances giving rise to any condition or we may waive them in
whole or in part at any time and from time to time in our reasonable
discretion. Our failure at any time to exercise any of the foregoing rights
shall not he deemed a waiver of the right and each right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
If we determine in our reasonable judgment that any of the conditions are
not satisfied, we may:
(1) refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders or, in the case of outstanding
notes delivered by book-entry transfer, credit any outstanding notes to the
account maintained within DTC which delivered the notes;
(2) extend the exchange offer and retain all outstanding notes tendered
prior to the expiration of the exchange offer, subject, however, to the
rights of holders to withdraw the tenders of outstanding notes; or
(3) waive the unsatisfied conditions with respect to the exchange offer
and accept all properly tendered outstanding notes which have not been
withdrawn.
If a waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement and we will
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the exchange offer would otherwise expire during such
five to ten business day period.
Exchange Agent
BNY Midwest Trust Company has been appointed as exchange agent for the
exchange offer. Delivery of letters of transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this prospectus or of the letter of transmittal should be directed
to the exchange agent as follows:
By Registered or Certified Mail, By Facsimile (Eligible Institution
Overnight Courier or Hand Delivery: Only):
(212) 815-6339
BNY Midwest Trust Company Attention: Exchange Department
c/o The Bank of New York 101 Barclay
Street Confirmed by Telephone: (212) 815-
New York, New York 10286 6331
Ground Level (Originals of all documents submitted
Corporate Trust Services Window by facsimile should be sent promptly
Attention: Reorganization Unit - 7E by hand, overnight courier or
registered or certified mail.)
47
<PAGE>
Delivery to other than the above address or facsimile number will not
constitute a valid delivery of your outstanding notes.
Fees and Expenses
We will pay expenses of soliciting tenders. The principal solicitation is
being made by mail; however, additional solicitation may be made by facsimile,
telephone or in person by our officers and regular employees.
We have not retained any dealer-manager as part of the exchange offer and
will not make any payments to brokers, dealers or others soliciting acceptance
of the exchange offer. We will, however, pay the exchange agent reasonable and
customary fees for services and will reimburse it for its reasonable out-of-
pocket expenses under the exchange offer. We will also pay the reasonable fees
and expenses of one firm acting as counsel for the holders of the outstanding
notes. Expenses include fees and expenses of the exchange agent and trustee,
accounting and legal fees and printing costs, among others.
Transfer Taxes
You must pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. If satisfactory evidence of your
payment of the taxes or your exemption from such obligation is not submitted
with the letter of transmittal, the amount of the transfer taxes will be billed
directly to you.
Accounting Treatment
The registered notes will be recorded at the same carrying value as the
outstanding notes on the date of the exchange. Accordingly, we will recognize
no gain or loss for accounting purposes. The expenses of the exchange offer and
the unamortized expenses relating to the issuance of the outstanding notes will
be amortized over the term of the registered notes.
Consequences of Not Exchanging Outstanding Notes
As a result of this exchange offer, we will have fulfilled most of our
obligations under the registration rights agreement. Holders who do not tender
their outstanding notes, except for certain instances involving the initial
purchasers or holders of outstanding notes who are not eligible to participate
in the exchange offer or who do not receive freely transferrable registered
notes pursuant to the exchange offer, will not have any further registration
rights under the registration rights agreement or otherwise and will not have
rights to receive additional interest. Accordingly, any holder who does not
exchange its outstanding notes for registered notes will continue to hold the
untendered outstanding notes and will be entitled to all the rights and subject
to all the limitations applicable under the indenture, except to the extent
that such rights or limitations, by their terms, terminate or cease to have
further effectiveness as a result of the exchange offer.
48
<PAGE>
Any outstanding notes that are not exchanged for registered notes pursuant
to the exchange offer will remain restricted securities within the meaning of
the Securities Act of 1933. In general, such outstanding notes may be resold
only:
. to us or any of our subsidiaries;
. inside the United States to a "qualified institutional buyer" in
compliance with Rule 144A under the Securities Act of 1933;
. inside the United States to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933) or an "accredited investor" that, prior to such transfer, furnishes
or has furnished on its behalf by a U.S. broker-dealer to the trustee
under the indenture a signed letter containing certain representations
and agreements relating to the restrictions on transfer of the registered
notes, the form of which letter can be obtained from the trustee;
. outside the United States in compliance with Rule 904 under the
Securities Act of 1933;
. pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, if available; or
. pursuant to an effective registration statement under the Securities Act
of 1933.
Each accredited investor that is not a qualified institutional buyer and
that is an original purchaser of any of the outstanding notes from the initial
purchasers will be required to sign a letter confirming that it is an
accredited investor under the Securities Act of 1933 and that it acknowledges
the transfer restrictions summarized above.
49
<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 that
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 during
our affiliation with Sprint PCS. We also buy our network equipment, handsets
and accessories at the same discounted rates offered by vendors to Sprint PCS
based on its large volume purchases. These discounts reduce the overall capital
required to build our network and significantly reduce our costs of handsets
and accessories. Additionally, we have access to Sprint PCS national marketing
support and distribution programs. While we must support Sprint PCS' regional
and national pricing plans, we also have the flexibility to offer local pricing
plans with prior approval from Sprint PCS. However, if Sprint PCS were to price
its regional or national pricing plans based upon its own objectives, it could
set price levels that may not be economically sufficient for our business and
could potentially impact our results from operations. Sprint PCS collects all
revenues from our customers and remits the net amount to us. An affiliation fee
of 8% of collected service revenues from Sprint PCS customers based in our
territory, excluding outbound roaming, and from non-Sprint PCS customers who
roam onto our 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 our territory are not subject to the
8% affiliation fee.
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. Sprint PCS may change the cost for these
services once in every 12-month period. The Sprint PCS agreements also provide
that with nine months' prior written notice, Sprint PCS may terminate offering
any service. If Sprint PCS were to terminate a service for which we have not
yet developed a cost-effective alternative, our operating costs may increase
beyond our expectations and negatively impact our results of operations. It is
not possible, however, to estimate with certainty the extent of any increase in
our operating costs.
Since the date of inception, we have incurred substantial costs to negotiate
the Sprint PCS agreements and our debt financing, to design, engineer and build
out our network in our initial territory and to open our retail stores. Prior
to launching service in Bloomington, Illinois and the
50
<PAGE>
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 thirteen additional markets. Our network covers
approximately 2,097,000 residents, or approximately 75% of a total population
of 2,783,000 in those markets, and we had over 25,000 customers as of September
30, 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 June 30, 2000, we had incurred $59.1 million of
capital expenditures and construction in progress expenses related to the
build-out of our network. While we anticipate operating losses to continue, we
expect revenue 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 our build-out plan and 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 revenue, which during the period totaled $71,000,
consisted of customer revenue of approximately $28,000 and roaming revenue of
approximately $43,000 all of which relate to our initial market launches in
December 1999.
. Customer revenue consists of services billed to our customers for
monthly Sprint service in our territory under a variety of service
plans. These plans generally mirror national plans offered by Sprint
PCS.
. We receive Sprint PCS roaming revenue at a per-minute rate from Sprint
PCS or another Sprint PCS affiliate when Sprint PCS subscribers 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.
. Roaming revenue also includes non-Sprint PCS roaming revenue from other
wireless service providers other than Sprint PCS, when those providers'
subscribers roam on our network as well as roaming revenue from our
customers when they roam on non-Sprint PCS networks.
Equipment revenues. We record 100% of the revenue from the sale of
equipment, net of an allowance for returns as equipment revenue. The amount
recorded during the period totaled $144,000.
51
<PAGE>
Cost of service. Cost of service totaled $1.7 million, which related to
providing Sprint PCS services in our territory. Cost of services include
billing, customer care, 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 the
cost of service expenses is the 8% of collected revenue retained by Sprint PCS.
For the period, 6% of the total cost of service was paid to Sprint.
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.
Selling expenses. Selling expenses totaling $778,000 during the period
included advertising expenses, promotion costs, salaries and 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.
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 the
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 six-month period ended June 30, 2000 compared with the period
January 22, 1999 (date of inception) through June 30, 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 six-month period
ended June 30, 2000, we recorded a loss of approximately $20.4 million on total
revenues of approximately $5.5 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 of approximately $8.5 million and related taxes of
52
<PAGE>
approximately $1.6 million associated with the issuance of 1.5% ownership
interest in Illinois PCS, LLC to our President and Chief Executive Officer. Our
net loss for the period ended June 30, 1999 was $787,000 and was comprised
primarily of selling, general and administrative expenses associated with the
preparation of our initial markets.
Service revenues. For the six-month period ended June 30, 2000, service
revenue totaled $4.4 million and was comprised of customer revenue of $2.7
million and roaming revenue of $1.7 million. For the period ended June 30,
1999, we had no service revenue, as we had not yet launched service. The number
of our subscribers increased from approximately 1,900 at December 31, 1999 to
over 14,000 at June 30, 2000. Our average monthly revenue per user, including
long distance and roaming revenue, was approximately $104. Without roaming
revenue, average monthly revenue per user was approximately $63.
Equipment revenue. Equipment revenue from the sale of phones and accessories
totaled approximately $942,000 for the period ended June 30, 2000. For the
period ended June 30, 1999, we had no equipment revenues because we had not yet
launched service.
Cost of service. Cost of providing service to Sprint PCS customers in our
territory totaled approximately $4.8 million and $208,000 for the six-month
periods ended June 30, 2000, and June 30, 1999, respectively. Cost of services
include billing, customer care, network monitoring, cost of operations, fees
related to facilities and other transport lines, interconnection fees, Sprint
PCS roaming fees, non-Sprint PCS roaming fees and other expenses related to
operations. Included in the cost of service expenses for the six months ended
June 30, 2000 is the 8% of collected revenue retained by Sprint PCS in the
amount of approximately $206,000. For the six months ended June 30, 2000, 44%
of the total cost of service was paid to Sprint PCS compared to none for the
six month period ended June 30, 1999 because we had not yet launched service.
Cost of equipment. Cost of equipment sold for the six-month period ended
June 30, 2000 totaled approximately $2.6 million. There was no cost of
equipment expense recorded for the period ended June 30, 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. Handset
subsidy for the six months ended June 30, 2000 totaled approximately
$1,656,000.
Selling expenses. Selling expenses include advertising and promotional
costs, salaries, sales commissions, and expenses related to our distribution
channels. For the six-month period ended June 30, 2000, selling expenses
totaled approximately $2.8 million compared with approximately $4,000 for the
period ended June 30, 1999. The increase in costs is substantially due to the
launching of ten markets between December 1999 and June 2000.
General and Administrative. General and administrative expenses were
approximately $12.4 million for the six-month period ended June 30, 2000 and
$586,000 for the period ended June 30, 1999. Included in general and
administrative costs are finance and executive salaries and bonuses, employee
benefit costs, legal fees and other professional service fees. Also included in
the six month period ended June 30, 2000 is the non-cash compensation expense
of approximately $8.5 million which related to a one-time charge for the
issuance of a 1.5% ownership to our President and Chief Executive Officer based
on an expected initial public offering price, and approximately $1.6 million
related to the withholding taxes we have paid in connection with the issuance
of the 1.5% ownership interest.
53
<PAGE>
Depreciation and amortization. Depreciation and amortization expense for the
six-month period ended June 30, 2000 totaled approximately $2.9 million. We
begin to depreciate the assets when we launch service in a market. There was no
depreciation and amortization expense recorded for the six-month period ended
June 30, 1999 because we had not yet launched service.
Interest income. For the six-month period ended June 30, 2000, interest
income was $95,000 and was earned on the investment of available funds. For the
period ended June 30, 1999, interest income was $11,000.
Interest Expense. For the six-month period ended June 30, 2000, interest of
approximately $1.2 million was capitalized and approximately $600,000 was
recorded as interest expense. Interest incurred relates primarily to the Nortel
financing facility. For the six-months ended June 30, 1999, we did not have any
interest expense.
Gain on tower sales. For the six-month period ended June 30, 2000, twenty-
two towers were sold to American Tower for $5.5 million in cash resulting in a
gain of approximately $2.3 million, of which $254,000 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. We did not sell any towers to American Tower during the period
ended June 30, 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 periods 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
six-month period ended June 30, 2000 and the period ended June 30, 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
From the date of inception through July 12, 2000, we financed our operations
through equity contributions from our owners and through financing provided by
Nortel. As of June 30, 2000 we had received $30.0 million of equity
contributions from our owners. As of June 30, 2000, we had a $48.0 million
credit facility with Nortel, of which $33.9 million had been drawn. On July 12,
2000, we entered into our new senior secured credit facility (which was
documented as an amended and restated credit agreement) with Toronto Dominion
(Texas), Inc. and GE Capital Corporation for a $140.0 million senior secured
credit facility to replace the Nortel financing. The Nortel facility was repaid
in full with funds from the senior discount notes offering discussed below.
54
<PAGE>
The senior secured credit agreement provides for two different tranches of
borrowings totaling $140.0 million. The Tranche A Commitment provides for
borrowings up to $90.0 million and the Tranche B Commitment provides for
borrowings up to $50.0 million.
Commencing March 31, 2004, and on the last day of each calendar quarter
ending during the periods set forth below, the Tranche A commitment as of
March 30, 2004 shall be automatically and permanently reduced by the
percentage amount set forth below for the quarters indicated:
. for the four quarters commencing with the fiscal quarter ending March
31, 2004, 2.50% per quarter;
. for quarters five through eight, 3.75% per quarter;
. for quarters nine through sixteen, 6.25% per quarter; and
. for the last two quarters, 12.5% per quarter.
Commencing March 31, 2004, we must begin to repay, in quarterly
installments, the principal on all borrowings outstanding as of March 30, 2004
made under the Tranche B Commitment. A fixed percentage on all Tranche B
borrowings will be due each quarter as follows:
. for the first four quarters commencing with the fiscal quarter ending
March 31, 2004, 2.50% of the principal balance of the loan is due per
quarter;
. for quarters five through eight, 3.75% per quarter;
. for quarters nine through sixteen, 6.25% per quarter; and
. for the last two quarters, 12.5% per quarter.
If we borrow the maximum amount under Tranche B, the aggregate amount
required to be repaid for each of the four periods above will be $5.0 million,
$7.5 million, $25.0 million, and $12.5 million, respectively.
Any principal that has not been paid by the maturity date, June 30, 2008,
is due at that time.
We may voluntarily prepay any of the loans at any time. Tranche A permits
reborrowings on a revolving basis but amounts repaid under Tranche B may not
be reborrowed.
We will have to make mandatory prepayments under certain circumstances,
including among others:
. 50% of our excess annual cash flow as computed under the senior secured
credit agreement, commencing April 30, 2004 with respect to the fiscal
year ending December 31, 2003;
. 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 subject to certain exceptions, to the extent not
reinvested in property or assets within a stated period of time;
. 50% of the net proceeds of any equity issuance by us or any subsidiary
excluding the committed issuance of the convertible preferred stock, an
initial public offering and any offering to a borrower or guarantor
party to the senior secured financing; and
55
<PAGE>
. 100% of the net proceeds of a debt issuance by us or any subsidiary
excluding permitted indebtedness.
All prepayments described above are applied to the outstanding loan balances
pro rata between Tranche A and Tranche B and pro rata across the maturities.
From the date of the senior secured credit agreement through and including
the date on which EBITDA is greater than zero for two consecutive fiscal
quarters, we may borrow money at the lesser of either:
. a base rate loan with an interest rate equal to 2.75% plus the higher
of:
. the prime rate of the Toronto-Dominion Bank, New York Branch or
. the federal funds effective rate plus 0.5%; or
. a Eurodollar loan with an interest rate equal to the London interbank
offered rate, plus 3.75%.
Accordingly, if we were to have borrowed money on June 30, 2000 under the
senior secured credit facility, the interest rate on such borrowed funds would
have been 10.43%. After the date on which EBITDA is greater than zero for two
consecutive fiscal quarters, the base rate margin will range from 2.750% to
2.250% and the Eurodollar loan margin will range from 3.750% to 3.250%,
depending upon our leverage ratio as of the most recently ended fiscal quarter.
All borrowings under the Nortel financing were based on the London interbank
offered rate plus 4%. At June 30, 2000, the interest rate under the Nortel
financing was 10.68%.
Had the senior secured credit facility been in place as of June 30, 2000, we
would have been in compliance with the covenants applicable as of such date. In
addition, we expect to be in compliance with the covenants in effect as of
September 30, 2000 under the senior secured credit facility and the indenture
governing the senior discount notes.
The new senior secured credit facility will be used to finance capital
expenditures, certain acquisitions and investments for working capital needs
and other general corporate purposes.
On July 12, 2000, we closed our offering of 300,000 units consisting of our
14% senior discount notes due 2010 and warrants to purchase 2,982,699 shares of
our common stock for gross proceeds of $152.3 million.
Also on July 12, 2000, we entered into a definitive agreement with an
investor group led by Blackstone under which we issued $50.0 million of our
convertible preferred stock. The agreement includes a commitment by the
investor group to purchase, subject to certain conditions, an additional $70.0
million of our convertible preferred stock in the event that we do not complete
an initial public offering with gross proceeds of at least $30.0 million prior
to December 31, 2000.
We believe that the net proceeds from our sale of senior discount notes, the
net proceeds of our private placement of convertible preferred stock to an
investor group led by affiliates of The Blackstone Group, and anticipated
borrowings under our new senior secured credit facility (the
56
<PAGE>
availability of which is subject to certain conditions), will be adequate to
fund our network buildout, anticipated operating losses, working capital
requirements and other capital needs through 2003.
Net cash used by operating activities was $3.9 million from the date of
inception through December 31, 1999 and $7.5 million for the six-month period
ended June 30, 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 $16.2 million for the six-month period
ended June 30, 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 $22.8 million for the six-month period
ended June 30, 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.
Through June 30, 2000 we had received $10.0 million related to the sale of
towers under this agreement and had incurred $5.9 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 June 30, 2000, we had sold 40 towers to American
Tower.
As of June 30, 2000, our primary sources of liquidity were $1.8 million in
cash and $14.1 million of unused capacity under the $48.0 million Nortel credit
facility. Currently, no borrowings can be made under our $140.0 million senior
secured credit facility until we have made a $70.0 million equity contribution
or subordinated loan to our wholly owned subsidiary iPCS Wireless, Inc.
2000 Long Term Incentive Stock Plan
As of July 12, 2000, we have granted options to employees and directors to
acquire an aggregate of 1,558,750 shares of our common stock at an exercise
price of $5.50 per share. Since July 12, 2000, we have committed to grant
options to acquire 29,000 shares to new employees at the fair market value of
our common stock at the date of employment. Based upon an expected offering
price of a planned initial public offering at the time of grant, we will
recognize a non-cash compensation expense of approximately $8.3 million over
the four year vesting period of the options
57
<PAGE>
of which approximately $2.6 million will be recognized in the quarter ended
September 30, 2000. See "Management--2000 Long Term Incentive Stock Plan."
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. 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 consistent with the best
use of our capital.
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.
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 senior secured credit facility
and any future financing requirements. Our variable rate debt consists of
borrowings made under our senior secured credit facility. The senior secured
credit facility requires us to enter into an interest rate protection agreement
within six months after July 12, 2000, the effective date, to fix the interest
rate of at least 50% of the debt that does not have a fixed interest rate. To
date, we have not entered into such an agreement.
58
<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 senior secured credit facility 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> <C>
Senior discount notes
fixed interest rate.... 14.00% 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%
Principal payments..... -- -- -- -- -- -- $300,000
Nortel financing........ $27,571 -- -- -- -- -- --
Senior secured credit
facility(1)............ -- $25,000 $50,000 $140,000 $126,000 $105,000
Variable interest
rate(2)................ 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Principal payments...... -- -- -- -- -- $ 14,000 $126,000
</TABLE>
--------------------
(1) The amounts presented for periods subsequent to December 31, 1999 represent
estimated year-end long-term debt balances under our senior secured
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 senior secured financing equals the lesser of either:
. a base rate loan with an interest rate equal to the higher of
. the prime rate of the Toronto-Dominion Bank, New York Branch 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 6.25% 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 senior secured 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 ("FASB") 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.
59
<PAGE>
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of Accounting Principles Board Opinion 25" ("Opinion 25"). This
Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000; however, certain conclusions in
this Interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation will be recognized on a prospective basis from July 1, 2000. We
do not expect FIN 44 to have a material effect on our results of operations,
financial position, or cash flows.
On December 3, 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"). This bulletin specifically addresses revenue recognition
requirements for nonrefundable fees, such as activation fees, collected by a
company upon entering into an arrangement with a customer, such as an
arrangement to provide telecommunications services. On June 26, 2000, the SEC
released SAB 101B, which delays the required implementation of SAB 101 until no
later than the fourth quarter of fiscal years ending December 31, 2000. We do
not expect the effects of this bulletin will have a material effect on our
results of operations, financial position, or cash flows.
60
<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
We have the exclusive right to market 100% digital, 100% PCS, under the
Sprint and Sprint PCS brand names to a total population of more than 7.0
million in the midwestern United States. 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 as Sprint PCS.
We began providing service in December 1999 and, as of September 30, 2000, had
launched service in fifteen markets covering approximately 2,097,000 residents
and had over 25,000 customers. By the end of the third quarter of 2001, we plan
to offer service on our network, which we refer to as providing coverage, to
the portions of our territory where approximately 67% of the total population
resides in our territory, at which time our planned network build-out for all
of our current markets will be substantially complete.
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. As
of September 30, 2000, we have launched service in all of our initial markets,
thereby substantially completing our network build-out in our initial
territory. At such time, we are providing coverage to approximately 2.1 million
residents or approximately 75% of the total population residing 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 purchased from Sprint PCS network assets under
construction in four 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. Our territory is
adjacent to, but does not include, 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.
61
<PAGE>
The Sprint PCS agreements impose obligations and restrictions on us. We are
required to comply with requirements for launch dates, coverage and technical
standards of the network build-out, customer service standards, and
participation in Sprint PCS national and regional distribution and national
accounts programs. We are prohibited from offering Sprint PCS products and
services outside our territory and on a non-branded, "private label" basis. For
further information regarding the terms of the Sprint PCS agreements, see "The
Sprint PCS Agreements--The Management Agreement." If the Sprint PCS agreements
terminate, we will not enjoy the benefits as discussed below of our affiliation
and such termination will permit Sprint PCS to purchase our operating assets or
capital stock at a substantial discount from our fair market value. For further
information regarding risks related to our relationship with Sprint PCS, see
"Risk Factors--Risks Particular to iPCS."
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 who have existing store locations in our territory and
Sprint PCS' other national sales and distribution channels, including:
. the sales and distribution agreements with major national third-party
retailers which collectively provide us with access to over 300 stores in
our territory;
. Sprint PCS' national inbound telemarketing sales force;
. Sprint PCS' national accounts sales team; and
. Sprint PCS' electronic commerce sales platform.
62
<PAGE>
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 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. 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. We believe that
our most extensive competition comes from the established regional cellular
carriers in each of our markets, although their coverage is fragmented.
63
<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, but does not
include, 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.
64
<PAGE>
Execution of our initial territory 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 September 30, 2000, we had launched Sprint PCS service in fifteen markets
covering approximately 2,097,000 residents and had over 25,000 customers. We
are using the same implementation methodologies for the network construction in
all markets in our territory.
Fully financed business plan. We believe that the net proceeds from our sale
of the senior discount notes, the private placement of $50.0 million of
convertible preferred stock to an investor group led by Blackstone, and
anticipated borrowings under our new senior secured facility (the availability
of which is subject to certain conditions, including the receipts of the
proceeds from a $70.0 million equity offering) will be adequate to fund our
network buildout, anticipated operating losses, working capital requirements
and other capital needs.
Business Strategy
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;
65
<PAGE>
. directing our media efforts at the community level by advertising in
local publications, radio and television; and
. sponsoring local and regional events.
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 (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. However, Sprint PCS does not currently offer
PCS services in every state in the United States. 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 7.4
million customers as of June 30, 2000. 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 following table, showing the quarterly
end-of-period subscriber data for Sprint PCS, illustrates Sprint PCS'
subscriber growth from the beginning of 1997 to the end of the second quarter
of 2000 and may not reflect Sprint PCS' future subscriber growth nor our
subscriber growth.
66
<PAGE>
[Bar Chart of Subscriber Growth]
Edgar Representation of Data Points Used in Printed Graphic
Q1 97 192
Q2 97 347
Q3 97 570
Q4 97 887
Q1 98 1,114
Q2 98 1,370
Q3 98 1,750
Q4 98 2,586
Q1 99 3,350
Q2 99 3,967
Q3 99 4,687
Q4 99 5,723
Q1 00 6,554
Q2 00 7,437
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.
67
<PAGE>
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. As of September 30, 2000, we have launched the following
markets:
.Davenport, Iowa/Moline, Illinois;
.Bloomington, Illinois;
.Peoria, Illinois;
.Springfield, Illinois;
.St. Louis, Missouri (partial);
.LaSalle-Peru-Ottawa-Streator, Illinois;
.Decatur-Effingham, Illinois;
.Champaign-Urbana, Illinois;
.Kankakee, Illinois;
.Galesburg, Illinois, Clinton, Iowa/Sterling, Illinois;
.Mt. Vernon-Centralia, Illinois;
.Danville, Illinois; Jacksonville, Illinois; and
.Mattoon, Illinois.
The number of our 25,000 customers as of September 30, 2000 who are located
in these launched markets varies based upon the total population of the market,
how long the markets have been launched and the extent of our marketing efforts
to date in such markets. The estimated covered population represents the total
potential customers rather than our expected customers in such markets.
<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%
------- -------
</TABLE>
68
<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>
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%
--------- ---------
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 expected to be covered, not the total population in the
entire basic trading area.
69
<PAGE>
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 June
2000, we launched service in the LaSalle-Peru-Ottawa-Streator, Illinois,
Decatur-Effingham, Illinois, Champaign-Urbana, Illinois, Kankakee, Illinois and
Galesburg, Illinois markets covering approximately 629,000 residents. As of
September 30, 2000, we substantially completed the build-out of all remaining
metropolitan markets and major interstate routes in our initial territory. Our
initial territory covers approximately 2.1 million residents or 75% of the
total population residing in 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
purchased from Sprint PCS network assets under construction in four markets in
Michigan.
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 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. For our Illinois and
Iowa markets, 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.
70
<PAGE>
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.
For our Michigan markets we have engaged Trintel Communications to provide
services similar to those provided by CMS. For our Iowa markets, Tricom is also
providing site acquisition 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.
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 590 sites will be required to achieve our
planned 67% coverage of the residents in our territory. Of those 590 sites, we
believe that approximately 300 will be co-location sites. We plan to construct
towers for the remaining 290 sites. We plan to sell and lease back 100 towers
under our existing agreement with American Tower.
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
71
<PAGE>
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 $8.0 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 Grand Rapids,
Michigan and another in Davenport, Iowa.
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
We have entered into a three year equipment purchase agreement with Nortel
for our network 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. As of June 30, 2000, we have a remaining commitment to
purchase $35.9 million of equipment and services from Nortel. 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 has licenses to
72
<PAGE>
provide wireless service nationwide, 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. However, Sprint PCS does not currently offer PCS services in every
state in the United States. 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.
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.
73
<PAGE>
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 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
74
<PAGE>
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.
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
75
<PAGE>
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.
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 95 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.
76
<PAGE>
Sprint PCS stores. We currently own and operate six Sprint PCS stores in our
territory and plan to open an additional 13 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.
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.
77
<PAGE>
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 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. Verizon Wireless (formerly AirTouch, GTE Wireless,
ALLTEL and Ameritech Cellular) provides cellular service in each of our major
markets. 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 US Cellular and CenturyTel have similar limited coverage
areas. 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 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.
78
<PAGE>
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 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/
ESMR
Geographic Market Primary Competitors Service
<S> <C> <C>
Illinois (including Iowa Quad Cities
markets) Verizon Wireless Cellular
CellularOne (Cingular Wireless) Cellular
USCellular Cellular
Amica Wireless PCS
Iowa Wireless PCS
PrimeCo PCS
Nextel ESMR
Michigan markets Verizon Wireless Cellular
CenturyTel Cellular
NPI Wireless PCS
OmniPoint PCS
Nextel ESMR
Iowa and Nebraska markets Verizon Wireless Cellular
CellularOne (Cingular Wireless) Cellular
USCellular Cellular
Iowa Wireless PCS
</TABLE>
79
<PAGE>
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.
