SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________ to __________
Commission File No.: 000-09881
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1162807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 South Main Street, Edinburg, VA 22824
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (540) 984-4141
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
----------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK (NO PAR VALUE)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the registration is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes |X| NO |_|
1
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 27, 2003, based on the closing sale price of such stock on
the NASDAQ National Market on such date, was approximately $157 million (In
determining this figure, the registrant has assumed that all of its officers and
directors are affiliates. Such assumption shall not be deemed to be conclusive
for any other purpose.)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT FEBRUARY 24, 2004
Common Stock, No Par Value 7,602,838
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Information in Part III is incorporated by reference to the Company's
definitive proxy statement for its 2004 Annual Meeting of Shareholders.
2
SHENANDOAH TELECOMMUNICATIONS COMPANY
Item Page
Number Number
PART I
1. Business 4-16
2. Properties 16-17
3. Legal Proceedings 17
4. Submission of Matters to a Vote of Security Holders 17
PART II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters 18
6. Selected Financial Data 18-19
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19-39
7A. Quantitative and Qualitative Disclosures about Market Risk 40
8. Financial Statements and Supplementary Data 41
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 41
9A. Controls and Procedures 41
PART III
10. Directors and Executive Officers of the Registrant 42
11. Executive Compensation 42
12. Security Ownership of Certain Beneficial Owners and Management 43
13. Certain Relationships and Related Transactions 43
14. Principal Accountant Fees and Services 43
PART IV
15. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 44-48
Index to the Consolidated 2003 Financial Statements F-1
Certifications
Exhibits Index
3
PART I
This Annual Report contains forward-looking statements. These
statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in
the forward-looking statements. Factors that might cause such a
difference include, but are not limited to changes in the interest
rate environment; management's business strategy; national,
regional, and local market conditions; and legislative and
regulatory conditions. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect
subsequent events or circumstances, except as required by law.
ITEM 1. BUSINESS
Shenandoah Telecommunications Company is a diversified
telecommunications holding company providing both regulated and
unregulated telecommunications services through its nine
wholly-owned subsidiaries. The Company's business strategy is to
provide integrated, full service telecommunications products and
services in the Northern Shenandoah Valley and surrounding areas.
This geographic area includes the four-state region from
Harrisonburg, Virginia to the Harrisburg and Altoona, Pennsylvania
markets, and on a limited basis into Northern Virginia. Our fiber
network is a state-of-the-art electronic backbone utilized for many
of our services with the main lines of this network following the
Interstate-81 corridor and the Interstate-66 corridor in the
northwestern part of Virginia. Secondary routes providing redundant
capacity are built to provide alternate routing in the event of an
outage. The Company is certified to offer competitive local exchange
services in Virginia outside of the present telephone service area.
The Company has 268 employees and operates ten reporting segments
based on the products and services provided by the holding company
and the operating subsidiaries. There are minimal seasonal
variations in the Company's operations, with the exception of the
traditional seasonality in the retail sale of wireless handsets and
services in November and December. The Company provides personal
communications service (PCS) and is licensed to use the Sprint brand
name in the territory from Harrisonburg, Virginia to Harrisburg,
York and Altoona, Pennsylvania. The Company operates its PCS network
under the Sprint radio spectrum license. The Company also holds a
paging radio telecommunications license.
In November 2002, the Company entered into an agreement to sell its
66% general partner interest in the Virginia 10 RSA Limited
Partnership (cellular operation) to Verizon Wireless for $37.0
million. The partnership interest was owned by the Mobile company
subsidiary. The closing of the sale took place at the close of
business on February 28, 2003. The total proceeds received were
$38.7 million, including $5.0 million held in escrow, and a $1.7
million adjustment for estimated working capital at the time of
closing. There was a post closing adjustment based on the actual
working capital balance as of the closing date, which amounted to a
charge to the Company of $39 thousand. The $5.0 million escrow was
established for any contingencies and indemnification issues that
may arise during the two-year post-closing period. To date, there
have been no claims filed against the escrowed funds. The Company's
net after tax gain on the total transaction was approximately $22.4
million, which is reflected in the 2003 financial statements. As set
forth in the Company's consolidated financial statements appearing
in the Company's 2003 Annual Report to security holders, the
operating results of the partnership are reflected in discontinued
operations for all periods presented.
4
Shenandoah Telecommunications Company
The Holding Company invests in both affiliated and non-affiliated
companies. The Company's investments in non-affiliated companies are
The Burton Partnership, LP (Burton), CoBank, Dolphin Communications
Parallel Fund, LP (Dolphin), Dolphin Communications Fund II, LP
(Dolphin II), NECA Services, Inc., NTC Communications, L.L.C.,
(NTC), South Atlantic Private Equity IV LP (SAPE IV), and South
Atlantic Venture Fund III (SAVF III). Burton invests in a
combination of small capitalization public companies and privately
owned emerging growth companies. CoBank is a cooperative bank, and
is the Company's primary lender. As a term of the loan agreement,
the Company is required to own a specified amount of CoBank's stock.
The growth of this investment is the result of distributions
declared by CoBank and recorded by the Company that will be received
by the Company in the future. Dolphin, Dolphin II, SAVF III, and
SAPE IV are venture capital funds that invest in startup companies,
a large number of which are telecommunications firms. NECA Services,
Inc. provides services to telecommunications providers. NTC is a
limited liability company that provides bundled telecommunication
services primarily to privately owned multi-unit housing properties
that target students near college and university campuses.
Shenandoah Telephone Company
This subsidiary provides both regulated and non-regulated telephone
services to approximately 24,900 customers as of December 31, 2003,
primarily in Shenandoah County and small service areas in
Rockingham, Frederick, and Warren counties in Virginia. This
subsidiary provides access for inter-exchange carriers to the local
exchange network. The telephone subsidiary has a 20 percent
ownership in Valley Network Partnership (ValleyNet), which is a
partnership offering fiber network facility capacity in western,
central, and northern Virginia, as well as the Interstate 81
corridor from Johnson City, Tennessee to Carlisle, Pennsylvania.
Shenandoah Cable Television Company
This subsidiary provides coaxial cable based television service to
approximately 8,700 customers in Shenandoah County. The system is a
state-of-the art hybrid fiber coaxial network, upgraded to 750
megahertz which provides better signal quality, expands the number
of channels, and provides the infrastructure for future offerings of
broadband services. Digital program offerings along with pay per
view options are value added features available to customers.
ShenTel Service Company (ShenTel)
ShenTel Service Company sells and services telecommunications
equipment and provides information services and Internet access to
customers in the Northern Shenandoah Valley and surrounding areas.
The Internet service has approximately 17,400 dial-up customers and
nearly 1,300 DSL customers as of December 31, 2003. This subsidiary
offers broadband Internet access via ADSL technology.
5
Shenandoah Valley Leasing Company
This subsidiary finances purchases of telecommunications equipment
by customers of the other subsidiaries, particularly ShenTel Service
Company.
Shenandoah Mobile Company
Shenandoah Mobile Company owns and leases tower space in the PCS
service territory mentioned below in Virginia, West Virginia,
Maryland and Pennsylvania to Shenandoah Personal Communications
Company and other wireless communications providers. Additionally,
this subsidiary provides paging service throughout the Virginia
portion of the Northern Shenandoah Valley. Shenandoah Mobile Company
was the managing partner and 66% owner of the Virginia 10 RSA
Limited Partnership prior to its sale February 28, 2003.
Shenandoah Long Distance Company
This subsidiary principally offers resale of long distance service
for calls placed to locations outside the regulated telephone
service area. This operation purchases switching and billing and
collection services from the telephone subsidiary similar to other
long distance providers. In addition, this subsidiary offers
facility leases of fiber optic capacity in surrounding counties, and
into Herndon, Virginia. This subsidiary has approximately 9,500
customers at December 31, 2003.
Shenandoah Network Company
This subsidiary owns and operates the Maryland and West Virginia
portions of a fiber optic network in the Interstate-81 corridor. In
conjunction with the telephone subsidiary, Shenandoah Network
Company is associated with the ValleyNet fiber network.
ShenTel Communications Company
This subsidiary began offering DSL service marketing Front Royal,
VA. in early 2002, is outside the Company's regulated service area.
The Company is operating this subsidiary as a Competitive Local
Exchange Carrier (CLEC). Currently there are minimal subscribers
receiving service from this subsidiary.
Shenandoah Personal Communications Company (PCS)
PCS began offering personal communications services through a
digital wireless telephone and data network in 1995. The service was
originally offered from Chambersburg, Pennsylvania to Harrisonburg,
Virginia under an agreement with American Personal Communications
(APC), using the GSM air interface technology. Upon the sale of APC
to Sprint, during the fourth quarter of 1999, PCS executed a
management agreement with Sprint, finished constructing and
activating a CDMA network where our GSM network existed, and
converted our PCS customer base from GSM to CDMA service. The Sprint
agreement expanded the Company's existing PCS territory to include
the adjacent Basic Trading Areas of Altoona, Harrisburg, and
York-Hanover, Pennsylvania increasing the population served by PCS
from of 679,000 to one of 2,048,000. During 2000, PCS completed the
initial network build-out of the Harrisburg/York, PA. market,
placing 74 sites in service in February 2001. This portion of the
network includes Harrisburg, York, Hanover, Gettysburg, and
Carlisle, Pennsylvania. In December 2001, the Altoona, Pennsylvania
market was activated bringing the total covered population to
approximately 1,600,000. The network covers
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233 miles of Interstates 81 and 83, and provides coverage on a
126-mile section of the Pennsylvania Turnpike between Pittsburgh and
Philadelphia. The Company had approximately 85,100 PCS customers at
December 31, 2003.
Additional information regarding the details of the agreements with
Sprint is set forth in Note 7 of the Company's consolidated
financial statements and related notes thereto appearing elsewhere
in this report.
Additional detail on the operating segments is set forth in Note 14
of the Company's consolidated financial statements appearing
elsewhere in this report.
The registrant does not engage in operations in foreign countries.
Working capital practices and competitive conditions are discussed
in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and
related notes thereto appearing elsewhere in this report.
The Company has no research and development expenses.
Websites and Additional Information
The SEC maintains a website at www.sec.gov that contains reports,
proxy and information statements, and other information regarding
the Company. In addition, we maintain a corporate website at
www.shentel.com. We make available free of charge through our
website our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those
reports, as soon as reasonably practicable after we electronically
file or furnish such material with or to the SEC. The contents of
our website are not a part of this report.
We also make available on our website and in print to any
shareholder who requests them copies of the charters of each
standing committee of our board of directors and our code of
business conduct and ethics. Requests for copies of these documents
may be directed to our Secretary at Shenandoah Telecommunications
Company, 124 South Main Street, P.O. Box 459, Edinburg, Virginia
22824. To the extent required by SEC rules, we intend to disclose
any amendments to our code of conduct and ethics, and any waiver of
a provision of the code with respect to the Company's directors,
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, on our website referred to above within five business
days following any such amendment or waiver, or within any other
period that may be required under SEC rules from time to time.
RISK FACTORS
The Company is subject to many risks. The following items are
representative of the risks, uncertainties and assumptions that
could affect the Company, future performance, liquidity and the
outcome of the forward-looking statements. In addition, the
business, future performance, and liquidity could be affected by
general industry and market conditions and growth rates, general
economic and political conditions, including the global economy and
other future events, including those described below and elsewhere
in this annual report on Form 10-K.
7
Risks Related to the PCS Business
Shenandoah Personal Communications Company (PCS) is the largest of
our operating subsidiaries in terms of revenues and assets.
PCS faces many risks associated with this substantial and growing
business. The Company relies on Sprint's ongoing operations as the
basis for its ability to continue to offer its PCS subscribers
seamless national services that are currently provided. Given the
magnitude of the relationship, any interruption in Sprint's business
could adversely impact the Company's results of operations,
liquidity and financial condition.
Competition is intense in the wireless communications industry.
Competition has caused, and the Company anticipates that competition
will continue to cause, the market prices for two-way wireless
products and services to decline in the future. The ability to
compete will depend, in part, on the ability to anticipate and
respond to various competitive factors affecting the
telecommunications industry as a whole, and the wireless industry
specifically.
Revenues may be less than anticipated, which could materially
adversely affect liquidity, financial condition and results of
operations.
Revenue growth is primarily dependent on the growth of the
subscriber base, average monthly revenues per user, travel and
roaming revenue. The Company has seen a continuation of competitive
pressures in the wireless telecommunications market causing some
major carriers to offer plans with increasingly larger bundles of
minutes of use at lower prices that may compete with the Sprint
wireless calling plans sold by the Company. Increased price
competition may lead to lower average monthly revenues per user than
anticipated. In addition, the lower reciprocal travel rate that
Sprint instituted in 2003 reduced our travel revenue yield, although
the Company's overall travel revenue increased due to significantly
increased travel traffic. The Company's travel expense may not
follow the same trend in the future, depending on our subscribers'
travel usage outside our network area. If revenues are less than
anticipated, it could impact liquidity, financial condition and
results of operations.
Operating costs may be higher than anticipated which could
materially adversely affect liquidity, financial condition and
results of operations.
Increased competition may lead to higher promotional costs, losses
on sales of handsets and other costs to acquire subscribers.
Further, as described below under "Risks Related to Our Relationship
With Sprint," a substantial portion of costs of service and roaming
are attributable to fees and charges paid to Sprint for billing and
collection, customer care and other back-office support. The ability
to manage costs charged by Sprint is limited. If these costs are
more than anticipated, the actual amount of funds to implement the
Company's strategy and business plan may fall short of our
estimates, which could have a material adverse affect on liquidity,
financial condition and results of operations.
The dynamic nature of the wireless market may limit management's
ability to quickly discern causes of volatility in key operating
metrics.
The Company's dependence on Sprint to develop competitive products
and services in the PCS segment may limit the ability to keep pace
with competitors on the introduction of new products, services and
equipment.
8
The business plan and estimated future operating results are based
on estimates of key operating metrics, including subscriber growth,
subscriber turnover (commonly known as churn), average monthly
revenue per subscriber, losses on sales of handsets and other
subscriber acquisition costs and other operating costs. The dynamic
nature of the wireless market, economic conditions, increased
competition in the wireless telecommunications industry, Sprint's
or any competitor's new service offerings of increasingly larger
bundles of minutes of use at lower prices, and other issues facing
the wireless telecommunications industry in general created a level
of uncertainty that may adversely affect our ability to predict
these key operating metrics.
The Company may continue to experience a high rate of subscriber
turnover, which could adversely affect financial performance in the
future.
The 2004 business plan assumes that churn will remain fairly stable
under existing operating conditions. Due to significant competition
in the industry and general economic conditions, among other things,
this stability may not occur and the future rate of subscriber
turnover may be higher than the Company's recent experience. Factors
that may contribute to higher churn include:
o inability or unwillingness of subscribers to pay,
which results in involuntary deactivations;
o subscriber mix and credit class, particularly
sub-prime credit subscribers;
o competition of products, services and pricing of
other providers;
o inadequate network performance and coverage
relative to competitors in the Company's service
area;
o inadequate customer service;
o increased prices; and,
o any future changes by Sprint and/or the Company in
the products and services offered, especially as
it relates to sub-prime credit customers.
A high rate of subscriber turnover could adversely affect the
competitive position, liquidity, financial position, results of
operations and the costs of, or losses incurred in, obtaining new
subscribers, especially because as is the norm in the industry, the
Company subsidizes some of the costs related to the purchases of
handsets by subscribers.
The allowance for doubtful accounts is an estimate and may not be
sufficient to cover uncollectable accounts.
On an ongoing basis, the Company estimates the amount of subscriber
receivables that will not be collected based on historical results
and actual write-offs reported by Sprint. The allowance for doubtful
accounts may underestimate actual unpaid receivables for various
reasons, including:
9
o the churn rate may exceed estimates;
o bad debt as a percentage of service revenues may
increase rather than remain consistent with
historical trends ;
o adverse changes in the economy; or,
o unanticipated changes in Sprint's wireless
products and services.
If the allowance for doubtful accounts is insufficient to cover
losses on receivables, it could adversely affect liquidity,
financial condition and results of operations.
Travel revenue, which is the fee paid to the Company by Sprint and
the other Sprint Affiliates when their customers use the Company's
network, could be less than anticipated, which could adversely
affect the liquidity, financial condition and results of operations.
The Company may incur significantly higher wireless handset subsidy
costs than anticipated for existing subscribers who upgrade to a new
handset.
As the Company's subscriber base matures, and technological
innovations occur, the Company anticipates existing subscribers will
continue to upgrade to new wireless handsets. The Company subsidizes
a portion of the price of wireless handsets and in some cases incurs
sales commissions, for handset upgrades, to discourage customer
defections to competitors. If more subscribers upgrade to new
wireless handsets than the Company projects, the results of
operations would be adversely affected. If the Company does not
continue to subsidize the cost of the handsets for handset
up-grades, subscribers could choose to deactivate and move to other
carriers.
If the Company is unable to secure additional tower sites or leases
to install equipment to expand the wireless coverage or is unable to
renew expiring leases, the level of service and ultimately the
financial condition and results of operations could be adversely
impacted.
Many of the Company's cell sites are co-located on leased tower
facilities shared with one or more wireless providers. A large
portion of these leased tower sites are owned by a limited number of
companies. If economic conditions affect the leasing company, the
Company's lease may be impacted and the ability to remain on the
tower could be jeopardized, which could leave areas of the Company's
service area without service, and therefore the financial condition
and results of operations could be materially and adversely
affected.
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 the Company to potential litigation. Any resulting decrease
in demand for wireless services, costs of litigation or damage
awards could impair the ability to sustain profitability.
Regulation by government or potential litigation relating to the use
of wireless phones while driving could adversely affect our results
of operations, liquidity and financial condition. Some studies have
indicated that some aspects of using wireless phones
10
while driving may impair drivers' attention in certain
circumstances, making accidents more likely. These concerns could
lead to litigation relating to accidents, deaths or serious bodily
injuries, or to new restrictions or regulations on wireless phone
use, any of which also could have an adverse effect on the results
of operations. A number of U.S. states and local governments are
considering or have recently enacted legislation that would restrict
or prohibit the use of a wireless handset while driving a vehicle
or, alternatively, require the use of a hands-free telephone.
Legislation of this nature, if enacted, could require wireless
service providers to supply to its subscribers hands-free enhanced
services, such as voice activated dialing and hands-free speaker
phones and headsets, in order to continue generating revenue from
their subscribers who use wireless phones while driving. If the
Company is unable to provide hands-free services and products to
subscribers in a timely and adequate fashion, the volume of wireless
phone usage would likely decrease, and the ability to generate
revenues would suffer in the wireless line of our business.
Risks Related to the Telecommunications Industry
With the enactment of the Telecommunications Act of 1996,
competition in all segments of the business has intensified.
As new technologies are developed and deployed by competitors in the
Company's service area, there is the potential that subscribers will
elect other providers' offerings, based on price, capabilities and
personal preferences. If significant numbers of the Company's
subscribers elect to move to other competing providers, it could
prevent the Company from operating profitably.
Most of the Company's competitors are larger, possess greater
resources, have more extensive coverage areas, and offer more
services than the Company. There has been a recent trend in the
industry towards consolidation through joint ventures,
reorganizations and acquisitions. The Company expects this
consolidation to lead to larger competitors over time, and as a
result, the Company may be unable to compete successfully with
larger companies that have substantially greater resources or that
offer more services to larger geographic areas.
Market saturation could limit or decrease the rate of new subscriber
additions.
Alternative technologies, changes in the regulatory environment and
current uncertainties in the marketplace may reduce future demand
for existing telecommunication services.
The telecommunications industry is experiencing significant
technological change, 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. Technological
advances and industry changes could cause the technology used by the
Company to become obsolete. The Company and its vendors may not be
able to respond to such changes and implement new technology on a
timely basis, or at an acceptable cost.
If the Company and other companies that support the Company's
operations are unable to keep pace with these technological changes,
the Company may lose revenues, subscribers or both. This could be
the result of changes in the telecommunications market based on the
effects of the Telecommunications Act of 1996, from the uncertainty
of future government regulation and changes in customers' technology
demands.
11
A recession in the United States involving significantly reduced
consumer spending could have a negative impact on the results of
operations.
The Company customers are individual consumers and businesses that
provide goods and services to consumers. The Company's customers are
located in a relatively concentrated geographic area and our
accounts receivable represent unsecured credit. An economic downturn
could have an adverse affect on the Company's operations. In the
event that the economic downturn occurs, and spending by consumers
drops significantly, the Company may be negatively affected.
Regulation by government and taxing agencies may increase the costs
of providing service or require changes in services, either of which
could impair the Company's financial performance.
The Company's operations is subject to varying degrees of regulation
by the Federal Communications Commission, the Federal Trade
Commission, the Federal Aviation Administration, the Environmental
Protection Agency, the Occupational Safety and Health Administration
along with state and local regulatory agencies and legislative
bodies. Adverse decisions or regulation of these regulatory bodies
could negatively impact the operations and the costs of doing
business. For example, changes in tax laws or the interpretation of
existing tax laws by state and local authorities could increase
income, sales or other tax costs.
Risks Related to the Company's Relationship with Sprint
The termination of the Company's affiliation with Sprint would
severely restrict the ability to conduct the wireless business.
The Company does not own the licenses to operate its wireless
network. The ability of the Company to offer Sprint wireless
products and services and operate a PCS network is dependent on the
Sprint agreements remaining in effect and not being terminated. The
Company's Management Agreement with Sprint automatically renews at
the expiration of the 20-year initial term which ends in 2019, for
an additional 10-year period and two subsequent 10-year periods
unless the Company is in material default. Sprint can choose not to
renew the Management Agreement at the expiration of any the renewal
term. In any event, the Management Agreement terminates in 50 years.
In addition, each of the Sprint Agreements can be terminated for
breach of any material term, including, among others, marketing,
build-out and network operational requirements. Many of these
requirements are extremely technical and detailed in nature. In
addition, many of these requirements can be changed by Sprint with
little notice. As a result, the Company may not always be in
compliance with all requirements of the Sprint agreements. At
December 31, 2003, the Company believes it was in compliance with
all material terms and conditions of the Sprint Management
Agreement.
The Company is dependent on Sprint's ability to perform its
obligations under the Sprint agreements. The non-renewal or
termination of any of the Sprint agreements or the failure of Sprint
to perform its obligations under the Sprint agreements would
severely restrict the ability to conduct business.
Sprint may make business decisions that are not in the Company's
best interests, which may adversely affect the relationships with
subscribers in our territory, increase expenses and/or decrease
revenues.
12
Sprint, under the Sprint Agreements, has a substantial amount of
control over the conduct of the Company's PCS business. Accordingly,
Sprint may make decisions that adversely affect our PCS business,
such as the following:
o Sprint could price its national plans based on its own
objectives and could set price levels or other terms
that may not be economically sufficient for the Company;
o Sprint could develop products and services, or establish
credit policies, which could adversely impact the
results of operations;
o Sprint cost to provide and maintain support services
could increase;
o Sprint can reduce the reciprocal travel rate charged
when Sprint's or its PCS Affiliates' subscribers use the
Company's network after 2006;
o Sprint could, subject to limitations under our Sprint
Agreements, alter its network and technical requirements
or request the Company build out additional areas within
its territories, which could result in increased
equipment and build-out costs; or
o Sprint could make decisions that could adversely affect
the Sprint brand names; products or services; or no
longer perform its obligations, any of which would
severely restrict the Company's ability to conduct
business in its PCS segment.
The occurrence of any of the foregoing could adversely affect the
relationship with wireless subscribers in the Company's territories,
increase expenses and/or decrease revenues and have a material
adverse affect on liquidity, financial condition and results of
operation not only in our PCS business, but could damage the
reputation of the Company and have a similar impact on the other
business segments.
The dependence on Sprint for services may limit the ability to
reduce costs, which could adversely affect the financial condition
and results of operations or may adversely affect the ability to
predict the results of operations.
The dependence on Sprint injects a greater degree of uncertainty to
the Company's business and financial planning. Unanticipated future
expenses and reductions in revenue will have a negative impact on
liquidity and make it more difficult to reliably predict future
performance.
It is the Company's policy to reflect the information supplied by
Sprint in the financial statements in the respective periods.
Corrections, if any, are made no earlier than the period in which
the parties agree to the corrections.
Inaccuracies in data provided by Sprint could overstate or
understate expenses or revenues and result in out-of-period
adjustments that may materially adversely impact financial results.
13
Because Sprint provides billing and collection services for the
Company, Sprint remits a significant portion of total revenues to
the Company. The Company relies on Sprint to provide accurate,
timely and sufficient data and information to properly record
revenues, expenses and accounts receivable, which underlie a
substantial portion of the financial statements and other financial
disclosures.
The Company and Sprint have previously discovered billing and other
errors or inaccuracies, which, while not material to Sprint, could
be material to the Company. If the Company is required in the future
to make additional adjustments or charges as a result of errors or
inaccuracies in data provided by Sprint, such adjustments or charges
may have a material adverse affect on the financial results in the
period that the adjustments or charges are made. Such adjustments,
may lead to a qualified opinion by the external auditors, or require
restatement of the Company's financial statements.
The Company is subject to risks relating to Sprint's provision of
back office services, changes in products, services, plans and
programs.
The inability of Sprint to provide high quality back office services
could lead to subscriber dissatisfaction, increased churn or
otherwise increased costs. The Company relies on Sprint's internal
support systems, including customer care, billing and back office
support. The Company's operations could be disrupted if Sprint is
unable to provide and expand its internal support systems in a high
quality manner, or to efficiently outsource those services and
systems through third-party vendors.
Sprint recently notified the Company that the customer care function
was being outsourced to IBM. This move could impact the level of
service the customers receive and could adversely impact the
Company's ability to retain subscribers in its markets.
Changes in Sprint's PCS products and services may reduce subscriber
additions, increase subscriber turnover and decrease subscriber
credit quality. The competitiveness of Sprint's PCS products and
services is a key factor in the ability to attract and retain
subscribers.
Sprint's roaming arrangements to provide service outside of the
Sprint National Network may not be competitive with other wireless
service providers, which may restrict the ability to attract and
retain subscribers and may increase the costs of doing business.
The Company relies on Sprint's roaming arrangements with other
wireless service providers for coverage in some areas where Sprint
service is not yet available. The risks related to these
arrangements include:
o the quality of the service provided by another provider
during a roaming call may not approximate the quality of
the service provided by the Sprint PCS network;
o the price of a roaming call off network may not be
competitive with prices of other wireless companies for
roaming calls;
o subscribers must end a call in progress and initiate a
new call when leaving the Sprint PCS network and
entering another wireless network;
14
o customers may not be able to use Sprint's advanced
features, such as voicemail notification, while roaming;
and
o Sprint or the carriers providing the service may not be
able to provide accurate billing information on a timely
basis.
If customers are not able to roam quickly or efficiently onto other
wireless networks, the Company may lose current subscribers and
Sprint wireless services will be less attractive to new subscribers.
Certain provisions of the Sprint Agreements may diminish the value
of the Company's common stock and restrict or diminish the value of
the business.
Under limited contractual circumstances, Sprint may purchase the
operating assets of the Company's PCS operation at a discount. In
addition, Sprint must approve any assignment of the Sprint
agreements. Sprint also has a right of first refusal if the Company
decides to sell its PCS operating assets to a third-party. These
restrictions and other restrictions contained in the Sprint
agreements could adversely affect the value of the Company's common
stock, may limit the ability to sell the business, may reduce the
value a buyer would be willing to pay and may reduce the "entire
business value," as described in the Sprint agreements.
The Company may have difficulty in obtaining an adequate supply of
certain handsets from Sprint, which could adversely affect the
results of operations.
PCS depends on our relationship with Sprint to obtain handsets.
Sprint orders handsets from various manufacturers. The Company could
have difficulty obtaining specific types of handsets in a timely
manner if:
o Sprint does not adequately project the need for handsets
for itself, its PCS Affiliates and its other third-party
distribution channels, particularly in transition to new
technologies;
o Sprint gives preference to other distribution channels;
o The Company does not adequately project its need for
handsets;
o Sprint modifies its handset logistics and delivery plan
in a manner that restricts or delays access to handsets;
or
o there is an adverse development in the relationship
between Sprint and its suppliers or vendors.
o Sprint and the Company rely on manufacturers for new
product introductions and meeting delivery commitments.
The occurrence of any of the foregoing could disrupt subscribers'
service and/or result in a decrease in subscribers, which could
adversely affect the results of operations.
If Sprint does not continue to enhance its nationwide digital
wireless network, the Company may not be able to attract and retain
subscribers.
Sprint currently intends to cover a significant portion of the
population of the United States, Puerto Rico and the U.S. Virgin
Islands by creating a nationwide network through its own
construction efforts and those of its PCS Affiliates. Sprint and the
Affiliates are still constructing its nationwide network and does
not offer PCS services, either on its own network or through its
roaming agreements, in every part of the United States. Sprint
15
has entered into management agreements similar to the Company's with
companies in other markets under its nationwide digital wireless
build-out strategy. The results of operations are dependent on
Sprint's national network and on the networks of Sprint's other
Affiliates. Sprint's digital wireless network may not provide
nationwide coverage to the same extent as its competitors, which
could adversely affect the ability to attract and retain
subscribers.
If other PCS Affiliates of Sprint have financial difficulties or
cease operating, the Affiliate's network could be disrupted.
Sprint's national digital wireless network is a combination of
networks. The large metropolitan areas are owned and operated by
Sprint, and the areas in between them are generally owned and
operated by Sprint PCS Affiliates, all of which are independent
companies.
If other PCS Affiliates experience financial difficulties, Sprint's
digital wireless network could be disrupted. While Sprint may have
the right to step in and operate the network in the affected
territory, there can be no assurance that the transition would occur
in a timely and seamless manner. In addition, the Company does not
have the ability to require other PCS Affiliates to pay amounts due
for travel in the Company's market areas by such other PCS
Affiliates subscribers. The Company relies on Sprint to enforce the
payment obligations of such PCS Affiliates.
Non-renewal or revocation by the Federal Communications Commission
(FCC) of Sprint's PCS licenses would significantly harm to the
Company. Wireless spectrum licenses are subject to renewal and
revocation by the FCC. There may be opposition to renewal of
Sprint's PCS licenses upon their expiration, and Sprint's PCS
licenses may not be renewed. The FCC has adopted specific standards
to apply to PCS license renewals. Any failure by Sprint to comply
with these standards could cause revocation or forfeiture of
Sprint's PCS licenses. If Sprint loses any of its licenses, it would
severely restrict the Company's ability to conduct business.
If Sprint does not maintain control over its licensed spectrum, the
Sprint agreements may be terminated, which would result in the
inability to provide service to the Company's subscribers.
ITEM 2. PROPERTIES
The Company owns a 24,000 square foot building in Edinburg, Virginia
that houses the corporate headquarters and the Company's main
switching center. A separate 10,000 square foot building in
Edinburg, is used for customer services and retail sales. In late
1999, the Company purchased a 60,000 square foot building in
Edinburg, which was initially used for storage and limited office
space. Renovations are currently underway to convert a portion of
the building into additional office space and meeting facilities.
The Company also owns eight telephone exchange buildings that are
located in the major towns and some of the rural communities and
that serve the regulated service area. These buildings contain
switching and fiber optic equipment and associated local exchange
telecommunications equipment. The Company owns a 6,000 square foot
service building outside of the town limits of Edinburg, Virginia.
The Company owns a 10,000 square foot building in Winchester,
Virginia used for retail sales and office space. The Company has
fiber optic hubs or points of presence in Hagerstown, Maryland;
Ashburn, Berryville, Front Royal, Harrisonburg, Herndon, Leesburg,
Stephens City, Warrenton and Winchester, Virginia; and Martinsburg,
West Virginia.
16
The buildings are a mixture of owned on leased land, leased space,
and leasehold improvements. The majority of the identified
properties are of masonry construction, are suitable to their
existing use, and are in adequate condition to meet the foreseeable
future needs of the organization. The Company is leasing a
warehouse, office space and an operations area in Pennsylvania, to
support the network and sales efforts in the Central Penn market.
The Company also leases retail space in Harrisonburg and Front
Royal, Virginia, Hagerstown, Maryland, and Harrisburg,
Mechanicsburg, and York, Pennsylvania. The Company plans to lease
additional land, equipment space, and retail space in support of the
ongoing PCS expansion.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders for the
three months ended December 31, 2003.
17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's stock is traded on the NASDAQ National Market under the
symbol "SHEN." Information on the high and low closing prices per share of
common stock as reported by the NASDAQ National Market for the last two years is
set forth below:
2003 High price Low price
---- ---------- ---------
First Quarter $24.31 $13.64
Second Quarter 24.98 14.33
Third Quarter 25.48 19.25
Fourth Quarter 27.50 19.74
2002 High price Low price
---- ---------- ---------
First Quarter $20.06 $16.50
Second Quarter 27.25 19.69
Third Quarter 27.25 22.75
Fourth Quarter 25.95 21.61
All share and per share figures are restated to reflect the 2 for 1 stock split
effected February 23, 2004.
As of February 15, 2004, there were approximately 3,930 holders of record of the
Company's common stock.
The Company historically has paid an annual cash dividend on or about December
1st of each year. The cash dividend was $0.39 per share in 2003 and $0.37 per
share in 2002. The terms of a mortgage agreement require the maintenance of
defined amounts of the Telephone subsidiary's equity and working capital after
payment of dividends. Approximately $2,812,000 of the Telephone subsidiary's
retained earnings was available for payment of dividends at December 31, 2003.
The loan agreement is not expected to limit dividends in amounts that the
Company historically has paid.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data as of December 31, 1999,
2000, 2001, 2002 and 2003 and for each of the five years ended December 31,
2003.
The selected financial data as of December 31, 2001, 2002 and 2003 and for each
of the years in the three-year period ended December 31, 2003 are derived from
the Company's audited consolidated financial statements appearing elsewhere in
this report.
The selected financial data as of December 31, 1999 and 2000 and for the years
ended December 31, 1999 and 2000 are derived from the Company's financial
statements which have been audited.
The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes thereto appearing
elsewhere in this report.
(Dollar figures in thousands, except per share data.)
2003 2002 2001 2000 1999
----------- ----------- ---------- ---------- ----------
Operating Revenues $ 105,861 $ 92,974 $ 68,722 $ 44,445 $ 29,701
Operating Expenses 87,233 83,636 62,298 39,065 24,624
Income Taxes (Benefit) 5,304 (2,109) 5,811 2,975 1,729
Interest Expense 3,510 4,195 4,127 2,936 1,951
Income (Loss) from Continuing
Operations $ 9,761 $ (2,893) $ 9,694 $ 5,091 $ 2,927
Discontinued Operations, net of tax 22,389 7,412 6,678 4,764 3,501
Cumulative effect of a change in
accounting, net of tax (76) -- -- -- --
Net Income 32,074 4,519 16,372 9,855 6,428
Total Assets 185,364 164,004 167,372 152,585 133,644
Long-term Obligations 43,346 52,043 56,436 55,487 33,030
Shareholder Information
Number of Shareholders 3,930 3,954 3,752 3,726 3,683
Shares Outstanding 7,592,768 7,551,818 7,530,956 7,518,462 7,511,520
Income (Loss) per share from
Continuing Operations-diluted $ 1.28 $ (0.38) $ 1.28 $ 0.68 $ 0.39
Income per share from
Discontinued Operations-diluted 2.94 0.98 0.88 0.63 0.47
Loss per share from cumulative effect of
a change in accounting-diluted (0.01) -- -- -- --
Net Income per share-diluted 4.22 0.60 2.17 1.31 0.86
Cash dividends per share $ 0.39 $ 0.37 $ 0.35 $ 0.33 $ 0.28
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This annual report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding our expectations, hopes,
intentions, or strategies regarding the future. These statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, changes in
the interest rate environment, management's business strategy, national,
regional and local market conditions, and legislative and regulatory conditions.
The Company undertakes no obligation to publicly revise these forward-looking
statements to reflect subsequent events or circumstances, except as required by
law.
General
Shenandoah Telecommunications Company is a diversified telecommunications
company providing both regulated and unregulated telecommunications services
through its nine wholly owned subsidiaries. These subsidiaries provide local
exchange telephone services, wireless personal communications services (PCS), as
well as cable television, paging, Internet access, long distance, fiber optics
facilities, and leased tower facilities. The Company is the exclusive provider
of wireless mobility communications network products and services under the
Sprint brand from Harrisonburg, Virginia to Harrisburg, York and Altoona,
Pennsylvania. The Company refers to the Hagerstown, Maryland; Martinsburg, West
Virginia; and Harrisonburg and Winchester, Virginia markets as its Quad State
markets. The Company refers to the Altoona, Harrisburg, and York, Pennsylvania
markets as its Central Penn markets. Competitive local exchange carrier (CLEC)
services were established on a limited basis during 2002. In addition, the
Company sells and leases equipment, mainly related to services it provides, and
also participates in emerging services and technologies by direct investment in
non-affiliated companies.
The Company reports revenues as wireless, wireline and other revenues. These
revenue classifications are defined as follows: Wireless revenues are made up of
the Personal Communications Company (a PCS Affiliate of Sprint), and the Mobile
Company. Wireline revenues include the following subsidiary revenues in the
financial results: Telephone Company, Network Company, Cable Television Company,
and the Long Distance Company. Other revenues are comprised of the revenues of
ShenTel Service Company, the Leasing Company, ShenTel Communications Company and
the Holding Company. For additional information on the Company's business
segments, see Note 14 to audited consolidated financial statements appearing
elsewhere in this report.
19
The Company participates in the telecommunications industry, which requires
substantial investment in fixed assets or plant. This significant capital
requirement may preclude profitability during the initial years of operation.
The strategy of the Company is to grow and diversify the business by adding
services and geographic areas that can leverage the existing plant, but to do so
within the opportunities and constraints presented by the industry. For many
years the Company focused on reducing reliance on the regulated telephone
operation, which up until 1981 was the primary business within the Company. This
initial diversification was concentrated in other wireline businesses, such as
the cable television and regional fiber facility businesses, but in 1990 the
Company made its first significant investment in the wireless sector through its
former investment in the Virginia 10 RSA Limited partnership. By 1998, revenues
of the regulated telephone operation had decreased to 59.2% of total revenues.
In that same year more than 76.6% of the Company's total revenue was generated
by wireline operations, and initiatives were already underway to make wireless a
more significant contributor to total revenues.
During the 1990's significant investments were made in the cellular and PCS
(wireless) businesses. The VA 10 RSA cellular operation, in which the Company
held a 66% interest and was the general partner, experienced rapid revenue
growth and excellent margins in the late 1990's. The cellular operation covered
only six counties, and became increasingly dependent on roaming revenues.
Management believed the roaming revenues and associated margins would be
unsustainable as other wireless providers increasingly offered
nationally-branded services with significantly reduced usage charges. To
position it to participate in the newer, more advanced, digital wireless
services, in 1995 the Company entered the PCS business through an affiliation
with American Personal Communications (APC), initiating service along the
Interstate 81 corridor from Harrisonburg, Virginia to Chambersburg,
Pennsylvania. This territory was a very close match to the Company's fiber
network, thereby providing economic integration that might not be available to
other wireless carriers. In 1999, the Company entered a new affiliation
arrangement with Sprint, the successor to APC (which introduced the Company to a
nationally-branded wireless service) and expanded the PCS footprint further into
Central Pennsylvania. The Company's combined capital investment in 2000 and 2001
in the PCS operation was $45.1 million.
The wireless industry in the late 1990's became increasingly competitive and the
Company was not immune to these industry issues. The Clear PaySM program,
introduced by Sprint as a no-deposit offering in 2001, attracted high credit
risk customers in the Company's markets. As the results began to materialize,
the Company implemented deposits on this program (mid-April 2002), and
experienced high levels of customer turnover (churn) and uncollectable accounts.
The write-offs of uncollectable accounts peaked in the third quarter of 2002.
During the fourth quarter of 2002 there was some evidence that the strengthened
credit policy was having a favorable impact. Nonetheless, the 2002 net loss in
the PCS operation was $5.4 million, as compared to $5.5 million in 2001. Despite
the disappointing financial results for 2002, the PCS customer base grew by over
40%. While the PCS operation was adding customers, the cellular operation
continued to lose its local customer base.
The growing belief that national branding was critical to our wireless
operations, the expectation that roaming revenues from our analog cellular
operation would not continue to grow, and the increase in the number of wireless
competitors in our markets, prompted the Company to exit the cellular business
in order to focus on our PCS operations. The Company entered into an agreement
on November 21, 2002, to sell its 66% ownership interest in the Virginia 10 RSA
cellular operation which was classified as a discontinued operation. The closing
occurred February 28, 2003. The Company received $37.0 million in proceeds,
including $5.0 million in escrow for two years and $1.7 million for working
capital.
In many respects, 2003 was a successful year. Churn and levels of uncollectable
accounts in the PCS operation returned to more acceptable levels. PCS revenues
reached $67.0 million, and total revenues reached $105.9 million. The PCS
operation recognized a small profit for the year, including favorable
adjustments associated with settlement of disputed items with Sprint. Excluding
the favorable adjustments, the PCS operation recognized a profit in the fourth
quarter. With improved operating cash flow and reduced capital spending in 2003,
the Company prepaid $4.6 million in debt, selecting those notes with nominal
prepayment penalties. Additionally, after receiving the cash and paying taxes on
the gain of the sale of the Virginia 10 partnership interest, the Company
invested the remaining proceeds in liquid financial instruments, available for
future deployment. Additionally, the Company has been successful at decreasing
its dependency on wireline revenues. Wireline revenues, at $29.0 million in 2003
compared to $18.6 million in 1998, were 27.4% of total revenues in 2003 compared
to 76.6% in 1998.
Entering 2004, the Company is pleased with the milestone of a profitable quarter
in the PCS operation, but recognizes that much work remains to ultimately earn a
reasonable return on this investment. The recently announced signing of an
addendum to the management and services agreements with Sprint is expected to
lead to cost savings and greater
20
certainty in fees paid to Sprint. However, the consolidation predicted for the
wireless industry in recent years, including the recently announced Cingular/ATT
deal and anticipated improvements in the overall economics of wireless services,
has not yet materialized. Future Sprint marketing efforts, designed to meet the
competition, could potentially have an unfavorable impact on the Company and
lead to additional losses. The risks associated with the Sprint PCS affiliation
are described in further detail elsewhere in this document. The Company is now
reviewing alternatives for other businesses to further diversify our revenue
base, from either a services platform or a geographic concentration.
21
Additional Information About the Company's Business
(unaudited)
Three Month Period Ended Dec. 31, Sept. 30, Jun. 30, Mar. 31, Dec. 31,
2003 2003 2003 2003 2002
-----------------------------------------------------------------
Telephone Access Lines 24,877 24,951 24,972 24,903 24,879
CATV Subscribers 8,696 8,796 8,750 8,704 8,677
Dial-up Internet Subscribers 17,420 17,616 17,798 18,174 18,050
DSL Subscribers 1,298 1,163 1,080 852 646
Retail PCS Subscribers 85,139 81,015 77,398 72,480 67,842
Wholesale PCS Users (1) 12,858 7,531 4,690 3,280 1,672
Paging Subscribers 1,989 2,107 2,315 2,805 2,940
Long Distance Subscribers 9,526 9,517 9,520 9,312 9,310
Fiber Route Miles 552 552 552 552 549
Total Fiber Miles 28,740 28,740 28,739 28,729 28,403
Wholesale PCS Minutes (000) 4,974 3,207 2,303 1,562 530
Long Distance Calls (000) (2) 5,851 6,078 5,001 5,074 5,969
Total Switched Access Minutes (000) 55,932 54,349 51,124 48,380 46,627
Originating Switched Access MOU (000) 17,829 18,285 18,343 18,685 18,476
Employees (full time equivalents) 268 264 266 267 268
CDMA Base Stations (sites) 253 248 246 240 237
Towers (100 foot and over) 77 76 73 72 72
Towers (under 100 foot) 11 10 10 10 10
(See note (3) for definitions of terms)
PCS Market POPS (000) 2,048 2,048 2,048 2,048 2,048
PCS Covered POPS (000) 1,581 1,581 1,574 1,574 1,555
PCS Average Revenue Per User (ex. Travel) $ 52.05 $ 55.09 $ 52.84 $ 52.22 $ 51.38
PCS Travel Revenue per sub. (4) $ 20.84 $ 16.50 $ 17.18 $ 17.39 $ 31.21
PCS Ave. Management Fee per sub $ 4.02 $ 4.62 $ 4.58 $ 4.40 $ 4.64
PCS Ave. Monthly Churn % 2.00% 2.20% 1.90% 2.30% 3.40%
PCS Cost Per Gross Addition (CPGA) $387.47 $418.22 $376.98 $276.97 $390.66
PCS Cash Cost Per User (CCPU) (4) $ 36.31 $ 40.05 $ 44.23 $ 45.87 $ 53.52
--------------------
PLANT FACILITIES Telephone CATV
--------------------
Route Miles 2,133.6 550.5
Customers Per Route Mile 11.7 15.8
Miles of Distribution Wire 579.3 157.8
Telephone Poles 7,675 36
Miles of Aerial Copper Cable 337.2 162.0
Miles of Buried Copper Cable 1,314.4 352.7
Miles of Underground Copper Cable 39.2 2.0
Fiber Optic Cable-Fiber Miles 256.9 --
Inter-toll Circuits to Interexchange Carriers 1,622 --
Special Service Circuits to Interexchange Carriers 313 --
(1) - Wholesale PCS Users are private label subscribers homed in the Company's
wireless network service area and primarily include Virgin Mobile
subscribers.
(2) - Originated by customers of the Company's Telephone subsidiary
(3) - POPS refers to the estimated population of a given geographic area. Market
POPS are those within a market area, and Covered POPS are those covered by
the network's service area. ARPU is roaming revenue, and management fee,
net of adjustments divided by average subscribers. PCS Travel revenue
includes roamer revenue and is divided by average subscribers. PCS Average
management fee per subscriber is 8% of collected revenue, excluding travel
revenue, retained by Sprint. PCS Ave Monthly Churn is the average of three
monthly calculations of deactivations (excluding returns less than 30
days) divided by beginning of period subscribers. CPGA includes selling
costs, product costs, and advertising costs. CCPU includes network,
customer care and other costs.
22
(4) - On a normalized basis, the 4th quarter PCS travel revenue per subscriber
would be $19.25 and PCS CCPU would be approximately $38.66 taking into
account the adjustments and true-ups recorded in December 2003.
Significant Transactions
The Company had several significant transactions during 2003. The largest was
the sale of its 66% interest in the Virginia 10 RSA cellular operation, as
described above. The Company originally entered into the agreement with Verizon
Wireless in November 2002. The Company was the general partner of the limited
partnership which operated an analog cellular network in the six-county area of
Northwestern Virginia, including Clarke, Frederick, Page, Rappahannock,
Shenandoah, and Warren counties, and the city of Winchester. The sales price was
$37.0 million plus the Company's 66% share of the partnership's working capital,
which was approximately $1.7 million. The Company was required to do a working
capital true up following the closing, from which the Company recorded a charge
for $23 thousand after taxes. In the fourth quarter the Company recorded an
additional charge for taxes of $0.2 million to reflect the consolidated
effective tax rate based on the final operating results for the year.
The sale of this business is reflected in the discontinued operations section of
the income statement along with the results of operations for the two months of
2003 that the operation remained a part of the Company.
Reflected in the 2003 results are several unusual items, which should be noted
in understanding the financial results of the Company for 2003.
1. Certain access revenue rate elements billed by the Company to
interexchange carriers were disputed and subsequently refunded to
the carriers. During 2003, the Company recorded a reduction in
access revenue of $1.2 million from interexchange customers related
to the disputed access revenue the Company previously billed for
switching facilities and the local exchange network. The disputes
cover a two-year period beginning in 2001 through and including the
second quarter of 2003. The total amount of the reduction related to
2003 was $0.7 million.
2. The Company changed its employee vacation policy so that employees
now earn and use their vacation benefits in the same year.
Previously, vacation benefits were earned in the year prior to the
year the benefits were available to the employee. As a result of
this change in employee benefit policy, the Company did not accrue
employee vacation expense for 2004 in 2003, thereby reducing its
benefit expenses by $0.5 million for the 2003 year.
3. The Company adjusted its estimate of deferred revenue for the PCS
operation in the fourth quarter of 2003. The adjustment decreased
deferred revenue by $0.6 million and increased revenue in 2003 by
the same amount.
4. The Company received a reimbursement from Sprint of $0.2 million
related to 2002 for its portion of the E911 surcharge collected from
PCS subscribers. The reimbursement is to offset the Company's
portion of handset costs incurred to make the customers' phones E911
compliant. This entry decreased cost of goods expenses.
On January 30, 2004, the Company, a PCS Affiliate of Sprint, signed agreements
with Sprint that resolved disputed items and documented changes in the
management and operating agreements between the two companies related to the
operations of the nationwide Sprint PCS network. The agreements provide the
Company with the ability to better estimate the future costs of certain
operating expenses and in the Company's opinion improve the contract between
Sprint and itself. Under the agreements:
1. Sprint agreed to compensate the Company for lost travel revenue
related to usage by Sprint customers in the Company's territory for
the period prior to 2003, and change the method of allocating
certain software maintenance fees between Sprint and its Affiliates
for fees recorded in 2002 and 2003. These items had the effect of
increasing operating income by $0.7 million in the 4th quarter of
2003.
23
2. The method used to price certain services performed by Sprint on
behalf of the Company was simplified. The CCPU (cash cost per user)
rate for the periods 2004 through 2006 was set at $7.70 per user per
month. This fee covers customer service, billing, collections,
network operations and other costs to support the customer. However,
Sprint may discontinue such services if Sprint is discontinuing such
services to all other Sprint PCS affiliates and Sprint's own
end-users. It is estimated that this rate will decrease the amount
the Company will pay Sprint compared to payments under the previous
method by approximately $120,000 per month in 2004.
3. There will be a maximum until the year 2007, on the non-direct Costs
per Gross Additions (CPGA) at the greater of 6.3% of the Sprint
published CPGA rate or $25. With the volatility of CPGA, the Company
cannot determine the amount of potential savings, but the change
does provide more certainty in estimating future costs.
4. For the period 2004 through 2006, the travel and reseller rates
between the Company and Sprint were set at $0.058 per minute for
voice and $0.002 per kilobyte for data. Without this agreement the
voice travel rate for 2004 would have decreased to $0.041. Since the
Company is in a net receivable position related to travel with
Sprint, the impact on net travel and reseller revenue would have
been a reduction of $1.5 million had the $0.041 rate been in effect
in 2003. Beginning in 2007, the Sprint travel and reseller rate will
be changed annually to equal 90% of Sprint's retail yield from the
prior year. Sprint's retail yield will be determined based on
Sprint's average revenue per PCS user for voice services divided by
the average minutes of use per user.
5. Sprint and the Company will agree on a service level agreement
related to the provision of customer services by December 1, 2006.
If Sprint does not reach the stated goals, the Company will have
the opportunity to either provide the services itself or contract
with a third party, beginning in 2008.
6. Through 2006, a methodology is provided to determine if the Company
is required to make certain capital expenditures and participate in
Sprint national marketing programs.
7. Effective January 1, 2004, the method of cash settlement provided
for under the Agreement changed from Sprint distributing cash from
customers based on collected revenue to billed revenue. The absolute
amount of cash received by the Company should remain the same, but
the Company should receive cash on a more timely basis.
8. The Company is entitled to a Most Favored Nations clause.
During the period through 2006, the Company will have the
opportunity to adopt any addendum to the Management and/or Service
Agreements that Sprint signs with another PCS Affiliate.
In May 2003, the Board of Directors of the Company adopted a nonqualified
supplemental executive retirement plan (SERP) benefit for named executives. The
plan was established to provide benefits beyond the pension plan that covers all
employees. See Note 9 of the Consolidated Financial Statements for additional
information.
In November 2003, the Company commenced a management reorganization that will be
ongoing into 2004. The reorganization was in recognition of the Company's growth
and changes in the telecom industry. The Company shifted from an organization
structure that was focused on lines of business to a plan that organizes on
function. The Company plans to expand the senior staff and corresponding
departments as needed to better position itself for future opportunities. This
reorganization did not require a charge to the operation, as there were no
positions lost or values impaired as a result of the reorganization.
On November 24, 2003, federal regulations went into effect whereby customers in
the 100 largest metropolitan areas were able to change wireless carriers and
keep their phone numbers. This is referred to as Wireless Local Number
Portability (WLNP). On the same date in those markets, wireline customers could
transfer their wireline number to a wireless phone. On May 24, 2004, Local
Number Portability (LNP) will be available to wireless and wireline subscribers
throughout the United States. To date, the impact of LNP/ WLNP on the Company
has been insignificant.
Summary
The Company's three major lines of business are wireless, wireline and other
businesses. Each of the three areas has unique issues and challenges that are
critical to the understanding of the operations of the Company. The wireless
business is made up of two different operations, the PCS operation and the tower
business. The wireline business is
24
made up of traditional telephone operations, a cable TV operation, fiber network
leasing and a company that resells long-distance. Other business includes the
Company's Internet operation, the Interstate 81 corridor Travel 511 project and
the sales and service of telecommunications systems.
The PCS operation must be understood within the context of the Company's
relationship with Sprint and its PCS Affiliates. The Company operates its PCS
wireless network as an affiliate of Sprint. The Company receives revenues from
Sprint for subscribers that obtain service in the Company's network coverage
area and those subscribers using the Company's network when they travel. The
Company relies on Sprint to provide timely, accurate and complete information
for the Company to record the appropriate revenue and expenses for the periods
reflected.
The Company's PCS business has operated in a net travel receivable position for
several years. The Company received $6.0 million in net travel in 2003, compared
to $5.8 million in 2002, and $4.0 million in 2001. This relationship could
change due to service plan changes, subscriber travel habit changes and other
changes beyond the control of the Company.
Through Sprint, the Company began receiving revenue from wholesale resellers of
wireless PCS service in late 2002. These resellers pay a flat rate per minute of
use for all traffic their subscribers generate on the Company's network. The
Company's cost to handle this traffic is the incremental cost to provide the
necessary network capacity.
The Company faces vigorous competition in the wireless business as numerous
national carriers are aggressively marketing their services in the Company's
markets. The competitive landscape could change significantly depending on the
marketing initiatives of our competitors, or in the event of consolidation in
the wireless industry.
The wireline business is made up of traditional telephony, cable TV, fiber
network operations and the Company's long-distance resale business. These
businesses operate in a defined geographic area. The Company's primary service
area for the telephone, cable TV and long-distance business is Shenandoah
County, Virginia. The county is a rural area in northwestern Virginia, with a
population of approximately 37,300 inhabitants, which has increased by
approximately 6,000 since 1990. The potential for significant numbers of
additional customers in the current operating area is limited.
The Company's telephone subscriber count declined in the third quarter and again
in the fourth quarter of 2003. Migration to wireless and DSL services are
believed to be driving this change. Based on industry experience, the Company
anticipates this trend may continue for the foreseeable future.
Other revenues include Internet services, both dial-up and DSL high-speed
service. The Company has seen a decline in dial up subscriptions over the last
year. The DSL service has grown over 100% in the last year driven by customer
desire for faster Internet connections.
The Company is facing competition for revenues it generates in the other lines
of business, which will require the Company to differentiate itself from other
providers through its service levels and evolving technologies that are more
reliable and cost effective for the customer.
CRITICAL ACCOUNTING POLICIES
The Company relies on the use of estimates and makes assumptions that impact its
financial condition and results. These estimates and assumptions are based on
historical results and trends as well as the Company's forecasts as to how these
might change in the future. Several of the most critical accounting policies
that materially impact the Company's results of operations include:
Allowance for Doubtful Accounts
Estimates are used in determining the allowance for doubtful accounts and are
based on historical collection and write-off experience, current trends, credit
policies, and the analysis of the accounts receivable by aging category. In
determining these estimates, the Company compares historical write-offs in
relation to the estimated period in which the subscriber was originally billed.
The Company also looks at the historical average length of time that elapses
between the original billing date and the date of write-off and the financial
position of its larger customers in determining the adequacy of the allowance
for doubtful accounts. From this information, the Company assigns specific
amounts to the aging categories. The Company provides an allowance for
substantially all receivables over 90 days old.
25
The allowance for doubtful accounts balance as of December 31, 2003, 2002 and
2001 was $0.5 million, $0.9 million and $0.7 million, respectively. If the
allowance for doubtful accounts is not adequate, it could have a material
adverse effect on our liquidity, financial position and results of operations.
The Company also reviews current trends in the credit quality of the subscriber
bases in its various businesses and periodically changes its credit policies. As
of December 31, 2003, the Sprint PCS subscriber base in the Company's market
area consisted of 17.9% sub-prime credit quality subscribers compared to 25.3%
at December 31, 2002. Sprint manages the accounts receivable function related to
all of the Company's Sprint PCS wireless customers, therefore limiting the
amount of control the Company has in setting credit policy parameters.
The remainder of the Company's receivables are associated with services provided
on a more localized basis, where the Company exercises total control in setting
credit policy parameters. Historically there have been limited losses generated
from the non-PCS revenue streams. Prior to 2002, the Company had not faced
significant write-offs of inter-carrier accounts, but due to the
telecommunication industry down-turn of the last few years, the Company
experienced write-offs in this area of the business totaling $0.5 million in
2002, due to bankruptcy filings of several significant telecommunications
companies. In 2003, the inter-carrier segment of the business improved and the
Company recovered $240 thousand of bad debt from the sale of certain accounts
that were previously written-off.
Bad Debt expense summary, net of recoveries for the three years ended December
31, 2003:
In thousands
2003 2002 2001
----------------------------------
PCS subscribers $1,716 $3,744 $1,241
Interexchange carriers 48 488 --
Other subscribers and entities 71 170 82
----------------------------------
Total bad debt expense $1,835 $4,402 $1,323
==================================
Revenue Recognition
The Company recognizes revenues when persuasive evidence of an arrangement
exists, services have been rendered or products have been delivered, the price
to the buyer is fixed and determinable, and collectibility is reasonably
assured. The Company's revenue recognition polices are consistent with the
guidance in Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements promulgated by the Securities and Exchange Commission, and
the Emerging Issues Task Force ("EITF") 00-21, "Revenue Arrangements with
Multiple Deliverables" ("EITF 00-21"). Effective July 1, 2003 the Company
adopted EITF 00-21. The EITF guidance addresses how to account for arrangements
that may involve multiple revenue-generating activities, i.e., the delivery or
performance of multiple products, services, and/or rights to use assets. In
applying this guidance, separate contracts with the same party, entered into at
or near the same time, will be presumed to be a bundled transaction, and the
consideration will be measured and allocated to the separate units based on
their relative fair values. The consensus guidance was applicable to new PCS
service agreements entered into for quarters beginning July 1, 2003. The
adoption of EITF 00-21 required evaluation of each arrangement entered into by
the Company for each sales channel. The Company will continue to monitor
arrangements with its sales channels to determine if any changes in revenue
recognition will need to be made in the future. The adoption of EITF 00-21 has
resulted in substantially all of the PCS activation fee revenue generated
through Company-owned retail stores and associated direct costs being recognized
at the time the related wireless handset is sold and it is classified as
equipment revenue and cost of equipment, respectively. Upon adoption of EITF
00-21, previously deferred PCS revenue and costs will continue to be amortized
over the remaining estimated life of a subscriber, not to exceed 30 months. PCS
revenue and costs for activations at other retail locations and through other
sales channels will continue to be deferred and amortized over their estimated
lives as prescribed by SAB 101. The adoption of EITF 00-21 had the effect of
increasing equipment revenue by $68 thousand and increasing costs of equipment
by $23 thousand, which otherwise would have been deferred and amortized.
The Company records equipment revenue from the sale of handsets and accessories
to subscribers in its retail stores and to local distributors in its territories
upon delivery. The Company does not record equipment revenue on handsets and
accessories purchased from national third-party retailers, those purchased
though the Company's business-to-business sales force, or directly from Sprint
by subscribers in its territories. The Company believes the equipment revenue
and related cost of equipment associated with the sale of wireless handsets and
accessories is a separate earnings process from the sale of wireless services to
subscribers. For competitive marketing reasons, the Company
26
sells wireless handsets at prices lower than the cost. In certain instances the
Company may offer larger handset discounts as an incentive for the customer to
agree to a multi-year service contract. The Company also sells wireless handsets
to existing customers at a loss in handset sales and the corresponding cost in
cost of goods, and accounts for these transactions separately from agreements to
provide customers wireless service. These transactions are viewed as a cost to
retain the existing customers and deter churn.
For the Company's wireless customers that purchase and activate their service
through a channel not covered by EITF 00-21, the wireless customers generally
pay an activation fee to the Company when they initiate service. The Company
defers the activation fee revenue (except when a special promotion reduces or
waives the fee) over the average life of its subscribers, which is estimated to
be 30 months. The Company recognizes service revenue from its subscribers as
they use the service. The Company provides a reduction of recorded revenue for
billing adjustments and the portion of revenue (8%) that is retained by Sprint.
The Company also reduces recorded revenue for rebates and discounts given to
subscribers on wireless handset sales in accordance with ("EITF") Issue No. 01-9
"Accounting for Consideration Given by a Vendor to a Subscriber (Including a
Reseller of the Vendor's Products)." The Company participates in the Sprint
national and regional distribution programs in which national retailers sell
Sprint wireless products and services. In order to facilitate the sale of Sprint
wireless products and services, national retailers purchase wireless handsets
from Sprint for resale and receive compensation from Sprint for Sprint wireless
products and services sold. For industry competitive reasons, Sprint subsidizes
the price of these handsets by selling the handsets at a price below cost. Under
the Company's agreements with Sprint, when a national retailer sells a handset
purchased from Sprint to a subscriber in the Company's territories, the Company
is obligated to reimburse Sprint for the handset subsidy. The Company does not
receive any revenues from the sale of handsets and accessories by national
retailers. The Company classifies these handset subsidy charges as a cost of
goods expense.
Through December 31, 2003, the Agreement provided that Sprint retains 8% of
collected service revenues from subscribers based in the Company's markets and
from non-Sprint wholesale subscribers who roam onto the Company's network. The
amount of revenue retained by Sprint is recorded as an offset to the revenues
recorded. All revenue derived from the sale of handsets and accessories by the
Company and from certain roaming services (outbound roaming and travel revenues
from Sprint and its PCS Affiliate subscribers) are retained by the Company.
The Company defers direct subscriber activation costs on subscribers whose
activation falls within the SAB 101 guidelines. The activation costs are
deferred when incurred, and then amortized using the straight-line method over
30 months, which is the estimated average life of a subscriber. Direct
subscriber activation costs also include the activation charge from Sprint, and
credit check fees. These fees are charged to the Company by Sprint at
approximate $12.50 per subscriber.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company evaluates the recoverability of tax assets generated
on a state-by-state basis from net operating losses apportioned to that state.
Management uses a more likely than not threshold to make that determination and
has established a valuation allowance against the tax assets, in case they are
not recoverable. For 2003, the Company added an additional reserve of $0.2
million to its valuation allowance due to the uncertainty of the recoverability
of the net operating loss carry-forwards in certain states. The valuation
allowance now stands at $0.9 million as of December 31, 2003. Management will
evaluate the effective rate of taxes based on apportionment factors, the
Company's operating results, and the various state income tax rates. Currently,
management anticipates the normalized effective income tax rate to be
approximately 39%.
Other
The Company does not have any unrecorded off-balance sheet transactions or
arrangements, however, the Company has commitments under operating leases and is
subject to certain capital calls under one of its investments.
27
Results of Continuing Operations
2003 compared to 2002
Total revenue was $105.9 million in 2003, an increase of $12.9 million or 13.9%.
Total revenues included $69.9 million of wireless revenues, an increase of $12.0
million or 20.7%; wireline revenues of $29.0 million, an increase of $0.3
million or 0.9%; and other revenues of $7.0 million, an increase of $0.6 million
or 9.7%.
Within wireless revenues, the PCS operation contributed $67.0 million, an
increase of $11.6 million, or 20.8%. PCS service revenues were $44.4 million, an
increase of $10.9 million or 32.4%. Service revenue growth was driven by the
increase in subscribers, totaling 85,139 at December 31, 2003, an increase of
17,297 or 25.5%, compared to 67,842 subscribers at year-end 2002. The company
had churn of 2.1% in 2003 compared to 2.8% in 2002. The decline in the churn
rate is the result of tightening the credit screening for new subscribers as
well as continued efforts to improve the after sales support. Competition in the
wireless industry continues to have a significant impact on the results of the
Company's PCS operation.
PCS travel revenue, including reseller revenue, which is compensation between
Sprint and its PCS Affiliates for use of the other party's network, was $16.8
million, an increase of $0.3 million or 1.8%. Travel revenue is impacted by the
geographic size of the Company's network service area, the overall number of
Sprint wireless customers, their travel patterns and the travel exchange rate.
The rate received on travel was $0.058 per minute in 2003, compared to $0.10 per
minute in 2002. As a part of the amended management agreement signed on January
30, 2004, Sprint and the Company agreed to maintain the travel rate at $0.058
per minute through December 31, 2006.
PCS equipment sales were $2.1 million, an increase of $0.4 million or 26.6%. The
equipment sales are net of $1.7 million of rebates and discounts given at the
time of sale. Rebates and discounts continue to be required to meet significant
industry competition for subscriber additions and subscriber retention. These
discounts and rebates are primarily transacted in the form of instant rebates,
providing a second phone free when a customer purchases one, or providing free
phones if the subscriber signs up for a specific contract term and a specific
service plan.
In accordance with Sprint's requirements, the Company launched third generation
(3G 1X) wireless service in August 2002. 3G 1X is the first of a four-stage
migration path that will enable additional voice capacity and increased data
speeds for subscribers. The network upgrades completed in 2002 were software
changes, channel card upgrades, and some new network elements required for
packet data. The Company's base stations were outfitted with network card
enhancements, thereby allowing the Company to provide 3G 1X service without
wholesale change-outs of base stations. 3G 1X is backwards compatible with the
existing 2G network, thereby allowing continued use of current customer
handsets. The impact of 3G 1X-network enhancements on revenues became more
pronounced in 2003, as use of new 3G services and features generated
approximately $1.0 million for the year, compared to $0.2 million in 2002. The
growth in 3G revenue is the result of more subscribers on 3G plans and the
increase in popularity of camera phones during 2003.
Wireless revenues included tower leases of $2.6 million, an increase of $0.5
million or 24.8%. The increase was the result of other wireless carriers
executing additional leases to use space on the Company's portfolio of towers.
Of the 88 towers and poles owned by the Company as of December 31, 2003, 52
towers have one or more external tenants, compared to 46 towers with external
tenants at the end of 2002.
Wireless revenues from the Company's paging operation were $0.2 million, a
decrease of $0.1 million as the customer base increasingly chose alternative
wireless services. Paging service subscribers declined by 32.3% in 2003 from
2,940 subscribers to 1,989 subscribers. The paging operation continues to
decline as more areas are covered by wireless voice services, which have
features that surpass those of paging technologies. The Company anticipates that
its paging customer base will continue to decline in the future.
Within wireline revenues, the Telephone operation contributed $22.7 million, an
increase of $0.3 million, or 1.2%. Telephone access revenues were $11.6 million,
an increase of $0.7 million or 6.7%. During 2003, the Company recorded a $1.2
million reduction to access revenue, of which $0.7 million was related to 2002,
resolving disputes with interexchange carriers on the rating of long distance
calls transiting the Telephone switching network for termination on wireless
networks.
Originating access revenue increased in 2003 due in part to a shift from
interstate to intrastate traffic. On similar traffic volume in both years, the
Company generated an additional $0.4 million due to a favorable rate
differential of $0.03 per minute on the increase in the mix of intrastate
traffic. The Company's increased access revenue was also a result of the benefit
gained through terminating more minutes through the switch, which increased 36.0
million minutes or
28
35.7% over 2002. The rates for terminating traffic were similar in both years,
although the percentage of terminating traffic to total traffic increased from
58% in 2002 to 65% in 2003.
The shift in originating traffic is the result of implementing software capable
of identifying actual interstate and intrastate traffic specifically delivered
to the wireline switch, where previously usage was allocated between interstate
and intrastate traffic types by the interexchange carriers.
The following table shows the access traffic minutes of use for the two years of
2003 and 2002.
Minutes of use (in thousands) 2003 2002
-------------------------------------------------------------
(net of intercompany usage)
Originating Terminating Originating Terminating
-------------------------------------------------------------
Interstate 29,373 87,539 42,929 63,959
Intrastate 37,190 49,103 22,684 36,712
-------------------------------------------------------------
Total 66,563 136,642 65,613 100,671
=============================================================
Access revenue (in thousands) 2003 2002
-------------------------------------------------------------
(net of intercompany usage) As reported Pro forma As reported Pro forma
-------------------------------------------------------------
Traffic sensitive (1) $ 4,274 $ 4,974 $ 4,676 $ 3,976
Special access revenues 1,606 1,606 1,247 1,247
Carrier common line settlement 5,750 5,750 4,978 4,978
-------------------------------------------------------------
Total $11,630 $ 12,330 $10,901 $ 10,201
=============================================================
(1) Traffic sensitive revenue has been normalized in the proforma column to
remove the impact of the access billing dispute adjustment and the impact
of the NECA settlement adjustments.
Facility lease revenue contributed $5.5 million to wireline revenues, a decrease
of $0.2 million or 3.5%. The decrease was primarily the result of the prolonged
decline of lease rates associated with competitive pricing pressures and the
economic downturn in the telecommunications industry. During 2002 the Company
completed a second, diverse fiber route to its existing interconnection point in
the Dulles airport area of Northern Virginia. This fiber route provides
increased reliability for customers in the event of fiber cuts or breaks, and
extends the availability of the Company's fiber network to additional market
locations but to date has not added additional revenue to the Company's
operation.
Billing and collection services and other revenues contributed $0.4 million to
wireline revenues, which was the same as 2002 results. Revenues from this
service had declined in recent years, with interexchange carriers now issuing a
greater proportion of their bills directly to their customers.
Wireline revenues from cable television services were $4.4 million, an increase
of $0.1 million or 1.7%. The number of subscribers and service plan prices
remained relatively constant during 2003.
Other revenues, primarily consisting of Internet and 511Virginia service
revenues were $5.8 million in 2003, an increase of $0.7 million or 13.5%. The
Company had 17,420 dial-up Internet subscribers at December 31, 2003, compared
to 18,050 at the end of the previous year. During 2003, the Company's DSL
high-speed Internet access subscriber count increased to 1,298 from 646. Total
Internet service revenue was $4.5 million, an increase of $0.3 million or 10.7%.
The 511Virginia contract with the Virginia Department of Transportation
contributed $1.3 million to other revenues, an increase of $0.4 million or
41.3%. Telecommunications equipment sales, services and lease revenues were $1.1
million, which reflects a $0.1 million decrease from 2002 results.
Total operating expenses were $87.2 million, an increase of $3.6 million or
4.3%. The primary driver in the increase in operating expenses is continued
growth in the PCS operation somewhat offset by a significant decline in bad debt
expense compared to 2002.
Late in 2003, the Company made an employee benefits policy change, which
eliminated the requirement for the Company to accrue a vacation liability in
advance of the year in which the benefit was used. The result of this change was
a reduction of benefit expense of $0.5 million for the year compared to 2002.
Benefit expenses impact all operating departments based on the amount of direct
labor charged to the department. The change has a one-time impact on the
financial statements of the Company. The benefits policy now provides that
employees earn and use their paid time off in the same period. In the future,
under this policy, unused hours can be banked but only used for extended
illness, not carried over for use as vacation.
29
Cost of goods and services was $10.9 million, an increase of $0.4 million or
4.2%. The PCS cost of goods sold was $8.5 million, an increase of $0.2 million
or 2.3%. This change is due primarily to higher volumes of handsets sold through
Company owned stores and PCS handset subsidies paid to third-party retailers. In
2003, the Company recorded approximately $1.8 million in handset costs related
to existing subscribers upgrading their handsets. Prior to 2003, the Company did
not track the specific costs related to subsidizing new handsets to existing
customers. The cost of handset up-grades sold to existing customers is expected
to increase as the customer base matures and handset manufacturers introduce new
technologies in new handsets. The cable television programming (cost of service)
expense was $1.6 million, an increase of $0.2 million or 16.3%. The Company has
seen continuing upward pressure on the cost of cable TV programming by cable TV
program providers.
Network operating costs were $33.6 million, an increase of $1.1 million or 3.4%.
The largest item in network operating costs is travel expense. These costs made
up 31.8% and 32.9% of the total network and other costs in 2003 and 2002,
respectively. Travel expense is the cost of minutes used by the Company's PCS
subscribers on Sprint or other Sprint Affiliates' networks. Travel expense in
2003 was $10.8 million, an increase of $0.1 million due to a significant
increase in travel minutes in 2003 which was offset by the impact of the rate
decline. The travel rate declined from $0.10 per minute in 2002 to $0.058 per
minute in 2003. Our PCS customers increased their average monthly travel minutes
by 22% compared to 2002. In 2002, the average customer's travel usage was 130
minutes per month and in 2003 that average travel usage increased to 159 minutes
per month.
Network infrastructure maintenance costs were $4.9 million or 14.6% of total
network operating costs, a decrease of $0.2 million from 2002. Rent for towers,
tower sites, and buildings increased $0.9 million or 27.3% to $4.2 million.
Lease escalators plus the increase in the number of sites leased contributed to
the increase. Line costs in 2003 were $9.8 million or 29.1% of the network
operating costs, an increase of $0.1 million.
Depreciation and amortization expense was $16.6 million, an increase of $2.1
million or 14.8%. The PCS operation had depreciation expense of $10.2 million,
an increase of $1.6 million or 18.9%. The 16 additional PCS base stations placed
in service during 2003 resulted in higher depreciation expense for the year. In
the telephone operation, depreciation increased $0.5 million or 12.7%, due to
new assets deployed in the operation. There was no amortization of goodwill in
2003 or 2002, compared to goodwill amortization of $360 thousand expensed in
2001, due to the required accounting change.
Selling, general and administrative expenses were $26.0 million, down $0.1
million or 0.4%. Customer support costs were $8.7 million, an increase of $0.9
million or 11.4%. The growth in Sprint wireless subscribers is primarily
responsible for this change. Advertising expense was $4.6 million, an increase
of $0.3 million or 6.4%. The change is primarily due to increased marketing
efforts in support of the PCS operations in both the Quad State and Central Penn
markets. PCS sales staff expenses were $2.8 million, an increase of $0.1 million
or 1.5% compared to 2002. Other sales staff expenses increased $0.3 million to
$1.3 million as the Company worked to expand its other services in areas outside
its historically defined service area. Bad debt expense decreased $2.6 million
or 58.3%.
Administrative expenses increased $1.0 million or 17.1%. This increase is a
result of increased professional fees, insurance and pension costs. During 2003,
the Company added several positions to expand the management team to support the
Company's growing operations.
Bad debt expense decreased $2.6 million to $1.8 million or 58.3%. This decrease
was due to more restrictive credit terms for new PCS subscribers (limiting the
high credit risk customers who obtained service), lower churn in the PCS
operation and improvement in the interexchange carrier segment of the business.
This expense is net of normal recoveries and includes a recovery of $0.2 million
for an interexchange carrier settlement the Company received in 2003 which was
written off in 2002.
Operating income grew to $18.6 million, an increase of $9.3 million or 100%.
Revenue growth, primarily in the PCS operation in addition to the reduced bad
debt expenses, adjustments of management estimates, and the settlement of
disputed items with Sprint, all contributed to the operating income
improvements. The Company's operating margin was 17.6%, compared to 10.0% in
2002.
Other income (expense) is comprised of non-operating income and expenses,
interest expense and gain or loss on investments. Collectively, the net impact
of these items to pre-tax income was an expense of $3.6 million for 2003,
compared to expense of $14.3 million from 2002. The 2002 results were primarily
the results of the previously disclosed $9.0 million loss recorded on the sale
of the VeriSign stock.
30
Interest expense was $3.5 million, a decrease of $0.7 million or 16.3%. The
Company's average debt outstanding decreased approximately $4.8 million.
Long-term debt (inclusive of current maturities), was $43.3 million at year-end
2003, versus $52.0 million at year-end 2002. The Company did not borrow any
money on its revolving facilities in 2003.
Net losses on investments were $0.4 million, compared to a loss of $10.1 million
from 2002. Results in 2002 include the sale of the VeriSign, Inc. stock for a
loss of $9.0 million. See Note 3 to the consolidated financial statements.
Non-operating income was a gain of $0.4 million, an increase of $0.5 million,
due to an increase in patronage equity earned from CoBank, the Company's primary
lender, and due to interest income from the proceeds on the sale of the Virginia
10 RSA Limited partnership, offset by losses recorded for the Company's
portfolio of investments.
The Company provided for income taxes of $5.3 million in 2003, which is an
effective tax rate of 35.2% due to the effect of state tax apportionment rules
and reduction in the liability for tax exposures. On a normalized basis the
Company would have recorded taxes at an effective tax rate of approximately 39%.
Last year's effective tax rate was 42.2% due to the impact of net operating loss
carry forwards generated in several states with higher tax rates. The Company
currently operates in four states. Due to apportionment rules and geographic
operations of subsidiaries where the Company's profits and losses arise, the
Company is generating profits in states with lower tax rates, while generating
losses in states with higher tax rates. The Company cautions readers that the
current effective tax rate may not be the same rate at which tax benefits or tax
expenses are recorded in the future. The Company's state apportionments, profits
and losses and state tax rates may change, therefore changing the effective rate
at which taxes are provided for or at which tax benefits accrue. In the near
term, under existing operating results and current tax rates, the Company
anticipates a normalized effective tax rate will be approximately 39%.
Net income from continuing operations was $9.8 million, an increase of $12.7
million from 2002. The results are primarily made up of the improvement in the
PCS operation and the one-time impact of the losses on the sale of VeriSign
stock in 2002.
Income from discontinued operations was $22.4 million after taxes, an increase
of $15.0 million or 202%. The income from discontinued operations in 2003
includes the sale of the partnership interest in February 2003 and results from
the two months of its operations in 2003.
The Company adopted FAS 143 "Accounting for Asset Retirement Obligations."
effective January 1, 2003, and as a result recorded a charge to earnings for the
cumulative effect of this change in accounting of $76 thousand after taxes.
Net income was $32.1 million, an increase of $27.6 million or 610%. The increase
is a result of improved operating results in the PCS operations, the 2002
VeriSign stock loss and the sale of the cellular operations.
DISCONTINUED OPERATIONS
The Company invested $2.0 million in the Virginia 10 RSA limited partnership in
the early 1990's. The partnership's local customer base peaked in early 2000
with nearly 12,000 subscribers, then steadily declined to 6,700 by December 31,
2002. The decline was the result of competition with digital technologies and
increased competition from national carriers in the area. As a result of the
decline in the subscriber base, and the need for extensive capital expenditures
to transform the analog network into a digital cellular network, the Company
elected to sell its 66% interest in the partnership to one of the minority
partners. The agreement was signed in November 2002, and closing was February
28, 2003. The Company's portion of the net income from its operations for 2003,
2002 and 2001 was $1.2 million, $7.4 million and $6.7 million, respectively.
CONTINUING OPERATIONS
2002 compared to 2001
Total revenue was $93.0 million in 2002, an increase of $24.3 million or 35.3%.
Total revenues included $57.9 million of wireless revenues, an increase of $21.7
million or 60.2%; wireline revenues of $28.7 million, an increase of $1.3
million or 4.6%; and other revenues of $6.4 million, an increase of $1.2 million
or 24.5%.
31
Within wireless revenues, the PCS operation contributed $55.5 million, an
increase of $21.4 million, or 63.0%. PCS service revenues were $37.4 million, an
increase of $18.3 million or 95.7%. The increase in the subscriber base, which
totaled 67,842 at December 31, 2002, was an increase of 20,524 or 43% from the
prior year end.
PCS travel revenue, which is compensation between Sprint and its PCS Affiliates
for use of the other party's network, was $16.5 million, an increase of $2.9
million or 21.3%. Travel revenue is impacted by the geographic size of the
Company's network service area, the overall number of Sprint wireless customers,
and the travel exchange rate. The rate received on travel was $0.10 per minute
in 2002. The rates in 2001 were $0.20 per minute from January 1, 2001 through
April 30, 2001; $0.15 per minute from May 1, 2001 through September 30, 2001;
and $0.12 per minute from October 1, 2001 through December 31, 2001.
PCS equipment sales were $1.6 million, an increase of $0.3 million or 19.6%. The
equipment sales are net of $0.3 million of rebates and discounts given at the
time of sale, which became more pronounced during the year to meet industry
competition for subscriber additions and subscriber retention.
In accordance with Sprint's requirements, the Company launched third generation
(3G 1X) service in August 2002. The impact of 3G 1X-network enhancements on
revenues was not significant in 2002.
Tower leases added $2.1 million to wireless revenues, an increase of $0.4
million or 24.5%. The increase was the result of other wireless carriers
executing additional leases to use space on the Company's portfolio of towers.
Of the 82 towers and poles owned by the Company as of December 31, 2002, 46 have
tower space leased to other carriers.
Wireless revenues from the Company's paging operation were $0.3 million, a
decrease of $0.1 million as the local customer base increasingly chose
alternative digital wireless services. Paging service subscribers declined by
7.8% in 2002 from 3,190 subscribers to 2,940 subscribers.
Within wireline revenues, the Telephone operation contributed $22.5 million, an
increase of $0.9 million, or 4.0%. Telephone access revenues were $10.9 million,
an increase of $1.4 million or 14.8%. The growth in access revenues was driven
by a 38.4% increase in access minutes of use on the Company's network and an
increased percentage of minutes in the intrastate jurisdiction, where rates are
higher than the interstate jurisdiction. On January 1, 2002 the Federal
subscriber line charge (SLC) for residential customers increased from $3.50 to
$5.00 per month. The SLC increased again on July 1, 2002 to $6.50, and
comparable rate increases also impacted business subscribers. Tied to the SLC
rate increases were declines in rates charged to interexchange carriers for
interstate minutes of use. The 2002 results reflect a significantly larger
increase in network usage, which more than offset the decline in rates.
Facility lease revenue contributed $5.7 million to wireline revenues, a decrease
of $0.8 million or 12.6% from 2001. The decrease was primarily the result of
declining lease rates associated with competitive pricing pressure, and the
economic downturn in the telecommunications industry.
Billing and collection services contributed $0.4 million to wireline revenues,
which was the same as 2001 results. Revenues from this service had declined in
recent years, with interexchange carriers now issuing a greater proportion of
their bills directly to their customers.
Wireline revenues from cable television services were $4.3 million, an increase
of $0.5 million or 14.5%. In December 2001, the Company increased its basic
service charge by $6.00 per month, which produced $0.3 million of the increase
in cable television revenue. The remaining $0.2 million was generated by an
increased penetration of digital services and increased pay per view sales.
Within other revenues, Internet and 511Virginia contract revenues from the
Virginia Department of Transportation, were $5.1 million in 2002, an increase of
$1.2 million or 30.4%. The Company had 18,050 dial-up Internet subscribers at
December 31, 2002, compared to 17,423 subscribers at the end of 2001. Total
Internet service revenue was $4.2 million, an increase of $0.6 million or 15.7%.
Services provided under the 511Virginia contract contributed $0.9 million to
other revenues, an increase of $0.6 million. Telecommunications equipment sales,
services and lease revenues were $1.2 million, a nominal increase over 2001
results.
Total operating expenses were $83.6 million, an increase of $21.3 million or
34.3%. The continued growth in the PCS operation was principally responsible for
the change.
32
Cost of goods and services was $10.5 million, an increase of $3.1 million or
41.8%. The PCS cost of goods sold was $8.3 million, an increase of $2.8 million
or 50.2%. This change is due primarily to higher volumes of handsets sold
through Company owned stores and PCS handset subsidies paid to third-party
retailers. The cable television programming (cost of service) expense was $1.4
million, an increase of $0.1 million or 4.6%. The other cost of goods sold
increased $0.3 million, compared to the same period in 2001.
Network operating costs were $32.5 million, an increase of $5.8 million or
21.5%. Line and switching costs were $9.7 million, an increase of $2.6 million
or 37.4%, due principally to the impact of the expanded PCS network. Travel
expense, generated by the Company's PCS subscribers' use of minutes on other
providers' portions of the Sprint wireless network, was $10.7 million, an
increase of $0.9 million or 8.4%. The increase in customer travel usage more
than offset the travel rate explained above in travel revenue. Plant specific
costs were $9.6 million, which include the operation, and maintenance of the
networks increased $2.3 million or 30.7%. Tower, building, and land rentals, as
well as PCS equipment maintenance, were major contributors to the increase in
plant specific expenses. Other network costs such as power, network
administration, and engineering, were $2.7 million, the same as in 2001.
Depreciation and amortization expense was $14.5 million, an increase of $3.2
million or 28.6%. The PCS operation had depreciation expense of $8.6 million, an
increase of $3.6 million or 72.7%. The PCS operation added 53 additional base
stations during 2002.
Selling, general and administrative expenses were $26.1 million, an increase of
$9.3 million or 55.0%. Customer support costs were $7.8 million, an increase of
$2.8 million or 55.3%. The growth in Sprint wireless subscribers was the primary
driver for this increase. Advertising expense was $4.3 million, an increase of
$1.5 million or 55.8%. This change was primarily due to the stepped-up and
ongoing marketing efforts to support the PCS operations in the Quad State market
and particularly the Central Penn market. PCS sales staff expenses were $2.7
million, an increase of $0.7 million or 32.7%. The increase was principally due
to the full year operations of the three retail locations and adding additional
sales staff.
The Company experienced significant bad debt losses in its PCS operations
related to the Sprint Clear PaySM program. The program was initially targeted at
customers in sub-prime credit classes and did not require a deposit upon
activation of service. As a result of default rates that exceeded projections,
the Company experienced a substantial increase in bad debt expense, which rose
from $1.2 million in 2001 to $4.4 million in 2002. The reinstatement of deposit
requirements in April 2002 caused some moderation in bad debt expense by the end
of the year. Total PCS bad debt expense for 2002 was $3.7 million. Of the total,
$0.5 million of this expense is associated with several large telecommunications
customers who filed bankruptcies in 2002.
Operating income grew to $9.3 million, an increase of $2.9 million or 45.4%.
Revenue growth, primarily in the PCS operation, was greater than the increase in
operating expense, and the overall operating margin was 10.0%, compared to 9.4%
in 2001. The elevated bad debt expense in the PCS and telephone operations had a
dampening effect on the operating margin improvement.
Other income (expense) is comprised of non-operating income and expenses,
interest expense and gain or loss on investments. Collectively, the net impact
of these items to pre-tax income was an expense of $14.3 million for 2002,
compared to income of $9.1 million from 2001. The largest component was the loss
on investments that is discussed below.
Interest expense was $4.2 million, an increase of $0.1 million or 1.4%. The
Company's average debt outstanding was approximately the same during 2002 as
compared to the previous year.
Net losses on investments were $10.0 million, compared to a gain of $12.9
million from 2001. Results in 2002 include the sale of the VeriSign, Inc. stock
for a loss of $9.0 million compared to a gain recorded on the VeriSign stock of
$12.7 million in 2001.
Non-operating income was a loss of $0.1 million, a decrease of $0.3 million,
primarily due to losses recorded for the Company's portfolio of investments,
offset by an increase in patronage equity earned from CoBank, the Company's
primary lender.
33
Income (loss) from continuing operations before taxes was a $5.0 million loss
compared to a profit of $15.5 million in 2001, a decrease of $20.5 million.
Gains and losses on external investments contributed $21.7 million to this
change from 2002 to 2001.
The Company recognized an income tax benefit of $2.1 million on continuing
operations in 2002, which is an effective tax rate of 42.2% due to the impact of
net operating loss carry forwards generated in several states with higher tax
rates, offset by the need for a valuation allowance.
Net loss from continuing operations was $2.9 million, a decrease of $12.6
million from 2001. The results are primarily made up of the one-time impact of
the losses on the sale of the VeriSign stock and the improvement in operating
income.
Income from discontinued operations was $7.4 million after taxes, an increase of
$0.7 million or 11%. Increased revenues from use of our cellular network by
customers of other wireless providers were the main cause for the increase in
net income.
Net income was $4.5 million, a decrease of $11.9 million or 72.4%. The decrease
is primarily the result of the $21.7 million decline in investment results due
to the impact of the VeriSign gain recorded in 2001, and the loss on the sale of
the VeriSign stock in 2002.
Investments in Non-Affiliated Companies
The Company has investments in several available-for-sale securities, which the
Company may choose to liquidate from time to time, based on market conditions,
capital needs, other investment opportunities, or a combination of any number of
these factors. As a result of the uncertainty of these factors, there is also
uncertainty as to what the value of the investments may be when they are sold.
The fair value of the Company's available-for-sale securities was $0.2 million
at the end of 2003, compared to $0.2 million at the end of 2002. The Company's
available-for-sale portfolio at December 31, 2003 is made up of two investments,
both of which are within the telecommunications industry. Due to the volatility
of the securities markets, particularly in the telecommunications industry,
there is uncertainty about the ultimate value the Company will realize with
respect to these investments in the future.
The Company participates in emerging technologies by investing in entities that
invest in start-up companies. This includes indirect participation through
capital venture funds of South Atlantic Venture Fund III, South Atlantic Private
Equity IV, Dolphin Communications Parallel Fund, Dolphin Communications Fund II
and the Burton Partnership. The Company also participates by direct investment
in privately held companies. Currently the Company's only direct investment is
in NTC Communications, a provider of voice, video and data connections to off
campus housing properties at universities and colleges. For those companies that
eventually make public offerings of their securities, it is the intent of the
Company to evaluate whether to hold or sell parts or all of each investment on
an individual basis. At December 31, 2003, the Company had external investments
totaling $7.5 million.
In 2004, the Company anticipates taking advantage of a conversion feature on its
Rural Telephone Bank stock. The Company will convert a portion of its holdings
into a different class of stock that will pay cash dividends each year. The bank
declares a dividend rate that varies, each year. The range of the dividend has
been between 4.2% and 5.65% over the last 5 years. The rate in the two most
recent years was 4.2%. This transaction is estimated to provide the Company with
approximately $0.3 million in dividend income each year, based on the 2003
dividend rate of 4.2% and assuming we had converted the stock at the beginning
of 2003.
Financial Condition, Liquidity and Capital Resources
The Company has four principal sources of funds available to meet the financing
needs of its operations, capital projects, debt service, investments and
potential dividends. These sources include cash flows from operations, cash and
cash equivalents, the liquidation of investments and borrowings. Management
routinely considers the alternatives available to determine what mix of sources
are best suited for the long-term benefit of the Company.
During the 2003 year, with the closing of the sale of the Virginia 10 RSA
Limited partnership interest, the Company evaluated its capital requirements,
and as a result eliminated its $20.0 million revolving line of credit with
CoBank in May 2003. The Company had paid off the outstanding balance in early
2003, and did not borrow on it during the remaining time
34
the facility was in place. In light of the $27.9 million balance in cash
equivalent investments, management determined additional debt capacity is not
necessary for the near-term.
The term debt loan agreements with CoBank have three financial covenants. These
are measured on a trailing 12-month basis and are calculated on continuing
operations. The first of the covenants is the total leverage ratio, which is
total debt to operating cash flow. This ratio must remain below 3.5, and as of
December 31, 2003 it was 1.2. The second measure is equity to total assets,
which must be 35% or higher. At December 31, 2003 the ratio was 57.3%. The third
measure is the debt service coverage ratio, which is operating cash flow to
scheduled debt service, which must exceed 2.0. At December 31, 2003 this measure
was 4.3. Management believes the Company will meet these covenant measures for
the coming year. The Company has pledged all of its affiliates capital stock as
collateral for the CoBank loans.
The Company's covenants on the RUS/RTB debt require the pledge of all current
and future assets of the Telephone subsidiary until the debt is retired.
Another external source of funding is a $0.5 million unsecured, variable rate
revolving line of credit with SunTrust Bank. This facility is in place to allow
the Company to better manage its daily cash balances. The facility expires May
31, 2004. Management anticipates renewing this facility with SunTrust Bank under
similar terms and conditions. At December 31, 2003 there were no balances
outstanding under this facility.
Due to make-whole provisions in the Company's debt agreements it is currently
uneconomical for the Company to prepay any debt.
The Company is obligated to make future payments under various contracts it has
entered into, including amounts pursuant to its various long-term debt
facilities, and non-cancelable operating lease agreements for retail space,
tower space and cell sites. Expected future minimum contractual cash obligations
for the next five years and in the aggregate at December 30, 2003, are as
follows:
Payments due by periods
Less than 1
(unaudited) (in thousands) Total year 1-3 years 4-5 years After 5 years
-----------------------------------------------------------
Long-term debt principal $43,346 $ 4,230 $ 8,898 $ 9,552 $20,666
Interest on long -term debt 15,429 3,019 5,099 3,778 3,533
Operating leases 12,592 3,216 4,616 2,229 2,531
Capital calls on investments 1,790 -- 1,790 -- --
Purchase obligations 98 98 -- -- --
-----------------------------------------------------------
Total obligations $73,255 $10,563 $20,403 $15,559 $26,730
===========================================================
The $5.0 million placed in escrow, as part of the sales agreement on the
Virginia 10 RSA limited partnership, should be released after February 28, 2005.
There are no known claims that have been filed against the amount in escrow.
The Company spent $12.5 million on capital projects in 2003, or about $7.0
million below what was budgeted for the year. The variance was primarily due to
postponing construction of an additional diverse fiber route and the delay of
the second phase of renovations on the Shentel Center in Edinburg, Virginia.
The Company has no other off-balance sheet arrangements and has not entered into
any transactions involving unconsolidated, limited purpose entities or commodity
contracts.
Capital expenditures budgeted for 2004 total approximately $30 million,
including approximately $20 million for additional PCS base stations, additional
towers, and switch upgrades to enhance the PCS network. Improvements and
replacements of approximately $5 million are planned for the telephone
operation. The remaining $5 million covers building renovations, vehicles,
office equipment, and other miscellaneous capital needs.
The Company anticipates using funds from operations, to the extent they are
available to fund the capital expenditures and the payment of debt and interest.
Due to lower than expected tax expenses in 2003, the Company will apply the tax
receivable to the 2004-year tax liability. It is anticipated by no later than
second quarter of 2004, additional federal tax payments will be due based on
anticipated profits expected to be generated in the operation.
35
Management anticipates its operations will generate similar operating cash flows
in 2004, compared to those of continuing operations in 2003, although there are
events outside the control of the Company that could have an adverse impact on
cash flows from operations. The events that could adversely impact operating
cash flow results include, but are not limited to; changes in overall economic
conditions, regulatory requirements, changes in technologies, availability of
labor resources and capital, and other conditions. The PCS subsidiary's
operations are dependent upon Sprint's ability to execute certain functions such
as billing, customer care, and collections; their ability to develop and
implement successful marketing programs and new products and services; and their
ability to effectively and economically manage other operating activities under
the Company's agreements with Sprint. Additionally, the Company's ability to
attract and maintain a sufficient customer base is critical to maintaining a
positive cash flow from operations. These items individually and/or collectively
could impact the Company's results.
The Company expects to generate adequate cash to meet its short-term and
long-term cash needs, including working capital requirements, capital projects
and debt payments, and to fund potential dividend payments from cash on hand,
operating cash flow, and amounts expected to be available under the Company's
existing financing facilities and its anticipated financing facilities discussed
above. The Company may, at its election, liquidate some of its investments to
generate additional cash for its capital needs as market conditions allow.
Recently Issued Accounting Standards
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003),"Consolidation of Variable Interest Entities," which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities," (VIE), which was issued in
January 2003. The Company will be required to apply FIN 46R to variable
interests in VIEs created after December 31, 2003. For variable interests in
VIEs created before January 1, 2004, the Interpretation will be applied
beginning on January 1, 2005, except it must be applied in the fourth quarter of
2003 for any VIE's that are considered to be special purpose entities. For any
VIEs that must be consolidated under FIN 46R that were created before January 1,
2004, the assets, liabilities and non-controlling interests of the VIE initially
would be measured at their carrying amounts with any difference between the net
amount added to the balance sheet and any previously recognized interest being
recognized as the cumulative effect of an accounting change. If determining the
carrying amounts is not practicable, fair value at the date FIN 46R first
applies may be used to measure the assets, liabilities and non-controlling
interest of the VIE. The Company is evaluating the impact of applying FIN 46R to
existing VIEs in which it has variable interests and does not believe the
application will have a material impact on the Company's consolidated financial
statements.
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of
Liabilities and Equity," which was effective at the beginning of the first
interim period beginning after June 15, 2003. This Statement establishes
standards for the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The Statement
also includes required disclosures for financial instruments within its scope.
For the Company, the Statement was effective for instruments entered into or
modified after May 31, 2003 and otherwise will be effective as of January 1,
2004, except for mandatorily redeemable financial instruments. For certain
mandatorily redeemable financial instruments, the Statement will be effective
for the Company on January 1, 2005. The effective date has been deferred
indefinitely for certain other types of mandatorily redeemable financial
instruments. The Company currently does not have any financial instruments that
are within the scope of this Statement.
In December 2003, the Financial Accounting Standards Board issued FASB Statement
No. 132(R). Statement No. 132(R) is a revision of Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS 132(R) is
effective for financial statements with fiscal years ending after December 15,
2003. SFAS 132(R) requires additional disclosures including information
describing the types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows, and components of net periodic benefit cost
recognized during interim periods. The objectives of the revisions are to
provide qualitative information about the items in the financial statements,
quantitative information about items recognized or disclosed in the financial
statements, information that enables users of financial statements to assess the
effect that pension plans and other postretirement benefit plans have on
entities' results of operations, and information to facilitate assessments of
future earnings and cash flows. The Company has adopted this statement effective
December 31, 2003 with disclosures included in Note 9.
36
RISKS
The Company is one of eleven PCS Affiliates of Sprint, and accordingly, is
impacted by decisions and requirements adopted by Sprint in regard to its
wireless operation. Management continually reviews its relationship with Sprint
as new developments and requirements are added. Note 7 to the accompanying
consolidated financial statements contains a detailed description of the
significant contractual relationship.
The Company is dependent on Sprint for the reporting of a significant majority
of PCS revenues, particularly travel and service revenue. Controls and processes
are continually refined, so the Company can monitor, review, test, and validate
information being reported to the Company by Sprint. It is the Company's policy
to estimate and reflect the information supplied by Sprint in the financial
statements in the respective periods. Corrections, if any, are made no earlier
than the period in which the parties agree to the corrections and as noted in
these financial statements, there are several dispute settlements, true-ups of
estimates and corrections which are recorded in the period the issue has been
resolved. The Company is at risk for reporting errors that may be made by
Sprint.
The net balance of PCS travel revenue and expense could change significantly due
to changes in service plan offerings, changes in the travel settlement rate,
changes in travel habits by the subscribers in the Company's market areas or
other Sprint subscribers and numerous other factors beyond the Company's
control. The Company is continuing to monitor the financial strength of the
other PCS Affiliates of Sprint, as to their ability to maintain their segment of
the Sprint network may impact the ability of the Company to add new subscribers.
Two other Sprint PCS Affiliates are currently operating under bankruptcy
protection.
Wireless Local Number Portability (WLNP) permits a subscriber to change wireless
service providers in the same market area while retaining their existing
telephone number. This Federal Communications Commission mandate was effective
November 24, 2003 in the 100 largest metropolitan areas and will be effective in
all areas of the United States on May 24, 2004. Although the initial impact of
WLNP appears to be insignificant, there may be a significant future impact to
the Company's operation. As a result of WLNP, portions of the PCS subscriber
base may migrate to other wireless providers, thereby contributing to increased
churn. Alternatively, the implementation of WLNP may allow the Company to
attract additional subscribers from other wireless providers.
The Company has limited control over the service plans and marketing promotions
offered to Sprint customers in the competitive wireless telecommunications
industry. Sprint controls the marketing plans, advertising message and market
promotions offered in the Company's market area. As a result, the plans and
promotions offered may have a material adverse effect on the Company's results
of operations.
The Company relies on Sprint for the development of new products and services to
remain competitive in the wireless industry. Examples of these services are text
messaging, video, and push to talk walkie-talkie features. If these services do
not work properly or if Sprint should not continue to develop new competitive
products, the results could have a material adverse impact on the results of the
Company.
The Company is required to participate in national and regional third party
distribution programs formulated and negotiated by Sprint. Sprint has entered
into reseller agreements which may impact the Company. These distribution and
reseller programs may have an adverse effect on the results of the Company.
The Company's PCS network is part of Sprint's nationwide wireless network. The
network is owned and operated by Sprint and its Affiliates. The financial
viability of Sprint and its Affiliates is critical to the success of operating
and marketing Sprint PCS. If financial difficulties are experienced by Sprint or
any Affiliate, it could have an adverse impact on the Company's results.
The current competitive nature of the wireless industry may prompt major
wireless providers to strive for financial improvements through industry
consolidation. Such consolidation could include Sprint. It is not clear to what
extent consolidation may occur or which companies will be involved, but certain
consolidation transactions may have an adverse impact on the operating results
and valuation of the Company's wireless operations.
The Company's access revenue may be adversely impacted by legislative or
regulatory actions that decrease access rates or exempt certain traffic from
paying access to the Company's regulated telephone network. The Federal
Communications Commission is currently reviewing the issue of Voice Over
Internet Protocol (VOIP) as it relates to access charges. An unfavorable finding
may have an adverse effect on the Company's telephone operations.
37
There has been a trend for incumbent local exchange carriers to see a decrease
in access lines due to the effect of wireless and wireline competition, a slow
down in the economy, and the elimination of a second line dedicated to dial up
Internet as customers migrate to broadband connections. Although the Company has
not seen a material reduction in its number of access lines to date, it
experienced line decreases in each of the last two quarters. There is a
significant risk that this trend could have a material adverse effect on the
Company's telephone operations in the future.
On May 24, 2004, Local Number Portability (LNP) will be required in the
Company's local wireline service area. The Company's customers will be able to
retain their existing wireline phone number and use it to obtain service from a
competing wireline or wireless provider in the service area. At this time, the
Company cannot estimate the potential impact on its telephone operations. If a
significant number of customers disconnect the Company's service, it will have
an adverse impact on the Company's telephone operating results.
The Company's revenue from fiber leases may be adversely impacted by further
erosion in demand or in price competition for these facilities. There is also
the potential for additional bankruptcies of the Company's customers. The
Company monitors each of its fiber lease customers closely to minimize the risk
related to this business.
The Company operates the cable television system in Shenandoah County, Virginia.
The Company has seen increased competition from satellite providers that are
larger and have cost advantages over the Company in the procurement of
programming. The continued success of the satellite television providers may
have an adverse impact on the Company's cable television results.
The Company currently has a 12-month, $1.2 million contract with the Virginia
Department of Transportation (VDOT) to provide 511 Travel services in the I-81
corridor of Virginia. This contract expires in February 2005. VDOT has recently
requested a proposal for a three-year contract with two two-year extensions to
extend 511 services to the entire state. Although the Company plans to submit a
proposal for the new VDOT contract, there is no certainty that the Company will
be selected to provide these services after the end of its current contract.
The Company may not be able to utilize all of its net operating loss carry
forwards for taxes in certain states before they expire, resulting in the
Company writing off some of its deferred tax assets and impacting its cash
position.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Commission's rules and forms, and that such information is accumulated
and communicated to management including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
As of the end of the period covered by this report, December 31, 2003 (the
"Evaluation Date"), we carried out an evaluation, under the supervision and with
the participation of the Company's management, including our Chief Executive
Officer and Chief Financial Officer of the effectiveness of the design and
operation of our disclosure controls and procedures. Based upon that evaluation,
the Chief Executive Officer and the Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of the Evaluation Date.
Under our agreements with Sprint, Sprint provides us with billing, collections,
customer care, certain network operations and other back office services. As a
result, Sprint remits to the Company approximately 61% of the Company's total
revenues. In addition, approximately 42% of the expenses reflected in the
Company's consolidated financial statements relate to charges by or through
Sprint for expenses such as billing, collections and customer care, roaming
expense, long-distance, and travel. Due to this relationship, the Company
necessarily relies on Sprint to provide accurate, timely and sufficient data and
information to properly record our revenues, expenses and accounts receivable,
which underlie a substantial portion of our periodic financial statements and
other financial disclosures.
Information provided by Sprint includes reports regarding the subscriber
accounts receivable in our markets. Sprint provides us monthly accounts
receivable, billing and cash receipts information on a market level, rather than
a subscriber level. We review these various reports to identify discrepancies or
errors. However, under our agreements with Sprint, we are entitled to only a
portion of the receipts, net of items such as taxes, government surcharges,
certain allocable write-offs and the 8% of revenue retained by Sprint. Because
of our reliance on Sprint for financial information, we must depend on Sprint to
design adequate internal controls with respect to the processes established to
provide this data and information to the Company and Sprint's other network
partners. To address this issue, Sprint engages its
38
independent auditors to perform a periodic evaluation of these controls and to
provide a "Report on Controls Placed in Operation and Tests of Operating
Effectiveness for Affiliates" under guidance provided in Statement of Auditing
Standards No. 70 ("SAS 70 reports"). The report is provided to us annually and
covers a twelve-month period from October 1, 2002 to September 30, 2003. This
report did not indicate there were issues which would adversely impact the
information used to support the recording of the revenues and expenses provided
by Sprint related to our relationship with them.
We believe the processes we have put into place over the course of the year have
steadily improved our ability to identify material errors in Sprint financial
information on a timely basis. As a result of the improved processes and
procedures we are continuing to develop and define, the Company is committed to
monitor and evaluate the effectiveness of its improvements in controls related
to information provided by Sprint and to continue to improve these processes.
In preparation for the requirements imposed under Section 404 of the
Sarbanes-Oxley Act of 2002, we have retained an outside consulting firm to
assist us in reviewing and documenting our internal control processes.
39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risks relate primarily to changes in interest rates on
instruments held for other than trading purposes. Our interest rate risk
involves three components, although only one is of any significance at this
time. The first component is outstanding debt with variable rates. As of
December 31, 2003, the Company's variable rate debt balance was zero. The
Company has a variable rate line of credit totaling $0.5 million with SunTrust
Banks. The Company's remaining debt has fixed rates through its maturity. A
10.0% decline in interest rates would increase the fair value of the fixed rate
debt by approximately $1.1 million, while the estimated current fair value of
the fixed rate debt is approximately $42.6 million.
The second component of interest rate risk is temporary excess cash, primarily
invested in overnight repurchase agreements and short-term certificates of
deposit and money market funds. The Company currently has approximately $27.9
million of cash equivalents in money market funds, which are earning rates of
approximately 1% per year. The cash is currently in short-term investment
vehicles that have limited interest rate risk. Management continues to evaluate
the most beneficial use of these funds.
The third component of interest rate risk is marked increases in interest rates
which may adversely impact the rate at which the Company may borrow funds for
growth in the future. Although this risk is real, it is not significant at this
time as the Company has adequate cash for operations, payment of debt and
near-term capital projects.
Management does not view market risk as having a significant impact on the
Company's results of operations, although future results could be adversely
impacted if interest rates were to escalate markedly and the company required
external financing. Since the Company does not currently have significant
investments in publicly traded stock, currently there is limited risk related to
the Company's available for sale securities. General economic conditions
impacted by regulatory changes, competition or other external influences may
play a higher risk to the Company's overall results.
As of December 31, 2003, the Company has $7.3 million invested in privately held
companies directly or through investments with portfolio managers. Most of the
companies are early stage and significant increases in interest rates could have
an adverse impact on their results, ability to raise capital and viability. The
Company's market risk is limited to the funds previously invested and an
additional $1.8 million committed under contracts the Company has signed with
portfolio managers.
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in Item 15 are filed as part of this
report and appear on pages F-2 through F-34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Our management, with the participation of our President and Chief
Executive Officer, who is our principal executive officer, and our
Executive Vice President and Chief Financial Officer, who is our
principal financial officer, has evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2003. Based
upon that evaluation, the President and Chief Executive Officer and
the Executive Vice President have concluded that our disclosure
controls and procedures are effective in timely alerting them to
material information relating to Shenandoah Telecommunications
Company, including its consolidated subsidiaries, required to be
included in this report and the other reports that we file or submit
under the Securities Exchange Act of 1934.
During the fourth fiscal quarter, there have been no changes in our
internal control over financial reporting that have materially
affected, or that are reasonably likely to materially affect, our
internal control over financial reporting.
41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE OFFICERS
The following table presents information about our executive
officers who, other than Christopher E. French, are not directors.
Name Title Age Date in Position
--------------------------------------------------------------------------------------------
Christopher E. French President 46 April 1988
Earle A. MacKenzie Executive Vice President, Chief 51 June 2003
Financial Officer and Treasurer
David E. Ferguson Vice President of Customer 58 November 1982
Services
David K. MacDonald Vice President of Operations 50 May 1998
Laurence F. Paxton Vice President of Information 51 June 2003
Technology and Secretary
William L. Pirtle Vice President of Sales 44 October 2003
Before joining the Company, Mr. MacKenzie served from May 1999 to November 2002
as President of Broadslate Networks, Inc., a start-up data services provider.
Previously, from June 1998 to May 1999, he was a consultant to several venture
capital firms.
Prior to becoming Vice President of Information Technology, Mr. Paxton had
served as the Company's Vice President of Finance since June 1991.
Prior to becoming Vice President of Sales, Mr. Pirtle had served as the
Company's Vice President of Personal Communications Services since November
1996.
Other information responsive to this Item 10 is incorporated herein by reference
to the Company's definitive proxy statement for its 2004 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information responsive to this Item 11 is incorporated herein by
reference to the Company's definitive proxy statement for its 2004
Annual Meeting of Shareholders.
42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information responsive to this Item 12 is incorporated herein by
reference to the Company's definitive proxy statement for its 2004
Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information responsive to this Item 13 is incorporated herein by
reference to the Company's definitive proxy statement for its 2004
Annual Meeting of Shareholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information responsive to this Item 14 is incorporated herein by
reference to the Company's definitive proxy statement for its 2004
Annual Meeting of Shareholders.
43
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the
Company appear on pages F-2 through F-34 of this report and are
incorporated by reference in Part II, Item 8:
Report of Independent Auditors
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2003,
2002 and 2001
Consolidated Statements of Income for the three years
ended December 31, 2003
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the three years ended December
31, 2003
Consolidated Statements of Cash Flows for the three
years ended December 31, 2003
Notes to Consolidated Financial Statements
(a)(2) All schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
(a)(3) The following exhibits are either filed with this Form
10K or incorporated herein by reference. Our Securities
Exchange Act file number is 000-09881.
44
Exhibit
Number Exhibit Description
- -------------------------------
3.1 Amended and Restated Articles of Incorporation of Shenandoah
Telecommunications Company filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (No. 333-21733) and incorporated
herein by reference.
*3.2 Shenandoah Telecommunications Company Bylaws, as amended.
10.1 Shenandoah Telecommunications Company Stock Incentive Plan filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No.
333-21733) and incorporated herein by reference.
10.2 Shenandoah Telecommunications Company Dividend Reinvestment Plan
filed as Exhibit 4.4 to the Company's Registration Statement on Form
S-3D (No. 333-74297) and incorporated herein by reference.
*10.3 Settlement Agreement and Mutual Release dated as of January 30, 2004
by and among Sprint Spectrum L.P., Sprint Communications Company
L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P. and Shenandoah
Personal Communications Company and Shenandoah Telecommunications
Company, dated January 30, 2004.
*10.4 Sprint PCS Management Agreement dated as of November 5, 1999 by and
among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC,
PhillieCo, L.P., and Shenandoah Personal Communications Company.
*10.5 Sprint PCS Services Agreement dated as of November 5, 1999 by and
between Sprint Spectrum L.P. and Shenandoah Personal Communications
Company.
*10.6 Sprint Trademark and Service Mark License Agreement dated as of
November 5, 1999 by and between Sprint Communications Company, L.P.
and Shenandoah Personal Communications Company.
*10.7 Sprint Spectrum Trademark and Service Mark License Agreement dated
as of November 5, 1999 by and between Sprint Spectrum L.P. and
Shenandoah Personal Communications Company.
*10.8 Addendum I to Sprint PCS Management Agreement by and among Sprint
Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., and
Shenandoah Personal Communications Company.
*10.9 Asset Purchase Agreement dated November 5, 1999 by and among Sprint
Spectrum L.P., Sprint Spectrum Equipment Company, L. P., Sprint
Spectrum Realty Company, L.P., and Shenandoah Personal
Communications Company, serving as Exhibit A to Addendum I to the
Sprint PCS Management Agreement and as Exhibit 2.6 to the Sprint PCS
Management Agreement.
*10.10 Addendum II dated August 31, 2000 to Sprint PCS Management Agreement
by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC,
PhillieCo, L.P., and Shenandoah Personal Communications Company.
45
*10.11 Addendum III dated September 26, 2001 to Sprint PCS Management
Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC
PCS, LLC, PhillieCo, L.P., and Shenandoah Personal Communications
Company.
*10.12 Addendum IV dated May 22, 2003 to Sprint PCS Management Agreement by
and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC,
PhillieCo, L.P., and Shenandoah Personal Communications Company.
*10.13 Addendum V dated January 30, 2004 to Sprint PCS Management Agreement
by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC,
PhillieCo, L.P., and Shenandoah Personal Communications Company.
*10.14 Executive Supplemental Retirement Plan.
*21 List of Subsidiaries.
*23.1 Consent of KPMG LLP, Independent Accountants.
*31.1 Certification of President and Chief Executive Officer of Shenandoah
Telecommunications Company pursuant to Rule 13a-14(a)under the
Securities Exchange Act of 1934.
*31.2 Certification of Executive Vice President and Chief Financial
Officer of Shenandoah Telecommunications Company pursuant to Rule
13a-14(a)under the Securities Exchange Act of 1934.
*32 Certifications pursuant to Rule 13a-14(b) under the Securities
Exchange Act of 1934 and 18 U.S.C. ss.1350.
- ----------
* Filed herewith.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
(b). Reports on Form 8-K
There was one Form 8-K filed for the three months ended
December 31, 2003, as set forth below:
Filing Date of Report Item Reported
--------------------- -------------
October 22, 2003 Item 9 (press release announcing
third quarter results and an
increase in the annual dividend
and two for one stock split)
46
PART IV (Continued)
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SHENANDOAH TELECOMMUNICATIONS COMPANY
March 8, 2004 By: /s/ CHRISTOPHER E. FRENCH
Christopher E. French, President
(Duly Authorized Officer)
47
PART IV (Continued)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/CHRISTOPHER E. FRENCH President & Chief Executive Officer,
March 8, 2004 Director (Principal Executive Officer)
Christopher E. French
/s/EARLE A. MACKENZIE Executive Vice President & Treasurer
March 8, 2004 (Principal Financial Officer and
Earle A. MacKenzie Principal Accounting Officer)
/s/DOUGLAS C. ARTHUR Director
March 8, 2004
Douglas C. Arthur
/s/NOEL M. BORDEN Director
March 8, 2004
Noel M. Borden
/s/DICK D. BOWMAN Director
March 8, 2004
Dick D. Bowman
/s/KEN L BURCH Director
March 8, 2004
Ken L. Burch
/s/GROVER M. HOLLER, JR. Director
March 8, 2004
Grover M. Holler, Jr.
/s/HAROLD MORRISON, JR. Director
March 8, 2004
Harold Morrison, Jr.
/s/ZANE NEFF Director
March 8, 2004
Zane Neff
/s/JAMES E. ZERKEL II Director
March 8, 2004
James E. Zerkel II
48
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
Index to the Consolidated 2003 Financial Statements
Page
Independent Auditor's Report F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31,
2003, 2002 and 2001 F-3 and F-4
Consolidated Statements of Income for the three
years ended December 31, 2003 F-5
Consolidated Statements of Shareholders' Equity
and Comprehensive Income for the three years
ended December 31, 2003 F-6
Consolidated Statements of Cash Flows for the three
years ended December 31, 2003 F-7 and F-8
Notes to Consolidated Financial Statements F-9 through F-30
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Shenandoah Telecommunications Company:
We have audited the accompanying consolidated balance sheets of Shenandoah
Telecommunications Company and subsidiaries (the Company), as of December 31,
2003, 2002, and 2001, and the related consolidated statements of income,
shareholders' equity and comprehensive income, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Shenandoah
Telecommunication Company and subsidiaries as of December 31, 2003, 2002 and
2001, and the results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill in 2002. As further discussed in
note 1 to the consolidated financial statements, the Company changed its method
of accounting for asset retirement obligations in 2003.
/s/ KPMG LLP
Richmond, Virginia
February 6, 2004
F-2
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003, 2002 and 2001
in thousands
ASSETS (Note 5) 2003 2002 2001
- --------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 28,696 $ 2,209 $ 2,037
Accounts receivable, net (Notes 1 and 8) 6,488 7,536 5,739
Income taxes receivable 1,526 12 1,205
Materials and supplies 2,062 1,787 2,934
Prepaid expenses and other 1,669 2,205 1,146
Deferred income taxes (Note 6) 522 1,197 575
Assets held for sale (Note 2) -- 5,548 2,973
--------------------------------
Total current assets 40,963 20,494 16,609
--------------------------------
Securities and Investments (Notes 3 and 8)
Available-for-sale securities 199 151 12,025
Other investments 7,268 7,272 6,438
--------------------------------
Total securities and investments 7,467 7,423 18,463
--------------------------------
Property, Plant and Equipment
Plant in service (Note 4) 197,431 184,069 154,345
Plant under construction 2,261 5,209 14,960
--------------------------------
199,692 189,278 169,305
Less accumulated depreciation 72,006 57,126 44,473
--------------------------------
Net property, plant and equipment 127,686 132,152 124,832
--------------------------------
Other Assets
Assets held for sale (Note 2) -- -- 3,272
Cost in excess of net assets of business acquired 5,105 5,105 5,105
Deferred charges and other assets (Notes 1 and 2) 5,999 667 1,452
--------------------------------
11,104 5,772 9,829
Less accumulated amortization 1,856 1,837 2,361
--------------------------------
Net other assets 9,248 3,935 7,468
--------------------------------
Total assets $185,364 $164,004 $167,372
================================
See accompanying notes to consolidated financial statements.
(Continued)
F-3
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003, 2002 and 2001
in thousands
LIABILITIES AND SHAREHOLDERS' EQUITY 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt (Note 5) $ 4,230 $ 4,482 $ 4,387
Revolving line of credit (Note 5) -- 3,503 6,200
Accounts payable (Note 7) 4,729 5,003 5,128
Advanced billings and customer deposits 3,326 3,538 2,652
Accrued compensation 1,015 1,268 1,084
Other current liabilities 2,496 1,564 1,455
Current liabilities held for sale (Note 2) -- 542 735
----------------------------------
Total current liabilities 15,796 19,900 21,641
----------------------------------
Long-term debt, less current maturities (Note 5) 39,116 47,561 52,049
----------------------------------
Other Liabilities
Deferred income taxes (Note 6) 20,819 15,859 14,977
Pension and other (Note 9) 3,425 2,441 2,265
----------------------------------
Total other liabilities 24,244 18,300 17,242
----------------------------------
Minority Interests in discontinued operations (Note 2) -- 1,666 1,838
----------------------------------
Commitments and Contingencies (Notes 2,3,5,6,7,9,12, and 13)
Shareholders' Equity (Notes 5 and 10)
Common stock, no par value, authorized 16,000 shares;
issued and outstanding 7,593 shares in 2003, 7,552
shares in 2002, and 7,530 shares in 2001 5,733 5,246 4,950
Retained earnings 100,449 71,335 69,610
Accumulated other comprehensive income (loss) (Note 3) 26 (4) 42
----------------------------------
Total shareholders' equity 106,208 76,577 74,602
----------------------------------
Total liabilities and shareholders' equity $185,364 $ 164,004 $167,372
==================================
See accompanying notes to consolidated financial statements.
F-4
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2003, 2002 and 2001
in thousands, except per share amounts
2003 2002 2001
- ---------------------------------------------------------------------------------------------------
Operating revenues:
Wireless (Notes 7 and 8) $ 69,872 $ 57,867 $ 36,133
Wireline 29,022 28,755 27,486
Other 6,967 6,352 5,103
--------- -------- --------
Total operating revenues 105,861 92,974 68,722
--------- -------- --------
Operating expenses:
Cost of goods and services (Note 7) 10,943 10,502 7,410
Network operating costs (Note 8) 33,630 32,512 26,756
Depreciation and amortization 16,631 14,482 11,263
Selling, general and administrative (Note 7) 26,029 26,140 16,869
--------- -------- --------
Total operating expenses 87,233 83,636 62,298
--------- -------- --------
Operating income 18,628 9,338 6,424
--------- -------- --------
Other income (expense):
Interest expense (3,510) (4,195) (4,127)
Net gain (loss) on investments (Note 3) (443) (10,004) 12,943
Non-operating income (expense), net 390 (141) 265
--------- -------- --------
(3,563) (14,340) 9,081
--------- -------- --------
Income (loss) before income taxes, cumulative effect of a
change in accounting and discontinued operations 15,065 (5,002) 15,505
Income tax provision (benefit) (Note 6) 5,304 (2,109) 5,811
--------- -------- --------
Income (loss) from continuing operations 9,761 (2,893) 9,694
Discontinued operations, net of income taxes (Note 2) 22,389 7,412 6,678
Cumulative effect of a change in accounting,
net of income taxes (Note 1) (76) -- --
--------- -------- --------
Net income $ 32,074 $ 4,519 $ 16,372
========= ======== ========
Income (loss) per share:
Basic Net income (loss) per share:
Continuing operations $ 1.29 $ (0.38) $ 1.29
Discontinued operations 2.95 0.98 0.89
Cumulative effect of a change in accounting, net of
income taxes (0.01) -- --
--------- -------- --------
$ 4.23 $ 0.60 $ 2.18
========= ======== ========
Weighted average shares outstanding, basic 7,577 7,542 7,523
========= ======== ========
Diluted Net income (loss) per share:
Continuing operations $ 1.28 $ (0.38) $ 1.28
Discontinued operations 2.94 0.98 0.88
Cumulative effect of a change in accounting, net (0.01) -- --
--------- -------- --------
$ 4.22 $ 0.60 $ 2.17
========= ======== ========
Weighted average shares, diluted 7,608 7,542 7,549
========= ======== ========
See accompanying notes to consolidated financial statements.
F-5
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Years Ended December 31, 2003, 2002 and 2001
in thousands, except per share amounts
Accumulated
Other
Common Retained Comprehensive
Shares Stock Earnings Income (loss) Total
- ----------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2001 7,518 $4,817 $ 55,873 $ 5,645 $ 66,335
Comprehensive income:
Net income -- -- 16,372 -- 16,372
Net unrealized change in
securities available-for-sale, net
of tax of $3,482 -- -- -- (5,603) (5,603)
---------
Total comprehensive income 10,769
---------
Dividends declared ($0.35 per share) -- -- (2,635) -- (2,635)
Common stock issued through
exercise of incentive stock options 12 133 -- -- 133
------------------------------------------------------------------
Balance, December 31, 2001 7,530 4,950 69,610 42 74,602
Comprehensive income: -- -- 4,519 -- 4,519
Net income
Net unrealized change in
securities available-for-sale, net
of tax of $29 -- -- -- (46) (46)
---------
Total comprehensive income 4,473
---------
Dividends declared ($0.37 per share) -- -- (2,794) -- (2,794)
Common stock issued through
exercise of incentive stock
options and stock grants 22 296 -- -- 296
------------------------------------------------------------------
Balance, December 31, 2002 7,552 $5,246 $ 71,335 $ (4) $ 76,577
Comprehensive income
Net income 32,074 32,074
Net unrealized change in
securities available-for-sale, net
of tax of $(18) 30 30
---------
Total comprehensive income 32,104
---------
Dividends declared ($0.39 per share) -- -- (2,960) (2,960)
Common stock issued through
exercise of incentive stock
options 41 487 -- -- 487
------------------------------------------------------------------
Balance, December 31, 2003 7,593 $5,733 $ 100,449 $ 26 $ 106,208
==================================================================
See accompanying notes to consolidated financial statements.
F-6
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, 2002 and 2001
in thousands
2003 2002 2001
- -------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Income (loss) from continuing operations $ 9,761 $ (2,893) $ 9,694
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 16,612 14,476 10,540
Amortization 19 6 723
Deferred income taxes 5,664 289 8,666
Loss on disposal of assets 348 739 506
Net (gain) loss on disposal of investments 3 9,034 (14,162)
Net (gain) loss from patronage and equity
investments 52 393 789
Other 403 443 987
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,069 (1,797) (864)
Materials and supplies (275) 1,147 (307)
Increase (decrease) in:
Accounts payable (275) 1,067 (3,968)
Other prepaids, deferrals and accruals (2,778) 120 (2,263)
----------------------------------
Net cash provided by operating activities 30,599 23,024 10,341
----------------------------------
Cash Flows From Investing Activities
Purchase and construction of plant and equipment, net
of retirements (12,476) (22,612) (27,972)
Purchase of investment securities (796) (1,775) (1,250)
Proceeds from sale of equipment 109 77 482
Proceeds from sale of radio spectrum license -- -- 1,133
Proceeds from investment activities (Note 3) 714 3,301 5,842
----------------------------------
Net cash used in investing activities (12,449) (21,009) (21,765)
----------------------------------
(Continued)
F-7
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, 2002 and 2001
in thousands
2003 2002 2001
- -----------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from issuance of long-term debt $ -- $ -- $ 24,641
Principal payments on long-term debt (8,697) (4,393) (23,692)
Net proceeds from (payments of) lines of credit (3,503) (2,697) 6,200
Debt issuance costs -- -- (175)
Dividends paid (2,960) (2,794) (2,635)
Proceeds from exercise of incentive stock options 487 296 133
---------------------------------
Net cash provided by (used in) financing activities (14,673) (9,588) 4,472
---------------------------------
Net cash used in continuing operations 3,477 (7,573) (6,952)
Net cash provided by discontinued operations 23,010 7,745 6,444
---------------------------------
Net increase (decrease) in cash and cash equivalents 26,487 172 (508)
Cash and cash equivalents:
Beginning 2,209 2,037 2,545
---------------------------------
Ending $ 28,696 $ 2,209 $ 2,037
=================================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest, net of capitalized interest of $26 in 2003;
$93 in 2002, and $134 in 2001 $ 3,577 $ 4,274 $ 4,217
=================================
Income taxes $ 15,569 $ 1,045 $ 506
=================================
Non-cash transactions:
During 2002, the Company issued 4,654 shares of Company stock to employees
valued at $0.1 million in recognition of the Company's 100th year
anniversary.
In December 2001, the Company received 310,158 shares of VeriSign Inc.
common stock in exchange for 333,504 shares of Illuminet Holdings, Inc.
stock as a result of the merger of the two entities.
The Company completed the sale of its GSM network equipment in January
2001, for approximately $6.5 million of which approximately $4.9 million
was escrowed as part of a like-kind exchange transaction. The escrowed
funds were disbursed as new equipment was received during the first six
months of 2001.
See accompanying notes to consolidated financial statements.
F-8
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Description of business: Shenandoah Telecommunications Company and subsidiaries
(the Company) provides telephone service, wireless personal communications
service (PCS) under the Sprint brand name, cable television, unregulated
communications equipment sales and services, Internet access, and paging
services. In addition, the Company leases towers and operates and maintains an
interstate fiber optic network. The Company's operations are located in the four
state region surrounding the Northern Shenandoah Valley of Virginia. Pursuant to
a management agreement with Sprint Communications Company and its related
parties (collectively, "Sprint"), the Company is the exclusive PCS Affiliate of
Sprint providing wireless mobility communications network products and services
in the geographic area extending from Altoona, Harrisburg and York,
Pennsylvania, south through Western Maryland, and the panhandle of West
Virginia, to Harrisonburg, Virginia. The Company is licensed to use the Sprint
brand name in this territory, and operates its network under the Sprint radio
spectrum license (Note 7). A summary of the Company's significant accounting
policies follows:
Stock split: All share and per share information reflect the two for one stock
split announced in October 2003, to shareholders of record as of the close of
business on January 30, 2004. The additional shares were distributed on February
20, 2004. The effective date of the split is February 23, 2004. All previously
reported share and per share data included herein are retroactively adjusted to
reflect the split.
Principles of consolidation: The consolidated financial statements include the
accounts of all wholly owned subsidiaries and other entities where effective
control is exercised. All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of estimates: Management of the Company has made a number of estimates and
assumptions related to the reporting of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Management reviews its estimates, including those related to
recoverability and useful lives of assets as well as liabilities for income
taxes and pension benefits. Changes in facts and circumstances may result in
revised estimates and actual results could differ from those reported estimates.
Cash and cash equivalents: The Company considers all temporary cash investments
purchased with a maturity of three months or less to be cash equivalents. The
Company places its temporary cash investments with high credit quality financial
institutions. At times, these investments may be in excess of FDIC insurance
limits. Cash and cash equivalents were $28.7million, $2.2 million, and $2.0
million at December 31, 2003, 2002 and 2001, respectively.
Accounts receivable: Accounts receivable are recorded at the invoiced amount and
do not bear interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the Company's existing
accounts receivable. The Company determines the allowance based on historical
write-off experience and by industry and national economic data. The Company
reviews its allowance for doubtful accounts monthly. Past due balances meeting
specific criteria are reviewed individually for collectibility. All other
balances are reviewed on a pooled basis. Account balances are charged off
against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. Accounts receivable are
concentrated among customers within the Company's geographic service area and
large telecommunications companies. The Company's allowance for uncollectable
receivables related to continuing operations was $477 thousand, $914 thousand
and $650 thousand at December 31, 2003, 2002 and 2001, respectively.
Securities and investments: The classifications of debt and equity securities
are determined by management at the date individual investments are acquired.
The appropriateness of such classification is continually reassessed. The
Company monitors the fair value of all investments, and based on factors such as
market conditions, financial information and industry conditions, the Company
will reflect impairments in values as is warranted. The classification of those
securities and the related accounting policies are as follows:
Available-for-Sale Securities: Debt and equity securities classified as
available-for-sale consist of securities which the Company intends to hold
for an indefinite period of time, but not necessarily to maturity. Any
decision to sell a security classified as available-for-sale would be
based on various factors, including changes in
F-9
Note 1. Summary of Significant Accounting Policies (Continued)
market conditions, liquidity needs and similar criteria.
Available-for-sale securities are recorded at fair value as determined by
quoted market prices. Unrealized holding gains and losses, net of the
related tax effect, are excluded from earnings and are reported as a
separate component of other comprehensive income until realized. Realized
gains and losses are determined on a specific identification basis. A
decline in the market value of any available-for-sale security below cost
that is deemed to be other than temporary results in a reduction in the
carrying amount to fair value. The impairment is charged to earnings and a
new cost basis for the security is established.
Investments Carried at Cost: Investments in common stock in which the
Company does not have a significant ownership (less than 20%) and for
which there is no ready market, are carried at cost. Information regarding
investments carried at cost is reviewed continuously for evidence of
impairment in value. Impairments are charged to earnings and a new cost
basis for the investment is established.
Equity Method Investments: Investments in partnerships and unconsolidated
corporations where the Company's ownership is 20% or more, or where the
Company otherwise has the ability to exercise significant influence, are
reported under the equity method. Under this method, the Company's equity
in earnings or losses of investees is reflected in earnings. Distributions
received reduce the carrying value of these investments. The Company
recognizes a loss when there is a decline in value of the investment which
is other than a temporary decline.
Materials and supplies: New and reusable materials are carried in inventory at
the lower of average cost or market value. Inventory held for sale, such as
telephones and accessories, are carried at the lower of average cost or market
value. Non-reusable material is carried at estimated salvage value.
Property, plant and equipment: Property, plant and equipment is stated at cost.
The Company capitalizes all costs associated with the purchase, deployment and
installation of property, plant and equipment, including interest on major
capital projects during the period of their construction. Expenditures,
including those on leased assets, which extend the useful life or increase its
utility, are capitalized. Maintenance expense is recognized when repairs are
performed. Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets. Depreciation expense for continuing
operations was approximately 8.7%, 8.6% and 8.3% of average depreciable assets
for the years 2003, 2002 and 2001, respectively. Depreciation lives are assigned
to assets based on their estimated useful lives in conjunction with industry and
regulatory guidelines, where applicable. Such lives, while similar, may exceed
the lives that would have been used if the Company did not operate certain
segments of the business in a regulated environment. The Company takes
technology changes into consideration as it assigns the estimated useful lives,
and monitors the remaining useful lives of asset groups to reasonably match the
remaining economic life with the useful life and makes adjustments when
necessary.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from acquisition, construction, development and/or normal use of the
assets. The Company also records a corresponding asset, which is depreciated
over the life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation will be adjusted at the end of each period
to reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. The Company adopted SFAS No. 143 on January 1, 2003.
The impact of the adoption of SFAS No. 143 was the recording of a capitalized
asset retirement obligation of $158 thousand, the related accumulated
depreciation of $32 thousand, the present value of the future removal obligation
of $249 thousand, and the cumulative effect of the accounting change of $76
thousand after taxes recorded on the consolidated statements of income.
The Company recorded the retirement obligation on towers owned where there is a
legal obligation to remove the tower at the time the Company discontinues its
use. The obligation was estimated based on the size of the tower. The Company's
cost to remove the towers is amortized over the life of the tower. The pro forma
liability on January 1, 2002 would have been $236 thousand, and was $249
thousand on December 31, 2002. On December 30, 2003, the liability was $300
thousand. The current year expense for the accretion and depreciation related to
the adoption of SFAS No.143 is approximately $20 thousand before taxes.
Cost in excess of net assets of business acquired: In June 2001, the Financial
Accounting Standards Board (FASB) issued Statements of Financial Accounting
Standards (SFAS) No.142, "Goodwill and Other Intangible Assets," which
F-10
Note 1. Summary of Significant Accounting Policies (Continued)
eliminates amortization of goodwill and intangible assets that have indefinite
useful lives and requires annual tests of impairment of those assets. SFAS No.
142 also provides specific guidance about how to determine and measure goodwill
and intangible asset impairments, and requires additional disclosures of
information about goodwill and other intangible assets. The provisions of SFAS
No. 142 were required to be applied starting with fiscal years beginning after
December 15, 2001 and applied to all goodwill and other intangible assets
recognized in financial statements at that date. In connection with SFAS No. 142
transitional goodwill impairment evaluation, the Statement required the Company
to perform an assessment of whether there is an indication that goodwill is
impaired as of the date of adoption. To accomplish this, the Company identified
its reporting units and determined the carrying value of each unit by assigning
the assets and liabilities, including the existing goodwill and intangible
assets, to those reporting units as of January 1, 2002.
Goodwill represents the excess of purchase price over fair value of tangible and
identifiable intangible net assets acquired. Prior to adoption of SFAS No. 142,
goodwill was amortized on a straight-line basis over the expected periods to be
benefited, which was 15 years for the Company. SFAS No. 142 required a
transitional goodwill impairment evaluation beginning January 1, 2002.
Subsequent to adoption, amortization of goodwill ceased, and the goodwill
balance is reviewed annually for impairment. No impairment of goodwill was
required to be recorded in 2003 and 2002. With the implementation of SFAS No.
142, there was no goodwill amortization charged to operations in 2003 or 2002,
while amortization expense was $360 thousand in 2001.
The following table reconciles previously reported net income as if the
provisions of SFAS No. 142 were in effect for the years ended prior to 2002.
2003 2002 2001
------- ------ --------
(in thousands)
Reported net income $32,074 $4,519 $ 16,372
Add back goodwill amortization -- -- 360
Deduct income tax benefit -- -- (137)
------- ------ --------
Adjusted net income $32,074 $4,519 $ 16,595
======= ====== ========
Retirement plans: The Company maintains a noncontributory defined benefit plan
covering substantially all employees. Pension benefits are based primarily on
the employee's compensation and years of service. The Company's policy is to
fund the maximum allowable contribution calculated under federal income tax
regulations. During 2003, the Company adopted an Executive Supplemental
Retirement Plan for selected employees. This is an unfunded plan and is
maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees. The Company also
maintains a defined contribution plan under which substantially all employees
may defer a portion of their earnings on a pretax basis, up to the allowable
federal maximum. The Company may make matching and discretionary contributions
to this plan. Neither of the funded retirement plans holds Company stock in the
respective portfolios.
Income taxes: Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company evaluates the
recoverability of tax assets generated on a state-by-state basis from net
operating losses apportioned to that state. Management uses a more likely than
not threshold to make that determination and has established a valuation
allowance against the deferred tax assets, in case they may not be recoverable.
Revenue recognition: The Company recognizes revenue when pervasive evidence of
an arrangement exists, services have been rendered or products have been
delivered, the price to the buyer is fixed and determinable and collectibility
is reasonably assured. Revenues are recognized by the Company based on the
various types of transactions generating the revenue. For equipment sales,
revenue is recognized when the sales transaction is complete. For services,
revenue is recognized as the services are performed.
F-11
Note 1. Summary of Significant Accounting Policies (Continued)
Beginning in 2000, coinciding with the inception of activation fees in its PCS
segment, nonrefundable PCS activation fees and the portion of the activation
costs deemed to be direct costs of acquiring new customers (primarily activation
costs and credit analysis costs) were deferred and recognized ratably over the
estimated life of the customer relationship of 30 months in accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin 101, (SAB
No.101). Effective July 1, 2003, the Company adopted Emerging Issues Task Force
("EITF") No. 00-21, "Accounting for Revenue Arrangements with Multiple Element
Deliverables." The EITF guidance addresses how to account for arrangements that
may involve multiple revenue-generating activities, i.e., the delivery or
performance of multiple products, services, and/or rights to use assets. In
applying this guidance, separate contracts with the same party, entered into at
or near the same time, will be presumed to be a bundled transaction, and the
consideration will be measured and allocated to the separate units based on
their relative fair values. The adoption of EITF 00-21 has required evaluation
of each arrangement entered into by the Company for each sales channel. The
Company will continue to monitor arrangements with its sales channels to
determine if any changes in revenue recognition would need to be made in the
future. The adoption of EITF 00-21 has resulted in substantially all of the
activation fee revenue generated from Company-owned retail stores and associated
direct costs being recognized at the time the related wireless handset is sold
and is classified as equipment revenue and cost of equipment, respectively. Upon
adoption of EITF 00-21, previously deferred revenues and costs will continue to
be amortized over the remaining estimated life of a subscriber, not to exceed 30
months. Revenue and costs for activations at other retail locations will
continue to be deferred and amortized over their estimated lives as prescribed
by SAB 101. The adoption of EITF 00-21 had the effect of increasing equipment
revenue by $68 thousand and increasing costs of activation by $23 thousand in
2003, which otherwise would have been deferred and amortized. The amounts of
deferred revenue under SAB101 at December 31, 2003, 2002 and 2001 were $1.2
million, $1.5 million and $1.2 million, respectively. The deferred costs at
December 31, 2003, 2002 and 2001 were $0.4 million, $0.7 million and $0.7
million, respectively.
The Company records its PCS service revenue net of the 8% of collected revenue
that is paid to Sprint. Under the management agreement with Sprint, through
December 31, 2003 Sprint is entitled to retain 8% of all collected service
revenue from subscribers whose service home is in the Company's territory and 8%
of the collected roaming revenue generated by non-Sprint wireless subscribers
who use the Company's network. With the adoption of the new Amended Agreement,
the Company will record its service revenue and receive payment from Sprint
based on billed revenue, net of 8% of billed revenue retained by Sprint,
customer credits, and allocated write-offs.
Stock Option Plan: To account for its fixed plan stock options, the Company
applies the intrinsic value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations including Financial Accounting Standards
Board (FASB) Interpretation No. 44, "Accounting for Certain Transactions
involving Stock Compensation," an interpretation of APB Opinion No. 25 issued in
March 2000. Under this method, compensation expense is recorded on the date of
the grant only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. As allowed by
SFAS No. 123, the Company has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123, as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure--an amendment of FASB
Statement No. 123."
Grants of options under the Plan are accounted for following the APB Opinion No.
25 and related interpretations. Accordingly, no compensation expense has been
recognized under the Plan. Had compensation expense been recorded, based on fair
values of the awards at the grant date (the method prescribed in SFAS No. 123),
reported net income and earnings per share would have been reduced to the pro
forma amounts shown in the following table:
2003 2002 2001
----------------------------------------
Net Income (in thousands, except per share amounts)
As reported $32,074 $4,519 $16,372
Pro forma 31,889 4,307 16,115
Earnings per share, basic and diluted
As reported, basic $ 4.23 $ 0.60 $ 2.18
As reported, diluted 4.22 0.60 2.17
Pro forma, basic 4.21 0.57 2.14
Pro forma, diluted 4.19 0.57 2.13
F-12
Note 1. Summary of Significant Accounting Policies (Continued)
Earnings per share: Basic income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the year. Diluted income (loss) per share is computed by dividing the income
(loss) by the sum of the weighted average number of common shares outstanding
and potential dilutive common shares determined using the treasury stock method.
Because the Company reported a net loss from continuing operations in 2002, the
diluted income (loss) per share is the same as basic income (loss) per share
since including any potentially dilutive securities would be antidilutive to the
net loss per share from continuing operations. In 2003 and 2001, all options
were dilutive. There were no adjustments to net income (loss) in the computation
of diluted earnings per share for any of the years presented. The following
tables show the computation of basic and diluted earnings per share for 2003,
2002 and 2001:
2003 2002 2001
----------------------------------------
Basic income (loss) per share (in thousands, except per share amounts)
Net income (loss) from continuing operations $ 9,761 $(2,893) $ 9,694
-----------------------------------
Weighted average shares outstanding 7,577 7,542 7,523
-----------------------------------
Basic income (loss) per share - continuing operations $ 1.29 $ (0.38) $ 1.29
===================================
Effect of stock options outstanding:
Weighted average shares outstanding 7,577 7,542 7,522
Assumed exercise, at the strike price at the beginning of year 172 -- 104
Assumed repurchase of options under treasury stock method (141) -- (78)
-----------------------------------
Diluted weighted average shares 7,608 7,542 7,549
-----------------------------------
Diluted income (loss) per share - continuing operations $ 1.28 $ (0.38) $ 1.28
===================================
Recently Issued Accounting Standards:
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003),"Consolidation of Variable Interest Entities," which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities," (VIE), which was issued in
January 2003. The Company will be required to apply FIN 46R to variable
interests in VIEs created after December 31, 2003. For variable interests in
VIEs created before January 1, 2004, the Interpretation will be applied
beginning on January 1, 2005, except it must be applied in the fourth quarter of
2003 for any VIE's that are considered to be special purpose entities. For any
VIEs that must be consolidated under FIN 46R that were created before January 1,
2004, the assets, liabilities and non-controlling interests of the VIE initially
would be measured at their carrying amounts with any difference between the net
amount added to the balance sheet and any previously recognized interest being
recognized as the cumulative effect of an accounting change. If determining the
carrying amounts is not practicable, fair value at the date FIN 46R first
applies may be used to measure the assets, liabilities and non-controlling
interest of the VIE. The Company is evaluating the impact of applying FIN 46R to
existing VIEs in which it has variable interests and does not believe the
application will have a material impact on the Company's consolidated financial
statements.
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of
Liabilities and Equity," which was effective at the beginning of the first
interim period beginning after June 15, 2003. This Statement establishes
standards for the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The Statement
also includes required disclosures for financial instruments within its scope.
For the Company, the Statement was effective for instruments entered into or
modified after May 31, 2003 and otherwise will be effective as of January 1,
2004, except for mandatorily redeemable financial instruments. For certain
mandatorily redeemable financial instruments, the Statement will be effective
for the Company on January 1, 2005. The effective date has been deferred
indefinitely for certain other types of mandatorily redeemable financial
instruments. The Company currently does not have any financial instruments that
are within the scope of this Statement.
In December 2003, the Financial Accounting Standards Board issued FASB Statement
No. 132(R). Statement No. 132(R) is a revision of Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS 132(R) is
effective for financial statements with fiscal years ending after December 15,
2003. SFAS 132(R) requires additional disclosures including information
describing the types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows, and components of net periodic benefit cost
recognized during
F-13
Note 1. Summary of Significant Accounting Policies (Continued)
interim periods. The objectives of the revisions are to provide qualitative
information about the items in the financial statements, quantitative
information about items recognized or disclosed in the financial statements,
information that enables users of financial statements to assess the effect that
pension plans and other postretirement benefit plans have on entities' results
of operations, and information to facilitate assessments of future earnings and
cash flows. The Company has adopted this statement effective December 31, 2003
with disclosures included in Note 9.
Reclassifications: Certain amounts reported in the 2002 and 2001 financial
statements have been reclassified to conform with the 2003 presentation, with no
effect on net income or shareholders' equity.
Note 2. Discontinued Operations
In November 2002, the Company entered into an agreement to sell its 66% General
Partner interest in the Virginia 10 RSA Limited Partnership (cellular operation)
to Verizon Wireless for $37.0 million. The closing of the sale took place at the
close of business on February 28, 2003. The total proceeds received were $38.7
million, including $5.0 million held in escrow, and a $1.7 million adjustment
for estimated working capital at the time of closing. There was a post closing
adjustment based on the actual working capital balance as of the closing date,
which resulted in a $39 thousand charge for the Company. The $5.0 million escrow
was established for any contingencies and indemnification issues that may arise
during the two-year post-closing period and is included in deferred charges and
other assets in the 2003 consolidated balance sheet. The Company's gain on the
transaction was approximately $35 million. Post closing, the Company provided
transition services to Verizon for a period of approximately three months, with
compensation for those services being approximately $40 thousand per month
during the transition period.
The assets and liabilities attributable to the cellular operation have been
classified as held for sale in the consolidated balance sheets and consist of
the following at December 31, 2002 and 2001:
2002 2001
--------------------
Assets (in thousands)
Accounts receivable $2,608 $2,759
Other current assets 309 214
Property, plant and equipment, (net) 2,631 3,272
------ ------
Total assets $5,548 $6,245
====== ======
Liabilities and minority interest
Accounts payable and accrued expenses $ 381 $ 499
Deferred revenue and deposits 161 236
Minority interest 1,666 1,838
------ ------
Total liabilities and minority interest $2,208 $2,573
====== ======
The operations of the cellular partnership including the minority interest have
been reclassified as discontinued operations, net of taxes in the consolidated
statements of income for all periods presented. Operating results and the sale
of the discontinued operations are summarized as follows:
(in thousands) 2003 2002 2001
----------------------------------
Revenues $ 3,056 $ 20,895 $ 20,012
Operating expenses 453 3,618 4,674
Other income -- 3 16
-------- -------- --------
Income before minority interest and taxes 2,603 17,280 15,354
Minority interests (773) (5,200) (4,526)
Sale of partnership interest 34,973 -- --
Income taxes (14,414) (4,668) (4,150)
-------- -------- --------
Net income from discontinued operations $ 22,389 $ 7,412 $ 6,678
==================================
F-14
Note 3. Securities and Investments
The Company has three classifications of investments; available for sale
securities, investments carried at cost, and equity method investments. See Note
1 for specific definitions of each classification of investment. The following
tables present the investments of the Company for the three-year period ended
December 31, 2003:
Available-for-sale securities at December 31 consist of the following:
Gross Gross
Unrealized Unrealized
Holding Holding Fair
Cost Gains Losses Value
----------------------------------------------
(in thousands)
2003
--------------------------------------------------------------------------
Deutsche Telekom, AG $ 85 $ 64 $ -- $ 149
Other 73 -- 23 50
----------------------------------------------
$ 158 $ 64 $ 23 $ 199
==============================================
2002
--------------------------------------------------------------------------
Deutsche Telekom, AG $ 85 $ 20 $ -- $ 105
Other 73 -- 27 46
----------------------------------------------
$ 158 $ 20 $ 27 $ 151
==============================================
2001
--------------------------------------------------------------------------
VeriSign, Inc. $11,798 $ -- $ -- $11,798
Deutsche Telekom, AG 85 10 -- 95
Other 74 58 -- 132
----------------------------------------------
$11,957 $ 68 $ -- $12,025
==============================================
During 2001, the Company liquidated its holdings of Loral Space and
Communications, LTD and ITC^DeltaCom, Inc. for proceeds of $0.2 million and a
realized loss of $1.4 million. Additionally, the Company sold 130,000 shares of
Illuminet Holdings, Inc. (Illuminet) for proceeds of $5.3 million and a realized
gain of $5.0 million. In September 2001, Illuminet notified the Company that
VeriSign, Inc. (VeriSign) made an offer to acquire Illuminet. The Company
received VeriSign stock valued at $13.2 million, for the Illuminet investment,
and based on the fair value of the new asset received, recorded a realized gain
of $12.7 million in 2001 on the transaction through net gain on investments in
the other income (expense) section of the income statement. Subsequent to the
close of the transaction, the VeriSign stock declined in value and the Company
recognized an impairment of $1.5 million, as management viewed the decline to be
other than temporary.
In 2002, the Company liquidated its holdings of VeriSign, Inc, for proceeds of
$2.8 million and a realized loss of $9.0 million. The VeriSign stock was valued
at $38 per share at December 31, 2001, and declined over the ensuing months to
approximately $6 per share in early July 2002. The Company liquidated all of its
holdings in the stock early in the third quarter 2002. The Company's original
investment in VeriSign's predecessor companies was approximately $1.0 million.
Total proceeds from all sales of stock in VeriSign and its predecessor companies
were $8.1 million, or more than eight times the original investment.
There were no gross realized gains on available-for-sale securities included in
income in 2003 or 2002, while there were $17.7 million for 2001. Gross realized
losses included in income in 2003, 2002 and 2001 were $3 thousand, $9.0 million
and $3.0 million, respectively.
Changes in the unrealized gains (losses) on available-for-sale securities during
the years ended December 31, 2003, 2002 and 2001 reported as a separate
component of shareholders' equity are as follows:
F-15
Note 3. Securities and Investments (Continued)
2003 2002 2001
----------------------------------
Available-for-sale securities: (in thousands)
Beginning Balance $ (7) $ 68 $ 9,153
Unrealized holding gains (losses) during the year, net 48 (75) 5,615
Reclassification of recognized (gains) during the year, net -- -- (14,700)
----------------------------------
41 (7) 68
Deferred tax effect related to net unrealized gains 15 (3) 26
----------------------------------
Ending Balance $ 26 $ (4) $ 42
==================================
As of December 31, other investments, comprised of equity securities, which do
not have readily determinable fair values, consist of the following:
2003 2002 2001
----------------------------------
Cost method: (in thousands)
Rural Telephone Bank $ 796 $ 796 $ 796
NECA Services, Inc. 500 500 500
CoBank 1,321 1,126 768
NTC Communications (equity method in 2003 and 2002) -- -- 500
Other 182 241 254
----------------------------------
2,799 2,663 2,818
Equity method:
South Atlantic Venture Fund III L.P. 89 263 393
South Atlantic Private Equity Fund IV L.P. 541 707 891
Dolphin Communications Parallel Fund, L.P. 184 273 441
Dolphin Communications Fund II, L.P. 1,290 1,024 518
Burton Partnership 1,149 988 970
NTC Communications (cost method in 2001) 971 1,089 --
Virginia Independent Telephone Alliance 228 248 400
ValleyNet 17 17 7
----------------------------------
4,469 4,609 3,620
----------------------------------
Total investments $ 7,268 $ 7,272 $ 6,438
==================================
The Company's investment in CoBank increased $195 thousand in 2003 and $358
thousand in 2002, due to the ongoing patronage earned from the outstanding
investment and loan balances the Company has with CoBank. For 2003 and 2002, the
Company's allocated portions of losses, recorded on the investment in NTC were
$118 thousand and $171 thousand, respectfully.
In 2003, the Company received distributions from its equity investments totaling
$0.5 million in cash and invested $0.7 million in two equity investments,
Dolphin Communications Parallel Fund, LP and Dolphin Communications Fund II, LP.
These two investments recorded losses of approximately $0.4 million for the 2003
year. The Company recorded a loss from the Virginia Independent Telephone
Alliance investment of $19 thousand, for 2003. The Company recorded a gain from
the ValleyNet partnership of $84 thousand and received distributions of $84
thousand. Other equity investments lost an additional $0.4 million for 2003.
The Company was committed to invest an additional $1.8 million at December 31,
2003 in various equity method investees pursuant to capital calls from the fund
managers. It is not practical to estimate the fair value of the other
investments due to their limited market and restrictive nature of their
transferability.
The Company's ownership interests in Virginia Independent Telephone Alliance and
ValleyNet are approximately 22% and 20%, respectively. The Company purchases
services from Virginia Independent Telephone Alliance and ValleyNet at rates
comparable with other customers. The Company's ownership in NTC Communications
is
F-16
Note 3. Securities and Investments (Continued)
approximately 18%. Other equity method investees are investment limited
partnerships which are approximately 2% owned each.
Note 4. Plant in Service
Plant in service consists of the following at December 31:
Estimated
Useful Lives 2003 2002 2001
--------------------------------------------------
(in thousands)
Land $ 802 $ 792 $ 775
Buildings and structures 15 - 40 years 30,956 28,949 20,375
Cable and wire 15 - 50 years 51,041 49,495 45,188
Equipment and software 3 - 16.6 years 114,632 104,833 88,007
--------------------------------
$197,431 $184,069 $154,345
================================
Note 5. Long-Term Debt and Revolving Lines of Credit
Total debt consists of the following at December 31:
Weighted
Average
Interest Rate 2003 2002 2001
----------------------------------------------------
(in thousands)
Rural Telephone Bank (RTB) Fixed 6.02% $ 5,599 $10,645 $11,428
Rural Utilities Service (RUS) Fixed 5.00% 149 159 224
CoBank (term loan) Fixed 7.57% 37,398 41,039 44,584
RUS Development Loan Interest free 200 200 200
---------------------------------
43,346 52,043 56,436
Current maturities 4,230 4,482 4,387
---------------------------------
Total long-term debt $39,116 $47,561 $52,049
=================================
CoBank 1-year revolver Variable 2.79% - 5.03% $ -- $ 3,200 $ 6,200
SunTrust Bank revolver Variable 2.05% - 2.53% $ -- $ 303 $ --
=================================
The RTB loans are payable $67 thousand monthly including interest. RUS loans are
payable $4 thousand quarterly, including interest. The RUS and RTB loan
facilities have maturities through 2019. The CoBank term facility requires
monthly payments of $550 thousand, including interest. The final maturity of the
CoBank facility is 2013.
The CoBank revolver was a $20.0 million facility, which the Company cancelled in
May 2003 due to the receipt of the cash proceeds from the sale of the Virginia
10 RSA partnership interest.
The $2.5 million SunTrust Banks revolver was cancelled in May 2003. It was
replaced in August 2003 with a SunTrust Bank Revolver facility of $0.5 million,
which the Company uses to fund short-term liquidity variations due to the timing
of customer receipts and vendor payments for services. This facility matures May
31, 2004, and is priced at the 30-day LIBOR rate plus 1.25%. The Company has not
borrowed on this facility.
Substantially all of the Company's assets serve as collateral for the long-term
debt. The Company's outstanding long-term CoBank debt is $37.4 million, all of
which is at fixed rates ranging from approximately 6% to 8%. The stated rate
excludes patronage credits that are received from CoBank. These patronage
credits are a distribution of CoBank's profits, as it is a cooperative and is
required to distribute its profits to its members. During the first quarter of
2003, the Company received patronage credits of approximately 60 basis points on
its outstanding CoBank debt balance. The Company accrued a similar amount in the
current year, in anticipation of the early 2004 distribution of the credits by
CoBank. Repayment of the CoBank long-term debt facilities requires monthly
payments on the debt through September 2013. The Company is required to meet
financial covenants measured at the end of each quarter, based on a trailing
12-month basis and are calculated on continuing operations. At December 31,
2003, the covenant calculations
F-17
Note 5. Long-Term Debt and Revolving Lines of Credit (Continued)
were as follows. The ratio of total debt to operating cash flow, which must be
3.5 or lower, was 1.2. The equity to total assets ratio, which must be 35% or
higher, was 57.3%. The ratio of operating cash flow to scheduled debt service,
which must exceed 2.0, was 4.29. The Company was in compliance with all other
covenants related to its debt agreements at December 31, 2003.
The aggregate maturities of long-term debt for each of the five years subsequent
to December 31, 2003 are as follows:
Year Amount
---- --------------
(in thousands)
2004 $ 4,230
2005 4,372
2006 4,526
2007 4,688
2008 4,864
Later years 20,666
-------
$43,346
=======
The estimated fair value of fixed rate debt instruments as of December 31, 2003
and 2002 was $42.6 million and $51.1 million, respectively, determined by
discounting the future cash flows of each instrument at rates offered for
similar debt instruments of comparable maturities as of the respective year-end
dates.
All other financial instruments presented on the consolidated balance sheets
approximate fair value. They include cash and cash equivalents, receivables,
investments, payables, and accrued liabilities.
Note 6. Income Taxes
Total income taxes for the years ended December 31, 2003, 2002 and 2001 were
allocated as follows:
2003 2002 2001
--------------------------------
(in thousands)
Income tax provision (benefit) from continuing operations $ 5,304 $(2,109) $ 5,811
Income taxes on discontinued operations 14,414 4,668 4,150
Income tax from cumulative effect of an accounting change (47) -- --
Accumulated other comprehensive income for unrealized
holding gains (losses) on equity securities 18 (29) (3,482)
--------------------------------
$ 19,689 $ 2,530 $ 6,479
================================
The Company and its subsidiaries file income tax returns in several
jurisdictions. The provision for the federal and state income taxes attributable
to income (loss) from continuing operations consists of the following
components:
Years Ended December 31,
--------------------------------
2003 2002 2001
--------------------------------
(in thousands)
Current provision (benefit)
Federal taxes $ 762 $(2,076) $(2,382)
State taxes 147 (212) (514)
--------------------------------
Total current provision (benefit) 909 (2,288) (2,896)
Deferred provision
Federal taxes 4,091 592 7,330
State taxes 304 (413) 1,377
--------------------------------
Total deferred provision 4,395 179 8,707
--------------------------------
Income tax provision (benefit) $ 5,304 $(2,109) $ 5,811
================================
F-18
Note 6. Income Taxes (Continued)
A reconciliation of income taxes determined by applying the Federal and state
tax rates to income (loss) from continuing operations is as follows:
Years Ended December 31,
----------------------------------
2003 2002 2001
----------------------------------
(in thousands)
Computed "expected" tax expense $ 5,122 $ (1,701) $ 5,271
State income taxes, net of federal tax effect 298 (460) 575
Other, net (116) 52 (35)
----------------------------------
Income tax provision (benefit) $ 5,304 $ (2,109) $ 5,811
==================================
Net deferred tax assets and liabilities consist of the following at December 31:
2003 2002 2001
----------------------------------
Deferred tax assets: (in thousands)
Allowance for doubtful accounts $ 192 $ 370 $ 247
Accrued compensation costs -- 181 149
State net operating loss carryforwards, net of federal tax 1,569 1,425 --
Recognized investment losses including impairments -- 593 --
Deferred revenues 304 338 179
AMT credits -- 285 --
Accrued pension costs 476 395 397
Other, net 81 23 --
----------------------------------
Total gross deferred tax assets 2,622 3,610 972
Less valuation allowance (864) (704) --
----------------------------------
Net deferred tax assets 1,758 2,906 972
----------------------------------
Deferred tax liabilities:
Plant-in-service 20,058 17,568 11,313
Escrowed gain on sale of discontinued operations 1,859 -- --
Unrealized gain on investments 15 -- 26
Gain on investments, net 123 -- 4,035
----------------------------------
Total gross deferred tax liabilities 22,055 17,568 15,374
----------------------------------
Net deferred tax liabilities $ 20,297 $ 14,662 $ 14,402
==================================
In assessing the ability to realize deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon generating future taxable income during the periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it
more likely than not that the Company will realize the benefits of the
deductible differences that are not reserved by the valuation allowance, which
increased by $160 thousand, to $864 thousand in 2003, from $704 thousand in
2002. The Company has generated net operating loss (NOL) carry forwards of
approximately $25.9 million from its PCS operations in several states. The carry
forwards expire at varying dates beginning in 2005.
Note 7. Significant Contractual Relationship
In 1999, the Company executed a Management Agreement (the Agreement) with Sprint
whereby the Company committed to construct and operate a PCS network using CDMA
air interface technology, replacing an earlier PCS network based on GSM
technology. Under the Agreement, the Company is the exclusive PCS Affiliate of
Sprint providing wireless mobility communications network products and services
in its territory which extends from Altoona, York and Harrisburg, Pennsylvania,
and south along the Interstate 81 corridor through Western Maryland, the
F-19
Note 7. Significant Contractual Relationship (Continued)
panhandle of West Virginia, to Harrisonburg, Virginia. The Company is authorized
to use the Sprint brand name in its territory, and operate its network under the
Sprint radio spectrum license. As an exclusive PCS Affiliate of Sprint, the
Company has the exclusive right to build, own and maintain its portion of
Sprint's nationwide PCS network, in the aforementioned areas, to Sprint's
specifications. The initial term of the Agreement is for 20 years and is
automatically renewable for three 10-year options, unless terminated by either
party under provisions outlined in the Agreement.
Under the Sprint agreements, Sprint provides the Company significant support
services such as customer service, billing, collections, long distance, national
network operations support, inventory logistics support, use of the Sprint brand
names, national advertising, national distribution and product development.
Additionally, the Company derives substantial travel revenue and incurs
substantial travel expenses when Sprint and Sprint's PCS Affiliate partners'
subscribers incur minutes of use in the Company's territory and when the
Company's subscribers incur minutes of use in Sprint and Sprint's PCS Affiliate
partners' territories. These transactions are recorded as travel revenue,
network operating cost and travel cost, cost of equipment and selling and
marketing expense in the Company's consolidated statements of income. Cost of
service related to access to the nationwide network, including travel
transactions and long distance expenses, are recorded in network operating
costs. The costs of services such as billing, collections and customer service
are included in selling, general and administrative costs. Cost of equipment
transactions between the Company and Sprint relate to inventory purchased and
subsidized costs of handsets. These costs also include transactions related to
subsidized costs on handsets and commissions paid to Sprint for sales of
handsets through Sprint's national distribution programs.
Historically, Sprint determined monthly service charges at the beginning of each
calendar year. Sprint calculated the costs to provide these services for its
network partners and required a final settlement against the charges actually
paid. If the costs to provide these services were less than the amounts paid by
the Sprint's network partners, Sprint issued a credit for these amounts. If the
costs to provide the services were more that the amounts paid by Sprint's
network partners, Sprint charged the network partners for these amounts. For the
years presented, the Company recorded the actual costs, after the adjustments,
which were recorded for these services provided by Sprint.
The wireless market is characterized by significant risks as a result of rapid
changes in technology, increasing competition and the cost associated with the
build-out and enhancement of Sprint's nationwide digital wireless network.
Sprint provides back-office and other services including travel clearing-house
functions to the Company. In the past, there was no prescribed formula defined
in the agreements with Sprint for the calculation of the fee charged to the
Company for these services. Sprint adjusted these fees at least annually. This
situation changed with the execution of an amendment to the Agreement which
occurred on January 31, 2004, retroactive to January 1, 2004 (the Amended
Agreement). The Amended Agreement provides greater certainty to the Company for
certain future expenses and revenues during the term of the agreement and
simplifies the methods used to settle revenue and expenses between the Company
and Sprint. The Company's PCS subsidiary is dependent upon Sprint's ability to
execute certain functions such as billing, customer care, collections and other
operating activities under the Company's agreements with Sprint. Due to the high
degree of integration within many of the Sprint systems, and the Company's
dependency on these systems, in many cases it would be difficult for the Company
to perform these services in-house or to outsource the services to another
provider. If Sprint was unable to perform any such service, the change could
result in increased operating expenses and have an adverse impact on the
Company's operating results and cash flow. Additionally, the Company's ability
to attract and maintain a sufficient customer base is critical to generating
positive cash flow from operations and ultimately profitability for its PCS
operation. Changes in technology, increased competition, or economic conditions
in the wireless industry or the economy in general, individually and/or
collectively, could have an adverse effect on the Company's financial position
and results of operations.
Through December 31, 2003, the Agreement provided that Sprint retains 8% of all
collected service revenue from subscribers with their service home in the
Company's territory, and 8% of the roaming revenue generated by non-Sprint
wireless subscribers who use the Company's network. With the adoption of the new
Amended Agreement, the Company will record its service revenue and receive
payment from Sprint based on billed revenue, net of the 8% of billed revenue
retained by Sprint, customer credits and allocated writeoffs.
The Company receives and pays travel fees for inter-market usage of the network
by Sprint wireless subscribers not homed in a market in which they may use the
service. Sprint and its PCS Affiliates pay the Company for the use of its
network by their wireless subscribers, while the Company pays Sprint and its PCS
Affiliates reciprocal fees for Company subscribers using other segments of the
network not operated by the Company. The rates paid on inter-market travel were
reduced during 2001. The inter-market travel rate was $0.20 per minute from
inception of the Sprint agreement through April 30, 2001, $0.15 per minute from
May 1, 2001 through September 30, 2001, and $0.12
F-20
Note 7. Significant Contractual Relationship (Continued)
per minute from October 1, 2001 through December 31, 2001. The rate was further
reduced to $0.10 per minute as of January 1, 2002. The $0.10 rate was in effect
for the full year of 2002. The travel rate for 2003 was $0.058 per minute and
will remain at this rate through December 31, 2006.
As part of the Amended Agreement signed January 30, 2004, the Company and Sprint
resolved several outstanding issues. The result of the resolution of these
disputes was a favorable adjustment to operating income of $0.7 million for the
settlement of a dispute related to inter-market travel revenue generated by
certain other Affiliate subscribers traveling in the Company's market, and a
reduction to previously billed disputed software maintenance fees from a
re-allocation of the fees from Sprint on a per subscriber basis versus the prior
allocation which was on a per switch basis.
The Sprint Agreements require the Company to maintain certain minimum network
performance standards and to meet other performance requirements. The Company
was in compliance in all-material respects with these requirements as of
December 31, 2003.
Going forward, the adoption of the Amended Agreement will allow the Company to
better project the fees it will pay to Sprint for its cash cost per user (CCPU)
per month related to certain billing, customer services and other service costs,
and certain defined costs per gross add (CPGA). The CCPU charge from Sprint is
fixed at $7.70 per subscriber through the end of 2006, and certain defined CPGA
are the lower of $25.00 or 6.3% of Sprint's published CPGA figure.
Note 8. Related Party Transactions
ValleyNet, an equity method investee of the Company, resells capacity on the
Company's fiber network under an operating lease agreement. Facility lease
revenue from ValleyNet was approximately $3.1 million, $3.5 million and $4.1
million in 2003, 2002 and 2001, respectively. At December 31, 2003, 2002 and
2001, the Company had accounts receivable from ValleyNet of approximately $0.4
million, $0.4 million and $0.4 million, respectively. The Company's PCS
operating subsidiary leases capacity through ValleyNet fiber facilities. Payment
for usage of these facilities was $0.8 million in 2003, and $1.2 million in 2002
and 2001.
Virginia Independent Telephone Alliance, (VITAL), another equity method investee
of the Company, provides SS7 signaling services to the Company. These
transactions are recorded as expense on the Company's books and were less than
$30 thousand in each of the 2003, 2002 and 2001.
Note 9. Retirement Plans
The Company maintains a noncontributory defined benefit pension plan and a
separate defined contribution plan. The following table presents the defined
benefit plan's funded status and amounts recognized in the Company's
consolidated balance sheets.