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.
80
<PAGE>
<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 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
81
<PAGE>
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 September 30, 2000, we employed 99 full-time employees. None of our
employees is represented by a labor union. We believe that our relations with
our employees are good.
Properties
We lease our principal executive offices at 1900 East Golf Road, Suite 900,
Schaumburg, Illinois 60173 as well as administrative office space at 121 West
First Street, Suite 200, Geneseo, Illinois 61254. We also lease space in 22
locations in Illinois, primarily for our Sprint PCS stores, project offices and
switching centers. As of June 30, 2000, we leased space on 196 towers and owned
79 towers. We believe our leased property is in good operating condition and is
currently suitable and adequate for our business operations.
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.
82
<PAGE>
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 the lenders under our
senior secured credit facility and any refinancing.
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.
83
<PAGE>
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.
84
<PAGE>
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:
. causes us to incur a cost exceeding 5% of the sum of our equity plus our
outstanding long-term debt, or
. 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
85
<PAGE>
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 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 a right 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:
. the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS or
. 9% of our entire business value; or
. sue Sprint PCS for damages 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;
86
<PAGE>
. require us to purchase, subject to governmental approval, up to 10MHz of
licensed spectrum for an amount equal to the greater of:
. the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint; or
. 10% of our entire business value;
. 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:
. the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS; or
. 10% of our entire business value.
If we give Sprint PCS timely notice 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:
. the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS; or
. 10% of our entire business value.
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;
87
<PAGE>
. 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.
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.
88
<PAGE>
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
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 Holders of the Senior Secured
Credit Facility
Sprint PCS has entered into a consent and agreement for the benefit of the
holders of the indebtedness under the senior secured credit facility which we
refer to as the Senior Secured Consent, which has been acknowledged by us, and
modifies Sprint PCS' rights and remedies under our management agreement, for
the benefit of the existing and future holders of indebtedness under our senior
secured credit facility and any refinancing thereof.
The Senior Secured Consent provides for the following:
. Sprint PCS' consent to the pledge of substantially all of our assets,
including our rights in the Sprint PCS agreements;
89
<PAGE>
. that the Sprint PCS' agreements may not be terminated by Sprint PCS until
our senior secured credit facility is satisfied in full pursuant to the
terms of the Senior Secured 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 (Toronto Dominion (Texas), Inc. is the initial
administrative agent as discussed in more detail in "Description of Our
Indebtedness--The Senior Secured Credit Facility");
. for Sprint PCS to maintain 10MHz of PCS spectrum in all of our markets
until our senior secured facility is satisfied or our operating assets
are sold after our default under our senior secured credit facility;
. 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 senior secured credit facility;
. for Sprint PCS and the administrative agent to provide to each other
notices of default by us under the Sprint PCS management agreement and
senior secured credit facility, 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 senior secured credit facility 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 equity 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 senior secured credit facility 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 Senior Secured Consent in the same manner at the
administrative agent's request.
Sprint PCS' Right to Purchase on Acceleration of Amounts Outstanding under our
Senior Secured Credit Facility
Subject to the requirements of applicable law, so long as our senior secured
credit facility remains outstanding, Sprint PCS has the right to purchase our
operating assets or the equity interests of our operating subsidiaries, upon
its receipt of notice of an acceleration of our senior secured credit facility,
under the following terms:
. Sprint PCS elects to make such a purchase within 60 days of the
acceleration notice or the filing of a bankruptcy petition, whichever is
earlier;
. the purchase price is the greater of an amount equal to 72% of our entire
business value or the amount we owe under our senior secured credit
facility;
. 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 period or 120 days after the acceleration or
until Sprint PCS rescinds its intention to purchase, whichever is
earlier; and
90
<PAGE>
. if we receive a written offer that is acceptable to us to purchase our
operating assets or the equity interests of our operating subsidiaries
after the acceleration, then Sprint PCS has the right to purchase our
operating assets or the equity 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 equity 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 equity interests
of our operating subsidiaries after an acceleration of the obligations under
our senior secured credit facility, then the administrative agent may sell the
operating assets or equity 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 equity interests to an entity that satisfies the
following requirements to be our successor under the Sprint PCS
agreements:
. the entity must not have materially breached any material agreement
with Sprint;
. the entity cannot be one of the competitors named in the Senior
Secured Consent;
. the entity must have the financial ability to perform the Sprint PCS
agreements; and
. the entity must agree to be bound by the terms of the Sprint PCS
agreements; or
. to sell the assets or equity interests to any third-party provided:
. Sprint PCS may terminate the Sprint PCS agreements;
. such third-party may purchase Spectrum from Sprint PCS; and
. the purchase agreement transferring the assets or equity interests is
consistent with the terms of the Senior Secured Consent.
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:
. $19,945,600, plus
. 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.
91
<PAGE>
DESCRIPTION OF OUR INDEBTEDNESS
The Senior Secured Credit Facility
General
Our wholly owned subsidiary, iPCS Wireless, Inc. entered into a definitive
amended and restated credit agreement with Toronto Dominion (Texas), Inc. and
GE Capital Corporation for a $140.0 million senior secured credit facility.
This facility constitutes senior debt secured by a first priority security
interest in substantially all of our assets. The senior secured credit
agreement provides that we and all of our current and future subsidiaries
guarantee this senior secured credit facility.
Amount and Purpose of Loans
The senior secured credit agreement provides for two different tranches of
borrowings totaling $140.0 million. The Tranche A commitment provides for
borrowings up to $90.0 million and the Tranche B commitment provides for
borrowings up to $50.0 million. This facility will be used to finance capital
expenditures, certain acquisitions and investments for working capital needs
and other general corporate purposes. See "Business--Nortel Equipment
Agreement."
The amounts that can be borrowed will be further limited to a borrowing
base. The borrowing base is defined as 100% of the gross book value of all
property, plant and equipment owned by iPCS Wireless, Inc. and its subsidiaries
equipment used in our network. We will 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. Tranche A permits reborrowings on a revolving
basis but amounts repaid under Tranche B may not be reborrowed.
Commitment Termination
The Tranche A commitment is scheduled to terminate on June 30, 2008;
The Tranche A commitment may also terminate:
. if we voluntarily terminate such commitment; and
. if the administrative agent terminates the Tranche A commitment due to
the occurrence of an event of default under the senior secured credit
agreement.
The Tranche B commitment is reduced by undrawn amounts on June 30, 2001. The
undrawn portion of the Tranche B commitment may also terminate:
. on December 31, 2000 to an amount equal to $25.0 million if we have
borrowed less than $25.0 million on such date;
. if we voluntarily terminate such commitment; and
. if the administrative agent terminates the Tranche B commitment due to
the occurrence of an event of default under the credit agreement.
92
<PAGE>
Syndication
TD Securities (USA) Inc. and GE Capital Corporation are permitted to
syndicate the loan to other lenders.
Loans and Interest Options
We have multiple interest rate options available under the senior secured
credit agreement:
. from the date of the closing of the senior secured credit agreement
through and including the date on which EBITDA is greater than zero for
two consecutive fiscal quarters, we may borrow money as either:
. a base rate loan with an interest rate equal to 2.75% plus the higher
of
. the prime or base rate of the Toronto-Dominion Bank, New York
Branch; or
. the federal funds effective rate plus 0.5%; or
. a Eurodollar loan with an interest rate equal to the London interbank
offered rate, plus 3.75%;
and after the date on which EBITDA is greater than zero for two
consecutive fiscal quarters, the margin for base rate loans and
Eurodollar loans will be determined based upon the leverage ratio as of
the end of the fiscal quarter most recently ended.
. 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 pay interest due upon any prepayment or conversion from one interest
type to another; and
. we pay all outstanding interest on the maturity date.
Accordingly, if we were to have borrowed money on June 30, 2000 under the
senior secured credit facility, the interest rate on such borrowed funds would
have been 10.43%. After the date on which EBITDA is greater than zero for two
consecutive fiscal quarters, the base rate margin will range from 2.750% to
2.250% and the Eurodollar loan margin will range from 3.750% to 3.250%,
depending upon our leverage ratio as of the most recently ended fiscal quarter.
Payment of Principal
Scheduled Payments. Commencing March 31, 2004, we must begin to repay, in
quarterly installments, the principal on all Tranche B borrowings outstanding
as of March 30, 2004. A fixed percentage is due each quarter:
. for the first four quarters, commencing with the fiscal quarter ended
March 31, 2004, 2.50% of the principal balance of the loan is due per
quarter;
. for quarters five through eight, 3.75% per quarter;
. for quarters nine through sixteen, 6.25% per quarter; and
. for the last two quarters, 12.5% per quarter.
Any principal that has not been paid by June 30, 2008, the maturity date, is
due at that time.
Commencing March 31, 2004, and on the last day of each calendar quarter
ending during the periods set forth below, the Tranche A commitment as of March
30, 2004 shall be automatically and permanently reduced by the percentage
amount set forth below for the quarters indicated:
. for the four quarters commencing with the fiscal quarter ending March 31,
2004, 2.50% per quarter;
93
<PAGE>
. for quarters five through eight, 3.75% per quarter; and
. for quarters nine through sixteen, 6.25% per quarter.
. for the last two quarters, 12.5% per quarter.
Optional Prepayments. We may voluntarily prepay any of the loans at any
time. Tranche A permits reborrowing on a revolving basis but amounts repaid
under Tranche B may not be reborrowed.
Mandatory Prepayments. We will also make mandatory prepayments under certain
circumstances, including among others:
. 50% of our excess annualized cash flow as computed under the senior
secured credit agreement, commencing on April 30, 2004 with respect to
the fiscal year ended December 31, 2003;
. any amount in excess of $1.0 million 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;
. 50% of the net proceeds of any equity issuance by us or any subsidiary
excluding the committed issuance of the convertible preferred stock or an
initial public offering and any offering to a borrower or a guarantor
party to the senior secured financing; and 100% of the net proceeds of a
debt issuance by us or any subsidiary excluding permitted debt.
All prepayments described above are applied to the outstanding loan balances
pro rata between Tranche A and Tranche B and pro rata across maturities.
Collateral
Our senior secured credit facility is secured by:
. a perfected first priority lien on substantially all of our current and
future assets, and the assets and stock of future 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.
We are obligated to grant to the administrative agent a first lien mortgage
on any material real property we acquire.
Conditions
We must meet certain conditions at the dates we obtain any borrowings
including:
. that there has been no default that is continuing;
. a reaffirmation of representations; and
. that there has not been a material adverse effect, as defined in the
senior secured credit agreement.
94
<PAGE>
Any drawing of borrowings under the senior secured credit agreement prior to
our receipt of gross proceeds of at least $70.0 million from an equity offering
must be placed into an escrow. We will not have access to funds while they are
in the escrow and such funds will serve as collateral to secure our obligations
under the senior secured credit agreement. Upon receipt of such gross proceeds
of at least $70.0 million, all funds in the escrow will, be released and be
available to us.
Negative Covenants
Other Debt. Other than purchase money debt not to exceed $10.0 million in
principal, iPCS Wireless, Inc. has agreed not to, nor to permit any of its
subsidiaries to, incur additional debt.
Organizational Issues and Capital Stock. We have agreed, with an exception
for mergers of subsidiaries of iPCS Wireless, Inc. into iPCS Wireless, Inc. or
its wholly owned subsidiaries, 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. iPCS Wireless, Inc. has agreed not to, nor to permit
any of its subsidiaries to, make any "restricted payments." Restricted payments
include the following:
. 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, or payments with respect to, 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 iPCS Wireless, Inc. from making
dividends to us to service scheduled cash interest payments on the senior
discount notes and to pay liquidated damages (up to a maximum of $500,000) upon
the occurrence of registration defaults under the registration rights
agreements applicable to the senior discount notes and accompanying warrants
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 senior
secured credit facility exists at the time of any such dividend or would result
from any such dividend. iPCS Wireless, Inc. may make payments under
subordinated guarantees consistent with the applicable subordination
provisions.
95
<PAGE>
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;
. any senior notes indenture or the senior discount notes; or
. any material contract.
Other Negative Covenants. We and the operating subsidiaries have agreed 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 fees payable by iPCS
Wireless, Inc. to us and fees paid by iPCS Equipment, Inc. to iPCS
Wireless, Inc.;
. 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 in connection with certain refinancings and
the prepayment of any senior notes;
. 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 which are set forth
below according to whether they are applicable prior to June 30, 2003 or
thereafter including:
Applicable until June 29, 2003:
. a maximum ratio of total debt to total capitalization at our level;
. a maximum ratio of senior debt to total capitalization of iPCS Wireless,
Inc. and its subsidiaries;
. minimum annualized EBITDA for iPCS Wireless, Inc. and its subsidiaries
for each quarter or maximum annualized EBITDA losses;
. maximum cumulative capital expenditures for iPCS Wireless, Inc. and its
subsidiaries not to exceed a specified amount;
. minimum quarterly revenue for iPCS Wireless, Inc. and its subsidiaries;
and
. minimum number of subscribers.
96
<PAGE>
Applicable as of and after June 30, 2003:
. a maximum ratio of total debt to annualized earnings before interest,
taxes, depreciation and amortization, referred to as EBITDA, for iPCS
Wireless, Inc. and its subsidiaries for each quarter;
. minimum quarterly interest coverage rates for iPCS Wireless, Inc. and its
subsidiaries which is the ratio of EBITDA to consolidated interest
expense;
. minimum quarterly fixed charge coverage ratio for iPCS Wireless, Inc. and
its subsidiaries, which is the ratio of EBITDA to consolidated fixed
charges;
. minimum ratio of senior funded indebtedness to annualized EBITDA for iPCS
Wireless, Inc. and its subsidiaries; and
. maximum ratio of annualized EBITDA to all principal payments and interest
scheduled to be made on indebtedness during the next twelve month period.
Had the senior secured credit facility been in place as of June 30, 2000, we
would have been in compliance with the covenants applicable as of such date. In
addition, we expect to be in compliance with the covenants in effect as of
September 30, 2000 under the senior secured credit facility and the indenture
governing the senior discount notes.
Events of Default
In addition to failing to perform, observe or comply with the covenants,
agreements and terms of the senior secured credit agreement, it is an event of
default under the senior secured credit agreement if any party with financial
responsibility for the loans, iPCS Wireless, 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 $1.0 million;
. a judgment against us of greater than $1.0 million 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 $1.0 million;
. a breach by us under the consent and agreement among Sprint, holders of
indebtedness under the senior secured credit facility and iPCS Wireless,
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 senior secured 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.
97
<PAGE>
A change in control will occur if:
. any person or group, other than our existing owners, acquires more
than 35% of our equity;
. our directors who were elected or approved by the owners as of the
date of the senior secured credit agreement, or any directors who are
approved by such directors, cease for any reason to constitute at
least a majority of our board of directors;
. we cease to own all of the capital stock of iPCS Wireless, Inc. or
any subsidiary of iPCS Wireless, Inc.; or
. the completion of any transactions that result in any person or group
owning more of our equity than our existing owners.
98
<PAGE>
MANAGEMENT
Directors, Executive Officers and Other Key Employees
The following table presents information with respect to our directors,
executive officers and other key employees.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Timothy M. Yager 30 President, Chief Executive Officer and
Director
Linda K. Wokoun 45 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. 61 Vice President, Strategic Planning and
Director
Leroy R. Horsman 56 Vice President, Sales & Marketing
Patricia M. Greteman 38 Controller
Alan C. Anderson 62 Chairman of the Board of Directors
Donald L. Bell 55 Director
Michael S. Chae 32 Director
Brian J. Gernant 42 Director
Lawrence H. Guffey 32 Director
Robert W. Schwartz 61 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. (and its predecessor) 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. (and its predecessor) 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 provider of enhanced
directory assistance and information services to the wireless
telecommunications industry. From June 1985 to August 1995, Mr. Chandor served
in various
99
<PAGE>
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. (and its predecessor) 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.
Leroy R. Horsman has been Vice President, Sales & Marketing of iPCS, Inc.
(and its predecessor) since April 2000. Mr. Horsman has more than twenty-five
years of experience in the commercial radio and wireless industries. From
August 1998 to April 2000, Mr. Horsman was Vice President of Sales for Emerald
Bay Systems, Inc. which was acquired by Decide.com. From May 1995 to August
1998, Mr. Horsman served as Regional Sales Manager for Andrew Corporation. From
1993 to 1995, Mr. Horsman developed a consulting practice and was involved in
the early stages of application development, new product development, and
network implementation projects for SMR networks, location systems, and other
non-voice wireless applications. From 1988 to 1993, Mr. Horsman held a position
with Cellular Data, Inc., in Palo Alto, California, a start-up wireless packet
data technology company. From 1986 to 1988, Mr. Horsman served as the Director
of Sales and Marketing for Southwestern Bell Mobile Systems in Dallas/Fort
Worth, Texas. In 1981, Mr. Horsman joined NEC where he was instrumental in the
deployment of early digital paging systems and cellular phones. From 1973 to
1981, Mr. Horsman worked at Motorola C&E in Dallas, Texas.
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.
100
<PAGE>
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 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.
Michael S. Chae has served as a Director of iPCS, Inc. since August 2000.
Mr. Chae also serves as a Principal of the Blackstone Group in its Principal
Investment Group. Since joining Blackstone in 1997, Mr. Chae has worked on many
of Blackstone's principal investments, including Centennial Communications,
PaeTec Communications, U.O.L., and American Axle & Manufacturing. Prior to
joining Blackstone, Mr. Chae worked as an Associate at the Carlyle Group, L.P.,
a Washington, D.C. based private equity investment firm, and prior to that was
an Analyst at Dillon, Read & Co.
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 exchange offer.
Lawrence H. Guffey has served as a Director of iPCS, Inc. since August 2000.
Mr. Guffey also serves as a Senior Managing Director of the Blackstone Group in
its Principal Investment Group
101
<PAGE>
with responsibility for the day-to-day management of the investment activities
of Blackstone Communications Partners I L.P. Since joining Blackstone in 1991,
Mr. Guffey has worked on virtually all of Blackstone's communications-related
principal investments, including Bresnan Communications, Centennial
Communications, CommNet Cellular, Enterprise Software, Iusacell, LiveWire,
PaeTec Communications, TW Fanch-one and -two, U.O.L., and USRadio. Mr. Guffey
also has experience in the firm's real estate investing area, working on the
Westridge Court and Savers Savings investments. His advisory experience
includes PaineWebber's acquisition of Kidder Peabody, the sale of certain
assets of Digital Equipment Corporation and several other transactions in the
communications, media, and technology sectors. Mr. Guffey currently serves as a
Director of Centennial Communications, FiberNet, L.L.C., and Enterprise
Software, Inc., a LiveWire media company. Prior to joining Blackstone in 1991,
Mr. Guffey was a financial analyst with Trammell Crow Ventures, a real estate
principal investing firm.
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.
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. Pursuant to the
provisions of the certificate of designations for the convertible preferred
stock, the holders of the convertible preferred stock have the right to elect
two individuals. See "Description of Capital Stock--Convertible Preferred
Stock." If our outstanding convertible preferred stock is converted into common
stock, Blackstone, instead of the holders of the convertible preferred stock,
will be entitled to designate the two individuals for election to the board of
directors as long as Blackstone beneficially owns 8% or more of our outstanding
common stock and one individual as long as Blackstone owns less than 8% but
more than 4% of our outstanding common stock. See "Certain Relationships and
Related
102
<PAGE>
Transactions--Stockholders Agreement." The board of directors is divided into
three classes. Brian J. Gernant, Robert W. Schwartz and George Patrick Tays
constitute Class I and will stand for election at the annual meeting of
stockholders to be held in 2001. Alan C. Anderson, William W. King, Jr., and
Michael S. Chae constitute Class II and will stand for election at the annual
meeting of stockholders to be held in 2002. Donald L. Bell, Timothy M. Yager
and Lawrence H. Guffey constitute Class III and will stand for election at the
annual meeting of stockholders to be held in 2003. After their initial term,
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 Messrs. Gernant, Schwartz and Tays. The
compensation committee consists of Messrs. Bell and Gernant.
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 amended and restated 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.
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.
103
<PAGE>
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 six months ended June 30, 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. Non-employee
directors will be paid $1,000 and
reimbursed for their expenses for attendance at board meetings and paid $500
for telephonic board meetings. Each non-employee director has been granted
stock options to purchase 15,000 shares of our common stock at $5.50 per share,
the price at which we sold our convertible preferred stock. 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.
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
performance based and other bonuses, 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, payment of limited country club
dues and assessments and a company-paid term life insurance policy. We have
granted Mr. Yager a total of 500,000 stock options under
104
<PAGE>
our 2000 Long Term Incentive Stock Plan at an exercise price of $5.50 per
share, the price per share at which the convertible preferred stock was sold.
The details regarding these options are discussed in the next section. Based
upon the expected offering price of a planned initial public offering, we will
recognize compensation expense of approximately $2,650,000 over the vesting
period of the options.
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, 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 or within 60 days after
we relocate our business outside of the Chicago metropolitan area, he will be
entitled to continuing payments of his salary through the first anniversary of
his termination, continuation of health benefits for him and his dependents for
the same period, a lump sum payment of his target incentive bonus and continued
vesting of his stock options during the severance period. 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, continuation of his health benefits (for him and his
dependents) at the employee rate for a period of two years following his
termination and immediate vesting of his unvested stock options. 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.
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.
105
<PAGE>
We have entered into an employment agreement with Linda K. Wokoun, our
Executive Vice President, Chief Operating Officer, which agreement is
substantially the same as Mr. Yager's agreement except for the compensation
package (including options and bonus opportunities), job duties and the
duration (12 months) of post-termination health benefits in the event of a
covered termination. Ms. Wokoun's annual base salary is $200,000 and we have
granted her a total of 300,000 stock options which have an exercise price of
$5.50 per share.
We have entered into an employment agreement with Stebbins B. Chandor, Jr.,
our Senior Vice President, Chief Financial Officer, which agreement is
substantially the same as Ms. Wokoun's agreement except for the compensation
package (including options and bonus opportunities) and job duties. Mr.
Chandor's annual base salary is $175,000 and we have granted him a total of
250,000 stock options which have an exercise price of $5.50 per share.
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 Ms. Wokoun's agreement except for the compensation
package (including options and bonus opportunities) and job duties. Mr. King's
annual base salary is $150,000 and we have granted him a total of 150,000 stock
options which have an exercise price of $5.50 per share.
We have also entered into employment agreements with Messrs. Muscato and
Horsman and Ms. Greteman. These agreements are substantially the same as the
agreements with Ms. Wokoun except for the compensation package (including
options and bonus opportunities) and job duties. In addition, Ms. Greteman's
agreement provides for the payment of severance benefits in the event that Ms.
Greteman terminates employment because her job duties are required to be
performed more than 50 miles from Geneseo, Illinois. We have granted an
aggregate of 1,558,750 stock options which have
an exercise price of $5.50 per share under these agreements. Based upon the
expected offering price of a planned initial public offering, we will recognize
total aggregate compensation expense of approximately $8,260,000 over the
vesting period of the options.
2000 Long Term Incentive Stock Plan
As of July 11, 2000, the board of directors adopted and the stockholders
have approved, the amended and restated 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 6,500,000 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
106
<PAGE>
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. The compensation committee has determined that
options awarded pursuant to the terms of the employment agreements entered into
in connection with the reorganization shall be incentive stock options to the
extent possible. Incentive stock options are intended to satisfy the
requirements of Section 422 of the Internal 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:
. the fair market value of a share of common stock on the date on which the
option or stock appreciation right is granted and
. 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.
107
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of common stock as of September 30, 2000 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
Shares Beneficially Percentage of
Name and Address (1) Owned (2) Ownership
<S> <C> <C>
Geneseo Communications, Inc................... 15,468,809 28.7%
111 E. 1st Street
Geneseo, Illinois 61254
Cambridge Telcom, Inc......................... 13,258,979 24.6
111 E. 1st Street
Geneseo, Illinois 61254
The Blackstone Group.......................... 7,272,727 13.5
345 Park Avenue
New York, New York 10154 (3)
Cass Communications Management, Inc........... 4,419,660 8.2
100 Redbud Road
Virginia, Illinois 62691
Technology Group, LLC......................... 4,419,660 8.2
118 E. State Street
Hamel, Illinois 62046
Montrose Mutual PCS, Inc...................... 4,419,660 8.2
102 N. Main Street
Dieterich, Illinois 62424
Respond Communications, Inc. ................. 4,419,660 8.2
102 N. Main Street
Dieterich, Illinois 62424 (4)
Timothy M. Yager (5).......................... 891,794 1.6
William W. King, Jr. (6)...................... 65,625 *
Alan C. Anderson (7).......................... 28,728,726 53.2
Donald L. Bell (8)............................ 4,420,598 8.2
Michael S. Chae(9)............................ 7,272,727 13.5
Brian J. Gernant (10)......................... 938 *
Gerald S. Gill II (11)........................ 4,419,660 8.2
Lawrence H. Guffey(9)......................... 7,272,727 13.5
Robert W. Schwartz (12)....................... 4,420,598 8.2
George Patrick Tays (13)...................... 4,420,598 8.2
All executive officers and directors
as a group (12 persons)(14)................... 50,545,043 93.1
</TABLE>
---------------------
*Less than one percent.
108
<PAGE>
(1) Except as otherwise indicated below, the address for each executive officer
and director is 1900 East Golf Road, Suite 900, Schaumburg, Illinois 60173.
(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) Of the 7,272,727 shares, 3,363,636 are held by Blackstone Communications
Partners I L.P. ("BCOM"), 2,893,282 are held by Blackstone iPCS Capital
Partners L.P. ("BICP") and 1,015,809 are held by Blackstone/iPCS L.L.C.
("BLLC"). Blackstone Communications Management Associates I L.L.C. is the
general partner of BCOM. Blackstone Media Management Associates III L.L.C.
is the general partner of BICP. Blackstone Media Management Associates III
L.L.C. is the manager of BLLC. Messrs. Peter G. Peterson and Stephen A.
Schwarzman are the founding members of Blackstone, and as such may also be
deemed to share beneficial ownership of the shares held by each of these
entities.
(4) 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.
(5) Consists of 673,045 shares held individually by Mr. Yager and 218,750
shares issuable pursuant to options exercisable within 60 days.
(6) Consists of shares issuable pursuant to options exercisable within 60 days.
(7) Consists of 28,727,788 shares beneficially owned by Geneseo Communications,
Inc. and Cambridge Telcom, Inc. and 938 shares issuable pursuant to options
exercisable within 60 days. 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.
(8) Consists of 4,419,660 shares beneficially owned by Cass Communications
Management, Inc. and 938 shares issuable pursuant to options exercisable
within 60 days. 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 Management, Inc.
(9) Mr. Chae and Mr. Guffey do not own any shares of record. BCOM, BICP and
BLLC, affiliates of Mr. Chae and Mr. Guffey, own all of the shares held by
Blackstone. Mr. Chae and Mr. Guffey disclaim beneficial ownership of such
shares.
(10) Consists of shares issuable pursuant to options exercisable within 60
days.
(11) Consists of shares beneficially owned by Cass Communications Management,
Inc. Mr. Gill is the beneficial owner of a majority of the outstanding
shares of Cass Communications Management, Inc. Mr. Gill disclaims
beneficial ownership of certain shares owned by Cass Communications
Management, Inc. attributable to the shares of Cass Communications
Management, Inc. which are held in trusts for the benefit of members of
Mr. Gill's family. The address for Mr. Gill is the same as the address for
Cass Communications Management, Inc.
(12) Consists of 4,419,660 shares beneficially owned by Technology Group, LLC
and 938 shares issuable pursuant to options exercisable within 60 days.
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.
(13) Consists of 4,419,660 shares beneficially owned by Montrose Mutual PCS,
Inc. and 938 shares issuable pursuant to options exercisable within 60
days. 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.
(14) Consists of 328,128 shares issuable pursuant to options exercisable within
60 days and 50,216,915 shares beneficially owned by all executive officers
and directors as a group.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Formation of Illinois PCS, LLC
Geneseo Communications, Inc., Cambridge Telcom, Inc., Cass Communications
Management, 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
109
<PAGE>
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 six-months ended June 30, 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."
The members have contributed 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 have
been eliminated as of July 12, 2000 when we consummated the reorganization from
a limited liability company to a holding company structure.