2003 2002 2001
--------------------------------
Change in benefit obligation: (in thousands)
Benefit obligation, beginning $ 9,585 $ 8,538 $ 6,847
Service cost 486 420 313
Interest cost 615 591 507
Actuarial (gain) loss 1,211 252 1,054
Benefits paid (247) (216) (183)
--------------------------------
Benefit obligation, ending 11,650 9,585 8,538
--------------------------------
Change in plan assets:
Fair value of plan assets, beginning 6,705 7,375 8,081
Actual return on plan assets 948 (794) (523)
Benefits paid (247) (216) (183)
F-21
Note 9. Retirement Plans (Continued)
Contributions made 447 340 --
--------------------------------
Fair value of plan assets, ending 7,853 6,705 7,375
--------------------------------
Funded status (3,797) (2,880) (1,163)
Unrecognized net (gain) loss 2,229 1,505 (124)
Unrecognized prior service cost 252 283 315
Unrecognized net transition asset (9) (38) (67)
--------------------------------
Accrued benefit cost $ (1,325) $(1,130) $(1,039)
================================
Components of net periodic benefit costs:
Service cost $ 486 $ 420 $ 313
Interest cost 615 591 507
Expected return on plan assets (494) (582) (640)
Amortization of prior service costs 31 31 31
Amortization of net gain 32 -- (102)
Amortization of net transition asset (29) (29) (29)
--------------------------------
Net periodic benefit cost $ 641 $ 431 $ 80
================================
The accumulated benefit obligation for the qualified retirement plan was $7,872,
$6,551 and $5,399 at December 31, 2003, 2002 and 2001, respectively.
Weighted average assumptions used by the Company in the determination of benefit
obligations at December 31, 2003, 2002 and 2001 were as follows:
2003 2002 2001
--------------------------
Discount rate 6.00% 6.50% 7.00%
Rate of increase in compensation levels 4.50% 4.50% 5.00%
Weighted average assumptions used by the Company in the determination of net
pension cost for the years ended December 31, 2003, 2002, and 2001 were as
follows:
2003 2002 2001
--------------------------
Discount Rate 6.50% 7.00% 7.50%
Rate of increase in compensation level 4.50% 5.00% 5.00%
Expected long-term rate of return on plan assets 7.50% 8.00% 8.00%
The Company's pension plan asset allocations based on market value at December
31, 2003 and 2002, by asset category were as follows:
Asset Category 2003 2002
-----------------
Equity securities 69.8% 62.9%
Debt securities 26.6% 32.2%
Cash and cash equivalents 3.6% 4.9%
-----------------
100.0% 100.0%
=================
Investment Policy
The investment policy of the Company's Pension Plan is for assets to be invested
in a manner consistent with the fiduciary standards of ERISA. More specifically,
the investment focus is to preserve capital which includes inflationary
protection as well as protection of the principal amounts contributed to the
Plan. Of lesser importance is the consistency of growth, which will tend to
minimize the annual fluctuations in the normal cost. It is anticipated that
growth of the fund will result from both capital appreciation and the
re-investment of current income.
F-22
Note 9. Retirement Plans (Continued)
Contributions
The Company expects to contribute $0.5 million to the noncontributory defined
benefit plan in 2004, and contributed $0.4 million in 2003, and $0.3 million in
2002.
The Company's matching contributions to the defined contribution plan were
approximately $228 thousand, $210 thousand and $182 thousand for the years ended
December 31, 2003, 2002 and 2001, respectively.
In May 2003, the Company adopted an unfunded nonqualified supplemental executive
retirement plan for named executives. The plan was established to provide
retirement benefits in addition to those provided under the Retirement Plan that
covers all employees. The following table presents the actuarial information for
the plan.
2003
-------------
Change in benefit obligation: (in thousands)
Benefit obligation, beginning $ --
Service cost 22
Interest cost 23
Actuarial loss 278
Plan adoption 546
-----
Benefit obligation, ending 869
-----
Funded status (869)
Unrecognized net loss 278
Additional minimum liability (380)
Intangible asset 380
Unrecognized prior service cost 521
-----
Accrued benefit cost (70)
-----
Components of net periodic benefit costs:
Service cost $ 22
Interest cost 23
Amortization of prior service costs 25
-----
Net periodic benefit cost $ 70
=====
Assumptions used by the Company in the determination of the Supplemental
Retirement Plan information consisted of the following at December 31, 2003:
2003
----
Discount rate 6.00%
Rate of increase in compensation levels 4.50%
Note 10. Stock Incentive Plan
The Company has a shareholder approved Company Stock Incentive Plan (the
"Plan"), providing for the grant of incentive compensation to essentially all
employees in the form of stock options. The Plan authorizes grants of options to
purchase up to 480,000 shares of common stock over a ten-year period beginning
in 1996. The option price for all grants has been at the current market price at
the time of the grant. The grants have generally provided that one-half of the
options exercisable on each of the first and second anniversaries of the date of
grant, with the options expiring five years after they are granted. In 2003, the
Company issued grants where the options are vested over a five-year period
beginning on the third anniversary date of the grant of the options. The
participant may exercise 20% of the total grant after each anniversary date
through the eighth year, with the options expiring after ten years.
F-23
Note 10. Stock Incentive Plan (Continued)
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
2003 2002 2001
-------------------------------------------
Dividend rate 1.68% to 2.35% 1.52% 1.78%
Risk-free interest rate 3.00% to 3.18% 4.24% 4.31%
Expected lives of options 5 to 10 years 5 years 5 years
Price volatility 38.83% to 51.02% 30.03% 38.29%
A summary of the status of the Plan at December 31, 2003, 2002 and 2001 and
changes during the years ended on those dates is as follows:
Weighted
Average Grant Fair Value
Shares Price Per Share Per Share
-----------------------------------------------
Outstanding January 1, 2001 117,122 $12.50
Granted 39,938 15.79 $5.51
Cancelled (6,580) 14.86
Exercised (12,426) 10.72
-------
Outstanding December 31, 2001 138,054 13.51
Granted 47,646 17.59 4.08
Cancelled (19,758) 13.95
Exercised (16,238) 11.27
-------
Outstanding December 31, 2002 149,704 14.99
Granted 75,396 18.89 4.24 to 11.37
Cancelled (11,892) 16.62
Exercised (40,988) 11.89
-------
Outstanding December 31, 2003 172,220
=======
There were 85,670, 91,658 and 83,114 shares exercisable at December 31, 2003,
2002 and 2001, at weighted average exercise prices per share of, $15.94, $13.70,
and $11.71, respectively. During 2002, the Company issued 4,654 shares of
Company stock to employees valued at $100 thousand in recognition of the
Company's 100th year anniversary. The following table summarizes information
about stock options outstanding at December 31, 2003:
Exercise Shares Option Life Shares
Prices Outstanding Remaining Exercisable
---------------------------------------------------------------
1999 $ 9.97 9,700 1 year 9,700
2000 17.19 25,900 2 years 25,900
2001 15.79 31,626 3 years 31,626
2002 17.59 36,888 4 years 18,444
2003 17.98-22.01 68,106 5 to 10 years --
Note 11. Major Customers
The Company has one major customer and relationship that is a significant source
of revenue. In 2003, as during the past number of years, the Company's
relationship with Sprint continued to increase, due to growth in the PCS
business segment. Approximately 61.2% of total revenues in 2003 were generated
by or through Sprint and its customers using the Company's portion of Sprint's
nationwide PCS network. This was compared to 57.6% in 2002, and 47.1% of total
revenue in 2001. No other customer relationship on a stand-alone basis generates
more than 2.5% of the Company's total revenue for 2003, 2002 and 2001.
F-24
Note 12. Shareholder Rights
The Board of Directors adopted a Shareholder Rights Plan in 1998, whereby, under
certain circumstances, holders of each right (granted in 1998 at one right per
share of outstanding stock) will be entitled to purchase $80 worth of the
Company's common stock for $40. The rights are neither exercisable nor traded
separately from the Company's common stock. The rights are only exercisable if a
person or group becomes or attempts to become, the beneficial owner of 15% or
more of the Company's common stock. Under the terms of the Plan, such a person
or group is not entitled to the benefits of the rights.
Note 13. Lease Commitments
The Company leases land, buildings and tower space under various non-cancelable
agreements, which expire between 2004 and 2043 and require various minimum
annual rental payments. The leases generally contain certain renewal options for
periods ranging from 5 to 20 years.
Future minimum lease payments under non-cancelable operating leases with initial
variable lease terms in excess of one year as of December 31, 2003 are as
follows:
Year Ending Amount
----------------------------------
(in thousands)
2004 $ 3,216
2005 2,544
2006 2,072
2007 1,327
2008 902
2009 and beyond 2,531
-------
$12,592
=======
The Company's total rent expense from continuing operations for each of the
previous three years was $4.4 million in 2003, $3.4 million in 2002, and $2.4
million in 2001.
As lessor, the Company has leased buildings, tower space and telecommunications
equipment to other entities under various non-cancelable agreements, which
require various minimum annual payments. The total minimum rental receipts at
December 31, 2003 are as follows:
Year Ending Amount
----------------------------------
(in thousands)
2004 $ 2,988
2005 2,759
2006 1,563
2007 1,126
2008 448
2009 and beyond 448
-------
$ 9,332
=======
F-25
Note 14. Segment Reporting
The Company, as a holding company with various operating subsidiaries, has
identified ten reporting segments based on the products and services each
provides. Each segment is managed and evaluated separately because of differing
technologies and marketing strategies.
The reporting segments and the nature of their activities are as follows:
Shenandoah Telecommunications Company (Holding) Holding company, which invests in both affiliated
and non-affiliated companies.
Shenandoah Telephone Company (Telephone) Provides both regulated and unregulated telephone
services and leases fiber optic facilities
primarily throughout the Northern Shenandoah
Valley.
Shenandoah Cable Television Company (CATV) Provides cable television service in Shenandoah
County.
ShenTel Service Company (ShenTel) Provides Internet access to a multi-state region
surrounding the Northern Shenandoah Valley, hosts
Travel 511 for Virginia, and sells and services
telecommunication equipment.
Shenandoah Valley Leasing Company (Leasing) Finances purchases of telecommunications equipment
to customers of other segments.
Shenandoah Mobile Company (Mobile) Provides tower rental space in the Company's PCS
markets and paging services throughout the
Northern Shenandoah Valley.
Shenandoah Long Distance Company (Long Distance) Provides long distance services.
Shenandoah Network Company (Network) Leases interstate fiber optic facilities.
ShenTel Communications Company (Shen Comm) Provides DSL services as a CLEC operation.
Shenandoah Personal Communications Company (PCS) As a PCS Affiliate of Sprint, provides digital
wireless service to a portion of a four-state area
covering the region from Harrisburg, York and
Altoona, Pennsylvania, to Harrisonburg, Virginia.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Each segment accounts for
inter-segment sales and transfers as if the sales or transfers were to outside
parties.
Income (loss) recognized from equity method nonaffiliated investees by segment
is as follows:
Consolidated
Year Holding Telephone Totals
--------------------------------------------------
(in thousands)
2003 $ (441) $ 65 $ (376)
2002 (822) 45 (777)
2001 (1,218) 104 (1,114)
F-26
Note 14. Segment Reporting (Continued)
Selected financial data for each segment is as follows:
Holding Telco CATV ShenTel Leasing
----------------------------------------------------
Operating revenues - external: (in thousands)
2003 $ -- $ 22,729 $ 4,433 $ 6,897 $ 14
2002 -- 22,461 4,358 6,312 20
2001 -- 21,599 3,810 5,078 25
====================================================
Operating revenues - internal:
2003 $ -- $ 3,062 $ 24 $ 307 $ --
2002 -- 2,888 5 349 --
2001 -- 2,532 2 362 --
====================================================
Depreciation and amortization:
2003 $ 196 $ 4,279 $ 777 $ 410 $ --
2002 196 3,798 718 414 --
2001 196 3,609 1,354 472 --
====================================================
Operating income (loss):
2003 $ (726) $ 11,927 $ 890 $ 1,469 $ 4
2002 (555) 11,908 1,145 776 11
2001 (504) 12,321 54 168 10
====================================================
Non-operating income less expenses:
2003 $ 4,275 $ (151) $ (31) $ 9 $ 1
2002 4,966 (474) (23) (93) 1
2001 3,804 646 (184) (36) 1
====================================================
Interest expense:
2003 $ 3,070 $ 443 $ 514 $ 171 $ --
2002 3,540 662 583 165 --
2001 2,664 1,428 690 237 --
====================================================
Income tax expense (benefit) from continuing operations:
2003 $ 29 $ 4,268 $ 146 $ 501 $ 2
2002 (3,363) 3,237 198 191 5
2001 5,117 4,373 (312) (32) 4
====================================================
Income (loss) from continuing operations:
2003 $ 7 $ 7,064 $ 200 $ 805 $ 3
2002 (5,771) 7,536 341 327 8
2001 8,463 7,167 (509) (73) 7
====================================================
Income from discontinued operations, net of taxes:
2003 $ -- $ 12 $ -- $ -- $ --
2002 -- 72 2 -- --
2001 -- 72 2 -- --
====================================================
Net income (loss) including cumulative effect
2003 $ 7 $ 7,076 $ 200 $ 805 $ 3
2002 (5,771) 7,608 343 327 8
2001 8,463 7,239 (507) (73) 7
====================================================
Total assets:
2003 $ 141,658 $ 57,533 $ 10,340 $ 6,721 $188
2002 112,765 59,554 10,961 6,255 187
2001 114,280 56,090 11,480 5,373 254
====================================================
F-27
Note 14. Segment Reporting (Continued)
Long Shen
Mobile Distance Network Comm
---------------------------------------------
Operating revenues - external:
2003 $ 2,840 $ 1,116 $ 744 $ 56
2002 2,399 1,101 835 20
2001 2,112 1,114 963 --
=============================================
Operating revenues - internal:
2003 $ 1,238 $ 228 $ 151 $ --
2002 1,661 643 110 --
2001 535 679 109 --
=============================================
Depreciation and amortization:
2003 $ 599 $ -- $ 124 $ --
2002 581 -- 158 --
2001 527 -- 114 --
=============================================
Operating income (loss):
2003 $ 1,347 $ 407 $ 624 $ (23)
2002 1,224 695 641 (49)
2001 (65) 585 823 --
=============================================
Non-operating income less expenses:
2003 $ (13) $ 4 $ 4 $ 1
2002 5 4 10 8
2001 92 2 -- --
=============================================
Interest expense:
2003 $ 26 $ -- $ -- $ --
2002 6 -- -- --
2001 87 -- -- --
=============================================
Income tax expense (benefit) from continuing operations:
2003 $ 377 $ 157 $ 242 $ (7)
2002 790 259 249 (15)
2001 (514) 223 313 --
=============================================
Income (loss) from continuing operations:
2003 $ 724 $ 255 $ 386 $ (14)
2002 (734) 441 401 (26)
2001 (746) 364 511 --
=============================================
Income from discontinued operations, net of taxes:
2003 $ 22,389 $ -- $ -- $ --
2002 7,468 -- -- --
2001 6,734 -- -- --
=============================================
Net income (loss) including cumulative effect
2003 $ 23,037 $ 255 $ 386 $ (14)
2002 6,734 441 401 (26)
2001 5,988 364 511 --
=============================================
Total assets:
2003 $ 18,396 $ 808 $ 1557 $ 78
2002 17,482 343 1,084 115
2001 17,981 176 1,109 100
=============================================
F-28
Note 14. Segment Reporting (Continued)
Combined Eliminating Consolidated
PCS Totals Entries Totals
-------------------------------------------------------
Operating revenues - external:
2003 $ 67,032 $ 105,861 $ -- $ 105,861
2002 55,468 92,974 -- 92,974
2001 34,021 68,722 -- 68,722
=====================================================
Operating revenues - internal:
2003 $ 1 $ 5,011 $ (5,011) $ --
2002 -- 5,656 (5,656) --
2001 -- 4,219 (4,219) --
=====================================================
Depreciation and amortization:
2003 $ 10,246 $ 16,631 $ -- $ 16,631
2002 8,617 14,482 -- 14,482
2001 4,991 11,263 -- 11,263
=====================================================
Operating income (loss):
2003 $ 2,916 $ 18,835 $ (207) $ 18,628
2002 (5,294) 10,502 (1,164) 9,338
2001 (5,769) 7,620 (1,196) 6,424
=====================================================
Non-operating income less expenses:
2003 $ (76) $ 4,023 $ (3,633) $ 390
2002 (91) 4,313 (4,454) (141)
2001 50 4,391 (4,110) 265
=====================================================
Interest expense:
2003 $ 2,920 $ 7,144 $ (3,634) $ 3,510
2002 3,693 8,649 (4,454) 4,195
2001 3,131 8,237 (4,110) 4,127
=====================================================
Income tax expense (benefit) from continuing operations:
2003 $ (411) $ 5,304 $ -- $ 5,304
2002 (3,660) (2,109) -- (2,109)
2001 (3,361) 5,811 -- 5,811
=====================================================
Income (loss) from continuing operations:
2003 $ 331 $ 9,761 $ -- $ 9,761
2002 (5,416) (2,893) -- (2,893)
2001 (5,490) 9,694 -- 9,694
=====================================================
Income from discontinued operations, net of taxes:
2003 $ -- $ 22,401 $ (12) $ 22,389
2002 -- 7,542 (130) 7,412
2001 -- 6,808 (130) 6,678
=====================================================
Net income (loss) including cumulative effect
2003 $ 331 $ 32,086 $ (12) $ 32,074
2002 (5,416) 4,649 (130) 4,519
2001 (5,490) 16,502 (130) 16,372
=====================================================
Total assets:
2003 $ 68,773 $ 306,052 $(120,688) $ 185,364
2002 71,256 280,002 (115,998) 164,004
2001 62,661 269,504 (102,132) 167,372
=====================================================
F-29
Note 15. Quarterly Results (unaudited)
The following table shows selected quarterly results for the Company.
(in thousands except for per share data)
For the year ended December 31, 2003 First Second Third Fourth Total
-----------------------------------------------------------------
Revenues $ 24,947 $ 24,844 $ 27,582 $ 28,488 $ 105,861
Operating income 4,150 2,402 4,976 7,100 18,628
Income from
Continuing operations 1,931 1,044 2,717 4,069 9,761
Income from discontinued
operations, net of taxes 22,628 -- (23) (216) 22,389
Cumulative effect of change in
accounting (76) -- -- -- (76)
Net income (a) $ 24,483 $ 1,044 $ 2,694 $ 3,853 $ 32,074
Income (loss) per share -
Continuing operations-diluted 0.26 0.14 0.36 0.53 1.28
Discontinued operations -diluted 2.98 -- -- (0.03) 2.94
Cumulative effect of change in
accounting - diluted (0.01) -- -- -- (0.01)
Net income per share - basic $ 3.24 $ 0.14 $ 0.36 $ 0.51 $ 4.23
Net income per share - diluted 3.23 0.14 0.35 0.50 4.22
For the year ended December 31, 2002 First Second Third Fourth Total
-----------------------------------------------------------------
Revenues $ 20,697 $ 22,186 $ 24,631 $ 25,460 $ 92,974
Operating income 2,316 2,617 2,371 2,034 9,338
Income (loss) from
Continuing operations 370 (3,984) 383 338 (2,893)
Income from Discontinued
operations, net of taxes 1,786 1,870 1,841 1,915 7,412
Net income (b) $ 2,156 $ (2,114) $ 2,224 $ 2,253 $ 4,519
Income (loss) per share -
Continuing operations -diluted $ 0.05 $ (0.53) $ 0.05 $ 0.04 $ (0.38)
Discontinued operations -diluted 0.24 0.25 0.24 0.25 0.98
Net income per share - basic $ 0.29 $ (0.28) $ 0.29 $ 0.30 $ 0.60
Net income per share - diluted 0.29 (0.28) 0.29 0.30 0.60
(a) Fourth quarter results of 2003 include favorable adjustments to revenue
and expenses totaling $2.5 million, related to true-ups of management's
estimates and settlements of disputes with Sprint and a $0.4 million
benefit related to a change in vacation benefit accrual for employees.
(b) Second quarter results of 2002 include the loss of $4.9 million, net of
tax effects on the other than temporary write-down of the VeriSign stock.
Per share earnings may not add to the full year values as each per share
calculation stands on its own.
F-30
Exhibits Index
Exhibit
Number Exhibit Description
- -------------------------------
3.1 Amended and Restated Articles of Incorporation of Shenandoah
Telecommunications Company filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (No. 333-21733) and incorporated
herein by reference.
*3.2 Shenandoah Telecommunications Company Bylaws as amended.
10.1 Shenandoah Telecommunications Company Stock Incentive Plan filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No.
333-21733) and incorporated herein by reference.
10.2 Shenandoah Telecommunications Company Dividend Reinvestment Plan
filed as Exhibit 4.4 to the Company's Registration Statement on Form
S-3D (No. 333-74297) and incorporated herein by reference.
*10.3 Settlement Agreement and Mutual Release dated as of January 30, 2004
by and among Sprint Spectrum L.P., Sprint Communications Company
L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P. and Shenandoah
Personal Communications Company and Shenandoah Telecommunications
Company, dated January 30, 2004.
*10.4 Sprint PCS Management Agreement dated as of November 5, 1999 by and
among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC,
PhillieCo, L.P., and Shenandoah Personal Communications Company.
*10.5 Sprint PCS Services Agreement dated as of November 5, 1999 by and
between Sprint Spectrum L.P. and Shenandoah Personal Communications
Company.
*10.6 Sprint Trademark and Service Mark License Agreement dated as of
November 5, 1999 by and between Sprint Communications Company, L.P.
and Shenandoah Personal Communications Company.
*10.7 Sprint Spectrum Trademark and Service Mark License Agreement dated
as of November 5, 1999 by and between Sprint Spectrum L.P. and
Shenandoah Personal Communications Company.
*10.8 Addendum I to Sprint PCS Management Agreement by and among Sprint
Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., and
Shenandoah Personal Communications Company.
*10.9 Asset Purchase Agreement dated November 5, 1999 by and among Sprint
Spectrum L.P., Sprint Spectrum Equipment Company, L. P., Sprint
Spectrum Realty Company, L.P., and Shenandoah Personal
Communications Company, serving as Exhibit A to Addendum I to the
Sprint PCS Management Agreement and as Exhibit 2.6 to the Sprint PCS
Management Agreement.
*10.10 Addendum II dated August 31, 2000 to Sprint PCS Management Agreement
by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC,
PhillieCo, L.P., and Shenandoah Personal Communications Company.
*10.11 Addendum III dated September 26, 2001 to Sprint PCS Management
Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC
PCS, LLC, PhillieCo, L.P., and Shenandoah Personal Communications
Company.
*10.12 Addendum IV dated May 22, 2003 to Sprint PCS Management Agreement by
and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC,
PhillieCo, L.P., and Shenandoah Personal Communications Company.
*10.13 Addendum V dated January 30, 2004 to Sprint PCS Management Agreement
by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC,
PhillieCo, L.P., and Shenandoah Personal Communications Company.
*10.14 Executive Supplemental Retirement Plan.
*21 List of Subsidiaries.
*23.1 Consent of KPMG LLP, Independent Accountants.
*31.1 Certification of President and Chief Executive Officer of Shenandoah
Telecommunications Company pursuant to Rule 13a-14(a)under the
Securities Exchange Act of 1934.
*31.2 Certification of Executive Vice President and Chief Financial
Officer of Shenandoah Telecommunications Company pursuant to Rule
13a-14(a)under the Securities Exchange Act of 1934.
*32 Certifications pursuant to Rule 13a-14(b) under the Securities
Exchange Act of 1934 and 18 U.S.C. ss.1350.
- ----------
* Filed herewith.
EXHIBIT 3.2
Amended 11-2003
SHENANDOAH TELECOMMUNICATIONS COMPANY
Edinburg, Virginia
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. Places of Meetings - All meetings of the shareholders shall be held
at the principal office of the company in Edinburg, Virginia, or at such other
place or places in Shenandoah County, Virginia, as may from time to time, be
fixed by the Board of Directors.
SECTION 2. Annual Meetings - Subject to the ability of the Board of Directors to
postpone a meeting under Virginia law, the annual meeting of shareholders shall
be held on the first Tuesday after the third Monday in April of each year, or
such other date and time as may be fixed by the Board of Directors and stated in
the notice of meeting. The annual meeting shall be held for the purpose of
electing directors and for the transaction of only such other business as is
properly brought before the meeting in accordance with these Bylaws. To be
properly brought before an annual meeting, business must be: (a) specified in
the notice of annual meeting (or any supplement thereto) given by or at the
direction of the Board of Directors; (b) otherwise properly brought before the
annual meeting by or at the direction of the Board of Directors; or (c)
otherwise properly brought before the annual meeting by a shareholder. In
addition to any other applicable requirements for business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a shareholder's notice must be delivered or mailed to and received at
the principal executive offices of the Company not less than one hundred twenty
(120) days before the meeting. A shareholder's notice to the Secretary shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting: (a) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting; (b) the name and record address of the shareholder proposing such
business; (c) the class, series and number of shares of the Company's stock that
are beneficially owned by the shareholder proposing such business; and (d) any
material interest of the shareholder in such business. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at the annual
meeting except in accordance with the procedures set forth in this Section;
provided, however, that nothing in this Section shall be deemed to preclude
discussion by any shareholder of any business properly brought before the annual
meeting. In the event that a shareholder attempts to bring business before an
annual meeting without complying with the provisions of this Section, the
chairman of the meeting shall declare to the shareholders present at the meeting
that the business was not properly brought before the meeting in accordance with
the foregoing procedures, and such business shall not be transacted.
Page 1
SECTION 3. Special Meetings - Special meetings of the shareholders may be called
at any time by the Chairman of the Board or by a majority of the Board of
Directors. At a special meeting of shareholders, no business shall be transacted
and no corporate action shall be taken other than that stated in the notice of
the meeting.
SECTION 4. Notice of Meetings - Written notice stating the place, day and hour
of a shareholders' meeting and the purpose or purposes for which the meeting is
called shall be given not less than ten nor more than fifty days before the date
of the meeting, except as hereinafter provided, either personally or by mail, by
or at the direction of the president, the secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, addressed to the shareholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid. Notice of a shareholders' meeting to act on an amendment of the
Articles of Incorporation or on a plan of merger or consolidation shall be given
in the manner provided above, not less than twenty-five nor more than fifty days
before the date of the meeting.
SECTION 5. Quorum - Any number of shareholders together holding at least a
majority of the shares of the capital stock of the company entitled to vote in
respect to the business to be transacted, who shall be present in person or
represented by proxy at any meeting duly called, shall constitute a quorum for
the transaction of business, except where by law a greater interest is required.
If less than a quorum shall be in attendance at the time for which a meeting
shall have been called, the meeting may be adjourned from time to time by a
majority of the shareholders present or represented by proxy without notice
other than by announcement at the meeting until a quorum shall attend. When a
quorum is present at any meeting, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders, unless the question is one upon which by
express provision of law a larger or different vote is required, in which case
such expressed provision shall govern and control the decision of such question,
except that in the election of directors those receiving the greater numbers of
votes shall be deemed elected even though not receiving a majority.
SECTION 6. Voting - At any meeting of the shareholders each common shareholder
shall have one vote, in person or by proxy, for each share of common stock
standing in his or her name on the books of the company at the time of such
meeting or on any date fixed by the Board of Directors not exceeding thirty days
prior to the meeting.
SECTION 7. Waiver of Notice - Any shareholder may waive and shall be treated as
having waived the notice hereinabove in this article required, either by signing
a written waiver of such notice or by attending such meeting in person or by
proxy. A waiver of notice in writing, whether signed before or after the time
stated therein, shall be equivalent to the giving of such notice.
Page 2
ARTICLE II
DIRECTORS
SECTION 1. Powers - The property, affairs and business of the company shall be
managed by the Board of Directors, and except as otherwise expressly provided by
law or by the charter, as amended, or by these Bylaws all of the powers of the
company shall be vested in said Board. The Board of Directors shall have power
to determine what constitutes net earnings, profit and surplus, respectively,
what amount shall be reserved for working capital and for any other purposes,
and what amount shall be declared as dividends, and such determination by the
Board of Directors shall be final and conclusive.
SECTION 2. Number and Qualification - The Board of Directors shall be nine in
number. Such number may be increased or decreased by amendment to this section
of the Bylaws. Directors need not be shareholders. No person shall be a member
of the Board of Directors after the end of the term of such member's class (as
provided in Article VI of the Articles of Incorporation of the Corporation) in
which such member reaches the age of 72.
SECTION 3. Election of Directors - At each annual meeting of shareholders (or
any meeting held in lieu of the annual meeting for that purpose) the successors
to the class of directors whose term shall then expire shall be elected to hold
office for a term expiring at the third proceeding annual meeting and until
their successors shall be elected and qualified.
SECTION 4. Meetings of Directors - Meetings of the Board of Directors shall be
held at places within or without the Commonwealth of Virginia and at times fixed
by resolution of the Board, or upon call of the Chairman of the Board or
president; and the secretary or officer performing his duties shall give at
least two (2) days' notice by telegraph, telephone, letter, or in person of all
meetings of the directors, provided that notice need not be given of regular
meetings held at time and places fixed by resolution of the Board. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting. Meetings may be held at any time without notice if all of the
directors are present, or if those not present waive notice in writing either
before or after the meeting. The secretary or officer performing his duties
shall call special meetings of the Board whenever requested in writing to do so
by two or more directors, such request to specify the object of the meeting.
Directors may be allowed, by resolution of the Board, a reasonable fee and
expenses for attendance at all meetings.
SECTION 5. Quorum - A quorum at any meeting shall consist of a majority of the
entire membership of the Board. A majority of such quorum shall decide any
question which may come before the meeting.
SECTION 6. Chairman and Vice Chairman of the Board - The Chairman of the Board
shall preside over the meetings of the Board of Directors and of the
shareholders at which he shall be present and shall in general oversee all of
the business and affairs of the Board of Directors. In the absence of the
Chairman of the Board, the Vice Chairman of the Board shall preside at such
meetings at which he shall be present. The Chairman of the Board and the Vice
Chairman of the Board shall be appointed by a majority of the Board of Directors
and shall serve in such capacities until a successor is designated or until his
earlier resignation, removal from office, death or incapacity. The positions of
Page 3
Chairman of the Board and Vice Chairman of the Board shall not be officer
positions of the company.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Designation of Committee - The Board of Directors may, whenever it
sees fit, by a majority vote of the whole Board, designate an Executive
Committee which shall consist of at least three directors, one of whom shall be
the Chairman of the Board. The members of the Executive Committee shall serve
until their successors are designated by the Board of Directors or until removed
or until the Executive Committee is dissolved by the Board of Directors. All
vacancies which may occur in the Executive Committee shall be filled by the
Board of Directors. The Board of Directors shall have the power at any time to
change the membership of or to dissolve the Executive Committee.
SECTION 2. General Powers - The Executive Committee, when the Board of Directors
is not in session, shall have and may exercise all of the authority of the Board
of Directors, except to approve an amendment of the articles of incorporation, a
plan of merger or consolidation, a plan of exchange under which the corporation
would be acquired, the sale, lease or exchange, or the mortgage or pledge for a
consideration other than money, of all, or substantially all, the property and
assets of the corporation otherwise than in the usual and regular course of its
business, the voluntary dissolution proceedings. The Executive Committee shall
report at the next regular or special meeting of the Board of Directors all
action which the Executive Committee may have taken since the last regular or
special meeting of the Board of Directors.
SECTION 3. Meetings of the Executive Committee - Meetings of the Executive
Committee shall be held at such places and at such times fixed by resolution of
the Committee, or upon call of the chairman of the Committee. Due notice shall
be given by letter, telegraph, telephone, or in person, of all meetings of the
Executive Committee, provided that notice need not be given of regular meetings
held at times and places fixed by resolution of the committee and that meetings
may be held at any time without notice if all of the members of the committee
are present or if those not present waive notice either before or after the
meeting. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the Executive Committee need be specified in the
notice or waiver of notice of such meeting. A majority of the members of the
Executive Committee shall constitute a quorum for the transaction of business.
Members of this committee may be allowed, by resolution of the Board, a
reasonable fee and expenses for attending Executive Committee meetings without
regard to any compensation received by them as officers, directors or employees
of the company.
Page 4
ARTICLE IV
OFFICERS
SECTION 1. Election - The officers of the company shall consist of a president,
, a vice president of Finance, a secretary, a treasurer, and such other officers
as may be elected as provided in Section 3 of this Article, and shall be elected
by the Board of Directors after its election by the shareholders; and a meeting
may be held without notice for this purpose immediately after the annual meeting
of the shareholders and at the same place.
SECTION 2. Removal of Officers - All officers and agents elected or appointed by
the Board of Directors may be removed at the pleasure of the Board, and
directors may fix the compensation of all officers and agents of the company.
All vacancies may be filled at any meeting of the Board of Directors.
SECTION 3. Other Officers - Other officers, including one or more vice
presidents, one or more assistant secretaries and assistant treasurers, may from
time to time be elected by the Board of Directors, and shall hold office for
such term as may be designated by the said Board of Directors.
SECTION 4. Eligibility of Officers - No person shall be an officer of the
company after the end of the calendar year in which he reaches the age of 72.
SECTION 5. Vacancies - If the office of any officer or agent, one or more,
becomes vacant by reason of death, resignation, removal, disqualification or
otherwise, the directors at the time in office, if a quorum, may by a majority
vote, choose a successor or successors who shall hold office for the unexpired
term.
SECTION 6. Duties - The officers of the company shall have such duties as
generally pertain to their offices, respectively, as well as such powers and
duties as are hereinafter provided and as from time to time shall be conferred
by the Board of Directors. The Board of Directors may require any officer to
give such bond for the faithful performance of his duties as it may see fit.
SECTION 7. Duties of the President - In the absence of the Chairman of the Board
and the Vice Chairman of the Board, the president shall preside at all meetings
of the Board of Directors and shareholders. He shall be the chief executive
officer to whom all other officers shall report. He shall have the overall
supervision of the affairs of the company, including the day-to-day
responsibilities for the operation of the company and have direct charge of the
employees thereof and such other duties as may be delegated to him by the Board
of Directors or the Executive Committee. Presidents of all subsidiaries of the
company shall report to the president of the company.
SECTION 8. Duties of the Vice President of Finance - The vice president of
Finance shall coordinate the financial and accounting affairs of the company and
its subsidiaries and shall assist the treasurer in carrying out his duties. The
president or vice president of Finance, unless some other person is thereunto
specifically authorized by the vote of the Board of Directors, shall sign
certificates of stock, bonds, deeds, and contracts of the company.
Page 5
SECTION 9. Duties of the Secretary - The secretary shall give notices of
meetings of shareholders, of the Board of Directors and of the Executive
Committee, if there be one, as required by law and these Bylaws; shall record
the proceedings at such meetings; shall keep or supervise the keeping of records
of the ownership of shares of common stock; shall have custody of the Corporate
seal and all deeds, leases and contracts to which the company is a party; and,
on behalf of the company, shall make reports as from time to time are required
by law, except tax returns; and shall have power, together with the president or
a vice president, to sign certificates of stock, bonds, deeds and contracts of
the company. In his absence an assistant secretary or a secretary pro tempore
shall perform his duties.
SECTION 10. Duties of the Treasurer - The treasurer shall be the chief financial
officer and shall have custody of all securities held by the company and of all
funds which may come into his hands. He shall keep appropriate records and
accounts of all moneys of the company received or disbursed and shall deposit
all moneys and securities in the name of and to the credit of the company in
such banks and depositories as the directors shall from time to time designate.
He may endorse for deposit for collection all checks, notes, et cetera, payable
to the company or its order, may accept drafts on behalf of the company, and,
together with the president or a vice president, may sign certificates of stock.
He shall also file or supervise the filing of all tax returns required by law.
All checks, drafts, bonds (unless signed by the secretary or an assistant
secretary), notes or other obligations for the payment of money shall be signed
by the treasurer or an assistant treasurer (except as the Board of Directors
shall otherwise specifically order) and, with the exception of checks for the
payment of not exceeding $100, shall also be signed or countersigned as
condition to their validity by the president, a vice president, or such other
officer or agent as the directors by resolution shall direct. Checks for the
total amount of any payroll may be drawn in accordance with the foregoing
provisions and deposited in a special fund. Checks upon this fund may be drawn
by such person as the treasurer shall designate and need not be countersigned.
The treasurer may affix his signature to coupons on any bonds of the company by
any form or facsimile, whether engraved, printed, lithographed or otherwise.
SECTION 12. Other Duties of Officers - Any officer of the company shall have, in
addition to the duties prescribed herein and by law, such other duties as from
time to time shall be prescribed by the Board of Directors or the president.
ARTICLE V
CAPITAL STOCK
SECTION 1. Certificates - Certificates of capital stock shall be in such form as
prescribed by the Board of Directors and shall bear the seal of the company and
the signature of at least two officers designated by the Board of Directors to
sign such certificates.
Transfer agents and/or registrars for the stock of the company may be appointed
by the Board of Directors and may be required to countersign stock certificates.
Page 6
In the event that any officer whose signature shall have been used on a stock
certificate shall for any reason cease to be an officer of the company and such
certificate shall not then have been delivered by the company, the Board of
Directors may nevertheless adopt such certificate, and it may then be issued and
delivered as though such person had not ceased to be an officer of the company.
SECTION 2. Lost, Destroyed and Mutilated Certificates - Holders of the stock of
the company shall immediately notify the company of any loss, destruction or
mutilation of the certificate therefor; and the Board of Directors may in its
discretion cause one or more new certificates for the same number of shares in
the aggregate to be issued to such shareholder upon the surrender of the
mutilated certificate or upon satisfactory proof of such loss or destruction,
and the deposit of a bond in such form and amount and with corporate surety.
SECTION 3. Transfer of Stock - The stock of the company shall be transferable or
assignable only on the books of the company by the holders in person or by
attorney on surrender of the certificate for such shares duly endorsed and, if
sought to be transferred by attorney, accompanied by a written power of attorney
to have the same transferred on the books of the company. The company will
recognize, however, the exclusive rights of the person registered on its books
as the owner of shares to receive dividends and to vote as such owner, subject
to the provision of the amended and restated charter with regard to the present
issued and outstanding stock. It shall be the duty of each shareholder to notify
the company of his post office address.
SECTION 4. Transfer Books - The transfer books of the company shall be closed by
order of the Board of Directors for not exceeding fifty days next preceding any
shareholders' meeting or the date for payment of any dividend or the date for
the allotment of rights, or the date when any change or exchange of capital
stock shall go into effect, as a record date for the determination of the
shareholders entitled to notice of and to vote at any such meeting or entitled
to receive payment of any such dividend, or any such allotment of rights, or to
exercise the rights in respect to any such change or exchange of capital stock,
and in such cases only shareholders on record on the date so fixed shall be
entitled to such notice of and to vote at such meeting or to receive payment of
such dividends, or allotment of rights, or exercise such rights, as the case may
be, and notwithstanding any transfer of any stock on the books of the company
after such record dates fixed as aforesaid.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. Seal - The seal of the company shall bear the words, "Shenandoah
Telecommunications Company Seal," with such device or devices as the Board of
Directors may determine, an impression of which is affixed to this section of
the Bylaws.
SECTION 2. Fiscal Year - The fiscal year shall end on the last day in December
of each year.
SECTION 3. Examination of Books - The Board of Directors shall, subject to the
laws of the Commonwealth of Virginia, have power to determine from time to time
whether and to what extent
Page 7
and under what conditions and limitations the accounts, records and books
(except the stock and transfer books) of the company, or any of them, shall be
open to the inspection of the shareholders.
The stock and transfer books of the company shall be at all times during
business hours open to the inspection of the registered shareholders in person.
SECTION 4. Amendment of Bylaws - The Bylaws may be amended, altered or repealed
at any meeting of the Board of Directors by affirmative vote of a majority of
all of the directors. The shareholders shall have the power to rescind, alter,
amend, or repeal any Bylaws and to enact Bylaws which, if expressly provided,
may not be amended, altered or repealed by the Board of Directors.
SECTION 5. Voting of Stock Held - Unless otherwise provided by resolution of the
Board of Directors, the president, the vice president, or the secretary may from
time to time appoint an attorney or attorneys or agent or agents of this
company, in the name and on behalf of this company, to cast the votes which this
company may be entitled to cast as a shareholder or otherwise in any other
corporation, any of whose stock or securities may be held by this company, at
meetings of the holders of the stock or other securities of any other
corporations, or to consent in writing to any action by any such other
corporations, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf of this company and under its corporate seal, or
otherwise, such written proxies, consents, waivers, or other instruments as may
be necessary or proper in the premises; or the president, the vice president, or
the secretary himself attend any meeting of the holders of stock or other
securities of any such other corporation and thereat vote or exercise any or all
other powers of this company as the holder of such stock or other securities of
such other corporation.
SECTION 6. Control Share Statute - Article 14.1 of Title 13.1 of the Code of
Virginia (Control Share Acquisitions) shall not apply to acquisitions of shares
of capital stock of the Company.
Page 8
EXHIBIT 10.3
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release (this "Agreement") is
entered into as of January 30, 2004, by and among Sprint Spectrum L.P., a
Delaware limited partnership, Sprint Communications Company L.P., a Delaware
limited partnership, WirelessCo, L.P., a Delaware limited partnership, APC PCS,
LLC, a Delaware limited liability company, PhillieCo, L.P. a Delaware limited
partnership (the "Sprint Parties,"), and Shenandoah Personal Communications
Company, a Virginia corporation ("Shentel"), and Shenandoah Telecommunications
Company, a Virginia corporation, (together with Shentel, the "Shenandoah
Parties" and together with the Sprint Parties collectively, the "Parties").
Shentel entered into a Management Agreement, a Services Agreement
and two Trademark and Service Mark License Agreements with the Sprint Parties,
dated and effective as of November 5, 1999 (each agreement, together with all
addenda and amendments, being the "Management Agreement," the "Services
Agreement" and two "Trademark and Service Mark License Agreements" and
collectively, the "Sprint Agreements").
The Parties (in the singular, "Party") desire to resolve and release
claims specified in this Agreement, whether known or unknown, that any Party
might have against any of the other Parties that arose on or before the
Effective Date of this Agreement, including certain claims that arise out of any
actual or claimed actions or inactions of any Party on or before the Effective
Date of this Agreement, except as provided in this Agreement. The Parties have
agreed to take the actions set forth in this Agreement to avoid the expense and
delay inherent in further negotiations and possible litigation concerning their
business relationship.
In consideration of the mutual promises set forth in this Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the Parties agree as follows:
1. Addendum. The Parties will execute and deliver an addendum to the
Sprint Agreements in the form attached to this Agreement (the "Addendum")
contemporaneously with the Parties' execution and delivery of this Agreement.
2. Effective Date. This Agreement becomes effective on (the "Effective
Date"):
(a) January 1, 2004, if on or before January 31, 2004, the Parties
execute and deliver this Agreement and the Addendum, and Sprint Spectrum
receives the settlement payment under Section 3; or
(b) the first calendar day of the first calendar month after the
Parties execute and deliver this Agreement and the Addendum, and Sprint
Spectrum receives the settlement payment under Section 3, if the any of
the events described in subparagraph 2(a) occur after January 31, 2004.
3. Settlement Payment. Shentel, on behalf of itself and the other
Shenandoah Parties will pay Sprint Spectrum L.P., on its own behalf and on
behalf of the other Sprint Parties $562,434. The payment will be made via wire
transfer to the account designated by Sprint Spectrum L.P.
4. General Releases.
(a) Sprint Release of the Shenandoah Parties. Except as provided in
Section 5, each of the Sprint Parties releases and forever discharges the
Shenandoah Parties and their respective officers, directors, shareholders,
partners, members, subsidiaries, employees, agents and representatives
(the "Shenandoah Released Parties") from all liabilities, claims,
attorneys' fees, damages, injuries, causes of action, and losses of any
kind that any of the Sprint Parties ever had, now has, may assert or may
in the future claim to have against any of the Shenandoah Released Parties
by reason of any act, failure to act, cause or matter occurring or
existing on or before the date of this Agreement, concerning or related to
the Sprint Agreements ("Sprint's Claims"). For avoidance of doubt but not
for purposes of limitation, this provision releases and forever discharges
each of the Shenandoah Released Parties of and from any and all
liabilities, claims, attorneys' fees, damages, injuries, causes of action,
and losses of any kind that any of the Sprint Parties ever had, now has,
may assert or may in the future claim to have against any of the
Shenandoah Released Parties with respect to any of the matters set forth
on Exhibit A to this Agreement, and waives any and all rights that any of
the Sprint Parties may have with respect to those matters ("Sprint's
Specific Claims").
(b) Shenandoah Release of the Sprint Parties. Except as provided in
Section 5, each of the Shenandoah Parties releases and forever discharges
the Sprint Parties and their respective officers, directors, shareholders,
partners, members, subsidiaries, employees, agents and representatives
(the "Sprint Released Parties") from all liabilities, claims, attorneys'
fees, damages, injuries, causes of action, and losses of any kind that any
of the Shenandoah Parties ever had, now has, may assert or may in the
future claim to have against any of the Sprint Released Parties by reason
of any act, failure to act, cause or matter occurring or existing on or
before the date of this Agreement concerning or related to the Sprint
Agreements ("Shenandoah's Claims" and together with Sprint's Claims, the
"Claims"). For avoidance of doubt but not for purposes of limitation, this
provision releases and forever discharges each of the Sprint Released
Parties of and from any and all liabilities, claims, attorneys' fees,
damages, injuries, causes of action, and losses of any kind that any of
the Shenandoah Parties ever had, now has, may assert or may in the future
claim to have against any of the Sprint Released Parties with respect to
any of the matters set forth on Exhibit A to this Agreement, and waives
any and all rights that any of the Shenandoah Parties may have with
respect to those matters ("Shenandoah's Specific Claims" and together with
Sprint's Specific Claims, the "Specific Claims").
(c) Complete Release. Except as provided in Sections 5 and 13(a),
this Agreement constitutes the complete compromise, settlement, accord and
satisfaction of all of the Claims with no reservation of any rights or
claims, whether stated or implied.
2
5. Exceptions to Released Claims.
(a) Right to Collect Business Activity Amounts. The Parties are
releasing their right to collect any amounts for fees, credits and
business activity arising under any of the Sprint Agreements before the
Effective Date (the "Business Activity Amounts") only with respect to the
Specific Claims (as defined in Section 4). For the avoidance of doubt, the
provisions in the Management Agreement, as amended by the Addendum,
regarding the limitations on invoicing and payment obligations apply to
Business Activity Amounts that accrued before the Effective Date. The
Parties may bill, collect and settle the Business Activity Amounts that
accrue before the Effective Date and that are not Specific Claims in
accordance with the terms of the Sprint Agreements (without giving effect
to the Addendum) and in accordance with past practice, notwithstanding the
releases set forth in Section 4. For the purpose of clarification,
business activities, including the reconciliation of PCFID, are not
released unless listed on Exhibit A.
(b) Terminating and Originating Access Fees. The Shentel Parties
have refunded to the Sprint Parties certain amounts that the Sprint
Parties paid to the Shentel Parties for access fees. The Addendum provides
for a new section 10.4.3 to the Management Agreement that sets forth the
Parties' rights and obligations respecting access fees. The Parties do not
release each other under this Agreement for their respective Claims to
those amounts or to any other amounts to which they are entitled under the
Management Agreement (after giving effect to the Addendum that becomes
effective as of the Effective Date) for access fees.
(c) High Travel Subscribers. The Parties have discussed, in general
and specifically as it relates to all Shentel markets, Shentel's concerns
regarding high travel subscribers that use wireless services predominantly
outside the Service Area. The Parties will continue to assess the relative
imbalance in economics caused by high travel subscribers and might agree
to define appropriate adjustments by March 31, 2004. This Section 5(c)
does not imply that the Sprint Parties are under any obligation to make
changes to their current views and policies regarding travel, nor does it
imply that the Shentel Parties waive any rights or claims related to these
subscribers not waived in this Agreement.
(d) Future Claims. Nothing in this Agreement constitutes a release
by any Party of claims arising after the date of this Agreement, including
without limitation future claims arising under the Management Agreement
after giving effect to the Addendum that becomes effective as of the
Effective Date.
(e) Indemnification. This Agreement does not waive the parties'
rights and responsibilities under section 13 of the Management Agreement
with respect to indemnification for claims brought by third parties
arising prior to the date of this Agreement.
(f) Most Favored Nation. This Agreement does not waive any of
Shentel's rights under the new section 1.10 of the Management Agreement,
even if the changes to
3
an Other Manager's Management Agreement are in settlement of that Other
Manager's claims that are similar to claims that Shentel is releasing
under this Agreement.
6. Representations and Warranties. Each of the Parties represents and
warrants to the other Parties that:
(a) it has not commenced any action or proceeding against any other
Party concerning any of the Claims or Specific Claims, before any agency
or other governmental authority, at law, in equity, in arbitration, or
otherwise;
(b) no promise, inducement or agreement not expressed in this
Agreement or the Addendum has been made;
(c) it has the full right, power and authority to enter into this
Agreement, and to perform according to the terms of this Agreement;
(d) the Party is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization;
(e) neither the execution, delivery and performance of this
Agreement, nor the consummation by the Party of the transactions
contemplated by this Agreement, will conflict with, violate or result in a
breach of:
(i) any law, regulation, order, writ, injunction, decree,
determination or award of any governmental authority or any
arbitrator, applicable to the Party, or
(ii) any of the terms, conditions or provisions of the
certificate of limited partnership or certificate or articles of
incorporation or bylaws (or other governing documents) of the Party,
or
(iii) any material agreement of the Party, or
(iv) any material instrument to which the Party is or may be
bound or to which any of its material properties or assets is
subject;
(f) it has obtained all necessary consents and approvals required to
enter into this Agreement;
(g) there are no actions, suits, proceedings or investigations
pending or, to the knowledge of the Party, threatened against or affecting
the Party or any of its properties, assets or businesses in any court or
before or by any governmental agency that could, if adversely determined,
reasonably be expected to have a material adverse effect on the Party's
ability to perform its obligations under this Agreement and the Addendum;
(h) it has negotiated the terms of this Agreement, and this
Agreement is the result of arms-length negotiations between the Parties
and their respective attorneys; and
4
(i) it has not assigned or otherwise transferred any interest in any
of the Claims or Specific Claims.
7. Covenant Not To Sue or Assist Third Parties. No Party will (a) commence
or in any manner seek relief against another Party through any suit or
proceeding arising, based upon, or relating to any of the Claims or Specific
Claims, or (b) become a party to any suit or proceeding arising from or in
connection with an attempt by or on behalf of any third party to enforce or
collect an amount based on a Claim or Specific Claim. Nor will any Party assist
the efforts of any third party attempting to enforce or collect an amount based
on a Claim or Specific Claim, unless required to do so by a court of competent
jurisdiction.
8. Contract. The Parties understand that the terms in this Agreement are
binding contractual commitments and not mere recitals, and that the Parties are
not relying upon any statement or representation made by any Party released, any
such Party's agents or attorneys, or any other person, concerning the nature,
extent or duration of any injuries or damages, or concerning any other thing or
matter, but are relying solely and exclusively upon their own knowledge, belief
and judgment.
9. Indemnification. The Sprint Parties and the Shenandoah Parties will
indemnify, hold harmless and defend each other against all claims, demands,
judgments, causes of action, losses, costs, damages, penalties, fines, taxes,
expenses or liabilities, including reasonable attorneys' fees and costs of
defense, brought against or incurred by them, arising from or in connection with
an attempt by or on behalf of any third party to enforce or collect an amount
based on a Claim or Specific Claim.
10. Expenses. The Parties will pay their own expenses and attorneys' fees
incurred in connection with the negotiation and execution of this Agreement and
the Addendum.
11. Additional Facts. The Parties are aware that they may after the date
of this Agreement discover claims or facts in addition to or different from
those they now know or believe to be true with respect to Claims and Specific
Claims. Nevertheless, except as set forth in section 5 hereof, it is the
intention of the Parties to fully, finally and forever settle and release all
such claims, including claims for damages and losses that are presently unknown
or unanticipated. In furtherance of this intention, the releases given in this
Agreement are and will remain in effect as full and complete mutual releases of
Claims and Specific Claims, except as set forth in section 5 hereof,
notwithstanding the discovery or existence of any additional or different facts
relative to them. Each Party assumes the risk of any mistake in executing this
Agreement and furnishing the releases set forth in this Agreement. Without
limiting the generality of the foregoing, each Party waives and relinquishes any
right or benefit that such Party has or may have under any provision of
statutory or non-statutory law that may provide that a release does not extend
to claims that a person does not know or suspect to exist at the time of
execution of the release that, if known, would or may have materially affected
the decision to give the release.
12. Waivers. No waiver by a Party of any breach of or default under this
Agreement will be deemed to be a waiver of any other breach or default of any
kind or nature of this Agreement. No acceptance of payment or performance by a
Party after any such breach or
5
default will be deemed to be a waiver of any breach or default of this
Agreement, whether or not such Party knows of such breach or default at the time
it accepts such payment or performance. No failure or delay on the part of a
Party to exercise any right it may have will prevent the exercise of that right
by that Party at any time the other Party continues to be in default, and no
such failure or delay will operate as a waiver of any default.
13. Enforcement of Agreement; Injunctive Relief.
(a) The releases given in this Agreement do not include a release of
any liabilities, claims, damages, injuries or losses that may arise under
this Agreement.
(b) Each Party acknowledges and agrees that in the event of any
breach of this Agreement, the non-breaching Party or Parties may be
irreparably harmed and may not be made whole by monetary damages.
Accordingly, the Parties, in addition to any other remedy to which they
may be entitled, will be entitled to seek injunctive or other equitable
relief in any court of competent jurisdiction to the extent permitted by
applicable law.
(c) Each Party waives, to the fullest extent permitted by law, the
right to trial by jury in any legal proceeding arising out of or relating
to the enforcement of this Agreement.
(d) The prevailing Party will be entitled to recover from the
opposing Party its expenses (including reasonable attorneys' fees and
costs) incurred in connection with any claim, action or lawsuit brought to
enforce this Agreement.
14. Assignment. No Party may assign any of its rights under this Agreement
or delegate its duties under it to any person or entity not a Party unless it
obtains the prior written consent of the other Parties to this Agreement, which
consent may be withheld at such other Party's absolute discretion.
15. Limitation on Rights of Others. Nothing in this Agreement, whether
express or implied, will be construed to give any person other than the Parties
any legal or equitable right, remedy or claim under or in respect of this
Agreement.
16. Confidentiality. The terms and provisions of this Agreement are
confidential and proprietary to the Sprint Parties and to the Shenandoah Parties
and are subject to the terms of Section 12.2 of the applicable Management
Agreement between the Parties.
17. Other Provisions.
(a) Governing Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement
will be governed by and construed under Kansas law, without giving effect
to any choice of law or conflict of law rules or provisions (whether of
Kansas or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than Kansas.
6
(b) Jurisdiction.
(i) Each Party irrevocably and unconditionally submits to the
nonexclusive jurisdiction of (A) any Kansas state court located in the
County of Johnson or (B) the United States District Court for the District
of Kansas, and any appellate court from any such court, in any suit,
action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment relating to this Agreement.
With respect to such suit, action or proceeding, each Party irrevocably
waives, to the fullest extent permitted by law, the right to object that
such court does not have jurisdiction over such party.
(ii) Each Party irrevocably and unconditionally waives, to the
fullest extent it may legally do so, any objection that it may now or
later have to the venue of any suit, action or proceeding arising out of
or relating to this Agreement in a Kansas state court located in the
County of Johnson or the United States District Court for the District of
Kansas. Each Party irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in any such court.
(c) Entire Agreement; Binding Effect. This Agreement constitutes the
entire agreement between the Parties with respect to the subject matter it
covers and supersedes all prior agreements, negotiations, representations
and discussions between the Parties with respect to the subject matter it
covers. This Agreement is binding on and inures to the benefit of the
Parties and their respective successors and assigns.
(d) Construction. The Parties participated in the negotiation and
drafting of this Agreement. If any ambiguity or question of intent or
interpretation arises, the Parties intend that (i) this Agreement be
construed as if they had drafted it together, and (ii) no presumption or
burden of proof arises favoring or disfavoring any Party by virtue of its
role in drafting any provision of this Agreement. All pronouns and any
variations of pronouns used in this Agreement refer to the masculine,
feminine or neuter, singular or plural as the identity of the person or
persons require.
(e) Severability. Every provision of this Agreement is intended to
be severable. If any term or provision of this Agreement is illegal,
invalid or unenforceable for any reason whatsoever, that term or provision
will be enforced to the maximum extent permissible so as to effect the
intent of the Parties, and such illegality, invalidity or unenforceability
will not affect the validity, legality or enforceability of the remainder
of this Agreement.
(f) Amendment. Any amendment to this Agreement must be in a written
document signed by the Parties and must state the intent of the Parties to
amend this Agreement.
(g) No Admission of Liability. It is expressly understood and agreed
that this Agreement is a compromise of disputed claims and that execution
of, making of payments under, and performing of obligations under this
Agreement are not to be construed as an admission of liability on the part
of any Party.
7
(h) Counterparts. This Agreement may be signed in counterpart or
duplicate copy and by facsimile signature, and any signed counterpart,
duplicate or facsimile copy is the equivalent to a signed original for all
purposes.
[The remainder of this page is left blank intentionally.]
8
EACH PARTY HAS COMPLETELY READ THE TERMS OF THIS AGREEMENT, FULLY UNDERSTANDS
THEM AND VOLUNTARILY ACCEPTS THEM FOR THE PURPOSE OF MAKING FULL AND FINAL
COMPROMISE, ADJUSTMENT AND SETTLEMENT OF ALL CLAIMS, DISPUTED OR OTHERWISE, IN
ACCORDANCE WITH THE TERMS OF THIS AGREEMENT
The Parties have executed this Agreement on the date first above written.
SPRINT SPECTRUM L.P.
By: /S/ David B. Bottoms
------------------------------------
Name: David B. Bottoms
Title: V.P., Alliances
WIRELESSCO, L.P.
By: /S/ David B. Bottoms
------------------------------------
Name: David B. Bottoms
Title: V.P., Alliances
APC PCS, LLC
By: /S/ David B. Bottoms
------------------------------------
Name: David B. Bottoms
Title: V.P., Alliances
PHILLIECO, L.P.
By: /S/ David B. Bottoms
------------------------------------
Name: David B. Bottoms
Title: V.P., Alliances
SPRINT COMMUNICATIONS COMPANY L.P.
By: /S/ Thomas E. Murphy
------------------------------------
Name: Thomas E. Murphy
Title: Sr. V.P., Communications and
Brand Management
9
SHENANDOAH PERSONAL
COMMUNICATIONS COMPANY
By: /S/ Christopher E. French
------------------------------------
Name: Christopher E. French
Title: President
SHENANDOAH TELECOMMUNICATIONS
COMPANY
By: /S/ Christopher E. French
------------------------------------
Name: Christopher E. French
Title: President
10
EXHIBIT A
I. Claims that are being released in connection with the settlement payment
under this Agreement:
o All claims in connection with the following 3G Service Bureau invoiced
fees:
> AFS-012945
> AFS-013057
> AFS-013207
> AFS-013344
> AFS-013440
> AFS-013528
> AFS-013573
> AFS-013738
> AFS-013888
> AFS-014016
> AFS-014153
> AFS-014395
> AFS-014646
> AFS-014763
> AFS-014955
> AFS-015100
> AFS-015383
o All claims in connection with the following disputed software license
invoiced fees:
> AFS-013383
> AFS-014448
> AFS-015068
> AFS-015511
o All claims in connection with the following invoices for recovery of
finance charges:
> FC-19970
o All claims in connection with the PRL dispute listed under Issue ID 10886.
o All claims in connection with the Accounts Receivable Reconciliation
dispute listed under Issue ID 10888.
o All claims in connection with the Documentation of
Settlement/Miscellaneous Invoices dispute concerning access verification
and local interconnection revenues and costs under Issue ID 10889.
II. Claims that have been previously settled:
o All claims in connection with the Travel Settlements with Other Affiliates
dispute listed under Issue ID 10887 settled on May 22, 2003.
11
EXHIBIT 10.4
SPRINT PCS MANAGEMENT AGREEMENT
This SPRINT PCS MANAGEMENT AGREEMENT is made as of November 5, 1999,
between Sprint Spectrum L.P., a Delaware limited partnership, WirelessCo, L.P.,
a Delaware limited partnership, APC PCS, LLC, a Delaware limited liability
company, PhillieCo, L.P., a Delaware limited partnership, and Shenandoah
Personal Communications Company, a Virginia corporation (but not any Related
Party) ("Manager"). The definitions for this agreement are set forth on the
"Schedule of Definitions".
RECITALS
A. Sprint Spectrum L.P., a Delaware limited partnership, WirelessCo, L.P.,
a Delaware limited partnership, SprintCom, Inc., a Kansas corporation, American
PCS Communications, LLC, a Delaware limited liability company, APC PCS, LLC, a
Delaware limited liability company, PhillieCo Partners I, L.P., a Delaware
limited partnership, PhillieCo, L.P., a Delaware limited partnership, Cox
Communications PCS, L.P., a Delaware limited partnership, and Cox PCS License,
L.L.C., a Delaware limited liability company, hold and exercise, directly or
indirectly, control over licenses to operate wireless services networks.
B. The entity or entities named in Recital A that execute this agreement
hold, directly or indirectly, the Licenses for the areas identified on the
Service Area Exhibit and are referred to in this agreement as "Sprint PCS."
Because this agreement addresses the rights and obligations of each license
holder with respect to each of its Licenses, each reference in this agreement to
"Sprint PCS" refers to the entity that owns, directly or indirectly, the License
referred to in that particular instance or application of the provision of this
agreement. If Sprint Spectrum does not own the License, it will provide on
behalf of Sprint PCS most or all of the services required under this agreement
to be provided by Sprint PCS.
C. The Sprint PCS business was established to use the Sprint PCS Network,
a nationwide wireless services network, to offer seamless, integrated voice and
data services using wireless technology. The Sprint PCS Network offers the
services to customers under the Brands.
D. This agreement, therefore, includes provisions defining Manager's
obligations with respect to:
o The design, construction and management of the Service Area
Network;
o Offering and promoting products and services designated by
Sprint PCS as the Sprint PCS Products and Services of the
Sprint PCS Network;
o Adherence to Program Requirements established by Sprint PCS to
ensure seamless interoperability throughout the Sprint PCS
Network and uniform and consistent quality of product and
service offerings;
o Adherence to Customer Service Program Requirements established
by Sprint PCS to ensure consistency in interactions with
customers (including billing, customer care, etc.); and
o Adherence to Program Requirements relating to the marketing,
promotion and distribution of Sprint PCS Products and
Services.
E. The Sprint PCS Network is expanding with the assistance of "managers"
(companies such as Manager that manage Service Area Networks that offer Sprint
PCS Products and Services under a license owned by Sprint PCS or one of the
entities named in Recital A) and "affiliates" (companies that manage Service
Area Networks that offer Sprint PCS Products and Services under a license owned
by the affiliate).
F. Manager wishes to enter into this agreement to help construct, operate,
manage and maintain for Sprint PCS a portion of the Sprint PCS Network in the
Service Area. Sprint PCS has determined that permitting Manager to manage a
portion of the Sprint PCS Network in accordance with the terms of this agreement
will facilitate Sprint PCS' expansion of fully digital, wireless coverage under
the License and will enhance the wireless service for customers of Sprint PCS.
G. All managers of a portion of the business of Sprint PCS, including
Manager, must construct facilities and operate in accordance with Program
Requirements established by Sprint PCS with respect to certain aspects of the
development and offering of wireless products and services and the presentation
of the products and services to customers, to establish and operate the Sprint
PCS Network successfully by providing seamless, integrated voice and data
services, using wireless technology.
AGREEMENT
In consideration of the recitals and mutual covenants and agreements
contained in this agreement, the sufficiency of which are hereby acknowledged,
the parties, intending to be bound, agree as follows:
1. MANAGER
1.1 Hiring of Manager. Sprint PCS hires Manager:
(a) to construct and manage the Service Area Network in compliance with
the License and in accordance with the terms of this agreement;
(b) to distribute continuously during the Term the Sprint PCS Products and
Services and to establish distribution channels in the Service Area;
(c) to conduct continually during the Term advertising and promotion
activities in the Service Area (including mutual decisions to "go dark", with
respect to advertising and promotion activities, for reasonable periods of
time); and
(d) to manage that portion of the customer base of Sprint PCS that has the
NPA-NXXs assigned to the Service Area Network.
Sprint PCS has the right to unfettered access to the Service Area Network
to be constructed by Manager under this agreement. The fee to be paid to Manager
by Sprint PCS under Section 10 is for all obligations of Manager under this
agreement.
1.2 Program Requirements. Manager must adhere to the Program Requirements
established by Sprint PCS and as modified from time to time, to ensure uniform
and consistent operation of all wireless systems within the Sprint PCS Network
and to present the Sprint PCS Products and Services to customers in a uniform
and consistent manner under the Brands.
1.3 Vendor Purchase Agreements. Manager may participate in discounted
volume-based pricing on wireless-related products and services and in the
warranties Sprint PCS receives from its vendors, as is commercially reasonable
and to the extent permitted by applicable procurement agreements (e.g.,
agreements related to network infrastructure equipment, subscriber equipment,
interconnection, and collocation). Sprint PCS will use commercially reasonable
efforts to obtain for managers the same price Sprint PCS receives from vendors;
this does not prohibit Sprint PCS from entering into procurement agreements that
do not provide managers with the Sprint PCS prices.
Manager must purchase subscriber and infrastructure equipment from a
Sprint PCS approved list of products, which will include a selection from a
variety of manufacturers. Where required, the products must include proprietary
software developed by the manufacturers for Sprint PCS or by Sprint PCS to allow
seamless interoperability in the Sprint PCS Network. Sprint PCS or the vendor
may require Manager to execute a separate license agreement for the software
prior to Manager's use of the software.
Manager may only make purchases under this Section 1.3 for items to be
used exclusively in the Service Area (e.g., Manager may not purchase base
stations under a Sprint PCS contract for use in a system not affiliated with
Sprint PCS).
1.4 Interconnection. If Manager desires to interconnect a portion of the
Service Area Network with another carrier and Sprint PCS can interconnect with
that carrier at a lower rate, then to the extent permitted by applicable laws,
tariffs and contracts, Sprint PCS may arrange for the interconnection under its
agreements with the carrier and if it does so, Sprint PCS will bill the
interconnection fees to Manager.
1.5 Seamlessness. Manager will design and operate its systems, platforms,
products and services in the Service Area and the Service Area Network so as to
seamlessly interface them into the Sprint PCS Network.
1.6 Forecasting. Manager and Sprint PCS will work cooperatively to
generate mutually acceptable forecasts of important business metrics including
traffic volumes, handset sales, subscribers and Collected Revenues for the
Sprint PCS Products and Services. The forecasts are for planning purposes only
and do not constitute Manager's obligation to meet the quantities forecast.
1.7 Financing. The construction and operation of the Service Area Network
requires a substantial financial commitment by Manager. The manner in which
Manager will finance the build-out of the Service Area Network and provide the
necessary working capital to operate the business is described in detail on
Exhibit 1.7. Manager will allow Sprint PCS an opportunity to review before
filing any registration statement or prospectus or any amendment or supplement
thereto before distributing any offering memorandum or amendment or supplement
thereto, and agrees not to file or distribute any such document if Sprint PCS
reasonably objects in writing on a timely basis to any portion of the document
that refers to Sprint PCS, its Related Parties, their respective businesses,
this agreement or the Services Agreement.
1.8 Ethical Conduct and Related Covenants. Each party must perform its
obligations under this agreement in a diligent, legal, ethical, and professional
manner.
2. BUILD-OUT OF NETWORK
2.1 Build-out Plan. Manager will build-out the Service Area Network in the
Service Area in accordance with a Build-out Plan. Sprint PCS and Manager will
jointly develop each Build-out Plan, except the initial Build-out Plan and any
modifications, additions or expansions of the Build-out Plan will be subject to
prior written approval by Sprint PCS. Manager will report to Sprint PCS its
performance regarding the critical milestones included in the Build-out Plan on
a periodic basis as mutually agreed to by the parties, but no less frequently
than quarterly. The Build-out Plan and the Service Area Network as built must
comply with Sprint PCS Program Requirements and federal and local regulatory
requirements.
Sprint PCS approves the Build-out Plan in effect as of the date of this
agreement, which Build-out Plan is attached as Exhibit 2.1. Each new or amended
Build-out Plan will also become part of Exhibit 2.1.
2.2 Compliance with Regulatory Rules. During the build-out of the Service
Area Network, Sprint PCS authorizes Manager to make all filings with regulatory
authorities regarding the build-out, including filings with the Federal Aviation
Administration, environmental authorities, and historical districts. Manager may
further delegate its duty under this Section 2.2 to a qualified site acquisition
company. Manager must ensure that a copy of every filing is given to Sprint PCS.
Manager must ensure that Sprint PCS is notified in writing of any contact by a
regulatory agency including the FCC with Manager or Manager's site acquisition
company regarding any filing. Sprint PCS has the right to direct any proceeding,
inquiry, dispute, appeal or other activity with a regulatory or judicial
authority regarding any filing made on behalf
of Sprint PCS. Manager will amend, modify, withdraw, refile and otherwise change
any filing as Sprint PCS requires. Notwithstanding the preceding sentences in
this Section 2.2, and in conjunction with Section 16, Sprint PCS is solely
responsible for making any and all filings with the FCC regarding the build-out.
Manager will notify Sprint PCS of any activity, event or condition related to
the build-out that might require an FCC filing.
2.3 Exclusivity of Service Area. Manager will be the only person or entity
that is a manager or operator for Sprint PCS with respect to the Service Area
and neither Sprint PCS nor any of its Related Parties will own, operate, build
or manage another wireless mobility communications network in the Service Area
so long as this agreement remains in full force and effect and there is no Event
of Termination that has occurred giving Sprint PCS the right to terminate this
agreement, except that:
(a) Sprint PCS may cause Sprint PCS Products and Services to be sold
in the Service Area through the Sprint PCS National Accounts Program
Requirements and Sprint PCS National or Regional Distribution Program
Requirements;
(b) A reseller of Sprint PCS Products and Services may sell its
products and services in the Service Area so long as such resale is not contrary
to the terms and conditions of this agreement; and
(c) Sprint PCS and its Related Parties may engage in the activities
described in Sections 2.4(a) and 2.4(b) with Manager in the geographic areas
within the Service Area in which Sprint PCS or any of its Related Parties owns
an incumbent local exchange carrier as of the date of this agreement.
2.4 Restriction. In geographic areas within the Service Area in which
Sprint PCS or any of its Related Parties owns an incumbent local exchange
carrier as of the date of this agreement, Manager must not offer any Sprint PCS
Products or Services specifically designed for the competitive local exchange
market ("fixed wireless local loop"), except that:
(a) Manager may designate the local exchange carrier that is a
Related Party of Sprint PCS to be the exclusive distributor of the fixed
wireless local loop product in the territory served by the local exchange
carrier, even if a portion of its territory is within the Service Area; or
(b) Manager may sell the fixed wireless local loop product under the
terms and conditions specified by Sprint PCS (e.g., including designation by
Sprint PCS of an exclusive distribution agent for the territory).
This restriction exists with respect to a particular geographic area only so
long as Sprint PCS or its Related Party owns such incumbent local exchange
carrier.
Nothing in this Section 2.4 prohibits Manager from offering Sprint PCS
Products and Services primarily designed for mobile functionality. The
restricted markets as of the date of this agreement are set forth on Exhibit
2.4.
2.5 Coverage Enhancement. Sprint PCS and Manager agree that maintaining a
high standard of customer satisfaction regarding network capacity and footprint
is a required element of the manager and affiliate programs. Sprint PCS intends
to expand network coverage to build all cells that cover at least 5,000 pops and
all interstate and major highways in the areas not operated by Manager or Other
Managers. Accordingly, Manager agrees to build-out New Coverage when directed by
Sprint PCS as set forth in this Section 2.5. Sprint PCS agrees not to require
any New Coverage build-out during the first two years of this Agreement, nor any
New Coverage that exceeds the capacity and footprint parameters that Sprint PCS
has adopted for all of its comparable markets.
Sprint PCS will give to Manager a written notice of any New Coverage
within the Service Area that Sprint PCS decides should be built-out. Such notice
will include an analysis completed by Sprint PCS demonstrating that such
required build-out should be economically advantageous to Manager. Such analysis
will be generated in good faith and will be based on then-currently available
information, however Sprint PCS makes no warranties or representations regarding
the accuracy of, nor will Sprint PCS be bound by, or guarantee the accuracy of,
such analysis. Manager must confirm to Sprint PCS within 90 days after receipt
of the notice that Manager will build-out the New Coverage and deliver to Sprint
PCS with such confirmation Manager's proposed amendment to the Build-out Plan
and a description of the manner and timing in which it will finance such
build-out.
If Manager confirms, within such 90-day period, its intention to
build-out the New Coverage, then Manager and Sprint PCS will diligently finalize
an amendment to the Build-out Plan and proceed as set forth in Sections 2.1 and
2.2. The amended Build-out Plan will contain critical milestones that provide
Manager a commercially reasonable period in which to construct and implement the
New Coverage. In determining what constitutes a "commercially reasonable period"
as used in this paragraph, the parties will consider several factors, including
local zoning processes and other legal requirements, weather conditions,
equipment delivery schedules, the need to arrange additional financing, and
other construction already in progress by Manager. Manager will construct and
operate the New Coverage in accordance with the terms of this Agreement, and the
New Coverage will be included in the Service Area Network for purposes of this
agreement.
If Manager fails to confirm, within such 90-day period, its
intention to build-out the New Coverage, declines to complete such build-out, or
fails to complete such build-out in accordance with the amended Build-out Plan,
then an Event of Termination will be deemed to have occurred under Section
11.3.3, Manager will not have a right to cure such breach, and Sprint PCS may
exercise its rights and remedies under Section 11.2.2.1.
Notwithstanding the preceding paragraphs in this Section 2.5, the
capacity and footprint parameters contained in the amended Build-out Plan will
not be required to exceed the parameters adopted by Sprint PCS in building out
all of its comparable service areas, unless such build-out relates to an
obligation regarding the Service Area Network mandated by law. When necessary
for reasons related to new technical standards, new equipment or strategic
reasons, Sprint PCS can require Manager to
build-out the New Coverage concurrently with Sprint PCS' build-out, in which
case Sprint PCS will reimburse Manager for its costs and expenses if Sprint PCS
discontinues its related build-out.
If Sprint PCS requires build-out of New Coverage that will:
(a) cause the Manager to spend an additional amount greater than 5 %
of Manager's shareholder's equity or capital account plus Manager's long-term
debt (i.e., notes that mature more than one year from the date issued), as
reflected on Manager's books; or
(b) cause the long-term operating expenses of Manager on a per unit
basis using a 10-year time frame to increase by more than 10% on a net present
value basis,
then Manager may give Sprint PCS a written notice requesting Sprint PCS to
reconsider the required New Coverage.
The Sprint PCS Vice President or the designee of the Sprint PCS
Chief Officer in charge of the group that manages the Sprint PCS relationship
with Manager will review Manager's request and render a decision regarding the
New Coverage. If after the review and decision by the Vice President or
designee, Manager is still dissatisfied, then Manager may ask that the Chief
Officer to whom the Vice President or designee reports review the matter. If
Sprint PCS still requires Manager to complete the New Coverage following the
Chief Officer's review, then if Manager and Sprint PCS fail to agree to an
amended Build-out Plan within 15 days after completion of the reconsideration
process described above in this paragraph or the end of the 90-day period
described in the second paragraph of this Section 2.5, whichever occurs first,
then an Event of Termination will be deemed to have occurred under Section
11.3.3, Manager will not have a right to cure such breach, and Sprint PCS may
exercise its rights and remedies under Section 11.2.2.1.
2.6 Purchase of Assets by Manager. If Sprint PCS has assets located in the
Service Area that Manager could reasonably use in its construction of the
Service Area Network and if Sprint PCS is willing to sell such assets, then
Manager agrees to purchase from Sprint PCS and Sprint PCS agrees to sell to
Manager the assets in accordance with the terms and conditions of the asset
purchase agreement attached as Exhibit 2.6.
2.7 Microwave Relocation. Sprint PCS will relocate interfering microwave
sources in the spectrum in the Service Area to the extent necessary to permit
the Service Area Network to carry the anticipated call volume as set out in the
Build-out Plan. If the spectrum cleared is not sufficient to carry the actual
call volume then Sprint PCS will clear additional spectrum of its choosing to
accommodate the call volume. Sprint PCS may choose to clear spectrum one carrier
at a time. The parties will share equally all costs associated with clearing
spectrum under this Section 2.7.
2.8 Determination of pops. If any provision in this agreement requires the
determination of pops in a given area, then the pops will be determined using
the census block group pop forecast then used by Sprint PCS, except that a
different forecast will be used for any FCC filing and in preparing the
Build-out Plan if required by the FCC. Sprint PCS presently uses the forecast of
Equifax/NDS, but it may choose in its sole discretion to use another service
that provides comparable data.
3. PRODUCTS AND SERVICES; IXC SERVICES
3.1 Sprint PCS Products and Services. Manager must offer for sale, promote
and support all Sprint PCS Products and Services within the Service Area, unless
the parties otherwise agree in advance in writing. Within the Service Area,
Manager may only sell, promote and support wireless products and services that
are Sprint PCS Products and Services or are other products and services
authorized under Section 3.2. The Sprint PCS Products and Services as of the
date of this agreement are attached as Exhibit 3.1. Sprint PCS may modify the
Sprint PCS Products and Services from time to time in its sole discretion by
delivering to Manager a new Exhibit 3.1. If Sprint PCS begins offering
nationally a Sprint PCS Product or Service that is a Manager's Product or
Service, such Manager's Product or Service will become a Sprint PCS Product or
Service under this agreement.
3.2 Other Products and Services. Manager may offer wireless products and
services that are not Sprint PCS Products and Services, on the terms Manager
determines, if the offer of the additional products and services:
(a) does not violate the obligations of Manager under this
agreement;
(b) does not cause distribution channel conflict with or consumer
confusion regarding Sprint PCS' regional and national offerings of Sprint PCS
Products and Services;
(c) complies with the Trademark License Agreements; and
(d) does not materially impede the development of the Sprint PCS
Network.
Manager will not offer any products or services under this Section 3.2
that are confusingly similar to Sprint PCS Products and Services. Manager must
request that Sprint PCS determine whether Sprint PCS considers a product or
service to be confusingly similar to any Sprint PCS Products and Services by
providing advance written notice to Sprint PCS that describes those products and
services that could be interpreted to be confusingly similar to Sprint PCS
Products and Services. If Sprint PCS fails to provide a response to Manager
within 30 days after receiving the notice, then the products and services are
deemed to create confusion with the Sprint PCS Products and Services and the
request therefore rejected. In rejecting any request Sprint PCS must provide the
reasons for the rejection. If the rejection is based on Sprint PCS' failure to
respond within 30 days and Manager requests an explanation for the deemed
rejection, then Sprint PCS must provide within 30 days the reasons for the
rejection.
3.3 Cross-selling with Sprint. Manager and Sprint and Sprint's Related
Parties may enter into arrangements to sell Sprint's services, including long
distance service (except those long distance services governed by Section 3.4),
Internet access, customer premise equipment, prepaid phone cards, and any other
services that Sprint or its Related Parties make available from time to time.
Sprint's services may be packaged with the Sprint PCS Products and Services.
If Manager chooses to resell the long distance services, Internet access
or competitive local telephone services including prepaid phone cards, of third
parties (other than Manager's Related Parties), Manager will give Sprint the
right of last offer to provide those services on the same terms and conditions
as the offer to which Manager is prepared to agree, subject to the terms of any
existing agreements Manager was subject to prior to execution of this agreement.
If Sprint sells Sprint PCS Products and Services in the Service Area,
Manager will provide such Sprint PCS Products and Services to such customers in
accordance with the terms and conditions of the Sprint PCS National or Regional
Distribution Program Requirements.
3.4 IXC Services. Manager must purchase from Sprint long distance
telephony services for the Sprint PCS Products and Services at wholesale rates.
Long distance telephone calls are those calls between the local calling area for
the Service Area Network and areas outside the local calling area. The local
calling area will be defined by mutual agreement of Sprint PCS and Manager. If
the parties cannot agree on the extent of the local calling area they will
resolve the matter through the dispute resolution process in Section 14. Any
arrangement must have terms at least as favorable to Manager (in all material
respects) as those offered by Sprint to any wholesale customer of Sprint in
comparable circumstances (taking into consideration volume, traffic patterns,
etc.). If Manager is bound by an agreement for these services and the agreement
was not made in anticipation of this agreement, then the requirements of this
Section 3.4 do not apply during the term of the other agreement. If the other
agreement terminates for any reason then the requirements of this Section 3.4 do
apply.
3.5 Resale of Products and Services
3.5.1 Mandatory Resale of Products and Services. Sprint PCS is
subject to FCC rules that require it to allow its service plans to be resold by
a purchaser of the service plan. Sprint PCS will not grant the purchaser of a
service plan the right to use any of the support services offered by Sprint PCS,
including customer care, billing, collection, and advertising, nor the right to
use the Brands. The reseller only has the right to use the service purchased.
Consequently, Manager agrees not to interfere with any purchaser of the Sprint
PCS Products or Services who resells the service plans in accordance with this
agreement and applicable law. Manager will notify purchaser that the purchaser
does not have a right to use the Brands or Sprint PCS' support services. In
addition, Manager will notify Sprint PCS if it reasonably believes a reseller of
retail service plans is using the support services or Brands.
3.5.2 Voluntary Resale of Products and Services. Sprint PCS may
choose
to offer a resale product under which resellers will resell Sprint PCS Products
and Services under brand names other than the Brands, except Sprint PCS may
permit the resellers to use the Brands for limited purposes related to the
resale of Sprint PCS Products and Services (e.g., to notify people that the
handsets of the resellers will operate on the Sprint PCS Network). The resellers
may also provide their own support services (e.g., customer care and billing) or
may purchase the support services from Sprint PCS.
If Sprint PCS chooses to offer a voluntary resale product, it will adopt a
program that will be a Program Requirement under this agreement and that
addresses the manner in which Manager and Other Managers interact with the
resellers. Manager must agree to comply with the terms of the program, including
its pricing provisions, if Manager wants handsets of subscribers of resellers
with NPA-NXXs of Manager to be activated. Usage of telecommunications services
while in the Service Area by subscribers of resellers with NPA-NXXs from outside
the Service Area will be subject to the pricing provisions of the Sprint PCS
Roaming and Inter Service Area Program for roaming and inter service area
pricing between Manager and Sprint PCS unless Manager agrees in writing to
different pricing.
Except as required under the regulations and rules concerning mandatory
resale, Manager may not sell Sprint PCS Products and Services for resale unless
Sprint PCS consents to such sales in advance in writing.
3.6 Non-competition. Neither Manager nor any of its Related Parties may
offer Sprint PCS Products and Services outside of the Service Area without the
prior written approval of Sprint PCS.
Within the Service Area, Manager and Manager's Related Parties may offer,
market or promote telecommunications products or services only under the
following brands:
(a) products or services with the Brands;
(b) other products and services approved under Section 3.2;
(c) products or services with Manager's brand; or
(d) products or services with the brands of Manager's Related Parties,
except no brand of a significant competitor of Sprint PCS or its Related Parties
in the telecommunications business may be used by Manager or Manager's Related
Parties on these products and services.
If Manager or any of its Related Parties has licenses to provide broadband
personal communication services outside the Service Area, neither Manager nor
such Related Party may utilize the spectrum to offer Sprint PCS Products and
Services without prior written consent from Sprint PCS. Additionally, when
Manager's customers from inside the Service Area travel or roam to other
geographic areas, Manager will route
the customers' calls, both incoming and outgoing, according to the Sprint PCS
Network Roaming and Inter Service Area Program Requirements, without regard to
any wireless networks operated by Manager or its Related Parties. For example,
Manager will program the preferred roaming list for handsets sold in the Service
Area to match the Sprint PCS preferred roaming list.
3.7 Right of Last Offer. Manager will offer to Sprint the right to make to
Manager the last offer to provide backhaul and transport services for call
transport for the Service Area Network, if Manager decides to use third parties
for backhaul and transport services rather than self-provisioning the services
or purchasing the services from Related Parties of Manager. Sprint will have a
reasonable time to respond to Manager's request for last offer to provide
backhaul and transport pricing and services, which will be no greater than 5
Business Days after receipt of the request for the services and pricing from
Manager.
If Manager has an agreement in effect as of the date of this agreement for
these services and the agreement was not made in anticipation of this agreement,
then the requirements of this Section 3.7 do not apply during the term of the
other agreement. If the other agreement terminates for any reason then the
requirements of this Section 3.7 do apply.
4. MARKETING AND SALES ACTIVITIES
4.1 Sprint PCS National or Regional Distribution Program Requirements.
During the term of this agreement, Manager must participate in any Sprint PCS
National or Regional Distribution Program (as in effect from time to time), and
will pay or receive compensation for its participation in accordance with the
terms and conditions of that program. The Sprint PCS National or Regional
Distribution Program Requirements in effect as of the date of this agreement are
attached as Exhibit 4.1.
4.1.1 Territorial Limitations on Manager's Distribution Activities.
Neither Manager nor any of its Related Parties will market, sell or distribute
Sprint PCS Products and Services outside of the Service Area, except:
(a) as otherwise agreed upon by the parties in advance in writing;
or
(b) Manager may place advertising in media that has distribution
outside of the Service Area, so long as that advertising is intended by Manager
to reach primarily potential customers within the Service Area.
4.1.2 Settlement of Equipment Sales. Sprint PCS will establish a
settlement policy and process that will be included in the Sprint PCS National
or Regional Distribution Program Requirements to:
(a) reconcile sales of subscriber equipment made in the service
areas of Sprint PCS or Other Managers of Sprint PCS, that result in activations
in the Service Area; and
(b) reconcile sales of subscriber equipment made in the Service Area
that result in activations in service areas of Sprint PCS or Other Managers.
In general, the policy will provide that the party in whose service area
the subscriber equipment is activated will be responsible for the payment of any
subsidy (i.e., the difference between the price paid to the manufacturer and the
suggested retail price for direct channels or the difference between the price
paid to the manufacturer and the wholesale price for third party retailers) and
for other costs associated with the sale, including logistics, inventory
carrying costs, direct channel commissions and other retailer compensation.
4.1.3 Use of Third-Party Distributors.
(a) Manager may request that Sprint PCS and a local distributor
enter into Sprint PCS' standard distribution agreement regarding the purchase
from Sprint PCS of handsets and accessories. Sprint PCS will use commercially
reasonable efforts to reach agreement with the local distributor. Sprint PCS may
refuse to enter into a distribution agreement with a distributor for any
reasonable reason, including that the distributor fails to pass Sprint PCS' then
current credit and background checks or the distributor fails to agree to the
standard terms of the Sprint PCS distribution agreement. Any local distributor
will be subject to the terms of the Trademark License Agreements or their
equivalent. Manager will report to Sprint PCS the activities of any local
distributor that Manager believes to be in violation of the distribution
agreement.
(b) Manager may establish direct local distribution programs in
accordance with the Sprint PCS National or Regional Distribution Program
Requirements, subject to the terms and conditions of the Trademark License
Agreements and the non-competition and other provisions contained in this
agreement. If Manager sells Sprint PCS handsets and accessories directly to a
local distributor:
(i) Sprint PCS has the right to approve or disapprove a
particular distributor,
(ii) Manager is responsible for such distributor's compliance
with the terms of the Trademark License Agreements and the other provisions
contained in this agreement, and
(iii) Manager must retain the right to terminate the
distribution rights of the local distributor when so instructed by Sprint PCS
(even if Sprint PCS initially approved or did not exercise its right to review
the distributor).
4.2 Sprint PCS National Accounts Program Requirements. During the term of
this agreement, Manager must participate in the Sprint PCS National Accounts
Program (as in effect from time to time), and will be entitled to compensation
for its participation and will be required to pay the expenses of the program in
accordance with the terms and conditions of that program. The Sprint PCS
National Accounts Program Requirements in effect as of the date of this
agreement are attached as Exhibit 4.2.
4.3 Sprint PCS Roaming and Inter Service Area Program Requirements.
Manager will participate in the Sprint PCS Roaming and Inter Service Area
Program established and implemented by Sprint PCS, including roaming price plans
and inter-carrier settlements. The Sprint PCS Roaming and Inter Service Area
Program Requirements in effect as of the date of this agreement are attached as
Exhibit 4.3.
As part of the Sprint PCS Roaming and Inter Service Area Program
Requirements, Sprint PCS will establish a settlement policy and process to
equitably distribute between the members making up the Sprint PCS Network (i.e.,
Sprint PCS, Manager and all Other Managers) the revenues received by one member
for services used by its customers when they travel into other members' service
areas.
4.4 Pricing. Manager will offer and support all Sprint PCS pricing plans
designated for regional or national offerings of Sprint PCS Products and
Services (e.g., national inter service area rates, regional home rates, and
local price points). The Sprint PCS pricing plans as of the date of this
agreement are attached as Exhibit 4.4. Sprint PCS may modify the Sprint PCS
pricing plans from time to time in its sole discretion by delivering to Manager
a new Exhibit 4.4.
Additionally, with prior approval from Sprint PCS, which approval will not
be unreasonably withheld, Manager may establish price plans for Sprint PCS
Products and Services that are only offered in its local market, subject to:
(a) the non-competition and other provisions contained in this agreement:
(b) consistency with regional and national pricing plans;
(c) regulatory requirements; and
(d) capability and cost of implementing rate plans in Sprint PCS systems
(if used).
Manager must provide advance written notice to Sprint PCS with details of
any pricing proposal for Sprint PCS Products or Services in the Service Area. If
Sprint PCS fails to. respond to Manager within 10 Business Days after receiving
such notice, then the price proposed for those Sprint PCS Products or Services
is deemed approved.
At the time Sprint PCS approves a pricing proposal submitted by Manager,
Sprint PCS will provide Manager an estimate of the costs and expenses and
applicable time frames required for Sprint PCS to implement the proposed pricing
plan. Manager agrees to promptly reimburse Sprint PCS for any cost or expense
incurred by Sprint PCS to implement such a pricing plan, which will not exceed
the amount estimated by Sprint PCS if Manager waited for Sprint PCS' response to
Manager's proposal.
4.5 Home Service Area. Sprint PCS and Manager will agree to the initial
home service area for each base station in the Service Area Network prior to the
date the Service Area Network goes into commercial operation. If the parties
cannot agree to the home service area for each base station in the Service Area
Network, then the parties will use the dispute resolution process in Section 14
of this agreement to assign each base
station to a home service area.
5. USE OF BRANDS
5.1 Use of Brands.
(a) Manager must enter into the Trademark License Agreements on or
before the date of this agreement.
(b) Manager must use the Brands exclusively in the marketing,
promotion, advertisement, distribution, lease or sale of any Sprint PCS Products
and Services within the Service Area, except Manager may use other brands to the
extent permitted by the Trademark License Agreements and not inconsistent with
the terms of this agreement.
(c) Neither Manager nor any of its Related Parties may market,
promote. advertise, distribute, lease or sell any of the Sprint PCS Products and
Services or Manager's Products and Services on a non-branded, "private label"
basis or under any brand, trademark, trade name or trade dress other than the
Brands, except (i) for sales to resellers required under this agreement, or (ii)
as permitted under the Trademark License Agreements.
(d) The provisions of this Section 5.1 do not prohibit Manager from
including Sprint PCS Products and Services under the Brands within the Service
Area as part of a package with its other products and services that bear a
different brand or trademark. The provisions of this Section 5.1 do not apply to
the extent that they are inconsistent with applicable law or in conflict with
the Trademark License Agreements.
5.2 Conformance to Marketing Communications Guidelines. Manager must
conform to the Marketing Communications Guidelines in connection with the
marketing, promotion, advertisement, distribution, lease and sale of any of the
Sprint PCS Products and Services. The Marketing Communications Guidelines in
effect as of the date of this agreement are attached as Exhibit 5.2. Sprint and
Sprint Spectrum may amend the Marketing Communications Guidelines from time to
time in accordance with the terms of the Trademark License Agreements.
5.3 Joint Marketing With Third Parties.
(a) Manager may engage in various joint marketing activities (e.g.,
promotions with sports teams and entertainment providers or tournament
sponsorships) with third parties in the Service Area from time to time during
the term of this agreement with respect to the Sprint PCS Products and Services,
except that Manager may engage in the joint marketing activities only if the
joint marketing activities:
(i) are conducted in accordance with the terms and conditions
of the Trademark License Agreements and the Marketing Communications Guidelines;
(ii) do not violate the terms of this agreement;
(iii) are not likely (as determined by Sprint PCS, in its sole
discretion) to cause confusion between the Brands and any other trademark or
service mark used in connection with the activities;
(iv) are not likely (as determined by Sprint, in its sole
discretion) to cause confusion between the Sprint Brands and any other trademark
or service mark used in connection with the activities; and
(v) are not likely (as determined by Sprint PCS, in its sole
discretion) to give rise to the perception that the Sprint PCS Products and
Services are being advertised, marketed or promoted under any trademark or
service mark other than the Brands, except as provided in the Trademark License
Agreements. Manager will not engage in any activity that includes co-branding
involving use of the Brands (that is, the marketing, promotion, advertisement,
distribution, lease or sale of any of the Sprint PCS Products and Services under
the Brands and any other trademark or service mark), except as provided in the
Trademark License Agreements.
(b) Manager must provide advance written notice to Sprint PCS
describing any joint marketing activities that may:
(i) cause confusion between the Brands and any other trademark
or service mark used in connection with the proposed activities; or
(ii) give rise to the perception that the Sprint PCS Products
and Services are being advertised, marketed or promoted under any trademark or
service mark other than the Brands, except as provided in the Trademark License
Agreements.
(c) If Sprint PCS fails to provide a response to Manager within 20
days after receiving such notice, then the proposed activities are deemed, as
the case may be:
(i) not to create confusion between the Brands and any other
trademark or service mark; or
(ii) not to give rise to the perception that Manager's
products and services are being advertised, marketed or promoted under any
trademark or service mark other than the Brands, except as provided in the
Trademark License Agreements.
5.4 Prior Approval of Use of Brands. Manager must obtain advance written
approval from Sprint for use of the Sprint Brands to the extent required by the
Sprint Trademark and Service Mark License Agreement and from Sprint PCS for use
of the Sprint PCS Brands to the extent required by the Sprint Spectrum Trademark
and Service Mark License Agreement. Sprint PCS will use commercially reasonable
efforts to facilitate any review of Manager's use of the Brands, if Sprint PCS
is included in the review process.
5.5 Duration of Use of Brand. Manager is entitled to use the Brands only
during the term of the Trademark License Agreements and any transition period
during which Manager is authorized to use the Brands following the termination
of the
Trademark License Agreements.
6. ADVERTISING AND PROMOTION
6.1 National Advertising and Promotion. Sprint PCS is responsible for (a)
all national advertising and promotion of the Sprint PCS Products and Services,
including the costs and expenses related to national advertising and promotions,
and (b) all advertising and promotion of the Sprint PCS Products and Services in
the markets where Sprint PCS operates without the use of an Other Manager.
6.2 In-Territory Advertising and Promotion. Manager must advertise and
promote the Sprint PCS Products and Services in the Service Area (and may do so
in the areas adjacent to the Service Area so long as Manager intends that such
advertising or promotion primarily reach potential customers within the Service
Area). Manager must advertise and promote the Sprint PCS Products and Services
in accordance with the terms and conditions of this agreement, the Trademark
License Agreements and the Marketing Communication Guidelines. Manager is
responsible for the costs and expenses incurred by Manager with respect to
Manager's advertising and promotion activities in the Service Area.
Manager will be responsible for a portion of the cost of any promotion or
advertising done by third party retailers in the Service Area (e.g., Best Buy)
in accordance with any cooperative advertising arrangements based on per unit
handset sales.
Sprint PCS has the right to use in any promotion or advertising done by
Sprint PCS any promotion or advertising materials developed by Manager from time
to time with respect to the Sprint PCS Products and Services. Sprint PCS will
reimburse Manager for the reproduction costs related to such use.
Sprint PCS will make available to Manager the promotion or advertising
materials developed by Sprint PCS from time to time with respect to Sprint PCS
Products and Services in current use by Sprint PCS (e.g., radio ads, television
ads, design of print ads, design of point of sale materials, retail store
concepts and designs, design of collateral). Manager will bear the cost of using
such materials (e.g., cost of local radio and television ad placements, cost of
printing collateral in quantity, and building out and finishing retail stores).
6.3 Review of Advertising Promotion Campaigns. Sprint PCS and Manager will
jointly review the upcoming marketing and promotion campaigns of Manager with
respect to Sprint PCS Products and Services (including advertising and promotion
expense budgets) and will use good faith efforts to coordinate Manager's
campaign with Sprint PCS' campaign to maximize the market results of both
parties. Sprint PCS and Manager may engage in cooperative advertising or
promotional activities during the term of this agreement as the parties may
agree in writing.
6.4 Public Relations. If Manager conducts local public relations efforts,
then Manager must conduct the local public relations efforts consistent with the
Sprint PCS Communications Policies. The Sprint PCS Communications Policies as of
the date of this
agreement are attached as Exhibit 6.4. Sprint PCS may modify the Sprint PCS
Communications Policies from time to time by delivering to Manager a new Exhibit
6.4.
7. SPRINT PCS TECHNICAL PROGRAM REQUIREMENTS
7.1 Conformance to Sprint PCS Technical Program Requirements.
(a) Manager must meet or exceed the Sprint PCS Technical Program
Requirements established by Sprint PCS from time to time for the Sprint PCS
Network. Manager will be deemed to meet the Sprint PCS Technical Program
Requirements if:
(i) Manager operates the Service Area Network at a level equal
to or better than t lower of the Operational Level of Sprint PCS or the
operational level contemplated by the Sprint PCS Technical Program Requirements;
or
(ii) Sprint PCS responsible under the Services Agreement to
ensure the Service Area Network complies with the Sprint PCS Technical Program
Requirements.
(b) Manager must demonstrate to Sprint PCS that Manager has complied
with the Sprint PCS Technical Program Requirements prior to connecting the
Service Area Network to the rest of the Sprint PCS Network. Once the Service
Area Network is connected to the Sprint PCS Network, Manager must continue to
comply with the Sprint PCS Technical Program Requirements. Sprint PCS agrees
that the Sprint PCS Technical Program Requirements adopted for Manager will be
the same Sprint PCS Technical Program Requirements applied by Sprint PCS to the
Sprint PCS Network.
7.2 Establishment of Sprint PCS Technical Program Requirements. Sprint PCS
has delivered to Manager a copy of the current Sprint PCS Technical Program
Requirements, attached as Exhibit 7.2. Sprint PCS drafted the Sprint PCS
Technical Program Requirements to ensure a minimum, base-line level of quality
for the Sprint PCS Network. The Sprint PCS Technical Program Requirements
include standards relating to voice quality, interoperability, consistency
(seamlessness) of coverage, RF design parameters, system design, capacity, and
call blocking ratio. Sprint PCS has selected code division multiple access as
the initial air interface technology for the Sprint PCS Network (subject to
change in accordance with Section 9.1).
7.3 Handoff to Adjacent Networks. If technically feasible and commercially
reasonable, Manager will operate the Service Area Network in a manner that
permits a seamless handoff of a call initiated on the Service Area Network to
any adjacent PCS network that is part of the Sprint PCS Network, as specified in
the Sprint PCS Technical Program Requirements. Sprint PCS agrees that the terms
and conditions for seamless handoffs adopted for the Service Area Network will
be the same as the terms Sprint PCS applies to the other parts of the Sprint PCS
Network for similar configurations of equipment.
8. SPRINT PCS CUSTOMER SERVICE PROGRAM REQUIREMENTS
8.1 Compliance With Sprint PCS Customer Service Program Requirements.
Manager must comply with the Sprint PCS Customer Service Program Requirements in
providing the Sprint PCS Products and Services to any customer of Manager,
Sprint PCS or any Sprint PCS Related Party. Manager will be deemed to meet the
standards if:
(a) Manager operates the Service Area Network at a level equal to or
better than the lower of the Operational Level of Sprint PCS or the operational
level contemplated by the Program Requirements; or
(b) Manager has delegated to Sprint PCS under the Services Agreement
responsibility to ensure the Service Area Network complies with the Sprint PCS
Customer Service Standards.
Sprint PCS has delivered to Manager a copy of the Sprint PCS Customer
Service Standards, which are attached as Exhibit 8.1.
9. SPRINT PCS PROGRAM REQUIREMENTS
9.1 Program Requirements Generally. This agreement contains numerous
references to Sprint PCS National and Regional Distribution Program
Requirements, Sprint PCS National Accounts Program Requirements, Sprint PCS
Roaming and Inter Service Area Program Requirements, Sprint PCS Technical
Program Requirements and Sprint PCS Customer Service Program Requirements. This
agreement also provides under Section 3.5.2 for the offering by Sprint PCS of a
voluntary resale product through a program, which program, if adopted, will be a
Program Requirement under this agreement. Sprint PCS may unilaterally amend from
time to time in the manner described in Section 9.2 all Program Requirements
mentioned in this agreement. The most current version of the Program
Requirements mentioned in the first sentence of this Section 9.1 have been
provided to Manager. Manager has reviewed the Program Requirements and adopts
them for application in the Service Area.
9.2 Amendments to Program Requirements. Sprint PCS may amend any of the
Program Requirements, subject to the following conditions:
(a) The applicable Program Requirements, as amended, will apply
equally to Manager, Sprint PCS and each Other Manager, except if Manager and
Sprint PCS agree otherwise or if Sprint PCS grants a waiver to Manager. Sprint
PCS may grant waivers to Other Managers without affecting Manager's obligation
to comply with the Program Requirements;
(b) Each amendment will be reasonably required to fulfill the
purposes set forth in Section 1.2 with respect to uniform and consistent
operations of the Sprint PCS Network and the presentation of Sprint PCS Products
and Services to customers in a uniform and consistent manner;
(c) Each amendment will otherwise be on terms and conditions that
are commercially reasonable with respect to the construction, operation and
management of the Sprint PCS Network. With respect to any amendment to the
Program Requirements, Sprint PCS will provide for reasonable transition periods
and, where appropriate, may
provide for grandfathering provisions for existing activities by Manager that
were permitted under the applicable Program Requirements before the amendment;
(d) Sprint PCS must give Manager reasonable, written notice of the
amendment, but in any event the notice will be given at least 30 days prior to
the effective date of the amendment; and
(e) Manager must implement any changes in the Program Requirements
within a commercially reasonable period of time unless otherwise consented to by
Sprint PCS. Sprint PCS will determine what constitutes a commercially reasonable
period of time taking into consideration relevant business factors, including
the strategic significance of the changes to the Sprint PCS Network, the
relationship of the changes to the yearly marketing cycle, and the financial
demands on and capacity generally of Other Managers. Notwithstanding the
preceding two sentences, Manager will not be required to implement any change in
the Service Area Network or the business of Manager required by an amendment to
a Program Requirement until Sprint PCS has implemented the required changes in
substantially all of that portion of the Sprint PCS Network that Sprint PCS
operates without the use of a manager or affiliate, unless the amendment to the
Program Requirement relates to an obligation regarding the Service Area Network
mandated by law. When necessary for reasons related to new technical standards,
new equipment or strategic reasons, Sprint PCS can require Manager to implement
the changes in the Service Area Network or Manager's business concurrently with
Sprint PCS, in which case Sprint PCS will reimburse Manager for its costs and
expenses if Sprint PCS discontinues the Program Requirement changes prior to
implementation.
Sprint PCS may grant Manager appropriate waivers and variances from the
requirements of any Program Requirements. Sprint PCS has the right to adopt any
Program Requirements that implement any obligation regarding the Service Area
Network mandated by law.
Any costs and expenses incurred by Manager in connection with conforming
to any change to the Program Requirements during the term of this agreement are
the responsibility of Manager.
9.3 Manager's Right to Request Review of Changes. If Sprint PCS announces
a change to a Program Requirement that will:
(a) cause the Manager to spend an additional amount greater than 5 %
of Manager's shareholder's equity or capital account plus Manager's long-term
debt (i.e., notes that mature more than one year from the date issued), as
reflected on Manager's books; or
(b) cause the long term operating expenses of Manager on a per unit
basis using a 10-year time frame to increase by more than 10% on a net present
value basis, then Manager may give Sprint PCS a written notice requesting Sprint
PCS to reconsider the change.
The Sprint PCS Vice President or the designee of the Sprint PCS Chief
Officer in
charge of the group that manages the Sprint PCS relationship with Manager will
review Manager's request and render a decision regarding the change. If after
the review and decision by the Vice President or designee, Manager is still
dissatisfied, then Manager may ask that the Chief Officer to whom the Vice
President or designee reports review the matter. If Sprint PCS still requires
Manager to implement the change to the Program Requirement following the Chief
Officer's review, then upon Manager's failure to implement the change an Event
of Termination will be deemed to have occurred under Section 11.3.3, Manager
will not have a right to cure such breach, and Sprint PCS may exercise its
rights and remedies under Section 11.6.
9.4 Sprint PCS' Right to Implement Changes. If Manager requests Sprint PCS
to reconsider a change to a Program Requirement as permitted under Section 9.3
and Sprint PCS decides it will not require Manager to make the change, Sprint
PCS may, but is not required to, implement the change at Sprint PCS' expense, in
which event Manager will be required to operate the Service Area Network, as
changed, but Sprint PCS will be entitled to any revenue derived from the change.
9.5 Rights of Inspection. Sprint PCS and its authorized agents and
representatives may enter upon the premises of any office or facility operated
by or for Manager at any time, with reasonable advance notice to Manager if
possible, to inspect, monitor and test in a reasonable manner the Service Area
Network, including the facilities, equipment, books and records of Manager, to
ensure that Manager has complied or is in compliance with all covenants and
obligations of Manager under this agreement, including Manager's obligation to
conform to the Program Requirements. The inspection, monitoring and testing may
not disrupt the operations of the office or facility, nor impede Manager's
access to the Service Area Network.
9.6 Manager's Responsibility to Interface with Sprint PCS. Manager will
use platforms fully capable of interfacing with the Sprint PCS platforms in
operating the Service Area Network and in providing Sprint PCS Products and
Services. Manager will pay the expense of making its platforms fully capable of
interfacing with Sprint PCS, including paying for the following:
(i) connectivity;
(ii) any changes that Manager requests Sprint PCS to make to Sprint
PCS systems to interconnect with Manager's systems that Sprint PCS, in its sole
discretion, agrees to make;
(iii) equipment to run Manager's software;
(iv) license fees for Manager's software; and
(v) Manager's upgrades or changes to its platforms.
10. FEES
10.1 Fees and Payments.
10.1.1 Fee Based on Collected Revenues. Sprint PCS will pay to
Manager a
weekly fee equal to 92 % of Collected Revenues for the week for all obligations
of Manager under this Agreement. The fee will be due on Thursday of the week
following the week for which the fee is calculated.
10.1.2 Payment of Universal Service Funds. Sprint PCS and Manager
will share any federal and state subsidy funds (e.g., payments by a state of
universal service fund subsidies to Sprint PCS or Manager), if any, received by
Sprint PCS or Manager for customers who reside in the portion of the Service
Area served by the Service Area Network. Manager is entitled to 92 % of any
amount received by either party and Sprint PCS is entitled to 8 % of such
amounts.
10.1.3 Inter Service Area Fees. Sprint PCS will pay to Manager
monthly a fee as set out in the Sprint PCS Roaming and Inter Service Area
Program, for each minute of use that a customer of Sprint PCS or one of the
Other Managers whose NPA-NXX is not assigned to the Service Area Network uses
the Service Area Network. Manager will pay to Sprint PCS a fee, as set out in
the Sprint PCS Roaming and Inter Service Area Program, for each minute of use
that a customer whose NPA-NXX is assigned to the Service Area Network uses a
portion of the Sprint PCS Network other than the Service Area Network. Manager
acknowledges that the manner in which the NPA-NXX is utilized could change,
which will require a modification in the manner in which the inter service area
fees, if any, will be calculated.
10.1.4 Interconnect Fees. Manager will pay to Sprint PCS (or to
other carriers as appropriate) monthly the interconnect fees, if any, as
provided under Section 1.4.
10.1.5 Outbound Roaming Fees. If not otherwise provided under any
Program Requirement:
(a) Sprint PCS will pay to Manager monthly the amount of Outbound
Roaming fees that Sprint PCS collects for the month from end users whose NPA-NXX
is assigned to the Service Area; and
(b) Manager will pay to Sprint PCS (or to a clearinghouse or other
carrier as appropriate) the direct cost of providing the capability for the
Outbound Roaming, including any amounts payable to the carrier that handled the
roaming call and the clearinghouse operator.
10.1.6 Reimbursements. Manager will pay to or reimburse Sprint PCS
for any amounts that Sprint PCS is required to pay to a third party (e.g., a
telecommunications carrier) to the extent Sprint PCS already paid such amount to
Manager under this Section 10.
10.2 Monthly True Up. Manager will report to Sprint PCS monthly the amount
of Collected Revenues received directly by the Manager (e.g., customer mails
payment to the business address of Manager rather than to the lockbox or a
customer pays a direct sales force representative in cash). Sprint PCS will on a
monthly basis true up the fees and payments due under Section 10.1 against the
actual payments made by Sprint PCS to Manager. Sprint PCS will provide to
Manager a true up report each month showing
the true up and the net amount due from one party to the other, if any. If the
weekly payments made to Manager exceed the actual fees and payments due to
Manager, then Manager will remit the amount of the overpayment to Sprint PCS
within 5 Business Days after receiving the true up report from Sprint PCS. If
the weekly payments made to Manager are less than the actual fees and payments
due to Manager, then Sprint PCS will remit the shortfall to Manager within 5
Business Days after sending the true up report to Manager.
If a party disputes any amount on the true up report, the disputing party
must give the other party written notice of the disputed amount and the reason
for the dispute within 90 days after it receives the true up report. The dispute
will be resolved through the dispute resolution process in Section 14. The
parties must continue to pay to the other party any undisputed amounts owed
under this agreement during the dispute resolution process. The dispute of an
item does not stay or diminish a party's other rights and remedies under this
agreement.
10.3 Taxes. Manager will pay or reimburse Sprint PCS for any sales, use,
gross receipts or similar tax, administrative fee, telecommunications fee or
surcharge for taxes or fees levied by a governmental authority on the fees and
charges payable by Sprint PCS to Manager.
Manager will report all taxable property to the appropriate taxing
authority for ad valorem tax purposes. Manager will pay as and when due all
taxes, assessments, liens, encumbrances, levies, and other charges against the
real estate and personal property owned by Manager or used by Manager in
fulfilling its obligations under this agreement.
Manager is responsible for paying all sales, use, or similar taxes on the
purchase and use of its equipment, advertising, and other goods or services in
connection with this agreement.
10.4 Collected Revenues Definition. "Collected Revenues" means actual
payments received by or on behalf of Sprint PCS or Manager for Sprint PCS
Products and Services from others, including the customers, whose NPA-NXX is the
same as that for the portion of the Service Area served by the Service Area
Network. In determining Collected Revenues the following principles will apply.
(a) The following items will be treated as follows:
(i) Collected Revenues do not include revenues from federal
and state subsidy funds; they are handled separately as noted in Section 10.1.2;
(ii) Collected Revenues do include any amounts received for
the payment of Inbound Roaming charges and interconnect fees when calls are
carried on the Service Area Network; and
(iii) Collected Revenues do not include any amounts received
with respect to any changes made by Sprint PCS under Section 9.4.
(b) The following items are not Collected Revenues; Sprint PCS is
obligated to remit the amounts received with respect to such items, if any, to
Manager, as follows:
(i) inter service area payments will be paid as provided under
Section 10.1.3;
(ii) Outbound Roaming and related charges will be paid as
provided under Section 10.1.5;
(iii) proceeds from the sale or lease of subscriber equipment
and accessories will be paid to Manager, subject to the equipment settlement
process in Section 4.1.2;
(iv) proceeds from sales not in the ordinary course of
business (e.g., sales of switches, cell sites, computers, vehicles or other
fixed assets);
(v) any amounts collected with respect to sales and use taxes,
gross receipts taxes, transfer taxes, and similar taxes, administrative fees,
telecommunications fees, and surcharges for taxes and fees that are collected by
a carrier for the benefit of a governmental authority, subject to Manager's
obligation under Section 10.3; and
(vi) Manager will be entitled to 100% of all revenues received
by Sprint PCS with respect to sales of Manager's Products and Services.
(c) The following items are not Collected Revenues; neither party is
obligated to remit any amounts respecting such items:
(i) reasonable adjustments of a customer's account (e.g., if
Sprint PCS or Manager reduces a customer's bill, then the amount of the
adjustment is not Collected Revenues); and
(ii) amount of bad debt and fraud associated with customers
whose NPA-NXX is assigned to the Service Area (e.g., if Sprint PCS or Manager
writes off a customer's bill as a bad debt, there are no Collected Revenues on
which a fee is due to Manager).
10.5 Late Payments. Any amount due under this Section 10 that is not paid
by one party to the other party in accordance with the terms of this agreement
will bear interest at the Default Rate beginning (and including) the 3rd day
after the due date until (and including) the date paid.
10.6 Setoff Right If Failure To Pay Amounts Due. If Manager fails to pay
any undisputed amount due Sprint PCS or a Related Party of Sprint PCS under this
agreement, the Services Agreement, or any other agreement with Sprint PCS or a
Related Party of Sprint PCS, then Sprint PCS may setoff against its payments to
Manager under this Section 10, the following amounts:
(a) any amount that Manager owes to Sprint PCS or a Related Party of
Sprint PCS, including amounts due under the Services Agreement; and
(b) any amount that Sprint PCS reasonably estimates will be due to
Sprint PCS for the current month under the Services Agreement (e.g., if under
the Services Agreement customer care calls are billed monthly, Sprint PCS can
deduct from the weekly payment to Manager an amount Sprint PCS reasonably
estimates will be due Sprint PCS on account of such customer care calls under
the Services Agreement).
On a monthly basis Sprint PCS will true up the estimated amounts deducted
against the actual amounts due Sprint PCS and Sprint PCS' Related Parties. If
the estimated amounts deducted by Sprint PCS exceed the actual amounts due to
Sprint PCS and Sprint PCS' Related Parties, then Sprint PCS will remit the
excess to Manager with the next weekly payment. If the estimated amounts
deducted are less than the actual amounts due to Sprint PCS and its Related
Parties, then Sprint PCS may continue to setoff the payments to Manager against
the amounts due to Sprint PCS and Sprint PCS' Related Parties. This right of
setoff is in addition to any other right that Sprint PCS may have under this
agreement.
11. TERM; TERMINATION; EFFECT OF TERMINATION
11.1 Initial Term. This agreement commences on the date of execution and,
unless terminated earlier in accordance with the provisions of this Section 11,
continues for a period of 20 years (the "Initial Term").
11.2 Renewal Terms. Following expiration of the Initial Term, this
agreement will automatically renew for 3 successive 10-year renewal periods (for
a maximum of 50 years including the Initial Term), unless at least 2 years prior
to the commencement of any renewal period either party notifies the other party
in writing that it does not wish to renew this agreement.
11.2.1 Non-renewal Rights of Manager. If this agreement will
terminate because Sprint PCS gives Manager timely written notice of non-renewal
of this agreement, then Manager may exercise its rights under Section 11.2.1.1
or, if applicable, its rights under Section 11.2.1.2.
11.2.1.1 Manager's Put Right. Manager may within 30 days after
the date Sprint PCS gives notice of non-renewal put to Sprint PCS all of the
Operating Assets. Sprint PCS will pay to Manager for the Operating Assets an
amount equal to 80% of the Entire Business Value. The closing of the purchase of
the Operating Assets will occur within 20 days after the later of (a) the
receipt by Sprint PCS of the written notice of determination of the Entire
Business Value provided by the appraisers under Section 11.7 or (b) the receipt
of all materials required to be delivered to Sprint PCS under Section 11.8. Upon
closing the purchase of the Operating Assets this agreement will be deemed
terminated. The exercise of the put, the determination of the Operating Assets,
the representations and warranties made by Manager with respect to the Operating
Assets and the business, and the process for closing the purchase will be
subject to the terms and conditions set forth in Section 11.8.
11.2.1.2 Manager's Purchase Right.
(a) If Sprint PCS owns 20 MHz or more of PCS spectrum in the
Service Area under the License on the date this agreement is executed, then
Manager may within 30 days after the date Sprint PCS gives notice of non-renewal
declare its intent to purchase the Disaggregated License. Subject to receipt of
FCC approval of the necessary disaggregation and partition, Manager may purchase
from Sprint PCS the Disaggregated License for an amount equal to the greater of
(1) the original cost of the License to Sprint PCS (pro rated on a pops and
spectrum basis) plus the microwave relocation costs paid by Sprint PCS or (2)
10% of the Entire Business Value.
(b) Upon closing the purchase of the spectrum this agreement
will be deemed terminated. The closing of the purchase of the Disaggregated
License will occur within the later of:
(1) 20 days after the receipt by Manager of the written
notice of determination of the Entire Business Value by the appraisers under
Section 11.7; or
(2) 10 days after the approval of the sale of the
Disaggregated License by the FCC.
(c) The exercise of the purchase right, the determination of
the geographic extent of the Disaggregated License coverage, the representations
and warranties made by Sprint PCS with respect to the Disaggregated License, and
the process for closing the purchase will be subject to the terms and conditions
set forth in Section 11.8.
(d) After the closing of the purchase Manager will allow:
(1) subscribers of Sprint PCS to roam on Manager's
network; and
(2) Sprint PCS to resell Manager's Products and
Services.
Manager will charge Sprint PCS a MFN price in either case.
11.2.2 Non-renewal Rights of Sprint PCS. If this agreement will
terminate because of any of the following five (5) events, then Sprint PCS may
exercise its rights under Section 11.2.2.1 or, if applicable, its rights under
Section 11.2.2.2:
(a) Manager gives Sprint PCS timely written notice of
non-renewal of this agreement;
(b) both parties give timely written notices of non-renewal;
(c) this agreement expires with neither party giving a written
notice of non-renewal;
(d) either party elects to terminate this agreement under
Section 11.3.4(a); or
(e) Manager elects to terminate this agreement under Section
11.3.4(b).
11.2.2.1 Sprint PCS' Purchase Right. Sprint PCS may purchase from
Manager all of the Operating Assets. Sprint PCS will pay to Manager an amount
equal to 80% of the Entire Business Value. The closing of the purchase of the
Operating Assets will occur within 20 days after the later of (a) the receipt by
Sprint PCS of the written notice of determination of the Entire Business Value
provided by the appraisers under Section 11.7 or (b) the receipt of all
materials required to be delivered to Sprint PCS under Section 11,.8. Upon
closing the purchase of the Operating Assets this agreement will be deemed
terminated. The exercise of the purchase right, the determination of the
Operating Assets, the representations and warranties made by Manager with
respect to the Operating Assets and the business, and the process for closing
the purchase will be subject to the terms and conditions set forth in Section
11.8.
11.2.2.2 Sprint PCS' Put Right.
(a) Sprint PCS may, subject to receipt of FCC approval, put to
Manager the Disaggregated License for a purchase price equal to the greater of
(1) the original cost of the License to Sprint PCS (pro rated on a pops and
spectrum basis) plus the microwave relocation costs paid by Sprint PCS or (2)
10% of the Entire Business Value.
(b) Upon closing the purchase of the Disaggregated License
this agreement will be deemed terminated. The closing of the purchase of the
Disaggregated License will occur within the later of:
(1) 20 days after the receipt by Sprint PCS of the
written notice of determination of the Entire Business Value by the appraisers
under Section 11.7; or
(2) 10 days after the approval of the sale of the
Disaggregated License by the FCC.
(c) The exercise of the put, the determination of the
geographic extent of the Disaggregated License coverage, the representations and
warranties made by Sprint PCS with respect to the Disaggregated License, and the
process for closing the purchase will be subject to the terms and conditions set
forth in Section 11.8.
(d) Manager may, within 10 days after it receives notice of
Sprint PCS' exercise of its put, advise Sprint PCS of the amount of spectrum
(not to exceed 10 MHz) it wishes to purchase. After the purchase Manager will
allow:
(1) subscribers of Sprint PCS to roam on Manager's
network; and
(2) Sprint PCS to resell Manager's Products and
Services.
Manager will charge Sprint PCS a MFN price in either case.
11.2.3 Extended Term Awaiting FCC Approval. If Manager is buying the
Disaggregated License as permitted or required under Sections 11.2.1.2 or
11.2.2.2, then the Term of this agreement will extend beyond the original
expiration date until the closing of the purchase of the Disaggregated License.
The parties agree to exercise their respective commercially reasonable efforts
to obtain FCC approval of the transfer of the Disaggregated License.
11.3 Events of Termination. An "Event of Termination" is deemed to occur
when a party gives written notice to the other party of the Event of Termination
as permitted below:
11.3.1 Termination of License.
(a) At the election of either party this agreement may be
terminated at the time the FCC revokes or fails to renew the License. Unless
Manager has the right to terminate this agreement under Section 11.3.1(b),
neither party has any claim against the other party if the FCC revokes or fails
to renew the License, even if circumstances would otherwise permit one party to
terminate this agreement based on a different Event of Termination, except that
the parties will have the right to pursue claims against each other as permitted
under Section 11.4(b).
(b) If the FCC revokes or fails to renew the License because
of a breach of this agreement by Sprint PCS, then Manager has the right to
terminate this agreement under Section 11.3.3 and not this Section 11.3.1.
11.3.2 Breach of Agreement: Payment of Money Terms. At the election
of the non-breaching party this agreement may be terminated upon the failure by
the breaching party to pay any amount due under this agreement or any other
agreement between the parties or their respective Related Parties, if the breach
is not cured within 30 days after the breaching party's receipt of written
notice of the nonpayment from the non-breaching party.
11.3.3 Breach of Agreement: Other Terms. At the election of the
non-breaching party this agreement may be terminated upon the material breach by
the breaching party of any material term contained in this agreement that does
not regard the payment of money, if the breach is not cured within 30 days after
the breaching party's receipt of written notice of the breach from the
non-breaching party, except the cure period will continue for a reasonable
period beyond the 30-day period, but will under no circumstances exceed 180 days
after the breaching party's receipt of written notice of the breach, if it is
unreasonable to cure the breach within the 30-day period, and the breaching
party takes action prior to the end of the 30-day period that is reasonably
likely to cure the breach and continues to diligently take action necessary to
cure the breach.
11.3.4 Regulatory Considerations.
(a) At the election of either party this agreement may be
terminated if this agreement violates any applicable law in any material respect
where such violation (i) is classified as a felony or (ii) subjects either party
to substantial
monetary fines or other substantial damages, except that before causing any
termination the parties must use best efforts to modify this agreement, as
necessary to cause this agreement (as modified) to comply with applicable law
and to preserve to the extent possible the economic arrangements set forth in
this agreement.
(b) At the election of Manager this agreement may be
terminated if the regulatory action described under 11.3.4(a) is the result of a
deemed change of control of the License and the parties are unable to agree upon
a satisfactory resolution of the matter with the regulatory authority without a
complete termination of this agreement.
11.3.5 Termination of Trademark License Agreements. If either
Trademark License Agreement terminates under its terms, then:
(a) Manager may terminate this agreement if the Trademark
License Agreement terminated because of a breach of the Trademark License
Agreement by Sprint PCS or Sprint; and
(b) Sprint PCS may terminate this agreement if the Trademark
License Agreement terminated because of a breach of the Trademark License
Agreement by Manager.
11.3.6 Financing Considerations. At the election of Sprint PCS this
agreement may be terminated upon the failure of Manager to obtain the financing
described in Exhibit 1.7 by the deadline(s) set forth on such Exhibit.
11.3.7 Bankruptcy of a Party. At the election of the non-bankrupt
party, this agreement may be terminated upon the occurrence of a Voluntary
Bankruptcy or an Involuntary Bankruptcy of the other party.
"Voluntary Bankruptcy" means:
(a) the inability of a party generally to pay its debts as the
debts become due, or an admission in writing by a party of its inability to pay
its debts generally or a general assignment by a party for the benefit of
creditors;
(b) the filing of any petition or answer by a party seeking to
adjudicate itself a bankrupt or insolvent, or seeking any liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief, or composition
for itself or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking, consenting to, or acquiescing
in the entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for itself or for substantially all of its
property; or
(c) any action taken by a party to authorize any of the
actions set forth above.
"Involuntary Bankruptcy" means, without the consent or acquiescence of a
party:
(a) the entering of an order for relief or approving a
petition for relief or reorganization;
(b) any petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other similar relief
under any present or future bankruptcy, insolvency or similar statute, law or
regulation;
(c) the filing of any petition against a party, which petition
is not dismissed within 90 days; or
(d) without the consent or acquiescence of a party, the
entering of an order appointing a trustee, custodian, receiver or liquidator of
party or of all or any substantial part of the property of the party, which
order is not dismissed within 90 days.
11.4 Effect of an Event of Termination.
(a) Upon the occurrence of an Event of Termination, the party with
the right to terminate this agreement or to elect the remedy upon the Event of
Termination. as the case may be, may:
(i) in the case of an Event of Termination under Sections
11.3.1(a) or 11.3.7, give the other party written notice that the agreement is
terminated effective as of the date of the notice, in which case neither party
will have any other remedy or claim for damages (except any claim the
non-bankrupt party has against the bankrupt party and any claims permitted under
Section 11.4(b); or
(ii) in the case of an Event of Termination other than under
Section 11.3.1(a), give the other party written notice that the party is
exercising one of its rights, if any, under Section 11.5 or Section 11.6.
(b) If the party terminates this agreement under Section 11.4(a)(i)
then all rights and obligations of each party under this agreement will
immediately cease, except that:
(i) any rights arising out of a breach of any terms of this
agreement will survive any termination of this agreement;
(ii) the provisions described in Section 17.23 will survive
any termination of this agreement;
(iii) the payment obligations under Section 10 will survive
any termination of this agreement if, and to the extent, any costs or fees have
accrued or are otherwise due and owing as of the date of termination of this
agreement from Manager to Sprint PCS or any Sprint PCS Related Party or from
Sprint PCS to Manager or any Manager Related Party;
(iv) either party may terminate this agreement in accordance
with the terms of this agreement without any liability for any loss or damage
arising out
of or related to such termination, including any loss or damage arising out of
the exercise by Sprint PCS of its rights under Section 11.6.3;
(v) Manager will use all commercially reasonable efforts to
cease immediately all of their respective efforts to market, sell, promote or
distribute the Sprint PCS Products and Services;
(vi) Sprint PCS has the option to buy from Manager any new
unsold subscriber equipment and accessories, at the prices charged to Manager;
(vii) the parties will immediately stop making any statements
or taking any action that might cause third parties to infer that any business
relationship continues to exist between the parties, and where necessary or
advisable, the parties will inform third parties that the parties no longer have
a business relationship; and
(viii) if subscriber equipment and accessories are in transit
when this agreement is terminated, Sprint PCS may, but does not have the
obligation to, cause the freight carrier to not deliver the subscriber equipment
and accessories to Manager but rather to deliver the subscriber equipment and
accessories to Sprint PCS.
(c) If the party exercises its rights under Section
11.4(a)(ii), this agreement will continue in full force and effect until
otherwise terminated.
(d) If this agreement terminates for any reason other than
Manager's purchase of the Disaggregated License, Manager will not,
for 3 years after the date of termination compile, create, or use for the
purpose of selling merchandise or services similar to any Sprint PCS Products
and Services, or sell, transfer or otherwise convey to a third party, a list of
customers who purchased, leased or used any Sprint PCS Products and Services.
Manager may use such a list for its own internal analysis of its business
practices and operations. If this agreement terminates because of Manager's
purchase of the Disaggregated License, then Sprint PCS will transfer to Manager
the Sprint PCS customers with a MIN assigned to the Service Area covered by the
Disaggregated License, but Sprint PCS retains the customers of a national
account and any resellers who have entered into a resale agreement with Sprint
PCS. Manager agrees not to solicit, directly or indirectly, any customers of
Sprint PCS not transferred to Manager under this Section 11.4(d) for 2 years
after the termination of this agreement, except that Manager's advertising
through mass media will not be considered a solicitation of Sprint PCS
customers.
11.5 Manager's Event of Termination Rights and Remedies. In addition to
any other right or remedy that Manager may have under this agreement, the
parties agree that Manager will have the rights and remedies set forth in this
Section 11.5 and that such rights and remedies will survive the termination of
this agreement. If Manager has a right to terminate this agreement as the result
of the occurrence of an Event of Termination under Sections 11.3.2, 11.3.3,
11.3.5 or 11.3.7 (if Manager is the non-bankrupt party), then Manager has the
right to elect one of the following three (3) remedies, except Manager cannot
elect its remedies under Sections 11.5.1 or 11.5.2 during the first 2 years of
the Initial Term with respect to an Event of Termination under Section 11.3.3.
11.5.1 Manager's Put Right. Manager may put to Sprint PCS within 30
days after the Event of Termination all of the Operating Assets. Sprint PCS will
pay to Manager an amount equal to 80% of the Entire Business Value. The closing
of the purchase of the Operating Assets will occur within 20 days after the
later of:
(a) the receipt by Sprint PCS of the written notice of
determination of the Entire Business Value by the appraisers under Section 11.7;
or
(b) the receipt of all materials required to be delivered to
Sprint PCS under Section 11.8.
Upon closing the purchase of the Operating Assets this agreement will be
deemed terminated. The exercise of the put, the determination of the Operating
Assets, the representations and warranties made by the Manager with respect to
the Operating Assets and the business, and the process for closing the purchase
will be subject to the terms and conditions set forth in Section 11.8.
11.5.2 Manager's Purchase Right.
(a) If Sprint PCS owns 20 MHz or more of PCS spectrum in the
Service Area under the License on the date this agreement is executed, then
Manager may, subject to receipt of FCC approval, purchase from Sprint PCS the
Disaggregated License for the greater of (1) the original cost of the License to
Sprint PCS (pro rated on a pops and spectrum basis) plus the microwave
relocation costs paid by Sprint PCS or (2) 9% (10% minus a 10% penalty) of the
Entire Business Value.
(b) Upon closing the purchase of the Disaggregated License
this agreement will be deemed terminated. The closing of the purchase of the
Disaggregated License will occur within the later of:
(1) 20 days after the receipt by Manager of the written
notice of determination of the Entire Business Value by the appraisers under
Section 11.7; or
(2) 10 days after the approval of the sale of the
Disaggregated License by the FCC.
The exercise of the purchase right, the determination of the geographic
extent of the Disaggregated License coverage, the representations and warranties
made by Sprint PCS with respect to the Disaggregated License, and the process
for closing the purchase will be subject to the terms and conditions set forth
in Section 11.8.
(c) After the closing of the purchase Manager will allow:
(1) subscribers of Sprint PCS to roam on Manager's
network; and
(2) Sprint PCS to resell Manager's Product and Services.
Manager will charge Sprint PCS a MFN price in either case.
11.5.3 Manager's Action for Damages or Other Relief. Manager, in
accordance with the dispute resolution process in Section 14, may seek damages
or other appropriate relief.
11.6 Sprint PCS' Event of Termination Rights and Remedies. In addition to
any other right or remedy that Sprint PCS may have under this agreement, the
parties agree that Sprint PCS will have the rights and remedies set forth in
this Section 11.6 and that such rights and remedies will survive the termination
of this agreement. If Sprint PCS has a right to terminate this agreement as the
result of the occurrence of an Event of Termination under Sections 11.3.2,
11.3.3, 11.3.5, 11.3.6 or 11.3.7 (if Sprint PCS is the non-bankrupt party), then
Sprint PCS has the right to elect one of the following four (4) remedies, except
that (i) if Sprint PCS elects the remedies under Sections 11.6.1, 11.6.2 or
11.6.4, Sprint PCS may pursue its rights under Section 11.6.3 concurrently with
its pursuit of one of the other three remedies, (ii) Sprint PCS cannot elect its
remedies under Sections 11.6.1 or 11.6.2 during the first 2 years of the Initial
Term with respect to an Event of Termination under Section 11.3.3 (unless the
Event of Termination is caused by a breach related to the Build-out Plan or the
build-out of the Service Area Network), and (iii) Sprint PCS cannot elect its
remedy under Section 11.6.2 during the first 2 years of the Initial Term with
respect to an Event of Termination under Section 11.3.6.
11.6.1 Sprint PCS' Purchase Right. Sprint PCS may purchase from
Manager all of the Operating Assets. Sprint PCS will pay to Manager an amount
equal to 72 % (80% minus a 10% penalty) of the Entire Business Value. The
closing of the purchase of the Operating Assets will occur within 20 days after
the later of:
(a) the receipt by Sprint PCS of the written notice of
determination of the Entire Business Value by the appraisers pursuant to Section
11.7; or
(b) the receipt of all materials required to be delivered to
Sprint PCS under Section 11.8.
Upon closing the purchase of the Operating Assets this agreement will be
deemed terminated. The exercise of the purchase right, the determination of the
Operating Assets. the representations and warranties made by Manager with
respect to the Operating Assets and the business, and the process for closing
the purchase will be subject to the terms and conditions set forth in Section
11.8.
11.6.2 Sprint PCS' Put Right.
(a) Sprint PCS may, subject to receipt of FCC approval, put to
Manager the Disaggregated License for a purchase price equal to the greater of
(1) the original cost of the License to Sprint PCS (pro rated on a pops and
spectrum basis) plus the microwave relocation costs paid by Sprint PCS or (2)
10% of the Entire Business Value.
(b) Upon closing the purchase of the Disaggregated License this
agreement will be deemed terminated. The closing of the purchase of the
Disaggregated License will occur within the later of:
(1) 20 days after the receipt by Sprint PCS of the
written notice of determination of the Entire Business Value by the appraisers
under Section 11.7; or
(2) 10 days after the approval of the sale of the
Disaggregated License by the FCC.
(c) The exercise of the put, the determination of the
geographic extent of the Disaggregated License coverage, the representations and
warranties made by Sprint PCS with respect to the Disaggregated License, and the
process for closing the purchase will be subject to the terms and conditions set
forth in Section 11.8.
(d) Manager may, within 10 days after it receives notice of
Sprint PCS' exercise of its put, advise Sprint PCS of the amount of spectrum
(not to exceed 10 MHz) it wishes to purchase. After the closing of the purchase
Manager will allow:
(1) subscribers of Sprint PCS to roam on Manager's
network; and
(2) Sprint PCS to resell Manager's Products and
Services.
Manager will charge Sprint PCS a MFN price in either case.
11.6.3 Sprint PCS' Right to Cause A Cure.
(a) Sprint PCS' Right. Sprint PCS may, but is not obligated
to, take such action as it deems necessary to cure Manager's breach of this
agreement, including assuming operational responsibility for the Service Area
Network to complete construction, continue operation, complete any necessary
repairs, implement changes necessary to comply with the Program Requirements and
terms of this agreement, or take such other steps as are appropriate under the
circumstances, or Sprint PCS may designate a third party or parties to do the
same, to assure uninterrupted availability and deliverability of Sprint PCS
Products and Services in the Service Area, or to complete the build-out of the
Service Area Network in accordance with the terms of this agreement. In the
event that Sprint PCS elects to exercise its right under this Section 11.6.3,
Sprint PCS will give Manager written notice of such election. Upon giving such
notice:
(1) Manager will collect and make available at a
convenient, central location at its principal place of business, all documents,
books, manuals, reports and records related to the Build-out Plan and required
to operate and maintain the Service Area Network; and
(2) Sprint PCS, its employees, contractors and
designated third parties will have the unrestricted right to enter the
facilities and offices of Manager
for the purpose of curing the breach and, if Sprint PCS deems necessary, operate
the Service Area Network.
Manager agrees to cooperate with and assist Sprint PCS to the extent
requested by Sprint PCS to enable Sprint PCS to exercise its rights under this
Section 11.6.3.
(b) Liability. Sprint PCS' exercise of its rights under this
Section 11.6.3 will not be deemed an assumption by Sprint PCS of any liability
attributable to Manager or any other party, except that, without limiting the
provisions of Section 13, during the period that Sprint PCS is curing a breach
under this agreement or operating any portion of the Service Area Network
pursuant to this Section 11.6.3, Sprint PCS will indemnify and defend Manager
and its directors, partners, officers, employees and agents from and against,
and reimburse and pay for, all claims, demands, damages, losses, judgments,
awards, liabilities, costs and expenses (including reasonable attorneys' fees,
court costs and other expenses of litigation), whether or not arising out of
third party claims, in connection with any suit, claim, action or other legal
proceeding relating to the bodily injury, sickness or death of persons or the
damage to or destruction of property, real or personal, resulting from or
arising out of Sprint PCS' negligence or willful misconduct in curing the breach
or in the operation of the Service Area Network. Sprint PCS' obligation under
this Section 11.6.3(b) will not apply to the extent of any claims, demands,
damages, losses, judgments, awards, liabilities, costs and expenses resulting
from the negligence or willful misconduct of Manager or arising from any
contractual obligation of Manager.
(c) Costs and Payments. During the period that Sprint PCS is
curing a breach or operating the Service Area Network under this Section 11.6.3,
Sprint PCS and Manager will continue to make any and all payments due to the
other party and to third parties under this agreement, the Services Agreement
and any other agreements to which such party is bound, except that Sprint PCS
may deduct from its payments to Manager all reasonable costs and expenses
incurred by Sprint PCS in connection with the exercise of its right under this
Section 11.6.3. Sprint PCS' operation of the Service Area Network pursuant to
this Section 11.6.3 is not a substitution for Manager's performance of its
obligations under this agreement and does not relieve Manager of its other
obligations under this agreement.
(d) Length of Right. Sprint PCS may continue to operate the
Service Area Network in accordance with Section 11.6.3 until (i) Sprint PCS
cures all breaches by Manager under this agreement; (ii) Manager cures all
breaches and demonstrates to Sprint PCS' satisfaction that it is financially and
operationally willing, ready and able to perform in accordance with this
agreement and resumes such performance; (iii) Sprint PCS consummates the
purchase of the Operating Assets under Section 11.6.1 or the sale of the
Disaggregated License under Section 11.6.2; or (iv) Sprint PCS terminates this
agreement.
(e) Not Under Services Agreement. The exercise by Sprint PCS
of its right under this Section 11.6.3 does not represent services rendered
under the Services Agreement, and therefore it does not allow Manager to be
deemed in compliance with the Program Requirements under Sections 7.1(a)(ii),
8.1(b).
11.6.4 Sprint PCS' Action for Damages or Other Relief. Sprint PCS,
in accordance with the dispute resolution process in Section 14, may seek
damages or other appropriate relief.
11.7 Determination of Entire Business Value.
11.7.1 Appointment of Appraisers. Sprint PCS and Manager must each
designate an independent appraiser within 30 days after giving the Purchase
Notice under Exhibit 11.8. Sprint PCS and Manager will direct the two appraisers
to jointly select a third appraiser within 15 days after the day the last of
them is appointed. Each appraiser must be an expert in the valuation of wireless
telecommunications businesses. Sprint PCS and Manager must direct the three
appraisers to each determine, within 45 days after the appointment of the last
appraiser, the Entire Business Value. Sprint PCS and Manager will each bear the
costs of the appraiser appointed by it, and they will share equally the costs of
the third appraiser.
11.7.2 Manager's Operating Assets. The following assets are included
in the Operating Assets (as defined in the Schedule of Definitions):
(a) network assets, including all personal property, real
property interests in cell sites and switch sites, leasehold interests,
collocation agreements, easements, and rights-of-way;
(b) all of the real, personal, tangible and intangible
property and contract rights that Manager owns and uses in conducting the
business of providing the Sprint PCS Products and Services, including the
goodwill resulting from Manager's customer base;
(c) sale and distribution assets primarily dedicated (i.e., at
least 80% of their revenue is derived from the sale of Sprint PCS Products and
Services) to the sale by Manager of Sprint PCS Products and Services. For
example, a retail store that derives at least 80% of its revenue from the sale
of Sprint PCS Products and Services is an Operating Asset. A store that derives
65 % of its revenue from Sprint PCS Products and Services is not an Operating
Asset;
(d) customers, if any, that use both the other products and
services approved under Section 3.2 and the Sprint PCS Products and Services;
(e) handset inventory;
(f) books and records of the wireless business, including all
engineering drawings and designs and financial records; and
(g) all contracts used by Manager in operating the wireless
business including T1 service agreements, service contracts, interconnection
agreements, distribution agreements, software license agreements, equipment
maintenance agreements, sales agency agreements and contracts with all equipment
suppliers.
11.7.3 Entire Business Value. Utilizing the valuation principles set
forth
below and in Section 11.7.4, "Entire Business Value" means the fair market value
of Manager's wireless business in the Service Area, valued on a going concern
basis.
(a) The fair market value is based on the price a willing
buyer would pay a willing seller for the entire on-going business.
(b) The appraisers will use the then-current customary means
of valuing a wireless telecommunications business.
(c) The business is conducted under the Brands and existing
agreements between the parties and their respective Related Parties.
(d) Manager owns the Disaggregated License (in the case where
Manager will be buying the Disaggregated License under Sections 11.2.1.2,
11.2.2.2, 11.5.2 or 11.6.2) or Manager owns the spectrum and the frequencies
actually used by Manager under this agreement (in the case where Sprint PCS will
be buying the Operating Assets under Sections 11.2.1.1, 11.2.2.1, 11.5.1 or
11.6.1).
(e) The valuation will not include any value for the business
represented by Manager's Products and Services or any business not directly
related to Sprint PCS Products and Services.
11.7.4 Calculation of Entire Business Value. The Entire
Business Value to be used to determine the purchase price of the Operating
Assets or the Disaggregated License under this agreement is as follows:
(a) If the highest fair market value determined by the
appraisers is within 10% of the lowest fair market value, then the Entire
Business Value used to determine the purchase price under this agreement will be
the arithmetic mean of the three appraised fair market values.
(b) If two of the fair market values determined by the
appraisers are within 10% of one another, and the third value is not within 10%
of the other fair market values, then the Entire Business Value used to
determine the purchase price under this agreement will be the arithmetic mean of
the two more closely aligned fair market values.
(c) If none of the fair market values is within 10% of the
other two fair market values, then the Entire Business Value used to determine
the purchase price under this agreement will be the middle value of the three
fair market values.
11.8 Closing Terms and Conditions. The closing terms and conditions for
the transactions contemplated in this Section 11 are attached as Exhibit 11.8.
11.9 Contemporaneous and Identical Application. The parties agree that any
action regarding renewal or non-renewal and any Event of Termination will occur
contemporaneously and identically with respect to all Licenses. For example, if
Manager exercises its purchase right under Section 11.5.2, it must exercise such
right with respect to all of the Licenses under this agreement. The Term of this
agreement will be
the same for all Licenses; Manager will not be permitted to operate a portion of
the Service Area Network with fewer than all of the Licenses.
12. BOOKS AND RECORDS; CONFIDENTIAL INFORMATION; INSURANCE
12.1 Books and Records.
12.1.1 General. Each party must keep and maintain books and records
to support and document any fees, costs, expenses or other charges due in
connection with the provisions set forth in this agreement. The records must be
retained for a period of at least 3 years after the fees, costs, expenses or
other charges to which the records relate have accrued and have been paid, or
such other period as may be required by law.
12.1.2 Audit. On reasonable advance notice, each party must provide
access to appropriate records to the independent auditors selected by the other
party for purposes of auditing the amount of fees, costs, expenses or other
charges payable in connection with the Service Area with respect to the period
audited. The auditing party will conduct the audit no more frequently than
annually. If the audit shows that Sprint PCS was underpaid then, unless the
amount is contested, Manager will pay to Sprint PCS the amount of the
underpayment within 10 Business Days after Sprint PCS gives Manager written
notice of the determination of the underpayment. If the audit determines that
Sprint PCS was overpaid then, unless the amount is contested, Sprint PCS will
pay to Manager the amount of the overpayment within 10 Business Days after
Sprint PCS determines Sprint PCS was overpaid. The auditing party will pay all
costs and expenses related to the audit unless the amount owed to the audited
party is reduced by more than 10% or the amount owed by the audited party is
increased by more than 10%. in which case the costs and expenses related to the
audit will be paid by the audited party.
Notwithstanding the above provisions of this Section 12.1.2, rather than
allow Manager's independent auditors access to Sprint PCS' records, Sprint PCS
may provide a report issued in conformity with Statement of Auditing Standard
No. 70 "Reports on the Processing of Transactions by Service Organizations"
("Type II Report" or "Manager Management Report"). Such report will be prepared
by independent auditors and will provide an opinion on the controls placed in
operation and tests of operating effectiveness of those controls in effect at
Sprint PCS over the Manager Management Processes. "Manager Management Processes"
include those services generally provided within the Management Agreement,
primarily billing and collection of Collected Revenues.
12.1.3 Contesting an Audit. If the party that did not select the
independent auditor does not agree with the findings of the audit, then such
party can contest the findings by providing notice of such disagreement to the
other party (the "Dispute Notice"). The date of delivery of such notice is the
"Dispute Notice Date." If the parties are unable to resolve the disagreement
within 10 Business Days after the Dispute Notice Date, they will resolve the
disagreement in accordance with the following procedures.
The two parties and the auditor that conducted the audit will all agree on
an
independent certified public accountant with a regional or national accounting
practice in the wireless telecommunications industry (the "Arbiter") within 15
Business Days after the Dispute Notice Date. If, within 15 Business Days after
the Dispute Notice Date, the three parties fail to agree on the Arbiter, then at
the request of either party to this agreement. the Arbiter will be selected
pursuant to the rules then in effect of the American Arbitration Association.
Each party will submit to the Arbiter within 5 Business Days after its selection
and engagement all information reasonably requested by the Arbiter to enable the
Arbiter to independently resolve the issue that is the subject of the Dispute
Notice. The Arbiter will make its own determination of the amount of fees,
costs, expenses or other charges payable under this agreement with respect to
the period audited. The Arbiter will issue a written report of its determination
in reasonable detail and will deliver a copy of the report to the parties within
10 Business Days after the Arbiter receives all of the information reasonably
requested. The determination made by the Arbiter will be final and binding and
may be enforced by any court having jurisdiction. The parties will cooperate
fully in assisting the Arbiter and will take such actions as are necessary to
expedite the completion of and to cause the Arbiter to expedite its assignment.
If the amount owed by a contesting party is reduced by more than 10% or
the amount owed to a contesting party is increased by more than 10% then the
non-contesting party will pay the costs and expenses of the Arbiter, otherwise
the contesting party will pay the costs and expenses of the Arbiter.
12.2 Confidential Information.
(a) Except as specifically authorized by this agreement, each of the
parties must, for the Term and 3 years after the date of termination of this
agreement, keep confidential, not disclose to others and use only for the
purposes authorized in this agreement, all Confidential Information disclosed by
the other party to the party in connection with this agreement, except that the
foregoing obligation will not apply to the extent that any Confidential
Information:
(i) is or becomes, after disclosure to a party, publicly known
by any means other than through unauthorized acts or omissions of the party or
its agents; or
(ii) is disclosed in good faith to a party by a third party
entitled to make the disclosure.
(b) Notwithstanding the foregoing, a party may use, disclose or
authorize the disclosure of Confidential Information that it receives that:
(i) has been published or is in the public domain, or that
subsequently comes into the public domain, through no fault of the receiving
party;
(ii) prior to the effective date of this agreement was
properly within the legitimate possession of the receiving party, or subsequent
to the effective date of this agreement, is lawfully received from a third party
having rights to publicly disseminate the Confidential Information without any
restriction and without notice to the recipient of any restriction against its
further disclosure;
(iii) is independently developed by the receiving party
through persons or entities who have not had, either directly or indirectly,
access to or knowledge of the Confidential Information;
(iv) is disclosed to a third party consistent with the terms
of the written approval of the party originally disclosing the information;
(v) is required by the receiving party to be produced under
order of a court of competent jurisdiction or other similar requirements of a
governmental agency, and the Confidential Information will otherwise continue to
be Confidential Information required to be held confidential for purposes of
this agreement;
(vi) is required by the receiving party to be disclosed by
applicable law or a stock exchange or association on which the receiving party's
securities (or those of its Related Parties) are or may become listed; or
(vii) is disclosed by the receiving party to a financial
institution or accredited investor (as that term is defined in Rule 501 (a)
under the Securities Act of 1933) that is considering providing financing to the
receiving party and which financial institution or accredited investor has
agreed to keep the Confidential Information confidential in accordance with an
agreement at least as restrictive as this Section 12.2.
(c) Notwithstanding the foregoing, Manager and Sprint PCS authorize
each other to disclose to the public in regulatory filings the other's identity
and the Service Area to be developed and managed by Manager, and Manager
authorizes Sprint PCS to mention Manager and the Service Area in public
relations announcements.
(d) The party making a disclosure under Sections 12.2(b)(v),
12.2(b)(vi) or 12.2(b)(vii) must inform the disclosing party as promptly as is
reasonably necessary to enable the disclosing party to take action to, and use
the party's reasonable best efforts to, limit the disclosure and maintain
confidentiality to the extent practicable.
(e) Manager will not except when serving in the capacity of Manager
under this agreement, use any Confidential Information of any kind that it
receives under or in connection with this agreement. For example, if Manager
operates a wireless company in a different license area, Manager may not use any
of the Confidential Information received under or in connection with this
agreement in operating the other wireless business.
12.3 Insurance
12.3.1 General. During the term of this agreement, Manager must
obtain and maintain, and will cause any subcontractors to obtain and maintain,
with financially reputable insurers licensed to do business in all jurisdictions
where any work is performed under this agreement and who are reasonably
acceptable to Sprint PCS, the insurance described in the Sprint PCS Insurance
Requirements. The Sprint PCS Insurance Requirements as of the date of this
agreement are attached as Exhibit 12.3. Sprint PCS may modify the Sprint PCS
Insurance Requirements as is commercially reasonable from time to time by
delivering to Manager a new Exhibit 12.3.
12.3.2 Waiver of Subrogation. Manager must look first to any
insurance in its favor before making any claim against Sprint PCS or Sprint, and
their respective directors, officers, employees, agents or representatives for
recovery resulting from injury to any person (including Manager's or its
subcontractor's employees) or damage to any property arising from any cause,
regardless of negligence. Manager does hereby release and waive to the fullest
extent permitted by law, and will cause its respective insurers to waive, all
rights of recovery by subrogation against Sprint PCS or Sprint, and their
respective directors, officers, employees, agents or representatives.
12.3.3 Certificates of Insurance. Manager and all of its
subcontractors, if any, must, as a material condition of this agreement and
prior to the commencement of any work under and any renewal of this agreement,
deliver to Sprint PCS a certificate of insurance, satisfactory in form and
content to Sprint PCS, evidencing that the above insurance, including waiver of
subrogation, is in force and will not be canceled or materially altered without
first giving Sprint PCS at least 30 days prior written notice and that all
coverages are primary to any insurance carried by Sprint PCS, its directors,
officers, employees, agents or representatives.
Nothing contained in this Section 12.3.3 will limit Manager's liability to
Sprint PCS, its directors, officers, employees, agents or representatives to the
limits of insurance certified or carried.
13. INDEMNIFICATION
13.1 Indemnification by Sprint PCS. Sprint PCS agrees to indemnify, defend
and hold harmless Manager, its directors, managers, officers, employees, agents
and representatives from and against any and all claims, demands, causes of
action, losses. actions, damages, liability and expense, including costs and
reasonable attorneys' fees, against Manager, its directors, managers, officers,
employees, agents and representatives arising from or relating to the violation
by Sprint PCS of any law, regulation or ordinance applicable to Sprint PCS or by
Sprint PCS' breach of any representation, warranty or covenant contained in this
agreement or any other agreement between Sprint PCS or Sprint PCS' Related
Parties and Manager or Manager's Related Parties except where and to the extent
the claim, demand, cause of action, loss, action, damage, liability and/or
expense results solely from the negligence or willful misconduct of Manager.
13.2 Indemnification by Manager. Manager agrees to indemnify, defend and
hold harmless Sprint PCS and Sprint, and their respective directors, managers,
officers, employees, agents and representatives from and against any and all
claims, demands, causes of action, losses, actions, damages, liability and
expense, including costs and reasonable attorneys' fees, against Sprint PCS or
Sprint, and their respective directors, managers, officers, employees, agents
and representatives arising from or relating to Manager's violation of any law,
regulation or ordinance applicable to Manager, Manager's breach of any
representation, warranty or covenant contained in this agreement or any other
agreement between Manager or Manager's Related Parties and Sprint PCS and Sprint
PCS' Related Parties, Manager's ownership of the Operating Assets or the
operation of the Service Area Network, or the actions or failure to act of any
of Manager's contractors, subcontractors, agents, directors, managers, officers,
employees and representatives of any of them in the performance of any work
under this agreement, except where and to the extent the claim, demand, cause of
action, loss, action, damage, liability and expense results solely from the
negligence or willful misconduct of Sprint PCS or Sprint, as the case may be.
13.3 Procedure.
13.3.1 Notice. Any party being indemnified ("Indemnitee") will give
the party making the indemnification ("Indemnitor") written notice as soon as
practicable but no later than 5 Business Days after the party becomes aware of
the facts, conditions or events that give rise to the claim for indemnification
if:
(a) any claim or demand is made or liability is asserted
against Indemnitee; or
(b) any suit, action, or administrative or legal proceeding is
instituted or commenced in which Indemnitee is involved or is named as a
defendant either individually or with others.
Failure to give notice as described in this Section 13.3.1 does not modify
the indemnification obligations of this provision, except if Indemnitee is
harmed by failure to provide timely notice to Indemnitor, then Indemnitor does
not have to indemnify Indemnitee for the harm caused by the failure to give the
timely notice.
13.3.2 Defense by Indemnitor. If within 30 days after giving notice
Indemnitee receives written notice from Indemnitor stating that Indemnitor
disputes or intends to defend against the claim, demand, liability, suit, action
or proceeding, then Indemnitor will have the right to select counsel of its
choice and to dispute or defend against the claim, demand, liability, suit,
action or proceeding, at its expense.
Indemnitee will fully cooperate with Indemnitor in the dispute or defense
so long as Indemnitor is conducting the dispute or defense diligently and in
good faith. Indemnitor is not permitted to settle the dispute or claim without
the prior written approval of Indemnitee, which approval will not be
unreasonably withheld. Even though Indemnitor selects counsel of its choice,
Indemnitee has the right to retain additional representation by counsel of its
choice to participate in the defense at Indemnitee's sole cost and expense.
13.3.3 Defense by Indemnitee. If no notice of intent to dispute or
defend is received by Indemnitee within the 30-day period, or if a diligent and
good faith defense is not being or ceases to be conducted, Indemnitee has the
right to dispute and defend against the claim, demand or other liability at the
sole cost and expense of Indemnitor and to settle the claim, demand or other
liability, and in either event to be indemnified as provided in this Section
13.3.3. Indemnitee is not permitted to settle the dispute or claim without the
prior written approval of Indemnitor, which approval will not be unreasonably
withheld.
13.3.4 Costs. Indemnitor's indemnity obligation includes reasonable
attorneys' fees, investigation costs, and all other reasonable costs and
expenses incurred by Indemnitee from the first notice that any claim or demand
has been made or may be made, and is not limited in any way by any limitation on
the amount or type of damages, compensation, or benefits payable under
applicable workers' compensation acts, disability benefit acts, or other
employee benefit acts.
14. DISPUTE RESOLUTION
14.1 Negotiation. The parties will attempt in good faith to resolve any
dispute arising out of or relating to this agreement promptly by negotiation
between or among representatives who have authority to settle the controversy.
Either party may escalate any dispute not resolved in the normal course of
business to the appropriate (as determined by the party) officers of the parties
by providing written notice to the other party.
Within 10 Business Days after delivery of the notice, the appropriate
officers of each party will meet at a mutually acceptable time and place, and
thereafter as often as they deem reasonably necessary, to exchange relevant
information and to attempt to resolve the dispute.
Either party may elect, by giving written notice to the other party, to
escalate any dispute arising out of or relating to the determination of fees
that is not resolved in the normal course of business or by the audit process
set forth in Sections 12.1.2 and 12.1.3, first to the appropriate financial or
accounting officers to be designated by each party. The designated officers will
meet in the manner described in the preceding paragraph. If the matter has not
been resolved by the designated officers within 30 days after the notifying
party's notice, either party may elect to escalate the dispute to the
appropriate (as determined by the party) officers in accordance with the prior
paragraphs of this Section 14.1.
14.2 Unable to Resolve. If a dispute has not been resolved within 60 days
after the notifying party's notice, either party may continue to operate under
this agreement and sue the other party for damages or seek other appropriate
remedies as provided in this agreement. If, and only if, this agreement does not
provide a remedy (as in the case of Sections 3.4 and 4.5, where the parties are
supposed to reach an agreement), then either party may give the other party
written notice that it wishes to resolve the dispute or claim arising out of the
parties' inability to agree under such Sections of this agreement by using the
arbitration procedure set forth in this Section 14.2. Such arbitration will
occur in Kansas City, Missouri, unless the parties otherwise mutually agree,
with the precise location being as agreed upon by the parties or, absent such
agreement, at a location in Kansas City, Missouri selected by Sprint PCS. Such
arbitration will be conducted pursuant to the procedures prescribed by the
Missouri Uniform Arbitration Act, as amended from time to time, or, if none,
pursuant to the rules then in effect of the American Arbitration Association (or
at any other place and by any other form of arbitration mutually acceptable to
the parties). Any award rendered in such arbitration will be confidential and
will be final and conclusive upon the parties, and a judgment on the award may
be entered in any court of the forum, state or federal,
having jurisdiction. The expenses of the arbitration will be borne equally by
the parties to the arbitration, except that each party must pay for and bear the
cost of its own experts, evidence, and attorneys' fees.
The parties must each, within 30 days after either party gives notice to
the other party of the notifying party's desire to resolve a dispute or claim
under the arbitration procedure in this Section 14.2, designate an independent
arbitrator, who is knowledgeable with regard to the wireless telecommunications
industry, to participate in the arbitration hearing. The two arbitrators thus
selected will select a third independent arbitrator, who is knowledgeable with
regard to the wireless telecommunications industry, who will act as chairperson
of the board of arbitration. If, within 15 days after the day the last of the
two named arbitrators is appointed, the two named arbitrators fail to agree upon
the third, then at the request of either party, the third arbitrator shall be
selected pursuant to the rules then in effect of the American Arbitration
Association. The three independent arbitrators will comprise the board of
arbitration, which will preside over the arbitration hearing and will render all
decisions by majority vote. If either party refuses or neglects to appoint an
independent arbitrator within such 30-day period, the independent arbitrator who
has been appointed as of the 31st day after the notifying party's notice will be
the sole independent arbitrator and will solely preside over the arbitration
hearing. The arbitration hearing will commence no sooner than 30 days after the
date the last arbitrator is appointed and no later than 60 days after such date.
The arbitration hearing will be conducted during normal working hours on
Business Days without interruption or adjournment of more than 2 Business Days
at any one time or 6 Business Days in the aggregate.
The arbitrators will deliver their decision to the parties in writing
within 10 days after the conclusion of the arbitration hearing. The arbitration
award will be accompanied by findings of fact and a statement of reasons for the
decision. There will be no appeal from the written decision, except as permitted
by applicable law. The arbitration proceedings, the arbitrators' decision, the
arbitration award, and any other aspect, matter, or issue of or relating to the
arbitration are confidential, and disclosure of such confidential information is
an actionable breach of this agreement.
Notwithstanding any other provision of this agreement, arbitration will
not be required of any issue for which injunctive relief is properly sought by
either party.
14.3 Attorneys and Intent. If an officer intends to be accompanied at a
meeting by an attorney, the other party's officer will be given at least 3
Business Days prior notice of the intention and may also be accompanied by an
attorney. All negotiations under Section 14.1 are confidential and will be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Civil Procedure and state rules of evidence and civil procedure.
14.4 Tolling of Cure Periods. Any cure period under Section 11.3 that is
less than 90 days will be tolled during the pendency of the dispute resolution
process. Any cure period under Section 11.3 that is 90 days or longer will not
be tolled during the pendency of the dispute resolution process.
15. REPRESENTATIONS AND WARRANTIES
Each party for itself makes the following representations and warranties
to the other party:
15.1 Due Incorporation or Formation; Authorization of Agreements. The
party is either a corporation, limited liability company, or limited partnership
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Manager is qualified to do business and in
good standing in every jurisdiction in which the Service Area is located. The
party has the full power and authority to execute and deliver this agreement and
to perform its obligations under this agreement.
15.2 Valid and Binding Obligation. This agreement constitutes the valid
and binding obligation of the party, enforceable in accordance with its terms,
except as may be limited by principles of equity or by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
15.3 No Conflict; No Default. Neither the execution, delivery and
performance of this agreement nor the consummation by the party of the
transactions contemplated in this agreement will conflict with, violate or
result in a breach of (a) any law, regulation, order, writ, injunction, decree,
determination or award of any governmental authority or any arbitrator,
applicable to such party, (b) any term, condition or provision of the articles
of incorporation, certificate of limited partnership, certificate of
organization, bylaws, partnership agreement or limited liability company
agreement (or other governing documents) of such party or of any material
agreement or instrument to which such party is or may be bound or to which any
of its material properties or assets is subject.
15.4 Litigation. No action, suit, proceeding or investigation is pending
or, to the knowledge of the party, threatened against or affecting the party or
any of its properties, assets or businesses in any court or before or by any
governmental agency that could, if adversely determined, reasonably be expected
to have a material adverse effect on the party's ability to perform its
obligations under this agreement. The party has not received any currently
effective notice of any default that could reasonably be expected to result in a
breach of the preceding sentence.
16. REGULATORY COMPLIANCE
16.1 Regulatory Compliance. Manager will construct, operate, and manage
the Service Area Network in compliance with applicable federal, state, and local
laws and regulations, including Siting Regulations. Nothing in this Section 16.1
will limit Manager's obligations under Section 2.2 and the remainder of this
Section 16. Manager acknowledges that failure to comply with applicable federal,
state, and local laws and regulations in its construction, operation, and
management of the Service Area Network may subject the parties and the License
to legal and administrative agency actions, including forfeiture penalties and
actions that affect the License, such as license
suspension and revocation, and accordingly, Manager agrees that it will
cooperate with Sprint PCS to maintain the License in full force and effect.
Manager will write and implement practices and procedures governing
construction and management of the Service Area Network in compliance with
Siting Regulations. Manager will make its Siting Regulations practices and
procedures available upon request to Sprint PCS in the manner specified by
Sprint PCS for its inspection and review, and Manager will modify those Siting
Regulations practices and procedures as may be requested by Sprint PCS. Every
six months, and at the request of Sprint PCS, Manager will provide a written
certification from one of Manager's chief officers that Manager's Service Area
Network complies with Siting Regulations. Manager's first certification of
compliance with Siting Regulations will be provided to Sprint PCS six months
after the date of this agreement.
Manager will conduct an audit and physical inspection of its Service Area
Network at the request of Sprint PCS to confirm compliance with Siting
Regulations, and Manager will report the results of the audit and physical
inspection to Sprint PCS in the form requested by Sprint PCS. Manager will bear
the cost of Siting Regulations compliance audits and physical inspections
requested by Sprint PCS.
Manager will retain for 3 years records demonstrating compliance with
Siting Regulations, including compliance audit and inspection records. Manager
will make those records available upon request to Sprint PCS for production,
inspection, and copying in the manner specified by Sprint PCS. Sprint PCS will
bear the cost of production, inspection, and copying.
16.2 FCC Compliance. The parties agree to comply with all applicable FCC
rules governing the License or the Service Area Network and specifically agree
as follows:
(a) The party billing a customer will advise the customer that
service is provided over spectrum licensed to Sprint PCS. Neither Manager nor
Sprint PCS will represent itself as the legal representative of the other before
the FCC or any other third party, but will cooperate with each other with
respect to FCC matters concerning the License or the Service Area Network.
(b) Sprint PCS will use commercially reasonable efforts to maintain
the License in accordance with the terms of the License and all applicable laws,
policies and regulations and to comply in all material respects with all other
legal requirements applicable to the operation of the Sprint PCS Network and its
business. Sprint PCS has sole responsibility, except as specifically provided
otherwise in Section 2.2, for keeping the License in full force and effect and
for preparing submissions to the FCC or any other relevant federal, state or
local authority of all reports, applications, interconnection agreements,
renewals, or other filings or documents. Manager must cooperate and coordinate
with Sprint PCS' actions to comply with regulatory requirements, which
cooperation and coordination must include, without limitation, the provision to
Sprint PCS of all information that Sprint PCS deems necessary to comply with the
regulatory requirements. Manager must refrain from taking any action that could
impede Sprint PCS from fulfilling its obligations under the preceding sentence,
and must not take any
action that could cause Sprint PCS to forfeit or cancel the License.
(c) Sprint PCS and Manager are familiar with Sprint PCS'
responsibility under the Communications Act of 1934, as amended, and applicable
FCC rules. Nothing in this agreement is intended to diminish or restrict Sprint
PCS' obligations as an FCC Licensee and both parties desire that this agreement
and each party's obligations under this agreement be in compliance with the FCC
rules.
(d) Nothing in this agreement will preclude Sprint PCS from
permitting or facilitating resale of Sprint PCS Products and Services to the
extent required or elected under applicable FCC regulations. Manager will take
the actions necessary to facilitate Sprint PCS' compliance with FCC regulations.
To the extent permitted by applicable regulations, Sprint PCS will not authorize
a reseller that desires to sell services and products in only the Service Area
to resell Sprint PCS wholesale products and services, unless Manager agrees in
advance to such sales.
(e) If a change in FCC policy or rules makes it necessary to obtain
FCC consent for the implementation, continuation or further effectuation of any
term or provision of this agreement, Sprint PCS will use all commercially
reasonable efforts diligently to prepare, file and prosecute before the FCC all
petitions, waivers, applications, amendments, rule-making comments and other
related documents necessary to secure and/or retain FCC approval of all aspects
of this agreement. Manager will use commercially reasonable efforts to provide
to Sprint PCS any information that Sprint PCS may request from Manager with
respect to any matter involving Sprint PCS, the FCC, the License, the Sprint PCS
Products and Services or any other products and services approved under Section
3.2. Each party will bear its own costs of preparation of the documents and
prosecution of the actions.
(f) If the FCC determines that this agreement is inconsistent with
the terms and conditions of the License or is otherwise contrary to FCC
policies, rules and regulations, or if regulatory or legislative action
subsequent to the date of this agreement alters the permissibility of this
agreement under the FCC's rules or other applicable law, rules or regulations,
then the parties must use best efforts to modify this agreement as necessary to
cause this agreement (as modified) to comply with the FCC policies, rules,
regulations and applicable law and to preserve to the extent possible the
economic arrangements set forth in this agreement.
(g) Manager warrants and represents to Sprint PCS that Manager is
and at all times during the Term of this agreement will be in compliance with
FCC rules and regulations regarding limits on classes and amounts of spectrum
that may be owned by Manager. Manager agrees that in the event that Manager is
or at any time becomes in violation of such rules and regulations, Manager will
promptly take all action necessary and appropriate (other than terminating this
agreement) to cure such violation and comply with such rules and regulations,
including without limitation disposing of its direct or indirect interests in
cellular licenses.
16.3 Marking and Lighting. Manager will conform to applicable FAA
standards when Siting Regulations require marking and lighting of Manager's
Service
Area Network cell sites. Manager will cooperate with Sprint PCS in reporting
lighting malfunctions as required by Siting Regulations.
16.4 Regulatory Notices. Manager will, within 2 Business Days after its
receipt, give Sprint PCS written notice of all oral and written communications
it receives from regulatory authorities (including but not limited to the FCC,
the FAA, state public service commissions, environmental authorities, and
historic preservation authorities) and complaints respecting Manager's
construction, operation, and management of the Service Area Network that could
result in actions affecting the License as well as written notice of the details
respecting such communications and complaints, including a copy of any written
material received in connection with such communications and complaints. Manager
will cooperate with Sprint PCS in responding to such communications and
complaints received by Manager. Sprint PCS has the right to respond to all such
communications and complaints, with counsel and consultants of its own choice.
If Sprint PCS chooses to respond to such communications and complaints, Manager
will not respond to them without the consent of Sprint PCS, and Manager will pay
the costs of Sprint PCS' responding to such communications and complaints,
including reasonable attorneys' and consultants' fees, investigation costs, and
all other reasonable costs and expenses incurred by Sprint PCS.
16.5 Regulatory Policy-Setting Proceedings. Manager will not intervene in
or otherwise participate in a rulemaking, investigation, inquiry, contested
case, or similar regulatory policy setting proceedings before a regulatory
authority concerning the License or construction, operation, and management of
the Service Area Network and the Sprint PCS business operated using the Service
Area Network.