Issuance of Convertible Participating Preferred Stock
An investor group led by Blackstone has purchased $50.0 million and
committed to purchase an additional $70.0 million of our convertible preferred
stock. As of July 12, 2000, we have issued 9,090,909 shares of our Series A-1
Convertible Participating Preferred Stock at a purchase price of $5.50 per
share to the investor group. The issuance of our Series A-1 Preferred Stock has
yielded gross proceeds to us of $50.0 million. In the event that we do not
complete an initial public offering of our common stock yielding gross proceeds
of $30.0 million or more prior to December 31, 2000, and subject to the
conditions described below, the investor group will also purchase, and we will
issue, 14,000,000 shares of a new issue of preferred stock, to be designated
our Series A-2 Convertible Participating Preferred Stock, at a purchase price
of $5.00 per share. This future issuance of Series A-2 Preferred Stock, if it
occurs, would yield gross proceeds to us of an additional $70.0 million. For
more information relating to the terms of the Series A-1 Preferred Stock and
the Series A-2 Preferred Stock, see "Description of Capital Stock." The
consummation of this offering will eliminate our obligation to sell, and the
investor group's obligation to purchase, the additional $70.0 million of
convertible preferred stock.
Investment Agreement
In the preferred stock investment agreement between us and the investor
group, we agreed to refrain from taking certain actions with respect to our
business, our capital stock and other aspects of our operations without the
prior approval of Blackstone. These actions include:
. the declaration or payment of dividends or distributions;
. the issuance of notes or debt securities containing equity features prior
to December 31, 2000, or the issuance of any equity securities which
would be senior to, or on parity with, the preferred stock;
. the making of investments in third parties;
. the incurrence of any additional indebtedness in excess of $10.0 million;
or
. the issuance or sale of any shares of our or our subsidiaries' capital
stock prior to December 31, 2000, other than in a public offering of our
common stock, pursuant to an employee benefit plan or in connection with
a merger or acquisition.
110
<PAGE>
The approval rights of Blackstone and most of their other rights relating to
their ownership of our capital stock will terminate upon the earlier to occur
of:
. the closing of an underwritten public offering of our common stock in
which we receive aggregate gross proceeds of at least $50.0 million and
in which the per share price in the offering is at least $11.00 per
share, subject to adjustment; and
. our consummation of a transaction that results in a change of control.
The obligation of the investor group to purchase the Series A-2 Preferred
Stock is conditioned upon our:
. not having consummated an initial public offering of our common stock
yielding gross proceeds of at least $30.0 million prior to December 31,
2000;
. representations and warranties in the investment agreement being true and
correct in all material respects (including our representation that there
has been no event, condition or change that individually or in the
aggregate has had or could reasonably be expected to have a material
adverse effect on the assets, business, properties, liabilities,
condition (financial or otherwise), results of operations or prospects of
us and our subsidiaries taken as a whole);
. material performance of our obligations in the investment agreement; and
. delivery of customary legal opinions, closing certificates and other
related closing materials.
Stockholders Agreement
In connection with the purchase and sale of our Series A-1 Preferred Stock,
we have entered into a stockholders agreement with the investor group, Geneseo
Communications, Inc. and Cambridge Telcom, Inc. which provides:
. limitations on the transfer of any of our securities by each of Geneseo
and Cambridge for a period of six months after the expiration of any
lock-up period required by our underwriter in an initial public offering;
. tag-along rights in favor of the investor group allowing it to
participate in sales of our capital stock by Geneseo or Cambridge;
. until an initial public offering or a change of control transaction,
drag-along rights in favor of Geneseo and Cambridge requiring the
investor group to sell all of our capital stock owned by it;
. the right of Blackstone to designate up to two members of our Board of
Directors;
. preemptive rights granting the investor group the right to subscribe for
and purchase upon the same terms and conditions, a portion of any equity
securities we issue prior to an initial public offering of our common
stock that yields gross proceeds to us of at least $30.0 million;
. the right of the investor group to request that we use our best efforts
to complete an initial public offering of our common stock if we have not
done so prior to July 12, 2002;
111
<PAGE>
. the right of the investor group to approve any merger, consolidation,
sale of assets or other business combination transaction or issuance of
securities that would have adverse tax consequences to the holders of the
Series A-1 Preferred Stock; and
. if we have not completed one or more public offerings of our common stock
resulting in gross proceeds of $50 million or consummated a business
combination transaction with a publicly traded company with a market
capitalization in excess of $200 million and a public float valued in
excess of $50 million prior to July 12, 2005, the investor group has the
right to request that we either repurchase its capital stock at fair
market value or, if we fail to repurchase their capital stock, force a
sale of our company.
Registration Rights Agreement
We have granted to the holders of our Series A-1 Preferred Stock and, if
issued, holders of our Series A-2 Preferred Stock, the following registration
rights, exercisable at any time after an initial public offering of our common
stock:
. demand registration rights that entitle Blackstone to require us to
register, under the Securities Act, on up to three occasions and at our
expense, the resale of the investor group's shares of common stock; and
. piggyback registration rights that entitle the investor group to require
us to include their shares of common stock in a registration of any of
our equity securities, other than pursuant to the registration of the
warrants comprising part of the units or the warrants issued to Sprint
PCS.
These registration rights extend to all of the common stock that the
investor group may acquire upon the conversion of their Series A-1 Preferred
Stock and, if applicable, their Series A-2 Preferred Stock. These registration
rights are subject to the underwriters' right to limit the number of shares
included in any underwritten offering.
112
<PAGE>
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 requirements for licensee control of licensed spectrum.
If the FCC were to determine that the Sprint
113
<PAGE>
PCS agreements need to be modified to increase the level of licensee control,
we have agreed with Sprint PCS to use our best efforts to modify the agreements
as necessary to cause the agreements to comply with applicable law and to
preserve to the extent possible the economic arrangements set forth in the
agreements. If the agreements cannot be modified, the agreements may be
terminated pursuant to their terms. In addition to revoking the licenses, the
FCC could also impose monetary penalties on us.
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:
. provided "substantial service" during its license term; and
. 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.
114
<PAGE>
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 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. 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 intend to join with Sprint PCS to request an extension
of time for compliance with these requirements. 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. The FCC also requires that
aggregate radio wave emissions from every site location meet
115
<PAGE>
certain standards. Although we believe that our existing networks meet these
standards, a site audit may reveal the need to reduce or modify emissions at
one or more sites. This would increase our costs and have a material adverse
affect on our operations. In addition, these regulations will also affect site
selection for new network build-outs and may increase the costs of building out
our network. The increased costs and delays from these regulations may have a
material adverse affect on our operations. In addition, certain FCC
environmental regulations may cause certain cell site locations to 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 and is
approximately 5.5% for the third quarter of 2000. 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.
116
<PAGE>
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.
117
<PAGE>
DESCRIPTION OF THE REGISTERED NOTES
You can find the definitions of many of the terms used in this description
under the subheading "Certain Definitions." In this description, the words
"iPCS" and "we" refer only to iPCS, Inc. and not to any of its subsidiaries.
We will issue the registered notes ("Notes") under an Indenture (the
"Indenture") among itself, the Guarantors and BNY Midwest Trust Company,
formerly known as CTC Illinois Trust Company, as Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act"). The Indenture will be qualified as an indenture under the Trust
Indenture Act.
The following description is a summary of the material provisions of the
Indenture. We urge you to read the Indenture because it, and not this
description, defines your rights as a holder of these Notes. We have filed a
copy of the Indenture as an exhibit to the registration statement which
includes this prospectus.
Brief Description of the Notes and the Guarantees
The Notes
The Notes:
. are senior unsecured obligations of iPCS;
. are equal in right of payment to all existing and future Senior Debt of
iPCS;
. are senior in right of payment to all existing and future subordinated
Indebtedness of iPCS; and
. are unconditionally guaranteed on a senior subordinated unsecured basis
by the Guarantors.
The Notes will be effectively subordinated to all liabilities of iPCS'
Subsidiaries. iPCS conducts all of its operations through its Subsidiaries.
Accordingly, iPCS' ability to meet its cash obligations, including the
obligation to make payments on the Notes, is dependent upon the earnings of its
Subsidiaries and the ability of its Subsidiaries to make cash distributions to
it as dividends, loans or other distributions. Certain laws restrict the
ability of iPCS' Subsidiaries to pay dividends to it. In addition, the Credit
Facilities of iPCS and its Subsidiaries may place restrictions on the ability
of the Subsidiaries to make distributions to iPCS. Furthermore, any right of
iPCS to receive the assets of any Subsidiary upon such Subsidiary's liquidation
or reorganization (and the consequent right of the holders of the Notes to
participate in the distribution of the proceeds of those assets) effectively
will be subordinated by operation of law to the claims of such Subsidiary's
creditors (including lenders and trade creditors), except to the extent that
iPCS is itself recognized as a creditor of such subsidiary, in which case the
claims of iPCS would still be subordinated to any Indebtedness of such
Subsidiary senior in right of payment to that held by iPCS.
The Guarantees
The Notes will be guaranteed by all of our existing and future Restricted
Subsidiaries other than Foreign Subsidiaries.
The Guarantees of these Notes:
. are general unsecured obligations of each Guarantor;
. are subordinated in right of payment to all existing and future Senior
Debt of each Guarantor;
118
<PAGE>
. are equal in right of payment with any future senior subordinated
Indebtedness of each Guarantor; and
. are senior in right of payment to any future subordinated Indebtedness of
each Guarantor.
As of the date of the Indenture, iPCS had two Subsidiaries, iPCS Wireless,
Inc. and iPCS Equipment, Inc., both of which are "Restricted Subsidiaries."
However, under the circumstances described below under the subheading "Selected
Covenants--Designation of Restricted and Unrestricted Subsidiaries," we will be
permitted to designate Subsidiaries meeting particular requirements as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the Indenture. Unrestricted Subsidiaries
and Foreign Subsidiaries will not guarantee the Notes.
The Guarantors have other liabilities, including contingent liabilities,
that are significant. As of the date of the issuance of the Notes, iPCS does
not have any Subsidiaries that are not Guarantors. The Indenture limits the
amount of additional Indebtedness that iPCS and its Restricted Subsidiaries may
incur. However, these amounts could be substantial.
The Guarantees will be released upon the circumstances described under the
caption "--Guarantees."
Principal, Maturity and Interest
The Notes are senior, unsecured, general obligations of iPCS, limited in
aggregate principal amount to $300.0 million. The Indenture provides, in
addition to the $300.0 million aggregate principal amount of Notes being issued
on the Issue Date, for the issuance of additional Notes having
identical terms and conditions to the Notes offered hereby, subject to
compliance with the covenant described under the caption "Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock." Any such
additional Notes will be issued on the same terms and will constitute part of
the same series of securities as the Notes issued on the Issue Date and will
vote together as one series on all matters with respect to the Notes issued on
the Issue Date.
The Notes issued on the Issue Date were issued at a discount to their
aggregate principal amount and generated gross proceeds to iPCS of
approximately $152.3 million, and will accrete in value at a rate of 14% per
annum, compounded semi-annually, to a final Accreted Value of $300.0 million at
July 15, 2005. The Notes will mature on July 15, 2010.
Cash interest will not accrue or be paid on the Notes prior to January 15,
2006, and starting on that date will accrue at a rate of 14% per annum, payable
semi-annually in arrears on January 15 and July 15 of each year, commencing
January 15, 2006 (each an "Interest Payment Date") to holders of record of such
Notes at the close of business on the January 1 and July 1 next preceding the
Interest Payment Date (each a "Regular Record Date"). Cash interest will accrue
from the most recent Interest Payment Date to which interest has been paid or
duly provided for or, if no interest has been paid or duly provided for, from
January 15, 2006. Cash interest will be computed on a basis of a 360-day year
of twelve 30-day months. Accretion of original issue discount will be computed
on a basis of a 360-day year of twelve 30-day months.
119
<PAGE>
The Notes were issued at a substantial discount from the aggregate stated
principal amount thereof. For federal income tax purposes, significant amounts
of original issue discount, taxable as ordinary income, will be recognized by
holders of the Notes annually as long as they hold the Notes, including in
advance of the receipt of cash interest payments thereon. See "Certain United
States Federal Income Tax Consequences."
The Notes are not subject to any sinking fund.
The principal of, premium, if any, and interest on the Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of iPCS in the City of New York maintained for such purposes, which
initially will be the office of the Trustee located at One Wall Street, New
York, New York. The Notes were issued only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange or
redemption of Notes, but we may require payment in certain circumstances of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
Methods of Receiving Payments on the Notes
If a holder of Notes has given wire transfer instructions to us, we will
make all principal, premium and interest payments on those Notes in accordance
with those instructions. All other payments on these Notes will be made at the
office or agency of the Paying Agent and Registrar within the City and State of
New York unless we elect to make interest payments by check mailed to the
holders of Notes at their address set forth in the register of holders.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. We may change
the Paying Agent or Registrar without prior notice to the holders of the Notes,
and we or any of our Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A holder of Notes may transfer or exchange such notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and we may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. We are not required to transfer or exchange any Note selected for
redemption. Also, we are not required to transfer or exchange any Note for a
period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
Guarantees
The Guarantors have jointly and severally guaranteed our obligations on a
senior subordinated unsecured basis under the terms of the Guarantees.
120
<PAGE>
The obligations of each Guarantor under its Guarantee is limited as
necessary to prevent that Guarantee from constituting a fraudulent conveyance
under applicable law. Nonetheless, under certain circumstances, "fraudulent
conveyance" laws or other similar laws could invalidate the Guarantees, in
which case iPCS would be unable to use the earnings of the Guarantors to
service its debt to the extent they face restrictions on distributing funds to
iPCS. See "Risk Factors--Risks Related to the Notes--Because federal and state
statutes may allow courts to void the guarantees of the registered notes, you
may not have the right to receive any money pursuant to the guarantees."
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets to, or consolidate with or merge with or into another Person (other
than iPCS or another Guarantor), whether or not such Guarantor is the surviving
Person, unless:
. immediately after giving effect to that transaction, no Default or Event
of Default exists; and
. either:
. the Person acquiring the assets in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
assumes all the obligations of that Guarantor under the Indenture,
its Guarantee and the Registration Rights Agreement pursuant to a
supplemental indenture reasonably satisfactory to the Trustee; or
. the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture (it being
understood that in the event that such Net Proceeds are not so
applied, iPCS will be permitted and required to make an Asset Sale
Offer with any Excess Proceeds in satisfaction of this condition).
The Guarantee of a Guarantor will be released:
. if we designate the Guarantor as an Unrestricted Subsidiary;
. in connection with any sale of all of the capital stock of a Guarantor;
or
. in connection with any sale or other disposition of all or substantially
all of the assets of that Guarantor, including by way of merger or
consolidation, provided, however that in the event of such a transaction,
iPCS still has the obligation to apply the Net Proceeds as set forth in
the Asset Sale covenant.
Notwithstanding anything herein or in the Indenture to the contrary, if any
Restricted Subsidiary of iPCS that is not a Guarantor guarantees any other
Indebtedness of iPCS or any Subsidiary of iPCS, or iPCS or a Restricted
Subsidiary of iPCS, individually or collectively, pledges more than 65% of the
Voting Stock of such Subsidiary to a United States lender, then such Restricted
Subsidiary must become a Guarantor.
See "--Selected Covenants--Asset Sales."
Subordination of Guarantees
The obligations of each Guarantor under its respective Guarantee are
subordinated to all existing and future Senior Debt of such Guarantor,
including Indebtedness under the Senior Financing. As of June 30, 2000, after
giving effect to iPCS' reorganization, issuance of $50.0 million of our Series
A-1 Preferred Stock, closing of the Senior Financing (this amount does not
include
121
<PAGE>
$140.0 million of commitment which cannot in fact begin to be borrowed until
certain conditions are met, including the contribution of additional equity),
closing of the Michigan asset purchase, issuance of the Notes and the
application of the net proceeds therefrom, the Guarantors and no other
Indebtedness Outstanding.
Upon any distribution to creditors of any Guarantor in a liquidation or
dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Guarantor or its property,
an assignment for the benefit of creditors or any marshaling of such
Guarantor's assets and liabilities, the holders of Senior Debt of such
Guarantor will be entitled to receive payment in full of all Obligations due in
respect of such Senior Debt, including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt, in cash or
Cash Equivalents before the holders of the Notes will be entitled to receive
any payment with respect to the Guarantee Obligations of such Guarantor, and
until all Obligations with respect to Senior Debt of such Guarantor are paid in
full, any distribution to which the holders of the Notes would be entitled with
respect to the Guarantee Obligations of such Guarantor shall be made to the
holders of Senior Debt of such Guarantor, except that holders of the Notes may
receive and retain Permitted Junior Securities.
No Guarantor may make any payment upon or in respect of its Guarantee
Obligations, except in Permitted Junior Securities of such Guarantor if (a) a
default in the payment of the principal of, or premium, if any, or interest on,
Designated Senior Debt of such Guarantor occurs and is continuing beyond any
applicable period of grace or (b) any other default occurs and is continuing
with respect to such Designated Senior Debt that permits holders of such
Designated Senior Debt as to which such default relates to accelerate its
maturity and such Guarantor and the Trustee receive written notice of such
default (a "Payment Blockage Notice") from a majority of the holders, or from
the trustee, agent or other representative (the "Representative") of the
holders, of any such Designated Senior Debt. Payments on the Guarantee of any
such Guarantor may and shall be resumed, including the payment of any amounts
previously blocked by such Payment Blockage Notice (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in the
case of a nonpayment default, 179 days after the date on which the applicable
Payment Blockage Notice is received or such earlier date on which the
applicable Payment Blockage Notice is earlier terminated (i) by written notice
to the Trustee and such Guarantor from such Representative or the majority of
the holders of such Designated Senior Debt, (ii) because such default is no
longer continuing or (iii) because such Designated Senior Debt has been repaid
in full. No new period of payment blockage may be commenced unless and until
360 days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been waived or cured for a period of not less than 90 days.
No provision contained in the Indenture or the Notes will affect the
obligation of the Guarantors, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the Notes. The
subordination provisions of the Indenture and the Notes will not prevent the
occurrence of a default under any Guarantee or limit the right of the Trustee
or any holder of Notes to make a demand for payment on any Guarantee pursuant
to the Indenture or the relevant Guarantee.
122
<PAGE>
The Indenture further requires that iPCS promptly notify holders of
Designated Senior Debt if payment of the Notes is accelerated because of an
Event of Default. As a result of the subordination provisions described above,
in the event of a liquidation or insolvency, holders of the Notes may recover
less ratably than creditors of each Guarantor who are holders of Senior Debt of
each such Guarantor.
Optional Redemption
During the first 36 months after the Issue Date, iPCS may on any one or more
occasions redeem up to 35% of the Accreted Value of the Notes issued on the
Issue Date at a redemption price of 114% of the Accreted Value thereof, with
the net cash proceeds of one or more Equity Offerings (excluding the first
$70.0 million in cash proceeds received by iPCS from the issuance of Equity
Interests after the Issue Date); provided that
. at least 65% of the Accreted Value of Notes issued on the Issue Date
remains outstanding immediately after the occurrence of such redemption,
excluding Notes held by iPCS and its Subsidiaries; and
. the redemption must occur within 90 days of the date of the closing of
such Equity Offering upon not less than 30 nor more than 60 days' prior
notice.
Except pursuant to the preceding paragraph, the Notes will not be redeemable
at iPCS' option prior to July 15, 2005.
On or after July 15, 2005, iPCS may redeem all or a part of the Notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices,
expressed as percentages of principal amount at maturity thereof, set forth
below plus accrued and unpaid interest and Liquidated Damages, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on July 15 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2005........................................................... 107.000%
2006........................................................... 104.667%
2007........................................................... 102.333%
2008 and thereafter............................................ 100.000%
</TABLE>
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of Notes has the right to require
iPCS to repurchase all or any part, equal to $1,000 or an integral multiple
thereof, of that holder's Notes pursuant to a Change of Control Offer, as
defined below. In the Change of Control Offer, iPCS will offer a Change of
Control Payment in cash equal to 101% of the Accreted Value of Notes
repurchased on any purchase date prior to July 15, 2005 or 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase if on or after July 15,
2005.
123
<PAGE>
Within 30 days following any Change of Control, iPCS will mail a notice to
each holder of Notes stating:
. that a Change of Control has occurred and offering to repurchase the
Notes (a "Change of Control Offer");
. the Change of Control Payment and the purchase date, which shall be,
subject to any contrary requirements of applicable law, a business day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed;
. the circumstances and relevant facts regarding the Change of Control
(including, if and to the extent material and reasonably available,
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to the transaction giving rise to a
Change of Control); and
. the procedures that holders of Notes must follow in order to tender their
Notes (or portions thereof) for payment, and the procedures that holders
of Notes must follow in order to withdraw an election to tender the Notes
(or portions thereof) for payment.
iPCS will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes as a result of a Change of Control. To the extent that the provisions of
any securities laws or regulations conflict with the Change of Control
provisions of the Indenture, iPCS will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
under the Change of Control provisions of the Indenture by virtue of such
conflict.
In the event of a Change of Control, on the Change of Control Payment Date,
iPCS will, to the extent lawful:
. accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
. deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered; and
. deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the Accreted Value or
aggregate principal amount, as applicable, of Notes or portions thereof
being purchased by iPCS.
The Paying Agent will promptly mail to each holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail or cause to be transferred by book entry to each holder a
new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
The provisions described above that require iPCS to make a Change of Control
Offer following a Change of Control are applicable regardless of whether or not
any other provisions of the Indenture are applicable. Except as described above
with respect to a Change of Control, the Indenture does not contain provisions
that permit the holders of the Notes to require that iPCS repurchase or redeem
the Notes in the event of a takeover, recapitalization or similar transaction.
In addition, the definition of "Change of Control" in the Indenture excludes
certain transactions that may be considered a change of control in other
indentures.
124
<PAGE>
The Guarantors' outstanding Senior Debt currently prohibits iPCS from
purchasing any Notes, and also provides that certain change of control events
with respect to iPCS would constitute a default under the agreements governing
the Senior Debt. Any future credit agreements or other agreements relating to
Senior Debt to which iPCS or a Guarantor becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when iPCS is prohibited from purchasing Notes, iPCS and the Guarantors could
seek the consent of their senior lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such prohibition. If iPCS and
the Guarantors do not obtain such a consent or repay such borrowings, iPCS will
remain prohibited from purchasing Notes. In such case, iPCS's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, likely constitute a default under the Senior
Debt. In such circumstances, the provisions in the documents governing the
Senior Debt would likely restrict payments to the holders of Notes. Prior to
complying with any of the provisions of this "Change of Control" covenant, but
in any event within 90 days following a Change of Control, iPCS will, or will
cause its Guarantors to, either repay all outstanding Senior Debt or obtain the
requisite consents, if any are required, under all agreements governing
outstanding Senior Debt to permit the repurchase of Notes required by this
covenant. iPCS will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
iPCS will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer required to be made by iPCS
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of iPCS and its Subsidiaries taken as a whole. Although there is
a limited body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of Notes to require iPCS to repurchase
such Notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of iPCS and its Subsidiaries taken
as a whole to another Person or group is uncertain. In such a case, holders of
the Notes may not be able to resolve this uncertainty without resorting to
legal action.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption as follows:
. if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or
. if the Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.
No Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each holder of Notes to be redeemed at its
registered address.
125
<PAGE>
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount at maturity equal to the unredeemed
portion of the original Note will be issued in the name of the holder thereof
upon cancellation of the original Note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
Selected Covenants
Asset Sales
iPCS and the Guarantors will not, and will not permit any of their
Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) iPCS, the Guarantor, or the Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least equal to
the fair market value of the assets sold, leased, conveyed or otherwise
disposed of or of the Equity Interests issued or sold;
(2) such fair market value is determined by iPCS's Board of Directors
and evidenced by a resolution of the Board of Directors, which resolution
shall, in the case of an Asset Sale with a fair market value of greater
than $10.0 million, be set forth in an Officers' Certificate delivered to
the Trustee; and
(3) (A) at least 75% of the consideration therefor received by iPCS, the
Guarantor or such Restricted Subsidiary is in the form of cash or Cash
Equivalents or (B) the Asset Sale qualifies as a Permitted
Telecommunications Exchange Transaction. For purposes of this provision,
each of the following shall be deemed to be cash:
(a) any liabilities, as shown on iPCS', such Guarantor's or such
Restricted Subsidiary's most recent balance sheet, of iPCS, any
Guarantor or any Restricted Subsidiary, other than contingent
liabilities and liabilities that are by their terms subordinated to the
Notes or any Guarantee, that are assumed by the transferee of any such
assets or Equity Interests pursuant to a customary novation agreement
that releases iPCS, such Guarantor or such Restricted Subsidiary from
further liability; and
(b) any securities, Notes or other obligations received by iPCS, any
such Guarantor or any such Restricted Subsidiary from such transferee
that are converted by iPCS, such Guarantor or such Restricted
Subsidiary into cash within 60 days following the closing, to the
extent of the cash received in that conversion.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
iPCS or any Restricted Subsidiary may apply such Net Proceeds at its option:
(1) to repay Senior Debt;
(2) to acquire a majority of the Voting Stock of another Permitted
Business which becomes part of, or which is or becomes, a Restricted
Subsidiary;
(3) to make one or more capital expenditures in assets that are used or
useful in a Permitted Business; or
(4) to acquire other assets that are used or useful in a Permitted
Business.
126
<PAGE>
Pending the final application of any such Net Proceeds, iPCS may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10.0 million, iPCS will make an
Asset Sale Offer to all holders of Notes and all holders of other Indebtedness
that is equal in right of payment with the Notes containing provisions similar
to those set forth in the Indenture with respect to offers to purchase or
redeem with the proceeds of sales of assets to purchase the maximum Accreted
Value or principal amount at maturity of Notes and such other Indebtedness that
is equal in right of payment that may be purchased out of the Excess Proceeds.
The offer price in any Asset Sale Offer will be equal to 100% of the Accreted
Value or 100% of the principal amount at maturity, plus accrued and unpaid
interest, if any, to the date of purchase, as applicable, and will be payable
in cash. If any Excess Proceeds remain after consummation of an Asset Sale
Offer, iPCS may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes and
such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes and such
other Indebtedness that is equal in right of payment to be purchased on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
iPCS will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with each repurchase of Notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sale provisions of the
Indenture, iPCS will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under the Asset Sale
provisions of the Indenture by virtue of such conflict.
Limitation on Restricted Payments
Prior to and including June 30, 2003, iPCS and the Guarantors shall not, and
shall not permit any of their Restricted Securities to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of iPCS', the Guarantors' or any of their
Restricted Subsidiaries' Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving iPCS,
a Guarantor or any of their Restricted Subsidiaries) or to the direct or
indirect holders of iPCS', the Guarantors' or any of their Restricted
Subsidiaries' Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of iPCS or to iPCS, a Guarantor or a Restricted
Subsidiary of iPCS or a Guarantor);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving iPCS or a Guarantor) any Equity Interests of iPCS
or a Guarantor or any direct or indirect parent of iPCS or a Guarantor;
127
<PAGE>
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinate to the Notes or the Guarantees, except a payment of interest or
principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions
set forth in these clauses (1) through (4) being collectively referred to
as "Restricted Payments").
After June 30, 2003, iPCS, the Guarantors and their Restricted Subsidiaries
shall not, directly or indirectly, make any Restricted Payment, and shall not
permit any of their Restricted Subsidiaries, directly or indirectly, to make
any Restricted Payment, unless, at the time thereof, and after giving effect
thereto;
(1) no Default or Event of Default shall have occurred and be
continuing;
(2) iPCS would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable period, have been permitted to incur at least
$1.00 of additional Indebtedness, other than Permitted Debt, pursuant to
clause (a) of the first paragraph of the covenant described under the
caption "--Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(3) after giving effect to such Restricted Payment on a pro forma basis
(other than the items permitted by clauses (2), (3), (4), (5) and (6) of
the succeeding paragraph), the aggregate amount of all Restricted Payments
made on or after the Issue Date shall not exceed the sum of, without
duplication:
(a) the amount of (x) the Operating Cash Flow of iPCS after June 30,
2003 through the end of the latest full fiscal quarter for which
consolidated financial statements of iPCS are publicly available
preceding the date of such Restricted Payment, treated as a single
accounting period, less (y) 150% of the cumulative Consolidated
Interest Expense of iPCS after June 30, 2003 through the end of the
latest full fiscal quarter for which consolidated financial statements
of iPCS are publicly available (or, if iPCS does not make its financial
statements publicly available, the date that is 45 days after the end
of such fiscal quarter in the event such quarter is other than the
quarter ending at the end of the fiscal year and 90 days after the end
of such fiscal quarter for the quarter ending at the end of the fiscal
year) preceding the date of such Restricted Payment treated as a single
accounting period, plus
(b) 100% of the aggregate net cash proceeds (excluding the first
$70.0 million in cash proceeds received by iPCS from the issuance of
Equity Interests after the Issue Date) received by iPCS since the date
of the Indenture as a contribution to its common equity capital or from
the issue or sale of Equity Interests of iPCS (other than Disqualified
Stock) or from the issue or sale of convertible or exchangeable
Disqualified Stock, or convertible or exchangeable debt securities of
iPCS that, in the case of debt securities, have been converted into or
exchanged for such Equity Interests (other than Equity Interests,
Disqualified Stock or debt securities, sold to a Restricted Subsidiary
of iPCS), plus
(c) the amount by which Indebtedness of iPCS or any of its
Restricted Subsidiaries is reduced on iPCS' consolidated balance sheet
upon the conversion or exchange (other than by a Subsidiary of iPCS)
subsequent to the Issue Date of any Indebtedness of iPCS or any of its
Restricted Subsidiaries convertible or exchangeable (including pursuant
to clause (1) of the second paragraph of "General" under "Description
of Warrants") for Capital Stock
128
<PAGE>
(other than Disqualified Stock) of iPCS (less the amount of any cash,
or the fair value of any other property, distributed by iPCS upon such
conversion or exchange); plus
(d) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (ii) the initial amount of such Restricted Investment.
The foregoing limitations in this entire "Limitation on Restricted Payments"
covenant do not limit or restrict the making of any Permitted Investment, and a
Permitted Investment shall not be counted as a Restricted Payment for purposes
of clause (d) above. In addition, so long as no Default or Event of Default
shall have occurred and be continuing, the foregoing limitations do not prevent
iPCS from:
(1) paying a dividend on Equity Interests of iPCS within 60 days after
the declaration thereof if, on the date when the dividend was declared,
iPCS could have paid such dividend in accordance with the provisions of the
Indenture;
(2) repurchasing Equity Interests of iPCS from current or former
employees or directors of iPCS or any Subsidiary thereof for consideration
not to exceed $3.0 million in the aggregate in any fiscal year; provided
that any unused amount in any fiscal year may be carried forward to one or
more future periods; provided, further, however, that such amount may be
increased by an amount not to exceed (a) the cash proceeds from sales of
Capital Stock of iPCS (other than Disqualified Stock) to members of
management or directors or consultants of iPCS and its Subsidiaries that
occur after the Issue Date provided, that the amount of any such net cash
proceeds shall be excluded from clause (3)(b) of the preceding paragraph,
plus (b) the cash proceeds of key man life insurance policies received by
iPCS and its Restricted Subsidiaries after the Issue Date; and provided,
further, that the aggregate amount of all such repurchases made pursuant to
this clause (2) does not exceed $15.0 million;
(3) redeeming, repurchasing, defeasing or otherwise acquiring or
retiring for value Indebtedness that is subordinated in right of payment to
the Notes, including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for:
(a) the net cash proceeds from a substantially concurrent issuance
of Equity Interests of iPCS (other than Disqualified Stock of iPCS and
other than Equity Interests sold to a Restricted Subsidiary of iPCS),
provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, defeasance or other
acquisition shall be excluded from clause 3(b) of the preceding
paragraph, or
(b) Indebtedness that is at least as subordinated in right of
payment to the Notes, including premium, if any, and accrued and unpaid
interest, as the Indebtedness being purchased, with Restricted Payments
made pursuant to this clause not being counted as Restricted Payments
for purposes of clause (d) above;
(4) repurchasing, redeeming or otherwise acquiring Equity Interests of
iPCS in exchange for, or out of the net cash proceeds from a substantially
concurrent issuance of Equity Interests of iPCS (other than Disqualified
Stock of iPCS and other than Equity Interests sold to a Restricted
Subsidiary of iPCS), provided that the amount of any such net cash proceeds
that are
129
<PAGE>
utilized for any such repurchase, redemption or other acquisition shall be
excluded from clause 3(b) of the preceding paragraph;
(5) the payment of any dividend or distribution by one of our Restricted
Subsidiaries to the holders of its Equity Interests on a pro rata basis,
but only to the extent such payment is made to iPCS or one of its
Restricted Subsidiaries;
(6) making other Restricted Payments not to exceed $5.0 million in the
aggregate at any time outstanding, with Restricted Payments pursuant to
this clause not being counted as Restricted Payments for purposes of clause
(d) above; or
(7) making distributions or payments of Receivables Fees.
In addition, if any Person in which an Investment is made, which Investment
constituted a Restricted Payment when made, thereafter becomes a Restricted
Subsidiary, such Investments previously made in such Person shall no longer be
counted as Restricted Payments for purposes of calculating the aggregate amount
of Restricted Payments pursuant to clause (d) of the second preceding
paragraph, or in clause (6) immediately above, to the extent such Investments
would not have been Restricted Payments had such Person been a Restricted
Subsidiary at the time such Investments were made.
For purposes of clauses (3) and (4) above:
(1) the net cash proceeds received by iPCS from the issuance or sale of
its Equity Interests either upon the conversion of, or in exchange for,
Indebtedness of iPCS, any Guarantor or any Restricted Subsidiary shall be
deemed to be an amount equal to (a) the sum of (1) the principal amount or
Accreted Value, whichever is less, of such Indebtedness on the date of such
conversion or exchange and (2) the additional cash consideration, if any,
received by iPCS upon such conversion or exchange, less any payment on
account of fractional shares, minus (b) all expenses incurred in connection
with such issuance or sale;
(2) the net proceeds received by iPCS from the issuance or sale of its
Equity Interests upon the exercise of any options or warrants of iPCS, any
Guarantor or any Restricted Subsidiary shall be deemed to be an amount
equal to (a) the additional cash consideration, if any, received by iPCS
upon such exercise, minus (b) all expenses incurred in connection with such
issuance or sale; and
(3) the first $70.0 million of cash proceeds received by iPCS from the
issuance of Equity Interests after the Issue Date shall not be included.
For purposes of this "Limitation on Restricted Payments" covenant, if a
particular Restricted Payment involves a noncash payment, including a
distribution of assets, then such Restricted Payment shall be deemed to be an
amount equal to the cash portion of such Restricted Payment, if any, plus an
amount equal to the fair market value of the noncash portion of such Restricted
Payment, as determined by the Board of Directors, whose good-faith
determination shall be conclusive and evidenced by a Board Resolution and, in
the case of fair market value of such noncash portion in excess of $5.0
million, accompanied by an opinion of an accounting, appraisal or investment
banking firm of national standing. Not later than the business day after the
making of any Restricted Payment in excess of $5.0 million, iPCS shall deliver
to the Trustee an Officers'
130
<PAGE>
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Limitation on
Restricted Payments" covenant were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
The amount of any Investment outstanding at any time shall be deemed to be
equal to the amount of such Investment on the date made, less the return of
capital, repayment of loans and return on capital, including interest and
dividends, in each case, received in cash, up to the amount of such Investment
on the date made.
Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock
iPCS and the Guarantors shall not, and shall not permit any of their
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise with respect to (collectively "incur") any
Indebtedness (including Acquired Debt) other than Permitted Debt, and iPCS
shall not issue any Disqualified Stock and shall not permit any of its
Restricted Subsidiaries to issue any shares of Preferred Stock, in each case
unless immediately after giving effect to the incurrence of such Indebtedness
or the issuance of such Disqualified Stock or Preferred Stock and the receipt
and application of the net proceeds therefrom, including, without limitation,
the application or use of the net proceeds therefrom to repay Indebtedness or
make any Restricted Payment, (a) the Consolidated Debt to Annualized Operating
Cash Flow Ratio would be (1) less than 7.0 to 1.0, if prior to December 31,
2005 and (2) less than 6.0 to 1.0, if on or after December 31, 2005 or (b) in
the case of any incurrence of Indebtedness prior to December 31, 2005 only,
Consolidated Debt would be equal to or less than 75% of Total Invested Capital.
So long as no Default or Event of Default shall have occurred and be
continuing or would be caused thereby, the first paragraph of this covenant
does not prohibit the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(1) the incurrence by iPCS and the Guarantors of Existing Indebtedness;
(2) the incurrence by iPCS and the Guarantors of Indebtedness
represented by the Notes and the related Guarantees to be issued on the
Issue Date;
(3) the incurrence by iPCS and any Guarantor of Indebtedness under
Credit Facilities; provided that the aggregate principal amount of all
Indebtedness of iPCS and the Guarantors outstanding under all Credit
Facilities at any time outstanding, after giving effect to such incurrence,
does not exceed the sum of (i) $200.0 million plus (ii) 75% of Qualified
Receivables, which sum shall be permanently reduced by the aggregate amount
of all Net Proceeds of Asset Sales applied since the date of the Indenture
to repay Indebtedness under a Credit Facility pursuant to the covenant
described above under the caption "--Selected Covenants--Asset Sales";
(4) the incurrence by iPCS or any Guarantor of Indebtedness represented
by Capital Lease Obligations or Purchase Money Indebtedness, in each case,
(a) incurred for the purpose of leasing or financing all or any part of the
purchase price or cost of construction or improvement of inventory,
property, plant or equipment used in the business of iPCS, any Guarantor or
any of their Restricted Subsidiaries, including telephone and computer
systems and operating facilities,
131
<PAGE>
in an aggregate principal amount not to exceed $5.0 million at any time
outstanding and (b) such Indebtedness shall not constitute more than 100%
(determined in accordance with GAAP in good faith by the Board of Directors
of iPCS), of the cost of the property so purchased, constructed, improved
or leased;
(5) the incurrence by iPCS or any Guarantor of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to
refund, refinance or replace, Indebtedness, other than intercompany
Indebtedness, that was permitted by the Indenture to be incurred under the
first paragraph of this covenant or clauses (1), (2) or (13) of this
paragraph;
(6) the incurrence of intercompany Indebtedness between or among iPCS
and any of its Restricted Subsidiaries that are Guarantors; provided,
however, that:
(a) if iPCS or any Guarantor is the obligor on such Indebtedness,
such Indebtedness must be expressly subordinated to the prior payment
in full in cash of all Obligations with respect to the Notes, in the
case of iPCS, or the Guarantee of such Guarantor, in the case of a
Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than iPCS
or a Restricted Subsidiary thereof and (ii) any sale or other transfer
of any such Indebtedness to a Person that is not either iPCS or a
Restricted Subsidiary thereof, shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by iPCS or such
Restricted Subsidiary, as the case may be, that was not permitted by
this clause (6);
(7) the incurrence by iPCS or any Guarantor of Hedging Obligations that
are incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Indebtedness that is permitted by the terms of
the Indenture to be outstanding;
(8) the guarantee by iPCS or a Guarantor of Indebtedness that was
permitted to be incurred by another provision of this covenant;
(9) the accrual of interest and the payment of dividends on Disqualified
Stock in the form of additional shares of the same class of Disqualified
Stock;
(10) Indebtedness (A) in respect of performance, surety or appeal bonds
or bankers' acceptances provided in the ordinary course of business, and
(B) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of iPCS,
any Guarantor or any Restricted Subsidiary pursuant to such agreements, in
any case incurred in connection with the disposition of any business,
assets or Restricted Subsidiary (other than guarantees of Indebtedness
incurred by a person acquiring all or any portion of such business, assets
or Restricted Subsidiary for the purpose of financing such acquisition), in
a principal amount not to exceed the gross proceeds actually received by
iPCS, any Guarantor or any Restricted Subsidiary in connection with such
disposition;
(11) the incurrence by iPCS or any Restricted Subsidiary of any
Indebtedness under any unsecured deferred promissory note payable to Sprint
PCS pursuant to the deferral of collected revenues provision of the Consent
and Agreement between Sprint PCS and the lenders under our Credit
Facilities;
132
<PAGE>
(12) the incurrence by iPCS or any Restricted Subsidiary of additional
Indebtedness in an aggregate principal amount, or accreted value, as
applicable, at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (12), not to exceed $50.0 million; and
(13) the incurrence by iPCS or any Guarantor of Acquired Debt but only
to the extent that immediately after giving effect to the incurrence of
such Indebtedness (i) in the event of the incurrence of Acquired Debt on or
after December 31, 2005 only, the Consolidated Debt to Annualized Operating
Cash Flow Ratio would decrease as compared to the Consolidated Debt to
Annualized Operating Cash Flow Ratio immediately prior to such incurrence
or (ii) in the event of the incurrence of Acquired Debt prior to December
31, 2005 only, the ratio of Consolidated Debt to Total Invested Capital
would decrease as compared to the ratio of Consolidated Debt to Total
Invested Capital immediately prior to such incurrence.
For purposes of determining compliance with this "Limitation on Incurrence
of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (13) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, iPCS
will be permitted to classify such item of Indebtedness on the date of its
incurrence, or later reclassify all or a portion of such item of Indebtedness,
in any manner that complies with this covenant.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (1) through (13) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, iPCS, the
Guarantors and their Restricted Subsidiaries shall, in their sole discretion,
classify such item of Indebtedness from time to time in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof at any given time. Accrual of interest, the accretion of
Accreted Value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
Notwithstanding anything to the contrary contained in this covenant,
(1) iPCS shall not, and shall not permit any Guarantor to, incur any
Indebtedness pursuant to this covenant if the proceeds thereof are used,
directly or indirectly, to refinance any subordinated Indebtedness unless
such newly-incurred Indebtedness shall be subordinated to the Notes or the
applicable Guarantee, as the case may be, to at least the same extent as
such refinanced subordinated Indebtedness, and
(2) iPCS shall not permit any Restricted Subsidiary that is not a
Guarantor to incur any Indebtedness pursuant to this covenant if the
proceeds thereof are used, directly or indirectly, to refinance any
Indebtedness of iPCS or any Guarantor.
Limitation on Layering Indebtedness
The Indenture provides that iPCS and the Guarantors will not, and will not
permit any of their Restricted Subsidiaries to, incur any Indebtedness that is
contractually subordinated to any Indebtedness of iPCS or any Guarantor unless
such Indebtedness is subordinated to the Notes at least to the same extent as
it is to such other Indebtedness.
133
<PAGE>
Liens
iPCS and the Guarantors will not, and will not permit any of their
Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien of any kind securing Indebtedness that is
equal in right of payment with the Notes or the applicable Guarantee, as the
case may be, or is subordinated Indebtedness, upon any of their property or
assets, now owned or hereafter acquired, unless iPCS and the Guarantors
provide, and cause their Restricted Subsidiaries to provide, concurrently
therewith, that the Notes and the applicable Guarantees are equally and ratably
so secured; provided that if such Indebtedness is subordinated Indebtedness,
the Lien securing such subordinated Indebtedness shall be subordinate and
junior to the Lien securing the Notes (and any related applicable Guarantees)
with the same relative priority as such subordinated Indebtedness shall have
with respect to the Notes (and any related applicable Guarantees); and provided
further that the restriction described in this paragraph will not apply to
Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
iPCS and the Guarantors will not, and will not permit any of their
Restricted Subsidiaries, directly or indirectly, to, create or permit to exist
or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to iPCS, the Guarantors or any of their Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to iPCS, the Guarantors or any of
their Restricted Subsidiaries;
(2) make loans or advances to iPCS, the Guarantors or any of their
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to iPCS, the Guarantors or
any of their Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness or Credit Facilities as in effect on the Issue
Date and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such Existing Indebtedness or
Credit Facilities, as in effect on the Issue Date;
(2) the Indenture, the Notes and the Guarantees;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by iPCS, any Guarantor or any of their Restricted Subsidiaries as
in effect at the time of such acquisition, except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition, which encumbrance or restriction is not applicable to any
Person, or the
134
<PAGE>
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture
to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) Purchase Money Indebtedness for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "--Liens" that limit the right of iPCS, any Guarantor or any of
their Restricted Subsidiaries to dispose of the assets subject to such
Lien;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Merger, Consolidation or Sale of Assets
iPCS and the Guarantors, considered as a whole, shall not, in any
transaction or series of related transactions, merge or consolidate with or
into, or sell, assign, convey, transfer or otherwise dispose of its properties
and assets substantially as an entirety to, any Person, and shall not permit
any of their Restricted Subsidiaries to enter into any such transaction or
series of transactions, unless, at the time and after giving effect thereto:
(1) either: (A) if the transaction or series of transactions is a
consolidation of iPCS with or a merger of iPCS with or into any other
Person, iPCS shall be the surviving Person of such merger or consolidation,
or (B) the Person formed by any consolidation with or merger with or into
iPCS, or to which the properties and assets of iPCS or iPCS and its
Restricted Subsidiaries, taken as a whole, as the case may be,
substantially as an entirety are sold, assigned, conveyed or otherwise
transferred (any such surviving Person or transferee Person referred to in
this clause (B) being the "Surviving Entity"), shall be a corporation,
partnership, limited liability company or trust organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall expressly assume by a supplemental indenture
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all the obligations of iPCS under the Notes and the Indenture and, in each
case, the Indenture, as so supplemented, shall remain in full force and
effect;
135
<PAGE>
(2) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis including any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions, no Default or
Event of Default shall have occurred and be continuing; and
(3) iPCS or the Surviving Entity will, at the time of such transaction
and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable period, (A) be permitted to
Incur at least $1.00 of additional Indebtedness pursuant to the first
paragraph of the covenant described above under the caption "Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock" or (B)(i) in
the event that such transaction occurs on or after December 31, 2005 only,
the Consolidated Debt to Annualized Operating Cash Flow Ratio would
decrease as compared to the Consolidated Debt to Annualized Operating Cash
Flow Ratio immediately prior to such transaction or (ii) in the event that
such transaction occurs prior to December 31, 2005 only, the ratio of
Consolidated Debt to Total Invested Capital would decrease as compared to
the ratio of Consolidated Debt to Total Invested Capital immediately prior
to such transaction; provided, however, that the foregoing requirements
shall not apply to any transaction or series of transactions involving the
sale, assignment, conveyance, transfer or other disposition of the
properties and assets by any Restricted Subsidiary to iPCS or any other
Restricted Subsidiary, or the merger or consolidation of any Restricted
Subsidiary with or into iPCS or any other Restricted Subsidiary. The
Indenture also provides that iPCS may not, directly or indirectly, lease
all or substantially all of its properties or assets, in one or more
related transactions, to any other Person, other than pursuant to Permitted
Tower Sale and Leaseback Transactions.
In connection with any consolidation, merger, sale, assignment, conveyance,
transfer or other disposition contemplated by the foregoing provisions, iPCS
shall deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate stating that
such consolidation, merger, sale, assignment, conveyance, transfer, or other
disposition and the supplemental indenture in respect thereof, required under
clause (1)(B) of the preceding paragraph, comply with the requirements of the
Indenture and an opinion of counsel to such effect. Each such Officers'
Certificate shall set forth the manner of determination of iPCS's compliance
with clause (3) of the preceding paragraph.
For all purposes of the Indenture and the Notes, including the provisions
described in the two immediately preceding paragraphs and the "Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock" and "Designation of
Restricted and Unrestricted Subsidiaries" covenants, Subsidiaries of any
Surviving Entity will, upon such transaction or series of transactions, become
Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant to
the "Designation of Restricted and Unrestricted Subsidiaries" covenant and all
Indebtedness of the Surviving Entity and its Subsidiaries that was not
Indebtedness of iPCS and its Subsidiaries immediately prior to such transaction
or series of transactions shall be deemed to have been incurred upon such
transaction or series of transactions.
The Surviving Entity shall succeed to, and be substituted for, and may
exercise every right and power of iPCS under the Indenture, and the predecessor
company shall be released from all its obligations and covenants under the
Indenture and the Notes.
136
<PAGE>
Transactions with Affiliates
iPCS and the Guarantors will not, and will not permit any of their
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
iPCS or the relevant Guarantor or Restricted Subsidiary than those that
would have been obtained in a comparable transaction by iPCS or such
Guarantor or Restricted Subsidiary with an unrelated Person; and
(2) iPCS delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction or
series of related Affiliate Transactions complies with this covenant
and that such Affiliate Transaction or series of related Affiliate
Transactions has been approved by a majority of the disinterested
members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$25 million, an opinion as to the fairness to the holders of Notes of
such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment, severance, stock option or other employee benefit
agreement entered into by iPCS, any Guarantor or any of their Restricted
Subsidiaries in the ordinary course of business;
(2) transactions between or among iPCS and/or a Guarantor and/or their
Restricted Subsidiaries;
(3) payment of reasonable directors fees, expenses and indemnification
to Persons who are not otherwise Affiliates of iPCS;
(4) Restricted Payments that are not prohibited by the provisions of the
Indenture described above under the caption "--Limitation on Restricted
Payments";
(5) sales of Equity Interests of iPCS, other than Disqualified Stock, to
Affiliates of iPCS;
(6) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility; and
(7) transactions with an investor in the investor group led by
Blackstone in accordance with the agreements governing the sale by iPCS of
the Series A-1 Preferred Stock including the Investment Agreement, the
Registration Rights Agreement, the Stockholders Agreement and the
Transaction Fee Agreement as such agreements exist on the closing date or
in accordance with the certificate of incorporation or bylaws of iPCS as
each exists on the closing date.
137
<PAGE>
Additional Guarantees
If iPCS, any Guarantor or any of their Restricted Subsidiaries acquires or
creates another Restricted Subsidiary after the date of the Indenture, then
that newly acquired or created Restricted Subsidiary, other than a Foreign
Subsidiary, must become a Guarantor and (1) execute a supplemental indenture
satisfactory to the Trustee making the Restricted Subsidiary a party to the
Indenture, (2) execute an endorsement of Guarantee and (3) deliver an opinion
of counsel to the Trustee within 10 business days of the date on which it was
acquired or created to the effect that such supplemental indenture has been
duly authorized and executed by such Restricted Subsidiary and constitutes the
legal, valid, binding and enforceable obligation of such Restricted Subsidiary
(subject to customary exceptions concerning fraudulent conveyance laws,
creditors' rights and equitable principles as may be reasonably acceptable to
the Trustee).
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary as an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by iPCS, the Guarantors and their Restricted
Subsidiaries in the Subsidiary so designated will be deemed to be an Investment
made as of the time of such designation and if required by that covenant will
reduce the amount available for Restricted Payments under paragraph (3) of the
second paragraph of the covenant described above under the caption "--
Limitation on Restricted Payments" or Permitted Investments, as applicable. All
such outstanding Investments will be valued at their fair market value at the
time of such designation. That designation will only be permitted if such
Restricted Payment would be permitted at that time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The
Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if the redesignation would not cause a Default.
Sale and Leaseback Transactions
iPCS will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that iPCS or any
Restricted Subsidiary that is a Guarantor may enter into a sale and leaseback
transaction if:
(1) iPCS or that Guarantor, as applicable, could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such
sale and leaseback transaction under the tests in (a) and (b), if
applicable, of the covenant described above under the caption "--Limitation
on Incurrence of Indebtedness and Issuance of Preferred Stock" and (b)
incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "--Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to
the Trustee, of the property that is the subject of such sale and leaseback
transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and iPCS applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--Asset
Sales."
138
<PAGE>
The foregoing shall not prohibit iPCS or any of its Restricted Subsidiaries
from entering into Permitted Tower Sale and Leaseback Transactions. In
addition, sale and leaseback transactions between or among iPCS and/or its
Restricted Subsidiaries shall not be prohibited by this covenant.
Limitation on Issuances and Sales of Equity Interests in Restricted
Subsidiaries
iPCS and the Guarantors will not, and will not permit any of their
Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose
of any Equity Interests in any Restricted Subsidiary to any Person, other than
iPCS, a Guarantor or a Restricted Subsidiary, unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Restricted Subsidiary; and
(2) the net cash proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant described
above under the caption "--Asset Sales."
In addition, iPCS will not permit any Restricted Subsidiary to issue any of
its Equity Interests, other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares, to any Person other than to iPCS, a
Guarantor or a Restricted Subsidiary.
Business Activities
iPCS and the Guarantors will not, and will not permit any of their
Restricted Subsidiaries to, engage in any business other than Permitted
Businesses; provided, however, that, subject to the other provisions of the
Indenture, iPCS and the Guarantors and their Restricted Subsidiaries shall not
be prohibited from owning, directly or indirectly, not more than 2.0% of the
equity of any publicly traded corporation, partnership, limited liability
company, joint venture or other publicly traded entity that is not engaged in a
Permitted Business.
Payments for Consent
iPCS and the Guarantors will not, and will not permit any of their
Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid and is paid to all holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
Reports
Notwithstanding that iPCS may not be subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, so long as any Notes are
outstanding, iPCS will furnish to the Trustee for the benefit of the holders of
Notes, within two business days of the time periods specified in the
Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if iPCS were required to file such
139
<PAGE>
Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by iPCS's
certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if iPCS were required to file such reports.
Notwithstanding the foregoing, such requirements shall be deemed satisfied
prior to November 15, 2000, by filing with the Commission and delivering to the
Trustee and the holders of Notes on or prior to such date a registration
statement under the Securities Act that contains the information that would be
required in a Form 10-Q for iPCS for the quarter ended September 30, 2000. In
addition, following the consummation of the exchange offer contemplated by the
registration rights agreement, whether or not required by the Commission, iPCS
will file a copy of all of the information and reports referred to in clauses
(1) and (2) above with the Commission for public availability within the time
periods specified in the Commission's rules and regulations, unless the
Commission will not accept such a filing. The filing of such information with
the Commission, and transmission of a copy thereof to the Trustee as set forth
above, shall satisfy iPCS' obligations described above.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) the failure by iPCS to pay any installment of interest on the Notes
as and when the same becomes due and payable and the continuance of any
such failure for 30 days;
(2) the failure of iPCS to pay all or any part of the principal, or
premium, if any, on the Notes when and as the same becomes due and payable
at maturity, redemption, by acceleration or otherwise, including, without
limitation, payment of the Change of Control Payment or the amount set
forth in the Asset Sale Offer, or otherwise on Notes validly tendered and
not properly withdrawn pursuant to a Change of Control or Asset Sale Offer,
as applicable, or default in payment when due of the principal of or
premium, if any, on the Notes, whether or not prohibited by provisions of
the Indenture;
(3) the failure by iPCS or any of its Restricted Subsidiaries to observe
or perform any other covenant or agreement contained in the Notes or the
Indenture and, except for the provisions under "Repurchase at the Option of
the Holders--Change of Control" and "Selected Covenants--Asset Sales," the
continuance of such failure for a period of 30 days after written notice is
given to iPCS by the Trustee or to iPCS and the Trustee by the holders of
25% in aggregate principal amount of the Notes outstanding;
(4) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by iPCS, any Guarantor or any of their
Restricted Subsidiaries, or the payment of which is guaranteed by iPCS, any
Guarantor or any of their Restricted Subsidiaries, whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity;
140
<PAGE>
and, in each case, the outstanding principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or
more;
(5) failure by iPCS, any Guarantor or any of their Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days;
(6) except as permitted by the Indenture, any Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for
any reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations
under its Guarantee;
(7) certain events of bankruptcy or insolvency with respect to iPCS, any
Guarantor or any of their Restricted Subsidiaries;
(8) if after the Issue Date but on or prior to December 31, 2000, iPCS
has not received at least $70.0 million of gross cash proceeds from any one
or more Equity Offerings (other than Equity Offerings of Disqualified Stock
of iPCS and other than Equity Offerings to Restricted Subsidiaries of
iPCS); and
(9) (a) if any Credit Facility is not in existence, any event occurs
that causes, subject to any applicable grace period or waiver, an Event of
Termination under any of the Sprint Agreements or (b) if any Credit
Facility is in existence, Sprint shall have commenced to exercise any
remedy under the Sprint Agreements (other than Section 11.6.3 of the
Management Agreement) by reason of the occurrence of an Event of
Termination.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to iPCS, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be due and payable immediately.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Notes notice of any continuing Default or Event of Default,
except a Default or Event of Default relating to the payment of principal or
interest, if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
iPCS is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, iPCS is required to deliver to the Trustee a statement specifying such
Default or Event of Default.