17. GENERAL PROVISIONS
17.1 Notices. Any notice, payment, demand, or communication required or
permitted to be given by any provision of this agreement must be in writing and
mailed (certified or registered mail, postage prepaid, return receipt
requested), sent by hand or overnight courier, or sent by facsimile (with
acknowledgment received and a copy sent by overnight courier), charges prepaid
and addressed as described on the Notice Address Schedule attached to the Master
Signature Page, or to any other address or number as the person or entity may
from time to time specify by written notice to the other parties.
All notices and other communications given to a party in accordance with
the provisions of this agreement will be deemed to have been given when
received.
17.2 Construction. This agreement will be construed simply according to
its fair meaning and not strictly for or against either party.
17.3 Headings. The table of contents, section and other headings contained
in this agreement are for reference purposes only and are not intended to
describe, interpret, define, limit or expand the scope, extent or intent of this
agreement.
17.4 Further Action. Each party agrees to perform all further acts and
execute, acknowledge, and deliver any documents that may be reasonably
necessary,
appropriate, or desirable to carry out the intent and purposes of this
agreement.
17.5 Counterpart Execution. This agreement will be executed by affixing
the parties' signatures to the Master Signature Page, which Master Signature
Page, and thus this agreement, may be executed in any number of counterparts
with the same effect as if both parties had signed the same document. All
counterparts will be construed together and will constitute one agreement.
17.6 Specific Performance. Each party agrees with the other party that the
party would be irreparably damaged if any of the provisions of this agreement
were not performed in accordance with their specific terms and that monetary
damages alone would not provide an adequate remedy. Accordingly, in addition to
any other remedy to which the non-breaching party may be entitled, at law or in
equity, the non-breaching party will be entitled to injunctive relief to prevent
breaches of this agreement and specifically to enforce the terms and provisions
of this agreement.
17.7 Entire Agreement; Amendments. The provisions of this agreement, the
Services Agreement and the Trademark License Agreements (including the exhibits
to those agreements) set forth the entire agreement and understanding between
the parties as to the subject matter of this agreement and supersede all prior
agreements, oral or written, and other communications between the parties
relating to the subject matter of this agreement. Except for Sprint PCS' right
to amend the Program Requirements in accordance with Section 9.2 and its right
to unilaterally modify and amend certain other provisions as expressly provided
in this agreement, this agreement may be modified or amended only by a written
amendment signed by persons or entities authorized to bind each party and, with
respect to the sections set forth for Sprint on the Master Signature Page, the
persons or entities authorized to bind Sprint.
17.8 Limitation on Rights of Others. Except as set forth on the Master
Signature Page for Sprint, nothing in this agreement, whether express or
implied, will be construed to give any person or entity other than the parties
any legal or equitable right, remedy or claim under or in respect of this
agreement.
17.9 Waivers.
17.9.1 Waivers-General. The observance of any term of this agreement
may be waived (whether generally or in a particular instance and either
retroactively or prospectively) by the party entitled to enforce the term, but
any waiver is effective only if in a writing signed by the party against which
the waiver is to be asserted. Except as otherwise provided in this agreement, no
failure or delay of either party in exercising any power or right under this
agreement will operate as a waiver of the power or right, nor will any single or
partial exercise of any right or power preclude any other or further exercise of
the right or power or the exercise of any other right or power.
17.9.2 Waivers-Manager. Manager is not in breach of any covenant in
this agreement and no Event of Termination will have occurred as a result of the
occurrence of any event, if Manager had delegated to Sprint Spectrum under the
Services Agreement (or any successor to that agreement) responsibility for
taking any action necessary to
ensure compliance with the covenant or to prevent the occurrence of the event.
17.9.3 Force Majeure. Neither Manager nor Sprint PCS, as the case
may be, is in breach of any covenant in this agreement and no Event of
Termination will occur as a result of the failure of such party to comply with
such covenant, if such party's non-compliance with the covenant results
primarily from:
(i) any FCC order or any other injunction issued by any
governmental authority impeding the party's ability to comply with the covenant;
(ii) the failure of any governmental authority to grant any
consent, approval, waiver, or authorization or any delay on the part of any
governmental authority in granting any consent, approval, waiver or
authorization;
(iii) the failure of any vendor to deliver in a timely manner
any equipment or services; or
(iv) any act of God, act of war or insurrection, riot, fire,
accident, explosion, labor unrest, strike, civil unrest, work stoppage,
condemnation or any similar cause or event not reasonably within the control of
such party.
17.10 Waiver of Jury Trial. EACH PARTY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
17.11 Binding Effect. Except as otherwise provided in this agreement, this
agreement is binding upon and inures to the benefit of the parties and their
respective and permitted successors, transferees, and assigns, including any
permitted successor, transferee or assignee of the Service Area Network or of
the License. The parties intend that this agreement bind only the party signing
this agreement and that the agreement is not binding on the Related Parties of a
party unless the agreement expressly provides that Related Parties are bound.
17.12 Governing Law. The internal laws of the State of Missouri (without
regard to principles of conflicts of law) govern the validity of this agreement,
the construction of its terms, and the interpretation of the rights and duties
of the parties.
17.13 Severability. The parties intend every provision of this agreement
to be severable. If any provision of this agreement is held to be illegal,
invalid, or unenforceable for any reason, the parties intend that a court
enforce the provision to the maximum extent permissible so as to effect the
intent of the parties (including the enforcement of the remaining provisions).
If necessary to effect the intent of the parties, the parties will negotiate in
good faith to amend this agreement to replace the unenforceable provision with
an enforceable provision that reflects the original intent of the parties.
17.14 Limitation of Liability. NO PARTY WILL BE LIABLE TO THE OTHER
PARTY FOR SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE
DAMAGES, OR LOSS OF PROFITS, ARISING FROM THE RELATIONSHIP OF THE PARTIES OR THE
CONDUCT OF BUSINESS UNDER, OR BREACH OF, THIS AGREEMENT, EXCEPT WHERE SUCH
DAMAGES OR LOSS OF PROFITS ARE CLAIMED BY OR AWARDED TO A THIRD PARTY IN A CLAIM
OR ACTION AGAINST WHICH A PARTY TO THIS AGREEMENT HAS A SPECIFIC OBLIGATION TO
INDEMNIFY ANOTHER PARTY TO THIS AGREEMENT.
17.15 No Assignment; Exceptions.
17.15.1 General. Neither party will, directly or indirectly, assign
this agreement or any of the party's rights or obligations under this agreement
without the prior written consent of the other party, except as otherwise
specifically provided in this Section 17.15. Sprint PCS may deny its consent to
any assignment or transfer in its sole discretion except as otherwise provided
in this Section 17.15.
Any attempted assignment of this agreement in violation of this Section
17.15 will be void and of no effect.
A party may assign this agreement to a Related Party of the party, except
that Manager cannot assign this agreement to a Related Party that is a
significant competitor of Sprint, Sprint PCS or their respective Related Parties
in the telecommunications business. Except as provided in Section 17.15.5, an
assignment does not release the assignor from its obligations under this
agreement unless the other party to this agreement consents in writing in
advance to the assignment and expressly grants a release to the assignor.
Except as provided in Section 17.15.5, Sprint PCS must not assign this
agreement to any entity that does not also own the License covering the Service
Area directly or indirectly through a Related Party. Manager must not assign
this agreement to any entity (including a Related Party), unless such entity
assumes all rights and obligations under the Services Agreement, the Trademark
License Agreements and any related agreements.
17.15.2 Assignment Right of Manager to Financial Lender. If Manager
is no longer able to satisfy its financial obligations and other duties, then
Manager has the right to assign its obligations and rights under this agreement
to its Financial Lender, if:
(a) Manager or Financial Lender provides Sprint PCS at least
10 days advance written notice of such assignment;
(b) Financial Lender cures or commits to cure any outstanding
material breach of this agreement by Manager prior to the end of any applicable
cure period. If Financial Lender fails to make a timely cure then Sprint PCS may
exercise its rights under Section 11;
(c) Financial Lender agrees to serve as an interim trustee for
the obligations and duties of Manager under this agreement for a period not to
exceed 180 days. During this interim period, Financial Lender must identify a
proposed successor
to assume the obligations and rights of Manager under this agreement;
(d) Financial Lender assumes all of Manager's rights and
obligations under the Services Agreement, the Trademark License Agreements and
any related agreements; and
(e) Financial Lender provides to Sprint PCS advance written
notice of the proposed successor to Manager that Financial Lender has identified
("Successor Notice"). Sprint PCS may give to Financial Lender written notice of
Sprint PCS' decision whether to consent to such proposed successor within 30
days after Sprint PCS' receipt of the Successor Notice. Sprint PCS may not
unreasonably withhold such consent, except that Sprint PCS is not required to
consent to a proposed successor that:
(i) has, in the past, materially breached prior
agreements with Sprint PCS or its Related Parties;
(ii) is a significant competitor of Sprint PCS or its
Related Parties in the telecommunications business;
(iii) does not meet Sprint PCS' reasonable credit
criteria;
(iv) fails to execute an assignment of all relevant
documents related to this agreement including the Services Agreement and the
Trademark License Agreements; or
(v) refuses to assume the obligations of Manager under
this Agreement, the Services Agreement, the Trademark License Agreements and any
related agreements.
If Sprint PCS fails to provide a response to Financial Lender within 30
days after receiving the Successor Notice, then the proposed successor is deemed
rejected. Any Financial Lender disclosed on the Build-out Plan on Exhibit 2.1 is
deemed acceptable to Sprint PCS.
17.15.3 Change of Control Rights. If there is a Change of Control of
Manager, then:
(a) Manager must provide to Sprint PCS advance written notice
detailing relevant and appropriate information about the new ownership interests
effecting the Change of Control of Manager.
(b) Sprint PCS must provide to Manager written notice of its
decision whether to consent to or reject the proposed Change of Control within
30 days after its receipt of such notice. Sprint PCS may not unreasonably
withhold such consent, except that Sprint PCS is not required to consent to a
Change of Control in which:
(i) the final controlling entity or any of its Related
Parties
has in the past materially breached prior agreements with Sprint PCS or its
Related Parties;
(ii) the final controlling entity or any of its Related
Parties is a significant competitor of Sprint PCS or its Related Parties in the
telecommunications business;
(iii) the final controlling entity does not meet Sprint
PCS' reasonable credit criteria;
(iv) the final controlling entity fails to execute an
assignment of all relevant documents related to this agreement including the
Services Agreement and the Trademark License Agreements; or
(v) the final controlling entity or its Related Parties
refuse to assume the obligations of Manager under this agreement.
(c) In the event that Sprint PCS provides notice that it does
not consent to the Change of Control, Manager is entitled to either:
(i) contest such determination pursuant to the dispute
resolution procedure in Section 14; or
(ii) abandon the proposed Change of Control.
(d) Nothing in this agreement requires Sprint PCS' consent to:
(i) a public offering of Manager that does not result in
a Change of Control (i.e., a shift from one party being in control to no party
being in control is not a Change of Control); or
(ii) a recapitalization or restructuring of the
ownership interests of Manager that Manager determines is necessary to:
(A) facilitate the acquisition of commercial
financing and lending arrangements that will support Manager's operations and
efforts to fulfill its obligations under this agreement; and
(B) that does not constitute a Change of Control.
(e) "Change of Control" means a situation where in anyone
transaction or series of related transactions occurring during any 365-day
period, the ultimate parent entity of the Manager changes. The ultimate parent
entity is to be determined using the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 rules. A Change of Control does not occur if:
(i) a party changes the form of its organization without
materially changing their ultimate ownership (e.g., converting from a limited
partnership to a limited liability company); or
(ii) one of the owners of the party on the date of this
agreement or on the date of the closing of Manager's initial equity offering for
purposes of financing its obligations under this agreement ultimately gains
control over the party, unless such party is a significant competitor of Sprint
PCS or Sprint PCS' Related Parties in the telecommunications business.
17.15.4 Right of First Refusal. Notwithstanding any other provision
in this agreement, Manager grants Sprint PCS the right of first refusal
described below. If Manager determines it wishes to sell an Offered Interest,
upon receiving any Offer to purchase an Offered Interest, Manager agrees to
promptly deliver to Sprint PCS an Offer Notice. The Offer Notice is deemed to
constitute an offer to sell to Sprint PCS, on the terms set forth in the Offer,
all but not less than all of the Offered Interest. Sprint PCS will have a period
of 60 days from the date of the Offer Notice to notify Manager that it agrees to
purchase the Offered Interest on such terms. If Sprint PCS timely agrees in
writing to purchase the Offered Interest, the parties will proceed to consummate
such purchase not later than the 180th day after the date of the Offer Notice.
If Sprint PCS does not agree within the 60-day period to purchase the Offered
Interest, Manager will have the right, for a period of 120 days after such 60th
day, subject to the restrictions set forth in this Section 17, to sell to the
person or entity identified in the Offer Notice all of the Offered Interest on
terms and conditions no less favorable to Manager than those set forth in the
Offer. If Manager fails to sell the Offered Interest to such person or entity on
such terms and conditions within such 120-day period, Manager will again be
subject to the provisions of this Section 17.15.4 with respect to the Offered
Interest.
17.15.5 Transfer of Sprint PCS Network. Sprint PCS may sell,
transfer or assign the Sprint PCS Network or any of the Licenses, including its
rights and obligations under this agreement, the Services Agreement and any
related agreements, to a third party without Manager's consent so long as the
third party assumes the rights and obligations under this agreement and the
Services Agreement. Manager agrees that Sprint PCS and Sprint PCS' Related
Parties will be released from any and all obligations under and with respect to
any and all such agreements upon such sale, transfer or assignment in accordance
with this Section 17.15.5, without the need for Manager to execute any document
to effect such release.
17.16 Provision of Services by Sprint Spectrum. As described in the
Recitals, the party or parties to this agreement that own the Licenses are
referred to in this agreement as "Sprint PCS." Sprint Spectrum will provide most
or all of the services required to be provided by Sprint PCS under this
agreement on behalf of Sprint PCS, other than the services to be rendered by
Manager. For example, Sprint Spectrum is the party to the contracts relating to
the national distribution network, the roaming and long distance services, and
the procurement arrangements. Accordingly, Sprint PCS and Manager will deal with
Sprint Spectrum to provide many of the attributes of the Sprint PCS Network.
17.17 Number Portability. Manager understands that the manner in which
customers are assigned to the Service Area Network could change as telephone
numbers become portable without any relation to the service area in which they
are initially activated. To the extent the relationship between NPA-NXX and the
Service Area
changes, Sprint PCS will develop an alternative system to attempt to assign
customers who primarily live and work in the Service Area to the Service Area.
The terms of this agreement will be deemed to be amended to reflect the new
system that Sprint PCS develops.
17.18 Disclaimer of Agency. Neither party by this agreement makes the
other party a legal representative or agent of the party, nor does either party
have the right to obligate the other party in any manner, except if the other
party expressly permits the obligation by the party or except for provisions in
this agreement expressly authorizing one party to obligate the other.
17.19 Independent Contractors. The parties do not intend to create any
partnership, joint venture or other profit-sharing arrangement, landlord-tenant
or lessor-lessee relationship, employer-employee relationship, or any other
relationship other than that expressly provided in this agreement. Neither party
to this agreement has any fiduciary duty to the other party.
17.20 Expense. Each party bears the expense of complying with this
agreement except as otherwise expressly provided in this agreement. The parties
must not allocate any employee cost or other cost to the other party, except as
otherwise provided in the Program Requirements or to the extent the parties
expressly agree in advance to the allocation.
17.21 General Terms. (a) This agreement is to be interpreted in accordance
with the following rules of construction:
(i) The definitions in this agreement apply equally to both
the singular and plural forms of the terms defined unless the context otherwise
requires.
(ii) The words "include," "includes" and "including" are
deemed to be followed by the phrase "without limitation".
(iii) All references in this agreement to Sections and
Exhibits are references to Sections of, and Exhibits to, this agreement, unless
otherwise specified; and
(iv) All references to any agreement or other instrument or
statute or regulation are to it as amended and supplemented from time to time
(and, in the case of a statute or regulation, to any corresponding provisions of
successor statutes or regulations), unless the context otherwise requires.
(b) Any reference in this agreement to a "day" or number of "days"
(without the explicit qualification of "Business") is a reference to a calendar
day or number of calendar days. If any action or notice is to be taken or given
on or by a particular calendar day, and the calendar day is not a Business Day,
then the action or notice may be taken or given on the next Business Day.
17.22 Conflicts with Other Agreements. The provisions of this Management
Agreement govern over those of the Services Agreement if the provisions
contained in this agreement conflict with analogous provisions in the Services
Agreement. The provisions of each Trademark License Agreement governs over those
of this agreement if the provisions contained in this agreement conflict with
analogous provisions in a Trademark License Agreement.
17.23 Survival Upon Termination. The provisions of Sections 10, 11.4,
11.5, 11.6, 12.2, 13, 14, 16 and 17 of this agreement will survive any
termination of this agreement.
17.24 Announced Transaction. Sprint Enterprises, L.P., TCI Telephony
Services, Inc., Comcast Telephony Services and Cox Telephony Partnership have
executed a Restructuring and Merger Agreement and related agreements that
provide for restructuring the ownership of Sprint Spectrum L.P., SprintCom,
Inc., PhillieCo Partners I, L.P., and Cox Communications PCS, L.P. Upon
consummation of the transactions contemplated by those agreements, Sprint would
control each of the four entities. While Sprint and Sprint PCS anticipate the
proposed transactions will be consummated, there can be no assurances.
17.25 Additional Terms and Provisions. Certain additional and supplemental
terms and provisions of this agreement, if any, are set forth in the Addendum to
Sprint PCS Management Agreement attached hereto and incorporated herein by this
reference. Manager represents and warrants that the Addendum also describes all
existing contracts and arrangements (written or verbal) that relate to or affect
the rights of Sprint PCS or Sprint under this agreement (e.g., agreements
relating to long distance telephone services (Section 3.4) or backhaul and
transport services (Section 3.7)).
17.26 Master Signature Page. Each party agrees that it will execute the
Master Signature Page that evidences such party's agreement to execute, become a
party to and be bound by this agreement, which document is incorporated herein
by this reference.
17.27 Agent Authorization. Because of the close operational relationship
between the parties listed together below, each entity authorizes the other
entity to act on its behalf in every capacity under this agreement: (a)
WirelessCo, L.P. and Sprint Spectrum L.P.; (b) Cox PCS License, L.L.C. and Cox
Communications PCS, L.P.; (c) APC PCS, LLC and American PCS Communications, LLC;
and (d) PhillieCo, L.P. and PhillieCo Partners I, L.P.
Schedule of Definitions
This Schedule of Definitions is the "Schedule of Definitions" referred to
in and incorporated by reference under the Management Agreement, Services
Agreement, and Trademark License Agreements (as such agreements are defined
below). Whenever the phrase "this agreement" is used below, such phrase refers
to the particular agreement under whose terms this Schedule of Definitions is
being applied in that instance. If citations to sections or exhibits of
different agreements are included in a definition, the citation to the
particular agreement under whose terms this Schedule of Definitions is being
applied controls to the exclusion of the citations to different agreements.
The following words and phrases used in this agreement have the following
meanings:
"Addendum" means any addendum attached to this agreement that contains the
amendments to this agreement; such Addendum is expressly incorporated as a part
of this agreement.
"Affiliation Agreement" means any and all of the agreements, known as
Sprint PCS Affiliation Agreements, whereby an affiliate and Sprint PCS and/or
one or more of Sprint PCS' Related Parties agree to the terms and conditions
under which such affiliate will manage the Service Area Network identified in
such agreement, using such Affiliate's own PCS license issued by the FCC and any
documents incorporated by reference in such agreement.
"Agent" has the meaning set forth in Section 3.1 of the Sprint Spectrum
Trademark and Service Mark License Agreement or Section 3.1 of the Sprint
Trademark and Service Mark License Agreement.
"Arbiter" has the meaning set forth in Section 12.1.3 of the Management
Agreement or Section 5.1.3 of the Services Agreement.
"Available Services" means those categories of services listed on Exhibit
2.1.1 to the Services Agreement (as the same may be amended from time to time by
Sprint Spectrum and made available to Manager under the terms of the Services
Agreement).
"Available Services and Fees Schedule" means that schedule set forth on
Exhibit 2.1.1 to the Services Agreement, which sets forth the Available Services
offered from time to time and the fees charged for such Available Services.
"Bankruptcy" means, for the purposes of the Trademark License Agreements,
either a Voluntary Bankruptcy or an Involuntary Bankruptcy.
"Brands" means the Sprint PCS Brands and the Sprint Brands.
"BTA" means a Basic Trading Area for which a Basic Trading Area (BTA)
license is issued by the FCC.
"Build-out Plan" means the plan agreed upon by Manager and Sprint PCS,
along with any modifications and updates to the plan, respecting the
construction and design of the Service Area Network, a copy of which is attached
as Exhibit 2.1 to the Management Agreement.
"Business Day" means a day of the year that banks are not required or
authorized to close in the State of New York.
"Cancelled Service" has the meaning set forth in Section 3.2 of the
Services Agreement.
"CDMA" means code division multiple access.
"Change of Control" has the meaning set forth in Section 17.15.3 of the
Management Agreement.
"Collected Revenues" has the meaning set forth in Section 10.4 of the
Management Agreement.
"Confidential Information" means all Program Requirements, guidelines,
standards, and programs, the technical, marketing, financial, strategic and
other information provided by each party under the Management Agreement,
Services Agreement, and Trademark License Agreements, and any other information
disclosed by one party to the other party pursuant to the Management Agreement,
Services Agreement, and Trademark License Agreements that is not specifically
excluded by Section 12.2 of the Management Agreement. In addition to the
preceding sentence, "Confidential Information" has the meaning set forth in
Section 3.1 of the Sprint Spectrum Trademark and Service Mark License Agreement
or Section 3.1 of the Sprint Trademark and Service Mark License Agreement.
"Controlled Related Party" means the Parent of any Person and each
Subsidiary of such Parent. As used in Section 1.2 and Article 3 of the Sprint
Spectrum Trademark and Service Mark License Agreement or Section 1.2 and Article
3 of the Sprint Trademark and Service Mark License Agreement, the term
"Controlled Related Party" will also include any Related Party of a Person that
such Person or its Parent can directly or indirectly unilaterally cause to take
or refrain from taking any of the actions required, prohibited or otherwise
restricted by such Section, whether through ownership of voting securities,
contractually or otherwise.
"Default Rate" means the rate per annum (computed on the basis of the
actual number of days elapsed in a year of 365 or 366 days, as applicable),
compounded monthly, equal to the Prime Rate (adjusted as and when changes in the
Prime Rate occur) plus five percent (5%).
"Disaggregated License" means that portion of the License that Manager may
or is required to purchase under Section 11 of the Management Agreement from
Sprint PCS under certain circumstances, after Sprint PCS' receipt of FCC
approval of the necessary disaggregation and partition, which portion comprises
no less than the amount of spectrum sufficient to operate one duplex CDMA
carrier (including the required guard bands) within the PCS Spectrum, and no
more than 10 MHz of the Spectrum (at Manager's designation) covering the Service
Area, and which includes the frequencies then in use in the Service Area Network
and, if applicable, adjacent frequencies, so long as such frequencies in the
aggregate do not exceed 10 MHz.
"Dispute Notice" has the meaning set forth in Section 12.1.3 of the
Management Agreement or Section 5.1.3 of the Services Agreement.
"Dispute Notice Date" has the meaning set forth in Section 12.1.3 of the
Management Agreement or Section 5.1.3 of the Services Agreement.
"Encumbrances" has the meaning set forth in Section 5.1(a) of the Sprint
Spectrum Trademark and Service Mark License Agreement or Section 5.1(a) of the
Sprint Trademark and Service Mark License Agreement.
"Entire Business Value" has the meaning set forth in Section 11.7.3 of the
Management Agreement.
"Event of Termination" means any of the events described in Section 11.3
of the Management Agreement. For the purposes of the Sprint Spectrum Trademark
and Service Mark License Agreement only, "Event of Termination" has the meaning
set forth in Section 13.2 of that agreement. For the purposes of the Sprint
Trademark and Service Mark License Agreement only, "Event of Termination" has
the meaning set forth in Section 13.2 of that agreement.
"FAA" means the Federal Aviation Administration.
"FCC" means the Federal Communications Commission.
"Financial Lender" means any and all of those commercial and financial
institutions that provide material credit to Manager for the purpose of
assisting Manager with the fulfillment of its obligations and duties under this
agreement.
"fixed wireless local loop" has the meaning set forth in Section 2.4 of
the Management Agreement.
"home service area" means the geographic area within which a customer can
make a local call on the customer's PCS phone (i.e., the customer does not incur
an extra charge).
"Inbound Roaming" means calls placed by a non-Sprint PCS Network customer
on the Sprint PCS Network.
"Indemnitee" and "Indemnitor" have the meanings set forth in Section
13.3.1 of the Management Agreement or Section 6.3.1 of the Services Agreement.
"Initial Term" has the meaning set forth in Section 11.1 of the Management
Agreement.
"Involuntary Bankruptcy" has the meaning set forth in Section 11.3.7 of
the Management Agreement.
"Law" means all laws (statutory or otherwise), ordinances, rules,
regulations, bylaws, Orders and codes of all governmental and regulatory
authorities, whether United States Federal, state or local, which are applicable
to the Sprint PCS Products and Services.
"License" means the PCS license(s) issued by the FCC described on the
Service Area Exhibit to the Management Agreement.
"Licensed Marks" means the trademarks and service marks referred to in the
Recitals section of the Trademark License Agreement under whose terms this
definition is being applied, and such other marks as may be adopted and
established under said agreement from time to time.
"Licensee" has the meaning set forth in the introductory paragraph to the
particular agreement under whose terms this definition is being applied.
"Licensor" has the meaning set forth in the introductory paragraph to the
particular agreement under whose terms this definition is being applied.
"local calling area" means the geographic area within which a customer can
make a local call on the customer's PCS handset without incurring a long
distance charge.
"Loss" means any and all damage, loss, liability, claim, out-of-pocket
cost and expense, including reasonable expenses of investigation and reasonable
attorneys' fees and expenses, but excluding consequential or special damages.
"Management Agreement" means that certain Sprint PCS Management Agreement
executed by Manager and Sprint PCS and any documents incorporated by reference
in said agreement.
"Manager" means the party to this agreement as indicated in the
introductory paragraph of this agreement.
"Manager Management Report" has the meaning set forth in Section 12.1.2 of
the Management Agreement.
"Manager's Products and Services" means all types and categories of
wireless communications services and associated products that are offered by
Manager in the Service Area under Section 3.2 of the Management Agreement.
"Marketing Communications Guidelines" means the guidelines issued by
Sprint or Sprint PCS in accordance with Section 5.2 of the Management Agreement
with respect to the marketing, promotion, advertising, distribution, lease and
sale of Sprint PCS Products and Services, as they may be amended from time to
time by Sprint or Sprint PCS in accordance with the terms of the Trademark
License Agreements.
"Master Signature Page" means the document that the parties to the
Management Agreement, Services Agreement and/or one or more of the Trademark
License Agreements sign to evidence their agreement to execute, become a party
to and be bound by each of the agreements, or parts thereof, listed above the
particular party's signature on such Master Signature Page.
"MFN price" or "Most Favored Nation price" means, with respect to resale,
the best local market price offered to any third party for the purchase of air
time on Manager's network including but not limited to any third party who may
use the air time for its own wireless
communications services or resell the air time, and, with respect to roaming,
the lowest roaming charge of Manager to other wireless carriers when their
customers roam on the Service Area Network.
"MIN" means the 24-bit mobile identification number corresponding to the
7-digit telephone number assigned to the handset, used for both billing and
receiving calls.
"MTA" means a Major Trading Area for which a MTA license is issued by the
FCC.
"New Coverage" means the build-out in the Service Area that is in addition
to the build-out required under the then-existing Build-out Plan, which
build-out Sprint PCS or Manager decides should be built-out.
"Notice Address Schedule" means the schedule attached to the Master
Signature Page that provides the mailing and courier delivery addresses, and the
facsimile number, for giving notices to each of the parties signing the Master
Signature Page. The Notice Address Schedule may include supplemental addresses
that serve as additional or alternate notice addresses for use by the parties in
specifically prescribed situations.
"NPA-NXX" means as follows: "NPA" means numbering plan area, which is the
area code for a telephone number. "NXX" refers to the first three digits of a
telephone number, which identify the specific telephone company central office
that serves that number.
"Offer" means an offer received by Manager to sell substantially all of
the assets comprising or used in connection with the operation and management of
the Service Area Network or any portion of the Service Area Network.
"Offer Notice" means a written notice given by Manager to Sprint PCS that
sets forth in detail the terms and conditions of an Offer and the name and
address of the person or entity making the Offer.
"Offered Interest" means the assets that Manager proposes to sell pursuant
to an Offer.
"Operating Assets" means the assets Manager or its Related Parties owns
and uses in connection with the operation of the Service Area Network, at the
time of termination, to provide the Sprint PCS Products and Services. Operating
Assets does not include items such as furniture, fixtures and buildings that
Manager or its Related Parties use in connection with other businesses. Examples
of Operating Assets include without limitation: switches, towers, cell sites,
systems, records and retail stores.
"Operational Level of Sprint PCS" means the average operational level of
all the service area networks operated by Sprint PCS and its Related Parties
without the use of a manager or affiliate, as measured by Sprint PCS, unless the
operational level, as measured by Sprint PCS, of all of the service area
networks operated by Sprint PCS and its Related Parties without the use of a
manager or affiliate that are contiguous to the Service Area are below the
national average, in which case "Operational Level of Sprint PCS" means the
average operational level of those contiguous service area networks.
"Order" means any order, writ, injunction, decree, judgment, award or
determination of any court or governmental or regulatory authority.
"Other Managers" means any person or entity with which Sprint PCS has
entered into an agreement similar to this agreement or an Affiliation Agreement,
including without limitation an affiliate under an Affiliation Agreement or a
manager under another Management Agreement, under which the person or entity
designs, constructs and manages a service area network and offers and promotes
Sprint PCS Products or Services.
"Outbound Roaming" means calls placed by a Sprint PCS Network customer on
a non-Sprint PCS network.
"Parent" means, with respect to any Person, the ultimate parent entity (as
determined in accordance with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and the rules and regulations promulgated thereunder) of such Person;
except that if such ultimate parent entity is an individual, the Parent will be
the highest entity in the ownership chain from the ultimate parent entity to and
including such Person that is not an individual.
"parties" means, with respect to the Management Agreement, Sprint PCS and
Manager. For the purpose of the services Agreement only, "parties" means Sprint
Spectrum and Manager. Sprint is not a party to the Management Agreement, except
to the limited extent described on the signature page executed on behalf of
Sprint. For the purpose of the Trademark License Agreements only, "parties"
means Licensor and Licensee.
"PCS" means a radio communication system authorized under the rules for
broadband personal communications services designated as Subpart E of Part 24 of
the FCC's rules, including the network, marketing, distribution, sales, customer
interface and operations functions relating thereto. "PCS Spectrum" means the
range of frequencies that Sprint PCS is authorized to use under the License.
"Permitted Assignee" means any assignee of the rights and obligations of
Licensee pursuant to an assignment consented to in writing by Licensor, in its
sole discretion, in accordance with Section 14.1 of the Sprint Spectrum
Trademark and Service Mark License Agreement or Section 14.1 of the Sprint
Trademark and Service Mark License Agreement, or any subsequent permitted
assignee of any such permitted assignee.
"Person" means any individual, partnership, limited partnership, limited
liability company, corporation, trust, other business association or business
entity, estate, or other entity.
"pops" means the population covered by a license or group of licenses.
Unless otherwise noted, as used in the Management Agreement, pops means the most
recent Rand-McNally Population Survey estimate of the population of a geographic
area.
"Premium and Promotional Items" means all items, including clothing,
memorabilia and novelties, used to display the Licensed Marks for the purpose of
promoting the awareness, sale or image of the Sprint PCS Products and Services;
provided, however, that Premium and
Promotional Items does not include marketing and advertising materials prepared
by Licensee that are subject to the Marketing Communications Guidelines (e.g.
printed materials such as bill stuffers, brochures and similar materials).
"Prime Rate" means the rate announced from time to time by The Chase
Manhattan Bank, or its successor(s), as its prime rate.
"Program Requirements" means the standards, guidelines, plans, policies
and programs established by Sprint PCS from time to time regarding the operation
and management of the Service Area Network and the Sprint PCS business operated
using the Service Area Network, including the Program Requirements set forth in
Sections 4.1, 4.2, 4.3, 7.2 and 8.1 of the Management Agreement. Sprint PCS may
also implement Program Requirements respecting a voluntary resale program, as
defined in Section 3.5.2 of the Management Agreement.
"Purchase Notice" has the meaning set forth in Section 1.2 of Exhibit 11.8
to the Management Agreement.
"Quality Standards" has the meaning set forth in Section 2.1(a) of the
Sprint Spectrum Trademark and Service Mark License Agreement or Section 2.1(a)
of the Sprint Trademark and Service Mark License Agreement.
"Rand-McNally Population Survey" means the most recent population survey
published by Rand-McNally or, if Rand-McNally no longer publishes the surveys,
then the most recent population survey published by any successor organization
to Rand-McNally or, if no such organization exists, an organization selected by
Sprint PCS that provides surveys similar to the Rand-McNally surveys.
"Receiving Party" has the meaning set forth in Section 3.1 of the Sprint
Spectrum Trademark and Service Mark License Agreement or Section 3.1 of the
Sprint Trademark and Service Mark License Agreement.
"Related Equipment" means customer-controlled equipment for use in
connection with the Sprint PCS Products and Services including telephones,
wireless handsets and related accessories, PCMCIA cards, "smart" cards, PDA's,
PBX's, set-top boxes and data terminals.
"Related Party" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with the Person. For purposes of the
Management Agreement, Sprint Spectrum, SprintCom, American PCS Communications,
LLC, PhillieCo Partners I, L.P., and Cox Communications PCS, L.P. will be deemed
to be Related Parties. For purposes of this definition, the term "controls"
(including its correlative meanings "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Restricted Party" has the meaning set forth in Section 3.1 of the Sprint
Spectrum Trademark and Service Mark License Agreement or Section 3.1 of the
Sprint Trademark and Service Mark License Agreement.
"Selected Services" means those Available Services selected by Manager to
be provided by Sprint Spectrum under Section 2.1 of the Services Agreement. An
Available Service will not be treated as a Selected Service until Sprint
Spectrum begins providing that service.
"Service Area" means the geographic area described on the Service Area
Exhibit to the Management Agreement.
"Service Area Network" means the network and business activities managed
by Manager under the Management Agreement in the Service Area under the License.
"Services Agreement" means that certain Sprint PCS Services Agreement
executed by Manager and Sprint Spectrum and any documents incorporated by
reference in said agreement, whereby Manager may delegate the performance of
certain services to Sprint PCS for fees that represent an adjustment of the fees
paid by Sprint PCS to Manager under Section 10 of the Management Agreement.
"Siting Regulations" means:
(1) FCC regulations governing tower siting, lighting, marking,
monitoring, and reporting of lighting malfunctions as set forth in 47 CFR
ss.ss.17.1 through 17.58, and as may be amended;
(2) FAA regulations governing tower siting, lighting, marking,
monitoring, and reporting of lighting malfunctions as set forth in 14 CFR
ss.ss.77.1 through 77.75, and as may be amended;
(3) FCC land use regulations as set forth in 47 CFR ss.ss.1.1301
through 1.1319, and as may be amended; and
(4) FCC radio frequency exposure regulations as set forth in 47
CFR ss.ss.1.1301 through 1.1319, and as may be amended.
"spectrum" has the same meaning as PCS Spectrum.
"Sprint" means Sprint Communications Company, L.P., a Delaware limited
partnership.
"Sprint Brands" means the "Licensed Marks" as that term is defined under
the Sprint Trademark and Service Mark License Agreement.
"Sprint PCS" means any or all of the following Related Parties who are
License holders and signatories to the Management Agreement: Sprint Spectrum
L.P., a Delaware limited partnership, SprintCom, Inc., a Kansas corporation,
PhillieCo Partners I, L.P., a Delaware limited partnership, Cox Communications
PCS, L.P., a Delaware limited partnership, and American PCS Communications, LLC,
a Delaware limited liability company. Each entity listed above is a Related
Party to each of the other listed entities.
"Sprint PCS Affiliation Agreement" has the same meaning as Affiliation
Agreement.
"Sprint PCS Brands" means the "Licensed Marks" as that term is defined
under the Sprint Spectrum Trademark and Service Mark License Agreement.
"Sprint PCS Communications Policies" means the policies established in
accordance with Section 6.4 of the Management Agreement with respect to public
relations development, maintenance and management, as they may be amended from
time to time by Sprint PCS in accordance with the terms of the Management
Agreement.
"Sprint PCS Customer Service Program Requirements" means the program and
requirements established in accordance with Section 8.1 of the Management
Agreement with respect to customer service development, maintenance and
management, as it may be amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement.
"Sprint PCS Customer Service Standards" means those customer service
standards developed by Sprint PCS with respect to customer service and
maintenance as described in Section 8.1 of the Management Agreement, as it may
be amended from time to time by Sprint PCS in accordance with the terms of the
Management Agreement.
"Sprint PCS Insurance Requirements" means the insurance requirements
developed by Sprint PCS as described in Section 12.3 of the Management
Agreement, as they may be amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement.
"Sprint PCS Management Agreement" has the same meaning as Management
Agreement.
"Sprint PCS National Accounts Program Requirements" means the program and
requirements established in accordance with Section 4.2 of the Management
Agreement with respect to national accounts development, maintenance and
management, as it may be amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement.
"Sprint PCS National or Regional Distribution Program Requirements" means
any distribution program and requirements established in accordance with Section
4.1 of the Management Agreement, as it may be amended from time to time by
Sprint PCS in accordance with the terms of the Management Agreement, and entered
into by Sprint PCS or its Related Parties and a third-party distributor (for
example, a national chain of retail electronics stores) from time to time, under
which the third party will distribute, lease, or sell Sprint PCS Products and
Services on a national or regional basis. The term "distributor" means a
reseller of Sprint PCS Products and Services, or an agent of Sprint PCS
authorized to sell Sprint PCS Products and Services on behalf of Sprint PCS, or
a person engaged in any other means of wholesale or retail distribution of
Sprint PCS Products and Services.
"Sprint PCS Network" means the national wireless network and business
activities to be developed by Sprint PCS, Manager and Other Managers in the
United States and certain of its territories and possessions, which network
includes the Service Area Network.
"Sprint PCS Products and Services" means all types and categories of
wireless communications services and associated products that are designated by
Sprint PCS (whether now existing or developed and implemented in the future) as
products and services to be offered by
Sprint PCS, Manager and all Other Managers as the products and services of the
Sprint PCS Network for fixed and mobile voice, short message and other data
services under the FCC's rules for broadband personal communications services,
including all local area service plans. Sprint PCS Products and Services do not
include wireline products or services, including local exchange service,
wireline long distance service, and wireline based Internet access.
"Sprint PCS Roaming and Inter Service Area Program Requirements" means:
(i) the roaming program and requirements established in accordance
with Section 4.3 of the Management Agreement, as amended from time to time by
Sprint PCS in accordance with the terms of the Management Agreement, to provide
for customers from a carrier not associated with the Sprint PCS Network to
operate the customer's handset on the Sprint PCS Network and for customers from
the Sprint PCS Network (whether customers of Sprint PCS, Manager or an Other
Manager) to operate the customer's handset on a network of a carrier not
associated with the Sprint PCS Network, and
(ii) the program established in accordance with Section 4.3 of the
Management Agreement, as amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement, to provide for customers from one
Service Area on the Sprint PCS Network, whether managed by Sprint PCS, Manager,
or an Other Manager, to operate the customer's handsets and otherwise receive
seamless service, regardless of whether the customer makes its call to or from
the Sprint PCS Network and regardless of whether the customer is a customer of
Sprint PCS, Manager or an Other Manager.
"Sprint PCS Technical Program Requirements" means the operating and
technical performance standards established by Sprint PCS, in accordance with
Section 7.2 of the Management Agreement, as amended from time to time by Sprint
PCS in accordance with the terms of the Management Agreement, for the Sprint PCS
Network as they may be amended from time to time by Sprint PCS in accordance
with the terms of the Management Agreement.
"Sprint Spectrum" means Sprint Spectrum L.P., a Delaware limited
partnership.
"Sprint Spectrum Brands" means the "Licensed Marks" as that term is
defined under the Sprint Spectrum Trademark and Service Mark License Agreement.
"Sprint Spectrum Trademark and Service Mark License Agreement" means that
certain Sprint Spectrum Trademark and Service Mark License Agreement executed by
Manager and Sprint Spectrum and any documents incorporated by reference in said
agreement.
"Sprint Trademark and Service Mark License Agreement" means that certain
Sprint Trademark and Service Mark License Agreement executed by Manager and
Sprint and any documents incorporated by reference in said agreement.
"SprintCom" means SprintCom, Inc., a Kansas corporation.
"Subsidiary" of any Person as of any relevant date means a corporation,
company or other entity (i) more than 50% of whose outstanding shares or equity
securities are, as of such date, owned or controlled, directly or indirectly
through one or more Subsidiaries, by such Person, and
the shares or securities so owned entitle such Person and/or Subsidiaries to
elect at least a majority of the members of the board of directors or other
managing authority of such corporation, company or other entity notwithstanding
the vote of the holders of the remaining shares or equity securities so entitled
to vote or (ii) which does not have outstanding shares or securities, as may be
the case in a partnership, joint venture or unincorporated association, but more
than 50% of whose ownership interest is, as of such date, owned or controlled,
directly or indirectly through one or more Subsidiaries, by such Person, and in
which the ownership interest so owned entitles such Person and/or Subsidiaries
to make the decisions for such corporation, company or other entity.
"Successor Notice" has the meaning set forth in Section 17.15.2(e) of the
Management Agreement.
"Term" means during the term of the Management Agreement, including the
Initial Term and any renewal terms.
"Trademark and Service Mark Usage Guidelines" means the rules governing
the depiction and presentation of the Licensed Marks then generally in use by
Licensor, to be furnished by Licensor to Licensee, as the same may be amended
and updated from time to time by Licensor.
"Trademark License Agreements" means the Sprint Trademark and Service Mark
License Agreement and the Sprint Spectrum Trademark and Service Mark License
Agreement.
"Type II Report" has the meaning set forth in Section 12.1.2 of the
Management Agreement.
"Voluntary Bankruptcy" has the meaning set forth in Section 11.3.7 of the
Management Agreement.
"wireless mobility communications network" means a radio communications
system operating in the 1900 MHz spectrum range under the rules designated as
Subpart E of Part 24 of the FCC's rules.
EXHIBIT 10.5
SPRINT PCS
SERVICES AGREEMENT
Between
SPRINT SPECTRUM L.P.
and
SHENANDOAH PERSONAL
COMMUNICATIONS COMPANY
Dated as of November 5, 1999
TABLE OF CONTENTS
Page
----
1. ENGAGEMENT OF SPRINT SPECTRUM ......................................... 1
1.1. Engagement of Sprint Spectrum .................................... 1
1.2. Reliance on Manager .............................................. 1
1.3. Non-exclusive Service ............................................ 2
1.4. Manager's Use of Services ........................................ 2
2. SERVICES .............................................................. 2
2.1. Available Services; Selected Services ............................ 2
2.1.1. Available Services ........................................ 2
2.1.2. Selected Services ......................................... 2
2.1.3. Changes to Selected Services .............................. 3
2.1.4. Performance of Selected Services .......................... 3
2.2. Third Party Vendors .............................................. 3
2.3. Contracts ........................................................ 3
3. FEES FOR SELECTED SERVICES ............................................ 4
3.1. Payment of Fees .................................................. 4
3.2. Adjustment of Fees ............................................... 4
3.3. Late Payments .................................................... 4
3.4. Taxes ............................................................ 4
4. TERM; TERMINATION; EFFECT OF TERMINATION .............................. 5
4.1. Term ............................................................. 5
4.2. Effect of Termination ............................................ 5
5. BOOKS AND RECORDS; CONFIDENTIAL INFORMATION ........................... 5
5.1. Books and Records ................................................ 5
5.1.1. General ................................................... 5
5.1.2. Audit ..................................................... 5
5.1.3. Contesting an Audit ....................................... 6
5.2. Confidential Information ......................................... 6
6. INDEMNIFICATION ....................................................... 8
6.1. Indemnification by Sprint Spectrum ............................... 8
6.2. Indemnification by Manager ....................................... 8
6.3. Procedure ........................................................ 9
6.3.1. Notice .................................................... 9
6.3.2. Defense by Indemnitor ..................................... 9
6.3.3. Defense by Indemnitee ..................................... 9
6.3.4. Costs ..................................................... 9
7. DISPUTE RESOLUTION .................................................... 10
7.1. Negotiation ...................................................... 10
7.2. Unable to Resolve ................................................ 10
7.3. Attorneys and Intent ............................................. 10
8. REPRESENTATIONS AND WARRANTIES ........................................ 11
8.1. Due Incorporation or Formation; Authorization of Agreements ...... 11
8.2. Valid and Binding Obligation ..................................... 11
i
8.3. No Conflict; No Default .......................................... 11
8.4. Litigation ....................................................... 11
9. GENERAL PROVISIONS .................................................... 11
9.1. Notices ......................................................... 11
9.2. Construction .................................................... 12
9.3. Headings ........................................................ 12
9.4. Further Action .................................................. 12
9.5. Specific Performance ............................................ 12
9.6. Entire Agreement; Amendments .................................... 12
9.7. Limitation on Rights of Others .................................. 12
9.8. Waivers; Remedies ............................................... 12
9.9. Waiver of Jury Trial ............................................ 13
9.10. Binding Effect .................................................. 13
9.11. Governing Law ................................................... 13
9.12. Severability .................................................... 13
9.13. Limitation of Liability ......................................... 14
9.14. No Assignment; Exceptions ....................................... 14
9.15. Disclaimer of Agency ............................................ 14
9.16. Independent Contractors ......................................... 14
9.17. Expense ......................................................... 14
9.18. General Terms ................................................... 14
9.19. Conflicts with Management Agreement ............................. 15
9.20. Master Signature Page ........................................... 15
ii
EXHIBIT 10.5
SPRINT PCS SERVICES AGREEMENT
This SERVICES AGREEMENT is made November 5, 1999, by and between Sprint
Spectrum L.P., a Delaware limited partnership ("Sprint Spectrum"), and
Shenandoah Personal Communications Company, a Virginia corporation (but not any
Related Party) ("Manager"). The definitions for this agreement are set forth on
the "Schedule of Definitions".
RECITALS
A. Manager and the holder of the License ("Sprint PCS") are entering into
a Management Agreement contemporaneously with the execution of this agreement,
under which Manager will design, construct, operate, manage and maintain a
wireless services network in the Service Area in accordance with Sprint PCS
standards and will offer and promote Sprint PCS Products and Services that
operate on the Sprint PCS Network.
B. Manager desires to enter into this agreement with Sprint Spectrum,
under which Sprint Spectrum may furnish certain services to Manager to assist
Manager to build out, operate, manage and maintain the Service Area Network
under the License.
AGREEMENT
In consideration of the recitals and mutual covenants and agreements
contained in this agreement, the sufficiency of which are hereby acknowledged,
the parties, intending to be bound, agree as follows:
1. ENGAGEMENT OF SPRINT SPECTRUM
1.1. Engagement of Sprint Spectrum. Manager engages Sprint Spectrum to
assist Manager with certain specified services in connection with the operations
of Manager and in building out, operating, managing and maintaining the Service
Area Network, subject to the terms and conditions of this agreement. Sprint
Spectrum accepts the engagement and will use the same effort and demonstrate the
same care in performing its obligations under this agreement as it uses in
conducting its own business. Manager will use the efforts and demonstrate the
care necessary for Sprint Spectrum to meet its obligations under this agreement.
When providing the Selected Services, Sprint Spectrum will provide those
services to Manager in the same manner it provides those services to its own
business, including the use of third party vendors to provide certain Selected
Services.
1.2. Reliance on Manager. Manager understands that Sprint Spectrum's
ability to provide the Selected Services will depend largely on Manager's
compliance with the Sprint PCS Program Requirements under the Management
Agreement and cooperation with Sprint Spectrum. Manager agrees to comply with
such requirements
and to cooperate with Sprint Spectrum to enable Sprint Spectrum to perform its
obligations under this agreement.
1.3. Non-exclusive Service. Nothing contained in this agreement confers
upon Manager an exclusive right to any of the Available Services. Sprint
Spectrum may contract with others to provide expertise and services identical or
similar to those to be made available or provided to Manager under this
agreement.
1.4. Manager's Use of Services. Manager agrees it will only use the
Selected Services in connection with its Service Area Network. Manager will not
use the Selected Services outside the Service Area or in connection with any
other business.
2. SERVICES
2.1. Available Services; Selected Services.
2.1.1. Available Services. Subject to the terms of this agreement,
Manager may obtain any of the Available Services from Sprint Spectrum in
accordance with the provisions of this Section 2.1. The Available Services
offered from time to time and the fees charged for such Available Services will
be set forth on the then-current Exhibit 2.1.1 (the "Available Services and Fees
Schedule"). If Sprint Spectrum offers any new Available Service, it will deliver
a new Exhibit 2.1.1 indicating the new service and the fee for the new service.
Manager may select one or more of the categories of Available
Services. If Manager selects a particular category of services it must take and
pay for all of the services under the category selected; Manager may not select
only particular services within that category.
If Sprint Spectrum determines to no longer offer an Available
Service and the service is not a Selected Service, then Sprint Spectrum may give
Manager written notice at any time during the term of this agreement that Sprint
Spectrum no longer offers the Available Service.
Sprint Spectrum may modify Exhibit 2.1.1 from time to time. Exhibit
2.1.1 will be deemed amended upon delivery of the new Exhibit 2.1.1 to Manager.
2.1.2. Selected Services. During the term of this agreement, and
subject to the terms of this agreement, Manager has selected, and Sprint
Spectrum has agreed to furnish or cause to be furnished to Manager, the
Available Services listed on Exhibit 2.1.2 (which listed services will be the
Selected Services). Sprint Spectrum may require from time to time that certain
Available Services be Selected Services where necessary to comply with legal or
regulatory requirements (e.g., mandatory provision of
2
emergency 911 service) or applicable operating constraints (e.g., delivery of
merchandise to the regional distribution centers of national retail
distributors).
2.1.3. Changes to Selected Services. If Manager determines it no
longer requires a Selected Service, then Manager must give Sprint Spectrum
written notice at least 3 months prior to the date on which Manager wishes to
discontinue its use of such Selected Service.
If Sprint Spectrum determines to no longer offer an Available
Service and such service is one of Manager's Selected Services, then Sprint
Spectrum must give Manager written notice at least 9 months prior to its
discontinuance of such Available Service that Sprint Spectrum will no longer
offer such Available Service. If the Available Service to be discontinued is
required by Sprint Spectrum to be a Selected Service, then Sprint Spectrum will
use commercially reasonable efforts to (a) help Manager provide the service
itself or find another vendor to provide the service, and (b) facilitate
Manager's transition to the new service provider.
2.1.4. Performance of Selected Services. Sprint Spectrum may select
the method, location and means of providing the Selected Services. If Sprint
Spectrum wishes to use Manager's facilities to provide the Selected Services,
Sprint Spectrum must obtain Manager's prior written consent.
2.2. Third Party Vendors. Some of the Available Services might be provided
by third party vendors under arrangements between Sprint Spectrum and the third
party vendors. In some instances, Manager may receive Available Services from a
third party vendor under the same terms and conditions that Sprint Spectrum
receives such services. In other instances, Manager may receive Available
Services under the terms and conditions set forth in an agreement between
Manager and the third party vendor. If Manager wishes to engage a third party
vendor to provide Available Services, Selected Services, or Available Services
that Sprint Spectrum will no longer offer, Manager must first obtain Sprint
Spectrum's prior written consent, which consent will not be unreasonably
withheld. Before Manager may obtain from the third party vendor any Available
Services, Selected Services, or Available Services that Sprint Spectrum will no
longer offer, such vendor must execute an agreement prepared by Sprint Spectrum
that obligates the vendor to maintain the confidentiality of any proprietary
information and that prohibits the vendor from using any proprietary technology,
information or methods for its benefit or the benefit of any other person or
entity. Manager's use of a third party vendor that is not providing Available
Services to Manager on behalf of Sprint PCS under the Management Agreement will
not qualify for assumed compliance with the Program Requirements under Sections
7.1(a)(ii) or 8.1(b) of the Management Agreement.
2.3. Contracts. Manager will notify Sprint Spectrum of any contract or
other arrangement Manager has with any other party that will affect how Sprint
Spectrum is to provide the Selected Services.
3
3. FEES FOR SELECTED SERVICES
3.1. Payment of Fees. Sprint Spectrum and Manager agree that the fees for
the Available Services will initially be those set forth on Exhibit 2.1.1, which
fees represent an adjustment to any fees paid by Sprint PCS to Manager under
Section 10 of the Management Agreement. The monthly charge for any fees based on
the number of subscribers of the Service Area Network will be determined based
on the number of subscribers as of the 15th day of the month for which the
charge is being calculated. Manager agrees to pay the fees to Sprint Spectrum
within 20 days after the date of the invoice. If Manager enters into an
agreement with a third party vendor under Section 2.2, Manager agrees to pay the
fees for the services rendered by the third party vendor in accordance with the
terms and conditions of such agreement.
3.2. Adjustment of Fees. Sprint Spectrum may change the fee for any
service it provides once during any 12-month period by delivering a new Exhibit
2.1.1 to Manager. Exhibit 2.1.1 will be deemed amended on the effective date
noted on the new Exhibit 2.1.1, which will be at least 30 days after delivering
the new Exhibit 2.1.1. Manager must notify Sprint Spectrum in writing before the
effective date of the new Exhibit 2.1.1 if Manager wishes to discontinue a
Selected Service for which the price is being increased (a "Cancelled Service").
If Manager discontinues a Selected Service under this Section 3.2, Sprint
Spectrum will, at Manager's option, continue to provide the Cancelled Service
and to charge Manager the current fee (i.e., the fee under the Exhibit 2.1.1 in
effect on the date Manager gives its cancellation notice to Sprint Spectrum) for
the Cancelled Service for up to 9 months from the date Sprint Spectrum gives
Manager notice of the price change or until Manager no longer needs the
Cancelled Service, whichever occurs first. If Sprint Spectrum continues to
provide the Cancelled Service after the 9-month period, Sprint Spectrum will
apply the new fee, under the new Exhibit 2.1.1, and such fee will be applied
retroactively as of the effective date of the new schedule. Manager agrees to
pay such retroactive charge within 10 days after the date of the invoice for
such charge.
3.3. Late Payments. Any payment due under this Section 3 that is not paid
by Manager to Sprint Spectrum in accordance with the terms of this agreement
will bear interest at the Default Rate beginning (and including) the 6th day
after the due date until (and including) the date on which such payment is made.
3.4. Taxes. Manager will pay or reimburse Sprint Spectrum for any sales,
use, gross receipts or similar tax, administrative fee, telecommunications fee
or surcharge for taxes or fees levied by a governmental authority on the fees
and charges payable to Sprint Spectrum by Manager.
4
4. TERM; TERMINATION; EFFECT OF TERMINATION
4.1. Term. This agreement commences on the date of execution and continues
until the Management Agreement terminates. This agreement automatically
terminates upon termination of the Management Agreement. Neither party may
terminate this agreement for any reason other than the termination of the
Management Agreement.
4.2. Effect of Termination. Upon the termination of this agreement, all
rights and obligations of each party under this agreement will immediately
cease, except that:
(a) Any rights arising out of a breach of any terms of this
agreement will survive any termination of this agreement;
(b) The provisions of this Section 4.2 and Sections 5.2, 6, 7, and 9
will survive any termination of this agreement; and
(c) The payment obligations under Section 3 will survive any
termination of this agreement if, and to the extent, any fees have accrued or
are otherwise due and owing from Manager to Sprint Spectrum or any Sprint
Spectrum Related Party as of the date of termination of this agreement.
5. BOOKS AND RECORDS; CONFIDENTIAL INFORMATION
5.1. Books and Records.
5.1.1. General. Each party must keep and maintain books and records
to support and document any fees, costs, expenses or other charges due in
connection with the provisions set forth in this agreement. The records must be
retained for a period of at least 3 years after the fees, costs, expenses or
other charges to which the records relate have accrued and have been paid, or
such other period as may be required by law.
5.1.2. Audit. On reasonable advance written notice by the Manager,
but no more frequently than annually, Sprint PCS will provide a report issued in
conformity with Statement of Auditing Standard No. 70 "Reports on the Processing
of Transactions by Service Organizations" ("Type II Report" or "Manager
Management Report"). Such report will be prepared by independent auditors and
will provide an opinion on the controls placed in operation and tests of
operating effectiveness of those controls in effect at Sprint PCS over the
Manager Management Processes. "Manager Management Processes" include those
services generally provided within the Management Agreement, primarily billing
and collection of Collected Revenues. The Manager is responsible for costs
incurred attributable to such requested procedures with respect to the services
provided under this agreement, including without limitation discussion of the
billing and collection of Collected Revenues. This report will be made available
to the other party upon such other party's request.
5
5.1.3. Contesting an Audit. If the party that did not select the
independent auditor does not agree with the findings of the audit, then such
party can contest the findings by providing notice of such disagreement to the
other party (the "Dispute Notice"). The date of delivery of such notice is the
"Dispute Notice Date." If the parties are unable to resolve the disagreement
within 10 Business Days after the Dispute Notice Date, they will resolve the
disagreement in accordance with the following procedures.
The two parties and the auditor that conducted the audit will all agree on
an independent certified public accountant with a regional or national
accounting practice in the wireless telecommunications industry (the "Arbiter")
within 15 Business Days after the Dispute Notice Date. If, within 15 Business
Days after the Dispute Notice Date, the three parties fail to agree on the
Arbiter, then at the request of either party to this agreement, the Arbiter will
be selected pursuant to the rules then in effect of the American Arbitration
Association. Each party will submit to the Arbiter within 5 Business Days after
its selection and engagement all information reasonably requested by the Arbiter
to enable the Arbiter to independently resolve the issue that is the subject of
the Dispute Notice. The Arbiter will make its own determination of the amount of
fees, costs, expenses or other charges payable under this agreement with respect
to the period audited. The Arbiter will issue a written report of its
determination in reasonable detail and will deliver a copy of the report to the
parties within 10 Business Days after the Arbiter receives all of the
information reasonably requested. The determination made by the Arbiter will be
final and binding and may be enforced by any court having jurisdiction. The
parties will cooperate fully in assisting the Arbiter and will take such actions
as are necessary to expedite the completion of and to cause the Arbiter to
expedite its assignment.
If the amount owed by a contesting party is reduced by more than 10% or
the amount owed to a contesting party is increased by more than 10% then the
non-contesting party will pay the costs and expenses of the Arbiter, otherwise
the contesting party will pay the costs and expenses of the Arbiter.
5.2. Confidential Information.
(a) Except as specifically authorized by this agreement, each of the
parties must, for the term of this agreement and 3 years after the date of
termination of this agreement, keep confidential, not disclose to others and use
only for the purposes authorized in this agreement, all Confidential Information
disclosed by the other party to the party in connection with this agreement,
except that the foregoing obligation will not apply to the extent that any
Confidential Information:
(i) is or becomes, after disclosure to a party, publicly known
by any means other than through unauthorized acts or omissions of
the party or its agents; or
6
(ii) is disclosed in good faith to a party by a third party
entitled to make the disclosure.
(b) Notwithstanding the foregoing, a party may use, disclose or
authorize the disclosure of Confidential Information that it receives that:
(i) has been published or is in the public domain, or that
subsequently comes into the public domain, through no fault of the
receiving party;
(ii) prior to the effective date of this agreement was
properly within the legitimate possession of the receiving party, or
subsequent to the effective date of this agreement, is lawfully
received from a third party having rights to publicly disseminate
the Confidential Information without any restriction and without
notice to the recipient of any restriction against its further
disclosure;
(iii) is independently developed by the receiving party
through persons or entities who have not had, either directly or
indirectly, access to or knowledge of the Confidential Information;
(iv) is disclosed to a third party consistent with the terms
of the written approval of the party originally disclosing the
information;
(v) is required by the receiving party to be produced under
order of a court of competent jurisdiction or other similar
requirements of a governmental agency, and the Confidential
Information will otherwise continue to be Confidential Information
required to be held confidential for purposes of this agreement;
(vi) is required by the receiving party to be disclosed by
applicable law or a stock exchange or association on which the
receiving party's securities (or those of its Related Parties) are
or may become listed; or
(vii) is disclosed by the receiving party to a financial
institution or accredited investor (as that term is defined in Rule
501(a) under the Securities Act of 1933) that is considering
providing financing to the receiving party and which financial
institution or accredited investor has agreed to keep the
Confidential Information confidential in accordance with an
agreement at least as restrictive as this Section 5.
(c) The party making a disclosure under Sections 5.2(b)(v),
5.2(b)(vi) or 5.2(b)(vii) must inform the non-disclosing party as promptly as is
reasonably
7
necessary to enable the non-disclosing party to take action to, and use the
disclosing party's reasonable best efforts to, limit the disclosure and maintain
confidentiality to the extent practicable.
(d) Manager will not, except when serving in the capacity of Manager
under this agreement, use any Confidential Information of any kind that it
receives under or in connection with this agreement. For example, if Manager
operates a wireless company in a different licensed area, Manager may not use
any of the Confidential Information received under or in connection with this
agreement in operating its other wireless business.
6. INDEMNIFICATION
6.1. Indemnification by Sprint Spectrum. Sprint Spectrum agrees to
indemnify, defend and hold harmless Manager, its directors, managers, officers
and employees from and against any and all claims, demands, causes of action,
losses, actions, damages, liability and expense, including costs and reasonable
attorneys' fees, against Manager, its directors, managers, officers and
employees arising from or relating to the violation by Sprint Spectrum, its
directors, officers, employees, contractors, subcontractors, agents or
representatives of any law, regulation or ordinance applicable to Sprint
Spectrum in its performance of the Selected Services, or by Sprint Spectrum's,
or its directors', officers', employees', contractors', subcontractors', agents'
or representatives' breach of any representation, warranty or covenant contained
in this agreement, except where and to the extent the claim, demand, cause of
action, loss, action, damage, liability and expense results from the negligence
or willful misconduct of Manager, its directors, managers, officers, employees,
agents or representatives. Sprint Spectrum's indemnification obligations under
this Section 6.1 do not apply to any third party vendors that provide services
(including Selected Services) directly to Manager or Manager's Related Parties
under a separate agreement.
6.2. Indemnification by Manager. Manager agrees to indemnify, defend and
hold harmless Sprint Spectrum, its directors, officers and employees from and
against any and all claims, demands, causes of action, losses, actions, damages,
liability and expense, including costs and reasonable attorneys' fees, against
Sprint Spectrum, its directors, officers and employees arising from or relating
to Manager's, or its directors', managers', officers', employees', contractors',
subcontractors', agents' or representatives' violation of any law, regulation or
ordinance applicable to Manager, or by Manager's, or its directors', managers',
officers', employees', contractors', subcontractors', agents' or
representatives' breach of any representation, warranty or covenant contained in
this agreement, Manager's ownership of the Operating Assets or the operation of
the Service Area Network, except where and to the extent the claim, demand,
cause of action, loss, action, damage, liability and expense results from the
negligence or willful misconduct of Sprint Spectrum, its directors, officers,
employees, contractors, subcontractors, agents or representatives.
8
6.3. Procedure.
6.3.1. Notice. Any party being indemnified ("Indemnitee") will give
the party making the indemnification ("Indemnitor") written notice as soon as
practicable but no later than 5 Business Days after the party becomes aware of
the facts, conditions or events that give rise to the claim for indemnification
if:
(i) any claim or demand is made or liability is asserted
against Indemnitee; or
(ii) any suit, action, or administrative or legal proceeding
is instituted or commenced in which Indemnitee is involved or is
named as a defendant either individually or with others.
Failure to give notice as described in this Section 6.3.1 does not modify
the indemnification obligations of this provision, except if Indemnitor is
harmed by failure to provide timely notice to Indemnitor, then Indemnitor does
not have to indemnify Indemnitee for the harm caused by the failure to give the
timely notice.
6.3.2. Defense by Indemnitor. If within 30 days after giving notice
Indemnitee receives written notice from Indemnitor stating that Indemnitor
disputes or intends to defend against the claim, demand, liability, suit, action
or proceeding, then Indemnitor will have the right to select counsel of its
choice and to dispute or defend against the claim, demand, liability, suit,
action or proceeding, at its expense.
Indemnitee will fully cooperate with Indemnitor in the dispute or defense
so long as Indemnitor is conducting the dispute or defense diligently and in
good faith. Indemnitor is not permitted to settle the dispute or claim without
the prior written approval of Indemnitee, which approval will not be
unreasonably withheld. Even though Indemnitor selects counsel of its choice,
Indemnitee has the right to retain additional representation by counsel of its
choice to participate in the defense at Indemnitee's sole cost and expense.
6.3.3. Defense by Indemnitee. If no notice of intent to dispute or
defend is received by Indemnitee within the 30-day period, or if a diligent and
good faith defense is not being or ceases to be conducted, Indemnitee has the
right to dispute and defend against the claim, demand or other liability at the
sole cost and expense of Indemnitor and to settle the claim, demand or other
liability, and in either event to be indemnified as provided in this Section 6.
Indemnitee is not permitted to settle the dispute or claim without the prior
written approval of Indemnitor, which approval will not be unreasonably
withheld.
6.3.4. Costs. Indemnitor's indemnity obligation includes reasonable
attorneys' fees, investigation costs, and all other reasonable costs and
expenses incurred
9
by Indemnitee from the first notice that any claim or demand has been made or
may be made, and is not limited in any way by any limitation on the amount or
type of damages, compensation, or benefits payable under applicable workers'
compensation acts, disability benefit acts, or other employee benefit acts.
7. DISPUTE RESOLUTION
7.1. Negotiation. The parties will attempt in good faith to resolve any
dispute arising out of or relating to this agreement promptly by negotiation
between or among representatives who have authority to settle the controversy.
Either party may escalate any dispute not resolved in the normal course of
business to the appropriate (as determined by the party) officers of the parties
by providing written notice to the other party.
Within 10 Business Days after delivery of the notice, the appropriate
officers of each party will meet at a mutually acceptable time and place, and
thereafter as often as they deem reasonably necessary, to exchange relevant
information and to attempt to resolve the dispute.
Either party may elect, by giving written notice to the other party, to
escalate any dispute arising out of or relating to the determination of fees
that is not resolved in the normal course of business or by the audit process
set forth in Sections 5.1.2 and 5.1.3, first to the appropriate financial or
accounting officers to be designated by each party. The designated officers will
meet in the manner described in the preceding paragraph. If the matter has not
been resolved by the designated officers within 30 days after the notifying
party's notice, either party may elect to escalate the dispute to the
appropriate (as determined by the party) officers in accordance with the prior
paragraphs of this Section 7.1.
7.2. Unable to Resolve. If a dispute has not been resolved within 60 days
after the notifying party's notice, the parties will continue to operate under
this agreement and sue the other party for damages or seek other appropriate
remedies as provided in this agreement, except neither party may bring a suit
for damages based on an event that occurs during the first two years of this
agreement.
7.3. Attorneys and Intent. If an officer intends to be accompanied at a
meeting by an attorney, the other party's officer will be given at least 3
Business Days prior notice of the intention and may also be accompanied by an
attorney. All negotiations under this Section 7 are confidential and will be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Civil Procedure and state rules of evidence and civil procedure.
10
8. REPRESENTATIONS AND WARRANTIES
Each party for itself makes the following representations and warranties
to the other party:
8.1. Due Incorporation or Formation; Authorization of Agreements. The
party is either a corporation, limited liability company, or limited partnership
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Manager is qualified to do business and in
good standing in every jurisdiction in which the Service Area is located. The
party has the full power and authority to execute and deliver this agreement and
to perform its obligations under this agreement.
8.2. Valid and Binding Obligation. This agreement constitutes the valid
and binding obligation of the party, enforceable in accordance with its terms,
except as may be limited by principles of equity or by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
8.3. No Conflict; No Default. Neither the execution, delivery and
performance of this agreement nor the consummation by the party of the
transactions contemplated in this agreement will conflict with, violate or
result in a breach of (a) any law, regulation, order, writ, injunction, decree,
determination or award of any governmental authority or any arbitrator,
applicable to such party, or (b) any term, condition or provision of the
articles of incorporation, certificate of limited partnership, certificate of
organization, bylaws, partnership agreement or limited liability company
agreement (or other governing documents) of such party or of any material
agreement or instrument to which such party is or may be bound or to which any
of its material properties or assets is subject.
8.4. Litigation. No action, suit, proceeding or investigation is pending
or, to the knowledge of the party, threatened against or affecting the party or
any of its properties, assets or businesses in any court or before or by any
governmental agency that could, if adversely determined, reasonably be expected
to have a material adverse effect on the party's ability to perform its
obligations under this agreement. The party has not received any currently
effective notice of any default that could reasonably be expected to result in a
breach of the preceding sentence.
9. GENERAL PROVISIONS
9.1. Notices. Any notice, payment, demand, or communication required or
permitted to be given by any provision of this agreement must be in writing and
mailed (certified or registered mail, postage prepaid, return receipt
requested), sent by hand or overnight courier, or sent by facsimile (with
acknowledgment received and a copy sent by overnight courier), charges prepaid
and addressed described on the Notice Address Schedule attached to the Master
Signature Page, or to any other address or number as the person or entity may
from time to time specify by written notice to the other parties.
11
All notices and other communications given to a party in accordance with
the provisions of this agreement will be deemed to have been given when
received.
9.2. Construction. This agreement will be construed simply according to
its fair meaning and not strictly for or against either party.
9.3. Headings. The table of contents, section and other headings contained
in this agreement are for reference purposes only and are not intended to
describe, interpret, define, limit or expand the scope, extent or intent of this
agreement.
9.4. Further Action. Each party agrees to perform all further acts and
execute, acknowledge, and deliver any documents that may be reasonably
necessary, appropriate, or desirable to carry out the intent and purposes of
this agreement.
9.5. Specific Performance. Each party agrees with the other party that the
party would be irreparably damaged if any of the provisions of this agreement
were not performed in accordance with their specific terms and that monetary
damages alone would not provide an adequate remedy. Accordingly, in addition to
any other remedy to which the non-breaching party may be entitled, at law or in
equity, the non-breaching party will be entitled to injunctive relief to prevent
breaches of this agreement and specifically to enforce the terms and provisions
of this agreement.
9.6. Entire Agreement; Amendments. The provisions of this agreement and
the Management Agreement (if Sprint Spectrum is a party to that agreement)
(including the exhibits to those agreements) set forth the entire agreement and
understanding between the parties as to the subject matter of this agreement and
supersede all prior agreements, oral or written, and other communications
between the parties relating to the subject matter of this agreement. Except for
Sprint Spectrum's right to amend the Available Services and the fees charged for
such services as shown on Exhibit 2.1.1, and Manager's right to amend the
Selected Services listed on Exhibit 2.1.2, this agreement may be modified or
amended only by a written amendment signed by persons or entities authorized to
bind each party.
9.7. Limitation on Rights of Others. Nothing in this agreement, whether
express or implied, will be construed to give any person or entity other than
the parties any legal or equitable right, remedy or claim under or in respect of
this agreement.
9.8. Waivers; Remedies. The observance of any term of this agreement may
be waived (whether generally or in a particular instance and either
retroactively or prospectively) by the party entitled to enforce the term, but
any waiver is effective only if in a writing signed by the party against which
the waiver is to be asserted. Except as otherwise provided in this agreement, no
failure or delay of either party in exercising any power or right under this
agreement will operate as a waiver of the power or right, nor
12
will any single or partial exercise of any right or power preclude any other or
further exercise of the right or power or the exercise of any other right or
power.
Sprint Spectrum is not in breach of any covenant in this agreement, if
failure of such party to comply with such covenant or Sprint Spectrum's
non-compliance with the covenant results primarily from:
(i) any FCC order or any other injunction issued by any
governmental authority impeding the ability to comply with the
covenant;
(ii) the failure of any governmental authority to grant any
consent, approval, waiver, or authorization or any delay on the part
of any governmental authority in granting any consent, approval,
waiver or authorization;
(iii) the failure of any vendor to deliver in a timely manner
any equipment or service; or
(iv) any act of God, act of war or insurrection, riot, fire,
accident, explosion, labor unrest, strike, civil unrest, work
stoppage, condemnation or any similar cause or event not reasonably
within the control of Sprint Spectrum.
9.9. Waiver of Jury Trial. EACH PARTY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
9.10. Binding Effect. Except as otherwise provided in this agreement, this
agreement is binding upon and inures to the benefit of the parties and their
respective and permitted successors, transferees, and assigns, including any
permitted successor, transferee or assignee of the Management Agreement. The
parties intend that this agreement bind only the party signing this agreement
and that the agreement is not binding on the Related Parties of a party unless
the agreement provides that Related Parties are bound.
9.11. Governing Law. The internal laws of the State of Missouri (without
regard to principles of conflicts of law) govern the validity of this agreement,
the construction of its terms, and the interpretation of the rights and duties
of the parties.
9.12. Severability. The parties intend every provision of this agreement
to be severable. If any provision of this agreement is held to be illegal,
invalid, or unenforceable for any reason, the parties intend that a court
enforce the provision to the maximum extent permissible so as to effect the
intent of the parties (including the
13
enforcement of the remaining provisions). If necessary to effect the intent of
the parties, the parties will negotiate in good faith to amend this agreement to
replace the unenforceable provision with an enforceable provision that reflects
the original intent of the parties.
9.13. Limitation of Liability. NO PARTY WILL BE LIABLE TO THE OTHER PARTY
FOR SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES,
OR LOSS OF PROFITS, ARISING FROM THE RELATIONSHIP OF THE PARTIES OR THE CONDUCT
OF BUSINESS UNDER, OR BREACH OF, THIS AGREEMENT, EXCEPT WHERE SUCH DAMAGES OR
LOSS OF PROFITS ARE CLAIMED BY OR AWARDED TO A THIRD PARTY IN A CLAIM OR ACTION
AGAINST WHICH A PARTY TO THIS AGREEMENT HAS A SPECIFIC OBLIGATION TO INDEMNIFY
ANOTHER PARTY TO THIS AGREEMENT.
9.14. No Assignment; Exceptions. This agreement may only be assigned in
conjunction with and to the same party or parties to whom the Management
Agreement has been validly assigned under the Management Agreement's terms and
conditions.
9.15. Disclaimer of Agency. Neither party by this agreement makes the
other party a legal representative or agent of the party, nor does either party
have the right to obligate the other party in any manner, except if the other
party expressly permits the obligation by the party or except for provisions in
this agreement expressly authorizing one party to obligate the other.
9.16. Independent Contractors. The parties do not intend to create any
partnership, joint venture or other profit-sharing arrangement, landlord-tenant
or lessor-lessee relationship, employer-employee relationship, or any other
relationship other than that expressly provided in this agreement. Neither party
to this agreement has any fiduciary duty to the other party.
9.17. Expense. Each party bears the expense of complying with this
agreement except as otherwise expressly provided in this agreement.
9.18. General Terms.
(a) This agreement, including the attached Schedule of Definitions,
is to be interpreted in accordance with the following rules of construction:
(i) The definitions in this agreement apply equally to both
the singular and plural forms of the terms defined unless the context otherwise
requires;
(ii) The words "include," "includes" and "including" are
deemed to be followed by the phrase "without limitation";
14
(iii) All references in this agreement to Sections and
Exhibits are references to Sections of, and Exhibits to, this agreement, unless
otherwise specified; and
(iv) All references to any agreement or other instrument or
statute or regulation are to it as amended and supplemented from time to time
(and, in the case of a statute or regulation, to any corresponding provisions of
successor statutes or regulations), unless the context otherwise requires.
(b) Any reference in this agreement to a "day" or number of "days"
(without the explicit qualification of "Business") is a reference to a calendar
day or number of calendar days. If any action or notice is to be taken or given
on or by a particular calendar day, and the calendar day is not a Business Day,
then the action or notice may be taken or given on the next Business Day.
9.19. Conflicts with Management Agreement. The provisions of the
Management Agreement govern over those of this Services Agreement if the
provisions contained in this agreement conflict with analogous provisions in the
Management Agreement.
9.20. Master Signature Page. Each party agrees that it will execute the
Master Signature Page that evidences such party's agreement to execute, become a
party to and be bound by this agreement, which document is incorporated herein
by this reference.
15
EXHIBIT 10.6
SPRINT TRADEMARK
AND SERVICE MARK
LICENSE AGREEMENT
BETWEEN
SPRINT COMMUNICATIONS COMPANY, L.P.
AND
SHENANDOAH PERSONAL
COMMUNICATIONS COMPANY
DATED AS OF NOVEMBER 5, 1999
EXHIBIT 10.6
SPRINT TRADEMARK AND
SERVICE MARK LICENSE AGREEMENT
THIS AGREEMENT is made as of the 5th day of November, 1999 by and between
Sprint Communications Company, L.P., a limited partnership organized under the
laws of the State of Delaware, as licensor ("Licensor"), and Shenandoah Personal
Communications Company, as licensee ("Licensee"). The definitions for this
agreement are set forth on the "Schedule of Definitions".
RECITALS:
WHEREAS, Licensor is the owner of the U.S. trademarks and service marks
"Sprint", together with related "Diamond" logo, "Sprint PCS", "Sprint Personal
Communications Services" and the goodwill of the business symbolized thereby;
and
WHEREAS, Licensee desires to use the trademarks and service marks in
commerce;
NOW, THEREFORE, the parties, in consideration of the mutual agreements
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, do hereby agree as follows:
ARTICLE 1
GRANT OF TRADEMARK AND SERVICE MARK RIGHTS; EXCLUSIVITY
Section 1.1 License.
(a) Grant of License. Subject to the terms and conditions hereof,
Licensor hereby grants to Licensee, and Licensee hereby accepts from
Licensor, for the term of this agreement, a non-transferable,
royalty-free license to use the Licensed Marks solely for and in
connection with the marketing, promotion, advertisement,
distribution, lease or sale of Sprint PCS Products and Services and
Premium and Promotional Items in the Service Area.
(b) Related Equipment. The rights granted hereunder to Licensee shall
not include the right to manufacture equipment under the Licensed
Marks. However, subject to the terms and conditions hereof, Licensor
hereby grants to Licensee, and Licensee hereby accepts from
Licensor, for the term of this agreement, a non-transferable,
royalty-free license to market, promote, advertise, distribute and
resell and lease Related Equipment in connection with the marketing,
promotion, advertisement, distribution, lease or sale by Licensee of
Sprint PCS Products and Services, and to furnish services relating
to such Related Equipment (including installation, repair and
maintenance of Related Equipment), under the Licensed Marks.
ARTICLE 2
QUALITY STANDARDS, MAINTENANCE
Section 2.1 Maintenance of Quality.
(c) Adherence to Quality Standards. In the course of marketing,
promoting, advertising, distributing, leasing and selling Sprint PCS
Products and Services and Premium and Promotional Items under the
Licensed Marks, Licensee shall maintain and adhere to standards of
quality and specifications that conform to or exceed those quality
standards and technical and operational specifications adopted
and/or amended in the manner provided below ("Quality Standards")
and those imposed by Law. Such Quality Standards are designed to
ensure that the quality of the Sprint PCS Products and Services and
Premium and Promotional Items marketed, promoted, advertised,
distributed, leased and sold under the Licensed Marks are consistent
with the high reputation of the Licensed Marks and are in conformity
with applicable Laws.
(d) Establishment of Quality Standards. The parties acknowledge that the
initial Quality Standards for the Sprint PCS Products and Services
and Premium and Promotional Items are attached to the Affiliation
Agreement as Exhibits 4.1, 4.2, 4.3, 7.2, and 8.1. The Quality
Standards shall (i) be consistent with the reputation for quality
associated with the Licensed Marks and (ii) be commensurate with a
high level of quality (taking into account Licensee's fundamental
underlying technology and standards), consistent with the level of
quality being offered in the market for products and services of the
same kind as the Sprint PCS Products and Services.
(e) changes in Quality Standards. In the event that Licensor wishes to
change the Quality Standards, it will notify Licensee in writing of
such proposed amendments, and will afford Licensee a reasonable time
period in which to adopt such changes as may be required in order
for Licensee to conform to the amended Quality Standards.
Section 2.2 Rights of Inspection. In order to ensure that the Quality
Standards are maintained, Licensor and its authorized agents and representatives
shall have the right, but not the obligation, with prior notice to Licensee, to
enter upon the premises of any office or facility operated by or for Licensee
with respect to Sprint PCS Products and Services and Premium and Promotional
Items at all reasonable times, to inspect, monitor and test in a reasonable
manner facilities and equipment used to furnish Sprint PCS Products and Services
and Premium and Promotional Items and, with prior written notice to Licensee, to
inspect the books and records of Licensee in a manner that does not unreasonably
interfere with the business and affairs of Licensee, all as they relate to the
compliance with the Quality Standards maintained hereunder.
Section 2.3 Marking; Compliance with Trademark Laws. Licensee shall cause
the appropriate designation "TM" or "SM" or the registration symbol "(R)" to be
placed adjacent to the Licensed Marks in connection with the use thereof and to
indicate such additional information
Sprint Proprietary Information -- RESTRICTED
2
as Licensor shall reasonably specify from time to time concerning the license
rights under which Licensee uses the Licensed Marks. Licensee shall place the
following notice on all printed or electronic materials on which the Licensed
Marks appear: "SPRINT", the "DIAMOND" logo and "Sprint PCS", "Sprint Personal
Communications Services" are trademarks and/or service marks of Sprint
Communications Company, L.P., "used under license" or such other notice as
Licensor may specify from time to time.
Section 2.4 Other Use Restrictions. Licensee shall not use the Licensed
Marks in any manner that would reflect adversely on the image of quality
symbolized by the Licensed Marks.
ARTICLE 3
CONFIDENTIAL INFORMATION
Section 3.1 Maintenance of Confidentiality. Each of Licensor and Licensee
and their respective Controlled Related Parties (each a "Restricted Party")
shall cause their respective officers and directors (in their capacity as such)
to, and shall take all reasonable measures to cause their respective employees,
attorneys, accountants, consultants and other agents and advisors (collectively,
and together with their respective officers and directors, "Agents") to, keep
secret and maintain in confidence the terms of this agreement and all
confidential and proprietary information and data of the other party or its
Related Parties disclosed to it (in each case, a "Receiving Party") in
connection with the performance of its obligations under this agreement (the
"Confidential Information") and shall not, and shall cause their respective
officers and directors not to, and shall take all reasonable measures to cause
their respective other Agents not to, disclose Confidential Information to any
Person other than the parties, their Controlled Related Parties and their
respective Agents that need to know such Confidential Information. Each party
further agrees that it shall not use the Confidential Information for any
purpose other than determining and performing its obligations and exercising its
rights under this agreement. Each party shall take all reasonable measures
necessary to prevent any unauthorized disclosure of the Confidential Information
by any of their respective Controlled Related Parties or any of their respective
Agents. The measures taken by a Restricted Party to protect Confidential
Information shall be not deemed unreasonable if the measures taken are at least
as strong as the measures taken by the disclosing party to protect such
Confidential Information.
Section 3.2 Permitted Disclosures. Nothing herein shall prevent any
Restricted Party or its Agents from using, disclosing, or authorizing the
disclosure of Confidential Information it receives and which:
(i) has been published or is in the public domain, or which subsequently
comes into the public domain, through no fault of the receiving
party;
(ii) prior to receipt hereunder was property within the legitimate
possession of the Receiving Party or, subsequent to receipt
hereunder is lawfully received from a third party having rights
therein without restriction of the third party's right to
disseminate the Confidential Information and without notice of any
restriction against its further disclosure.