141
<PAGE>
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of iPCS or any
Guarantor, as such, shall have any liability for any obligations of iPCS or the
Guarantors under the Notes, the Indenture, the Guarantees or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
Legal Defeasance and Covenant Defeasance
iPCS may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and all
obligations of the Guarantors discharged with respect to their Guarantees
("Legal Defeasance") except for:
(1) the rights of holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest on such Notes
when such payments are due from the trust referred to below;
(2) iPCS's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and iPCS's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, iPCS may, at its option and at any time, elect to have the
obligations of iPCS and the Guarantors released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events, not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events, described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) iPCS must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and iPCS must specify whether the
Notes are being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, iPCS shall have delivered to the
Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that (a) iPCS has received from, or there has been published by,
the Internal Revenue Service a ruling or (b) since the date of the
Indenture, there has been a change in the applicable federal income tax
law, in either case to the
142
<PAGE>
effect that, and based thereon such opinion of counsel shall confirm that,
the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, iPCS shall have delivered to the
Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that the holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit; or (b) insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit (it being understood that this clause (b) shall
not be interpreted as delaying the effectiveness of a Covenant Defeasance
beyond the date of the deposit described in clause (1) above);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, other than the Indenture, to which iPCS or any of
its Restricted Subsidiaries is a party or by which iPCS or any of its
Restricted Subsidiaries is bound;
(6) iPCS must have delivered to the Trustee an opinion of counsel to the
effect that, assuming no intervening bankruptcy of iPCS between the date of
deposit and the 91st day following the deposit and assuming that no holder
is an "insider" of iPCS under applicable bankruptcy law, after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(7) iPCS must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by iPCS with the intent of preferring the
holders of Notes over the other creditors of iPCS with the intent of
defeating, hindering, delaying or defrauding creditors of iPCS or others;
and
(8) iPCS must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the
Notes or the Guarantees may be amended or supplemented with the consent of the
holders of at least a majority in aggregate Accreted Value of the Notes then
outstanding if prior to July 15, 2005, or the aggregate principal amount of the
Notes if after July 15, 2005, including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange offer for, Notes,
and any existing default or compliance with any provision of the Indenture or
the Notes may be waived with the
143
<PAGE>
consent of the holders of a majority in aggregate Accreted Value of the then
outstanding Notes including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes.
Without the consent of each holder adversely affected, an amendment or
waiver may not, with respect to any Notes held by a non-consenting holder:
(1) reduce the Accreted Value of the then outstanding Notes if prior to
July 15, 2005 or the aggregate of the principal amount of Notes if after
July 15, 2005 whose holders must consent to an amendment, supplement or
waiver;
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes, other
than provisions relating to the covenants described above under the
captions "--Repurchase at the Option of Holders--Change of Control" and "--
Selected Covenants--Asset Sales";
(3) reduce the rate of or change the time for payment of interest on
any Note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes, except a rescission of
acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration;
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes;
(7) waive a redemption payment with respect to any Note, other than a
payment required by one of the covenants described above under the captions
"--Repurchase at the Option of Holders--Change of Control" and "--Selected
Covenants--Asset Sales"; or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of Notes,
iPCS and the Trustee may amend or supplement the Indenture or the Notes to:
(1) cure any ambiguity, defect or inconsistency;
(2) provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) provide for the assumption of iPCS's obligations to holders of
Notes in the case of a merger or consolidation or sale of all or
substantially all of iPCS's assets;
(4) make any change that would provide any additional rights or
benefits to the holders of Notes or that does not adversely affect the
legal rights under the Indenture of any Holder; or
(5) comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
If the Trustee becomes a creditor of iPCS or any Guarantor, the Indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any
144
<PAGE>
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Registration Rights; Liquidated Damages
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate the agreement in its
entirety. We urge you to read the proposed form of registration rights
agreement in its entirety because it, and not this description, defines your
registration rights as holders of Notes.
We have entered into a registration rights agreement with the Initial
Purchasers in which we agreed to:
(1) file an exchange offer registration statement with the Commission
prior to October 10, 2000;
(2) use our reasonable best efforts to have the exchange offer
registration statement declared effective under the Securities Act within
180 days of our offering of the outstanding notes;
(3) use our reasonable best efforts to cause the exchange offer
registration statement to be effective continuously;
(4) keep the exchange offer open for a period of not less than 20
business days; and
(5) cause the exchange offer to be consummated no later than the 30th
business day after the exchange offer registration statement is declared
effective by the Commission.
Pursuant to the exchange offer, certain holders of Notes which constitute
Transfer Restricted Securities may exchange their Transfer Restricted
Securities for registered Notes. To participate in the exchange offer, each
holder must represent that:
(1) it is not our affiliate;
(2) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the registered Notes that are issued in the exchange offer;
and
(3) it is acquiring the registered Notes in the exchange offer in its
ordinary course of business.
If:
(1) we are not permitted to consummate the exchange offer because the
exchange offer is not permitted by applicable law or Commission policy; or
145
<PAGE>
(2) any holder of Notes which are Transfer Restricted Securities
notifies us before the 20th business day following the commencement of the
exchange offer that:
(a) it is prohibited by law or Commission policy from participating
in the exchange offer;
(b) it may not resell the registered Notes acquired by it in the
exchange offer to the public without delivering a prospectus, and the
prospectus contained in the exchange offer registration statement is
not appropriate or available for such resales by it; or
(c) it is a broker-dealer and holds Notes acquired directly from us
or any of our affiliates,
we will file with the Commission a shelf registration statement to register for
public resale the Transfer Restricted Securities held by any such holder who
provides us with certain information for inclusion in the shelf registration
statement.
For purposes of the registration rights agreement, "Transfer Restricted
Securities" means each Note until the earliest of:
(1) the date on which such note is exchanged in the exchange offer and
entitled to be resold to the public by the holder thereof without complying
with the prospectus delivery requirements of the Securities Act;
(2) the date on which such Note has been disposed of in accordance with
the shelf registration statement;
(3) the date on which such Note is disposed of by a broker-dealer
pursuant to the "Plan of Distribution" contemplated by the exchange offer
registration statement (including delivery of the prospectus contained
therein); and
(4) the date on which such Note is distributed to the public pursuant to
Rule 144 under the Securities Act.
The registration rights agreement provides that:
(1) if we fail to file an exchange offer registration statement with the
Commission on or before October 10, 2000,
(2) if the exchange offer registration statement is not declared
effective by the Commission within 180 days of our offering of the
outstanding Notes,
(3) if the exchange offer is not consummated on or before the 30th
business day after the exchange offer registration statement is declared
effective,
(4) if we are obligated to file the shelf registration statement and we
fail to file the shelf registration statement with the Commission on or
before the 30th day after the obligation to file a shelf registration
statement arises,
(5) if we are obligated to file a shelf registration statement and the
shelf registration statement is not declared effective on or before the
60th day after the obligation to file a shelf registration statement
arises, or
146
<PAGE>
(6) if the exchange offer registration statement or the shelf
registration statement, as the case may be, is declared effective but
thereafter ceases to be effective or useable in connection with resales of
the Transfer Restricted Securities,
for such time of non-effectiveness or non-usability (each, a "Registration
Default"), then we will pay to each holder of Transfer Restricted Securities
affected thereby liquidated damages in an amount equal to $0.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such
holder for each week or portion thereof that the Registration Default continues
for the first 90-day period immediately following the occurrence of such
Registration Default. The amount of the liquidated damages shall increase by an
additional $0.05 per week per $1,000 in principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages of $0.50
per week per $1,000 in principal amount of Transfer Restricted Securities. We
will not be required to pay liquidated damages for more than one Registration
Default at any given time. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
We will pay all accrued liquidated damages to holders entitled thereto by
wire transfer to the accounts specified by them or by mailing checks to their
registered address if no such accounts have been specified.
Certain Definitions
Set forth below are many of the defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Accounts Receivable Subsidiary" means a Subsidiary of iPCS, the Guarantors
or any of their Restricted Subsidiaries to which iPCS, the Guarantors or any of
their Restricted Subsidiaries sells any of their accounts receivable pursuant
to a Receivables Facility.
"Accreted Value" of any outstanding Note as of or to any date of
determination means an amount equal to the sum of (1) the issue price of such
Note as determined in accordance with Section 1273 of the Internal Revenue Code
plus (2) the aggregate of the portions of the original issue discount, i.e.,
the excess of the amounts considered as part of the "stated redemption price at
maturity" of such Note within the meaning of Section 1273(a)(2) of the Internal
Revenue Code or any successor provisions, whether denominated as principal or
interest, over the issue price of such Note, that shall theretofore have
accrued pursuant to Section 1272 of the Internal Revenue Code, without regard
to Section 1272(a)(7) of the Internal Revenue Code, from the date of issue of
such Note (a) for each six-month or shorter period ending January 15 or July 15
prior to the date of determination and (b) for the shorter period, if any, from
the end of the immediately preceding six-month or shorter period, as the case
may be, to the date of determination, plus (3) accrued and unpaid interest to
the date such Accreted Value is paid (without duplication of any amount set
forth in (2) above), minus all amounts theretofore paid in respect of such
Note, which amounts are considered as part of the "stated redemption price at
maturity" of such Note within the meaning of Section 1273(a)(2) of the Internal
Revenue Code or any successor provisions whether such amounts paid were
denominated principal or interest.
147
<PAGE>
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings.
"Annualized Operating Cash Flow" means Operating Cash Flow, for the latest
two full fiscal quarters for which consolidated financial statements of iPCS
are publicly available (or, if iPCS does not make its financial statements
publicly available, the date that is 45 days after the end of such two fiscal
quarter in the event such second of two quarters is other than the quarter
ending at the end of the fiscal year and 90 days after the end of such two
fiscal quarters in the event such second of two quarters ends at the end of the
fiscal year), multiplied by two.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory and sales of obsolete equipment in
the ordinary course of business consistent with past practices; provided
that the sale, conveyance or other disposition of all or substantially all
of the assets of iPCS, the Guarantors and their Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture
described above under the caption "--Repurchase at the Option of Holders--
Change of Control" and/or the provisions described above under the caption
"--Selected Covenants--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant;
(2) the issuance of Equity Interests by any of iPCS's Restricted
Subsidiaries or the sale of Equity Interests in any of its Restricted
Subsidiaries;
(3) a Permitted Telecommunications Exchange Transaction; and
(4) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $1 million; or (b)
results in net proceeds to iPCS, the Guarantors and their Restricted
Subsidiaries of less than $1 million;
148
<PAGE>
(2) a sale, lease, conveyance or other disposition of assets between or
among iPCS and its Wholly Owned Restricted Subsidiaries that are
Guarantors;
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to iPCS or to another Wholly Owned Restricted Subsidiary;
(4) a Restricted Payment that is permitted by the covenant described
above under the caption "--Selected Covenants--Limitation on Restricted
Payments";
(5) any transfer by iPCS or a Subsidiary of property or equipment with a
fair market value of less than $5 million to a Person who is not an
Affiliate of iPCS in exchange for property or equipment that has a fair
market value at least equal to the fair market value of the property or
equipment so transferred; provided that, in the event of a transfer
described in this clause (5), iPCS shall deliver to the Trustee an
officer's certificate certifying that such exchange complies with this
clause (5);
(6) the issuance of directors' qualifying shares of Preferred Capital
Stock of a Guarantor or such Restricted Subsidiary (other than Preferred
Capital Stock convertible or exchangeable into common stock) that is
otherwise permitted by the Indenture; and
(7) the transfer or sale of Equity Interests required by applicable
laws or regulations.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person," as such term is used in Section 13(d)(3)
of the Exchange Act, such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Blackstone" means Blackstone Capital Partners III Merchant Banking Fund,
L.P. and affiliated funds.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of iPCS to have been duly adopted by the Board of
Directors, unless the context specifically requires that such resolution be
adopted by a majority of the disinterested directors, in which case by a
majority of such directors, and to be in full force and effect on the date of
such certification and delivered to the Trustee.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
149
<PAGE>
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents, however
designated, of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof,
provided that the full faith and credit of the United States is pledged in
support thereof, having maturities of less than one year from the date of
acquisition;
(3) certificates of deposit and Eurodollar time deposits with
maturities of less than one year from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any domestic commercial bank having capital
and surplus in excess of $500 million and a Thompson Bank Watch Rating of
"B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing prior to one year after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition, other than by
way of merger or consolidation, in one or a series of related transactions,
of all or substantially all of the assets of iPCS and its Subsidiaries
taken as a whole to any "person" or "group" as such terms are used in
Section 13(d)(3) of the Exchange Act;
(2) the adoption of a plan relating to the liquidation or dissolution
of iPCS;
(3) the consummation of any transaction, including, without limitation,
any merger or consolidation, the result of which is that any "person" or
"group" as defined above, other than the Principals or any of their
Affiliates, becomes the Beneficial Owner, directly or indirectly, of more
than 50% of the Voting Stock of iPCS, measured by voting power rather than
number of shares; provided, that so long as the surviving Person in such a
transaction is a Subsidiary of a parent Person, no Person shall be deemed
under this clause (3) of this "Change of Control" definition to be or
become a Beneficial Owner of more than 50% of the Voting Stock of such
150
<PAGE>
surviving Person unless such Person (or any "group," as defined above, to
which such Person is a member) shall be or become a Beneficial Owner of
more than 50% of the Voting Stock of such parent Person;
(4) the first day on which a majority of the members of the Board of
Directors of iPCS are not Continuing Directors; or
(5) iPCS consolidates with, or merges with or into, any Person, or any
Person consolidates with, or merges with or into, iPCS, in any such event
pursuant to a transaction in which any of the outstanding Voting Stock of
iPCS is converted into or exchanged for cash, securities or other property,
other than any such transaction where the Voting Stock of iPCS outstanding
immediately prior to such transaction is converted into or exchanged for
Voting Stock, other than Disqualified Stock, of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting
Stock of such surviving or transferee Person immediately after giving
effect to such issuance.
Notwithstanding anything to the contrary contained in clauses (4) and (5)
above, a "Change of Control" shall not be deemed to occur as the result of a
merger or consolidation of iPCS with or into a Sprint PCS Affiliate if:
(x) after the announcement of the merger or consolidation and prior to
the consummation thereof:
(i) there shall not have occurred any downgrading nor shall any
notice have been given (that is not subsequently removed prior to the
consummation thereof) of any potential or intended downgrading of any
rating of the Notes to a rating that is lower than the rating that
existed or was indicated prior to the announcement of the merger or
consolidation, in any case by Standard & Poor's Corporation or Moody's
Investors Service, Inc. (each a "Rating Organization"), or their
successors that is not subsequently removed prior to such consummation;
(ii) there shall not have occurred any suspension or withdrawal of,
nor shall any notice have been given of any potential or intended
suspension or withdrawal of, any review (or of any potential or
intended review) for a possible change that does not indicate the
direction of the possible change in, any rating of the Notes
(including, without limitation, the placing of any of the Notes on
credit watch with negative or developing implications or under review
with an uncertain direction) by any Rating Organization, in each case
that is not subsequently removed prior to the consummation of such
merger or consolidation;
(iii) there shall not have occurred any change, nor shall any notice
have been given of any potential or intended change, in the outlook for
any rating of the Notes to a rating that is lower than the rating that
existed or was indicated prior to the announcement of the merger or
consolidation, in any case by any Rating Organization, that is not
subsequently removed prior to the consummation of such merger or
consolidation;
(iv) no Rating Organization shall have given notice that it has
assigned (or is considering assigning) a rating to the Notes that is
lower than the rating that existed or was indicated prior to the
announcement of the merger or consolidation that is not subsequently
removed prior to such consummation; and
151
<PAGE>
(y) the Beneficial Owners of Voting Stock of iPCS immediately preceding
such merger or consolidation shall continue to be the Beneficial Owners of
at least 25% of the outstanding Voting Stock, other than Disqualified
Stock, of iPCS (or the surviving or transferee Person referred to in clause
(5) above or sole stockholder of such surviving or transferee Person)
immediately after giving effect to the merger or consolidation.
"Consolidated Debt" means the aggregate amount of Indebtedness of iPCS, the
Guarantors and their Restricted Subsidiaries on a Consolidated basis
outstanding at the date of determination; provided, that in the event of a
merger or consolidation otherwise permitted under the terms of the Indenture,
Consolidated Debt shall include the aggregate amount of Indebtedness
outstanding at the time of such transaction of such other Person party to such
merger or consolidation.
"Consolidated Debt to Annualized Operating Cash Flow Ratio" means, as at any
date of determination, the ratio of (i) Consolidated Debt to (ii) the
Annualized Operating Cash Flow of iPCS as of the most recently completed fiscal
quarter of iPCS for which financial statements are publicly available.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (1) the aggregate interest expense and fees and other financing
costs in respect of Indebtedness (including amortization of original issue
discount and non-cash interest payments and accruals), (2) the interest
component in respect of Capital Lease Obligations and any deferred payment
obligations of such Person and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP, (3) all commissions, discounts,
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs (including amortization of discounts)
associated with interest rate swap and similar agreements and with foreign
currency hedge, exchange and similar agreements and (4) the product of (a) all
dividend payments on any series of Preferred Capital Stock of such Person or
any of its Restricted Subsidiaries, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) all gains or losses which are either extraordinary (as determined in
accordance with GAAP) or are nonrecurring (including any gain or loss from
the sale or other disposition of assets outside the ordinary course of
business or from the issuance or sale of any capital stock) shall be
excluded;
(2) the Net Income, if positive, of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Subsidiary thereof;
(3) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
152
<PAGE>
approval that has not been obtained or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(4) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(5) the Net Income, if positive, of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the specified Person or one of its
Subsidiaries; and
(6) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the aggregate consolidated stockholders' equity of such Person (plus amounts of
equity attributable to preferred stock) and its Consolidated Restricted
Subsidiaries, as would be shown on the consolidated balance sheet of such
Person prepared in accordance with GAAP, adjusted to exclude (to the extent
included in calculating such equity), (a) the amount of any such stockholders'
equity attributable to Disqualified Stock or treasury stock of such Person and
its Consolidated Restricted Subsidiaries, (b) all upward revaluations and other
write-ups in the book value of any asset of such Person or a Consolidated
Restricted Subsidiary of such Person subsequent to the date of the Indenture,
(c) all downward revaluations and other write-downs in the book value of any
asset of such Person or a Consolidated Restricted Subsidiary of such Person
subsequent to the date of the Indenture, and (d) all investments in Persons
that are not Consolidated Restricted Subsidiaries.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of iPCS, if and to the extent that the
accounts of each such Restricted Subsidiary would normally be consolidated with
those of iPCS in accordance with GAAP; provided, however, that "Consolidation"
shall not include consolidation of the accounts of any Unrestricted Subsidiary,
but the interest of iPCS or any Restricted Subsidiary in any Unrestricted
Subsidiary shall be accounted for as an investment. The term "Consolidated" has
a correlative meaning.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of iPCS who:
(1) was a member of such Board of Directors on the date of the
Indenture;
(2) was appointed or nominated to the Board of Directors by the holders
of the Series A-1 Preferred Stock and Series A-2 Preferred Stock, or
(3) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Facilities" means, with respect to iPCS or any Guarantor, one or
more debt facilities or commercial paper facilities, in each case with banks,
vendors or other institutional lenders providing for revolving credit loans,
term loans, receivables financing, including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables, or letters of credit, and shall include the Senior
Financing, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
153
<PAGE>
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Senior Debt" means (a) Indebtedness under the Senior Financing
and (b) any other Senior Debt of the Guarantors that has been designated by
iPCS in writing to the Trustee as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof, or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require iPCS to repurchase such Capital Stock
upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
iPCS may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Selected Covenants--Limitation on
Restricted Payments." In addition, for purposes hereof, (i) Equity Interests in
the form of up to $70.0 million of Series A-2 Preferred Stock issued after the
Issue Date and (ii) Equity Interests issued as payment of dividends on the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock, which dividends
shall be paid in additional shares of Series A-1 Preferred Stock and Series A-2
Preferred Stock, as the case may be, shall not be considered to be Disqualified
Stock.
"Domestic Subsidiary" means any Subsidiary other than (a) a Foreign
Subsidiary or (b) a Subsidiary of a Foreign Subsidiary.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excludes any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Equity Offering" means any public offering or private sale of Capital Stock
of iPCS in which the net proceeds to iPCS are at least $35 million.
"Event of Termination" means any of the events described in (1) Section 11.3
of the Management Agreement; (2) Section 13.2 of the Trademark Agreement or (3)
Section 13.2 of the Spectrum Trademark Agreement.
"Exchange Act" means the Securities Exchange Act of 1934.
"Existing Indebtedness" means all Indebtedness of iPCS, the Guarantors and
their Restricted Subsidiaries in existence on the date of the Indenture, and
any refinancing of the same, until such amounts are repaid.
"Fair Market Value" means, with respect to any Property, the price that
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market
154
<PAGE>
Value shall be determined, except as otherwise provided, (a) if such Property
has a Fair Market Value equal to or less than $5.0 million, by any Officer of
iPCS, or (b) if such Property has a Fair Market Value in excess of $5.0
million, by a majority of the Board of Directors and evidenced by a Board
Resolution, dated within 30 days of the relevant transaction, delivered to the
Trustee.
"Foreign Subsidiary" means any Subsidiary which is not organized under the
laws of the United States of America or any State thereof or the District of
Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Government Securities" means (1) any security which is (a) a direct
obligation of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) an
obligation of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation of the United
States of America, which, in either case, is not callable or redeemable at the
option of the issuer thereof, and (2) any depository receipt issued by a bank,
as defined in the Securities Act, as custodian with respect to any Government
Securities and held by such bank for the account of the holder of such
depository receipt, or with respect to any specific payment of principal of or
interest on any Government Securities which is so specified and held, provided
that, except as required by law, such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the Government
Securities or the specific payment of principal or interest evidenced by such
depository receipt.
"Guarantee" means any guarantee of the Notes by any Guarantor pursuant to
the Indenture.
"Guarantee Obligations" means the obligation of each Guarantor pursuant to
its Guarantee of:
(a) the full and punctual payment of principal and interest on the Notes
when due, whether at maturity, by acceleration, by redemption or otherwise,
and all other monetary obligations of iPCS under the Notes; and
(b) the full and punctual performance within applicable grace periods of
all other obligations of iPCS under the Notes.
"Guarantors" means each existing Domestic Subsidiary and any future
Domestic Subsidiary that guarantees the Notes in accordance with the
provisions of the Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
155
<PAGE>
"Indebtedness" of any Person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of such Person, to the extent such
liabilities and obligations would appear as a liability upon the consolidated
balance sheet of such Person in accordance with GAAP, (i) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such Person or only to a portion thereof), (ii) evidenced by
bonds, notes, debentures or similar instruments, or (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 60 days past their original due
date) those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such Person (i) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (ii)
relating to Capital Lease Obligations, or (iii) evidenced by a letter of credit
or a reimbursement obligation of such Person with respect to any letter of
credit; (c) all net obligations of such Person under Hedging Obligations; (d)
all liabilities and obligations of others of the kind described in the
preceding clause (a), (b) or (c) that such Person has guaranteed or provided
credit support or that is otherwise its legal liability or which are secured by
any assets or property of such Person and all obligations to purchase, redeem
or acquire any third party Equity Interests; (e) any and all deferrals,
renewals, extensions, refinancing and refundings (whether direct or indirect)
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a), (b), (c) or (d), or this clause
(e), whether or not between or among the same parties; and (f) all Disqualified
Stock of such Person (measured at the greater of its voluntary or involuntary
maximum fixed repurchase price plus accrued and unpaid dividends); provided,
that any indebtedness which has been defeased in accordance with GAAP or
defeased pursuant to the deposit of cash or Government Securities (in an amount
sufficient to satisfy all such indebtedness obligations at maturity or
redemption, as applicable, and all payments of interest and premium, if any) in
a trust or account created or pledged for the sole benefit of the holders of
such indebtedness, and subject to no other Liens, and the other applicable
terms of the instrument governing such indebtedness, shall not constitute
"Indebtedness." The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, but the accretion of original issue discount in
accordance with the original terms of Indebtedness issued with an original
issue discount will not be deemed to be an incurrence and (ii) the principal
amount thereof, together with any interest thereon that is more than 30 days
past due, in the case of any other Indebtedness. For purposes of this
definition, Indebtedness shall not include any amounts representing
contributions from investors in the investor group led by Blackstone in
exchange for Series A-1 Preferred Stock and Series A-2 Preferred Stock.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans, including guarantees of Indebtedness or other obligations,
advances or capital contributions, excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business,
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If iPCS, any Guarantor or any Restricted Subsidiary sells or otherwise disposes
of any Equity Interests of any direct or indirect Restricted Subsidiary such
that, after giving effect to any such sale or disposition, such Person is no
longer a Restricted Subsidiary, iPCS shall be deemed to
156
<PAGE>
have made an Investment on the date of any such sale or disposition equal to
the fair market value of any Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "--Selected Covenants--
Limitation on Restricted Payments."
"Issue Date" means the date on which the Notes are initially issued.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code, or equivalent statutes, of any jurisdiction.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person and its Restricted Subsidiaries, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends, excluding,
however:
(1) any gain, but not loss, together with any related provision for
taxes on such gain (but not loss), realized in connection with: (a) any
Asset Sale; or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain, but not loss, together with any related
provision for taxes on such extraordinary gain, but not loss.
"Net Proceeds" means the aggregate cash proceeds received by iPCS, any
Guarantor or any of their Restricted Subsidiaries in respect of any Asset Sale,
including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale, net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, in each case after taking into account any available tax
credits or deductions and any tax sharing arrangements and amounts required to
be applied to the repayment of Indebtedness, other than Senior Debt, secured by
a Lien on the asset or assets that were the subject of such Asset Sale and
appropriate amounts to be provided by iPCS, any Guarantor or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by iPCS,
any Guarantor or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither iPCS nor any of its Restricted Subsidiaries (a)
provides credit support of any kind, including any undertaking, agreement
or instrument that would constitute Indebtedness, (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender;
157
<PAGE>
(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit upon notice, lapse of time or both any holder of
any other Indebtedness, other than the Notes, of iPCS or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of iPCS or any of its
Restricted Subsidiaries.
"Note Obligations" means all Obligations with respect to the Notes,
including without limitation, principal of, premium, if any, and interest, if
any, payable pursuant to the terms of the Notes (including upon the
acceleration of redemption thereof), together with and including any amounts
received or receivable upon the exercise of rights of recision or other rights
of action (including claims for damages) or otherwise.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means the Chief Executive Officer, the Chief Operations Officer,
the Chief Financial Officer or the Chief Technology Officer of iPCS.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President or Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary, or an Assistant Secretary, of iPCS, and delivered to
the Trustee.
"Operating Cash Flow" means, for any fiscal quarter, iPCS' Consolidated Net
Income (Loss) plus (to the extent deducted from net revenues in determining
Consolidated Net Income (Loss) for such period), the sum of (i) depreciation,
amortization and other non-cash charges in respect thereof for such fiscal
quarter, and (ii) all amounts deducted in calculating Consolidated Net Income
(Loss) for such fiscal quarter in respect of Consolidated Interest Expense, and
all income taxes, whether or not deferred, applicable to such income period,
all as determined on a consolidated basis in accordance with GAAP, less the
amount of all cash payments made by such Person or any of its Restricted
Subsidiaries during such period to the extent such payments relate to non-cash
charges that were added back in determining Operating Cash Flow for such period
or any prior period; provided, that consolidated income tax expense and
depreciation and amortization of a Restricted Subsidiary that is a less than
Wholly Owned Subsidiary shall only be added to the extent of the equity
interest of iPCS in such Restricted Subsidiary. For purposes of calculating
Operating Cash Flow for the fiscal quarter most recently completed for which
financial statements are publicly available prior to any date on which an
action is taken that requires a calculation of the Operating Cash Flow to
Consolidated Interest Expense Ratio or Consolidated Debt to Annualized Cash
Flow Ratio, (1) any Person that is a Restricted Subsidiary on such date (or
would become a Restricted Subsidiary in connection with the transaction that
requires the determination of such ratio) will be deemed to have been a
Restricted Subsidiary at all times during such fiscal quarter, (2) any Person
that is not a Restricted Subsidiary on such date (or would cease to be a
Restricted Subsidiary in connection with the transaction that requires the
determination of such ratio) will be deemed not to have been a Restricted
Subsidiary at any time during such fiscal quarter and (3) if iPCS or any
Restricted Subsidiary shall have in any manner acquired (including through
commencement of activities
158
<PAGE>
constituting such operating business) or disposed of (including through
termination or discontinuance of activities constituting such operating
business) any operating business during or subsequent to the most recently
completed fiscal quarter, such calculation will be made on a pro forma basis
(to the extent permitted by Regulation S-X) on the assumption that such
acquisition or disposition had been completed on the first day of such
completed fiscal quarter.
"Paying Agent" means any Person authorized by iPCS to pay the principal of,
and premium, if any, or interest on any Notes on behalf of iPCS.
"Permitted Business" means the business primarily involved in the ownership,
design, construction, development, acquisition, installation, integration,
management and/or provision of Telecommunications Assets or any business or
activity reasonably related or ancillary thereto, including, without
limitation, any business conducted by iPCS, any Guarantor or any Restricted
Subsidiary on the Issue Date.
"Permitted Investments" means:
(1) any Investment by iPCS in a Restricted Subsidiary that is a
Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by iPCS or any Restricted Subsidiary in a Person, if
as a result of or in connection with such Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary that is
a Guarantor; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, iPCS or a Wholly Owned Restricted Subsidiary that is a
Guarantor;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Selected
Covenants--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests, other than Disqualified Stock, of iPCS;
(6) investments, the payment of which consists only of Equity Interests,
other than Disqualified Stock; and
(7) other Investments in any Person having an aggregate fair market
value, measured on the date each such Investment was made and without
giving effect to subsequent changes in value, when taken together with all
other Investments made pursuant to this clause (7) since the date of the
Indenture, not to exceed $50.0 million.
"Permitted Junior Securities" means, with respect to any Guarantor, Equity
Interests in such Guarantor or its Subsidiaries or debt securities of such
Guarantor or its Subsidiaries that are subordinated to all Senior Debt of such
Guarantor (and any debt securities issued in exchange for such Senior Debt) to
substantially the same extent as, or to a greater extent than, the Guarantees
are subordinate to such Senior Debt.
159
<PAGE>
"Permitted Liens" means:
(1) Liens on the assets of iPCS and any Guarantor securing Indebtedness
and other Obligations under Credit Facilities that were permitted by the
terms of the Indenture to be incurred;
(2) Liens in favor of iPCS or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with iPCS or any Restricted Subsidiary;
provided that such Liens were in existence prior to the contemplation of
such merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with iPCS or the Restricted
Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by
iPCS or any Restricted Subsidiary, provided that such Liens were in
existence prior to the contemplation of such acquisition;
(5) Liens and deposits made to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations
of a like nature incurred in the ordinary course of business;
(6) Liens to secure Purchase Money Indebtedness and Capital Lease
Obligations, permitted by clause (4) of the second paragraph of the
covenant entitled "Limitation on Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Purchase Money
Indebtedness and Capital Lease Obligations;
(7) Liens existing on the date of the Indenture;
(8) Liens on Assets of Guarantors to secure Senior Debt of such
Guarantor that was permitted by the Indenture to be incurred;
(9) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; and
(10) Liens incurred in the ordinary course of business of iPCS or any
Restricted Subsidiary with respect to obligations that do not exceed $10.0
million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of iPCS or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of iPCS or any of its Restricted Subsidiaries, other than
intercompany Indebtedness; provided that:
(1) the principal amount, or accreted value, if applicable, of such
Permitted Refinancing Indebtedness does not exceed the principal amount of,
or accreted value, if applicable, plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
by iPCS as necessary to accomplish such refinancing, plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased
or refunded, plus the amount of reasonable expenses incurred in connection
therewith;
160
<PAGE>
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
Notes on terms at least as favorable to the holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by iPCS or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Permitted Telecommunications Exchange Transaction" means a transaction in
which Telecommunications Assets are exchanged for any combination of
Telecommunications Assets and cash or Cash Equivalents.
"Permitted Tower Sale and Leaseback Transactions" means the sale and
leaseback transactions contemplated by the Tower Sale and Leaseback Agreement
between Illinois PCS, L.L.C. (the predecessor entity of iPCS) and American
Tower Corporation and other tower sale and leaseback transactions entered into
by iPCS, the Guarantors or any of their Restricted Subsidiaries in the
ordinary course of business and consistent with past practice.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Capital Stock," as applied to the Capital Stock of any Person,
means Capital Stock of such Person of any class or classes, however
designated, that ranks prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Principals" means Geneseo Communications, Inc., Cambridge Telcom, Inc.,
and Blackstone.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the Indenture,
the value of any Property shall be its Fair Market Value.
"Purchase Money Indebtedness" of any Person means any Indebtedness of such
Person to any seller or other Person incurred solely to finance the
acquisition (including in the case of a Capital Lease Obligation, the lease),
construction, installation or improvement of any acquired real or personal
tangible property which is incurred within 90 days following such acquisition,
construction, installation or improvement and is secured only by the assets so
financed.
161
<PAGE>
"Qualified Receivables" means, at any time, net Receivables of iPCS and its
Restricted Subsidiaries, as evidenced on the most recent quarterly consolidated
balance sheet of iPCS as at a date at least 45 days prior to such time, arising
in the ordinary course of business of iPCS or any Restricted Subsidiary.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right of payment of money and
proceeds and products thereof in each case generated in the ordinary course of
business.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, pursuant to which iPCS, the Guarantors or any of
their Restricted Subsidiaries sells their accounts receivable to an Accounts
Receivable Subsidiary.
"Receivables Fees" means distributions or payments made directly or by means
of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"Restricted Investment" means any Investment that is not a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary. Unless the context otherwise
requires, a Restricted Subsidiary means a Subsidiary of iPCS that is not an
Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness outstanding under Credit Facilities and all Hedging
Obligations with respect thereto; and
(2) all Obligations with respect to the items listed in the preceding
clause (1).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing
by iPCS;
(2) any Indebtedness of iPCS to any of its Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the Indenture.
"Senior Financing" means the Amended and Restated Credit Agreement dated as
of July 12, 2000 by and among iPCS Wireless, Inc., iPCS Equipment, Inc.,
Toronto Dominion (Texas), Inc. as Administrative Agent, GE Capital Corporation
as Syndication Agent, and the lending entities on the signature pages thereto,
as such may be amended, restated, modified, renewed, refunded, replaced,
increased (as may be permitted by the Indenture) or refinanced in whole or in
part from time to time.
"Series A-1 Preferred Stock" means the $50.0 million aggregate amount of the
series of Preferred Capital Stock designated as Series A-1 Convertible
Participating Preferred Stock of iPCS pursuant to a Certificate of Designations
filed with the Delaware Secretary of State.
"Series A-2 Preferred Stock" means the $70.0 million aggregate amount of the
series of Preferred Capital Stock designated as Series A-2 Convertible
Participating Preferred Stock of iPCS pursuant to a Certificate of Designations
filed with the Delaware Secretary of State.
162
<PAGE>
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Sprint Agreements" means the (1) Management Agreement between SprintCom,
Inc. and Illinois PCS, L.L.C. (the predecessor entity of iPCS), dated as of
January 22, 1999, and any exhibits, schedules or addendum thereto, as such may
be amended, modified or supplemented from time to time (the "Management
Agreement"); (2) Sprint PCS Services Agreement between Sprint Spectrum L.P. and
Illinois PCS, L.L.C. (the predecessor entity of iPCS), dated as of January 22,
1999, and any exhibits, schedules or addendum thereto, as such may be amended,
modified or supplemented from time to time; (3) Sprint Trademark and Service
Mark License Agreement between Sprint Communications Company, L.P. and Illinois
PCS, L.L.C. (the predecessor entity of iPCS), dated as of January 22, 1999, and
any exhibits, schedules or addendum thereto, as such may be amended, modified
or supplemented from time to time (the "Trademark Agreement"); and (4) Sprint
Trademark and Service mark License Agreement between Sprint Spectrum L.P. and
Illinois PCS, L.L.C. (the predecessor entity of iPCS), dated as of January 22,
1999, and any exhibits, schedules or addendum thereto, as such may be amended,
modified or supplemented from time to time (the "Spectrum Trademark
Agreement").
"Sprint PCS Affiliate" means any Person whose sole or predominant business
is operating a personal communications services business pursuant to
arrangements with Sprint Spectrum L.P. and/or its Affiliates, or their
successors, similar to the Sprint Agreements.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled,
without regard to the occurrence of any contingency, to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person, or a combination thereof; and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are such Person or of one or more
Subsidiaries of such Person, or any combination thereof.
"Telecommunications Assets" means, with respect to any Person, any asset
that is utilized by such Person, directly or indirectly, for the design,
development, construction, installation, integration, operation, management or
provision of wireless telecommunications equipment, inventory, technology,
systems and/or services. Telecommunications Assets shall include stock, joint
venture or partnership interests of an entity where a majority of the assets of
the entity consist of Telecommunications Assets.
163
<PAGE>
"Total Invested Capital" means at any time of determination, the sum of,
without duplication, (i) the total amount of equity contributed to iPCS or any
Restricted Subsidiary as of the Issue Date (being $80.0 million minus fees and
expenses payable on the sale of $50.0 million of Series A-1 Preferred Stock to
an investor group led by Blackstone), plus (ii) the sum of (x) the aggregate
net cash proceeds received by iPCS from capital contributions or any other
issuance or sale of Capital Stock (other than Disqualified Stock but including
Capital Stock issued upon the conversion of convertible Debt or from the
exercise of options, warrants or rights to purchase Capital Stock (other than
Disqualified Stock)), subsequent to the Issue Date, other than to a Restricted
Subsidiary, and (y) in the case of any consolidation or merger of iPCS with or
into another Sprint PCS Affiliate, the aggregate net cash proceeds received by
such Sprint PCS Affiliate from capital contributions or any other issuance or
sale of Capital stock (other than Disqualified Stock but including Capital
Stock issued upon the conversion of convertible Indebtedness or from the
exercise of options, warrants or rights to purchase Capital Stock (other than
Disqualified Stock)) through and including the date of consummation of any
such consolidation or merger, other than to a subsidiary of such other Sprint
PCS Affiliate, plus (iii) the aggregate net repayment of any Investment made
after the Issue Date and constituting a Restricted Payment in an amount equal
to the lesser of (a) the return of capital with respect to such Investment and
(b) the initial amount of such Investment, in either case, less the cost of
the disposition of such Investment, plus (iv) an amount equal to the
Consolidated Net Investment (as of the date of determination) iPCS and/or any
of the Restricted Subsidiaries has made in any Subsidiary that has been
designated as an Unrestricted Subsidiary after the Issue Date upon its
redesignation as a Restricted Subsidiary in accordance with the covenant
described under the caption "--Selected Covenants--Designation of Restricted
and Unrestricted Subsidiaries," plus (v) Consolidated Debt minus (vi) the sum
of (x) the aggregate amount of all Restricted Payments declared or made on or
after the Issue Date and (y) in the case of any consolidation or merger of
iPCS with or into another Sprint PCS Affiliate, the aggregate amount of all
payments which, if such other Sprint PCS Affiliate were governed by the terms
of the Indenture, would have constituted Restricted Payments declared or made
by such Sprint PCS Affiliate through and including the date of consummation of
any such consolidation or merger. For purposes of this definition, the equity
contributed or to be contributed in exchange for the issuance of Series A-1
Preferred Stock and Series A-2 Preferred Stock shall be counted as equity
contributions pursuant to clause (i) above.
"Trustee" means the trustee under the Indenture.
"Unrestricted Subsidiary" means any Subsidiary of iPCS or a Guarantor that
is designated by the Board of Directors as an Unrestricted Subsidiary pursuant
to a Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with iPCS or any Restricted Subsidiary unless the terms of
any such agreement, contract, arrangement or understanding are no less
favorable to iPCS or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of iPCS;
(3) is a Person with respect to which neither iPCS nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to
164
<PAGE>
maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of iPCS or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of iPCS or any of its Restricted Subsidiaries
and has at least one executive officer that is not a director or executive
officer of iPCS or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of iPCS or a Guarantor as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution making such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"--Selected Covenants--Limitation on Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary as of such
date and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described under the caption "Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock," iPCS shall be in default of such
covenant. The Board of Directors of iPCS may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if (1) such Indebtedness is permitted
under the covenant described under the caption "--Selected Covenants--
Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years, calculated to the nearest one-
twelfth, that will elapse between such date and the making of such payment;
by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
165
<PAGE>
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which,
other than directors' qualifying shares, shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
166
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The following summarizes all of the material terms and provisions of our
capital stock. We have 375,000,000 shares of authorized capital stock,
including 300,000,000 shares of common stock, par value $0.01 per share, and
75,000,000 shares of preferred stock, par value $0.01 per share. As of
September 30, 2000, there were 44,869,643 shares of common stock and 9,090,909
shares of convertible of preferred stock issued and outstanding. As of that
date there were seven holders of record of the outstanding shares of common
stock and ten holders of record of the convertible preferred 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 75,000,000 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 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.
167
<PAGE>
Series A-1 Preferred Stock
With respect to dividends and distributions upon our liquidation, winding-up
and dissolution, the Series A-1 Preferred Stock ranks senior to our common
stock and on parity with the Series A-2 Preferred Stock, if issued. In
addition, upon our liquidation, holders of Series A-1 Preferred Stock will be
entitled to receive a liquidation preference of approximately $50.0 million,
plus dividends of 7.5% per year.
The Series A-1 Preferred Stock has a term of eleven years, and we will be
obligated to redeem all outstanding shares of Series A-1 Preferred Stock on
July 12, 2011 for an aggregate amount equal to its accrued liquidation
preference. At any time and from time to time prior to the redemption date,
holders of the Series A-1 Preferred Stock may, at their option, convert all or
any such shares into shares of our common stock. The conversion price is
subject to adjustment upon the occurrence of certain events, including the
following: certain issuances of additional shares of common stock, or
securities convertible into shares of common stock, at a price below $5.50 per
share; a stock split or combination; and certain dividends and distributions.
Each share of Series A-1 Preferred Stock shall automatically convert into
shares of our common stock upon the earlier to occur of the following:
. the closing of an underwritten public offering of our common stock in
which we receive aggregate gross proceeds of at least $50.0 million and
in which the per share price at which such shares are sold in the
offering is at least $11.00 per share (subject to adjustment);
. upon our consummation of a transaction with a public company that results
in a change of control; and
. upon our consummation of a transaction with a private company that
results in a change of control (and with respect to which the investor
group has not waived its right to receive the special dividend payable by
us upon such change of control).
Dividends
Dividends shall be payable semiannually on each share of Series A-1
Preferred Stock at a rate of 7.5% per year and, when paid, shall be paid only
in additional shares of Series A-1 Preferred Stock. Such dividends will accrue
daily whether or not we have earnings or profit, whether or not there are funds
legally available for payment of such dividends and whether or not dividends
are declared. Dividends shall accumulate and compound semi-annually. In
addition to the 7.5% dividend, when and if our Board of Directors declares a
dividend payable with respect to the then outstanding shares of our common
stock, the holders of the Series A-1 Preferred Stock shall be entitled to the
amount of dividends per share as would be payable on the number of shares of
our common stock into which such share of Series A-1 Preferred Stock could then
be converted. Upon the occurrence of a change of control prior to July 12,
2005, we will be obligated to pay a special dividend to each holder of Series
A-1 Preferred Stock (except as to any changes of control in connection with a
business combination with a private company as to which the investor group
waives its right to receive such dividend) in an amount equal to the amount of
all unpaid dividends that would have been payable through July 12, 2005.
With respect to our Preferred Stock, a "change of control" occurs upon the
happening of any of the following events:
. any person who is not currently a holder of our stock is or becomes a
beneficial owner of more than 50% of the aggregate voting power of our
securities;
168
<PAGE>
. Geneseo, Cambridge and their affiliates collectively do not beneficially
own more shares of our voting securities than any other person (other
than the investor group and its affiliates), which person beneficially
owns more than 35% of our voting securities;
. any transaction occurs that results in our stockholders immediately prior
to such transaction being the holders of less than 50% of the aggregate
voting power of the securities of the resulting company after such
transaction;
. a majority of the members of our Board of Directors consists of
individuals who are neither members of the Board on the closing date or
appointed by the investor group, full time employees or directors of one
of our stockholders at such time or an individual who was requested to be
placed on the Board by a stockholder;
. a merger, consolidation, sale of assets or other similar business
combination transaction is consummated and, as a direct result, Mr. Yager
ceases to be our Chief Executive Officer or that of our successor; or
. any liquidation, dissolution or winding up of us, or a dividend or
distribution to our stockholders of more than 50% of our assets.
Voting
Holders of our Series A-1 Preferred Stock shall be entitled to vote on all
matters submitted to a vote of our stockholders as if the holders of Series A-1
Preferred Stock had converted their shares immediately prior to the vote. In
addition, the vote of at least a majority of the then outstanding shares of
Series A-1 Preferred Stock, voting together as a single class, shall be
necessary for effecting or validating the following actions:
. any amendment, alteration or change to the rights, preferences,
privileges or powers of the Series A-1 Preferred Stock in any manner that
adversely affects the shares of such series;
. any increase or decrease in the total number of authorized or issued
shares of Series A-1 Preferred Stock, other than the dividend issuances
of such shares;
. any authorization, creation or issuance of any senior or parity
securities other than the issuance of Series A-2 Preferred Stock;
. any redemption, acquisition or other purchase of any shares of our, or
any of our subsidiary's, capital stock or other equity security, subject
to some exceptions;
. any change of our certificate of incorporation or bylaws that would
adversely affect the holders of the Series A-1 Preferred Stock; or
. any voluntary liquidation, dissolution or winding up of us.
Series A-2 Preferred Stock
The Series A-2 Preferred Stock has the same rights, preferences, powers,
restrictions and limitations as the Series A-1 Preferred Stock.
169
<PAGE>
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 have issued to
Sprint Spectrum L.P., or any of its designees controlled by, or under common
control with, Sprint Spectrum L.P. warrants for 1,151,938 shares. The warrants
are exercisable by Sprint Spectrum L.P. at an exercise price of $4.95 per share
beginning on or after July 15, 2001 and expiring on July 15, 2007. 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.
Unit Warrants
As part of our units offering, we issued and sold warrants to purchase an
aggregate of 2,982,699 shares of our common stock pursuant to a warrant
agreement between us and ChaseMellon Shareholder Services, L.L.C., as the
warrant agent. We have filed a copy of the warrant agreement as an exhibit to
the registration statement, which includes this prospectus.
The holders of the unit warrants are entitled, in the aggregate, to purchase
2,982,699 shares of our common stock, representing approximately 5% of the
issued and outstanding shares of our common stock on a fully diluted basis,
assuming exercise of the Sprint warrants and all options outstanding or that
have or may be issued under our 2000 Plan. The unit warrants become exercisable
at any time after July 15, 2001 for a period of ten years from the date of
issuance. The unit warrants currently trade separately from the notes in the
Private Offerings and Resales trading through Automated Linkages (PORTAL)
market.
Each of the warrants, when exercised, will entitle the holder to receive
9.94233 fully paid and non-assessable shares of our common stock, at an
exercise price of $5.50 per share, subject to adjustment from time to time in
several circumstances including the following:
(1) the payment by us of dividends and other distributions on our common
stock;
(2) subdivision, combinations and reclassifications of our common stock;
(3) the issuance to all holders of common stock of such rights, options or
warrants entitling them to subscribe for our common stock or securities
convertible into, or exchangeable or exercisable for, our common stock
at a price which is less than the fair market value per share of our
common stock;
(4) certain distributions to all holders of our common stock of any of our
assets or debt securities or any rights or warrants to purchase any
such securities, excluding those rights and warrants referred to in
clause (3) above;
(5) the issuance of shares of our common stock for consideration per share
less than the then fair market value per share of our common stock at
the time of issuance of such convertible
170
<PAGE>
or exchangeable security, excluding securities issued in transactions
referred to in clauses (1) through (4) above, or (6) below; and
(6) the issuance of securities convertible into or exchangeable for our
common stock for a conversion or exchange price plus consideration
received upon issuance less than the then fair market value per share
of our common stock at the time of issuance of such convertible or
exchangeable security, excluding securities issued in transactions
referred to in (1) through (4) above.
The events described above are subject to certain exceptions described in
the warrant agreement including:
. issuances of options, convertible securities or common stock to
employees, directors or consultants of us or any of our subsidiaries
pursuant to a plan approved by our board of directors;
. rights to purchase common stock pursuant to a plan for reinvestment of
dividends or interest; and
. issuances of common stock, options or convertible securities in
connection with mergers and acquisitions with non-affiliated third
parties.
We are required, under the terms of a warrant registration rights agreement
to:
. file a shelf registration statement on or before October 10, 2000
covering the resale of the unit warrants, the issuance of the common
stock issuable upon exercise of the unit warrants and the resale of the
common stock issuable upon exercise of the unit warrants;
. use our reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act on or before January 8,
2000; and
. keep the shelf registration statement continuously effective until the
date on which all of the unit warrants or shares of common stock issuable
thereunder have been sold pursuant to the shelf registration statement or
the unit warrants have expired.
If we fail to file the registration statement, or fail to cause the
registration statement to become effective, or fail to maintain its
effectiveness as specified above, a registration default shall be deemed to
have occurred and we will be required to pay liquidated damages to each holder
of a unit warrant. The liquidated damages payable to each holder of a warrant
will be in an amount equal to $0.03 per week per unit warrant held by such
holder for each week or portion thereof that the registration default
continues for the first 90-day period immediately following the occurrence of
such registration default. This amount will increase by an additional $0.02
per week per warrant with respect to each subsequent 90-day period, up to a
maximum amount equal to $0.07 per week per unit warrant. The provision for
liquidated damages will continue until such registration default has been
cured. We will not be required to pay liquidated damages for more than one
registration default at any given time.
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
171
<PAGE>
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 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
172
<PAGE>
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 ChaseMellon
Shareholder Services, L.L.C.
173
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This general discussion of certain U.S. federal income and estate tax
considerations with respect to the acquisition, ownership and disposition of a
registered note acquired in exchange for an outstanding note applies to you if
you acquired the outstanding note for cash on its original issuance at its
issue price and if you hold the outstanding note and the registered note as
capital assets within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended.
This discussion is based upon the Internal Revenue Code, Treasury
regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, each of which is subject to change at any time by
legislative, administrative, or judicial action, possibly with retroactive
effect. The discussion does not discuss every aspect of U.S. federal income and
estate taxation that may be relevant to a particular taxpayer in light of its
personal circumstances or to persons who are otherwise subject to special tax
treatment. For example, special rules not discussed here may apply to you if
you are:
. a bank or a broker-dealer;
. an insurance company;
. a pension or other employee benefit plan;
. a tax exempt organization or entity;
. a U.S. expatriate;
. trader in securities that elects market-to-market accounting treatment;
. a person holding registered notes as a part of a hedging or conversion
transaction or a straddle;
. a hybrid entity or an owner of interests therein; or
. a holder whose functional currency is not the U.S. dollar.
In addition, this discussion does not address the effect of any applicable
foreign, state, local or other tax laws. We have not sought and will not seek
any rulings from the Internal Revenue Service concerning the tax consequences
of the acquisition, ownership or disposition of a registered note and,
accordingly, we cannot assure you that the Internal Revenue Service will not
successfully challenge the tax consequences described below. We urge you to
consult your tax advisor with respect to the U.S. federal income and estate tax
considerations relevant to holding and disposing of a registered note as well
as any tax considerations applicable under the laws of any foreign, state,
local or other taxing jurisdiction.
Exchange of Notes
Your exchange of an outstanding note for a registered note pursuant to the
exchange offer should not be a taxable event for U.S. federal income tax
purposes. Accordingly, you should have the same adjusted basis, holding period,
issue price, adjusted issue price, stated redemption price at maturity, yield
and accrual periods for a registered note acquired pursuant to the exchange
offer as you had in the outstanding note immediately before the exchange. The
tax consequences of ownership and disposition of a registered note should be
the same as the tax consequences of the ownership and disposition of the
outstanding note surrendered in exchange for it.
174
<PAGE>
Accordingly, in the following discussion, the U.S. federal income tax
consequences with respect to a registered note assume that the registered note
is treated, for U.S. federal income tax purposes, as the same note as the
outstanding note for which it was issued and that the registered note has the
same adjusted basis, holding period, issue price, adjusted issue price, stated
redemption price at maturity, yield and accrual periods as the outstanding note
had in your hands immediately before the exchange, and that any amounts that
accrue or are paid or payable on an outstanding note are treated as accruing or
as paid or payable on the registered note.
U.S. Holders
If you are a "U.S. Holder," as defined below, this section applies to you.
Otherwise, the section "Non-U.S. Holders" applies to you. You are a U.S. Holder
if you are the beneficial owner of a registered note and you are:
. a citizen or resident of the United States, including an individual
deemed to be a resident alien under the "substantial presence" test of
Section 7701(b) of the Code;
. a corporation or partnership, including an entity treated as a
corporation or partnership for U.S. federal income tax purposes, created
or organized in the United States or under the law of the United States
or of any state thereof or the District of Columbia, unless, in the case
of a partnership, Treasury regulations provide otherwise;
. an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
. a trust whose administration is subject to the primary supervision of a
U.S. court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust. Notwithstanding the
preceding clause, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as U.S. persons prior
to that date that elect to continue to be treated as U.S. persons, shall
also be considered U.S. persons.
Original Issue Discount. Because the outstanding notes were issued at a
substantial discount from their principal amount at maturity and because there
would not be any payment of interest on the outstanding notes until January 16,
2006, the outstanding notes were issued with original issue discount, referred
to as "OID," in an amount equal to the excess of the "stated redemption price
at maturity" over the "issue price" of the outstanding notes. The "stated
redemption price at maturity" of the outstanding notes is the sum of all
payments to be made on the outstanding notes other than "qualified stated
interest." The term "qualified stated interest" means, generally, stated
interest that is unconditionally payable at least annually at a single fixed or
variable rate. Because no interest is to be paid on the outstanding or the
registered notes before 2006, none of the interest to be paid on the
outstanding or the registered notes is qualified stated interest. Accordingly,
all payments on the outstanding and the registered notes, both principal and
interest, are treated as part of the outstanding notes' stated redemption price
at maturity. The "issue price" of an outstanding note is equal to the portion
of the "issue price" of the unit that originally was issued (which constituted
an "investment unit" for U.S. federal income tax purposes consisting of an
outstanding note and the associated warrants) allocable to the outstanding note
based upon the relative fair market values of the outstanding note and the
associated warrants comprising the unit. Because the unit was issued for money,
the "issue price" of the unit was the first price at which a substantial amount
of the units
175
<PAGE>
was sold for money. For purposes of determining the issue price of the units,
sales to bond houses, brokers, or similar persons or organizations acting in
the capacity as underwriters, placement agents or wholesalers are ignored.
Under Treasury regulations, we have allocated the issue price of the units
between the outstanding notes and the associated warrants. That allocation will
be binding on all holders of units, unless a holder explicitly discloses (on a
form prescribed by the IRS and attached to the holder's timely-filed U.S.
federal income tax return for the taxable year that includes the acquisition
date of the unit) that its allocation of the issue price of a unit is different
from the issuer's allocation. Our allocation is not, however, binding on the
IRS. Based on our allocation, the issue price of each outstanding note was
$473.34.
As noted above, a U.S. Holder of a registered note should be subject to the
rules on OID in the same manner as if the registered note were a continuation
of the outstanding note for which it is issued. In that event, a registered
note would have the same adjusted basis, holding period, issue price, adjusted
issue price, stated redemption price at maturity, yield and accrual periods as
the outstanding note had in your hands immediately before the exchange, and any
amounts that accrue or are paid or payable on an outstanding note are treated
as accruing or as paid or payable on the registered note. Under the rules on
OID, a U.S. Holder of a registered note, in general, must include in income OID
calculated on a constant-yield accrual method prescribed by Treasury
regulations in advance of the receipt of some or all of the related cash
payments. The amount of OID included in income by an initial U.S. Holder of a
registered note is the sum of the "daily portions" of OID with respect to that
note for each day during the taxable year or portion of the taxable year in
which the U.S. Holder holds that note. This amount is referred to as "accrued
OID." The daily portion is determined by allocating to each day in any accrual
period a pro rata portion of the OID allocable to that accrual period. The
accrual period for the registered notes may be of any length selected by the
U.S. Holder and may vary in length over the term of the registered notes,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs on the first day or the final day of an
accrual period. The amount of OID allocable to any accrual period is equal to:
. the product of the registered note's adjusted issue price at the
beginning of the accrual period and the registered note's yield to
maturity (determined on the basis of compounding at the close of each
accrual period, properly adjusted for the length of the accrual period)
over
. the qualified stated interest allocable to the accrual period (which, in
the case of the registered notes, will be zero). OID allocable to the
final accrual period is the difference between the amount payable at
maturity of the registered note and the registered note's "adjusted issue
price" at the beginning of the final accrual period. Special rules will
apply in calculating OID for an initial short accrual period. The
"adjusted issue price" of a registered note at the beginning of any
accrual period is equal to its issue price increased by the accrued OID
for each prior accrual period for the outstanding and the registered note
and reduced by any payments made on the outstanding and the registered
note on or before the first day of the accrual period.