Sprint Proprietary Information -- RESTRICTED
3
(iii) is independently developed by the Receiving Party through Persons
who have not had, either directly or indirectly, access to or
knowledge of such Confidential Information;
(iv) is disclosed to a third party with the written approval of the party
originally disclosing such information, provided that such
Confidential Information shall cease to be confidential and
proprietary information covered by this agreement only to the extent
of the disclosure so consented to;
(v) subject to the Receiving Party's compliance with Section 3.4 below,
is required to be produced under order of a court of competent
jurisdiction or other similar requirements of a governmental agency,
provided that such Confidential Information to the extent covered by
a protective order or its equivalent shall otherwise continue to be
Confidential Information required to be held confidential for
purpose of this agreement; or
(vi) subject to the Receiving Party's compliance with Section 3.4 below,
is required to be disclosed by applicable Law or a stock exchange or
association on which such Receiving Party's securities (or those of
its Related Party) are listed.
Section 3.3 Financial Institutions. Notwithstanding this Article 3, any
party may provide Confidential Information to any financial institution in
connection with borrowings from such financial institution by such party or any
of its Controlled Related Parties, so long as prior to any such disclosure such
financial institution executes a confidentiality agreement that provides
protection substantially equivalent to the protection provided the parties in
this Article 3.
Section 3.4 Procedures. In the event that any Receiving Party (i) must
disclose Confidential Information in order to comply with applicable Law or the
requirements of a stock exchange or association on which such Receiving Party's
securities or those of its Related Parties are listed or (ii) becomes legally
compelled (by oral questions, interrogatories, requests for information or
documents, subpoenas, civil investigative demand or otherwise) to disclose any
Confidential Information, the Receiving Party shall provide the disclosing party
with prompt written notice so that in the case of clause (i), the disclosing
party can work with the Receiving Party to limit the disclosure to the greatest
extent possible consistent with legal obligations or in the case of clause (ii),
the disclosing party may seek a protective order or other appropriate remedy or
waive compliance with the provisions of this agreement. In the case of a clause
(ii), (A) if the disclosing party is unable to obtain a protective order or
other appropriate remedy, or if the disclosing party so directs, the Receiving
Party shall, and shall cause its employees to, exercise all commercially
reasonable efforts to obtain a protective order or other appropriate remedy at
the disclosing party's reasonable expense, and (B) failing the entry of a
protective order or other appropriate remedy or receipt of a waiver hereunder,
the Receiving Party shall furnish only that portion of the Confidential
Information which it is advised by opinion of its counsel is legally required to
be furnished and shall exercise all commercially reasonable efforts to obtain
reliable assurance that confidential treatment shall be accorded such
Confidential
Sprint Proprietary Information -- RESTRICTED
4
Information, it being understood that such reasonable efforts shall be at the
cost and expense of the disclosing party whose Confidential Information has been
sought.
Section 3.5 Survival. The obligations under this Article 3 shall survive,
as to any party, until two (2) years following the date of termination of this
agreement, and, as to any Controlled Related Party of a party, until two (2)
years following the earlier to occur of (A) the date that such Person is no
longer a Controlled Related Party of a party, or (B) the date of the termination
of this agreement; provided that such obligations shall continue indefinitely
with respect to any trade secret or similar information which is proprietary to
a party or its Controlled Related Parties and provides such party or its
Controlled Related Parties with an advantage over its competitors.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSEE
Section 4.1 Licensor's Ownership. Licensee acknowledges Licensor's
exclusive right, title and interest in and to the Licensed Marks and
acknowledges that nothing herein shall be construed to accord to Licensee any
rights in the Service Area in the Licensed Marks except as expressly provided,
herein. Licensee acknowledges that its use in the Service Area of the Licensed
Marks shall not create in Licensee any right, title or interest in the Service
Area in the Licensed Marks and that all use in the Service Area of the Licensed
Marks and the goodwill symbolized by and connected with such use of the Licensed
Marks will inure solely to the benefit of the Licensor.
Section 4.2 No Challenge by Licensee. Licensee covenants that (i) Licensee
will not at any time challenge Licensor's rights, title or interest in the
Licensed Marks (other than to assert the specific rights granted to Licensee
under this agreement), (ii) Licensee will not do or cause to be done or omit to
do anything, the doing, causing or omitting of which would contest or in any way
impair or tend to impair the rights of Licensor in the Licensed Marks, and (iii)
Licensee will not represent to any third party that Licensee has any ownership
or rights in the Service Area with respect to the Licensed Marks other than the
specific rights conferred by this agreement.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSOR
Section 5.1 Title to the Licensed Marks. Licensor represents and warrants
that:
(a) Licensor has good title to the Licensed Marks and has the right to
grant the licenses provided for hereunder in accordance with the
terms and conditions hereof, free of any liabilities, charges,
liens, pledges, mortgages, restrictions, adverse claims, security
interests, rights of others, and encumbrances of any kind
(collectively, "Encumbrances"), other than Encumbrances which will
not restrict or interfere in any material respect with the exercise
by Licensee of the rights granted to Licensee hereunder.
Sprint Proprietary Information -- RESTRICTED
5
(b) There is no claim, action, proceeding or other litigation pending
or, to the knowledge of Licensor, threatened with respect to
Licensor's ownership of the Licensed Marks or which, if adversely
determined, would restrict or otherwise interfere in any material
respect with the exercise by Licensee of the rights purported to be
granted to Licensee hereunder.
Except as expressly provided above in this Section 5.1, Licensor makes no
representation or warranty of any kind or nature whether express or implied with
respect to the Licensed Marks (including freedom from third party infringement
of the Licensed Marks).
The representations and warranties provided for in this Section 5.1 shall
survive the execution and delivery of this agreement.
Section 5.2 Other Licensees. In the event Licensor grants to any third
party any licenses or rights with respect to the Licensed Marks, Licensor shall
not, in connection with the grant of any such license or rights, take any
actions, or suffer any omission that would adversely affect the existence or
validity of the Licensed Marks or conflict with the rights granted to Licensee
hereunder.
Section 5.3 Abandonment. Licensor covenants and agrees that, during the
term of this agreement, it will not abandon the Licensed Marks.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BOTH PARTIES
Section 6.1 Representations and Warranties. Each party hereby represents
and warrants to the other party as follows:
(a) Due Incorporation or Formation; Authorization of Agreement. Such
party is a corporation duly organized, a limited liability company
duly organized or a partnership duly formed, validly existing and,
if applicable, in good standing under the laws of the jurisdiction
of its incorporation or formation and has the corporate, company or
partnership power and authority to own its property and carry on its
business as owned and carried on at the date hereof and as
contemplated hereby. Such party is duly licensed or qualified to do
business and, if applicable, is in good standing in each of the
jurisdictions in which the failure to be so licensed or qualified
would have a material adverse effect on its financial condition or
its ability to perform its obligations hereunder. Such party has the
corporate, company or partnership power and authority to execute and
deliver this agreement and to perform its obligations hereunder and
the execution, delivery and performance of this agreement have been
duly authorized by all necessary corporate, company or partnership
action. Assuming the due execution and delivery by the other party
hereto, this agreement constitutes the legal, valid and binding
obligation of such party enforceable against such party in
accordance with its terms, subject as to enforceability to limits
imposed by bankruptcy,
Sprint Proprietary Information -- RESTRICTED
6
insolvency or similar laws affecting creditors' rights generally and
the availability of equitable remedies.
(b) No Conflict with Restrictions; No Default. Neither the execution,
delivery and performance of this agreement nor the consummation by
such party of the transactions contemplated hereby (i) will conflict
with, violate or result in a breach of any of the terms, conditions
or provisions of any law, regulation, order, writ, injunction,
decree, determination or award of any court, any governmental
department, board, agency or instrumentality, domestic or foreign,
or any arbitrator, applicable to such party or any of its Controlled
Related Parties, (ii) will conflict with, violate, result in a
breach of or constitute a default under any of the terms, conditions
or provisions of the articles of incorporation, articles of
organization or certificate of formation, bylaws, operating
agreement or limited liability company agreement, or partnership
agreement of such party or any of its Controlled Related Parties or
of any material agreement or instrument to which such party or any
of its Controlled Related Parties is a party or by which such party
or any of its Controlled Related Parties is or may be bound or to
which any of its material properties or assets is subject (other
than any such conflict, violation, breach or default that has been
validly and unconditionally waived), (iii) will conflict with,
violate, result in a breach of, constitute a default under (whether
with notice or lapse of time or both), accelerate or permit the
acceleration of the performance required by, give to others any
material interests or rights or require any consent, authorization
or approval under any indenture, mortgage, lease agreement or
instrument to which such party or any of its Controlled Related
Parties is a party or by which such party or any of its Controlled
Related Parties is or may be bound, or (iv) will result in the
creation or imposition of any lien upon any of the material
properties or assets of such party or any of its Controlled Related
Parties, which in any such case could reasonably be expected to
materially impair such party's ability to perform its obligations
under this agreement or to have a material adverse effect on the
consolidated financial condition of each party or its Parent.
(c) Governmental Authorizations. Any registration, declaration or filing
with, or consent, approval, license, permit or other authorization
or order by, any governmental or regulatory authority, domestic or
foreign, that is required to be obtained by such party in connection
with the valid execution, delivery, acceptance and performance by
such party under this agreement or the consummation by such party of
any transaction contemplated hereby has been completed, made or
obtained, as the case may be.
(d) Litigation. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of such party,
threatened against or affecting such party or any of its Controlled
Related Parties or any of their properties, assets or businesses in
any court or before or by any governmental department, board, agency
or instrumentality, domestic or foreign, or any arbitrator which
could, if adversely determined (or, in the case of an investigation
could lead to any action, suit or
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7
proceeding, which if adversely determined could), reasonably be
expected to materially impair such party's ability to perform its
obligations under this agreement or to have a material adverse
effect on the consolidated financial condition of such party or its
parent; and such party or any of its Controlled Related Parties has
not received any currently effective notice of any default, and such
party or any of its Controlled Related Parties is not in default,
under any applicable order, writ, injunction, decree, permit,
determination or award of any court, any governmental department,
board, agency or instrumentality, domestic or foreign, or any
arbitrator, which default could reasonably be expected to materially
impair such party's ability to perform its obligations under this
agreement or to have a material adverse effect on the consolidated
financial condition of such party or its Parent.
Section 6.2 Survival. The representations and warranties provided for
under this Article 6 will survive the execution and delivery of this agreement.
ARTICLE 7
PROSECUTION OF INFRINGEMENT CLAIMS
Section 7.1 Notice and Prosecution of Infringement. Licensee agrees to
notify Licensor promptly, in writing, of any alleged, actual or threatened
infringement of any of the Licensed Marks within the Service Area of which
Licensee becomes aware. Licensor has the sole right to determine whether or not
to take any action on such infringements. Licensor has the sole right to employ
counsel of its choosing and to direct any litigation and settlement of
infringement actions. Any recoveries, damages and costs recovered through such
proceedings shall belong exclusively to Licensor, and Licensor shall be solely
responsible for all costs and expenses (including attorney fees) of prosecuting
such actions. Licensee agrees to provide Licensor with all reasonably requested
assistance in connection with such proceedings.
ARTICLE 8
LICENSEE DEFENSE AND INDEMNIFICATION OF LICENSOR
Section 8.1 Indemnification. (a) Each party hereby agrees to indemnify the
other party against and agrees to hold it harmless from any Loss incurred or
suffered by such other party arising out of or in connection with:
(i) the material breach of any representation or warranty made by
such party in this agreement; and
(ii) the material breach of any covenant or agreement by such party
contained in this agreement.
(b) In addition to the indemnification provided for in Section 8.1(a),
Licensee agrees to indemnify Licensor against and hold it harmless
from any Loss suffered or incurred by Licensor or its Controlled
Related Parties by reason of a third party claim arising out of or
relating to (i) the use of the Licensed Marks by Licensee;
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8
or (ii) the marketing, promotion, advertisement, distribution, lease
or sale by Licensee (or any permitted sublicensee) or by any
additional Licensee (or any permitted sublicensee) of any Sprint PCS
Products and Services, Related Equipment or Premium and Promotional
Items under the Licensed Marks pursuant to this agreement, including
unfair or fraudulent advertising claims, warranty claims and product
defect or liability claims, pertaining to the Sprint PCS Products
and Services, Related Equipment or Premium and Promotional Items.
Notwithstanding the foregoing, Licensee will not be required under
this paragraph (b) to indemnify any Loss arising solely out of
Licensee's use of the Licensed Marks in compliance with the terms of
the Trademark and Service Mark Usage Guidelines; provided that
Licensor shall have no obligation to indemnify for third-party
claims alleged to arise from the specifics of uses of third-party
trademarks or service marks, or the specifics of claims made, in
marketing materials prepared by or for Licensee, which marketing
materials have not been approved by Licensor prior to the
publication out of which such claims are alleged to have arisen.
ARTICLE 9
OBLIGATIONS/SETOFF
Section 9.1. Obligations/Setoff. The obligations of the parties as set
forth in this agreement shall be unconditional and irrevocable, and shall not be
subject to any defense or be released, discharged or otherwise affected by any
matter, including impossibility, illegality, impracticality, frustration of
purpose, force majeure, act of government, the bankruptcy or insolvency of any
party hereto, and the obligations of each party shall not be subject to any
right of setoff or recoupment which such party may not or hereafter have against
the other party.
ARTICLE 10
LIMITATION ON USE OF LICENSED MARKS
Section 10.1 Restrictions on Use. Licensee is not permitted to make any
use of the Licensed Marks in connection with products or services other than the
Sprint PCS Products and Services, and as specifically authorized in Sections
1.1(b) above with respect to Related Equipment and Premium and Promotional
Items, nor to make any use of the Licensed Marks directed outside of the Service
Area.
Section 10.2 Adherence to Trademark and Service Mark Usage Guidelines.
Licensee agrees to comply with and adhere to Trademark and Service Mark Usage
Guidelines for the depiction or presentation of the Licensed Marks, as furnished
by Licensor. Prior to Licensee depicting or presenting any of the Licensed Marks
on any type of marketing, advertising or promotional materials, Licensee agrees
to submit samples of such materials to Licensor for approval. Licensor shall
have fourteen (14) days from the date Licensor receives such materials to
approve or object to any such materials submitted to Licensor for review. In the
event Licensor does not object to such materials within such fourteen (14) day
period, such materials shall be deemed approved by Licensor. Thereafter,
Licensee shall not be obligated to submit to Licensor materials prepared in
accordance with the samples previously approved by Licensor
Sprint Proprietary Information -- RESTRICTED
9
and the Trademark and Service Mark Usage Guidelines; provided, however, Licensee
shall, at the reasonable request of Licensor, continue to furnish samples of
such marketing, advertising and promotional materials to Licensor from time to
time during the term hereof at the request of Licensor.
Section 10.3 Use of Similar Trademarks and Service Marks. Licensee agrees
not to use (a) any trademark or service mark which is confusingly similar to, or
a colorable imitation of, the Licensed Marks or any part thereof, or (b) any
work, symbol, character, or set of words, symbols, or characters, which in any
language would be identified as the equivalent of the Licensed Marks or that are
otherwise confusingly similar to, or a colorable imitation of, the Licensed
Marks, whether during the term of this agreement or at any time following
termination of this agreement. Licensee shall not knowingly engage in any
conduct which may place the Sprint PCS Products and Services, the Licensed Marks
or Licensor in a negative light or context.
Section 10.4 Services of Public Figures. Licensee agrees to obtain
Licensor's prior written approval (which approval will not be unreasonably
withheld) before engaging the services of any celebrity or publicly known
individual for endorsement of any Sprint PCS Products and Services or Premium
and Promotional Items.
ARTICLE 11
CONTROL OF BRAND IMAGE
Section 11.1 Exclusive Use of Licensed Marks. The Sprint PCS Products and
Services shall be marketed by Licensee solely under the Licensed Marks.
Section 11.2 Consistency With Brand Image and Principles. Licensee shall
use the Licensed Marks in a manner that is consistent with the brand image and
principles established by Licensor, and mechanics to ensure consistency will be
included in the Marketing Communications Guidelines.
Section 11.3 Management of Brand Image. Licensor shall be responsible for
the overall management of the brand image for the Licensed Marks. All
advertising, marketing and promotional materials using the Licensed Marks
prepared by Licensee shall, in addition to the provisions set forth in Section
11.2 above, comply with the Marketing Communications Guidelines to be furnished
by Licensor to Licensee as such Marketing Communications Guidelines may be
amended and updated by Licensor from time to time. Such Marketing Communications
Guidelines shall establish reasonable principles to be followed in the
development of advertising, marketing and promotional campaigns in order to
ensure a consistent and coherent brand image. All advertising, marketing and
promotional campaigns conducted by Licensee shall be conducted in a manner
consistent with the Marketing Communications Guidelines.
Section 11.4 Advertising Agencies; Promotions. Licensee may select its own
advertising agencies for development of its advertising and promotional
campaigns; provided, however, that all media buys shall be coordinated by
Licensee with the buying agency of Licensor. Licensee and Licensor shall conduct
ongoing reviews of upcoming advertising,
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marketing and promotional campaigns of each party and shall use good faith
efforts to coordinate their respective campaigns in a manner that will maximize
the advertising, marketing and promotional efforts of the parties and be
consistent with the Marketing Communications Guidelines. Licensee shall not
initiate any products or promotions under names which are confusingly similar to
any names of national product offerings or promotions by Licensor. Neither
Licensor nor any of its Controlled Related Parties shall initiate any products
or promotions under names which are confusingly similar to any names of national
product offerings or promotions by Licensee. In addition, Licensor will use its
commercially reasonable efforts to ensure that no third party licensee under the
Licensed Marks initiates any products or promotions in the Service Area under
names which are confusingly similar to any names of national product offerings
or promotions by Licensee.
Section 11.5 Ownership of Advertising Materials. All agreements entered
into by Licensee with advertising agencies shall provide that Licensor shall own
all advertising materials (including concepts, themes, characters and the like)
created or developed thereunder. Subject to the terms and conditions set forth
herein, Licensee shall receive a perpetual, non-exclusive, royalty-free license
to use such materials in connection with advertising and promotional materials
developed by Licensee; provided, however, that the rights granted under such
perpetual license shall be limited solely to the use of such materials and shall
not extend the term of the license with respect to the Licensed Marks provided
for hereunder.
ARTICLE 12
RELATIONSHIP OF PARTIES
Section 12.1 Relationship of Parties. It is the express intention of the
parties that Licensee is and shall be an independent contractor and no
partnership shall exist between Licensee and Licensor pursuant hereto. This
agreement shall not be construed to make Licensee the agent or legal
representative of Licensor for any purpose whatsoever (except as expressly
provided in Articles 7 and 8), and Licensee is not granted any right or
authority to assume or create any obligations for, on behalf of, or in the name
of Licensor (except as expressly provided in Articles 7 and 8). Licensee agrees,
and shall require its permitted sublicensees to agree, not to incur or contract
any debt or obligation on behalf of Licensor, or commit any act, make any
representation, or advertise in any manner that may adversely affect any right
of Licensor in or with respect to the Licensed Marks or be detrimental to
Licensor's image.
ARTICLE 13
TERM; TERMINATION; EFFECTS OF TERMINATION
Section 13.1 Term. This agreement commences on the date of execution and
continues until the Affiliation Agreement terminates, unless earlier terminated
in accordance with the terms set forth in this Article 13. This agreement
automatically terminates upon termination of the Affiliation Agreement.
Section 13.2 Events of Termination. If any of the following events shall
occur with respect to Licensee, each such occurrence shall be deemed an "Event
of Termination":
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(a) Bankruptcy. The occurrence of a "Bankruptcy" with respect to
Licensee.
(b) Breach of Agreements. Licensee fails to perform in accordance with
any of the material terms and conditions contained herein in any
material respect.
(c) Material Misrepresentation. Licensee breaches any material
representation or warranty of Licensee made in Section 4.2 or
Article 6 in any material respect.
(d) Termination of Affiliation Agreement. The termination of the
Affiliation Agreement, for whatever reason.
Section 13.3 Licensor's Right to Terminate Upon Event of Termination.
Licensor may, at its option, without prejudice to any other remedies it may
have, terminate this agreement by giving written notice of such termination to
Licensee as follows: (a) immediately, upon the occurrence of any Event of
Termination pursuant to Section 13.2(a) with respect to Licensee; or (b) after
the expiration of thirty (30) days from Licensee's receipt of written notice
from Licensor of the occurrence of any Event of Termination pursuant to Sections
13.2(b) or 13.2(c), if such failure to perform or breach is then still uncured;
or (c) immediately upon the repeated or continuing occurrence of Events of
Termination pursuant to Section 13.2(b) (regardless of whether such continuing
failures to perform or breaches have been cured by Licensee in accordance with
the provisions of clause (b) or this Section 13.3); or (d) immediately upon the
occurrence of a termination pursuant to Section 13.2(d).
Section 13.4 Licensee's Right to Terminate. Licensee may, at its option,
without prejudice to any other remedies it may have, terminate this agreement by
giving written notice of such termination to Licensor as follows: (a)
immediately, in the event that Licensor abandons the Licensed Marks or otherwise
ceases to support the Licensed Marks in Licensor's business; or (b) immediately
in the event of the occurrence of a Bankruptcy with respect to Licensor; or (c)
immediately in the event of an occurrence of termination pursuant to Section
13.2(d).
Section 13.5 Effects of Termination. Upon the termination of this
agreement for any reason, all rights of Licensee in and to the Licensed Marks in
the Service Area shall cease within thirty (30) days following the date on which
this agreement terminates (except in the case of a termination resulting from an
Event of Termination described in Section 13.2(b), (c) or (d), in which case
such rights to use the Licensed Marks will terminate immediately upon the date
of termination); provided, however, that Licensee may thereafter sell, transfer
or otherwise dispose of any Related Equipment and Premium and Promotional Items
that are then in Licensee's inventory (or which Licensee has purchased or is
then legally obligated to purchase) for an additional reasonable period not to
exceed three (3) months. Licensee's right of disposal under this Section 13.5
shall not prohibit Licensor from granting to third parties during the disposal
period licenses and other rights with respect to the Licensed Marks. The
provisions of Articles 3, 4, 5, 6 and 8 will survive any termination of this
agreement.
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ARTICLE 14
ASSIGNMENT; SUBLICENSING
Section 14.1 Licensee Right to Assign. Licensee, without the prior written
consent of Licensor (in its sole discretion), shall have no right to assign any
of its rights or obligations hereunder.
Section 14.2 Licensor Right to Assign the Licensed Marks. Nothing herein
shall be construed to limit the right of the Licensor to transfer or assign its
interests in the Licensed Marks, subject to the agreement of the assignee to be
bound by the terms and conditions of this agreement.
Section 14.3 Licenses to Additional Licensees; Sublicenses; Licenses to
Additional Licensees. Licensee shall not sublicense (or attempt to sublicense)
any of its rights hereunder without the prior written consent of Licensor, in
the sole discretion of Licensor.
ARTICLE 15
MISCELLANEOUS
Section 15.1 Notices. Any notice, payment, demand, or communication
required or permitted to be given by any provision of this agreement shall be in
writing and mailed (certified or registered mail, postage prepaid, return
receipt requested) or sent by hand or overnight courier, or by facsimile (with
acknowledgment received), charges prepaid and addressed as described on the
Notice Address Schedule attached to the Master Signature Page, or to such other
address or number as such party may from time to time specify by written notice
to the other party. All notices and other communications given to a party in
accordance with the provisions of this agreement shall be deemed to have been
given and received (i) four (4) Business Days after the same are sent by
certified or registered mail, postage prepaid, return receipt requested, (ii)
when delivered by hand or transmitted by facsimile (with acknowledgment received
and, in the case of a facsimile only, a copy of such notice is sent no later
than the next Business Day by a reliable overnight courier service, with
acknowledgment of receipt) or (iii) one (1) Business Day after the same are sent
by a reliable overnight courier service, with acknowledgment of receipt.
Section 15.2 Binding Effect. Except as otherwise provided in this
agreement, this agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, transferees, and assigns.
Section 15.3 Construction. This agreement shall be construed simply
according to its fair meaning and not strictly for or against any party.
Section 15.4 Time. Time is of the essence with respect to this agreement.
Section 15.5 Table of Contents; Headings. The table of contents and
section and other headings contained in this agreement are for reference
purposes only and are not intended to describe, interpret, define or limit the
scope, extent or intent of this agreement.
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13
Section 15.6 Severability. Every provision of this agreement is intended
to be severable. If any term or provision hereof is illegal, invalid or
unenforceable for any reason whatsoever, that term or provision will be enforced
to the maximum extent permissible so as to effect the intent of the parties, and
such illegality, invalidity or unenforceability shall not affect the validity or
legality of the remainder of this agreement. If necessary to effect the intent
of the parties, the parties will negotiate in good faith to amend this agreement
to replace the unenforceable language with enforceable language which as closely
as possible reflects such intent.
Section 15.7 Further Action. Each party, upon the reasonable request of
the other party, agrees to perform all further acts and execute, acknowledge,
and deliver any documents which may be reasonably necessary, appropriate, or
desirable to carry out the intent and purposes of this agreement.
Section 15.8 Governing Law. The internal laws of the State of Missouri
(without regard to principles of conflict of law) shall govern the validity of
this agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties.
Section 15.9 Specific Performance. Each party agrees with the other party
that the other party would be irreparably damaged if any of the provisions of
this agreement are not performed in accordance with their specific terms and
that monetary damages would not provide an adequate remedy in such event.
Accordingly, in addition to any other remedy to which the nonbreaching party may
be entitled, at law or in equity, the nonbreaching party shall be entitled to
injunctive relief to prevent breaches of this agreement and specifically to
enforce the terms and provisions hereof.
Section 15.10 Entire Agreement. The provisions of this agreement set forth
the entire agreement and understanding between the parties as to the subject
matter hereof and supersede all prior agreements, oral or written, and other
communications between the parties relating to the subject matter hereof.
Section 15.11 Limitation on Rights of Others. Nothing in this agreement,
whether express or implied, shall be construed to give any party other than the
parties any legal or equitable right, remedy or claim under or in respect of
this agreement.
Section 15.12 Waivers; Remedies. The observance of any term of this
agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) by the party or parties entitled to enforce such
term, but any such waiver shall be effective only if in writing signed by the
party or parties against which such waiver is to be asserted. Except as
otherwise provided herein, no failure or delay of any party in exercising any
power or right under this agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other
further exercise thereof or the exercise of any other right or power.
Section 15.13 Jurisdiction; Consent to Service of Process.
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14
(a) Each party hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any
Missouri State court sitting in the County of Jackson or any Federal
court of the United States of America sitting in the Western
District of Missouri, and any appellate court from any such court,
in any suit action or proceeding arising out of or relating to this
agreement, or for recognition or enforcement of any judgment, and
each party hereby irrevocably and unconditionally agrees that all
claims in respect of any such suit, action or proceeding may be
heard and determined in such Missouri State court or, to the extent
permitted by law, in such Federal court.
(b) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally do so, any objection which it may now
or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement in Missouri
State court sitting in the County of Jackson or any Federal court
sitting in the Western District of Missouri. Each party hereby
irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in any such court and further waives the right
to object, with respect to such suit, action or proceeding, that
such court does not have jurisdiction over such party.
(c) Each party irrevocably consents to service of process in the manner
provided for the giving of notices pursuant to this agreement,
provided that such service shall be deemed to have been given only
when actually received by such party. Nothing in this agreement
shall affect the right of a party to serve process in another manner
permitted by law.
Section 15.14 Waiver of Jury Trial. Each party waives, to the fullest
extent permitted by applicable law, any right it may have to a trial by jury in
respect of any action, suit or proceeding arising out of or relating to this
agreement.
Section 15.15 Consents. Whenever this agreement requires or permits
consent by or on behalf of a party, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in Section 15.13, with appropriate notice in accordance with Section 15.1 of
this agreement.
Section 15.16 Master Signature Page. Each party agrees that it will
execute the Master Signature Page that evidences such party's agreement to
execute, become a party to and be bound by this agreement, which document is
incorporated herein by this reference.
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15
EXHIBIT 10.7
SPRINT SPECTRUM
TRADEMARK AND SERVICE MARK
LICENSE AGREEMENT
Between
SPRINT SPECTRUM L.P.
and
SHENANDOAH PERSONAL
COMMUNICATIONS COMPANY
Dated as of November 5, 1999
Sprint Spectrum Proprietary Information - RESTRICTED
EXHIBIT 10.7
"
SPRINT SPECTRUM TRADEMARK AND
SERVICE MARK LICENSE AGREEMENT
THIS AGREEMENT is made as of the 5th day of November, 1999, by and between
Sprint Spectrum L.P., a limited partnership organized under the laws of the
State of Delaware, as licensor ("Licensor"), and Shenandoah Personal
Communications Company, a corporation formed under the laws of Virginia, as
licensee ("Licensee"). The definitions for this agreement are set forth on the
"Schedule of Definitions".
RECITALS:
WHEREAS, Licensor is the owner of the U.S. trademarks and service marks
"THE CLEAR ALTERNATIVE TO CELLULAR" and "EXPERIENCE THE CLEAR ALTERNATIVE TO
CELLULAR TODAY" and such other marks as may be adopted and established from time
to time and the goodwill of the business symbolized thereby; and
WHEREAS, Licensee desires to use the trademarks and service marks in
commerce;
NOW, THEREFORE, the parties, in consideration of the mutual agreements
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, do hereby agree as follows:
ARTICLE 1
GRANT OF TRADEMARK AND SERVICE MARK RIGHTS; EXCLUSIVITY
Section 1.1. License.
(a) Grant of License. Subject to the terms and conditions hereof,
Licensor hereby grants to Licensee, and Licensee hereby accepts from
Licensor, for the term of this agreement, a non-transferable,
royalty-free license to use the Licensed Marks solely for and in
connection with the marketing, promotion, advertisement,
distribution, lease or sale of Sprint PCS Products and Services and
Premium and Promotional Items in the Service Area.
"
(b) Related Equipment. The rights granted hereunder to Licensee shall
not include the right to manufacture equipment under the Licensed
Marks. However, subject to the terms and conditions hereof, Licensor
hereby grants to Licensee, and Licensee hereby accepts from
Licensor, for the term of this agreement, a non-transferable,
royalty-free license to market, promote, advertise, distribute and
resell and lease Related Equipment in connection with the marketing,
promotion, advertisement, distribution, lease or sale by Licensee of
Sprint PCS Products and Services, and to furnish services relating
to such Related Equipment (including installation, repair and
maintenance of Related Equipment), under the Licensed Marks.
Sprint Spectrum Proprietary Information - RESTRICTED
EXHIBIT 10.7
'"
ARTICLE 2
QUALITY STANDARDS, MAINTENANCE
Section 2.1. Maintenance of Quality.
(a) Adherence to Quality Standards. In the course of marketing,
promoting, advertising, distributing, leasing and selling Sprint PCS
Products and Services and Premium and Promotional Items under the
Licensed Marks, Licensee shall maintain and adhere to standards of
quality and specifications that conform to or exceed those quality
standards and technical and operational specifications adopted
and/or amended in the manner provided below ("Quality Standards")
and those imposed by Law. Such Quality Standards are designed to
ensure that the quality of the Sprint PCS Products and Services and
Premium and Promotional Items marketed, promoted, advertised,
distributed, leased and sold under the Licensed Marks are consistent
with the high reputation of the Licensed Marks and are in conformity
with applicable Laws.
(b) Establishment of Quality Standards. The parties acknowledge that the
initial Quality standards for the Sprint PCS Products and Services
and Premium and Promotional Items are attached to the Management
Agreement as Exhibits 4.1, 4.2, 4.3, 7.2. and 8.1. The Quality
Standards shall (i) be consistent with the reputation for quality
associated with the Licensed Marks and (ii) be commensurate with a
high level of quality (taking into account Licensee's fundamental
underlying technology and standards), consistent with the level of
quality being offered in the market for products and services of the
same kind as the Sprint PCS Products and Services.
(c) Changes in Quality Standards. In the event that Licensor wishes to
change the Quality Standards, it will notify Licensee in writing of
such proposed amendments, and will afford Licensee a reasonable time
period in which to adopt such changes as may be required in order
for Licensee to conform to the amended Quality Standards.
Section 2.2. Rights of Inspection. In order to ensure that the Quality
Standards are maintained, Licensor and its authorized agents and representatives
shall have the right, but not the obligation, with prior notice to Licensee, to
enter upon the premises of any office or facility operated by or for Licensee
with respect to Sprint PCS Products and Services and Premium and Promotional
Items at all reasonable times, to inspect, monitor and test in a reasonable
manner facilities and equipment used to furnish Sprint PCS Products and Services
and Premium and Promotional Items and, with prior written notice to Licensee, to
inspect the books and records of Licensee in a manner that does not unreasonably
interfere with the business and affairs of Licensee, all as they relate to the
compliance with the Quality Standards maintained hereunder,
".
Section 2.3. Marking: Compliance with Trademark Laws. Licensee shall cause
the appropriate designation "(TM)" or "SM," or the registration symbol "(R)" to
be placed adjacent to the Licensed Marks in connection with the use thereof and
to indicate such additional information as Licensor shall reasonably specify
from time to time concerning the license rights under which
Sprint Spectrum Proprietary Information - RESTRICTED
EXHIBIT 10.7
Licensee uses the Licensed Marks. Licensee shall place the following notice on
all printed or electronic materials on which the Licensed Marks appear: "THE
CLEAR ALTERNATIVE TO CELLULAR", "EXPERIENCE THE CLEAR ALTERNATIVE TO CELLULAR
TODAY", and such other marks as may be adopted and established from time to
time, are trademarks and/or service marks of Sprint Spectrum L.P., "used under
license" or such other notice as Licensor may specify from time to time. .
Section 2.4. Other Use Restrictions. Licensee shall not use the Licensed
Marks in any manner that would reflect adversely on the image of quality
symbolized by the Licensed marks.
ARTICLE 3
CONFIDENTIAL INFORMATION
Section 3.1. Maintenance of Confidentiality. Each of Licensor and Licensee
and their respective Controlled Related Parties (each a "Restricted Party")
shall cause their respective officers and directors (in their capacity as such)
to, and shall take all reasonable measures to cause their respective employees,
attorneys, accountants, consultants and other agents and advisors (collectively,
and together with their respective officers and directors, "Agents") to keep
secret and maintain in confidence the terms of this agreement and all
confidential and proprietary information and data of the other party or its
Related Parties disclosed to it (in each case a "Receiving Party") in connection
with the performance of its obligations under this agreement (the "Confidential
Information") and shall not and shall cause their respective officers and
directors not to, and shall take all reasonable measures to cause their
respective other Agents not to disclose Confidential Information to any Person
other than the parties, their Controlled Related Parties and their respective
Agents that need to know such Confidential Information. Each party further
agrees that it shall not use the Confidential Information for any purpose other
than determining and performing its obligations and exercising its rights under
this agreement. Each party shall take all reasonable measures necessary to
prevent any unauthorized disclosure of the Confidential Information by any of
their respective Controlled Related Parties or any of their respective Agents.
The measures taken by a Restricted Party to protect Confidential Infom1ation
shall be not deemed unreasonable if the measures taken are at least as strong as
the measures taken by the disclosing party to protect such Confidential
Information.
Section 3.2. Permitted Disclosures. Nothing herein shall prevent any
Restricted Party or its Agents from using, disclosing, or authorizing the
disclosure of Confidential Information it receives and which:
(i) has been published or is in the public domain, or which subsequently
comes into the public domain, through no fault of the receiving
party;
(ii) prior to receipt hereunder was property within the legitimate
possession of the Receiving Party or, subsequent to receipt
hereunder is lawfully received from a third party having rights
therein without restriction of the third party's right to
disseminate
"
Sprint Spectrum Proprietary Information - RESTRICTED
EXHIBIT 10.7
the Confidential Information and without notice of any restriction
against its further disclosure.
(iii) is independently developed by the Receiving Party through Persons
who have not had, either directly or indirectly, access to or
knowledge of such Confidential Information;
(iv) is disclosed to a third party with the written approval of the party
originally disclosing such information, provided that such
Confidential Information shall cease to be confidential and
proprietary information covered by this agreement only to the extent
of the disclosure so consented to;
(v) subject to the Receiving Party's compliance with Section 3.4 below
is required to be produced under order of a court of competent
jurisdiction or other similar requirements of a governmental agency
provided that such Confidential Information to the extent covered by
a protective order or its equivalent shall otherwise continue to be
Confidential Information required to be held confidential for
purpose of this agreement; or
(vi) subject to the Receiving Party's compliance with Section 3.4 below
is required to be disclosed by applicable Law or a stock exchange or
association on which such Receiving Party's securities (or those of
its Related Party) are listed.
Section 3.3. Financial Institutions. Notwithstanding this Article 3, any
party may provide Confidential Information to any financial institution in
connection with borrowings from such financial institution by such party or any
of its Controlled Related Parties, so long as prior to any such disclosure such
financial institution executes a confidentiality agreement that provides
protection substantially equivalent to the protection provided the parties in
this Article 3. "
Section 3.4. Procedures. In the event that any Receiving Party (i) must
disclose Confidential Information in order to comply with applicable Law or the
requirements of a stock exchange or association on which such Receiving Party's
securities or those of its Related Parties are listed or (ii) becomes legally
compelled (by oral questions, interrogatories, requests for information or
documents, subpoenas, civil investigative demand or otherwise) to disclose any
Confidential Information, the Receiving Party shall provide the disclosing party
with prompt written notice so that in the case of clause (i), the disclosing
party can work with the Receiving Party to limit the disclosure to the greatest
extent possible consistent with legal obligations or in the case of clause (ii),
the disclosing party may seek a protective order or other appropriate remedy or
waive compliance with the provisions of this agreement. In the case of a clause,
(ii) (A) if the disclosing party is unable to obtain a protective order or other
appropriate remedy, or if the disclosing party so directs, the Receiving Party
shall, and shall cause its employees to, exercise all commercially reasonable
efforts to obtain a protective order or other appropriate remedy at the
disclosing party's reasonable expense, and (B) failing the entry of a protective
order or other appropriate remedy or receipt of a waiver hereunder, the
Receiving Party shall furnish only that portion of the Confidential Information
which it is advised by opinion of its counsel is legally required to be
furnished and shall exercise all commercially reasonable efforts to obtain
reliable assurance that confidential treatment shall be accorded such
Confidential Information, it being
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EXHIBIT 10.7
understood that such reasonable efforts shall be at the cost and expense of the
disclosing party whose Confidential Information has been sought..
Section 3.5. Survival. The obligations under this Article 3 shall survive,
as to any party, until two (2) years following the date of termination of this
agreement, and, as to any Controlled Related Party of a party, until two (2)
years following the earlier to occur of (A) the date that such Person is no
longer a Controlled Related Party of a party, or (B) the date of the termination
of this agreement; provided that such obligations shall continue indefinitely
with respect to any trade secret or similar information which is proprietary to
a party or its Controlled Related Parties and provides such party or its
Controlled Related Parties with an advantage over its competitors.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSEE
Section 4.1. Licensor's Ownership. Licensee acknowledges Licensor's
exclusive right.. title and interest in and to the Licensed Marks and
acknowledges that nothing herein shall be construed to accord to Licensee any
rights in the Service Area in the Licensed Marks except as expressly provided,
herein. Licensee acknowledges that its use in the Service Area of the Licensed
Marks shall not create in Licensee any right, title or interest in the Service
Area in the Licensed Marks and that all use in the Service Area of the Licensed
Marks and the goodwill symbolized by and connected with such use of the Licensed
Marks will inure solely to the benefit of the Licensor.
Section 4.2. No Challenge by Licensee. Licensee covenants that (i)
Licensee will not at any time challenge Licensor's rights, title or interest in
the Licensed Marks (other than to assert the specific rights granted to Licensee
under this agreement), (ii) Licensee will not do or cause to be done or omit to
do anything, the doing, causing or omitting of which would contest or in any way
impair or tend to impair the rights of Licensor in the Licensed Marks, and (iii)
Licensee will not represent to any third party that Licensee has any ownership
or rights in the Service Area with respect to the Licensed Marks other than the
specific rights conferred by this agreement..
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSOR
Section 5.1. Title to the Licensed Marks. Licensor represents and warrants that:
"
(a) Licensor has good title to the Licensed Marks and has the right to
grant the licenses provided for hereunder in accordance with the
terms and conditions hereof, free of any liabilities, charges,
liens, pledges, mortgages, restrictions, adverse claims, security
interests, rights of others, and encumbrances of any kind
(collectively, "Encumbrances"), other than Encumbrances which will
not restrict or interfere in any material respect with the exercise
by Licensee of the rights granted to Licensee hereunder.
(b) There is no claim, action, proceeding or other litigation pending
or, to the knowledge of Licensor, threatened with respect to
Licensor's ownership of the Licensed Marks or which if adversely
determined, would restrict or otherwise interfere in any material
respect with the exercise by Licensee of the rights purported to be
granted to Licensee hereunder.
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EXHIBIT 10.7
Except as expressly provided above in this Section 5.1, Licensor makes no
representation or warranty of any kind or nature whether express or implied with
respect to the Licensed Marks (including freedom from third party infringement
of the Licensed Marks).
The representations and warranties provided for in this Section 5.1 shall
survive the execution and delivery of this agreement.
Section 5.2. Other Licenses. In the event Licensor grants to any third
party any licenses or rights with respect to the Licensed Marks, Licensor shall
not in connection with the grant of any such license or rights, take any
actions, or suffer any omission that would adversely affect the existence or
validity of the Licensed Marks or conflict with the rights granted to Licensee
hereunder.
Section 5.3. Abandonment. Licensor covenants and agrees that, during the
tem1 of this agreement, it will not abandon the Licensed Marks.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BOTH PARTIES
Section 6.1. Representations and Warranties. Each party hereby represents
and warrants to the other party as follows: "
(a) Due Incorporation or Formation: Authorization of Agreement. Such
party is a corporation duly organized, a limited liability company
duly organized or a partnership duly formed, validly existing and,
if applicable, in good standing under the laws of the jurisdiction
of its incorporation or formation and has the corporate company or
partnership power and authority to own its property and carry on its
business as owned and carried on at the date hereof and as
contemplated hereby. Such party is duly licensed or qualified to do
business and. if applicable is in good standing in each of the
jurisdictions in which the failure to be so licensed or qualified
would have a material adverse effect on its financial condition or
its ability to perform its obligations hereunder. Such party has the
corporate company or partnership power and authority to execute and
deliver this agreement and to perform its obligations hereunder and
the execution, delivery and performance of this agreement have been
duly authorized by all necessary corporate, company or partnership
action. Assuming the due execution and delivery by the other party
hereto, this agreement constitutes the legal, valid and binding
obligation of such party enforceable against such party in
accordance with its terms, subject as to enforceability to limits
imposed by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and the availability of equitable
remedies.
(b) No Conflict with Restrictions: No Default. Neither the execution,
delivery and performance of this agreement nor the consummation by
such party of the transactions contemplated hereby (i) will conflict
with, violate or result in a breach of any of the terms, conditions
or provisions of any law, regulation, order, writ, injunction,
decree, determination or award of any court, any governmental
department, board, agency or
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EXHIBIT 10.7
instrumentality, domestic or foreign, or any arbitrator, applicable
to such party or any of its Controlled Related Parties, (ii) will
conflict with, violate or result in a breach of or constitute a
default under any of the terms, conditions or provisions of the
articles of incorporation, articles of organization or certificate
of formation, bylaws, operating agreement or limited liability
company agreement or partnership agreement of such party or any of
its Controlled Related Parties or of any material agreement or
instrument to which such party or any of its Controlled Related
Parties is a party or by which such party or any of its Controlled
Related Parties is or may be bound or to which any of its material
properties or assets is subject (other than any such conflict,
violation, breach or default that has been validly and
unconditionally waived), (iii) will conflict with, violate, result
in a breach of, constitute a default under (whether with notice or
lapse of time or both), accelerate or permit the acceleration of the
performance required by, give to others any material interests or
rights or require any consent, authorization or approval under any
indenture, mortgage, lease agreement or instrument to which such
party or any of its Controlled Related Parties is a party or by
which such party or any of its Controlled Related Parties is or may
be bound, or (iv) will result in the creation or imposition of any
lien upon any of the material properties or assets of such party or
any of its Controlled Related Parties, which in any such case could
reasonably be expected to materially impair such party's ability to
perform its obligations under this agreement or to have a material
adverse effect on the consolidated financial condition of each party
or its Parent.
(c) Governmental Authorizations. Any registration, declaration or filing
with, or consent, approval, license, permit or other authorization
or order by, any governmental or regulatory authority, domestic or
foreign, that is required to be obtained by such party in connection
with the valid execution, delivery, acceptance and performance by
such party under this agreement or the consummation by such party of
any transaction contemplated hereby has been completed, made or
obtained, as the case may be.
(d) Litigation. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of such party,
threatened against or affecting such party or any of its Controlled
Related Parties or any of their properties, assets or businesses in
any court or before or by any governmental department, board, agency
or instrumentality, domestic or foreign, or any arbitrator which
could, if adversely detern1ined (or, in the case of an investigation
could lead to any action, suit or proceeding, which if adversely
determined could), reasonably be expected to materially impair such
party's ability to perform its obligations under this agreement or
to have a material adverse effect on the consolidated financial
condition of such party or its parent; and such party or any of its
Controlled Related Parties has not received any currently effective
notice of any default, and such party or any of its Controlled
Related Parties is not in default, under any applicable order, writ,
injunction, decree, permit, determination or award of any court, any
governmental department, board, agency or instrumentality, domestic
or foreign, or any arbitrator, which default could reasonably be
expected to materially impair such party's ability to perform its
obligations under this agreement or to have a material adverse
effect on the consolidated financial condition of such party or its
Parent.
Section 6.2. Survival. The representations and warranties provided for
under this Article 6
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EXHIBIT 10.7
will survive the execution and delivery of this agreement.
ARTICLE 7
PROSECUTION OF INFRINGEMENT CLAIMS
Section 7.1. Notice and Prosecution of Infringement. Licensee agrees to
notify Licensor promptly, in writing, of any alleged, actual or threatened
infringement of any of the Licensed Marks within the Service Area of which
Licensee becomes aware. Licensor has the sole right to determine whether or not
to take any action on such infringements. Licensor has the sole right to employ
counsel of its choosing and to direct any litigation and settlement of
infringement actions. Any recoveries, damages and costs recovered through such
proceedings shall belong exclusively to Licensor, and Licensor shall be solely
responsible for all costs and expenses (including attorney fees) of prosecuting
such actions, Licensee agrees to provide Licensor with all reasonably requested
assistance in connection with such proceedings.
ARTICLE 8
LICENSEE DEFENSE AND INDEMNIFICATION OF LICENSOR
Section 8. I. Indemnification. (a) Each party hereby agrees to indemnify
the other party against and agrees to hold it harmless from any Loss incurred or
suffered by such other party arising out of or in connection with:
(i) the material breach of any representation or warranty made by such
party in this agreement; and
(ii) the material breach of any covenant or agreement by such party
contained in this agreement.
(b) In addition to the indemnification provided for in Section 8.1 (a),
Licensee agrees to indemnify Licensor against and hold it harmless from any Loss
suffered or incurred by Licensor or its Controlled Related Parties by reason of
a third party claim arising out of or relating to (i) the use of the Licensed
Marks by Licensee; or (ii) the marketing, promotion, advertisement,
distribution, lease or sale by Licensee (or any permitted sublicensee) or by any
additional Licensee (or any permitted sublicensee) of any Sprint PCS Products
and Services, Related Equipment or Premium and Promotional Items under the
Licensed Marks pursuant to this agreement, including unfair or fraudulent
advertising claims, warranty claims and product defect or liability claims,
pertaining to the Sprint PCS Products and Services, Related Equipment or Premium
and Promotional Items. Notwithstanding the foregoing, Licensee will not be
required under this paragraph (b) to indemnify any Loss arising solely out of
Licensee's use of the Licensed Marks in compliance with the terms of the
Trademark and Service Mark Usage Guidelines; provided that Licensor shall have
no obligation to indemnify for third-party claims alleged to arise from the
specifics of uses of thirdparty trademarks or service marks, or the specifics of
claims made, in marketing materials prepared by or for Licensee, which marketing
materials have not been approved by Licensor prior to the publication out of
which such claims are alleged to have arisen.
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EXHIBIT 10.7
ARTICLE 9
OBLIGATIONS/SETOFF
Section 9.1. Obligations/Setoff. The obligations of the parties as set
forth in this agreement shall be unconditional and irrevocable, and shall not be
subject to any defense or be released. discharged or otherwise affected by any
matter, including impossibility, illegality, impracticality, frustration of
purpose, force majeure, act of government, the bankruptcy or insolvency of any
party hereto, and the obligations of each party shall not be subject to any
right of setoff or recoupment which such patty may not or hereafter have against
the other party.
ARTICLE 10
LIMITATION ON USE OF LICENSED MARKS
Section 10.1. Restrictions on Use. Licensee is not permitted to make any
use of the Licensed Marks in connection with products or services other than the
Sprint PCS Products and Services and as specifically authorized in Sections
1.1(b) above with respect to Related Equipment and Premium and Promotional
Items, nor to make any use of the Licensed Marks directed outside of the Service
Area.
Section 10.2. Adherence to Trademark and Service Mark Usage Guidelines.
Licensee agrees to comply with and adhere to Trademark and Service Mark Usage
Guidelines for the depiction or presentation of the Licensed Marks as furnished
by Licensor. Prior to Licensee depicting or presenting any of the Licensed Marks
on any type of marketing, advertising or promotional materials, Licensee agrees
to submit samples of such materials to Licensor for approval. Licensor shall
have fourteen (14) days from the date Licensor receives such materials to
approve or object to any such materials submitted to Licensor for review. In the
event Licensor does not object to such materials within such fourteen (14) day
period, such materials shall be deemed approved by Licensor. Thereafter,
Licensee shall not be obligated to submit to Licensor materials prepared in
accordance with the samples previously approved by Licensor and the Trademark
and Service Mark Usage Guidelines; provided, however, Licensee shall, at the
reasonable request of Licensor, continue to furnish samples of such marketing,
advertising and promotional materials to Licensor from time to time during the
term hereof at the request of Licensor.
Section 10.3. Use of Similar Trademarks and Service Marks. Licensee agrees
not to use (a) any trademark or service mark which is confusingly similar to, or
a colorable imitation of, the Licensed Marks or any part thereof, or (b) any
work, symbol, character, or set of words, symbols or characters, which in any
language would be identified as the equivalent of the Licensed Marks or that are
otherwise confusingly similar to, or a colorable imitation of, the Licensed
Marks. whether during the term of this agreement or at any time following
termination of this agreement. Licensee shall not knowingly engage in any
conduct which may place the Sprint PCS Products and Services, the Licensed Marks
or Licensor in a negative light or context.
Section 10.4. Services of Public Figures. Licensee agrees to obtain
Licensors prior written approval (which approval will not be unreasonably
withheld) before engaging the services of any celebrity or publicly known
individual for endorsement of any Sprint PCS Products and Services or Premium
and Promotional Items.
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EXHIBIT 10.7
ARTICLE 11
CONTROL OF BRAND IMAGE
Section 11.1 Exclusive Use of Licensed Marks. The Sprint PCS Products and
Services shall be marketed by Licensee solely under the Licensed Marks.
Section 11.2. Consistency With Brand Image and Principles. Licensee shall
use the Licensed Marks in a manner that is consistent with the brand image and
principles established by Licensor, and mechanics to ensure consistency will be
included in the Marketing Communications Guidelines.
Section 11.3 Management of Brand Image. Licensor shall be responsible for
the overall management of the brand image for the Licensed Marks. All
advertising, marketing and promotional materials using the Licensed Marks
prepared by Licensee shall, in addition to the provisions set forth in Section
11.2 above, comply with the Marketing Communications Guidelines to be furnished
by Licensor to Licensee as such Marketing Communications Guidelines may be
amended and updated by Licensor from time to time. Such Marketing Communications
Guidelines shall establish reasonable principles to be followed in the
development of advertising, marketing and promotional campaigns in order to
ensure a consistent and coherent brand image. All advertising, marketing and
promotional campaigns conducted by Licensee shall be conducted in a manner
consistent with the Marketing Communications Guidelines.
Section 11.4. Advertising Agencies: Promotions. Licensee may select its
own advertising agencies for development of its advertising and promotional
campaigns: provided, however, that all media buys shall be coordinated by
Licensee with the buying agency of Licensor. Licensee and Licensor shall conduct
ongoing reviews of upcoming advertising, marketing and promotional campaigns of
each party and shall use good faith efforts to coordinate their respective
campaigns in a manner that will maximize the advertising. marketing and
promotional efforts of the parties and be consistent with the Marketing
Communications Guidelines. Licensee shall not initiate any products or
promotions under names which are confusingly similar to any names of national
product offerings or promotions by Licensor. Neither Licensor nor any of its
Controlled Related Parties shall initiate any products or promotions under names
which are confusingly similar to any names of national product offerings or
promotions by Licensee. In addition, Licensor will use its commercially
reasonable efforts to ensure that no third party licensee under the Licensed
Marks initiates any products or promotions in the Service Area under names which
are confusingly similar to any names of national product offerings or promotions
by Licensee.
Section 11.5 Ownership of Advertising Materials. All agreements entered
into by Licensee with advertising agencies shall provide that Licensor shall own
all advertising materials (including concepts, themes, characters and the like)
created or developed thereunder. Subject to the terms and conditions set forth
herein, Licensee shall receive a perpetual, non-exclusive, royalty-free license
to use such materials in connection with advertising and promotional materials
developed by Licensee; provided, however, that the rights granted under such
perpetual license shall be limited solely to the use of such materials and shall
not extend the term of the license with respect to the
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EXHIBIT 10.7
Licensed Marks provided for hereunder.
ARTICLE 12
RELATIONSHIP OF PARTIES
Section 12.1. Relationship of Parties. It is the express intention of the
parties that Licensee is and shall be an independent contractor and no
partnership shall exist between Licensee and Licensor pursuant hereto. This
agreement shall not be construed to make Licensee the agent or legal
representative of Licensor for any purpose ,whatsoever (except as expressly
provided in Articles 7 and 8), and Licensee is not granted any right or
authority to assume or create any obligations for. on behalf of. or in the name
of Licensor (except as expressly provided in Articles 7 and 8). Licensee agrees,
and shall require its permitted sublicensees to agree, not to incur or contract
any debt or obligation on behalf of Licensor, or commit any act, make any
representation. or advertise in any manner that may adversely affect any right
of Licensor in or with respect to the Licensed Marks or be detrimental to
Licensors image.
ARTICLE 13
TERM; TERMINATION; EFFECTS OF TERMINATION
Section 13.1. Term. This agreement commences on the date of execution and
continues until the Management Agreement terminates, unless earlier terminated
in accordance with the terms set forth in this Article 13. This agreement
automatically terminates upon termination of the Management Agreement.
Section 13.2. Events of Termination. If any of the following events shall
occur with respect to Licensee, each such occurrence shall be deemed an "Event
of Termination":
(a) Bankruptcy. The occurrence of a "Bankruptcy" with respect to
Licensee.
(b) Breach of Agreements. Licensee fails to perform in accordance with
any of the material terms and conditions contained herein in any
material respect.
(c) Material Misrepresentation. Licensee breaches any material
representation or warranty of Licensee made in Section 4.2 or
Article 6 in any material respect.
(d) Termination of Management Agreement. The termination of the
Management Agreement for whatever reason.
Section 13.3. Licensors Right to Terminate Upon Event of Termination.
Licensor may, at its option, without prejudice to any other remedies it may
have, terminate this agreement by giving written notice of such termination to
Licensee as follows: (a) immediately, upon the occurrence of any Event of
Termination pursuant to Section 13.2(a) with respect to Licensee: or (b) after
the expiration of thirty (30) days from Licensee's receipt of written notice
from Licensor of the occurrence of any Event of Termination pursuant to Sections
13.2(b) or 13.2(c), if such failure to perform or breach is then still uncured;
or (c) immediately upon the repeated or continuing
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EXHIBIT 10.7
occurrence of Events of Termination pursuant to Section 13 .2(b) (regardless of
whether such continuing failures to perform or breaches have been cured by
Licensee in accordance with the provisions of clause (b) or this Section 13.3);
or (d) immediately upon the occurrence of a termination pursuant to Section
13.2( d).
Section 13.4 Licensee's Right to Terminate. Licensee may, at its option,
without prejudice to any other remedies it may have, terminate this agreement by
giving written notice of such termination to Licensor as follows: (a)
immediately, in the event that Licensor abandons the Licensed Marks or otherwise
ceases to support the Licensed Marks in Licensor's business: or (b) immediately
in the event of the occurrence of a Bankruptcy with respect to Licensor; or (c)
immediately in the event of an occurrence of termination pursuant to Section
13.2(d).
Section 13.5. Effects of Termination. Upon the termination of this
agreement for any reason, all rights of Licensee in and to the Licensed Marks in
the Service Area shall cease within thirty (30) days following the date on which
this agreement terminates (except in the case of a termination resulting from an
Event of Termination described in Section 13.2(b), (c) or (d), in which case
such rights to use the Licensed Marks will terminate immediately upon the date
of termination); provided, however, that Licensee may thereafter sell, transfer
or otherwise dispose of any Related Equipment and Premium and Promotional Items
that are then in Licensee's inventory (or which Licensee has purchased or is
then legally obligated to purchase) for an additional reasonable period not to
exceed three (3) months. Licensee's right of disposal under this Section 13.5
shall not prohibit Licensor from granting to third parties during the disposal
period licenses and other rights with respect to the Licensed Marks. The
provisions of Articles 3, 4, 5, 6 and 8 will survive any termination of this
agreement.
ARTICLE 14
ASSIGNMENT; SUBLICENSING
Section 14.1. Licensee Right to Assign. Licensee, without the prior
written consent of Licensor (in its sole discretion). shall have no right to
assign any of its rights or obligations hereunder.
Section 14.2. Licensor Right to Assign the Licensed Marks. Nothing herein
shall be construed to limit the right of the Licensor to transfer or assign its
interests in the Licensed Marks, subject to the agreement of the assignee to be
bound by the terms and conditions of this agreement.
'"
Section 14.3. Licenses to Additional Licensees: Sublicenses: Licenses to
Additional Licensees. Licensee shall not sublicense (or attempt to sublicense)
any of its rights hereunder without the prior written consent of Licensor, in
the sole discretion of Licensor.
ARTICLE I5
MISCELLANEOUS
Section 15.1. Notices. Any notice, payment, demand, or communication
required or permitted to be given by any provision of this agreement shall be in
writing and mailed (certified or registered mail, postage prepaid, return
receipt requested) or sent by hand or overnight courier, or by facsimile (with
acknowledgment received), charges prepaid and addressed as described on the
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EXHIBIT 10.7
Notice Address Schedule attached to the Master Signature Page, or to such other
address or number as such party may from time to time specify by written notice
to the other party in accordance with the provisions of this Section 15.1. All
notices and other communications given to a party in accordance with the
provisions of this agreement shall be deemed to have been given and received (i)
four (4) Business Days after the same are sent by certified or registered mail,
postage prepaid, return receipt requested, (ii) when delivered by hand or
transmitted by facsimile (with acknowledgment received and, in the case of a
facsimile only, a copy of such notice is sent no later than the next Business
Day by a reliable overnight courier service, with acknowledgment of receipt) or
(iii) one (1) Business Day after the same are sent by a reliable overnight
courier service, with acknowledgment of receipt.
"
Section 15.2. Binding Effect. Except as otherwise provided in this
agreement, this agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, transferees, and assigns.
Section 15.3. Construction. This agreement shall be construed simply
according to its fair meaning and not strictly for or against any party.
Section 15.4. Time. Time is of the essence with respect to this agreement.
Section 15.5. Table of Contents: Headings. The table of contents and
section and other headings contained in this agreement are for reference
purposes only and are not intended to describe, interpret, define or limit the
scope, extent or intent of this agreement.
Section 15.6. Severability. Every provision of this agreement is intended
to be severable. If any term or provision hereof is illegal, invalid or
unenforceable for any reason whatsoever, that term or provision will be enforced
to the maximum extent permissible so as to effect the intent of the parties, and
such illegality, invalidity or unenforceability shall not affect the validity or
legality of the remainder of this agreement. If necessary to effect the intent
of the parties, the parties will negotiate in good faith to amend this agreement
to replace the unenforceable language with enforceable language which as closely
as possible reflects such intent.
Section 15.7. Further Action. Each party, upon the reasonable request of
the other party, agrees to perform all further acts and execute, acknowledge,
and deliver any documents which may be reasonably necessary, appropriate, or
desirable to carry out the intent and purposes of this agreement.
Section 15.8. Governing Law. The internal laws of the State of Missouri
(without regard to principles of conflict of law) shall govern the validity of
this agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties.
Section 15.9. Specific Performance. Each party agrees with the other party
that the other party would be irreparably damaged if any of the provisions of
this agreement are not performed in accordance with their specific terms and
that monetary damages would not provide an adequate remedy in such event.
Accordingly, in addition to any other remedy to which the nonbreaching party may
be entitled, at law or in equity, the nonbreaching party shall be entitled to
injunctive
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EXHIBIT 10.7
relief to prevent breaches of this agreement and specifically to enforce the
terms and provisions hereof.
Section 15.10. Entire Agreement. The provisions of this agreement set
forth the entire agreement and understanding between the parties as to the
subject matter hereof and supersede all prior agreements, oral or written, and
other communications between the parties relating to the subject matter hereof.
"
Section 15.11. Limitation on Rights of Others. Nothing in this agreement,
whether express or implied, shall be construed to give any party other than the
parties any legal or equitable right, remedy or claim under or in respect of
this agreement.
Section 15.12. Waivers: Remedies. The observance of any term of this
agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) by the party or parties entitled to enforce such
term, but any such waiver shall be effective only if in writing signed by the
party or parties against which such waiver is to be asserted. Except as
otherwise provided herein, no failure or delay of any party in exercising any
power or right under this agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such right or power, preclude any other
further exercise thereof or the exercise of any other right or power.
Section 15.13. Jurisdiction: Consent to Service of Process.
(a) Each party hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any
Missouri State court sitting in the County of Jackson or any Federal
court of the United States of America sitting in the Western
District of Missouri, and any appellate court from any such court,
in any suit action or proceeding arising out of or relating to this
agreement, or for recognition or enforcement of any judgment, and
each party hereby irrevocably and unconditionally agrees that all
claims in respect of any such suit, action or proceeding may be
heard and determined in such Missouri State Court or, to the extent
permitted by law, in such Federal court.
(b) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally do so, any objection which it may now
or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement in Missouri
State court sitting in the County of Jackson or any Federal court
sitting in the Western District of Missouri. Each party hereby
irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in any such court and further waives the right
to object, with respect to such suit, action or proceeding, that
such court does not have jurisdiction over such party.
(c) Each party irrevocably consents to service of process in the manner
provided for the giving of notices pursuant to this agreement,
provided that such service shall be deemed to have been given only
when actually received by such party. Nothing in this agreement
shall affect the right of a party to serve process in another manner
permitted by law.
Sprint Spectrum Proprietary Information - RESTRICTED
EXHIBIT 10.7
Section 15.14. Waiver of Jury Trial. Each party waives, to the fullest
extent permitted by applicable law, any right it may have to a trial by jury in
respect of any action, suit or proceeding arising out of or relating to this
agreement. "
Section 15.15. Consents. Whenever this agreement requires or permits
consent by or on behalf of a party, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in Section 15.13, with appropriate notice in accordance with Section 15.1 of
this agreement.
Section 15.16. Master Signature Page. Each party agrees that it will
execute the Master Signature Page that evidences such party's agreement to
execute, become a party to and be bound by this agreement, which document in
incorporated herein by this reference.
(The remainder of this page is intentionally left blank.]
'"
Sprint Spectrum Proprietary Information - RESTRICTED
EXHIBIT 10.8
ADDENDUM I
TO
SPRINT PCS MANAGEMENT AGREEMENT
Manager: Shenandoah Personal Communications Company,
a Virginia corporation
Service Area: Hagerstown, MD-Chambersburg, PA-Martinsburg, WV BTA
Winchester, VA BTA
Harrisonburg, VA BTA
Washington, DC BTA (Jefferson County, WV only)
Harrisburg, PA BTA
York-Hanover, PA BTA
Altoona, PA BTA
This Addendum contains certain additional and supplemental terms and
provisions of that certain (a) Sprint PCS Management Agreement (the "Management
Agreement"), (b) Sprint PCS Services Agreement (the "Services Agreement"), (c)
Sprint Spectrum Trademark and Service Mark License Agreement, and (d) Sprint
Trademark and Service Mark License Agreement (collectively with the Sprint
Spectrum Trademark and Service Mark License Agreement, the "Trademark License
Agreements"), each entered into contemporaneously with and by the same parties
as this Addendum. The Services Agreement, Trademark License Agreements and any
other agreements entered into in connection with the Management Agreement,
Services Agreement or Trademark License Agreements are collectively referred to
herein as the "Other Sprint Agreements". The terms and provisions of this
Addendum control, supersede and amend any conflicting terms and provisions
contained in the Management Agreement and/or the Other Sprint Agreements. Except
for express modification made in this Addendum, the Management Agreement and the
Other Sprint Agreements continue in full force and effect.
Capitalized terms used and not otherwise defined in this Addendum have the
meaning ascribed to them in the Schedule of Definitions. Section and Exhibit
references are to Sections and Exhibits of the Management Agreement unless
otherwise noted.
The Management Agreement and the Other Sprint Agreements are modified as
follows:
1. Ownership of Spectrum. Sprint PCS represents and warrants that as of
the date of the execution of the Management Agreement Sprint PCS owns 20 MHz or
more of PCS spectrum in the Service Area under the License.
EXHIBIT 10.8
EXHIBIT 10.8 2. Access to Service Area Network. The following phrase is
added at the beginning of the first sentence in the last paragraph of Section
1.1: "Subject to Section 9.5,".
3. Financing.
(a) The word "and" is inserted between the words "thereto" and "before" in
the last sentence of Section 1.7.
(b) Sprint PCS agrees to propose modifications to the Management
Agreement, and perhaps to the Schedule of Definitions, the Services Agreement,
the Sprint Trademark and Service Mark License Agreement, and the Sprint Spectrum
Trademark and Service Mark License Agreement, that will enhance Manager's
ability to obtain financing for the Service Area Network. Sprint PCS will not be
required to offer the Manager subsequent modifications offered or agreed to with
Other Managers subsequent to the initial set of modifications.
4. Ethical Conduct and Related Covenants. Section 1.8 is deleted in its
entirety.
5. Exclusivity of Service Area. The phrase "or manage" in the first
sentence of Section 2.3 is deleted and replaced by the following phrase: ",
manage or contract with any other person or entity to own, operate, build or
manage".
6. Development and Purchase of Cell Sites. The parties agree that Sprint
PCS will continue to develop and build cell sites in the Service Area that are
currently being developed (or have been identified for development) by Sprint
PCS for use by Manager in connection with the operation of the Service Area
Network (collectively, the "Cell Sites") until Manager has obtained financing in
an amount sufficient both to complete the build-out of the Service Area Network,
as described on Exhibit 2.1, and to acquire the Cell Sites (the "Financing
Closing").
Manager agrees to purchase from Sprint PCS under the terms of the Asset
Purchase Agreement attached as Exhibit A hereto the assets listed on Schedule A
to such agreement. Upon the occurrence of the Financing Closing, the parties
shall consummate the transactions contemplated in the Asset Purchase Agreement
and Manager will assume the build-out of the transferred Cell Sites. Exhibit A
hereto serves as Exhibit 2.6 to the Management Agreement.
The parties agree that Manager's failure to close on the Asset Purchase
Agreement shall be treated as an Event of Termination under the Management
Agreement which triggers Sprint PCS's Event of Termination rights under the
Management Agreement and, in addition, Sprint PCS may, in its sole discretion,
elect to enforce and continue to operate under the Management Agreement and
Other Sprint Agreements with the Harrisburg, PA
EXHIBIT 10.8
BTA, York-Hanover, PA BTA, and Altoona, PA BTA removed from Manager's Service
Area.
7. Long-Distance Pricing.
(a) The first sentence of Section 3.4 is deleted in its entirety and
replaced by the following language:
"Manager must purchase long-distance telephony services from Sprint
through Sprint PCS both (i) to provide long-distance telephony
service to users of the Sprint PCS Network and (ii) to connect the
Service Area Network with the national platforms and IT application
connections used by Sprint PCS to provide services to Manager under
the agreement and/or the Services Agreement. Sprint will invoice
Sprint PCS for such services rendered to Sprint PCS, Manager and all
Other Managers, and in turn, Sprint PCS will invoice Manager for the
services used by Manager. The parties acknowledge that so long as
Manager buys switching services from Sprint PCS it is not possible
to calculate the exact cost directly attributable to Manager, and in
lieu of a direct attribution of the cost to Manager, Manager will be
billed a flat rate of $1.84 per subscriber per month as payment for
the above services, which amount the parties agree is the best
estimate of such cost. Once Manager begins providing its own
switching services (i.e., Manager no longer buys switching services
from Sprint PCS), Manager will be charged the same price for the
long-distance services described in (i) and (ii) above as Sprint PCS
is charged by Sprint (excluding interservice area long-distance
travel rates) plus an additional administrative fee to cover Sprint
PCS's processing costs."
(b) The following sentence is added as a second paragraph in Section
3.4: "Manager may not resell the above described long-distance telephony
services acquired from Sprint."
8. Switching Charges.
(a) Until October 31, 1999, Manager will pay to Sprint PCS an
aggregate amount equal to $14,736 per month in consideration for Sprint PCS's
provision of switching services for Manager's entire Service Area Network, which
amount shall include payment for switching services for Manager's GSM-based
Service Area Network and Manager's CDMA-based Service Area Network.
(b) Beginning November 1, 1999, until the earlier of December 31,
2000, or such time as Manager notifies Sprint PCS that Manager no longer needs
EXHIBIT 10.8
switching services from Sprint PCS to operate the Service Area Network, Manager
will pay to Sprint PCS an amount equal to $14,869 per month in consideration for
Sprint PCS's provision of switching services for Manager's entire Service Area
Network, which amount shall include payment for switching services for Manager's
GSM-based Service Area Network and Manager's CDMA-based Service Area Network.
Nothing in this paragraph 8 is intended to obligate Sprint PCS to provide
switching services for Manager's GSM-based Service Area Network after December
31, 1999.
9. Voluntary Resale of Products and Services. Section 3.5.2 is modified by
amending the second sentence of the second paragraph in its entirety to read as
follows: "If Manager wants handsets of subscribers of resellers with NPA-NXXs of
Manager to be activated, Manager must agree to comply with the terms of the
program, including its pricing provisions."
10. Branding and Retail Store Presentation.
(a) Except as expressly provided below in this paragraph 10, the
branding guidelines previously distributed to and reviewed by Manager (the "Full
Branding Guidelines") shall apply to Manager and all of Manager's retail stores.
Such guidelines may be changed by Sprint PCS from time to time. Manager must at
all times use at least 70% of the customer retail space in its retail stores for
the promotion and sale of Sprint PCS Products and Services, but Manager may also
sell products and services provided by its Related Parties in its retail stores.
(b) Each of the Winchester retail store and the Harrisonburg retail
store may continue to be a Shentel-branded store until such time as Manager no
longer has a Related Party that sells cellular products and services from such
store. In the event Manager no longer has a Related Party that sells cellular
products and services from the Winchester retail store or the Harrisonburg
retail store, (a) such store shall thereafter be treated as a retail store
described in paragraph 10(a) above and (b) such store may continue to display
the Shentel name and logo in accordance with the Full Branding Guidelines or
other guidelines adopted or approved by Sprint PCS.
(c) Manager may sell Sprint PCS Products and Services in the
customer service facility operated by Shenandoah Telephone Company in Edinburg,
Virginia, which customer service facility is not subject to paragraph 10(a)
above.
11. Use of Manager's PCS Licenses and GSM Assets. Nothing in the
Management Agreement or the Other Sprint Agreements shall prohibit or restrict
Manager or its Related Parties from entering into and performing any agreements
and arrangements with any third party for the use by such third party of the PCS
licenses and GSM-based equipment of Manager and its Related Parties in
connection with the operation of a wireless telecommunications network;
provided, that (a) none of the Manager's service marks or trademarks shall be
used in connection with the sales, marketing and promotion of the products and
services of such network, (b) neither
EXHIBIT 10.8
Manager nor any of its Related Parties shall provide sales support to such
third-party in connection with the sale of the products and services of such
network or customer support services to the customers of such network and (c)
neither Manager nor any of its Related Parties shall directly or indirectly own
any interest in any such third party or participate in the management or control
of the operations of such network, except (i) to the extent required under
applicable FCC rules and regulations, and (ii) Manager or its Related Parties
may provide equipment maintenance services for such network.
12. Deployment of Cellular by Manager's Related Parties. Neither Manager,
nor any of its Related Parties who do not offer cellular service as of the date
of the execution of the Management Agreement, may market or sell any cellular
products or services. Manager's Related Parties who offer cellular service as of
the date of the execution of the Management Agreement (the "Cellular Parties")
may continue to provide such service, subject to the following terms and
conditions:
(a) the geographic scope of the cellular service will not expand
outside of the RSA VA 10 - Frederick, Market 690, Channel Block B2;
(b) unless earlier approved in writing by Sprint PCS, the Cellular
Parties will not "substantially convert" (as defined below) any cellular
businesses to digital wireless technology, unless such conversion is made under
management that is separate and distinct, as described in paragraph 12 (c)
below, from that of Manager;
(c) within twelve (12) months after the date of execution of the
Management Agreement, the management (i.e., the directors and officers, or their
functional equivalent in title and responsibility) of Manager and the Cellular
Parties will be separate and distinct, except that the chief executive officer
(or such officer's functional equivalent in title or responsibility) may be a
part of the management for Manager and the Cellular Parties;
(d) except in the retail stores described in paragraphs 10 (b) and
10 (c) of this Addendum, within twelve (12) months after the date of execution
of the Management Agreement, the sales and marketing personnel for the Cellular
Parties will cease to be a part of the sales and marketing personnel of Manager
and vice versa;
(e) Manager's sales and marketing personnel cannot disclose Sprint
PCS proprietary information to parties other than Manager without prior consent
from Sprint PCS; and
(f) Manager and the Cellular Parties will at all times have separate
agreements with their distributors.
As used in this paragraph 12, "substantially convert" means to
offer, sell or distribute any wireless service that uses a digital or dual mode
handset that utilizes digital technology deployed on cellular licenses and
frequencies within the Service Area. The
EXHIBIT 10.8
prohibition contained in this paragraph does not prohibit the use of digital
technology for the delivery or provisioning of analog cellular services that use
analog handsets, nor does it prohibit Manager from offering dual mode handsets
to cellular customers that send and receive (i) analog cellular products and
services utilizing cellular licenses and frequencies and (ii) digital Sprint PCS
Products and Services and Manager's Products and Services.
13. Right of Last Offer. Section 3.7 is modified by adding the following
parenthetical phrase both between (i) "Service Area Network" and "if Manager
decides to use" in the first sentence of the first paragraph and (ii) "for these
services" and "and the agreement was not made" in the first sentence of the
second paragraph:
"(other than backhaul services relating to national platform and IT
application connections, which Manager must purchase from Sprint as
described in Section 3.4)"
14. Termination of License. The following parenthetical phrase is added at
the end of the first sentence of Section 11.3.1(a):
"(except that if the FCC revokes or fails to renew the License
because of a breach of this agreement by Sprint PCS, Sprint PCS may
not terminate this agreement pursuant to this Section 11.3.1(a))".
15. Non-Renewal Rights of Sprint PCS. Sprint PCS will declare, within
one-hundred twenty (120) days after the occurrence of any of the events listed
in Section 11.2.2, its intent to exercise its rights under Section 11.2.2.1 or,
if applicable, its rights under Section 11.2.2.2.
16. Regulatory Considerations. The "deemed change of control" in Section
11.3.4(b) refers to a determination by the FCC that there has been a change of
control of the License resulting from the performance by the parties of their
respective obligations under the agreement.
17. Non-termination of Agreement. The following language is added at the
end of Sections 11.5.3 and 11.6.4: "but such action does not terminate this
agreement".
18. Regulatory Approvals for Transfers. The parties acknowledge that the
transfer of either the Operating Assets or the Disaggregated License are subject
to obtaining all required regulatory approvals.
19. Changes to Required Disclosures. If any federal law or regulation
requires the Manager to disclose financial information that is not provided in
the Type II Report, Sprint PCS, upon concurring advice of its then-current
independent auditors, will provide Manager with such required information.
EXHIBIT 10.8
20. Regulatory Compliance. The following language is added at the end of
the last sentence of the third paragraph of Section 16.1: "; provided, however,
that Sprint PCS will bear the cost of any such requested audits and inspections
that are made more often than Sprint PCS makes audits or inspections of its own
network sites."
21. Transfer of Spectrum.
(a) The first sentence of Section 17.15.5 is amended by (i) deleting
the words "or any of the Licenses, including" and replacing such words with
"and, in connection therewith," and (ii) adding at the end thereof immediately
before the period "and any related agreements".
(b) The following is added at the end of Section 17.15.5:
"Except for (i) intercompany transfers among Sprint's Related
Parties and (ii) any transfer of the License that is part of a sale,
transfer or assignment of the entire Sprint PCS Network (such
transfer described in (i) and (ii), the "Permitted Transfers"),
neither Sprint PCS nor any Sprint Related Party shall sell, transfer
or assign any of the Licenses, or any spectrum under the Licenses,
except as follows:
(A) Sprint PCS may sell, transfer or assign up to ten (10) MHz
of spectrum under the Licenses in the aggregate during the term of
this agreement to a third party without Manager's consent; provided,
that no such sale, transfer or assignment shall relieve Sprint PCS
of its obligations under this agreement, the Services Agreement, or
any related agreements.
(B) If Sprint PCS determines it wishes to sell, transfer or
assign spectrum under the Licenses which, when added together with
all prior sales, transfers and assignments of spectrum under the
Licenses (other than Permitted Transfers), exceeds 10 MHz of
spectrum (such spectrum proposed to be sold, assigned or
transferred, the "Offered Spectrum"), then upon receiving any offer
to purchase the Offered Spectrum (a "Spectrum Offer"), Sprint PCS
agrees to promptly deliver to Manager a copy of such Spectrum Offer.
The Spectrum Offer is deemed to constitute an offer to sell to
Manager, on the terms set forth in the Spectrum Offer, all but not
less than all of the Offered Spectrum. Manager will have a period of
sixty (60) days from the date of receipt of the Spectrum Offer to
notify Sprint PCS that Manager agrees to purchase the Offered
Spectrum on such terms. If Manager timely agrees in writing to
purchase the Offered Spectrum, the parties will proceed to
consummate such purchase not later than the one
EXHIBIT 10.8
hundred eightieth (180th) day after the date of Manager's receipt of
the Spectrum Offer. If Manager does not agree within the sixty (60)
day period to purchase the Offered Spectrum, Sprint PCS will have
the right, for a period of one hundred twenty (120) days after such
sixtieth (60th) day, subject to restrictions set forth in this
Section 17, to sell to the person or entity identified in the
Spectrum Offer all of the Offered Spectrum on terms and conditions
no less favorable to Sprint PCS than those set forth in the Spectrum
Offer. If Sprint PCS fails to sell the Offered Spectrum to such
person or entity on such terms and conditions within such one
hundred twenty (120) day period, Sprint PCS will again be subject to
the provisions of this Section 17.15.5(b)(ii) with respect to the
Offered Spectrum.
22. Announced Transactions. Section 17.24 is deleted in its entirety.
23. Additional Terms and Provisions. (a) The following phrase is added
after the first parenthetical in Section 17.25:
"to which Manager or its Related Parties are a party"
(b) Pursuant to Section 17.25, Manager hereby represents and warrants that (a)
that certain Construction and Management Agreement dated as of June 15, 1995, as
amended, and (b) that certain Equipment Lease Agreement dated as of June 15,
1995, as amended, are the only contracts and arrangements (either written or
verbal) to which Manager or its Related Parties are a party that relate to or
affect the rights of Sprint PCS or Sprint under the Management Agreement.
24. Federal Contractor Compliance. A new Section 17.28, the text of which
is attached as Exhibit B, is added and incorporated by this reference. When and
to the extent required by applicable law, Manager will comply with the
requirement of such Section 17.28.
25. Year 2000 Compliance. The following Section 17.29 is added:
"17.29 Year 2000 Compliance. If the Service Area Network or
any system used to support the Service Area Network fails to satisfy
the Sprint PCS requirements for "Year 2000 Compliance" due to
defects or failures in any system or equipment selected by Manager
(including systems or third party vendors and subcontractors
selected by Manager rather than by Sprint PCS), Manager will, at its
own expense, make the repairs, replacements or upgrades necessary to
correct the failure. If the Service Area Network or any system used
to support the Service Area Network fails to satisfy the Sprint PCS
requirements for "Year 2000
EXHIBIT 10.8
Compliance" due to defects or failures in any systems or equipment
selected by Sprint PCS (including systems or equipment of third
party vendors and subcontractors that Sprint PCS selects and
requires Manager to use), Sprint PCS will, at its own expense, make
the repairs, replacements or upgrades necessary to correct the
failure.
"Year 2000 Compliance" means the functions, calculations, and
other computing processes of the Service Area Network (collectively
"Processes") that perform and otherwise process, date-arithmetic,
display, print or pass date/time data in a consistent manner,
regardless of the date in time on which the Processes are actually
performed or the dates used in such data or the nature of the
date/time data input, whether before, during or after January 1,
2000, and whether or not the date/time data is affected by leap
years. To the extent any part of the Service Area Network is
intended to be used in combination with other software, hardware or
firmware, it will properly exchange date/time data with such
software, hardware or firmware. The Service Area Network will accept
and respond to two-digit year-date input, correcting or
supplementing as necessary, and store, print, display or pass
date/time data in a manner that is unambiguous as to century. No
date/time data will cause any part of the Service Area Network to
perform an abnormally ending routine or function within the
Processes or generate incorrect final values or invalid results."
26. Payment of Fees Under Services Agreement. The second sentence of
Section 3.1 of the Services Agreement is deleted in its entirety and replaced by
the following two sentences:
"Except with respect to fees paid for billing-related services, the
monthly charge for any fees based on the number of subscribers of
the Service Area Network will be determined based on the number of
subscribers as of the 15th day of the month for which the charge is
being calculated. With respect to fees paid for billing-related
services, the monthly charge for any fees based on the number of
subscribers will be based on the number of gross activations in the
month for which the charge is being calculated plus the number of
subscribers of the Service Area Network on the last day of the prior
calendar month."
27. Result of Services Agreement Breach. Sprint PCS agrees not to
terminate the Management Agreement for a breach thereof by Manager that results
directly from Sprint PCS's failure to perform its obligations under the Services
Agreement so long as Manager has notified Sprint PCS, within ten (10) days after
Manager discovers a breach, of Sprint PCS's failure to perform such obligations.
EXHIBIT 10.8
28. Definition of Operating Assets. The definition of "Operating Assets"
in the Schedule of Definitions is amended to remove the Phrase "or its Related
Parties" as such phrase appears throughout said definition. The following
sentences are added after the second sentence in the definition of "Operating
Assets" in the Schedule of Definitions: "`Operating Assets' includes any
contracts or agreements between Manager and its Related Parties that are
necessary to operate the Service Area Network. 'Operating Assets' does not
include any logos or trademarks registered to Manager or its Related Parties or
any rights of Manager that survive termination of the agreement."
29. Trademark License Agreements Changes. The following sentence is added
at the end of Section 2.3 to both Trademark License Agreements: "Licensor shall
advise Licensee periodically as to the appropriate designations for each
Licensed Mark." Section 11.5 of both Trademark License Agreements are amended by
adding at the end of the first sentences thereof "which incorporate the Licensed
Marks".
30. Changes to Exhibit 11.8. The following changes are made to Exhibit
11.8:
(a) The definition "Operating Assets" in paragraph 1.1.1 is deleted
in its entirety.
(b) Paragraph 1.7 is amended to read in its entirety as follows:
"Title Insurance. This paragraph 1.7 will apply if the
Property includes any real estate property (including leasehold
interests) ("Real Property"), but with respect to leasehold
interests, only to the extent title insurance is available."
(b) Paragraph 1.8 is amended to read in its entirety as follows:
"Survey. This paragraph 1.8 will apply if the Property
includes any Real Property, but with respect to leasehold interests,
only to the extent surveys are available."
(c) Paragraph 1.9.8 is modified by adding the phrase: "To the
knowledge of Seller," at the beginning of the paragraph.
(d) Paragraph 1.9.11 is amended by replacing the term "five (5)"
with the term "three (3)".
(f) Paragraph 1.16.2 is amended by adding the following phrase at
the end of the first sentence: "offered by Sprint PCS as of the date of
termination of the Management Agreement."
EXHIBIT 10.8
Exhibit A
Exhibit 2.6
Asset Purchase Agreement
EXHIBIT 10.8
Exhibit B
Section 17.28. Federal Contractor Compliance.
(1) The Manager will not discriminate against any employee or applicant
for employment because of race, color, religion, sex, or national origin. The
Manager will take affirmative action to ensure that applicants are employed, and
that employees are treated during employment without regard to their race,
color, religion, sex, or national origin. Such action shall include, but not be
limited to the following: Employment, upgrading, demotion, or transfer;
recruitment or recruitment advertising; layoff or termination; rates of pay or
other forms of compensation; and selection for training, including
apprenticeship. The Manager agrees to post in conspicuous places, available to
employees and applicants for employment, notices to be provided setting forth
the provisions of this nondiscrimination clause.
(2) The Manager will, in all solicitations or advertisements for employees
placed by or on behalf of the Manager, state that all qualified applicants will
receive considerations for employment without regard to race, color, religion,
sex, or national origin.
(3) The Manager will send to each labor union or representative of workers
with which he has a collective bargaining agreement or other contract or
understanding, a notice to be provided advising the said labor union or workers'
representatives of the Manager's commitments under this section, and shall post
copies of the notice in conspicuous places available to employees and applicants
for employment.
(4) The Manager will comply with all provisions of Executive Order 11246
of September 24, 1965, and of the rules, regulations, and relevant orders of the
Secretary of Labor.
(5) The Manager will furnish all information and reports required by
Executive Order 11246 of September 24, 1965, and by rules, regulations, and
orders of the Secretary of Labor, or pursuant thereto, and will permit access to
his books, records, and accounts by the administering agency and the Secretary
of Labor for purposes of investigation to ascertain compliance with such rules,
regulations, and orders.
(6) In the event of the Manager's noncompliance with the nondiscrimination
clauses of this contract or with any of the said rules, regulations, or orders,
this contract may be canceled, terminated, or suspended in whole or in part and
the Manager may be declared ineligible for further Government contracts or
federally assisted construction contracts in accordance with procedures
authorized in Executive Order 11246 of September 24, 1965, and such other
sanctions may be imposed and remedies invoked as provided in Executive Order
11246 of September 24, 1965, or by rule, regulation, or order of the Secretary
of Labor, or as otherwise provided by law.
EXHIBIT 10.8
(7) The Manager will include the portion of the sentence immediately
preceding paragraph (1) and the provisions of paragraphs (1) through (7) in
every subcontract or purchase order unless exempted by rules, regulations, or
orders of the Secretary of Labor issued pursuant to section 204 of Executive
Order 11246 of September 24, 1965, so that such provisions will be binding upon
each subcontractor or vendor. The Manager will take such action with respect to
any subcontract or purchase order as the administering agency may direct as a
means of enforcing such provisions, including sanctions for noncompliance.
Provided, however, that in the event a Manager becomes involved in, or is
threatened with, litigation with a subcontractor or vendor as a result of such
direction by the administering agency the Manager may request the United States
to enter into such litigation to protect the interests of the United States.
(8) In consideration of contracts with Sprint PCS, the Manager agrees to
execute the Certificate of Compliance attached hereto as Attachment I and
further agrees that this certification shall be part of each contract between
Sprint PCS and Manager. The Manager will include Attachment I in every
subcontract or purchase order, so that such provisions will be binding upon each
subcontractor.
EXHIBIT 10.8
Attachment I
CERTIFICATE OF COMPLIANCE WITH
FEDERAL REGULATIONS
In consideration of contracts with SPRINT SPECTRUM L.P., the undersigned
"contractor", "vendor" or "consultant" agrees to the following and further
agrees that this Certification shall be a part of each purchase order, supply
agreement, or contract between SPRINT SPECTRUM L.P. and the undersigned.
1. Equal Opportunity
Executive Order 11246 is herein incorporated by reference.
2. Affirmative Action Compliance
If undersigned Contractor has 50 or more employees and if this contract is
for $50,000 or more, Contractor shall develop a written Affirmative Action
Compliance Program for each of its establishments, as required by rules
and regulations of the Secretary of Labor (41 CFR 60-1 and 60-2).
3. Affirmative Action for Special Disabled and Vietnam Era Veterans
If this contract exceeds $10,000, the undersigned Contractor certifies
that the Contractor does not discriminate against any employee or
applicant because the person is a Special Disabled or Vietnam Veteran and
complies with the rules, regulations and relevant orders of the Secretary
of Labor issued pursuant to the Vietnam Veterans Readjustment Assistance
Act of 1972, as amended.
Contractor hereby represents that it has developed and has on file, at
each establishment, affirmative action programs for Special Disabled and
Vietnam Era Veterans required by the rules and regulations of the
Secretary of Labor (41 CFR 60-250).
4. Affirmative Action for Handicapped Workers
If this contract exceeds $2,500, the undersigned Contractor certifies that
the Contractor does not discriminate against any employee or applicant
because of physical or mental handicap and complies with the rules,
regulations and relevant orders of the Secretary of Labor issued under the
Rehabilitation Act of 1973, as amended.
Contractor hereby represents that it has developed and has on file, at
each establishment, affirmative action programs for Handicapped Workers
required by the rules and regulations of the Secretary of Labor (41 CFR
60-741).
5. Employer Information Report (EEO-1 Standard Form 100)
If undersigned Contractor has 50 or more employees and if this contract is
for $10,000 or more, Contractor shall complete and file government
Standard Form
EXHIBIT 10.8
100, Equal Employment Opportunity Employer Information Report EEO-1, in
accordance with instructions contained therein.
6. Compliance Review
The undersigned Contractor certifies that it has not been subject to a
Government equal opportunity compliance review. If the Contractor has been
reviewed, that review occurred on _________________ (date).
7. Utilization of Small Businesses, Small Disadvantaged Businesses, and
Women-Owned Small Business
It is the policy of SPRINT SPECTRUM L.P., consistent with Federal
Acquisition Regulations (FAR 52.219-8 and FAR 52.219-13), that small
business concerns, small business concerns owned and controlled by
socially and economically disadvantaged individuals, and women-owned
businesses shall have the maximum practicable opportunity to participate
in performing subcontracts under Government contracts for which SPRINT
SPECTRUM L.P. is the Government's Prime Contractor. SPRINT SPECTRUM L.P.
awards contracts to small businesses to the fullest extent consistent with
efficient prime contract performance. The Contractor agrees to use its
best efforts to carry out this policy in the award of its subcontract to
the fullest extent consistent with the efficient performance of this
contract.
Contractor hereby represents that it ______ is ______ is not a small
business, ______ is ______ is not a small business owned and controlled by
socially and economically disadvantaged individuals, and _____ is ______
is not a small business controlled and operated as a women-owned small
business as defined by the regulations implementing the Small Business
Act.
If the answer to any of the above is in the affirmative, Contractor will
complete SPRINT SPECTRUM L.P. Small/Minority/Women Owned Business Self
Certification Form. This form is available from Mr. Ron Gier, Sprint PCS,
4900 Main Street, Kansas City, Missouri 64112.
8. Certification of Nonsegregated Facilities
If this contract is expected to exceed $10,000, the undersigned Contractor
certifies as follows:
The Contractor certifies that the Contractor does not or will not maintain
or provide for its employees any segregated facilities at any of its
establishments, and that it does not and will not permit its employees to
perform services at any location, under its control, where segregated
facilities are maintained. The Contractor agrees that a breach of this
Certification is a violation of the Equal Opportunity provision of this
contract. As used in this Certification, the term "segregated facilities"
means any waiting rooms, work areas, rest rooms and wash rooms,
restaurants and other eating areas, time clocks, locker rooms and other
EXHIBIT 10.8
storage or dressing areas, parking lots, drinking fountains, recreation or
entertainment areas, transportation, and housing facilities provided for
employees that are segregated by explicit directive or are in fact
segregated on the basis of race, color, religion, or national origin,
because of habit, local custom, or otherwise. Contractor further agrees
that (except where it has obtained identical certifications from proposed
subcontracts for specific time periods) it will obtain identical
certifications from proposed subcontractors prior to the award of
subcontracts exceeding $10,000 that are not exempt from the provisions of
the Equal Opportunity Clause; and that it will retain such certification
in its files.
9. Clean Air and Water
The undersigned Contractor certifies that any facility to be used in the
performance of this contract ___ is ___ is not listed on the Environmental
Protection Agency List of Violating Facilities.
The undersigned Contractor agrees to immediately notify SPRINT SPECTRUM
L.P., immediately upon the receipt of any communication from the
Administrator or a designee of the Environmental Protection Agency
indicating that any facility that the Contractor proposes to use for the
performance of the contract is under consideration to be listed on the EPA
List of Violating Facilities. SPRINT SPECTRUM L.P. includes this
certification and agreement pursuant to FAR 52-223-1(c) which requires
including such paragraph (c) in every nonexempt subcontract.
Contractor:
________________________________________
Company Name
________________________________________
Address
________________________________________
City State Zip
By: ____________________________________
Name: __________________________________
Title: _________________________________
EXHIBIT 10.9
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered into
as of November 5, 1999, by SPRINT SPECTRUM L.P. and its subsidiaries SPRINT
SPECTRUM EQUIPMENT COMPANY, L.P. and SPRINT SPECTRUM REALTY COMPANY, L.P., all
of which are Delaware limited partnerships (collectively, "Seller"), and
SHENANDOAH PERSONAL COMMUNICATIONS COMPANY, a Virginia corporation ("Buyer").
Recitals
A. Seller owns or leases that certain property identified on the attached
Exhibit A (each a "Cell Site" and, collectively, the "Cell Sites"), the
longitude and latitude location of which are estimated and subject to variations
that customarily occur in building out cell sites under a radio frequency plan.
B. Buyer and Seller have entered into that certain Sprint PCS Management
Agreement dated November 5,1999 (the "Management Agreement"), to which this
Agreement is made an exhibit upon its execution by the parties and that
provides, among other things, that Buyer will purchase and Seller will sell the
Assets (as defined below), upon the terms and conditions set forth in this
Agreement;
Agreements
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement the parties hereto agree as follows:
1. Transfer of Assets. Subject to the terms and conditions of this
Agreement, Seller agrees to sell, convey and assign to Buyer, and
Buyer agrees to purchase from Seller, all of Seller's right, title
and interest in each Cell Site and all assets, rights, benefits and
privileges (whether tangible or intangible) related to such Cell
Site (collectively, the "Assets"), free and clear from all liens
created by the Seller other than the Assumed Liabilities (as defined
below). The consummation of this transaction (the "Closing") will
occur, subject to the terms and conditions of this Agreement, on the
first to occur of either (a) January 31, 2000, or (b) the date on
which Manager obtains financing to acquire the Assets (the "Closing
Date").
2. Purchase Price. The purchase price for the Assets (the "Purchase
Price") will equal the sum of:
(i) $35,000 per cell site through lease execution;
(ii) $86,000 per cell site through notice to proceed (i.e., cell
site is construction ready); and
(iii) per cell site constructed as follows:
(a) $349,000 per cell site tower less than 100 feet tall,
(b) $396,000 per cell site tower between 100-200 feet tall,
(c) $357,000 per cell- site tower greater than 200 feet
tall,
(d) $282,000 per cell site co-locate,
(e) $297,000 per rooftop cell site, or
(f) $195,000 per build-to-suit cell site.
Each Cell Site will be allocated to only one stage of development
completion, as described above. Cell Sites in a state of partial
stage completion will be brought to full completion of such stage by
Seller and will be priced accordingly.
The parties agree that, on or before the Closing Date, they
will determine the Purchase Price, based upon the then current stage
of development completion of each Cell Site as set forth above, and
will allocate the Purchase Price among the Assets accordingly, and
neither party will make any claim or treat any item on its tax
returns in a manner that is inconsistent with such allocation.
3. Review Period. (a) For a period of three weeks commencing on the
date this Agreement is executed by both parties (the "Review
Period"), Buyer and its representatives may review such documents
and make, or cause to be made by agents or contractors of Buyer's
choosing, any and all physical, mechanical, environmental,
structural or other inspections of the Assets as Buyer deems
appropriate and as maintained in the ordinary course by Seller. For
purposes of such review and inspection, Seller will make available
to Buyer and Buyer's representatives, all documents and records
relating to the Assets and the Assumed Liabilities, and shall afford
Buyer and Buyer's representatives reasonable access to the Assets
and Assumed Liabilities, all during normal business hours.
(b) If, in Buyer's reasonable discretion, based upon the
results of Buyer's review and inspection of the Assets, Buyer
determines that up to, but no more than, three individual Cell Sites
are unsatisfactory to Buyer, Buyer may by written notice delivered
to Seller within the Review Period, which notice contains a specific
description of the unsatisfactory condition, request that such
unsatisfactory condition as to such Cell Site(s) be rectified by
Seller. Seller will, within 30 days after receiving Buyer's written
notice described above, at Seller's election as to each
unsatisfactory Cell Site individually, either (i) correct the
unsatisfactory condition, (ii) renegotiate with Buyer the Purchase
Price only as attributable to such unsatisfactory Cell Site, or
(iii) remove the unsatisfactory Cell Site from the Assets, with a
corresponding reduction in the Purchase Price in proportion to the
amount thereof attributable to the unsatisfactory Cell Site. If
Buyer does not provide the above described notice to Seller within
the Review Period, Buyer will be deemed to have waived its rights
under this Paragraph 3. In no event will Buyer be relieved of its
obligations under this Agreement, with regard to more than three
Cell Sites.
4. Assumption of Liabilities. Buyer agrees to assume all liabilities,
debts, expenses and obligations of Seller under the contracts and
leases related to each and all of the Cell Sites, to the extent that
such liabilities, debts, expenses and obligations' relate to and
arise during the period after the Closing Date (the "Assumed
Liabilities"). Buyer agrees to pay and perform the Assumed
Liabilities when due. Buyer's assumption of the Assumed Liabilities
does not enlarge any rights of third parties under contracts or
arrangements with Buyer or Seller. Nothing in this Agreement
prevents Buyer from contesting in good faith any of the Assumed
Liabilities.
5. Condition of Assets. It is understood and agreed that Seller is not
making and specifically disclaims any warranties or representations
of any kind or character, express or implied, with respect to the
Assets, including, but not limited to, warranties, or
representations as to matters of title (except that Seller
represents and warrants that Seller has authority to convey the
Assets and Seller has not previously assigned, subleased or
otherwise conveyed that Asset to any other party), zoning, tax
consequences, physical or environmental conditions, availability of
access, operating history or projections, valuation, governmental
approvals, governmental regulations or any other matter or thing
relating to or affecting the Assets including, without limitation:
(i) the value, condition, merchantability, marketability,
profitability, suitability or fitness for a particular use or
purpose of the Assets; (ii) the manner or quality of the
construction or materials incorporated into any of the Assets and
(iii) the manner, quality, state of repair or lack of repair of the
Assets. Buyer agrees that with respect to the Assets, Buyer has not
relied upon and will not rely upon, either directly or indirectly,
any representation or warranty of Seller or any agent of Seller
other than as specifically set forth in this Agreement. Buyer
represents that it is a knowledgeable purchaser and that it is
relying solely on its own expertise and that of Buyer's consultants,
and that Buyer will conduct such inspections and investigations of
the Assets, including, but not limited to, the physical and
environmental conditions thereof, and shall rely upon same, and,
upon closing, shall assume the risk that adverse matters, including,
but not limited to, adverse physical and environmental conditions,
may not have been revealed by Buyer's inspections and
investigations. Buyer acknowledges and agrees that upon closing,
Seller shall sell and convey to Buyer and Buyer shall accept the
Assets "as is, where is" with all faults, and Buyer further
acknowledges and agrees that
there are no oral agreements, warranties or representations,
collateral to or affecting the Assets by Seller, any agent of Seller
or any third party. The terms and conditions of this paragraph shall
expressly survive the Closing.
6. Damage or Destruction. If prior to the Closing Date, any individual
Cell Site or Cell Sites are destroyed or substantially damaged by
fire, lightning or any other cause, or are taken by eminent domain
(or are the subject of a pending or contemplated taking which has
not been consummated), Seller will immediately deliver to Buyer
written notice of such event or condition, and Buyer will have the
option of either (a) retaining any insurance proceeds or proceeds of
the taking by eminent domain, or (b) reducing the Purchase Price by
the amount thereof attributable to such Cell Site or Cell Sites by
delivering written notice thereof to Seller within twenty (20) days
after receiving written notice from Seller of such destruction,
damage or claim. The risk of loss will be borne by Seller until the
Closing Date.
7. Closing. On the Closing Date:
(a) Seller and Buyer shall execute and deliver to each other
an Assignment, Assumption and Bill of Sale in the form
attached hereto as Exhibit B;
(b) Buyer shall pay the Purchase Price to Seller in
immediately available funds;
(c) Buyer shall provide copies of all necessary consents; if
any, for the conveyance or assignment of the Assets.
If Buyer is unable to obtain from a landlord a release
of Seller from its obligations under a particular lease,
then Seller shall continue to administer the lease and
Buyer will pay to Seller, on a monthly basis, an amount
equal to $200 per month per lease until such time as the
landlord grants a release to Seller.
Buyer is responsible for paying or causing to be paid all transfer,
stamp, recording, sales, use, excise or similar taxes, fees or
duties payable in connection with the sale, assignment or conveyance
of Seller's interest in and to the Assets and Buyer's assumption of
the Assumed Liabilities.
Buyer is also responsible for reporting all taxable property to the
appropriate taxing authority for ad valorem tax purposes. Buyer will
pay as and when due" all taxes, assessments, liens, encumbrances,
levies and other charges against the real estate, personal property
and intangible property that is sold, transferred, assigned or
otherwise conveyer to Buyer pursuant to this Agreement.
8. Further Assurances. Seller will from time to time at the request of
Buyer, do, make, execute, acknowledge and deliver all such other
instruments of conveyance, assignment, and transfer, in form and
substance satisfactory to Seller, as Buyer may reasonably require
for the more effective conveyance and transfer of any of the Assets.
9. Indemnification. Breaches of this Agreement by either Buyer or
Seller will be a breach for which the non-breaching party is
entitled to indemnification in accordance with the terms and
conditions and utilizing the procedures set forth in the Management
Agreement.
10. Entire Agreement and Binding Effect. This Agreement and the exhibits
and schedules attached to this Agreement (which are incorporated by
this reference) and the Management Agreement, including all addenda
thereto, contain the, entire agreement between the parties hereto
with respect to the acquisition of the Assets and the other
transactions contemplated herein, and supersedes all prior
agreements or understandings between the parties hereto relating to
the subject matter hereof.
11. Severability. In the event anyone or more of the provisions
contained in this Agreement or any application thereof is invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions of this Agreement and any
other application thereof will not in any way be affected or
impaired thereby. Paragraph headings herein or in any exhibit hereto
have no legal significance and are used solely for convenience of
reference.
12. No Other Representations and Warranties. Seller makes no
representation or warranty to Buyer with respect to the Assets,
except as expressly set forth in this Agreement.
13. Waivers and Notices. Any term or condition of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a
written instrument. No delay or failure on the part of any party in
exercising any rights hereunder, and no partial or single exercise
thereof, will constitute a waiver of such rights or of any other
rights hereunder. All notices, consents, requests, instructions, .
approvals and other communications provided for herein will be
validly given, made or served if given, made or served in accordance
with the Management Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will constitute an original but all of
such counterparts taken together will constitute only one Agreement.
15. Governing Law. The internal laws of the State of Missouri (without
regard to principles of conflicts of law) govern the validity of
this agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
[The remainder of this page has been intentionally left blank.]
IN WI1NESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SELLER: SPRINT SPECTRUM L.P.
By: /S/ Bernie Bianchino
------------------------------
Name: Bernie Bianchino
Title: Chief Business Development
Officer
SPRINT SPECTRUM EQUIPMENT COMPANY, L.P.
By: /S/ Bernie Bianchino
------------------------------
Name: Bernie Bianchino
Title: Chief Business Development
Officer
SPRINT SPECTRUM REALTY COMPANY, L.P.
By: /S/ Bernie Bianchino
------------------------------
Name: Bernie Bianchino
Title: Chief Business Development
Officer
BUYER: SHENANDOAH PERSONAL COMMUNICATIONS
COMPANY
By: /S/ Christopher E. French
------------------------------
Name: Christopher E. French
Title: President
EXHIBIT 10.10
ADDENDUM II
TO SPRINT PCS MANAGEMENT AGREEMENT
Manager: Shenandoah Personal Communications Company,
A Virginia corporation
Service Area: Hagerstown, MD-Chambersburg, PA-Martinsburg, WV BTA
Winchester, VA BTA
Harrisonburg, VA BTA
Washington, DC BTA (Jefferson County, WV only)
Harrisburg, PBTA
York-Hanover, PA BTA
Altoona, PA BTA
This Addendum II (this "Addendum"), dated as of August 31, 2000),
contains certain additional and supplemental terms and provisions of that
certain (a) Sprint PCS Management Agreement entered into as of November 5, 1999,
by the same parties as this Addendum, which Management Agreement was further
amended by that certain Addendum I entered into as of November 5, 1999 (the
Sprint PCS Management Agreement, as amended, being the "Management Agreement").
The terms and provisions of this Addendum control, supersede and amend any
conflicting terms and provisions contained in the Management Agreement and the
Other Sprint Agreements. Except for express modification made in this Addendum,
the Management Agreement and the Other Sprint Agreements continue in full force
and effect.
Capitalized terms used and not otherwise defined in this Addendum
have the meaning ascribed to them in the Management Agreement. Section and
Exhibit references are to Sections and Exhibits of the Management Agreement
unless otherwise noted.
The Management Agreement and the Other Sprint Agreements are
modified as follows:
1. Transfer of Spectrum. In the event that either (i) Sprint PCS
puts the Disaggregated License to Manager pursuant to Section 11.6.2 of the
Management Agreement or (ii) Manager purchases the Disaggregated License
pursuant to Section 11.5.2 of the Management Agreement, then the NPA-NXXs listed
on Exhibit A attached hereto, if then in use by Manager, will be transferred to
Manager.
2. Counterparts. This Addendum may be signed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
1
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to
be executed by their respective authorized officers as of the date and year
first above written.
Sprint Spectrum L.P.
By: /S/ Thomas E. Mateer
----------------------------
Name: Thomas E. Mateer
Title: Vice President - Affiliations
WirelessCo, L.P.
By: /S/ Thomas E. Mateer
----------------------------
Name: Thomas E. Mateer
Title: Vice President - Affiliations
APC PCS, LLC
By: /S/ Thomas E. Mateer
----------------------------
Name: Thomas E. Mateer
Title: Vice President - Affiliations
PhillieCo, L.P.
By: /S/ Thomas E. Mateer
----------------------------
Name: Thomas E. Mateer
Title: Vice President - Affiliations
Sprint Communications Company L.P.
By: /S/ Don A. Jensen
----------------------------
Name: Don A. Jensen
Title: Vice President - Law
Shenandoah Personal
Communications Company
By: /S/ Christopher E. French
----------------------------
Name: Christopher E. French
Title: President
2
Exhibit A to Addendum II
to Sprint PCS Management Agreement
GSM Codes * CDMA Codes Location
---------------------------------- --------
717-977 717-404 Chambersburg, PA
301-991 301-992 Hagerstown, MD
301-465 301-462 Myersville, MD
304-279 304-283 Falling Waters, WV
540-671 540-683 Washington, VA
540-664 540-327 Winchester, VA
540-335 540-325 Edinburg, VA
540-435 540-560 Harrisonburg, VA
717-421 Harrisburg, PA
717-542 York, PA
717-386 Carlisle, PA
* Customers assigned GSM Codes were converted to CDMA service.
3
EXHIBIT 10.11
ADDENDUM III
TO
SPRINT PCS MANAGEMENT AGREEMENT
Manager: Shenandoah Personal Communications Company,
a Virginia corporation
Service Area: Hagerstown, MD-Chambersburg, PA-Martinsburg, WV BTA
Winchester, VA BTA
Harrisonburg, VA BTA
Washington DC BTA (Jefferson County, WV only)
Harrisburg, PA BTA
York-Hanover, PA BTA
Altoona, PA BTA
This Addendum III (this "Addendum"), dated as of September 26, 2001),
contains certain additional and supplemental terms and provisions of that
certain (a) Sprint PCS Management Agreement entered into as of November 5, 1999,
by the same parties as this Addendum, which Management Agreement was further
amended by that certain Addendum I dated November 5, 1999 and Addendum II dated
August 31, 2000 (the Sprint PCS Management Agreement, as amended, being the
"Management Agreement"). The terms and provisions of this Addendum control,
supersede and amend any conflicting terms and provisions contained in the
Management Agreement and the Other Sprint Agreements. Except for express
modification made in this Addendum, the Management Agreement and the Other
Sprint Agreements continue in full force and effect.
Capitalized terms used and not otherwise defined in this Addendum have the
meaning ascribed to them in the Management Agreement. Section and Exhibit
references are to Sections and Exhibits of the Management Agreement unless
otherwise noted.
The Management Agreement and the Other Sprint Agreements are modified as
follows:
1. Revised Build-Out Plan.
(a) Revised Exhibits. The Amended Exhibit 2.1 Build-out Plan Description,
Build-out Plan Table, and Build-out Plan Map (Revised Effective September 26,
2001) (the "Amended Exhibit 2.1") attached to this Addendum supersedes and
replaces in its entirety the Exhibit 2.1 Build-out Plan Phase Description,
Build-out Plan Table, and Build-out Plan Map in the Management Agreement dated
November 5, 1999. Amended Exhibit 2.1 includes:
(i) Build-out Plan Table which sets forth the Completion Date and
covered population requirements, and
(ii) Build-out Plan Description; and
1
(iii) Build-out Plan Map.
2. Governing Law and Jurisdiction. (a) Section 17.12 of the Management
Agreement, Section 9.11 of the Services Agreement and Section 15.8 of each of
the Trademark License Agreements is deleted in its entirety and replaced with
the following language:
Governing Law. The internal laws of the State of Kansas (without
regard to principles of conflicts of law) govern the validity of this
agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties.
(b) Paragraphs (a) and (b) of Section 15.13 of each of the Trademark
License Agreements are deleted in their entirety and replaced with the following
language:
(a) Each party hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any Kansas
State court sitting in the County of Johnson or any Federal court of the
United States of America sitting in the District of Kansas, and any
appellate court from any such court, in any suit action, or proceeding
arising out of or relating to this agreement, or for recognition or
enforcement of any judgment, and each party hereby irrevocably and
unconditionally agrees that all claims in respect of any such suit, action
or proceeding may be heard and determined in such Kansas State Court or,
to the extent permitted by law, in such Federal court.
(b) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this agreement in Kansas State court sitting
in the County of Johnson or any Federal court sitting in the District of
Kansas. Each party hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance
of such suit, action or proceeding in any such court and further waives
the right to object, with respect to such suit, action or proceeding, that
such court does not have jurisdiction over such party.
3. Notice address. The address for all entities comprising Sprint PCS on
the Notice Address Schedule is changed to the following:
Sprint PCS
6160 Sprint Parkway, Building 9
Overland Park, KS 66251
Telephone: 913-762-7100
Telecopier: 913-762-7102
Attention: President, Sprint PCS
2
With a copy to
Sprint PCS
6160 Sprint Parkway, Building 9
Overland Park, KS 66251
Telephone: 913-762-7400
Telecopier: 913-762-0920
Attention: General Counsel, Sprint PCS
3
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their respective authorized officers as of the date and year first
above written.
Sprint Spectrum L.P.
By: /S/ Thomas E. Mateer
-------------------------------
Thomas E. Mateer
Vice President - Affiliations
WirelessCo, L.P.
By: /S/ Thomas E. Mateer
-------------------------------
Thomas E. Mateer
Vice President - Affiliations
APC PCS, LLC
By: /S/ Thomas E. Mateer
-------------------------------
Thomas E. Mateer
Vice President - Affiliations
PhillieCo, L.P.
By: /S/ Thomas E. Mateer
-------------------------------
Thomas E. Mateer
Vice President - Affiliations
Sprint Communications Company L.P.
By: /S/ Ed Mattix
-------------------------------
Ed Mattix
Senior Vice President - Public Affairs
Shenandoah Personal
Communications Company
By: /S/ Christopher E. French
-------------------------------
Christopher E. French
President
4
EXHIBIT 10.12
ADDENDUM IV
TO
SPRINT PCS MANAGEMENT AGREEMENT
Manager: Shenandoah Personal Communications Company,
a Virginia corporation
Service Area: Hagerstown, MD-Chambersburg, PA-Martinsburg, WV BTA
Winchester, VA BTA
Harrisonburg, VA BTA
Washington, DC BTA (Jefferson County, WV only)
Harrisburg, PA BTA
York-Hanover, PA BTA
Altoona, PA BTA
This Addendum IV (this "Addendum"), dated as of May 22, 2003, contains
certain additional and supplemental terms and provisions of that certain Sprint
PCS Management Agreement entered into as of November 5, 1999, by the same
parties as this Addendum, which Management Agreement was further amended by that
certain Addendum I dated November 5, 1999, Addendum II dated August 31, 2000 and
Addendum III dated September 26, 2001 (the Sprint PCS Management Agreement, as
amended, being the "Management Agreement"). The terms and provisions of this
Addendum control, supersede and amend any conflicting terms and provisions
contained in the Management Agreement and the Other Sprint Agreements. Except
for express modification made in this Addendum, the Management Agreement and the
Other Sprint Agreements continue in full force and effect.
Capitalized terms used and not otherwise defined in this Addendum have the
meaning ascribed to them in the Management Agreement. Section and Exhibit
references are to Sections and Exhibits of the Management Agreement unless
otherwise noted.
The Management Agreement is modified as follows:
1. Transfer of Spectrum - Deleted. Section 1 of Addendum II to the Management
Agreement is deleted in its entirety.
2. NPA-NXX-X Transfer. In the event that either (i) Sprint PCS puts the
Disaggregated License to Manager pursuant to Section 11.6.2 or (ii)
Manager purchases the Disaggregated License pursuant to Section 11.5.2,
then the NPA-NXX-Xs then in use by Manager, will be transferred to the
Manager. The NPA-NXX-Xs used by Manager will be mutually determined by
Sprint and Shenandoah Personal Communications Company in their reasonable
discretion.
3. Counterparts. This Addendum may be executed in two or more counterparts,
each of which shall constitute an original but all of which when taken
together shall constitute but one agreement.
[the remainder of this page is intentionally left blank]
2
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their respective authorized officers as of the date and year first
above written.
SPRINT SPECTRUM L.P.
By: /S/ Thomas E. Mateer
------------------------------
Thomas E. Mateer,
Vice President - Affiliates/Private
Label Services
WIRELESSCO, L.P.
By: /S/ Thomas E. Mateer
------------------------------
Thomas E. Mateer,
Vice President - Affiliates/Private
Label Services
APC PCS, LLC
By: /S/ Thomas E. Mateer
------------------------------
Thomas E. Mateer,
Vice President - Affiliates/Private
Label Services
PHILLIECO, L.P.
By: /S/ Thomas E. Mateer,
------------------------------
Thomas E. Mateer,
Vice President - Affiliates/Private
Label Services
SPRINT COMMUNICATIONS COMPANY, L.P.
By: /S/ Mike Goff
------------------------------
Mike Goff
Vice President - Corporate Brand
Management
SHENANDOAH PERSONAL COMMUNICATIONS
COMPANY
By: /S/ Christopher E. French
------------------------------
Christopher E. French
President
3
EXHIBIT 10.13
ADDENDUM V
TO
SPRINT PCS MANAGEMENT AGREEMENT AND
SPRINT PCS SERVICES AGREEMENT
Amending these agreements further and restating certain paragraphs in
Addenda I and IV
Dated as of January 30, 2004
Manager: SHENANDOAH PERSONAL COMMUNICATIONS COMPANY
Service Area BTAs: Altoona, PA #12
Hagerstown, MD-Chambersburg, PA-Martinsburg, WV #179
Harrisburg, PA #181
Harrisonburg, VA #183
Washington, DC (Jefferson County, WV only) #471
Winchester, VA #479
York-Hanover, PA #483
This Addendum V (this "Addendum") contains amendments of the Sprint
PCS Management Agreement, the Sprint PCS Services Agreement, the Sprint
Trademark and Service Mark License Agreement and the Sprint Spectrum Trademark
and Service Mark License Agreement, each of which was entered into on November
5, 1999 by Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo,
L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications
Company. The Management Agreement, Services Agreement and Trademark License
Agreements were amended by:
(1) Addendum I dated as of November 5, 1999,
(2) Addendum II dated as of August 31, 2000,
(3) Addendum III dated as of September 26, 2001, and
(4) Addendum IV dated as of May 22, 2003.
The purposes of this Addendum are to (1) amend the Management
Agreement, the Services Agreement, the Trademark License Agreements and the
Schedule of Definitions and restate those paragraphs in the addenda executed
previously that amend the Management Agreement, the Services Agreement, the
Trademark License Agreements and the Schedule of Definitions (see section A
below), and (2) provide cross-references to those paragraphs in addenda executed
previously that are not restated in this Addendum (see section B below).
The terms and provisions of this Addendum control over any
conflicting terms and provisions contained in the Management Agreement, the
Services Agreement, the Trademark License Agreements and the Schedule of
Definitions. The Management Agreement, the Services Agreement, the Trademark
Licenses Agreements, the Schedule of Definitions and all prior
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addenda continue in full force and effect, except for express modifications made
in this Addendum. This Addendum does not change the effective date of any prior
amendment made to the Management Agreement, the Services Agreement, the
Trademark License Agreements or the Schedule of Definitions through previously
executed addenda.
Capitalized terms used and not otherwise defined in this Addendum
have the meaning ascribed to them in the Schedule of Definitions or in prior
addenda. Section and Exhibit references are to sections and Exhibits of the
Management Agreement unless otherwise noted.
The parties are executing this Addendum as of the date noted above,
but the terms of this Addendum become effective on (the "Effective Date"): (1)
January 1, 2004, if on or before January 31, 2004, the Settlement Agreement and
Mutual Release between Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC,
PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal
Communications Company is executed and delivered, and the payment required under
the Settlement Agreement and Mutual Release is paid and received; or (2) the
first calendar day of the first calendar month after both of the events
described in clause (1) occur, if either of the events in clause (1) occur after
January 31, 2004.
On the Effective Date of Addendum V the Management Agreement, the
Services Agreement, the Trademark License Agreements and the Schedule of
Definitions are amended and restated as follows:
A. New Amendments and Restatement of Previous Amendments to Sprint PCS
Agreements.
Management Agreement
1. Access to Service Area Network [Addm I,ss.2]. The last paragraph of
section 1.1 is amended to read as follows:
Subject to the terms and conditions of this agreement, including,
without limitation, sections 1.9, 9.5 and 12.1.2, Sprint PCS has the right
to unfettered access to the Service Area Network to be constructed by
Manager under this agreement. The fee to be paid to Manager by Sprint PCS
under section 10 is for all obligations of Manager under this agreement.
2. Vendor Purchase Agreements - Software Fees [NEW]. Section 1.3 is
amended to read as follows:
Insert: "1.3.1 Discounted Volume-Based Pricing." before the first
paragraph.
Insert: "1.3.2 Subscriber and Infrastructure Equipment." before the
second paragraph.
Insert: "1.3.3 Exclusive Use." before the third paragraph.
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Add a new section 1.3.4 as follows:
1.3.4 Software Fees.
(a) Manager acknowledges that Sprint PCS administers the testing and
implementation of the Software (i.e., pushing of the Software) into the
Service Area Network.
(b) Sprint PCS, when obtaining software for its own use that is
identical to the Software, will use commercially reasonable efforts to
obtain a license from vendors providing for the right of Manager to use
the Software in connection with telecommunications equipment manufactured
by the vendor (collectively the software obtained by Sprint PCS for its
own use and the Software that operates on telecommunications equipment
manufactured by the vendor are for purposes of this section 1.3.4, the
"Vendor Software"; when the term "Vendor Software" is used with respect to
Manager, it means only the Software, and not the software used only by
Sprint PCS).
(c) Manager will arrange independently with the vendor to obtain a
license to the Vendor Software if Sprint PCS cannot reasonably obtain a
license for Manager. Any license that Manager obtains from a vendor must
require the Vendor Software to be tested in Sprint PCS test beds by Sprint
PCS and require Sprint PCS, not the vendor or Manager, to push the Vendor
Software to the Service Area Network unless Sprint PCS otherwise consents
in advance in writing. Sprint PCS agrees to test the Vendor Software in
Sprint PCS test beds within a reasonable period after Manager reasonably
requests the tests in writing.
(d) Sprint PCS will:
(i) notify Manager in writing at least 60 days before the date
of an automatic renewal of, or Sprint PCS' unilateral act to renew
or extend, an agreement that provides Sprint PCS the right to use
the Vendor Software, or
(ii) use reasonable efforts to notify Manager in writing
before the date Sprint PCS intends to start negotiations with a
vendor regarding extension, renewal, pricing or other material terms
relating to Sprint PCS' and Manager's right to use the Vendor
Software (whether for new Software or renewal of an existing
license), and at least 60 days before the date Sprint PCS executes
an agreement, extension or renewal.
The notice by Sprint PCS will include the material terms and
conditions of any such agreement or negotiations to the extent known at
the time of the notice, including the network elements to be covered by
the right to use the Vendor Software. Manager must notify Sprint PCS in
writing within 30 days after
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receiving the notice described in the first sentence of this section
1.3.4(d) if Manager wants Sprint PCS to attempt to obtain or continue the
right for Manager to use the Vendor Software. Sprint PCS will renew or
negotiate the agreement as if Manager will not be a user of the Vendor
Software if Manager does not provide notice to Sprint PCS within the
30-day period. However, Sprint PCS may obtain pricing from the vendor for
the Vendor Software that includes Manager as a user if obtaining the
pricing does not obligate Manager to be a user.
Sprint PCS will advise Manager upon Manager's reasonable request of
the status of the Software negotiations if Manager requested Sprint PCS to
obtain or continue the right for Manager to use the Vendor Software under
Sprint PCS' agreement with the vendor. Sprint PCS will use commercially
reasonable efforts to give Manager notice of the final pricing for the
right to use the Vendor Software no less than 20 days before the expected
execution or renewal of the agreement; provided that, in any event, Sprint
PCS will give Manager notice of the final pricing no less than 10 Business
Days before the expected execution or renewal of the agreement. If
necessary, Manager agrees to use commercially reasonable efforts to enter
into a nondisclosure agreement with the vendor to facilitate providing
such final pricing to Manager.
Manager may give Sprint PCS notice by the time set forth in Sprint
PCS' notice to Manager (which time will not be less than 10 calendar days
after Sprint PCS provides Manager with the final pricing and terms and
conditions of such license agreement) that Manager does not intend to use
the Vendor Software through the agreement between Sprint PCS and the
vendor. If Manager does not give this final notice to Sprint PCS, Manager
is deemed to agree to be a user of the Vendor Software through the
agreement between Sprint PCS and the vendor and will pay the Allocable
Software Fee. Within 15 Business Days after execution of an agreement
between Sprint PCS and the vendor, Sprint PCS will provide to Manager a
forecast of Manager's Allocable Software Fee, the estimated payment due
dates relating to the Allocable Software Fee, and the proportion of
Manager's Allocable Software Fee forecast to be due on each payment due
date.
Sprint PCS does not have to obtain a license for Vendor Software for
Manager, even if Manager requests Sprint PCS to obtain such license, if at
any time before execution of the agreements granting the license Sprint
PCS reasonably believes that Manager is more likely than not to
unreasonably refuse to pay the Allocable Software Fee or Sprint PCS
reasonably believes that the Manager is in such financial condition that
Manager is more likely than not to be unable to pay the Allocable Software
Fee.
If Manager accepts the Vendor Software, Sprint will give Manager,
Manager's proportional share of (i) any cash benefits relating
specifically to the Vendor Software that Sprint PCS obtains from the
vendor, and (ii) to the extent reasonably able to be made available to
Manager, other benefits, including training, relating specifically to the
Vendor Software.
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(e) Sprint PCS will pay all Software Fees relating to the Vendor
Software to the vendor if Sprint PCS obtains a license from the vendor
that provides Manager the right to use the Vendor Software and Manager
agrees to pay any applicable Allocable Software Fee in accordance with
this section 1.3.4(e). Manager will be deemed to agree to pay any
applicable Allocable Software Fee if both:
(i) Manager has notified Sprint PCS that it wants Sprint PCS
to attempt to obtain or continue the right for Manager to use the
Vendor Software under the third paragraph of section (d), and has
not taken the action described in the fifth paragraph of section (d)
above to decline obtaining the right to use the Vendor Software
through the agreement between Sprint PCS and the vendor, and
(ii) Sprint PCS obtains a license providing for the right of
Manager to use the Vendor Software.
Manager will pay Sprint PCS the Allocable Software Fee (as defined
below) within 30 days after receipt of an invoice. Sprint PCS will invoice
Manager only after Sprint PCS pays the underlying Software Fee to the
vendor. The Allocable Software Fee will not include any amount for
Software that is the same as or functionally equivalent to any Software
(y) that is a component of any service for which a fee is charged under
the Services Agreement or (z) for which Sprint PCS otherwise charges
Manager under this agreement.
Sprint PCS will calculate the "Allocable Software Fee" as follows:
For each vendor, multiply:
(i) the Net Software Cost of the Software Fees attributable to
the Vendor Software for which Sprint PCS has obtained for itself,
Manager and Other Managers a license or other right to use, by
(ii) the quotient of:
(A) the number of Customers and Reseller Customers with
an NPA-NXX assigned to the Service Area that are assigned to a
system using the Vendor Software, as reported in the most
recent monthly report that Sprint PCS issues before the date
that Sprint PCS prepares an Allocable Software Fee invoice,
divided by:
(B) the number of Customers and Reseller Customers that
are assigned to any system using the Vendor Software, as
reported in the most recent monthly report that
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Sprint PCS issues before the date that Sprint PCS prepares an
Allocable Software Fee invoice.
(f) Sprint PCS will include with the invoice for the Allocable
Software Fee a list of the component charges, if available from the
Vendor. The Software Fees that Sprint PCS pays to the vendor will reflect
rates no greater than commercial rates negotiated at arms' length, and
Sprint will use reasonable efforts to obtain the most favorable rates for
the Software. For purposes of clarification, the parties acknowledge the
vendor may insist on a comprehensive fee without listing each component,
but rather asserting that the fee covers all software necessary to operate
the equipment. But Sprint PCS will provide to Manager a description of all
the features and functionality in reasonable detail for all Software for
which Manager is to pay an Allocable Software Fee.
(g) Manager will not be charged the Allocable Software Fee for the
Vendor Software after Manager:
(i) either: (x) does not notify Sprint PCS in writing within
the period allowed in the third paragraph of section 1.3.4(d) that
Manager desires to have Sprint PCS obtain a right for Manager to use
the Vendor Software, or (y) notifies Sprint PCS in writing within
the period allowed in the fifth paragraph that it declines to have
Sprint PCS obtain such right,
(ii) obtains its own license providing for Manager's right to
use the Vendor Software, and
(iii) complies with the requirements of section 1.3.4(h).
(h) Manager will obtain its own license providing for Manager's
right to use the Vendor Software from the vendor if Manager elects not to
have Sprint PCS attempt to obtain a right for Manager to use the Vendor
Software under section 1.3.4(d). Manager will notify Sprint PCS in writing
and deliver to Sprint PCS within 10 Business Days after Manager's
execution of Manager's separate license, a signed document from the vendor
confirming that:
(i) the vendor has provided Manager a separate license for the
Vendor Software and the term of that license, which term with
appropriate renewal rights, must be at least as long as the license
Sprint PCS has from the vendor,
(ii) the fees paid by Manager to the vendor reflect commercial
rates negotiated at arms' length,
(iii) the Vendor Software covered by Manager's license
provides the usage and functionality necessary for Manager to
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operate the Service Area Network in compliance with the Sprint PCS
Technical Program Requirements, and
(iv) the Vendor Software may be tested in Sprint PCS test beds
by Sprint PCS and will be pushed to the Service Area Network by
Sprint PCS, not the vendor or Manager, unless Sprint PCS otherwise
consents in advance in writing. Sprint PCS agrees to test the Vendor
Software in Sprint PCS test beds within a reasonable period after
Manager reasonably requests in writing.
3. Interconnection [NEW]. Section 1.4 is amended to read as follows:
If Manager desires to interconnect a portion of the Service Area
Network with another carrier and Sprint PCS can interconnect with that
carrier at a lower rate, then to the extent that applicable laws, tariffs
and agreements permit, Sprint PCS will use commercially reasonable efforts
to arrange for the interconnection under its agreements with the carrier
within a commercially reasonable period. Sprint PCS will bill the
interconnection fees to Manager at the actual cost paid by Sprint PCS to
the carrier.
4. Forecasting [NEW]. Section 1.6 is amended to read as follows:
1.6 Forecasting. Manager and Sprint PCS will work cooperatively to
generate mutually acceptable forecasts of important business metrics that
they agree upon. The forecasts are for planning purposes only and do not
constitute either party's obligation to meet the quantities forecast.
5. Financing [Addm I, ss.3].
(a) Section 1.7 is amended to read as follows:
1.7 Financing. The construction and operation of the Service Area
Network requires a substantial financial commitment by Manager. The manner
in which Manager will finance the build-out of the Service Area Network
and provide the necessary working capital to operate the business is
described in detail on Exhibit 1.7. Manager will allow Sprint PCS an
opportunity to review before filing any registration statement or
prospectus or any amendment or supplement thereto and before distributing
any offering memorandum or amendment or supplement thereto, and will not
file or distribute any such document if Sprint PCS reasonably objects in
writing on a timely basis to any portion of the document that refers to
Sprint PCS, its Related Parties, their respective businesses, this
agreement or the Services Agreement.
(b) Section 3(b) of Addendum I is deleted.
6. Ethical Conduct and Related Covenants [Addm I, ss.4]. Section 1.8 is
deleted.
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7. Information [NEW]. Section 19 of Addendum I is deleted. A new section
1.9 is added to the Management Agreement.
1.9 Access to Information.
1.9.1 Network Operations. Manager and Sprint PCS will have
access to, and may monitor, record or otherwise receive, information
processed through equipment, including switches, packet data switching
nodes and cell site equipment, that relates to the provision of Sprint PCS
Products and Services or to the provision of telecommunications services
to Reseller Customers in the Service Area Network, if the access,
monitoring, recording or receipt of the information is accomplished in a
manner that:
(i) Does not unreasonably impede Manager or Sprint PCS
from accessing, monitoring, recording or receiving the
information,
(ii) Does not unreasonably encumber Manager's or Sprint
PCS' operations (including, without limitation, Sprint PCS'
real-time monitoring of the Sprint PCS Network status,
including the Service Area Network),
(iii) Does not unreasonably threaten the security of the
Sprint PCS Network,
(iv) Does not violate any law regarding the information,
(v) Complies with technical requirements applicable to
the Service Area Network,
(vi) Does not adversely affect any warranty benefiting
Manager or Sprint PCS (e.g., software warranties), and
(vii) With respect to the information processed through
Manager's equipment, including its switches, does not result
in a material breach of any agreement regarding the
information (e.g., national security agreements).
Sprint PCS and Manager will immediately notify the other party
and reasonably cooperate to establish new procedures for allowing both
Manager and Sprint PCS to access, monitor, record and receive the
information in a manner that meets the criteria in clauses (i) through
(vii) above if either Manager or Sprint PCS reasonably determines that the
other party is accessing, monitoring, recording or receiving the
information described in this section 1.9.1 in a manner that does not meet
the criteria in clauses (i) through (vii) above. For the avoidance of
doubt, all such information will be deemed Confidential Information under
section 12.2.
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Manager owns the information processed through its equipment
and regarding the performance of its equipment, except the Customer
information owned by Sprint PCS as described in section 1.9.2. Each of
Manager and Sprint PCS may use the information obtained under this section
1.9.1 for any reasonable internal business purpose, during the term of and
after termination of this agreement, the Services Agreement and the
Trademark License Agreements, so long as the use would be in accordance
with those agreements if those agreements were still in effect.
1.9.2 Customer Information. Manager is entitled to receive
information Sprint PCS accesses, monitors, compiles, records or receives
concerning the Service Area Network or the Customers with NPA-NXXs
assigned to Manager's Service Area, subject to the terms of this section
1.9.2 and section 1.9.3 and Manager's compliance with CPNI requirements
imposed by the FCC and any other legal requirements applicable to the
information.
Sprint PCS will provide the information in the format that
Manager requests at no additional charge to Manager if Sprint PCS
accesses, monitors, compiles, records, receives or reports for its own use
the information specific to Manager that Manager requests in the same
format as Manager requests. Sprint PCS will use commercially reasonable
efforts to provide the information within 5 Business Days.
Sprint PCS will provide the information in the format that
Manager requests if Sprint PCS accesses, monitors, compiles, records,
receives or reports for its own use the information that Manager requests,
but not in the same format that Manager requests, if Manager agrees to pay
or reimburse Sprint PCS for the costs Sprint PCS reasonably incurs to
reformat the information into the format requested by Manager. Sprint PCS
will use commercially reasonable efforts to provide such requested
information within 15 Business Days.
If Sprint PCS accesses, monitors, compiles, records or
receives the information requested by Manager, but not in the same format
that Manager requests, then Sprint PCS will provide the requested
information as raw data, if:
(i) Sprint PCS chooses not to provide the information as
described in the preceding paragraph, and
(ii) Manager agrees to pay or reimburse Sprint PCS for the
costs Sprint PCS reasonably incurs.
Sprint PCS will use commercially reasonable efforts to provide the raw
data within 15 Business Days.
Sprint PCS owns the information regarding the Customers as it
pertains to the use of a Sprint communications service subscribed to by
any Customer. Each of Manager and Sprint PCS may use the information
obtained
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under this section 1.9.2 during the term of and after termination of this
agreement, the Services Agreement and the Trademark License Agreements so
long as the use would be in accordance with those agreements if those
agreements were still in effect.
1.9.3 Limitations and Obligations. Sprint PCS does not have to
provide any information that Manager reasonably requests under this
agreement or the Services Agreement that:
(i) Manager can obtain itself in accordance with section
1.9.1 (if Sprint PCS has provided Manager with any necessary
specifications requested by Manager as to how to obtain the
information), unless Sprint PCS already has the information in
its possession and has not previously delivered it to Manager,
(ii) Sprint PCS no longer maintains,
(iii) Manager has already received from Sprint PCS or
its Related Parties,
(iv) Sprint PCS does not access, monitor, record,
receive or report, or
(v) Sprint PCS must make system modifications to provide
the raw data, including without limitation modifying or adding
data fields or modifying code.
Sprint PCS will provide Manager a copy of the then-current Sprint
PCS document retention policy from time to time upon reasonable request.
1.9.4 Contracts. Sprint PCS will disclose to Manager the relevant
terms and conditions of any agreement between Sprint PCS and any third
party:
(i) with which Manager must comply, directly or
indirectly, under the Management Agreement, the Services
Agreement or any Program Requirement,
(ii) from which Manager is entitled to any benefit, or
(iii) that relate to any pass-through amounts that
Sprint PCS charges Manager under this agreement or
Settled-Separately Manager Expenses under the Services
Agreement.
In each case Sprint PCS' disclosure will be in sufficient detail to enable
Manager to determine the obligations or benefits with which Manager must
comply or benefit or the charges or expenses to be paid by Manager. Sprint
PCS may provide to Manager copies of the agreements or the relevant terms
and conditions of such
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agreements in electronic format upon notice to Manager, including by
posting the copies or relevant terms and conditions to a secure website to
which Manager has access. Once each calendar year and from time to time
when a change is effected to any relevant term or condition, Manager may
request copies of the agreements that are not posted to the secure website
or whose relevant terms and conditions are not posted to the secure
website.
Sprint PCS will provide a copy of the agreement to Manager to
the extent permissible by the terms of the agreement. Sprint PCS will
allow Manager or its representatives to review a copy of the agreement to
the extent permissible by the agreement if the agreement prohibits Sprint
PCS from providing Manager a copy. Sprint PCS will satisfy the
requirements of this section 1.9.4 if it chooses to provide a copy of the
agreement in electronic form on a server that Sprint PCS designates.
Sprint PCS will use commercially reasonable efforts to obtain the right
from the third party, if required, to provide a complete copy to Manager
of any agreement between Sprint PCS and any third party of the type
described in this section 1.9.4.
8. Most Favored Nation [NEW]. A new section 1.10 is added to the
Management Agreement:
1.10 Subsequent Amendments to Other Managers' Management Agreements
and Services Agreements. Manager has the right to amend the terms in its
Management Agreement and Services Agreement as described in this section
1.10 if during the period beginning on the date of this Addendum and
ending December 31, 2006, any of the terms of an Other Manager's
Management Agreement or Services Agreement are amended in any manner for
any reason to be more favorable to the Other Manager than the terms of
Manager's Management Agreement or Services Agreement are to Manager,
subject to the following:
(a) Manager must elect to accept all, but not less than all,
of the terms of the Other Manager's Management Agreement and
Services Agreement agreed to since the Effective Date (including
accepting existing terms that relate to the changes or terms that
were previously changed and not previously accepted by Manager but
that remain a part of the latest version of the Other Manager's
agreement) (collectively, but excluding the changes described in
paragraphs (b) and (c) below, the "Overall Changes").
(b) Manager will not be required to accept any changes
involving payment of specific disputed amounts arising under the
Management Agreement or Services Agreement of the Other Manager, and
(c) No amendments in Manager's Management Agreement and
Services Agreement will be made to reflect changes made in an Other
Manager's Management Agreement and Services Agreement if such
changes are:
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(i) made solely because the Other Manager owns spectrum
on which all or a portion of its network operates, unless the
Other Manager acquired this spectrum from Sprint PCS or its
Related Parties after the Effective Date, or
(ii) compelled by a law, rule or regulation that applies
to the Other Manager, but not to Manager, or
(iii) made solely to modify the build-out plan.
Sprint PCS will prepare and deliver to Manager either an addendum
containing the Overall Changes that have been made to the Other Manager's
agreements in all of its addenda or copies of the Other Manager's amended
and restated Management Agreement, Services Agreement and Trademark
License Agreements (in each case redacted to protect the identity of the
Other Manager) within 10 Business Days after the later of (i) the
effective date of the amendment or other instrument containing these
changes, and (ii) the date of the amendment or other instrument. Manager
then has 30 days to notify Sprint PCS that Manager wants the Overall
Changes.
If Manager does not notify Sprint PCS in this 30-day time period in
writing that it wants the Overall Changes, no changes will be made in the
agreements between Manager and Sprint PCS and Manager will be deemed to
have waived its rights under this section 1.10 with respect to the Overall
Changes.
If Manager notifies Sprint PCS within the 30-day time period in
writing that it wants the Overall Changes, Sprint PCS will prepare,
execute and deliver to Manager an addendum reflecting the Overall Changes.
The new addendum will have the same effective date as the addendum or the
restated Management Agreement, Services Agreement and Trademark License
Agreements between Sprint PCS and the Other Manager that gave rise to the
new addendum. Manager will have 15 days to review the new addendum and
notify Sprint PCS if Manager determines any inaccuracies are reflected in
the new addendum. Sprint will correct those inaccuracies and provide a
corrected new addendum to Manager within 10 Business Days after Manager's
notification.
No changes will be made in the agreements between Manager and Sprint
PCS if Manager does not execute and return the signed addendum within 30
days after receipt of the signed addendum (or the corrected signed
addendum, if applicable, pursuant to the previous paragraph), in which
case Manager will be deemed to have waived its rights under this section
1.10 with respect to the Overall Changes contained in the addendum
presented.
If Manager and Sprint PCS disagree as to whether the terms of the
signed addendum accurately reflect the Overall Changes, then the parties
will submit to binding arbitration in accordance with section 14.2,
excluding the escalation
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process set forth in section 14.1. If the arbiter rules in favor of
Manager, then Sprint PCS will make changes to the signed addendum that are
necessary to reflect the arbiter's ruling, submit the revised signed
addendum to Manager within 10 days after receipt of the arbiter's ruling
and pay all of Manager's expenses and attorneys' fees related to the
arbitration. If the arbiter rules in favor of Sprint PCS, then Manager
may: (i) execute the signed addendum as proffered to Manager within 10
days after Manager's receipt of the arbiter's ruling or (ii) decline to
accept the addendum and pay all of Sprint PCS' expenses and attorneys'
fees related to the arbitration.
The parties acknowledge that Sprint PCS can disclose to Manager who
the Other Manager is that gave rise to the proposed addendum only if the
Other Manager agrees to the disclosure.
Sprint PCS represents and warrants to Manager that this Addendum V
in all material respects reflects the terms of the most recently executed
addendum between an Other Manager and Sprint PCS to implement the new
simplified pricing and cash settlement process and the other modifications
to the Management Agreement, the Services Agreement, the Trademark License
Agreements and the Schedule of Definitions, except for the provisions in
this Addendum V that have been revised because of negotiations between
Sprint and Manager.
9. Revised Build-Out Plan. [Addm III, ss.1; revised by this Addendum]. The
Exhibit 2.1 Build-out Plan Phase Description, Build-out plan Table, and
Build-Out Plan Map in the Management Agreement dated November 5, 1999, was: (a)
amended by the Amended Exhibit 2.1 Build-out Plan Description, Build-out Plan
Table, and Build-out Plan Map (revised effective September 26, 2001) attached to
Addendum III and (b) supplemented on July 17, 2002, by a supplemental Build-out
Plan Description and a new Build-out Map through the Build-out Plan Approval
Process. Sprint PCS acknowledges that Manager has complied with all of the
Build-out Plan requirements as of the Effective Date of this Addendum V. Any
additional Build-out Plan requirements will be subject to section 2.5.
10. Exclusivity of Service Area [Addm I, ss.5]. Section 2.3 is amended to
read as follows:
2.3 Exclusivity of Service Area. Manager will be the only person or
entity that is a manager or operator for Sprint PCS with respect to the
Service Area and neither Sprint PCS nor any of its Related Parties will
own, operate, build, manage or contract with any other person or entity to
own, operate, build or manage another wireless mobility communications
network in the Service Area so long as this agreement remains in full
force and effect and there is no Event of Termination that has occurred
giving Sprint PCS the right to terminate this agreement, except that:
(a) Sprint PCS may cause Sprint PCS Products and Services to
be sold in the Service Area through the Sprint PCS National Accounts
Program
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Requirements and Sprint PCS National or Regional Distribution
Program Requirements;
(b) A reseller of Sprint PCS Products and Services may sell
its products and services in the Service Area so long as such resale
is not contrary to the terms and conditions of this agreement; and
(c) Sprint PCS and its Related Parties may engage in the
activities described in sections 2.4(a) and 2.4(b) with Manager in
the geographic areas within the Service Area in which Sprint PCS or
any of its Related Parties owns an incumbent local exchange carrier
as of the date of this agreement.
11. Coverage Enhancement [New]. Section 2.5 is replaced by the following
language:
2.5 Manager's Right of First Refusal For New Coverage Build-out.
Sprint PCS grants to Manager the right of first refusal to build-out New
Coverage. Sprint PCS will give to Manager a written notice of a New
Coverage within the Service Area that Sprint PCS decides should be
built-out. Manager must communicate to Sprint PCS within 90 days after
receipt of the notice whether it will build-out the New Coverage,
otherwise Manager's right of first refusal terminates with regard to the
New Coverage described in the notice.
If Manager decides to build-out the New Coverage, then Manager and
Sprint PCS will diligently negotiate and execute an amendment to the
Build-out Plan and proceed as set forth in sections 2.1 and 2.2. The
amended Build-out Plan will contain critical milestones that provide
Manager a commercially reasonable period in which to implement coverage in
the New Coverage. In determining what constitutes a "commercially
reasonable period" as used in this paragraph, the parties will consider
several factors, including local zoning processes and other legal
requirements, weather conditions, equipment delivery schedules, the need
to arrange additional financing, and other construction already in
progress by Manager. Manager will construct and operate the network in the
New Coverage in accordance with the terms of this agreement. For avoidance
of doubt, the New Coverage area will be included in the Service Area
Network.
If Manager declines to exercise its right of first refusal or
Manager fails to build out the New Coverage in accordance with the amended
Build-out Plan, then Sprint PCS may construct the New Coverage itself or
allow a Sprint PCS Related Party or an Other Manager to construct the New
Coverage. Sprint PCS has the right, in a New Coverage that it constructs
or that a Sprint PCS Related Party or an Other Manager constructs, to
manage the network, allow a Sprint PCS Related Party to manage the
network, or hire an Other Manager to operate the network in the New
Coverage. Any New Coverage that Sprint PCS, a Sprint PCS Related Party or
an Other Manager builds out is deemed removed from the Service Area
14
and the Service Area Exhibit is deemed amended to reflect the change in
the Service Area.
Notwithstanding the preceding paragraphs in this section 2.5, the
capacity and footprint parameters contained in the amended Build-out Plan
will not be required to exceed the parameters adopted by Sprint PCS in
building out all of its comparable service area, unless such build-out
relates to an obligation regarding the Service Area Network mandated by
law. When necessary for reasons related to new technical standards, new
equipment or strategic reasons, Sprint PCS decides that New Coverage
within the Service Area should be built-out concurrently with Sprint PCS'
build-out, Sprint PCS will reimburse Manager for its costs and expenses if
Sprint PCS discontinues its related build-out.
If Manager does not exercise its right of first refusal with respect
to a New Coverage, Manager's right of first refusal does not terminate
with respect to the remainder of the Service Area.
At Manager's request, Sprint PCS and Manager will discuss Manager's
interest in expanding its Service Area and its build-out plans with
respect to the expanded area.
12. Long-Distance Pricing [NEW]. Section 7 of Addendum I is deleted.
Additionally, section 3.4 of the Management Agreement is amended to read as
follows:
3.4 IXC Services.
3.4.1. Customer Long Distance. Sprint PCS and Manager will from time
to time mutually define local calling areas in the Service Areas of
Manager that Sprint PCS and Manager will use to determine when a customer
will be billed for a "long distance call" under the applicable rate plan
of the Customer. The parties acknowledge that these local calling areas
(i) may change in geographic scope in response to competitive pressures or
perceived market opportunities, and (ii) may not be able to be changed
because of regulatory, industry, or system limitations. The parties will
not use local calling areas to determine "long distance telephony
services" under section 3.4.2. If the parties cannot agree on the extent
of the local calling area they will resolve the matter through the dispute
resolution process in section 14.
3.4.2. Long Distance Services
(a) Required purchase. Manager must obtain (i) long-distance
telephony services through Sprint PCS or its Related Parties to provide
long-distance service to users of the Sprint PCS Network and (ii)
telephony services through Sprint PCS or its Related Parties to connect
the Service Area Network with the national platforms that Sprint PCS uses
to provide services to Manager under this agreement or the Services
Agreement. The term "long distance telephony service" means any
15
inter-LATA call for purposes of section 3.4.2 as it relates to
long-distance telephony services provided to users of the Sprint PCS
Network.
(b) Pricing and procedure. Sprint PCS will purchase for Sprint PCS,
Manager and Other Managers telephony services used in the Sprint PCS
Network from Sprint Communications Company L.P. or its Related Parties
("SCCLP") as described in section 3.4.2(a) above. Sprint PCS will purchase
these telephony services at a price and terms at least as favorable to
Sprint PCS, Manager and the Other Managers (considering Sprint PCS,
Manager and the Other Managers as a single purchaser) as the best prices
and terms SCCLP offers to any wholesale customer of SCCLP in similar
situations when taking into account all relevant factors (e.g., volume,
peak/off-peak usage, length of commitment). Sprint PCS will pay the
invoice from SCCLP, except for items that SCCLP directly bills under
section 3.4.2(c). Sprint PCS will bill long-distance telephony services to
Manager as an activity settled separately under the Services Agreement the
portion of the fees billed to Sprint PCS that relate to Manager's
operations and the activity of all Customers and Reseller Customers in the
Service Area, except for items SCCLP directly bills under section
3.4.2(c). Sprint PCS will recover charges associated with telephony
services described in section 3.4.2(a)(ii) within the CCPU Services under
the Services Agreement.
If Sprint Corporation no longer has its "PCS" tracking stock, Sprint
PCS will include the volume of telephony services of Manager and Other
Managers with the volume of Sprint PCS when negotiating the Sprint PCS
rate with the long distance division of Sprint Corporation (currently
SCCLP). The long distance division will continue to provide telephony
services to Sprint PCS for a price and upon terms based on the same
relevant factors described in the preceding paragraph and in the same
manner that it has under the present tracking stock policy.
(c) Call routing. Manager, acting as a single purchaser, may
purchase private line capacity (or other forms of capacity) from SCCLP for
inter-LATA calls to the extent that this capacity can be obtained on terms
more favorable to Manager (acting as a single purchaser). SCCLP will sell
that capacity to Manager at the best price that SCCLP offers to third
parties in similar situations when taking into account all relevant
factors. SCCLP will directly bill Manager for any purchase by Manager of
capacity under this section 3.4.2(c). The terms of section 1.3 do not
apply to purchases of capacity in this section 3.4.2(c).
(d) Pre-existing agreement. If before the date Addendum V to this
agreement is signed, Manager is bound by an agreement for long distance
services or an agreement for private line service and the agreement was
not made in anticipation of this agreement or Addendum V, then the
requirements of this section 3.4.2 do not apply during the term of the
other agreement. If the other agreement terminates for any reason, then
the requirements of this section 3.4.2 do apply from and after the
termination.
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(e) Resale. Manager may not resell the long-distance telephony
services acquired under this section 3.4.2. For purposes of clarification,
resale under this section 3.4.2(e) includes Manager selling minutes to
carriers for ultimate resale to end users under a brand other than
"Sprint" or selling minutes to end users under a brand other than
"Sprint". Manager may engage in the following activities (i.e., these
activities are not treated as resale of long-distance telephony services):
(1) the transport of long-distance calls for Customers under section
3.4.2(a),
(2) the transport of long-distance calls for resellers under section
3.5, and
(3) the transport of long-distance calls for roaming under section
4.3.
13. Voluntary Resale of Products and Services [Addm I, ss.9]. The second
sentence of the second paragraph of section 3.5.2 is amended to read as follows:
"If Manager wants handsets of subscribers of resellers with NPA-NXXs of Manager
to be activated, Manager must agree to comply with the terms of the program,
including its pricing provisions."
14. Intra-LATA Calls and Backhaul Services [NEW]. Section 13 of Addendum I
is deleted. Additionally, section 3.7 of the Management Agreement is amended to
read as follows:
3.7 Intra-LATA Calls and Backhaul Services. Manager, acting as a
single purchaser, may purchase capacity (including private line capacity)
from SCCLP for (a) intra-LATA calls and (b) backhaul services. SCCLP will
sell that capacity to Manager at the best price that SCCLP offers to third
parties in similar situations when taking into account all relevant
factors.
Manager will offer to Sprint PCS or one of its Related Parties the
right to make to Manager the last offer to provide capacity for (a)
intra-LATA calls and (b) backhaul services for the Service Area Network
if:
(i) Manager decides to use third parties for (a) intra-LATA
calls and (b) backhaul services rather than self-provisioning the
capacity or purchasing the capacity from Related Parties of Manager,
and
(ii) Sprint PCS or one of its Related Parties has provided
evidence to Manager that SCCLP or one of its Related Parties has
facilities to provide the capacity requested.
Manager will deliver to Sprint PCS the terms under which the third
party will provide the capacity. For the avoidance of doubt, such
information will be deemed Confidential Information under section 12.2.
Sprint PCS or one of its Related Parties will have a reasonable time to
respond to Manager's request for last
17
offer to provide pricing for capacity for (a) intra-LATA calls and (b)
backhaul services, which will be no greater than 5 Business Days after
receipt of the request for the pricing and the third party's terms from
Manager. Manager will acquire capacity for (a) intra-LATA calls and (b)
backhaul services from Sprint PCS or one of its Related Parties if Sprint
PCS or one of its Related Parties offers Manager pricing and other terms
for (a) intra-LATA calls and (b) backhaul services for the Service Area
Network that matches the terms, including pricing, or is better than the
terms and lower than the pricing offered by the third party. For purposes
of this section 3.7, the term "backhaul" means the provision of services
from a cell site of Manager to the corresponding switch associated with
the cell site. For avoidance of doubt, backhaul includes both inter-LATA
and intra-LATA services.
If Manager has an agreement for these services in effect as of the
date Addendum V is signed and the agreement was not made in anticipation
of this agreement or Addendum V, then the requirements of this section 3.7
do not apply during the term of the other agreement. If the other
agreement terminates for any reason, then the requirements of this section
3.7 do apply from and after the termination.
The requirements of this section 3.7 do not apply at any time with
respect to such services so long as such services are provided by a
Related Party of Manager or by Valley Network Partnership and so long as
Sprint PCS or Manager is a partner of Valley Network Partnership.
15. Sprint PCS Roaming and Inter Service Area Program Requirements [NEW].
The second paragraph of section 4.3 is amended to read as follows:
Section 10.4.1 sets forth the settlement process that distributes
between the members making up the Sprint PCS Network (i.e., Sprint PCS,
Manager and all Other Managers) a fee for use of the Sprint PCS Network
and the Service Area Network (the "Inter Service Area Fee").
16. Changes to Program Requirements [NEW].
(a) The first sentence of section 9.2(e) is amended to read as follows:
Manager must implement any changes in the Program Requirements
within a commercially reasonable period of time unless Sprint PCS
otherwise consents, subject to section 9.3.
(b) The last sentence of section 9.2 is amended to read as follows:
Subject to Sprint PCS' obligation to reimburse Manager under section
9.3, any costs and expenses incurred by Manager in connection with
conforming to any change to the Program Requirements during the term of
this agreement are the responsibility of Manager.
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(c) Section 9.3 is amended to read as follows:
9.3 Manager's Rights regarding Changes to Program Requirements.
9.3.1 Parameters for Required Program Requirement Implementation.
(a) Manager may decline to implement a Non-Capital Program Requirement
Change if Manager determines that the Non-Capital Program Requirement
Change will satisfy any of the following tests:
(A) individually cause the combined peak negative cash
flow of Manager to be an amount greater than 3% of Manager's
Enterprise Value, or
(B) when combined with original assessments made under
clause (A) above of all other Program Requirement Changes that
Sprint PCS announced and Manager agreed to implement or
Manager otherwise was required to implement in accordance with
section 9.3.4, both within the preceding 12 calendar months,
cause the combined cumulative peak negative cash flow of
Manager to be an amount greater than 5% of Manager's
Enterprise Value, or
(C) individually cause a decrease in the forecasted
5-year discounted cash flow of Manager (at Manager's
appropriate discount rate) of more than 3% on a combined net
present value basis, or
(D) when combined with original assessments made under
clause (C) above of all other Program Requirement Changes that
Sprint PCS announced and Manager agreed to implement or
Manager otherwise was required to implement in accordance with
section 9.3.4, both within the preceding 12 calendar months,
cause a decrease in the forecasted 5-year discounted cash flow
of Manager's (at Manager's appropriate discount rate) of more
than 5% on a combined net present value basis.
The term "Non-Capital Program Requirement Change" means a Program
Requirement Change that does not require Manager to make any capital
expenditures in excess of 5% of Manager's capital budget as approved by
the Manager's board of directors for the fiscal year in which the Program
Requirement Change is requested, but does not include changes to the
Trademark Usage Guidelines, the Marketing Communications Guidelines, and
the Sprint PCS National or Regional Distribution Program Requirements.
If Manager declines to implement any Non-Capital Program Requirement
Change, Manager must give Sprint PCS within 10 Business Days after Sprint
PCS provides Manager with notice of the Program Requirement Change:
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(i) written notice that Manager declines to implement
the Non-Capital Program Requirement Change, and
(ii) a written assessment of the impact of the
Non-Capital Program Requirement Change on Manager using the
parameters set forth in subparagraphs (A) through (D) above.
(b) Manager has the right to decline to implement any Capital
Program Requirement Change if Manager determines that the Capital Program
Requirement Change will have a negative net present value applying a
5-year discounted cash flow model.
The term "Capital Program Requirement Change" means any Program
Requirement Change that requires an expenditure of capital by Manager that
is greater than 5% of Manager's capital budget as approved by the
Manager's board of directors for the fiscal year in which the Program
Requirement Change is requested, but does not include changes to the
Trademark Usage Guidelines, the Marketing Communications Guidelines, and
the Sprint PCS National or Regional Distribution Program Requirements.
If Manager declines to implement any Capital Program Requirement
Change, Manager must give Sprint PCS within 10 Business Days after Sprint
PCS provides Manager with notice of the Program Requirement Change:
(i) written notice that Manager declines to implement
the Capital Program Requirement Change, and
(ii) a written assessment of the impact of the Capital
Program Requirement Change on Manager using the parameter set
forth above.
Manager must implement a Capital Program Requirement Change if:
(i) the capital requirement associated with such Program
Requirement Change is for a network capacity expansion due to
a change in a service plan, provided that implementing the
Program Requirement Change will not exceed any of the
parameters described in section 9.3.1(a), or
(ii) the capital requirement associated with such
Program Requirement Change is necessary to comply with network
performance standards required under this agreement.
If Manager has the right to decline a Non-Capital Program
Requirement Change, Sprint PCS may modify the scope of the Non-Capital
Program Requirement Change in all or certain of Manager's markets so that
the modified Non-Capital Program Requirement Change does not satisfy any
of the tests in
20
section 9.3.1(a), in which case Manager will implement the modified
Non-Capital Program Requirement Change. Section 9.3.2 governs any
disagreement between the parties regarding the determination if the
Non-Capital Program Requirement Change satisfies any of the tests in
section 9.3.1(a).
If Manager has the right to decline a Capital Program Requirement
Change, Sprint PCS may modify the scope of the Capital Program Requirement
Change in all or certain of Manager's markets so that the modified Capital
Program Requirement Change does not satisfy the test in section 9.3.1(b),
in which case Manager will implement the modified Capital Program
Requirement Change. Section 9.3.2 governs any disagreement between the
parties regarding the determination if the Capital Program Requirement
Change satisfies the test in section 9.3.1(b).
9.3.2. Disagreement with Assumptions or Methodology. Sprint PCS must
notify Manager of any disagreement with Manager's assumptions or
methodology within 10 days after its receipt of Manager's assessment under
section 9.3.1. Manager will not be required to implement the Program
Requirement Change if Sprint PCS fails to notify Manager of any
disagreement within this 10-day period unless Sprint PCS requires such
compliance under section 9.3.3 below. Either party may escalate the review
of the assumptions and methodology underlying the assessment to the
parties' respective Chief Financial Officers if Sprint PCS disagrees with
Manager's assessment and the parties are unable to agree on the
assumptions and methodology within 20 days after Sprint PCS notifies
Manager of the disagreement.
The parties will mutually select an independent investment banker in
the wireless telecommunications industry ("Investment Banker") to
determine whether the implementation of the Program Requirement Change
will exceed one of the parameters if Sprint PCS and Manager are unable to
agree on the assumptions and methodology to perform the calculations
within 30 days after Sprint PCS notifies Manager of the disagreement. The
American Arbitration Association will select the Investment Banker if the
parties do not select the Investment Banker within 50 days after Sprint
PCS notifies Manager of the disagreement. Sprint PCS and Manager will
cooperate fully and provide all information that the Investment Banker
reasonably requests. But any Investment Banker that the American
Arbitration Association selects, and its investment bank, must have no
current engagement with either Manager or Sprint PCS and must not have
been engaged by either such party within the 12 calendar months preceding
the engagement under this section. A business relationship between Manager
or Sprint PCS and a commercial bank or other organization affiliated with
an investment bank will not disqualify the investment bank. The Investment
Banker will have 20 days from the date of engagement to make its decision.
Manager will pay any Investment Banker's fees and implement the
Program Requirement Change if the parties agree or the Investment Banker
determines that
21
implementing the Program Requirement Change will not exceed any of the
parameters described in section 9.3.1.
9.3.3 One or More Parameters Exceeded. Sprint PCS will pay the
Investment Banker's fees if the parties agree or the Investment Banker
determines that implementing the Program Requirement Change will exceed at
least one of the parameters described in section 9.3.1. Sprint PCS may
require Manager to implement the Program Requirement Change whether the
parties agree or disagree or the Investment Banker determines that
implementing the Program Requirement Change will exceed at least one of
the parameters described in section 9.3.1, if Sprint PCS agrees to
compensate Manager the amount necessary to prevent Manager from exceeding
the parameters set forth in section 9.3.1.
9.3.4 Changes with Respect to Pricing Plans and Roaming Program
Requirements. Manager will implement a change with respect to the
following in the manner requested by Sprint PCS, even if Manager
determines that implementing the change will have an adverse impact on
Manager that meets or exceeds the tests set forth in section 9.3.1(a) or
section 9.3.1(b):
(i) relates to a pricing plan under section 4.4 or a
roaming program, and
(ii) Sprint PCS reasonably determines must be
implemented on an immediate or expedited basis to respond to
competitive market forces.
Manager's implementation of the change will not adversely affect
Manager's right to object to the implementation of the change. Manager
will continue to comply with the change if the parties agree or the
Investment Banker determines (using the procedure described in section
9.3.2) that implementing the change will not exceed any of the parameters
described in section 9.3.1(a) or section 9.3.1(b). If Sprint PCS does not
successfully challenge Manager's assessment of the adverse impact of the
change on Manager in accordance with section 9.3.2, Sprint PCS can require
Manager either to:
(i) continue to comply with the change and compensate
Manager in the amount necessary to reimburse Manager for any
reasonable costs, expenses or losses that Manager incurs as a
result of its implementation of the change net of any benefit
that Manager receives, to the extent the costs, expenses and
losses net of the benefits exceed the parameters set forth in
section 9.3.1(a) or section 9.3.1(b), or
(ii) terminate its continued compliance with the change
and compensate Manager in the amount necessary to reimburse
Manager for any reasonable costs, expenses or losses that
Manager
22
incurs as a result of its implementation of the change net of
any benefit that Manager receives.
Manager cannot terminate its continued compliance if Sprint PCS
elects to require Manager's continued compliance with the change under
section 9.3.3 above.
For the avoidance of doubt, Sprint PCS' right to receive revenue
under section 9.4 does not apply to any change with respect to which
Manager is reimbursed under section 9.3.
(d) A new section 9.7 is added to the Management Agreement:
9.7 Review of Program Requirements; Unilateral Changes.
(a) Within 120 days after the Effective Date of Addendum V
Sprint PCS will review all outstanding Program Requirements to
determine if they need to be revoked, amended or left in place. Any
amendment to a Program Requirement will be implemented in accordance
with section 9.2, subject to section 9.3 with respect to amendments.
(b) Sprint PCS and Manager will in good faith attempt to
mutually agree on how to mitigate the adverse economic impact on
Manager of the exercise of any unilateral right of Sprint PCS under
this agreement, the Services Agreement and either Trademark License
Agreement to the extent Manager believes such change will have a
significant adverse economic impact on Manager's operations, except
with respect to changes involving Sprint PCS National or Regional
Distribution Program Requirements. For purposes of clarification,
the parties intend the preceding sentence to obligate them to a
robust discussion and open dialogue but understand the discussion
and dialogue may not lead to any particular solution of the issues
raised by Manager or Sprint PCS. By way of illustration, under the
second preceding sentence if Manager believed that the exercise of
the unilateral right to change the Trademark Usage Guidelines or the
designation of Sprint PCS Products and Services had an adverse
economic impact on Manager, then Manager and Sprint PCS will in good
faith attempt to mutually agree on how to mitigate the adverse
impact on Manager.
(c) Sprint PCS will use reasonable efforts to discuss with
Manager new proposed pricing plans and marketing initiatives and
other significant proposed changes in business operations. Sprint
PCS will consider reasonable requests by Manager to opt out of
pricing plans and marketing initiatives. Nothing in this Addendum V
is intended to supersede prior agreements between Sprint PCS and
Manager with respect to current pricing plans and promotions, but
subsequent significant changes to such prior pricing plans and
promotions are subject to the terms of this Addendum V.
23
(f) A new section 9.8 is added to the Management Agreement.
9.8 Breach for Failure to Implement Program Requirement.
Manager will be in material breach of a material term and Sprint PCS
may exercise its rights under section 11 if Manager declines to implement
a Program Requirement when required to do so under this agreement, subject
to Manager's rights under section 11.3.3.
17. Fees [NEW]. Article 10 of the Management Agreement is amended to read
as follows:
10. FEES
10.1 General. Sprint PCS and Manager will pay to each other the fees
and apply the credits in the manner described in this section 10. The
amounts that Sprint PCS is paid or retains are for all obligations of
Manager under this agreement. Many of the definitions for the fees in
section 10.2 are found in section 10.3.
10.2 Fees.
10.2.1 Fee Based on Billed Revenue. Sprint PCS will pay to
Manager the Fee Based on Billed Revenue as determined in this section
10.2.1.
"Billed Revenue" is all customer account activity (e.g., all
activity billed, attributed or otherwise reflected in the customer account
but not including Customer Credits) during the calendar month for which
the fees and payments are being calculated (the "Billed Month") for Sprint
PCS Products and Services related to all Customer accounts within a
customer service area ("CSA") assigned to the Service Area, except (i)
Outbound Roaming Fees, (ii) amounts handled separately in this section 10
(including the amounts in sections 10.2.3 through 10.2.6, 10.4 and 10.8),
(iii) amounts collected from Customers and paid to governmental or
regulatory authorities (e.g., Customer Taxes and USF Charges), and (iv)
other amounts identified in this agreement as not included in Billed
Revenue (these Customer accounts being "Manager Accounts").
Billed Revenue does not include new activity billed to the
Customer solely to recover costs incurred by Sprint PCS, Manager or both
related solely to such new activity. Manager and Sprint PCS will share the
revenues from this billing in proportion to the costs they incur.
For purposes of clarification, the parties have in place
procedures to assign Customers to CSAs and expect those procedures to
remain in place after the Effective Date.
24
If Sprint PCS or Manager develops products or services that
bundle Sprint PCS Products and Services with other products or services
(e.g., local service or broadband wireline service), then Sprint PCS and
Manager will use commercially reasonable efforts to agree on the proper
allocation of revenue, bad debt expenses, credits and promotions for the
bundled products and services. To the extent that such bundled services
are included on the same Customer invoice, the parties will negotiate in
good faith to determine how credits, deposits and payments for such
services are to be applied. If the parties are unable to agree, Manager
may decline to participate in the bundling of such services.
Sprint PCS will reasonably determine the amount of credits
applied to Manager Accounts during the Billed Month ("Customer Credits").
"Net Billed Revenue" for a Billed Month is the amount of the
Billed Revenue less the Customer Credits.
The "Fee Based on Billed Revenue" for a Billed Month is equal
to 92% of (a) Net Billed Revenue, less (b) the Allocated Write-offs for
Net Billed Revenue.
10.2.2 Outbound Roaming Fee. Sprint PCS will pay to Manager a
fee equal to the amount of Outbound Roaming Fees that Sprint PCS or its
Related Parties bills to Manager Accounts, less the Allocated Write-offs
for Outbound Roaming Fees. For purposes of clarification, Sprint PCS will
settle separately with Manager the direct cost of providing the capability
for the Outbound Roaming, including any amounts payable to the carrier
that handled the roaming call and the clearinghouse operator for Outbound
Roaming.