We may redeem the notes at any time on or after July 15, 2005 and, in
certain circumstances, may redeem or repurchase all or a portion of the notes
at any time prior to the maturity date. For purposes of calculating OID on the
notes, U.S. Treasury Department regulations will treat us as
176
<PAGE>
having exercised our option to redeem the notes if the exercise of that option
would lower the yield on the notes. Because our exercise of the option to
redeem would increase, rather than decrease, the yield on the notes, we will
not be treated as having exercised the option under these rules.
Interest payments on a registered note will not be includible in gross
income by a U.S. Holder but instead will constitute a nontaxable reduction in
the holder's adjusted tax basis in the registered note, as described below
under "Certain U.S. Federal Tax Considerations--U.S. Holders; Sale, Exchange or
Retirement of Notes."
Applicable High-Yield Discount Obligations. The registered notes will be
treated as "applicable high-yield discount obligations" for federal income tax
purposes because:
. the yield to maturity of the outstanding notes, computed as of the issue
date of the outstanding notes, equals or exceeds the sum of (i) the
"applicable federal rate" in effect for the month in which the
outstanding notes were issued and (ii) 5%, and
. the outstanding notes have "significant OID."
In general, OID on an outstanding note is significant if the aggregate
amount includible in gross income on the outstanding note before the close of
any accrual period ending more than five years after the issue date of the
outstanding note exceeds the sum of the aggregate amount of interest to be paid
on the outstanding note before the close of that accrual period plus the
product of the issue price of the outstanding note and the yield to maturity of
the outstanding note.
Because the registered notes are considered to be applicable high yield
discount obligations, the Company will not be allowed to deduct OID accrued on
the outstanding or registered notes until the Company actually pays the OID.
Moreover, because, and to the extent that, the yield to maturity of the
outstanding and registered notes exceeds the sum of the applicable federal rate
and 6%, the deduction for OID on the outstanding and registered notes will be
permanently disallowed to the extent the OID is attributable to the yield to
maturity of the outstanding and registered notes in excess of the sum of the
applicable federal rate and 6% (regardless of whether the Company actually pays
that OID). For purposes of the dividends-received deduction generally available
to corporations, payments of that excess yield will be treated as dividends to
the extent they are deemed to have been paid out of the Company's current or
accumulated earnings and profits as determined for U.S. federal income tax
purposes. U.S. Holders that are corporations should consult their tax advisors
as to applicability of the dividends-received deduction.
The relevant applicable federal rate for semiannual compounding for July
2000, the month the outstanding notes were issued, was 6.30%, and because the
yield on the outstanding notes was 15.4% and the amount of OID on the
outstanding notes was "significant", our deduction for a portion of the OID on
the outstanding and the registered notes will be deferred until it is paid, and
our deduction for the remaining portion of the OID will not be deductible at
any time and will be treated as a dividend to you to the extent it is paid out
of our current or accumulated earnings and profits.
Sale, Exchange or Retirement of Registered Notes. Upon a sale, exchange or
retirement of a registered note, a U.S. Holder will recognize gain or loss to
the extent of the difference between the
177
<PAGE>
sum of the cash and the fair market value of any property received for the
registered note and the U.S. Holder's adjusted tax basis in the registered
note. A U.S. Holder's tax basis in a registered note will equal the portion of
the issue price of the investment unit consisting of the outstanding note and
the associated warrants allocated to the note, as described in "--Original
Issue Discount," increased by any OID included in the holder's income on the
outstanding note and the registered note prior to the disposition of the
registered note and reduced by any payments received on the outstanding and the
registered note. Any gain or loss recognized by a U.S. Holder upon a sale,
exchange or retirement of a registered note will be capital gain or loss and
will be long-term capital gain or loss if the registered note has been held for
more than one year.
Liquidated Damages; Change of Control Redemption. We intend to take the
position that the likelihood of payment of liquidated damages described above
under "Description of the Registered Notes--Registration Rights; Liquidated
Damages" and that the likelihood of payment of a redemption premium upon the
occurrence of certain events described above under "Description of the
Registered Notes--Repurchase at the Option of Holders; Repurchase if a Change
of Control Occurs" is remote within the meaning of the applicable Treasury
regulations and that, therefore, the notes should not be subject to the special
rules applicable to "contingent interests" obligations and any of those
payments, if made, would be taxable to a U.S. Holder as ordinary income in
accordance with the U.S. Holder's regular method of income tax accounting. The
Internal Revenue Service may take a different position, however, which could
result in such amounts being accrued as income before being received in cash,
as discussed above under "Original Issue Discount."
Information Reporting; Backup Withholding. We are required to furnish to
record holders of the registered notes, other than corporations and other
exempt holders, and to the Internal Revenue Service, information with respect
to interest paid and OID accrued on the registered notes.
Certain U.S. Holders may be subject to backup withholding at the rate of 31%
with respect to interest and OID paid on a registered note or with respect to
proceeds received from a disposition of a registered note.
Generally, backup withholding applies only if:
. the payee fails to furnish a correct taxpayer identification number to
the payor in the manner required or fails to demonstrate that it
otherwise qualifies for an exemption;
. the Internal Revenue Service notifies the payor that the taxpayer
identification number furnished by the payee is incorrect;
. the payee has failed to report properly the receipt of a "reportable
payment" on one or more occasions, and the Internal Revenue Service has
notified the payor that withholding is required; or
. the payee fails (in certain circumstances) to provide a certified
statement, signed under penalties of perjury, that the taxpayer
identification number furnished is the correct number and that the holder
is not subject to backup withholding.
Backup withholding is not an additional tax but, rather, is a method of tax
collection. A U.S. Holder will be entitled to credit any amount withheld under
the backup withholding rules against its actual tax liability, provided the
required information is furnished to the Internal Revenue Service.
178
<PAGE>
Non-U.S. Holders
You are a Non-U.S. Holder if you are the beneficial owner of a registered note
and you are:
. a nonresident alien individual;
. a corporation or partnership (or an entity treated as a corporation or
partnership) created or organized in or under the law of a country (or a
political subdivision thereof) other than the United States; or
. a foreign estate or trust, which generally is an estate or trust that is
not a U.S. Holder.
Interest and OID. In general, interest paid to, and OID paid to or accrued
by, a Non-U.S. Holder of a registered note will not be subject to U.S.
withholding tax if it qualifies for the portfolio interest exemption, and it
will not otherwise be subject to U.S. federal income tax if it is not income
effectively connected with the Non-U.S. Holders' conduct of a United States
trade or business. Interest and OID on a registered note qualify for the
portfolio interest exemption if (i) the Non-U.S. Holder of the registered note
(a) does not own, actually and constructively, 10% or more of the total
combined voting power of all classes of our stock entitled to vote, (b) is not
a controlled foreign corporation related, directly or indirectly, to us through
stock ownership and (c) is not a bank receiving interest on an extension of
credit made pursuant to a loan agreement made in the ordinary course of its
trade or business and (ii) either (a) the Non-U.S. Holder certifies, under
penalties of perjury, to us or the paying agent, as the case may be, that it is
a Non-U.S. Holder and provides its name and address or (b) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the registered note on behalf of the Non-
U.S. Holder certifies, under penalties of perjury, that it or a Financial
Institution between it and the Non-U.S. Holder has received such a certificate
and furnishes the payor with a copy thereof. Recently adopted Treasury
regulations that generally will be effective for payments made on or after
January 1, 2001 provide alternative methods for satisfying the certification
requirement described in (ii) above. The new regulations generally will
require, in the case of a registered note held by a foreign partnership, that
the certificate described in (ii) above must be provided by the foreign
partners rather than by the foreign partnership.
OID (the aggregate amount of which includes all stated interest on the
outstanding and registered notes, as described in "Certain United States
Federal Income Tax Considerations--U.S. Holders--Original Issue Discount)
accrued by a Non-U.S. Holder that constitutes income effectively connected with
the Non-U.S. Holders' conduct of a United States trade or business will be
subject to U.S. federal income tax on a net income basis at graduated rates in
the same manner that a U.S. taxpayer is subject to tax and will be exempt from
the withholding tax described above. In the case of a Non-U.S. Holder that is a
corporation, such U.S. trade or business income under certain circumstances
also will be subject to an additional branch profits tax at a 30% rate (or, if
applicable, a lower treaty rate). The gross amount of OID paid to a Non-U.S.
Holder that does not qualify for the portfolio interest exemption and that is
not U.S. trade or business income will be subject to withholding of U.S.
federal income tax at the rate of 30%, unless a U.S. income tax treaty reduces
or eliminates withholding. To claim the benefit of a tax treaty or to claim an
exemption from withholding because income is U.S. trade or business income, a
Non-U.S. Holder must provide a properly executed Form W-8BEN or W-8ECI (or a
successor form), as applicable, prior to the payment of the income. These forms
generally must be updated periodically. Under the new
179
<PAGE>
regulations, a Non-U.S. Holder who is claiming the benefits of a tax treaty may
be required to obtain a U.S. TIN and to provide certain documentary evidence
issued by a foreign governmental authority to prove residence in the foreign
country. Special procedures are provided in the new regulations for payments
through qualified intermediaries. A holder of a registered note should consult
its own tax adviser regarding the effect, if any, of the new regulations on it.
Liquidated Damages; Change of Control Redemption. We believe that liquidated
damages and a redemption premium paid in the case of a registration default and
a change of control event, respectively, will be characterized as ordinary
income consistent with the discussion above under "U.S. Holders--Liquidated
Damages; Change of Control Redemption." A Non-U.S. Holder will be subject to a
30% U.S. withholding tax on such payments, unless such payments are effectively
connected with a United States trade or business of the Non-U.S. Holder, in
which case such payments would be subject to tax as described above with
respect to effectively connected income under "--Interest and OID" except that
if amounts paid in respect of a registration default or a change of control
constitute interest or OID, then such amounts would be subject to tax in the
same manner as interest and OID discussed above under "--Interest and OID."
Taxable Disposition of a Registered Note. Subject to the discussion below of
backup withholding, you generally will not be subject to U.S. federal income
tax on any gain recognized upon a sale, exchange, retirement or other taxable
disposition of a registered note. However, you will be subject to federal
income tax on the gain if:
. the gain is effectively connected with a United States trade or business
of the Non-U.S. Holder (in which case, if you are a foreign corporation
(or a foreign entity treated as a corporation), you may also be subject
to the branch profits tax at a 30% rate (or, if applicable, a lower
treaty rate)), or
. you are a non-resident alien individual, you are present in the United
States for 183 or more days in the taxable year of disposition and either
(a) you have a "tax home" in the United States for U.S. federal income
tax purposes of (b) the gain is attributable to an office or other fixed
place of business you maintain in the United States;
A Non-U.S. Holder's tax basis in a registered note will be equal to the portion
of the holder's tax basis in a unit that is allocated to the original note and
the original warrant comprising as described in "Certain U.S. Federal Tax
Consequences--U.S. Holders Original Issue Discount."
Federal Estate Tax. In the case of an individual who is not a citizen of the
United States and who is not domiciled in the United States at the time of
death, a registered note that is owned, or treated as owned, at the time of
death will not be subject to U.S. federal estate tax, unless (except as an
applicable estate tax treaty provides to the contrary) the individual owned,
actually and constructively, 10% or more of the total combined voting power of
all classes of our stock entitled to vote or the income on the note was
effectively connected with a United States trade or business.
In the case of an individual who is not a citizen of the United States but
who is domiciled in the United States at the time of death, a registered note
will be subject to U.S. federal estate tax, regardless of whether the
individual is not a resident of the United States, except as an applicable
estate tax treaty provides to the contrary.
180
<PAGE>
Information Reporting; Backup Withholding. We must report annually to the
IRS and to each Non-U.S. Holder any OID (the aggregate amount of which includes
all stated interest on the outstanding and registered notes, as described in
"Certain U.S. Federal Tax Considerations--U.S. Holders--Original Issue
Discount) that is subject to U.S. withholding tax or that is exempt from
withholding pursuant to a tax treaty or the portfolio interest exception.
Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides. Information reporting and backup
withholding (at a rate of 31%) do not apply to interest or OID paid to a Non-
U.S. Holder if the holder makes the requisite certification or otherwise
establishes an exemption provided that neither we nor our paying agent has
actual knowledge that the holder is not a Non-U.S. Holder or that the
conditions of any other exemption are not, in fact, satisfied.
The payment of the proceeds from the disposition of a registered note to or
through the U.S. office of any broker, U.S. or foreign, is subject to
information reporting and possible backup withholding unless the owner
certifies under penalties of perjury that it is not a U.S. Holder or otherwise
establishes an exemption provided that the broker does not have actual
knowledge that the holder is not a Non-U.S. Holder or that the conditions of
any other exemption are not, in fact, satisfied.
The proceeds of a disposition of a registered note by a Non-U.S. Holder to
or through a foreign office of a broker will not be subject to backup
withholding. However, information reporting will apply in the case of a "U.S.
related broker" unless the broker has documentary evidence in its files of the
Non-U.S. Holder's foreign status and has no actual knowledge to the contrary or
unless the Non-U.S. Holder otherwise establishes an exemption. A broker is a
"U.S. related broker" if the broker is a United States person, a controlled
foreign corporation for U.S. federal income tax purposes, a foreign person 50%
or more of whose income from all sources for a designated period is from
activities that are effectively connected with the conduct of trade or business
within the United States or, with respect to payments made on or after January
1, 2001, a foreign partnership that, at any time during its taxable year, is
owned 50% or more (by income or capital interest) by United States persons or
is engaged in the conduct of trade or business in the United States. The new
regulations provide certain presumptions under which a Non-U.S. Holder will be
subject to backup withholding and information reporting unless the Non-U.S.
Holder provides a certification as to its status as a Non-U.S. Holder.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or as a credit against the Non-U.S.
Holder's U.S. federal income tax liability, provided the requisite procedures
are followed.
PLAN OF DISTRIBUTION
Each broker-dealer that receives registered notes in exchange for
outstanding notes for its own account pursuant to the exchange offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such registered notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
registered notes received in exchange for outstanding notes where such
outstanding notes were
181
<PAGE>
acquired as a result of market-making activities or other trading activities.
We have agreed that we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale for a
period of one year after consummation of the exchange offer.
We will not receive any proceeds from any sale of registered notes by
broker-dealers. Registered notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the registered notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such registered notes. Any broker-
dealer that effects any resale of registered notes that were received by it for
its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such registered notes may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933 and any profit
on any such resale of registered notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act of 1933. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933.
For a period of one year after consummation of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal.
WHERE YOU CAN FIND MORE INFORMATION
iPCS, Inc. will, as a result of the exchange offer, be subject to the
periodic reporting and other informational requirements of the Exchange Act of
1934. We will file annual, quarterly and special reports and other information
with the SEC. In addition, we have agreed under the indenture that governs the
outstanding notes and the registered notes that, whether or not we are required
to do so by the rules and regulations of the SEC, for so long as any of the
outstanding notes or registered notes remain outstanding, we will furnish to
the holders of any of those securities and file with the SEC, unless the SEC
will not accept such a filing, (i) all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if we were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by our certified independent public accountants and (ii) all reports that would
be required to be filed with the SEC on Form 8-K if we were required to file
such reports. Notwithstanding the foregoing, such requirements shall be deemed
satisfied prior to November 15, 2000, by filing with the SEC and delivering to
the Trustee and the holders of the notes on or prior to November 15, 2000 a
registration statement which includes this prospectus and which contains the
information that would be required in a Form 10-Q for the quarter ended
September 30, 2000. In addition, for so long as any of the outstanding notes or
registered notes remain outstanding, we have agreed to make available to any
prospective purchaser or beneficial owner of any of those securities in
connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act.
182
<PAGE>
We have filed a registration statement on Form S-4 with the SEC to register
under the Securities Act the registered notes. This prospectus constitutes a
part of that registration statement. As allowed by the SEC's rules, this
prospectus does not contain all the information set forth in the registration
statement, certain parts of which have been omitted in accordance with the
rules and regulations of the SEC. Please refer to the registration statement
and related exhibits and schedules filed therewith for further information with
respect to us and the registered notes offered hereby. Statements contained
herein concerning the provisions of any document are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the registration statement or otherwise filed by us with the SEC
and each such statement is qualified in its entirety by such reference.
You may read and copy any document we file at the SEC's public reference
rooms located at 450 5th Street, N.W., Washington, D.C. 20549, at 7 World Trade
Center, Suite 1300, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at: http://www.sec.gov. This
information is available without charge upon written or oral request to:
iPCS, Inc.
1900 East Golf Road, Suite 900
Schaumburg, Illinois 60173
Attention: Chief Financial Officer
(847) 944-2900
You should rely only on the information provided in this prospectus or any
prospectus supplement. We have not authorized anyone else to provide you with
different information. We may not make an offer of the registered notes in any
state where the offer is not permitted. The delivery of this prospectus does
not, under any circumstances, mean that there has not been a change in our
affairs since the date of this prospectus. It also does not mean that the
information in this prospectus is correct after this date.
LEGAL MATTERS
Mayer, Brown & Platt, Chicago, Illinois will pass upon the validity of, and
certain legal matters concerning, the registered notes.
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.
183
<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 June 30, 2000............................... F-20
Unaudited Statements of Operations for the Six-Month Period Ended June 30,
2000 and for the Period from January 22, 1999 (date of inception) through
June 30, 1999............................................................ F-21
Unaudited Statements of Cash Flows for the Six-Month Period Ended June 30,
2000 and for the Period from January 22, 1999 (date of inception) through
June 30, 1999............................................................ F-22
Notes to Unaudited Financial Statements................................... F-23
</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 Notes 10 and 11, as to which the date is July 12,
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 beginning of period........... --
--------
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.
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.
F-14
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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%.
F-15
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 a planned 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,
F-16
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 if the option is exercised during January 2001. The purchase price is
subject to an upward adjustment in the event the number of subscribers
significantly increases. As consideration to be the exclusive provider of
Sprint PCS services in the Expansion territory, 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 an initial public offering, or the
consummation of a private placement of equity in an amount equal to at least
$70 million. In connection with the closing of the sale of the convertible
preferred stock discussed below, the Company issued Sprint PCS a warrant to
acquire 1,151,938 shares of common stock of the Company on July 12, 2000 at an
exercise price of $4.95 per share. The fair value of the warrants, as
determined using the Black-Scholes model, was approximately $9,147,000 and will
be recorded as an increase to paid in capital with a corresponding amount
recorded as an intangible asset representing the right to be the exclusive
provider of Sprint PCS services in the Expansion territory. Such intangible
asset will be amortized over a life of 18.5 years, which is the remaining term
of the Sprint PCS agreement. The fair value of the warrants was calculated
using the following assumptions:
(1) risk free interest rate of 6.35%;
(2) stock price based on a planned initial public offering;
(3) dividend yield of 0%;
(4) life of 7 years; and
(5) volatility of 40%.
Also, on July 12, 2000 the Company purchased the assets under construction
in Michigan from Sprint PCS for approximately $12.7 million. The Company is in
the process of determining the purchase price allocation which will be based on
the fair value of the assets acquired with any excess amount over fair value
being allocated to the intangible asset representing the right to be the
exclusive provider of Sprint PCS services in Michigan. The intangible asset
will be amortized over a life of 18.5 years, which is the remaining term of the
Sprint PCS agreement.
On May 5, 2000, the Board of Directors of iPCS, Inc. approved the 2000 Long
Term Incentive Stock Plan. Under the plan, the Company may grant stock options,
stock appreciation rights, shares of common stock and performance units to
employees, consultants and directors. The total number of shares of common
stock that can be awarded under the plan is 6,500,000 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 shares then outstanding, up to
maximum of 8,000,000. On July 12, 2000, the Board of Directors granted options
to members of management, employees and directors to acquire 1,558,750 shares
of iPCS, Inc.'s common stock with an exercise price of $5.50 per share. Based
upon the expected offering price of a planned initial public offering, the
Company will recognize compensation expense of approximately $8,300,000 over
the four year vesting period of the options; such vesting period begins on the
employee's date of hire and is for a period of four years.
F-17
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
On July 12, 2000, the Company issued 300,000 units consisting of 14% senior
discount notes due July 15, 2010 (the "Notes") and warrants to purchase
2,982,699 shares of common stock. The Notes were issued at a substantial
discount such that the Company received gross proceeds of approximately $152.3
million. Cash interest on the Notes will not be payable until January 15, 2006.
Prior to the accrual of cash interest, the principal amount of the Notes will
accrete at a rate of 14% per annum, compounded semi-annually, to an aggregate
principal amount of $300 million at July 15, 2005. On that date, the Notes will
accrue cash interest at the rate of 14% per year and the Company will be
required to pay the accrued interest beginning January 15, 2006, and on each
January 15 and July 15 thereafter.
The Notes are a general unsecured obligation, subordinated in right of
payment to all senior debt, including all obligations under the credit
facility. The Notes Indenture contains covenants which restrict the Company's
ability to incur additional indebtedness, pay dividends, merge, dispose of its
assets, and certain other matters as defined in the Indenture. During the first
36 months, the Company may redeem up to 35% of the accreted value at a
redemption price of 114% with the net cash proceeds of one or more equity
offerings excluding the first $70 million of equity offerings. After July 15,
2005, the Notes may be redeemed at a price of 107% beginning in 2005, 105%
beginning in 2006, 102% beginning in 2007 and 100% thereafter. The Company is
obligated to file an exchange offer registration statement on or before October
10, 2000 covering the exchange of the Notes for registered notes. If the
Company fails to consummate the exchange offer, the Company is required to pay
liquidated damages of $.05 per week per $1,000 for a period of 90 days
increasing $.05 per week for each subsequent 90 day period, until a maximum
amount equal to $.50 per $1,000 in principal amount of the Notes.
The Company allocated approximately $24.8 million to the fair value of the
warrants, as determined by using the Black-Scholes model, and recorded a
discount on the Notes, which will be recognized as interest expense over the
period from date of issuance to the maturity date. The fair value of the
warrant was calculated using the following assumptions:
(1) risk free interest rate of 6.35%;
(2) stock price based on a planned initial public offering;
(3) dividend yield of 0%;
(4) life of 10 years; and
(5) volatility of 40%.
Contemporaneously with the issuance of the Notes discussed above, the
Company issued to an investor group 9,090,909 shares of Series A-1 convertible
participating preferred stock ("Series A-1 preferred stock") at a purchase
price of $5.50 per share, yielding gross proceeds of $50 million. Each share of
Series A-1 preferred stock is convertible into one share of common stock. In
addition, the investor group has agreed to purchase 14,000,000 shares of Series
A-2 preferred stock at a purchase price of $5.00 per share, subject to certain
conditions, unless the Company completes an initial public offering yielding
gross proceeds of $30 million or more prior to December 31, 2000.
The holders of Series A-1 preferred stock have conversion rights and voting
rights of common shareholders on an as-converted basis. Each share of Series A-
1 preferred stock shall automatically convert into common stock under certain
conditions including a public offering of securities with gross proceeds of $50
million or a change in control. In the event that the Company has not completed
F-18
<PAGE>
ILLINOIS PCS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
an initial public offering of common stock or consummated a business
transaction meeting certain criteria by the fifth anniversary of the
investment, the investor group has the right to request the Company to
repurchase the Series A-1 preferred stock at fair market value, unless the
Company's Board of Directors determines, in its sole discretion, that it is not
in the Company's best interests to do so, whereupon the investor group would
have the right to force a sale of the Company subject to the rights of Sprint
and Sprint PCS under the Sprint PCS Agreements. The Series A-1 preferred stock
has a mandatory redemption for cash at an amount equal to the stated value plus
accrued dividends on July 12, 2011.
The Company allocated the entire net proceeds received from the issuance of
Series A-1 preferred stock of approximately $46,400,000 to the beneficial
conversion feature on the issuance of Series A-1 preferred stock. The
beneficial conversion feature was calculated at the issuance date of the Series
A-1 preferred stock based on the difference between the conversion price of
$5.50 per share and estimated fair value of the common stock at that date. This
amount, however, was limited to the proceeds received from issuing the
beneficial convertible security. As the Series A-1 preferred stock was
immediately convertible, the Company also recorded accretion of approximately
$46,400,000 to additional paid-in capital.
On June 27, 2000, the Company received from Toronto Dominion, Inc. and GE
Capital a commitment for a $140 million senior secured credit facility ("credit
facility") to replace the Nortel Credit Facility which was repaid in full with
the proceeds from the issuance of the Notes. The amended and restated credit
facility was finalized and executed on July 12, 2000. The credit facility
permits the Company to borrow up to $140 million through two tranches (Tranche
A--$90 million and Tranche B--$50 million) upon the Company meeting certain
conditions, including a sale of equity securities with gross proceeds of at
least an additional $70.0 million. The credit facility contains certain
financial ratios and other financial conditions similar to the Nortel Credit
Facility and is collateralized by all of the Company's assets and assignment of
the Sprint PCS Agreements.
11. REORGANIZATION AND PRO FORMA LOSS PER SHARE
iPCS, Inc. filed a registration statement for equity financing through an
initial public offering on March 9, 2000. As of July 12, 2000, the Company
reorganized its business into a C Corporation in which members of Illinois PCS,
LLC received 44,869,643 shares of common stock of iPCS, Inc. in exchange for
their ownership interests in the Company. The ownership percentages among the
Company's members following the reorganization remained 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. As of July 12, 2000,
Illinois PCS, LLC merged with and into iPCS Wireless, Inc., a wholly owned
subsidiary of iPCS, Inc. iPCS, Inc. plans to utilize the proceeds from the
aforementioned offering to fund the build-out of the network.
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 of
iPCS, Inc. as if the number of shares of common stock of iPCS, Inc. into which
the Company's members' interests were converted 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-19
<PAGE>
ILLINOIS PCS, LLC
BALANCE SHEET
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
As of
June 30,
2000
Assets
<S> <C>
Current Assets:
Cash and cash equivalents............................................. $ 1,809
Accounts receivable, less allowance of $98............................ 1,046
Other receivables..................................................... 170
Inventories........................................................... 360
Prepaid expenses and other assets..................................... 1,422
-------
Total current assets................................................. 4,807
Property and equipment including construction in progress, net......... 59,646
Financing costs, less accumulated amortization of $209................. 1,453
Other deferred costs................................................... 65
-------
$65,971
=======
<CAPTION>
Liabilities and Members' Equity
<S> <C>
Current Liabilities:
Accounts payable...................................................... $11,576
Accrued expenses...................................................... 733
Deferred revenue...................................................... 300
Accrued interest...................................................... 127
Advance on tower sales................................................ 2,000
-------
Total current liabilities............................................ 14,736
Deferred gain on tower sales........................................... 3,616
Long-term debt......................................................... 33,935
-------
Total liabilities.................................................... 52,287
-------
Commitments and Contingencies
Members' equity........................................................ 13,684
-------
$65,971
=======
</TABLE>
See notes to unaudited financial statements.
F-20
<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 Six-Month (date of inception)
Period Ended through
June 30, 2000 June 30, 1999
<S> <C> <C>
Revenues:
Service................................. $ 4,436
Equipment............................... 942
Other................................... 89
----------
Total revenues......................... 5,467
----------
Operating Expenses:
Cost of service......................... 4,774 $ 208
Cost of equipment....................... 2,598
Selling................................. 2,846 4
General and administrative:
Non-cash compensation.................. 8,480
Taxes on non-cash compensation......... 1,567
Other general and administrative....... 2,390 586
Depreciation and amortization........... 2,927
---------- ----------
Total operating expenses............... 25,582 798
---------- ----------
Loss from operations..................... (20,115) (798)
Other Income (Expense):
Interest income......................... 95 11
Interest expense........................ (594)
Other income (expense).................. 198
---------- ----------
Net loss................................. $ (20,416) $ (787)
========== ==========
Pro forma basic and diluted loss per
share of common stock................... $ (0.46) $ (0.02)
========== ==========
Pro forma weighted average common shares
outstanding............................. 44,869,643 44,869,643
========== ==========
</TABLE>
See notes to unaudited financial statements.
F-21
<PAGE>
ILLINOIS PCS, LLC
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the For the Period
Six-Month from January 22, 1999
Period Ended (date of inception)
June 30, 2000 through June 30, 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................. $(20,416) $ (787)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization of property
and equipment........................... 2,927
Gain on disposal of fixed assets......... 57
Gain on tower sales...................... (257)
Amortization of deferred gain on tower
sales................................... (87)
Amortization of financing costs.......... 143
Non-cash compensation.................... 8,480
Changes in assets and liabilities:
Accounts receivable..................... (954)
Other receivables....................... (131)
Inventories............................. 567
Prepaid expenses and other assets....... (1,055) (147)
Accounts payable, accrued expenses and
accrued interest....................... 3,247 921
-------- ------
Net cash flows from operating
activities............................ (7,479) (13)
-------- ------
Cash Flows from Investing Activities:
Capital expenditures...................... (21,727) (2,355)
Proceeds from tower sales................. 5,500 2,000
-------- ------
Net cash flows from investing
activities............................ (16,227) (355)
-------- ------
Cash Flows from Financing Activities:
Proceeds from long-term borrowings........ 6,364
Debt issuance costs....................... (82) (1,536)
Capital contributions..................... 16,500 4,990
-------- ------
Net cash flows from financing
activities............................ 22,782 3,454
-------- ------
Increase (decrease) in cash and cash
equivalents............................... (924) 3,086
Cash and cash equivalents at beginning of
period.................................... 2,733
-------- ------
Cash and cash equivalents at end of period. $ 1,809 $3,086
======== ======
Supplemental Disclosure:
Cash paid for interest.................... $ 1,710 $ --
======== ======
Supplemental Schedule of Noncash Investing
and Financing Activities:
Accounts payable incurred for the
acquisition of property, equipment and
construction in progress................. $ 7,732 $ --
======== ======
</TABLE>
See notes to unaudited financial statements.
F-22
<PAGE>
ILLINOIS PCS, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 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. REORGANIZATION AND PRO FORMA LOSS PER SHARE
iPCS, Inc. filed a registration statement for equity financing through an
initial public offering on March 9, 2000. As of July 12, 2000, the Company
reorganized its business into a C Corporation in which members of Illinois PCS,
LLC received 44,869,643 shares of common stock of iPCS, Inc. in exchange for
their ownership interests in the Company. The ownership percentages among the
Company's members following the reorganization remained consistent with the
ownership percentages at December 31, 1999 as adjusted for the effects of the
agreement described in Note 3. As of July 12, 2000, Illinois PCS, LLC merged
with and into iPCS Wireless, Inc., a wholly owned subsidiary of iPCS, Inc.
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 of
iPCS, Inc. as if the shares of common stock of iPCS, Inc. into which the
Company's members' interests were converted 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 the Management Agreement, and in exchange therefore Mr. Yager
received a 1.5% ownership interest in Illinois PCS, LLC. In addition, the
Company paid 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
F-23
<PAGE>
ILLINOIS PCS, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(Continued)
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
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 if the option is exercised during January
2001. The purchase price is subject to an upward adjustment in the event the
number of subscribers significantly increases. As consideration to be the
exclusive provider of Sprint PCS services in the Expansion territory, 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 an initial
public offering, or the consummation of a private placement of equity in an
amount equal to at least $70 million. In connection with the closing of the
sale of the convertible preferred stock discussed below, the Company issued
Sprint PCS a warrant to acquire 1,151,938 shares of common stock of the Company
on July 12, 2000 at an exercise price of $4.95 per share. The fair value of the
warrants, as determined using the Black-Scholes model, was approximately
$9,147,000 and will be recorded as an increase to paid in capital with a
corresponding amount recorded as an intangible asset representing the right to
be the exclusive provider of Sprint PCS services in the Expansion territory.
Such intangible asset will be amortized over a life of 18.5 years, which is the
remaining term of the Sprint PCS agreement. The fair value of the warrants was
calculated using the following assumptions:
(1) risk free interest rate of 6.35%;
(2) stock price based on a planned initial public offering;
(3) dividend yield of 0%;
(4) life of 7 years; and
(5) volatility of 40%.
Also, on July 12, 2000 the Company purchased the assets under construction
in Michigan from Sprint PCS for approximately $12.7 million. The Company is in
the process of determining the purchase price allocation which will be based on
the fair value of the assets acquired with any excess amount over fair value
being allocated to the intangible asset representing the right to be the
exclusive provider of Sprint PCS services in Michigan. The intangible asset
will be amortized over a life of 18.5 years, which is the remaining term of the
Sprint PCS agreement.
F-24
<PAGE>
ILLINOIS PCS, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(Continued)
The members contributed $16.5 million during the six-month period ended June
30, 2000 raising the inception to date members' contribution to a total of
$30.0 million.
On May 5, 2000, the Board of Directors of iPCS, Inc. approved the 2000 Long
Term Incentive Stock Plan. Under the plan, the Company may grant stock options,
stock appreciation rights, shares of common stock and performance units to
employees, consultants and directors. The total number of shares of common
stock that can be awarded under the plan is 6,500,000 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 shares then outstanding, up to
maximum of 8,000,000. On July 12, 2000, the Board of Directors granted options
to members of management, employees and directors to acquire 1,558,750 shares
of iPCS, Inc.'s common stock with an exercise price of $5.50 per share. Based
upon the expected offering price of a planned initial public offering, the
Company will recognize compensation expense of approximately $8,300,000 over
the vesting period of the options; such vesting period begins on the employee's
date of hire and is for the period of four years.
Contemporaneously with the issuance of the 300,000 units discussed in Note
4, the Company issued to an investor group 9,090,909 shares of Series A-1
convertible participating preferred stock ("Series A-1 preferred stock") at a
purchase price of $5.50 per share, yielding gross proceeds of $50 million. Each
share of Series A-1 preferred stock is convertible into one share of common
stock. In addition, the investor group has agreed to purchase 14,000,000 shares
of Series A-2 preferred stock at a purchase price of $5.00 per share, subject
to certain conditions, unless the Company completes an initial public offering
yielding gross proceeds of $30 million or more prior to December 31, 2000.
The holders of Series A-1 preferred stock have conversion rights and voting
rights of common shareholders on an as-converted basis. Each share of Series A-
1 preferred stock shall automatically convert into common stock under certain
conditions including a public offering of securities with gross proceeds of $50
million or a change in control. In the event that the Company has not completed
an initial public offering of common stock or consummated a business
transaction meeting certain criteria by the fifth anniversary of the
investment, the investor group has the right to request the Company to
repurchase the Series A-1 preferred stock at fair market value, unless the
Company's Board of Directors determines, in its sole discretion, that it is not
in the Company's best interests to do so, whereupon the investor group would
have the right to force a sale of the Company subject to the rights of Sprint
and Sprint PCS under the Sprint PCS Agreements. The Series A-1 preferred stock
has a mandatory redemption for cash at an amount equal to the stated value plus
accrued dividends on July 12, 2011.
The Company allocated the entire net proceeds received from the issuance of
Series A-1 preferred stock of approximately $46,400,000 to the beneficial
conversion feature on the issuance of Series A-1 preferred stock. The
beneficial conversion feature was calculated at the issuance date of the Series
A-1 preferred stock based on the difference between the conversion price of
$5.50 per share and estimated fair market value of the common stock at that
date. This amount, however, was limited to the proceeds received from issuing
the beneficial convertible security. As the Series A-1 preferred stock was
immediately convertible, the Company also recorded accretion of approximately
$46,400,000 to additional paid-in capital.
F-25
<PAGE>
ILLINOIS PCS, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(Continued)
4. DEBT
On July 12, 2000, the Company issued 300,000 units consisting of 14% senior
discount notes due July 15, 2010 (the "Notes") and warrants to purchase
2,982,699 shares of common stock. The Notes were issued at a substantial
discount such that the Company received gross proceeds of approximately $152.3
million. Cash interest on the Notes will not be payable until January 15, 2006.
Prior to the accrual of cash interest, the principal amount of the Notes will
accrete at a rate of 14% per annum, compounded semi-annually, to an aggregate
principal amount of $300 million at July 15, 2005. On that date, the Notes will
accrue cash interest at the rate of 14% per year and the Company will be
required to pay the accrued interest beginning January 15, 2006, and on each
January 15 and July 15 thereafter.
The Notes are a general unsecured obligation, subordinated in right of
payment to all senior debt, including all obligations under the credit
facility. The Notes Indenture contains covenants which restrict the Company's
ability to incur additional indebtedness, pay dividends, merge, dispose of its
assets, and certain other matters as defined in the Indenture. During the first
36 months, the Company may redeem up to 35% of the accreted value at a
redemption price of 114% with the net cash proceeds of one or more equity
offerings excluding the first $70 million of equity offerings. After July 15,
2005, the Notes may be redeemed at a price of 107% beginning in 2005, 105%
beginning in 2006, 102% beginning in 2007 and 100% thereafter. The Company is
obligated to file an exchange offer registration statement on or before October
10, 2000 covering the exchange of the Notes for registered notes. If the
Company fails to consummate the exchange offer, the Company is required to pay
liquidated damages of $.05 per week per $1,000 for a period of 90 days,
increasing $.05 per week for each subsequent 90 day period, until a maximum
amount equal to $.50 per $1,000 in principal amount of the Notes.
The Company allocated approximately $24.8 million to the fair value of the
warrants, as determined by using the Black-Scholes model, and recorded a
discount on the Notes, which will be recognized as interest expense over the
period from date of issuance to the maturity date.
The fair value of the warrants was calculated using the following
assumptions:
(1) risk free interest rate of 6.35%;
(2) stock price based on a planned initial public offering;
(3) dividend yield of 0%;
(4) life of 10 years; and
(5) volatility of 40%.
On July 12, 2000, the Company entered into an amended and restated credit
facility with Toronto Dominion (Texas), Inc. and GE Capital Corporation for a
$140 million senior secured credit facility ("credit facility") to replace the
Nortel Credit Facility that was repaid in full with the proceeds from the
issuance of the Notes. The credit facility permits the Company to borrow up to
$140 million through two tranches (Tranche A--$90 million and Tranche B--$50
million) upon the
F-26
<PAGE>
ILLINOIS PCS, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(Continued)
Company meeting certain conditions, including a sale of equity securities with
gross proceeds of at least an additional $70.0 million. The credit facility
contains certain financial ratios and other financial conditions similar to the
Nortel Credit Facility and is collateralized by all of the Company's assets and
assignment of the Sprint PCS Agreements.
5. AGREEMENT WITH AMERICAN TOWER
During the six-month period ended June 30, 2000, twenty-two towers were sold
to American Tower for $5.5 million in cash, resulting in a gain of
approximately $2.3 million, of which $254,000 was recognized at the time of the
sale and the remainder was deferred and is being amortized as a reduction to
rental expense over the initial lease term of ten years. At June 30, 2000, a
total of forty towers have been sold to American Tower.
F-27
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
, 2000
$300,000,000
Exchange Offer
[iPCS Logo]
14% Senior Discount Notes due 2010
----------------------------------------
PROSPECTUS
----------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Amended and Restated 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 Amended and Restated 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
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.
II-1
<PAGE>
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 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
<C> <S> <C>
2.1 --Contribution Agreement dated as of July 12, 2000 by and
among iPCS, Inc. and members of Illinois PCS, LLC.
3.1 --Amended and Restated Certificate of Incorporation of
iPCS, Inc. as amended.
3.2 --Amended and Restated Bylaws of iPCS, Inc.
3.3 --Certificate of Designations of the Series A-1
Convertible Participating Preferred Stock
3.4* --Certificate of Incorporation of iPCS Wireless, Inc.
3.5* --Bylaws of iPCS Wireless, Inc.
3.6* --Certificate of Incorporation of iPCS Equipment, Inc.
3.7* --Bylaws of iPCS Equipment, Inc.
4.1* --Specimen Common Stock Certificate.
4.2 --14% Senior Discount Notes due 2010 Indenture dated as of
July 14, 2000 by and among, iPCS Equipment, Inc. and iPCS
Wireless, Inc. as Guarantors and CTC Illinois Trust
Company, as trustee.
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, Amended and Restated
Addendum III and Addendum IV 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S> <C>
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* --Amended and Restated
Consent and Agreement
dated as of July 12,
2000 by and between
Sprint Spectrum, LP,
SprintCom, Inc., Sprint
Communications Company,
LP, WirelessCo, LP, and
Toronto Dominion
(Texas), Inc. and the
lenders party thereto.
10.6 --Amended and Restated
Credit Agreement dated
as of July 12, 2000 by
and between iPCS
Wireless, Inc., as
borrower, iPCS, Inc.
and iPCS Equipment,
Inc. as Guarantors, the
lenders named therein,
Toronto Dominion (Texas),
Inc., as administrative
agent, and GE Capital
Corporation, for a
$ 140.0 million credit
facility.
10.7 --iPCS, Inc. 2000 Long
Term Incentive Plan.
10.8 --Amended and Restated
Employment Agreement
effective as of July 1,
2000 by and between
iPCS, Inc. and Timothy
M. Yager.
10.9 --Amended and Restated
Employment Agreement
effective as of July 1,
2000 by and between
iPCS, Inc. and William
W. King, Jr.
10.10 --Warrant for the
Purchase of shares of
Common Stock dated as
of July 12, 2000 by and
between Sprint Spectrum
L.P. and iPCS, Inc.
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 --Amended and Restated
Employment Agreement
effective as of July 1,
2000 by and between
iPCS, Inc. and Leroy R.
Horsman.
10.14 --Amended and Restated
Employment Agreement
effective as of July 1,
2000 by and between
iPCS, Inc. and Jeffrey
Pinegar.
10.15 --Amended and Restated
Employment Agreement
effective as of July 1,
2000 by and between
iPCS, Inc. and Linda K.
Wokoun.
10.16 --Amended and Restated
Employment Agreement
effective as of July 1,
2000 by and between
iPCS, Inc. and Stebbins
B. Chandor, Jr.
10.17 --Amended and Restated
Employment Agreement
effective as of July 1,
2000 by and between
iPCS, Inc. and Anthony
R. Muscato.
10.18 --Purchase Agreement
dated as of July 12,
2000 for 14% Senior
Discount Notes Due 2010
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S> <C>
10.19 --Employment Agreement
effective as of July 1,
2000 by and between
iPCS, Inc. and Patricia
M. Greteman.
10.20* --CDMA 1900 SprintCom
Additional Affiliate
Supply Agreement
between Illinois PCS,
L.L.C. and Nortel
Networks Inc.
10.21* --Amendment No. 1 to
1900 CDMA Additional
Affiliate Supply
Agreement between
Illinois PCS, LLC and
Nortel Networks Inc.
10.22* --Warrant Registration
Rights Agreement
10.23* --Warrant Agreement
10.24 --A/B Exchange
Registration Rights
Agreement
10.25 --Global Notes
10.26 --Global Warrants
10.27 --Investment Agreement
dated as of July 12,
2000, by and among
iPCS, Inc.,
Blackstone/iPCS LLC,
Blackstone iPCS Capital
Partners LP, Blackstone
Communications Partners
I LP, TCW/Crescent
Mezzanine Partners II,
LP, TCW/Crescent
Mezzanine Trust II, TCW
Leveraged Income Trust
LP, TCW Leveraged
Income Trust LP II, LP,
TCW Leveraged Income
Trust IV, LP, TCW
Shared Opportunity Fund
II, LP, Shared
Opportunity Fund IIB,
LLC and TCW Shared
Opportunity Fund III,
LP.
10.28 --Stockholders Agreement
dated as of July 12,
2000, by and between
iPCS, Inc. and certain
of its stockholders.
10.29 --Registration Rights
Agreement dated as of
July 12, 2000 by and
among iPCS, Inc.,
Blackstone/iPCS LLC,
Blackstone iPCS Capital
Partners LP, Blackstone
Communications Partners
I LP, TCW/Crescent
Mezzanine Partners II,
LP, TCW/Crescent
Mezzanine Trust II, TCW
Leveraged Income Trust
LP, TCW Leveraged
Income Trust LP II, LP,
TCW Leveraged Income
Trust IV, LP, TCW
Shared Opportunity Fund
II, LP, Shared
Opportunity Fund IIB,
LLC and TCW Shared
Opportunity Fund III,
LP.
10.30 --Asset Purchase
Agreement, dated as of
July 12, 2000, by and
among Sprint Spectrum
LP, Sprint Spectrum
Equipment Company, LP,
Sprint Spectrum Realty
Company, LP and iPCS
Wireless, Inc.
10.31 --Design, Development,
Engineering,
Construction and
Oversight Services
Agreement, dated as of
February, 1999, by and
between Illinois PCS,
LLC and Communication
Management Specialists.
10.32 --Interim Network
Operating Agreement,
dated as of July 12,
2000, by and between
Sprint Spectrum LP and
iPCS Wireless, Inc.
10.33 --Consulting Agreement,
dated as of April 20,
1999, by and between
WaveLink Engineering
and Illinois PCS, LLC.
21.1 --Subsidiaries of iPCS,
Inc.
23.1 --Consent of Deloitte &
Touche, LLP.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
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).
25.1* --Form T-1 Statement of eligibility under The Trust Indenture
Act of 1939 of BNY Midwest Trust Company.
27.1* --Financial Data Schedule.
99.1* --Form of Letter of Transmittal
99.2* --Form of Notice of Guaranteed Delivery
99.3* --Form of Tender Instruction Letters
99.4* --Form of Exchange Agent Agreement
</TABLE>
---------------------
*to be filed by amendment.
**Previously filed on April 25, 2000 as an exhbit to the registant's
registration satement on Form S-1 (Registration No. 333-32064).
(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.
(c) Not applicable
Item 22. Undertakings
Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) that, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-5
<PAGE>
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered that remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this registration statement 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.
(5) 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 provisions described in Item 20 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 of 1933 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 Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(6) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form within
one business day of receipt of such request and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this registration statement through the date of responding to the request.
(7) To supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not
the subject of and included in this registration statement when it became
effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants 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 10th day of October, 2000.
iPCS, INC.
/s/ Timothy M. Yager
By: _________________________________
Timothy M. Yager
President, Chief Executive Officer
and Director
iPCS WIRELESS, INC.; iPCS EQUIPMENT,
INC.
/s/ Timothy M. Yager
By: _________________________________
Timothy M. Yager
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints Timothy M. Yager, true and lawful attorney-in-fact and
agent, with full power of substitution, for and on behalf of the undersigned,
and in name, place and stead, in any and all capacities, to sign, execute and
file any and all documents relating to this Registration Statement, including
any and all amendments, exhibits and supplements thereto and including any
Registration Statement filed pursuant to Rule 462(b) of the Securities Act of
1933, with any regulatory authority, granting unto said attorney full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all that said attorney-in-
fact and agent, or his substitute, may lawfully do or cause to be done.
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Timothy M. Yager President, Chief Executive October 10, 2000
____________________________________ Officer, (Principal
Timothy M. Yager Executive Officer) and
Director--iPCS, Inc.; iPCS
Wireless, Inc.; iPCS
Equipment, Inc.
/s/ Stebbins B. Chandor, Jr. Senior Vice President, Chief October 10, 2000
____________________________________ Financial Officer
Stebbins B. Chandor, Jr. (Principal Financial and
Accounting Officer)--iPCS,
Inc.
Senior Vice President, Chief
Financial Officer
(Principal Financial and
Accounting Officer);
Director and Secretary--
iPCS Wireless, Inc.; iPCS
Equipment, Inc.
/s/ William W. King, Jr. Vice President, Strategic October 10, 2000
____________________________________ Planning and Director--
William W. King, Jr. iPCS, Inc.
/s/ Alan C. Anderson Director--iPCS, Inc. October 10, 2000
____________________________________
Alan C. Anderson
/s/ Donald L. Bell Director--iPCS, Inc. October 10, 2000
____________________________________
Donald L. Bell
/s/ Michael S. Chae Director--iPCS, Inc. October 10, 2000
____________________________________
Michael S. Chae
/s/ Brian J. Gernant Director--iPCS, Inc. October 10, 2000
____________________________________
Brian J. Gernant
/s/ Lawrence H. Guffrey Director--iPCS, Inc. October 10, 2000
____________________________________
Lawrence H. Guffey
/s/ Robert W. Schwartz Director--iPCS, Inc. October 10, 2000
____________________________________
Robert W. Schwartz
/s/ George Patrick Tays Director--iPCS, Inc. October 10, 2000
____________________________________
George Patrick Tays
/s/ Linda W. Wokoun Director--iPCS Wireless, October 10, 2000
____________________________________ Inc.; iPCS Equipment, Inc.
Linda W. Wokoun
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
<C> <S>
2.1 --Contribution Agreement dated as of July 12, 2000 by and among
iPCS, Inc., members of Illinois PCS, LLC and Illinois PCS, LLC.
3.1 --Amended and Restated Certificate of Incorporation of iPCS, Inc. as
amended.
3.2 --Amended and Restated Bylaws of iPCS, Inc.
3.3 --Certificate of Designations of the Series A-1 Convertible
Participating Preferred Stock
3.4* --Certificate of Incorporation of iPCS Wireless, Inc.
3.5* --Bylaws of iPCS Wireless, Inc.
3.6* --Certificate of Incorporation of iPCS Equipment, Inc.
3.7* --Bylaws of iPCS Equipment, Inc.
4.1* --Specimen Common Stock Certificate.
4.2 --14% Senior Discount Notes due 2010 Indenture dated as of July 12,
2000 by and among iPCS, Inc., as issuer, iPCS Equipment, Inc. and
iPCS Wireless, Inc. as guarantors and CTC Illinois Trust Company,
as trustee.
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 among Sprint Spectrum, LP, SprintCom, Inc.,
WirelessCo, LP and Illinois PCS, LLC, as amended by Addendum I,
Addendum II, Amended and Restated Addendum III and Addendum IV
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, LLC.
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, LLC.
10.5* --Amended and Restated Consent and Agreement dated as of July 12,
2000 by and between Sprint Spectrum LP, SprintCom, Inc., Sprint
Communications Company, LP, WirelessCo, LP, and Toronto Dominion
(Texas), Inc. and the lenders party thereto.
10.6 --Amended and Restated Credit Agreement dated as of July 12, 2000 by
and among iPCS Wireless, Inc., as borrower, iPCS, Inc. and iPCS
Equipment, Inc. as guarantors, the lenders named therein, Toronto
Dominion (Texas), Inc., as administrative agent, and GE Capital
Corporation, as syndication agent, for a $140.0 million credit
facility.
10.7 --iPCS, Inc. Amended and Restated 2000 Long Term Incentive Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
<C> <S>
10.8 --Amended and Restated Employment Agreement effective as of July 1,
2000 by and between Illinois PCS, LLC, Timothy M. Yager and iPCS,
Inc.
10.9 --Amended and Restated Employment Agreement effective as of July 1,
2000 by and between Illinois PCS, LLC, William W. King, Jr. and
iPCS, Inc.
10.10 --Warrant for the Purchase of shares of Common Stock dated as of
July 12, 2000 by and between Sprint Spectrum L.P. and iPCS, Inc.
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 --Amended and Restated Employment Agreement effective as of July 1,
2000 by and between Illinois PCS, LLC, Leroy R. Horsman and iPCS,
Inc.
10.14 --Amended and Restated Employment Agreement effective as of July 1,
2000 by and between Illinois PCS, LLC, Jeffrey Pinegar and iPCS,
Inc.
10.15 --Amended and Restated Employment Agreement effective as of July 1,
2000 by and between Illinois PCS, LLC, Linda K. Wokoun and iPCS,
Inc.
10.16 --Amended and Restated Employment Agreement effective as of July 1,
2000 by and between Illinois PCS, LLC, Stebbins B. Chandor, Jr. and
iPCS, Inc.
10.17 --Amended and Restated Employment Agreement effective as of July 1,
2000 by and between Illinois PCS, LLC, Anthony R. Muscato and iPCS,
Inc.
10.18 --Purchase Agreement dated as of June 29, 2000 for $300,000,000,
300,000 units consisting of 14% Senior Discount Notes due 2010 and
warrants to purchase 2,982,699 shares of Common Stock.
10.19 --Amended and Restated Employment Agreement effective as of July 1,
2000 by and between Illinois PCS, LLC, Patricia M. Greteman and
iPCS, Inc.
10.20* --CDMA 1900 SprintCom Additional Affiliate Supply Agreement dated as
of May 24, 1999, between Illinois PCS, LLC and Nortel Networks Inc.
10.21* --Amendment No. 1 to 1900 CDMA Additional Affiliate Supply Agreement
dated as of July 11, 2000, between Illinois PCS, LLC and Nortel
Networks Inc.
10.22* --Warrant Registration Rights Agreement dated as of July 12, 2000 by
and among iPCS, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and TD Securities Corporation (USA) Inc.
10.23* --Warrant Agreement dated as of July 12, 2000 by and between iPCS,
Inc. and
ChaseMellon Shareholder Services, L.L.C., as warrant agent.
10.24 --A/B Exchange Registration Rights Agreement dated as of July 12,
2000, by and among iPCS, Inc., iPCS Equipment, Inc., iPCS Wireless,
Inc. and Donaldson, Lufkin & Jenrette Securities Corporation and TD
Securities (USA) Inc.
10.25 --Form of Global Note.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
<C> <S>
10.26* --Form of Global Warrant.
10.27 --Investment Agreement dated as of July 12, 2000, by and among iPCS,
Inc., Blackstone/iPCS LLC, Blackstone iPCS Capital Partners LP,
Blackstone Communications Partners I LP, TCW/Crescent Mezzanine
Partners II, LP, TCW/Crescent Mezzanine Trust II, TCW Leveraged
Income Trust LP, TCW Leveraged Income Trust LP II, LP, TCW
Leveraged Income Trust IV, LP, TCW Shared Opportunity Fund II, LP,
Shared Opportunity Fund IIB, LLC and TCW Shared Opportunity Fund
III, LP.
10.28 --Stockholders Agreement dated as of July 12, 2000, by and between
iPCS, Inc. and certain of its stockholders.
10.29 --Registration Rights Agreement dated as of July 12, 2000 by and
among iPCS, Inc., Blackstone/iPCS LLC, Blackstone iPCS Capital
Partners LP, Blackstone Communications Partners I LP, TCW/Crescent
Mezzanine Partners II, LP, TCW/Crescent Mezzanine Trust II, TCW
Leveraged Income Trust LP, TCW Leveraged Income Trust LP II, LP,
TCW Leveraged Income Trust IV, LP, TCW Shared Opportunity Fund II,
LP, Shared Opportunity Fund IIB, LLC and TCW Shared Opportunity
Fund III, LP.
10.30 --Asset Purchase Agreement, dated as of July 12, 2000, by and among
Sprint Spectrum LP, Sprint Spectrum Equipment Company, LP, Sprint
Spectrum Realty Company, LP and iPCS Wireless, Inc.
10.31 --Design, Development, Engineering, Construction and Oversight
Services Agreement, dated as of February, 1999, by and between
Illinois PCS, LLC and Communication Management Specialists.
10.32 --Interim Network Operating Agreement, dated as of July 12, 2000, by
and between Sprint Spectrum LP and iPCS Wireless, Inc.
10.33 --Consulting Agreement, dated as of April 20, 1999, by and between
WaveLink Engineering and Illinois PCS, LLC.
21.1 --Subsidiaries of iPCS, Inc.
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).
25.1* --Form T-1 Statement of eligibility under The Trust Indenture Act of
1939 of CTC Illinois Trust Company.
27.1* --Financial Data Schedule.
99.1* --Form of Letter of Transmittal.
99.2* --Form of Notice of Guaranteed Delivery.
99.3* --Form of Tender Instruction Letters.
99.4* --Form of Exchange Agent Agreement.
</TABLE>
---------------------
*to be filed by amendment.
**Previously filed on April 25, 2000 as an exhibit to the registrant's
registration statement on Form S-1 (Registration No. 333-32064).
3