10.2.3 Phase II E911 Surcharges. Sprint PCS will pay to
Manager a fee equal to a portion of the E911 Phase II Surcharges
(attributable to incremental costs for Phase II E911, including but not
limited to related handset costs, routing costs, implementation costs,
trunks and testing costs, and anticipated write-offs for bad debt) billed
during the Billed Month to Customers with an NPA-NXX assigned to the
Service Area, less the Allocated Write-offs for that portion of E911 Phase
II Surcharges in the Billed Month. The portion of the billed amount
attributed to Manager will be based on Manager's proportional cost (as
compared to Sprint PCS' proportional cost) to comply with Phase II of the
E911 requirements. Sprint PCS will determine from time to time the rate
billed to Customers related to Phase II E911 and the portion payable to
Manager.
10.2.4 Wireless Local Number Portability Surcharges. Sprint
PCS will pay to Manager a fee equal to a portion of the Wireless Local
Number Portability Surcharges ("WLNP Surcharges") billed during the Billed
Month to Customers with an NPA-NXX assigned to the Service Area, less the
Allocated Write-offs for that portion of the WLNP Surcharges in the Billed
Month. The portion of the billed amount attributed to Manager will be
based on Manager's proportional cost (as compared to Sprint PCS'
proportional cost) to comply with
25
Wireless Local Number Portability requirements. Sprint PCS will determine
from time to time the rate billed to Customers related to WLNP Surcharges
and the portion payable to Manager.
10.2.5 Customer Equipment Credits. Sprint PCS will apply as a
credit to any other fees under this section 10.2 owing by Sprint PCS to
Manager an amount equal to the amount of the Customer Equipment Credits
less the Allocated Write-offs for Customer Equipment Credits.
10.2.6 Write-offs for Customer Equipment Charges. Sprint PCS
will apply as a credit to any other fees under this section 10.2 owing by
Sprint PCS to Manager an amount equal to the amount of the Allocated
Write-offs for Customer Equipment Charges.
10.3 Definitions used in fee calculations
10.3.1 Write-offs. Sprint PCS will determine, in its
reasonable discretion, the amounts written off net of deposits applied
(the "Write-offs") in the Sprint PCS billing system during the Billed
Month relating to Manager Accounts.
10.3.2 Billed Components. Each of the following amounts
is referred to as a "Billed Component" and collectively they are referred
to as the "Billed Components".
10.3.2.1 Net Billed Revenue. The amount determined as
described in section 10.2.1.
10.3.2.2 Customer Equipment Credits. The reductions of
amounts billed to Manager Accounts related to the sale of handsets and
handset accessories from Sprint PCS inventory are referred to as "Customer
Equipment Credits". This is a negative amount that reduces the Amount
Billed (Net of Customer Credits).
10.3.2.3 100% Affiliate Retained Amounts. The amounts
referred to as "100% Affiliate Retained Amounts" on Exhibit 10.3, to which
Manager is entitled to 100% of the amounts that Customers are billed for
such items.
10.3.2.4 100% Sprint PCS Retained Amounts. The amounts
referred to as "100% Sprint PCS Retained Amounts" on Exhibit 10.3, to
which Sprint PCS is entitled to 100% of the amounts that Customers are
billed for such items.
10.3.2.5 Customer Equipment Charges. The amounts that
Sprint PCS bills to Manager Accounts for subscriber equipment and
accessories sold or leased are referred to as "Customer Equipment
Charges".
26
10.3.2.6 E911 Phase II Surcharges. The amounts that
Sprint PCS bills to Manager Accounts to recover all costs related to Phase
II E911 functionality are referred to as "E911 Phase II Surcharges".
10.3.2.7 USF Charges. The amounts that Sprint PCS bills
to Manager Accounts relating to Universal Service Funds are referred to as
"USF Charges".
10.3.2.8 WLNP Surcharges. The amounts that Sprint PCS
bills to Manager Accounts to recover costs related to WLNP activities.
10.3.3 Amount Billed (Net of Customer Credits). The "Amount
Billed (Net of Customer Credits)" for a Billed Month is equal to the sum
of the Billed Components.
10.3.4 The Allocated Write-offs. The "Allocated Write-offs"
for all or a portion of a Billed Component in a Billed Month is the
Write-offs for the Billed Month times the amount of the Billed Component
(or portion thereof) divided by the Amount Billed (Net of Customer
Credits).
10.4 Other Fees and Payments. Sprint PCS and Manager will pay to
each other the fees and payments described below:
10.4.1 Inter Service Area Fees and Reseller Customer Fees.
10.4.1.1 Inter Service Area Fee and Reseller Customer
Fee Paid. Manager will pay to Sprint PCS an Inter Service Area Fee as set
forth in this section 10.4.1 for each billed minute or kilobyte of use
that a Customer with an NPA-NXX assigned to the Service Area uses a
portion of the Sprint PCS Network other than the Service Area Network.
Sprint PCS will pay to Manager an Inter Service Area Fee for each billed
minute or kilobyte of use that a Customer whose NPA-NXX is not assigned to
the Service Area Network uses the Service Area Network. Sprint PCS will
pay to Manager the fees set forth in this Section 10.4.1 for each billed
minute or kilobyte of use that a Reseller Customer uses the Service Area
Network unless otherwise negotiated (such fees are referred to in this
agreement as "Reseller Customer Fees").
Sprint may not amend, modify or change in any manner the
Inter Service Area Fees between Sprint PCS and Manager or Reseller
Customer Fees and other matters set forth in this section 10.4.1 without
Manager's prior written consent. For purposes of clarification, the
parties do not intend the above sentence to limit Sprint PCS' ability to
negotiate fees with resellers.
Sprint PCS will not be obligated to pay Manager those
Inter Service Area Fees not received by Sprint PCS from an Other Manager
who is a debtor in a bankruptcy proceeding with respect to Inter Service
Area Fees that Sprint PCS owes Manager because of CSAs assigned to such
Other Manager's
27
Service Area traveling in the Service Area. For clarification purposes,
Sprint PCS does not have to advance the Inter Service Area Fees for the
Other Manager who is involved in the bankruptcy proceeding to Manager, to
the extent that the Other Manager fails to pay the Inter Service Area
Fees. Manager bears the risk of loss of the Other Manager who is involved
in the bankruptcy proceeding not paying the Inter Service Area Fees to
Sprint PCS.
If relief is ordered under title 11 of the United States
Code for an Other Manager or an Other Manager files a voluntary petition
for relief under title 11 of the United States Code and such Other Manager
fails to pay to Sprint PCS amounts that such Other Manager owes to Sprint
PCS with respect to the Inter Service Area Fees for travel into Manager's
Service Area, Sprint PCS will immediately assign to Manager any claim
Sprint PCS has against the Other Manager who is a debtor in a bankruptcy
proceeding for those amounts owed with respect to Inter Service Area Fees
for travel in Manager's Service Area. Sprint PCS agrees to take all
actions necessary to effect this assignment of rights to Manager, and
further agrees that Manager will not be responsible for any expenses
related to such assignment.
Sprint PCS will use reasonable efforts to obtain the
right to setoff Inter Service Area Fee amounts owing to an Other Manager
who is a debtor in a bankruptcy proceeding. To the extent that, on the
date such Other Manager files for relief under title 11 of the United
States Code, Sprint PCS owes Inter Service Area Fees to Other Manager and
Other Manager owes Inter Service Area Fees to Sprint PCS for travel into
Manager's Service Area, Sprint PCS will refrain from paying such Inter
Service Area Fees to Other Manager, absent a court order specifically
directing the turnover of such funds to Sprint PCS. Sprint PCS will give
Manager reasonable notice of any motion seeking such turnover. Sprint PCS
will oppose such motion or authorize Manager to oppose such motion on
Sprint PCS' behalf.
To the extent that, on the date (the "Petition Date")
such Other Manager files for relief under title 11 of the United States
Code, Sprint PCS owes Inter Service Area Fees to Other Manager for travel
by Customers assigned to Manager's Service Area into such Other Manager's
service area, and such Other Manager owes Inter Service Area Fees to
Sprint PCS for travel by Customers assigned to such Other Manager's
service area into Manager's Service Area, Sprint PCS will refrain from
paying such Inter Service Area Fees to Other Manager, absent a court order
specifically directing the turnover of such funds to Sprint PCS. Sprint
PCS will give Manager reasonable notice of any motion seeking such
turnover. Sprint PCS will oppose such motion or authorize Manager to
oppose such motion on Sprint PCS' behalf.
Sprint PCS will use reasonable efforts to obtain a court
order allowing Sprint PCS to exercise the setoff of Inter Service Area Fee
amounts, accruing prior to the Petition Date, owing to an Other Manager
who is a debtor in a
28
bankruptcy proceeding, against Inter Service Area Fee amounts, accruing
prior to the Petition Date, owing by such Other Manager to Sprint PCS.
Sprint PCS will use reasonable efforts to setoff Inter
Service Area Fee amounts, accruing on and after the Petition Date, owing
to such Other Manager against Inter Service Area Fee amounts, accruing on
and after the Petition Date, owing by such Other Manager to Sprint PCS, in
a timely manner, absent a court order specifically prohibiting Sprint PCS
from exercising such setoff. Sprint PCS will give Manager reasonable
notice of any motion seeking such prohibition. Sprint PCS will oppose such
motion or authorize Manager to oppose such motion on Sprint's behalf.
If Sprint PCS receives any amounts from an Other Manager
who is a debtor in a bankruptcy proceeding with respect to Inter Service
Area Fees for travel into the Service Area, Sprint PCS will immediately
remit those amounts to Manager.
If a court order allows Sprint PCS to setoff amounts it
owes an Other Manager who is a debtor in a bankruptcy proceeding with
amounts that such Other Manager owes Sprint PCS, then:
(a) Sprint PCS will distribute any setoff amounts
relating to Inter Service Area Fees to Manager, all Other Managers
and Sprint PCS on a pro rata basis;
(b) Sprint PCS will use all setoff amounts not
related to Inter Service Area Fees to setoff all other amounts not
related to Inter Service Area Fees that such Other Manager owes
Sprint PCS; and
(c) Sprint PCS will distribute any setoff amounts
not related to Inter Service Area Fees to Manager, all Other
Managers and Sprint PCS on a pro rata basis only if (i) the Other
Manager who is a debtor in a bankruptcy proceeding still owes Inter
Service Area Fees to Manager, any Other Manager and Sprint PCS and
(ii) all amounts that such Other Manager owes Sprint PCS, other than
Inter Service Area Fees, are completely setoff against the amounts
Sprint PCS owes such Other Manager.
The pro rata calculation will be the Inter Service Area Fees owed to
Manager divided by aggregate amount of all Inter Service Area Fees owed to
Manager, all Other Managers and Sprint PCS. However, the pro rata amount
owed to Manager will be reduced by any amount relating to Inter Service
Area Fees that Manager collected through the bankruptcy proceeding. If
Manager, through the pro rata distribution described above and any
individual collection efforts by Manager, collects more than the pro rata
amount to which it is entitled for Inter Service Area Fees using the
29
above pro rata calculation, Manager will immediately pay that excess
amount to Sprint PCS and Sprint PCS will distribute the excess amount to
the Other Managers and Sprint PCS in accordance with the above pro rata
calculation.
If relief is ordered under title 11 of the United States
Code for Sprint PCS or Sprint PCS files a voluntary petition for relief
under title 11 of the United States Code, then Sprint PCS will be deemed a
trustee for Manager's benefit with respect to any Inter Service Area Fees
that Sprint PCS collects from Other Managers for travel into Manager's
Service Area, and Sprint PCS has no rights to Manager's portion of such
Inter Service Area Fees.
Manager acknowledges that if the manner in which the
CSAs are assigned changes because of changes in the manner in which the
NPA NXX is utilized, the manner in which the Inter Service Area Fees and
Reseller Customer Fees, if any, will be calculated might be changed
accordingly.
10.4.1.2 Voice and 2G Data Rate. The amount of the Inter
Service Area Voice and 2G Data Fee and Reseller Customer Voice and 2G Data
Fee will be as follows:
(a) The Inter Service Area Voice and 2G Data Fee for each
billed minute of use that a Customer uses an Away Network (the
"Voice and 2G Standard Travel Rates") and the Reseller Customer Fee
for each billed minute of use that a Reseller Customer uses the
Service Area Network, will be $0.058 from the Effective Date of
Addendum V to December 31, 2006, except as described below in
section 10.4.1.2(b).
(b) The following describes the conditions in which either the
"Adjusted Travel Rate" alternative fee arrangement described below
in (i) or the "Cumulative Travel Fees" alternative fee arrangement
described below in (ii) will apply rather than the Inter Service
Area Voice and 2G Data Fee described in section 10.4.1.2(a). Manager
must elect by delivering a written notice of election to Sprint PCS
within 10 Business Days after Manager receives written notice from
Sprint PCS that the Voice and 2G Net Travel Amount is negative as
determined in accordance with paragraph four (4) of section
10.4.1.2(b)(ii)(A), whether the "Adjusted Travel Rate" alternative
fee arrangement or the "Cumulative Travel Fees" alternative fee
arrangement will apply when appropriate under this section
10.4.1.2(b).
(i) Adjusted Travel Rate alternative fee arrangement.
(A) If the Voice and 2G Travel Ratio for the calendar
year 2003 is less than 1.0, then the Inter Service Area
Voice and 2G Data Fee for each billed minute of use that
a Customer uses an Away Network and the Reseller
Customer Fee for
30
each billed minute of use that a Reseller Customer uses
the Service Area Network, will be $0.058 for 2004,
except that the Inter Service Area Voice and 2G Data Fee
for each billed minute of use that a Customer whose
NPA-NXX is assigned to the Service Area Network uses the
Sprint PCS Network (excluding usage of the Away Network
of the Other Managers by Customers with an NPA-NXX
assigned to the Service Area Network ), will be reduced
to $0.0525 for the calendar year 2004 (the "Voice and 2G
Adjusted Travel Rates").
(B) If the Voice and 2G Adjusted Travel Rates are in
effect during 2004 and the Voice and 2G Travel Ratio for
2004 is less than 1.0, then the Voice and 2G Adjusted
Travel Rates will continue in effect during 2005.
If the Voice and 2G Adjusted Travel Rates are in effect
during 2004 and the Voice and 2G Travel Ratio for 2004
is greater than or equal to 1.0, then the Voice and 2G
Standard Travel Rates apply for 2005. Manager will pay
Sprint PCS by January 31, 2005, the difference between
the amount Manager paid for 2004 with the Voice and 2G
Adjusted Travel Rates and the amount Manager would have
paid for 2004 with the Voice and 2G Standard Travel
Rates.
If the Voice and 2G Adjusted Travel Rates are not in
effect during 2004 and the Voice and 2G Travel Ratio for
2004 is less than 1.0, then the Voice and 2G Adjusted
Travel Rates will apply for 2005. Sprint PCS will pay
Manager by January 31, 2005, the difference between the
amount Manager paid for 2004 with the Voice and 2G
Standard Travel Rates and the amount Manager would have
paid for 2004 with the Voice and 2G Adjusted Travel
Rates. If the Voice and 2G Travel Ratio for 2004 is
greater than or equal to 1.0, then the Voice and 2G
Standard Travel Rates apply for 2005 and no adjustment
to 2004 travel payments is necessary.
(C) If the Voice and 2G Adjusted Travel Rates are in
effect during 2005 and the Voice and 2G Travel Ratio for
2005 is less than 1.0, then the Voice and 2G Adjusted
Travel Rates will continue in effect during 2006.
If the Voice and 2G Adjusted Travel Rates are in effect
during 2005 and the Voice and 2G Travel Ratio for 2005
is greater than or equal to 1.0, then the Voice and 2G
Standard
31
Travel Rates apply for 2006. Manager will pay Sprint PCS
by January 31, 2006, the difference between the amount
Manager paid for 2005 with the Voice and 2G Adjusted
Travel Rates and the amount Manager would have paid for
2005 with the Voice and 2G Standard Travel Rates.
If the Voice and 2G Adjusted Travel Rates are not in
effect during 2005 and the Voice and 2G Travel Ratio for
2005 is less than 1.0, then the Voice and 2G Adjusted
Travel Rates will apply for 2006. Sprint PCS will pay
Manager by January 31, 2006, the difference between the
amount Manager paid for 2005 with the Voice and 2G
Standard Travel Rates and the amount Manager would have
paid for 2005 with the Voice and 2G Adjusted Travel
Rates. If the Voice and 2G Travel Ratio for 2005 is
greater than or equal to 1.0, then the Voice and 2G
Standard Travel Rates apply for 2005 and no adjustment
to 2005 travel payments is necessary.
(D) If the Voice and 2G Adjusted Travel Rates are in
effect during 2006 and the Voice and 2G Travel Ratio for
2006 is greater than or equal to 1.0, then Manager will
pay Sprint PCS by January 31, 2007, the difference
between the amount Manager paid for 2006 with the Voice
and 2G Adjusted Travel Rates and the amount Manager
would have paid for 2006 with the Voice and 2G Standard
Travel Rates.
If the Voice and 2G Adjusted Travel Rates are not in
effect during 2006 and the Voice and 2G Travel Ratio for
2006 is less than 1.0, then Sprint PCS will pay Manager
by January 31, 2007, the difference between the amount
Manager paid for 2006 with the Voice and 2G Standard
Travel Rates and the amount Manager would have paid for
2006 with the Voice and 2G Adjusted Travel Rates.
(ii) Cumulative Travel Fees alternative fee arrangement.
(A) Sprint PCS will determine within 15 Business Days
after the Effective Date or by January 15, 2004, which
ever is later, and by January 15 of 2005 and 2006, the
difference between:
(1) the amount Sprint PCS billed Manager for Inter
Service Area Voice and 2G Data Fees during the
previous calendar year (excluding Inter Service
Area Voice and 2G Data Fees for usage
32
of the Away Network of the Other Managers by
Customers with an NPA-NXX assigned to the Service
Area Network), and
(2) the amount Sprint PCS owed to Manager for
Inter Service Area Voice and 2G Data Fees
(excluding Inter Service Area Voice and 2G Data
Fees that Sprint PCS owed to Manager during the
previous calendar year for usage of the Service
Area Network by Customers with an NPA-NXX assigned
to the Service Area of Other Managers).
The difference between (1) and (2) is referred to
as the "Voice and 2G Net Travel Amount". The Voice and
2G Net Travel Amount is considered to be negative if the
amount of (1) is greater than the amount of (2). The
Voice and 2G Net Travel Amount is considered to be
positive if the amount of (2) is greater than the amount
of (1). The Voice and 2G Net Travel Amount will be
determined based on monthly amounts rather than annual
amounts where appropriate as provided below.
(B) If the Voice and 2G Net Travel Amount for the
calendar years 2003, 2004 or 2005 is negative, then
beginning in February after that year ends and until the
following January, Sprint PCS will determine by the 15th
day of each calendar month, the Voice and 2G Net Travel
Amount for the previous calendar month based on Voice
and 2G Standard Travel Rates.
If the Voice and 2G Net Travel Amount for the calendar
years 2003, 2004 or 2005 is positive, Sprint PCS will
not determine the Voice and 2G Net Travel Amount on a
monthly basis for the next calendar year.
(C) If Sprint PCS determines the Voice and 2G Net Travel
Amount on a monthly basis as required under (B) above
and the Voice and 2G Net Travel Amount for the previous
calendar month is positive, Sprint PCS will receive a
credit for the amount by which it is positive.
If Sprint PCS determines the Voice and 2G Net Travel
Amount on a monthly basis as required under (B) above
and the Voice and 2G Net Travel Amount for the previous
calendar month is negative, Sprint PCS will pay Manager
the amount by which it is negative by the last day of
the calendar
33
month, after applying any remaining cumulative credits
Sprint PCS received during the previous months in the
calendar year.
By January 31 of 2005, 2006 and 2007, Manager will pay
Sprint PCS the amount of any remaining cumulative credit
for the previous calendar year, but not to exceed the
aggregate amount of payments made by Sprint PCS for that
previous calendar year pursuant to this subsection (C).
(D) If Sprint PCS is not required to determine the Voice
and 2G Net Travel Amount on a monthly basis because the
Voice and 2G Net Travel Amount for the previous calendar
year is positive, then if Sprint PCS determines (when
calculating the Voice and 2G Net Travel Amount under (A)
above) that the Voice and 2G Net Travel Amount for the
previous calendar year is negative, then by January 31
of 2005, 2006 or 2007, as the case may be, Sprint PCS
will pay Manager the amount by which the Voice and 2G
Net Travel Amount is negative, and Sprint PCS will begin
determining the Voice and 2G Net Travel Amount monthly
and complying with (B) and (C) above, until no longer
required as provided in this section.
(c) For each calendar year during the Term of this agreement
beginning January 1, 2007, the Inter Service Area Voice and 2G Data
Fee for each billed minute of use that a Customer uses an Away
Network and the Reseller Customer Fee for each billed minute of use
that a Reseller Customer uses the Service Area Network, will each be
an amount equal to 90% of Sprint PCS' Retail Yield for Voice and 2G
Data Usage for the previous calendar year; provided that such amount
for any period will not be less than Manager's network costs
(including a reasonable return using Manager's weighted average cost
of capital applied against Manager's net investment in the Service
Area Network) to provide the services that are subject to the Inter
Service Area Voice and 2G Data Fee. If the parties have a dispute
relating to the determination of the foregoing fees for any period,
then the parties will submit the dispute to binding arbitration as
set forth in section 10.4.1.3(b).
10.4.1.3 3G Data Rate. The amount of the Inter Service
Area 3G Data Fee and Reseller Customer 3G Data Fee will be as follows:
(a) From the Effective Date to December 31, 2006 ("Initial 3G
Data Fee Period"), the Inter Service Area 3G Data Fee for each
kilobyte of use that a Customer uses an Away Network (the "3G
Standard Travel Rate") and the Reseller Customer 3G Data Fee for
each kilobyte of use that
34
a Reseller Customer uses the Service Area Network, will be $0.0020,
except as described below in section 10.4.1.3(b).
(b) the following describes the conditions in which the
"Cumulative Travel Fees" alternative fee arrangement described below
in (i) will apply rather than the Inter Service Area 3G Data Fee as
described in section 10.4.1.3(a).
(i) Cumulative Travel Fees alternative fee arrangement.
(A) Sprint PCS will determine within 15 Business Days
after the Effective Date or by January 15, 2004, which
ever is later, and by January 15 of 2005 and 2006, the
difference between:
(1) the amount Sprint PCS billed Manager for Inter
Service Area 3G Data Fees during or the previous
calendar year (excluding Inter Service Area 3G
Data Fees for usage of the Away Network of the
Other Managers by Customers with an NPA-NXX
assigned to the Service Area Network), and
(2) the amount Sprint PCS owed to Manager for
Inter Service Area 3G Data Fees (excluding Inter
Service Area 3G Data Fees that Sprint PCS owed to
Manager during the previous calendar year for
usage of the Service Area Network by Customers
with an NPA-NXX assigned to the Service Area of
Other Managers).
The difference between (1) and (2) is referred to
as the "3G Net Travel Amount". The 3G Net Travel Amount
is considered to be negative if the amount of (1) is
greater than the amount of (2). The 3G Net Travel Amount
is considered to be positive if the amount of (2) is
greater than the amount of (1). The 3G Net Travel Amount
will be determined based on monthly amounts rather than
annual amounts where appropriate as provided below.
(B) If the 3G Net Travel Amount for the calendar year
2003, 2004 or 2005 is negative, then beginning in
February after that year ends and until the following
January, Sprint PCS will determine by the 15th day of
each calendar month, the 3G Net Travel Amount for the
previous calendar month based on 3G Standard Travel
Rates.
35
If the 3G Net Travel Amount for the calendar years 2003,
2004 or 2005 is positive, Sprint PCS will not determine
the 3G Net Travel Amount on a monthly basis for the next
calendar year.
(C) If Sprint PCS determines the 3G Net Travel Amount on
a monthly basis as required under (B) above and the 3G
Net Travel Amount for the previous calendar month is
positive, Sprint PCS will receive a credit for the
amount by which it is positive.
If Sprint PCS determines the 3G Net Travel Amount on a
monthly basis as required under (B) above and the 3G Net
Travel Amount for the previous calendar month is
negative, Sprint PCS will pay Manager the amount by
which it is negative by the last day of the calendar
month, after applying any remaining cumulative credits
Sprint PCS received during the previous months in the
calendar year.
By January 31 of 2005, 2006 and 2007, Manager will pay
Sprint PCS the amount of any remaining cumulative credit
for the previous calendar year, but not to exceed the
aggregate amount of payments made by Sprint PCS for that
previous calendar year pursuant to this subsection (C).
(D) If Sprint PCS is not required to determine the 3G
Net Travel Amount on a monthly basis because the 3G Net
Travel Amount for the previous calendar year is
positive, then if Sprint PCS determines (when
calculating the 3G Net Travel Amount under (A) above)
that the 3G Net Travel Amount for the previous calendar
year is negative, then by January 31 of 2005, 2006 or
2007, as the case may be, Sprint PCS will pay Manager
the amount by which the 3G Net Travel Amount is
negative, and Sprint PCS will begin determining the 3G
Net Travel Amount monthly and complying with (B) and (C)
above, until no longer required as provided in this
section.
(c) The parties will reset the Inter Service Area 3G Data Fee
and the Reseller Customer 3G Data Fee after the Initial 3G Data Fee
Period ends. The Inter Service Area 3G Data Fee and the Reseller
Customer 3G Data Fee will be based on an appropriate discount from
the Sprint PCS Retail Yield for 3G Data Usage for the previous
calendar year to be negotiated before December 31, 2006. Each
subsequent fee period will last three years with, for example, the
second pricing period beginning on January 1, 2007 and ending on
December 31, 2009.
36
The process for resetting the fees is as follows:
(i) Sprint PCS will give Manager a proposal for the
appropriate discount from the Sprint PCS Retail Yield for 3G
Data Usage by March 31 of the final year of the then current
pricing period. Manager's representative and the Sprint PCS
representative will begin discussions regarding the proposed
schedule of fees within 20 days after Manager receives the
proposed schedule of fees from Sprint PCS.
(ii) Manager may escalate the discussion to the Chief
Financial Officer of Sprint PCS or Sprint PCS may escalate the
discussion to Manager's Chief Executive Officer or Chief
Financial Officer if the parties do not agree on a new
schedule of fees within 30 days after the discussions begin.
(iii) If the parties cannot agree on a new schedule of
fees within 20 days after a party escalates the discussion,
then Manager may either agree to the fees set forth in the
Inter Service Area 3G Data Fee and Reseller Customer 3G Data
Fee proposal or submit the determination of the Inter Service
Area 3G Data Fee and Reseller Customer 3G Data Fee to binding
arbitration based on a market-rate determination of an
appropriate Inter Service Area 3G Data Fee and Reseller
Customer 3G Data Fee in accordance with section 14.2,
excluding the escalation process set forth in section 14.1.
(iv) If Manager submits the matter to arbitration the
fees that Sprint PCS proposed will apply starting after
December 31 of the first year of the appropriate period as
described in section 10.4.1.4 and will continue in effect
unless modified by the final decision of the arbitrator. If
the arbitrator imposes a fee different than the ones in effect
the new fees will be applied as if in effect after December 31
of the first year of the appropriate period as described in
section 10.4.1.4 and if on application of the new fees one
party owes the other party any amount after taking into
account payments the parties have already made then the owing
party will pay the other party within 30 days of the date of
the final arbitration order.
10.4.1.4 Rate Changes - Effective Date. All rate changes
related to Inter Service Area Fees and Reseller Customer Fees will be
applied to all activity in a bill cycle regardless of when the activity
occurred, if the bill cycle ends after the effective date of the rate
change.
10.4.1.5 Long Distance. The long distance rates
associated with the Inter Service Area and Reseller Customer usage will be
equal to the actual wholesale transport and terminating costs associated
with the originating
37
and terminating locations. The rates are then applied to cumulative usage
at a BID level for settlement purposes.
10.4.2 Interconnect Fees. Manager will pay to Sprint PCS (or
to other carriers as appropriate) monthly the interconnect fees, if any,
as provided under section 1.4.
10.4.3 Terminating and Originating Access Fee. Sprint PCS will
pay Manager 92% of any terminating or originating access fees Sprint PCS
collects from an IXC that are not subject to refund or dispute (but it
will not be Billed Revenue). For purposes of clarification, Sprint
Corporation's Related Parties are obligated to pay terminating access to
Sprint PCS only if MCI and AT&T pay terminating or originating access to
Sprint PCS. At the Effective Date of Addendum V, neither MCI nor AT&T pays
terminating access to Sprint PCS. The ability of wireless carriers to
collect access fees is currently subject to legal challenge. The parties
acknowledge that Sprint PCS has limited ability to require IXCs to pay
access fees.
10.4.4 Reimbursements for Mistaken Payments. If one party
mistakenly pays an amount that the other party is obligated to pay then
the other party will reimburse the paying party, if the paying party
identifies the mistake and notifies the receiving party within 9 calendar
months after the date on which the paying party makes the mistaken
payment.
10.5 Taxes and Payments to the Government. Manager will pay or
reimburse Sprint PCS for any sales, use, gross receipts or similar tax,
administrative fee, telecommunications fee or surcharge for taxes or fees
that a governmental authority levies on the fees and charges payable by
Sprint PCS to Manager.
Manager will report all taxable property to the appropriate taxing
authority for ad valorem tax purposes. Manager will pay as and when due
all taxes, assessments, liens, encumbrances, levies and other charges
against the real estate and personal property that Manager owns or uses in
fulfilling its obligations under this agreement.
Manager is responsible for paying all sales, use or similar taxes on
the purchase and use of its equipment, advertising and other goods or
services in connection with this agreement.
Sprint PCS will be solely responsible for remitting to government
agencies or their designees any and all fees or other amounts owed as a
result of the services provided to the Customers under the Management
Agreement. As a consequence of this responsibility, Sprint PCS is entitled
to 100% of any amounts that Manager, Sprint PCS or their Related Parties
receives from Customers (including Customers whose NPA-NXX is assigned to
the Service Area) comprising these fees or other amounts.
38
10.6 Universal Service Funds.
10.6.1 Paid by Government. Manager is entitled to 100% of any
federal and state subsidy funds (the "Subsidy Funds"), including Universal
Service Funds, that Manager or Sprint PCS receives from government
disbursements based on customers with mailing addresses located in the
Service Area and with NPA-NXXs assigned to the Service Area, or such other
method then in effect under the rules of the FCC, Universal Service
Administrative Company or other federal or state administrator. For
purposes of clarity, Universal Service Funds provide support payments to
Eligible Telecommunications Carriers ("ETC") serving in high cost areas or
providing services to low income individuals. Sprint PCS will file on
behalf of itself or Manager appropriate ETC documentation in those
jurisdictions in which Sprint PCS determines to make the filing.
If Manager asks Sprint PCS to make a filing in a jurisdiction and
Sprint PCS reasonably determines not to make the filing because making the
filing is detrimental to Sprint's best interests, then Sprint does not
have to make the filing. If Manager disagrees with the reasonableness of
Sprint PCS' determination not to make the filing, then the parties will
submit to binding arbitration in accordance with section 14.2, excluding
the escalation process set forth in section 14.1.
If the process set forth in the previous paragraph results in Sprint
PCS making a filing, Manager will pay all of Sprint PCS' reasonable
out-of-pocket costs associated with the filing and any compliance
obligations that arise from the filing or that are imposed by the
jurisdiction in which the filing is made (e.g. filing fees, legal fees,
expert witness retention, universal lifeline service, enhancing customer
care quality, and including, without limitation, network upgrades). Sprint
PCS will remit to Manager 50% of any Subsidy Funds that Sprint PCS
receives from filings Sprint PCS is required to make under the preceding
paragraph that are not payable to Manager under the first paragraph of
this section 10.6.1, until the aggregate amount of the payments to Manager
under this sentence equal 50% of the amount Manager has paid Sprint PCS
under the preceding sentence.
All Subsidy Funds received must be used to support the provision,
maintenance and upgrading of facilities and services for which the funds
are intended. Sprint PCS will use reasonable efforts to recover from the
appropriate governmental authority Subsidy Funds and will remit the
appropriate recoveries to Manager.
10.6.2 Paid by Customers. Sprint PCS will be solely
responsible for remitting to government agencies or their designees,
including but not limited to the Universal Service Administrative Company,
all universal service fees. As a consequence of this responsibility,
Sprint PCS is entitled to 100% of any amounts that Manager, Sprint PCS or
their Related Parties receives from Customers (including Customers whose
NPA-NXX is assigned to the Service Area) comprising the Universal Service
Funds.
39
10.7 Equipment Replacement Program. Sprint PCS is entitled to 100%
of the amounts that Customers pay for participating in any equipment
replacement program (e.g., an insurance program) billed on their Sprint
PCS bills. Manager will not be responsible for or in any way billed for
any costs or expenses that Sprint PCS or any Sprint PCS Related Party
incurs in connection with any such equipment replacement program.
10.8 Customer Equipment. Sprint PCS is entitled to 100% of the
amounts that Customers pay for subscriber equipment and accessories sold
or leased by Sprint PCS, and Manager is entitled to 100% of the amounts
that Customers pay for subscriber equipment and accessories that Manager
sold or leased, subject to the equipment settlement process in section
4.1.2.
10.9 Phase I E911. Sprint PCS is entitled to collect 100% of amounts
paid by Customers related to the E911 Phase I Surcharges (e.g., for
equipment other than handsets, such as platforms and networks). Sprint PCS
will attempt to recover from the appropriate governmental authority Phase
I E911 reimbursements and will remit the appropriate amounts to Manager.
10.10 Manager Deposits into Retail Bank Accounts. Each Business Day,
Manager will deposit into bank accounts and authorize Sprint PCS or a
Related Party that Sprint PCS designates to sweep from such accounts the
amounts collected from Customers on behalf of Sprint PCS and its Related
Parties for Sprint PCS Products and Services. Manager will allow the funds
deposited in the bank accounts to be transferred daily to other accounts
that Sprint PCS designates. Manager will also provide the daily reports of
the amounts collected that Sprint PCS requires. Manager will not make any
changes to the authorizations and designations Sprint PCS designates for
the bank accounts without Sprint PCS' prior written consent.
10.11 Monthly Statements.
10.11.1 Section 10.2 Statement. Each month Sprint PCS will
determine the amount payable to or due from Manager for a Billed Month
under section 10.2. Sprint PCS will deliver a monthly statement to Manager
that reports the amount due to Manager, the manner in which the amount was
calculated, the amount due to Sprint PCS and its Related Parties under
this agreement and the Services Agreement, and the net amount payable to
or due from Manager.
10.11.2 Other Statements. Sprint PCS will deliver a monthly
statement to Manager that reports amounts due to Manager or from Manager,
other than amounts described in section 10.12.1, the manner in which the
amounts were calculated, the amount due to Manager or to Sprint PCS and
its Related Parties under this agreement and the Services Agreement, and
the net amount payable to Manager.
10.11.3 Third Party Charges. Sprint PCS will include any third
40
party charges for which Manager is responsible under the terms of this
agreement on Manager's statements within three calendar months after the
end of the calendar month during which Sprint PCS receives the third party
charge. Sprint PCS' failure to include these charges on Manager's
statements within the three calendar month-period will mean that Sprint
PCS cannot collect those third party charges from Manager.
10.12 Payments.
10.12.1 Weekly Payments. Sprint PCS will pay the amount
payable to Manager for a Billed Month under section 10.2 in equal weekly
payments on consecutive Thursdays beginning the second Thursday of the
calendar month following the Billed Month and ending on the first Thursday
of the second calendar month after the Billed Month. If Sprint PCS is
unable to determine the amount due to Manager in time to make the weekly
payment on the second Thursday of a calendar month, then Sprint PCS will
pay Manager for that week the same weekly amount it paid Manager for the
previous week. Sprint PCS will true-up any difference between the actual
amount due for the first weekly payment of the Billed Month and amounts
paid for any estimated weekly payments after Sprint PCS determines what
the weekly payment is for that month. Sprint PCS will use reasonable
efforts to true-up within 10 Business Days after the date on which Sprint
PCS made the estimated weekly payment.
10.12.2 Monthly Payments. The amounts payable to Manager and
Sprint PCS and its Related Parties under this agreement and the Services
Agreement, other than the payments described in section 10.12.1, will be
determined, billed and paid monthly in accordance with section 10.12.3.
10.12.3 Transition of Payment Methods. (a) Sprint PCS and
Manager wish to conduct an orderly transition from making weekly payments
to Manager based on Collected Revenues to weekly payments based on Billed
Revenue. The method of calculating the weekly payments will change on the
first day of the calendar month after the Effective Date of Addendum V
(the "Transition Date"). The weekly amounts paid to Manager during the
calendar month before the Transition Date and on the first Thursday after
the Transition Date will be based on the Collected Revenues method. The
weekly amounts paid to Manager beginning on the second Thursday of the
second calendar month after the Transition Date will be based on the
Billed Revenue method described in this section 10. To effect an orderly
transition, Sprint PCS will pay Manager for the period beginning on the
second Thursday after the Transition Date and ending on the first Thursday
of the calendar month after the Transition Date an amount calculated as
described below in section 10.12.3(b).
(b) Sprint PCS will apply the estimated collection percentages
that Sprint PCS uses before the Transition Date to the gross accounts
receivable aging categories for Customers with an NPA-NXX assigned to the
Service Area as of the
41
close of business on the day before the Transition Date to calculate the
amount Sprint PCS anticipates collecting on those accounts receivable.
Sprint PCS will pay Manager the amount estimated to be collected in equal
weekly payments on consecutive Thursdays beginning the second Thursday
after the Transition Date and ending the first Thursday of the calendar
month after the Transition Date. Sprint PCS will also pay to Manager no
later than the second Thursday after the Transition Date any Collected
Revenues received after the Saturday before the Transition Date and before
the Transition Date.
(c) Sprint PCS will recalculate the estimated collection
percentages and apply the recalculated estimated collection percentages to
the gross accounts receivable aging categories described in the first
sentence of section 10.12.3(b) when all applicable data is available.
Sprint PCS will increase or decrease a weekly payment by the amount of the
difference between the amount paid to Manager based on the initial
estimated collection percentages and the amount that would have been paid
to Manager using the newer estimated collection percentages.
10.13 Dispute or Correction of Statement Amount. A party can only
dispute or correct an amount on a statement in good faith. If a party
disputes or corrects an amount on a statement, the disputing or correcting
party must give the other party written notice of the specific item
disputed or corrected, the disputed or corrected amount with respect to
that item and the reason for the dispute or correction within three
calendar months after the end of the calendar month during which the
disputed or erroneous statement was delivered.
Any dispute regarding a statement will be submitted for resolution
under the dispute resolution process in section 14. The parties must
continue to pay to the other party all amounts, except disputed amounts
(subject to the next paragraph), owed under this agreement and the
Services Agreement during the dispute resolution process. If the aggregate
disputed amount, combined with any aggregate disputed amount under section
10.14, exceeds $100,000, and upon the written request of the other party,
the party disputing the amount (the "Disputing Party") will deposit the
portion of the disputed amount in excess of $100,000 into an escrow
account that will be governed by an escrow agreement in a form to be
mutually agreed upon by the parties. The Disputing Party will deposit the
amount into the escrow account within 10 Business Days after its receipt
of the written request from the other party in accordance with the
foregoing. If the Disputing Party complies with the requirements of this
paragraph, then the other party or its Related Parties may not declare the
Disputing Party in breach of this agreement or the Services Agreement
because of nonpayment of the disputed amount, pending completion of the
dispute resolution process.
The escrow agent will be an unrelated third party that is in the
business of serving as an escrow agent for or on behalf of financial
institutions. The parties will share evenly the escrow agent's fees. The
escrow agent will invest and reinvest the escrowed funds in
interest-bearing money market accounts or as the parties
42
otherwise agree. The escrow agent will disburse the escrowed funds in the
following manner based on the determination made in the dispute resolution
process:
(a) If the Disputing Party does not owe any of the
disputed amounts, then the escrow agent will return all of the
escrowed funds to the Disputing Party with the interest earned on
the escrowed funds.
(b) If the Disputing Party owes all of the disputed
amounts, then the escrow agent will disburse all of the escrowed
funds with the interest earned on the escrowed funds to the
non-disputing party. If the interest earned is less than the amount
owed based on the Default Rate, then the Disputing Party will pay
the non-disputing party the difference between those amounts.
(c) If the Disputing Party owes a portion of the
disputed amounts, then the escrow agent will disburse to the
non-disputing party the amount owed with interest at the Default
Rate from the escrowed funds and disburse the balance of the
escrowed funds to the Disputing Party. The Disputing Party will pay
the non-disputing party the amount owed for interest at the Default
Rate if the amount of the escrowed funds is insufficient.
Manager and Sprint PCS will take all reasonable actions necessary to
allow the Disputing Party to continue to reflect the amounts deposited
into the escrow account by the Disputing Party as assets in the Disputing
Party's financial statements.
The parties will use the dispute resolution process under section
14.2 of this agreement, excluding the escalation process set forth in
section 14.1, if they cannot agree on the form of escrow agreement.
The parties agree that, despite this section 10.13, Manager will pay
all disputed amounts due to Sprint PCS or any Related Party for fees for
CCPU Services and CPGA Services payable under the Services Agreement for
periods ending on or before December 31, 2006, subject to any other rights
and remedies that Manager has under this agreement and the Services
Agreement.
The dispute of an item in a statement does not stay or diminish a
party's other rights and remedies under this agreement, except that a
party must complete the dispute resolution process in section 14 before
taking any legal or equitable action against the other party.
10.14 Dispute or Correction of a Third Party Invoice Amount. Sprint
PCS will include the applicable portion of any amount based on a third
party invoice in a statement to Manager within three calendar months after
Sprint PCS' receipt of the third party invoice. Sprint PCS' failure to
include the amount in a
43
statement to Manager within the three calendar month-period will mean that
the third party charges will not be collectible from Manager.
A party can dispute or correct an amount based on a third party
invoice only in good faith. Modified invoices received by Sprint PCS from
a third party vendor and then sent by Sprint PCS to Manager will be
treated as a new statement for purposes of this section, so long as the
modification affects the amount owed by Manager and the modified statement
was revised in good faith and not simply to provide Sprint PCS additional
time to resubmit a previous invoice.
If a party disputes or corrects an amount on a third party invoice
or the amount Sprint PCS attributed to Manager, the disputing party must
give the other party written notice of the specific item disputed or
corrected, the disputed or corrected amount with respect to that item and
the reason for the dispute or correction within three calendar months
after the end of the calendar month during which the disputed or erroneous
statement was delivered. Sprint PCS and Manager will cooperate with each
other to obtain the information needed to determine if the amounts billed
by the third party and allocated to Manager were correct.
Any dispute regarding the amount of the third party invoice Sprint
PCS attributed to Manager will be submitted for resolution under the
dispute resolution process in section 14. Manager must continue to pay to
Sprint PCS all amounts, except disputed amounts, owed under this agreement
and the Services Agreement during the information gathering and dispute
resolution process. If the aggregate disputed amount, combined with any
aggregate disputed amount under section 10.13, exceeds $100,000, and upon
the written request of Sprint PCS, Manager will deposit the portion of the
disputed amount in excess of $100,000 into an escrow account that will be
governed by an escrow agreement containing terms similar to the general
terms described in section 10.13 and in a form to be mutually agreed upon
by the parties. Manager will deposit the amount into the escrow account
within 10 Business Days after its receipt of the written request from
Sprint PCS in accordance with the foregoing. If Manager complies with the
requirements of this paragraph, then none of Sprint PCS or its Related
Parties may declare Manager in breach of this agreement or the Services
Agreement because of nonpayment of the disputed amount pending completion
of the dispute resolution process.
The dispute of an item in a statement does not stay or diminish a
party's other rights and remedies under this agreement, except that the
parties must complete the dispute resolution process in section 14 before
taking any legal or equitable action against each other.
10.15 Late Payments. Any amount due under this agreement or the
Services Agreement without a specified due date will be due 20 days after
the paying party receives an invoice. Any amount due under this agreement
and the Services Agreement (including without limitation any amounts
disputed under those agreements that are ultimately
44
determined to be due) that is not paid by one party to the other party in
accordance with the terms of the applicable agreement will bear interest
at the Default Rate beginning (and including) the 5th day after the
payment due date until (and including) the date paid.
10.16 Setoff Right If Failure To Pay Amounts Due. If Manager fails
to pay any undisputed amount due Sprint PCS or a Related Party of Sprint
PCS under this agreement, any undisputed amount due Sprint PCS or a
Related Party of Sprint PCS under the Services Agreement or any other
agreement with Sprint PCS or a Related Party of Sprint PCS, or any
disputed amount due to Sprint PCS or a Related Party for fees for CCPU
Services or CPGA Services payable under the Services Agreement, then 5
days after the payment due date Sprint PCS may setoff against its payments
to Manager under this section 10 any such undisputed amount that Manager
owes to Sprint PCS or a Related Party of Sprint PCS. This right of setoff
is in addition to any other right that Sprint PCS or a Related Party of
Sprint PCS might have under this agreement, the Services Agreement or any
other agreement with Sprint PCS or a Related Party of Sprint PCS.
10.17 Effect of Number Portability. The parties acknowledge that,
before wireless local number portability, Customers who received Sprint
PCS Products and Services through Manager were assigned a NPA-NXX that was
unique to the Service Area, but due to wireless local number portability
Customers will now have a unique identification, the MSID, assigned to
them that associates the NPA-NXX through the MSID with the Service Area.
Revenue and expenses associated with such Customers with an MSID
associated with the Service Area will be allocated in the same manner
that, prior to wireless local number portability, revenue and expenses
were associated with Customers with an NPA-NXX assigned to the Service
Area. Sprint will modify its accounting systems to properly allocate such
amounts. In addition, any NPA-NXX-Xs associated with a Customer with an
MSID associated with the Service Area will be deemed to be "used by
Manager" under Addendum IV, Section 2.
18. Non-Renewal Rights of Sprint PCS [Addm I, ss.15]. The following
sentence is added at the end of each of section 11.2.2.1 and section 11.2.2.2:
Sprint PCS will declare, within one-hundred twenty (120) days after
the occurrence of any of the events listed in section 11.2.2, its intent
to exercise its rights under this subsection.
19. Termination of License [Addm I, ss.14]. Section 11.3.1(a) is amended
to read as follows:
(a) At the election of either party this agreement may be
terminated at the time the FCC revokes or fails to renew the License
(except that if the FCC revokes or fails to renew the License
because of a breach of this agreement by Sprint PCS, Sprint PCS may
not terminate this agreement pursuant to this section 11.3.1(a)).
Unless Manager has the right to terminate this agreement under
section 11.3.1(b), neither party has any claim against the other
party if the FCC revokes or fails to renew the License, even if
circumstances would otherwise permit one party
45
to terminate this agreement based on a different Event of
Termination, except that the parties will have the right to pursue
claims against each other as permitted under section 11.4(b).
20. Regulatory Considerations [Addm I, ss.16]. The following sentence is
added at the end of section 11.3.4(b): "A `deemed change of control' in this
section refers to a determination by the FCC that there has been a change of
control of the License resulting from the performance by the parties of their
respective obligations under the agreement."
21. Termination Rights [NEW]. Section 11.3.7 is deleted, and all
references in the agreement to section 11.3.7 are also deleted.
22. Non-termination of Agreement [Addm I, ss.17]. Sections 11.5.3 and
11.6.4 are replaced with the following paragraphs:
11.5.3 Manager's Action for Damages or Other Relief. Manager,
in accordance with the dispute resolution process in section 14, may seek
damages or other appropriate relief, but such action does not terminate
this agreement.
11.6.4 Sprint PCS' Action for Damages or Other Relief. Sprint
PCS, in accordance with the dispute resolution process in section 14, may
seek damages or other appropriate relief, but such action does not
terminate this agreement.
23. Changes to Exhibit 11.8 [Addm I,ss.30; revised by this Addendum]. The
following changes are made to Exhibit 11.8:
(a) The definition "Operating Assets" in paragraph 1.1.1 is deleted.
(b) Paragraph 1.7 is amended to read as follows:
"Title Insurance. This paragraph 1.7 will apply if the
Property includes any real estate property (including leasehold
interests) ("Real Property"), but with respect to leasehold
interests, only to the extent title insurance is available."
(c) Paragraph 1.8 is amended to read as follows:
"Survey. This paragraph 1.8 will apply if the Property
includes any Real Property, but with respect to leasehold interests,
only to the extent surveys are available."
(d) Paragraph 1.9.8 is amended to read as follows:
1.9.8 Hazardous Materials. To the knowledge of Seller, there
is no condition of the Property or of any substance located on, in,
under or near the Property (including but not limited to any
asbestos or any hazardous substance) that could lead to liability of
the owner of the Property for damages or clean-up costs
46
under any federal, state or local statute or common law except as
disclosed in writing to Buyer.," at the beginning of the paragraph.
(e) Paragraph 1.9.11 is amended to read as follows:
1.9.11 Survival of Representations and Warranties. The
representations and warranties of the parties contained in the
Transaction Documents will survive the Closing and will continue in
effect for a period three (3) years. A waiver of any
misrepresentation or breach of any warranty will not constitute a
waiver of any other misrepresentation or breach of any other
warranty under the Transaction Documents.
(f) Paragraph 1.16.2 is amended is amended to read as follows:
1.16.2 For purposes of this paragraph 1.16, "compete" means
engaging in any business that offers products and services that are
similar to or competitive with the Sprint PCS Products and Services
offered by Sprint PCS as of the date of termination of the
Management Agreement. Manager and its Related Parties will be deemed
to be engaging in a competing business in violation of this
paragraph regardless of whether Manager and its Related Parties are
acting (i) individually or jointly or on behalf of or in concert
with any other individual or entity, or (ii) as a proprietor,
partner, shareholder, member, director, officer, employee, agent or
consultant, or is acting in any other capacity or manner whatsoever,
for any individual or entity that competes with Sprint PCS and its
Related Parties.
24. Audit [NEW]. Section 12.1.2 is amended to read as follows:
12.1.2 Audits. On reasonable advance notice by one party, the other
party must provide its independent or internal auditors access to its
appropriate financial and operating records, including, without
limitation, vendor and distribution agreements, for purposes of auditing
the amount of fees (including the appropriateness of items excluded from
the Fee Based on Billed Revenue), costs, expenses (including operating
metrics referred to in this agreement and the Services Agreement relating
to or used in the determination of Inter Service Area Fees, Reseller
Customer Fees, CCPU Services or CPGA Services) or other charges payable in
connection with the Service Area for the period audited. The party that
requested the audit may decide if the audit is conducted by the other
party's independent or internal auditors. Manager and Sprint PCS may each
request no more than one audit per year.
(a) If the audit shows that Sprint PCS was underpaid then,
unless the amount is contested, Manager will pay to Sprint PCS the
amount of the underpayment within 10 Business Days after Sprint PCS
gives Manager written notice of the underpayment determination.
47
(b) If the audit determines that Sprint PCS was overpaid then,
unless the amount is contested, Sprint PCS will pay to Manager the
amount of the overpayment within 10 Business Days after Manager
gives Sprint PCS written notice of the overpayment determination.
The auditing party will pay all costs and expenses related to the
audit unless the amount owed to the audited party is reduced by more than
10% or the amount owed by the audited party is increased by more than 10%,
in which case the audited party will pay the costs and expenses related to
the audit.
Sprint PCS will provide a report issued in conformity with Statement
of Auditing Standard No. 70 "Reports on the Processing of Transactions by
Service Organizations" ("Type II Report" or "Manager Management Report")
to Manager annually. If Manager, on the advice of its independent auditors
or its legal counsel, determines that a statute, regulation, rule,
judicial decision or interpretation, or audit or accounting rule, policy
or literature published by the accounting or auditing profession or other
authoritative rule making body (such as the Securities and Exchange
Commission, the Public Company Accounting Oversight Board or the Financial
Accounting Standards Board) requires additional assurances beyond SAS 70,
then Sprint PCS will cooperate with Manager to provide the additional
assurances. Sprint PCS' independent auditors will prepare any Type II
Report or Manager Management Report provided under this section 12.1.2 and
will provide an opinion on the controls placed in operation and tests of
operating effectiveness of those controls in effect at Sprint PCS over
Manager Management Processes. "Manager Management Processes" include those
services generally provided within this agreement, primarily billing and
collection of revenues. Sprint PCS or Sprint PCS' auditors will provide
information to Manager or Manager's auditors to perform analysis
procedures requested by Manager in accordance with this paragraph.
25. Regulatory Compliance [Addm I, ss.20]. Section 16.1 is amended to read
as follows:
16.1 Regulatory Compliance. Manager will construct, operate, and
manage the Service Area Network in compliance with applicable federal,
state, and local laws and regulations, including Siting Regulations.
Nothing in this section 16.1 will limit Manager's obligations under
section 2.2 and the remainder of this section 16. Manager acknowledges
that failure to comply with applicable federal, state, and local laws and
regulations in its construction, operation, and management of the Service
Area Network may subject the parties and the License to legal and
administrative agency actions, including forfeiture penalties and actions
that affect the License, such as license suspension and revocation, and
accordingly, Manager agrees that it will cooperate with Sprint PCS to
maintain the License in full force and effect.
Manager will write and implement practices and procedures governing
construction and management of the Service Area Network in compliance with
Siting Regulations.
48
Manager will make its Siting Regulations practices and procedures
available upon request to Sprint PCS in the manner specified by Sprint PCS
for its inspection and review, and Manager will modify those Siting
Regulations practices and procedures as may be requested by Sprint PCS.
Every six months, and at the request of Sprint PCS, Manager will provide a
written certification from one of Manager's chief officers that Manager's
Service Area Network complies with Siting Regulations. Manager's first
certification of compliance with Siting Regulations will be provided to
Sprint PCS six months after the date of this agreement.
Manager will conduct an audit and physical inspection of its Service
Area Network at the request of Sprint PCS to confirm compliance with
Siting Regulations, and Manager will report the results of the audit and
physical inspection to Sprint PCS in the form requested by Sprint PCS.
Manager will bear the cost of Siting Regulations compliance audits and
physical inspections requested by Sprint PCS; provided, however, that
Sprint PCS will bear the cost of any such requested audits and inspections
that are made more often than Sprint PCS makes audits or inspections of
its own network sites.
Manager will retain for 3 years records demonstrating compliance
with Siting Regulations, including compliance audit and inspection
records. Manager will make those records available upon request to Sprint
PCS for production, inspection, and copying in the manner specified by
Sprint PCS. Sprint PCS will bear the cost of production, inspection, and
copying.
26. Notices [NEW]. Paragraph 3 of Addendum III is deleted. (a) Section
17.1 is amended to read as follows:
17.1 Notices. (a) Any notice, payment, invoice, demand or
communication required or permitted to be given by any provision of this
agreement must be in writing and mailed (certified or registered mail,
postage prepaid, return receipt requested), sent by hand or overnight
courier, charges prepaid or sent by facsimile or email (in either instance
with acknowledgement or read receipt received), and addressed as described
below, or to any other address or number as the person or entity may from
time to time specify by written notice to the other parties. Sprint PCS
may give notice of changes to a Program Requirement by sending an email
that directs Manager to the changed Program Requirement on the affiliate
intranet website.
The subject line of any email notice that purports to amend any
Program Requirement must read "Program Requirement Change" and the first
paragraph must indicate (i) which Program Requirement is being modified,
(ii) what is being modified in the Program Requirement, and (iii) when the
Program Requirement will take effect. The email must also include either a
detailed summary of the Program Requirement Change or a redline comparison
between the old Program Requirement and the new Program Requirement.
Any notice, demand or communication intended to be notice of a
breach of
49
an agreement or notice of an Event of Termination must:
(A) clearly indicate that intent,
(B) state the section(s) of the agreements allegedly breached,
and
(C) be mailed or sent by overnight courier in the manner
described in the first paragraph in this section 17.1.
Manager will promptly give Sprint PCS a copy of any notice of
default Manager receives from the Administrative Agent or any Lender, and
a copy of any related notice Manager gives to the Administrative Agent or
any Lender. Sprint PCS will promptly give Manager a copy of any notice of
default that Sprint PCS receives from the Administrative Agent or any
Lender and a copy of any related notice that Sprint PCS gives to the
Administrative Agent or any Lender.
All notices and other communications given to a party in accordance
with the provisions of this agreement will be deemed to have been given
when received.
(b) The parties' notice addresses are as follows:
For all entities comprising Sprint PCS:
Sprint PCS
KSOPHF0402-4B101
6200 Sprint Parkway
Overland Park, KS 66251
Telephone: 913-794-1530
Telecopier: 913-523-2759
Email: dbotto01@sprintspectrum.com
Attention: Vice President - Wireless Alliances Group
with a copy to:
Sprint Law Department
KSOPHT0101-Z2020
6391 Sprint Parkway
Overland Park, KS 66251
Telephone: 913-315-9315
Telecopier: 913-523-9823
Email: john.w.chapman@mail.sprint.com
Attention: John Chapman
50
For Manager:
Shenandoah Personal Communications Company
124 South Main Street
Post Office Box 459
Edinburg, Virginia 22824-0459
Telephone: (540) 984-5209
Telecopier: (540) 984-8192
Email: cfrench@shentel.net
Attention: Mr. Christopher E. French
and with copies to the following individuals' email addresses if a
notice of a Program Requirement Change is sent by email:
Mr. William L. Pirtle
Email: wpirtle@shentel.net
Mr. Laurence F. Paxton
Email: lfpaxton@shentel.net
Mr. Earle A. MacKenzie
Email: eam@shentel.net
27. Force Majeure [NEW]. The second paragraph of section 17.9.3 is amended
to read as follows:
Neither Manager nor Sprint PCS, as the case may be, is in breach of
any covenant in this agreement, and no Event of Termination will occur as
a result of the failure of such party to comply with any covenant, if the
party's non-compliance with the covenant results primarily from:
(i) any FCC order or any other injunction that any
governmental authority issues that impedes the party's ability to
comply with the covenant;
(ii) the failure of any governmental authority to grant any
consent, approval, waiver or authorization or any delay on the part
of any governmental authority in granting any consent, approval,
waiver or authorization;
(iii) the failure of any vendor to deliver in a timely manner
any equipment or service; or
(iv) any act of God, act of war or insurrection, riot, fire,
accident, explosion, labor unrest, strike, civil unrest, work
stoppage, condemnation or any similar cause or event not reasonably
within the control of the party;
51
28. Governing Law, Jurisdiction and Consent to Service of Process [NEW and
Addm III, ss.2]. Section 17.12 of the Management Agreement is replaced with the
following language:
17.12 Governing Law, Jurisdiction and Consent to Service of Process.
17.12.1 Governing Law. The internal laws of the State of
Kansas (without regard to principles of conflicts of law) govern the
validity of this agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
17.12.2 Jurisdiction; Consent to Service of Process.
(a) Each party hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of any
Kansas State court sitting in the County of Johnson or any Federal
court of the United States of America sitting in the District of
Kansas, and any appellate court from any such court, in any suit
action or proceeding arising out of or relating to this agreement,
or for recognition or enforcement of any judgment, and each party
hereby irrevocably and unconditionally agrees that all claims in
respect of any such suit, action or proceeding may be heard and
determined in such Kansas State Court or, to the extent permitted by
law, in such Federal court.
(b) Each party hereby irrevocably and unconditionally waives,
to the fullest extent it may legally do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this agreement in Kansas
State court sitting in the County of Johnson or any Federal court
sitting in the District of Kansas. Each party hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such suit, action or
proceeding in any such court and further waives the right to object,
with respect to such suit, action or proceeding, that such court
does not have jurisdiction over such party.
(c) Each party irrevocably consents to service of process in
the manner provided for the giving of notices pursuant to this
agreement, provided that such service shall be deemed to have been
given only when actually received by such party. Nothing in this
agreement shall affect the right of a party to serve process in
another manner permitted by law.
29. Transfer of Spectrum [Addm I, ss.21]. Section 17.15.5 is amended to
read as follows:
17.15.5 Transfer of Sprint PCS Network. Sprint PCS may sell,
transfer or assign the Sprint PCS Network and, in connection therewith its
rights and obligations under this agreement, the Services Agreement and
any related agreements, to a third party without Manager's consent so long
as the third party assumes the rights and obligations under this agreement
and the Services Agreement and any related agreements. Manager
52
agrees that Sprint PCS and Sprint PCS' Related Parties will be released
from any and all obligations under and with respect to any and all such
agreements upon such sale, transfer or assignment in accordance with this
section 17.15.5, without the need for Manager to execute any document to
effect such release.
Except for (i) intercompany transfers among Sprint's Related
Parties and (ii) any transfer of the License that is part of a sale,
transfer or assignment of the entire Sprint PCS Network (such transfer
described in (i) and (ii), the "Permitted Transfers"), neither Sprint PCS
nor any Sprint Related Party shall sell, transfer or assign any of the
Licenses, or any spectrum under the Licenses, except as follows:
(A) Sprint PCS may sell, transfer or assign up to ten
(10) MHz of spectrum under the Licenses in the aggregate during the
term of this agreement to a third party without Manager's consent;
provided, that no such sale, transfer or assignment shall relieve
Sprint PCS of its obligations under this agreement, the Services
Agreement, or any related agreements.
(B) If Sprint PCS determines it wishes to sell, transfer
or assign spectrum under the Licenses which, when added together
with all prior sales, transfers and assignments of spectrum under
the Licenses (other than Permitted Transfers), exceeds 10 MHz of
spectrum (such spectrum proposed to be sold, assigned or
transferred, the "Offered Spectrum"), then upon receiving any offer
to purchase the Offered Spectrum (a "Spectrum Offer"), Sprint PCS
agrees to promptly deliver to Manager a copy of such Spectrum Offer.
The Spectrum Offer is deemed to constitute an offer to sell to
Manager, on the terms set forth in the Spectrum Offer, all but not
less than all of the Offered Spectrum. Manager will have a period of
sixty (60) days from the date of receipt of the Spectrum Offer to
notify Sprint PCS that Manager agrees to purchase the Offered
Spectrum on such terms. If Manager timely agrees in writing to
purchase the Offered Spectrum, the parties will proceed to
consummate such purchase not later than the one hundred eightieth
(180th) day after the date of Manager's receipt of the Spectrum
Offer. If Manager does not agree within the sixty (60) day period to
purchase the Offered Spectrum, Sprint PCS will have the right, for a
period of one hundred twenty (120) days after such sixtieth (60th)
day, subject to restrictions set forth in this section 17, to sell
to the person or entity identified in the Spectrum Offer all of the
Offered Spectrum on terms and conditions no less favorable to Sprint
PCS than those set forth in the Spectrum Offer. If Sprint PCS fails
to sell the Offered Spectrum to such person or entity on such terms
and conditions within such one hundred twenty (120) day period,
Sprint PCS will again be subject to the provisions of this section
17.15.5(b)(ii) with respect to the Offered Spectrum.
30. Announced Transactions [Addm I, ss.22]. Section 17.24 is deleted.
31. Additional Terms and Provisions [Addm I, ss.23]. Section 17.25 is
amended to read as follows:
53
17.25 Additional Terms and Provisions. Certain additional and
supplemental terms and provisions of this agreement, if any, are set forth
in Addendum I. Manager represents and warrants that the Addendum I also
describes all existing contracts and arrangements (written or verbal) to
which Manager or its Related Parties are a party that relate to or affect
the rights of Sprint PCS or Sprint under this agreement (e.g., agreements
relating to long distance telephone services (section 3.4)).
32. Federal Contractor Compliance [Addm I, ss.24]. A new section 17.28,
the text of which is attached as Exhibit B to Addendum I, is added and
incorporated by this reference. When and to the extent required by applicable
law, Manager will comply with the requirement of this section 17.28.
33. Year 2000 Compliance [Addm I,ss.25]. A new section 17.29 is added to
the Management Agreement:
17.29 Year 2000 Compliance. If the Service Area Network or any
system used to support the Service Area Network fails to satisfy the
Sprint PCS requirements for "Year 2000 Compliance" due to defects or
failures in any system or equipment selected by Manager (including systems
or third party vendors and subcontractors selected by Manager rather than
by Sprint PCS), Manager will, at its own expense, make the repairs,
replacements or upgrades necessary to correct the failure. If the Service
Area Network or any system used to support the Service Area Network fails
to satisfy the Sprint PCS requirements for "Year 2000 Compliance" due to
defects or failures in any systems or equipment selected by Sprint PCS
(including systems or equipment of third party vendors and subcontractors
that Sprint PCS selects and requires Manager to use), Sprint PCS will, at
its own expense, make the repairs, replacements or upgrades necessary to
correct the failure.
"Year 2000 Compliance" means the functions, calculations, and other
computing processes of the Service Area Network (collectively "Processes")
that perform and otherwise process, date-arithmetic, display, print or
pass date/time data in a consistent manner, regardless of the date in time
on which the Processes are actually performed or the dates used in such
data or the nature of the date/time data input, whether before, during or
after January 1, 2000, and whether or not the date/time data is affected
by leap years. To the extent any part of the Service Area Network is
intended to be used in combination with other software, hardware or
firmware, it will properly exchange date/time data with such software,
hardware or firmware. The Service Area Network will accept and respond to
two-digit year-date input, correcting or supplementing as necessary, and
store, print, display or pass date/time data in a manner that is
unambiguous as to century. No date/time data will cause any part of the
Service Area Network to perform an abnormally ending routine or function
within the Processes or generate incorrect final values or invalid
results.
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Services Agreement
34. Non-Exclusive Service [NEW] Section 1.3 of the Services Agreement is
amended and restated in its entirety to read as follows:
1.3 Non-Exclusive Services. Nothing contained in this agreement
confers upon Manager an exclusive right to any of the Services. Sprint
Spectrum may contract with others to provide expertise and services
identical or similar to those to be made available or provided to Manager
under this agreement.
35. Services Agreement [NEW]. Article 2 of the Services Agreement is
amended to read as follows:
2. SERVICES
2.1 Services.
2.1.1 Services. Subject to the terms of this agreement,
through December 31, 2006, Manager will obtain the services set forth on
Schedule 2.1.1 attached to this agreement ("Services") from Sprint
Spectrum in accordance with this section 2.1, and Sprint Spectrum will
provide all or none of the Services. For purposes of clarification, as of
the Effective Date of Addendum V through December 31, 2006, Sprint
Spectrum is providing all of the Services to Manager and Sprint Spectrum
will not provide individual Services.
The fees charged for the Services and the process for setting
the fees charged for the Services are set forth in section 3.2. Sprint
Spectrum may designate additional Services upon at least 60 days' prior
written notice to Manager by providing an amended Schedule 2.1.1 to
Manager in accordance with the provisions of section 9.1.
Without Manager's prior written consent, neither Sprint
Spectrum nor any of its Related Parties will require Manager to pay for:
(A) any of those additional CCPU Services or CPGA Services to
the extent that they are the same as or functionally equivalent to any
service or benefit that Manager currently receives from Sprint Spectrum or
its Related Parties or Sprint PCS or its Related Parties but for which
Manager does not pay a separate fee immediately after the Effective Date,
or
(B) any other additional CCPU Services or CPGA Services
through December 31, 2006. After that date the fee for those other
additional Services will be included in the fees based on Sprint PCS CCPU
and Sprint PCS CPGA as set forth in section 3.2.
2.1.2 Discontinuance of Services. If Sprint Spectrum
determines to no longer offer a Service, then Sprint Spectrum must
55
(i) notify Manager in writing a reasonable time before
discontinuing the Service, except Sprint will notify Manager
at least 9 months before Sprint plans to discontinue a
significant Service (e.g., billing, collection and customer
care), and
(ii) discontinue the Service to all Other Managers.
If Manager determines within 90 days after receipt of notice of
discontinuance that it wants to continue to receive the Service, Sprint
Spectrum will use commercially reasonable efforts to:
(a) help Manager provide the Service itself or find
another vendor to provide the Service, and
(b) facilitate Manager's transition to the new Service
provider.
The fees charged by Sprint Spectrum for the CCPU Services and
CPGA Services will be reduced by any fees payable by Manager to a vendor
or new Service provider in respect of discontinued CCPU Services and CPGA
Services, if (x) Sprint Spectrum procures such CCPU Services or CPGA
Services from a vendor or a new Service provider and bills those items as
Settled-Separately Manager Expenses (as defined in subsection 3.2.5 of
this agreement), or (y) Manager procures such CCPU Services or CPGA
Services from a vendor or a new provider of Services, or (z) Manager
self-provisions the Service. No adjustment to the fees will be made if
Sprint Spectrum discontinues a CCPU Service or CPGA Service and Sprint
Spectrum does not provide the CCPU Service or CPGA Service to end users.
2.1.3 Performance of Services. Sprint Spectrum may select the
method, location and means of providing the Services. If Sprint Spectrum
wishes to use Manager's facilities to provide the Services, Sprint
Spectrum must obtain Manager's prior written consent.
2.2 Third Party Vendors. Some of the Services might be provided by
third party vendors under arrangements between Sprint Spectrum and the
third party vendors. In some instances, Manager may receive Services from
a third party vendor under the same terms and conditions that Sprint
Spectrum receives those services. In other instances, Manager may receive
Services under the terms and conditions set forth in an agreement between
Manager and the third party vendor.
36. Payment of Fees Under Services Agreement [NEW]. Paragraph 26 of
Addendum I is deleted. Article 3 of the Services Agreement is amended to read as
follows:
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3. FEES FOR SERVICES
3.1 Services. Manager will pay Sprint Spectrum a fee for the
Services provided by or on behalf of Sprint Spectrum now or in the future,
subject to Section 2.1.1. Manager may not obtain these Services from other
sources, except as provided in this agreement.
If a change to Sprint PCS' accounting classifications for the
CCPU Services or CPGA Services materially changes the amount of the Sprint
PCS CCPU or Sprint PCS CPGA relative to the amount immediately before the
change, then the rates outlined in section 3 of the Services Agreement
will be adjusted to reflect the change.
If the accounting classification change has the effect of
moving a Service from a CCPU Service or CPGA Service to a
Settled-Separately Manager Expense, the fees for the CCPU Services or CPGA
Services, as applicable, charged by Sprint Spectrum will be reduced by the
fees payable by Manager for the new Settled-Separately Manager Expense.
3.2 Fees for Services.
3.2.1 Initial Pricing Period. The fees Manager will pay Sprint
Spectrum for the CCPU Services and CPGA Services provided to Manager by or
on behalf of Sprint Spectrum each month from the first day of the calendar
month following the Effective Date of Addendum V until December 31, 2006
("Initial Pricing Period"), will be:
(a) for the CCPU Services: $7.70 per subscriber multiplied by
the Number of Customers in Manager's Service Area, and
(b) for the CPGA Services: an amount equal to, but not to
exceed $25.00 per Gross Customer Addition in Manager's Service Area:
(i) the most recently publicly reported Sprint PCS CPGA,
multiplied by a percentage equal to the lesser of:
(A) Manager's current percentage of the most recently
publicly reported Sprint PCS CPGA, and
(B) 6.3% of the most recently publicly reported Sprint
PCS CPGA;
multiplied by
(ii) the Gross Customer Additions in Manager's Service Area.
The fees will be paid as set forth in section 10 of the
Management Agreement.
3.2.2 Pricing Process. After the Initial Pricing Period, the
fee for
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CCPU Services will become a percentage of Sprint PCS CCPU and the fee for
CPGA Services will be adjusted to a new percentage of Sprint PCS CPGA. The
parties will reset the CCPU and CPGA percentages to be applied in each
pricing period after the Initial Pricing Period ends. Each subsequent
pricing period will last three years (if Manager continues to use Sprint
Spectrum or a Related Party to provide these Services) with, for example,
the second pricing period beginning on January 1, 2007 and ending on
December 31, 2009.
The process for resetting the percentages is as follows:
(a) Sprint Spectrum will give Manager proposed CCPU and CPGA
percentages by October 31 of the calendar year before the calendar year in
which the then current pricing period ends (e.g. if the pricing period
ends on December 31, 2006 then the percentages have to be presented by
October 31, 2005). The proposed percentages will be based on the amount
necessary to recover Sprint PCS' reasonable costs for providing the CCPU
Services and CPGA Services to Manager and the Other Managers. Manager's
representative and the Sprint PCS representative will begin discussions
regarding the proposed CCPU and CPGA percentages within 20 days after
Manager receives the proposed CCPU and CPGA percentages from Sprint
Spectrum.
(b) The fee Manager will pay Sprint Spectrum for the CCPU
Services provided to Manager by or on behalf of Sprint Spectrum each month
beginning on January 1, 2007 until December 31, 2008 under the pricing
process described in this section 3.2.2 will not exceed $8.50 per
subscriber multiplied by the Number of Customers in Manager's Service
Area.
(c) If the parties do not agree on new CCPU and CPGA
percentages within 30 days after the discussions begin, then Manager may
escalate the discussion to the Sprint PCS Chief Financial Officer or
Sprint Spectrum may escalate the discussion to Manager's Chief Executive
Officer or Chief Financial Officer.
(d) If the parties cannot agree on the new CCPU and CPGA
percentages through the escalation process within 20 days after the
escalation process begins, then Manager may either
(i) submit the determination of the CCPU and CPGA
percentages to binding arbitration under section 14.2 of this
agreement, excluding the escalation process set forth in
section 14.1 and continue obtaining all of the CCPU Services
and CPGA Services from Sprint Spectrum at the CCPU and CPGA
percentages the arbitrator determines, or
(ii) procure from a vendor other than Sprint Spectrum or
self-provision all of the Services.
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Manager will begin paying Sprint Spectrum under the CCPU and CPGA
percentages that Sprint Spectrum presents for discussion at the beginning of the
new pricing period until the date on which the parties agree or until the
arbitrator determines the new CCPU and CPGA percentages, whichever occurs first.
Within 30 days after the percentages are determined (either by agreement or by
arbitration), Sprint PCS will recalculate the fees from the beginning of the new
pricing period and give notice to Manager of what the fees are and the amount of
any adjusting payments required. If Sprint PCS owes Manager a refund of fees
already paid, Sprint PCS may pay the amount to Manager or Sprint PCS, in its
sole discretion, may credit the amount of the refund against any amounts Manager
then owes to Sprint PCS. If Sprint PCS chooses to pay the refund, it will make
the payment at the time it sends the notice to Manager; If Sprint PCS chooses to
credit the refund, it will in the notice indicate the amounts owing to which the
credit will be applied. If Manager owes Sprint PCS additional fees Manager will
pay those fees to Sprint PCS within 10 days after receipt of the notice.
By December 1, 2006, the parties will agree on a service level
agreement for customer care services and collection services ("Customer-Related
Services") that will apply to Customer-Related Services delivered by Sprint
Spectrum starting on January 1, 2007. If the parties cannot agree on a service
level agreement by December 1, 2006, either party may submit a proposed service
level agreement to binding arbitration under section 14.2 of the Management
Agreement, excluding the escalation process set forth in section 14.1. If the
arbitration concludes after January 1, 2007 the service level agreement, as
agreed upon through the arbitration process, will be effective as of January 1,
2007. The agreement will set forth 5 metrics for Customer-Related Services and
will provide that Sprint Spectrum will use commercially reasonable efforts to
meet the industry averages for those metrics as in effect on December 1, 2006.
The 5 metrics are:
a) Service Grade Rate defined as percentage of calls answered in 60
seconds or less after the customer enters the call queue.
b) Average Hold Time defined as average time a customer waits to talk
to a customer service representative once the customer enters the
call queue.
c) Abandoned Call Rate defined as the percentage of calls that
disconnect prior to talking to a customer service representative
after the customer enters the call queue.
d) Net Write-Offs Rate defined as monthly write-offs of accounts
receivable, net of customer deposits, divided by monthly subscriber
revenue.
e) Past-Due Accounts Receivable Aging Rates defined as percentage of
accounts receivable greater than 60 days from due date.
The service level agreement will provide that Sprint Spectrum will
give Manager a quarterly report on the above metrics. Beginning in 2008, Manager
will have the right to opt out of Sprint Spectrum providing the Customer Related
Services if the average of the metrics reflected in the four quarterly reports
for the prior calendar year indicate that Sprint Spectrum is not in compliance
with any 2 of the 5 metrics. To exercise the opt-out right, Manager must give
its opt-out notice to Sprint Spectrum during the first quarter of any calendar
year that Manager has an opt-
59
out right. Upon receipt of an opt-out notice, Manager and Sprint Spectrum will
use commercially reasonable efforts to transition the Customer-Related Services
to Manager or a third party vendor within 9 months after the opt-out notice
date. Upon the parties' completion of the transition, the parties will agree to
an adjustment to the CCPU Service Fee being charged by Sprint Spectrum to
Manager. If the parties cannot agree to an adjustment, Manager has the right to
submit the determination to binding arbitration under section 14.2 of the
Management Agreement, excluding the escalation process set forth in section
14.1, and continue obtaining all the CPGA Services and remaining CCPU services
from Sprint Spectrum. Manager will reimburse Sprint Spectrum for transition and
continuing operation costs in accordance with Section 3.2.4.
Manager's opt-out right described above is its sole remedy if Sprint
Spectrum is not in compliance with the metrics; Sprint Spectrum's non-compliance
with the metrics does not constitute a breach of this agreement or any other
agreement between the parties.
Manager has the right to propose to Sprint Spectrum that Manager
self-provision or procure from a vendor some, but not all, of the Services.
Sprint Spectrum will discuss the proposal with Manager, but Manager can only
self-provision or procure from a vendor some of the Services if Sprint Spectrum
agrees.
3.2.3 Sprint Spectrum First Right of Refusal. Manager must
give Sprint Spectrum written notice of Manager's decision to procure the
Services from a third party vendor the Services at least 120 days before
the end of the Initial Pricing Period or any subsequent three-year pricing
period and provide the third party vendor terms to Sprint Spectrum. Sprint
Spectrum will have 30 days from the date it receives the third party
vendor's terms to decide if it will provide those Services to Manager
under those terms.
Manager must agree to receive the Services from Sprint
Spectrum if Sprint Spectrum gives notice to Manager that it will provide
the Services to Manager on the third party vendor terms. If Sprint
Spectrum does not exercise its first right of refusal, Manager must sign
the agreement with the third party vendor on the same terms and conditions
as presented to Sprint Spectrum within 10 Business Days after Sprint
Spectrum notifies Manager of its decision not to exercise the first right
of refusal or the expiration of the 30-day period, whichever occurs first.
The procedure set forth in this section 3.2.3 will begin again if Manager
does not sign the agreement with the third party vendor as required in the
preceding sentence.
3.2.4 Transition and Continuing Operating Costs. Sprint
Spectrum will cooperate with Manager and work diligently and in good faith
to implement the transition to another service provider (including
Manager, if applicable), in a reasonably efficient and expeditious manner.
Manager will pay for all reasonable out-of-pocket costs that
Sprint Spectrum and its Related Parties actually incur to (i) transfer any
Service(s) provided to Manager to a third party vendor or to enable
Manager to self-provide any Service(s), and (ii) operate and maintain
systems, processes, licenses and
60
equipment to support those Services. Sprint Spectrum will bill Manager
monthly for these costs.
3.2.5 Settled-Separately Manager Expenses. Manager will pay to
or reimburse Sprint Spectrum for any amounts that Sprint Spectrum or its
Related Parties pays for Settled-Separately Manager Expenses.
"Settled-Separately Manager Expenses" means those items the parties choose
to settle separately between themselves (e.g. accessory margins,
reciprocal retail store cost recovery) that are listed in sections C and D
of Schedule 2.1.1.
Sprint Spectrum will give Manager at least 60 days' prior
written notice by providing an amended Schedule 2.1.1 to Manager in
accordance with the provisions of section 9.1 of any additional Services
added to sections C and D of Schedule 2.1.1, but no additional service may
be added to the extent it is the same as, or functionally equivalent to,
either:
(a) any service that Sprint Spectrum or any of its
Related Parties currently provides to Manager as a CCPU Service or a
CPGA Service (unless the fees payable by Manager to Sprint Spectrum
hereunder are correspondingly reduced) or
(b) any service or benefit that Manager currently
receives from Sprint Spectrum or its Related Parties but for which
Manager does not pay a separate fee before the Effective Date.
For each Settled-Separately Manager Expense, Sprint Spectrum will
provide sufficient detail to enable Manager to determine how the expense
was calculated, including the unit of measurement (e.g., per subscriber
per month or per call) and the record of the occurrences generating the
expense (e.g., the number of calls attributable to the expense). If an
expense is not reasonably subject to occurrence level detail, Sprint
Spectrum will provide reasonable detail on the process used to calculate
the fee and the process must be reasonable. A detail or process is
reasonable if it is substantially in the form as is customarily used in
the wireless industry. The Settled-Separately Manager Expenses will be
paid as set forth in section 10 of the Management Agreement. Sprint
Spectrum and its Related Parties may arrange for Manager to pay any of the
Settled-Separately Manager Expenses directly to the vendor after giving
Manager reasonable notice.
Unless Manager specifically agrees otherwise, any Settled-Separately
Manager Expense that Sprint Spectrum or any of its Related Parties is
entitled to charge or pass through to Manager under this agreement or the
Management Agreement will reflect solely out-of-pocket costs and expenses
that Sprint Spectrum or its Related Parties actually incur, will be
usage-based or directly related to revenue-generating products and
services, and will not include any allocation of Sprint PCS' or its
Related Parties' internal costs or expenses (including, but not limited
to, allocations of general and administrative expenses or allocations of
employee compensation or related expenses). For clarity, Sprint
61
Spectrum's or its Related Parties' out-of-pocket costs for handset and
accessory inventory consist of actual inventory invoice costs less any
volume incentive rebates and price protection credits that Sprint Spectrum
or its Related Parties receive from a vendor.
3.3 Late Payments. Any payment due under this section 3 that Manager
fails to pay to Sprint Spectrum in accordance with this agreement will
bear interest at the Default Rate beginning (and including) the 6th day
after the due date stated on the invoice until (and including) the date on
which the payment is made.
3.4 Taxes. Manager will pay or reimburse Sprint Spectrum for any
sales, use, gross receipts or similar tax, administrative fee,
telecommunications fee or surcharge for taxes or fees that a governmental
authority levies on the fees and charges that Manager pays to Sprint
Spectrum or a Related Party.
37. Audit [NEW]. Section 5.1.2 of the Services Agreement is amended to
read as follows:
5.1.2 Audits. On reasonable advance notice by one party, the other
party must provide its independent or internal auditors access to its
appropriate financial and operating records, including, without
limitation, vendor and distribution agreements, for purposes of auditing
the amount of fees, costs, expenses (including operating metrics referred
to in this agreement and the Services Agreement relating to or used in the
determination of Inter Service Area Fees, Reseller Customer Fees, CCPU
Services or CPGA Services) or other charges payable in connection with the
Service Area for the period audited. The party that requested the audit
may decide if the audit is conducted by the other party's independent or
internal auditors. Manager and Sprint Spectrum may each request no more
than one audit per year.
(a) If the audit shows that Sprint Spectrum was underpaid
then, unless the amount is contested, Manager will pay to Sprint
Spectrum the amount of the underpayment within 10 Business Days
after Sprint Spectrum gives Manager written notice of the
underpayment determination.
(b) If the audit determines that Sprint Spectrum was overpaid
then, unless the amount is contested, Sprint Spectrum will pay to
Manager the amount of the overpayment within 10 Business Days after
Manager gives Sprint Spectrum written notice of the overpayment
determination.
The auditing party will pay all costs and expenses related to the
audit unless the amount owed to the audited party is reduced by more than
10% or the amount owed by the audited party is increased by more than 10%,
in which case the audited party will pay the costs and expenses related to
the audit.
If either party disputes the auditor's conclusion then the dispute
will be submitted to binding arbitration in accordance with section 14.2
of the Management
62
Agreement, excluding the escalation process set forth in section 14.1 of
the Management Agreement.
Sprint PCS will provide a Type II Report to Manager annually. If
Manager, on the advice of its independent auditors or its legal counsel,
determines that a statute, regulation, rule, judicial decision or
interpretation, or audit or accounting rule, policy or literature
published by the accounting or auditing profession or other authoritative
rule making body (such as the Securities and Exchange Commission, the
Public Company Accounting Oversight Board or the Financial Accounting
Standards Board) requires additional assurances beyond SAS 70, then Sprint
Spectrum will cooperate with Manager to provide the additional assurances.
Sprint Spectrum's independent auditors will prepare any Type II Report or
Manager Management Report provided under this section 5.1.2 and will
provide an opinion on the controls placed in operation and tests of
operating effectiveness of those controls in effect at Sprint PCS over
Manager Management Processes. Sprint PCS or Sprint PCS' auditors will
provide information to Manager or Manager's auditors to perform analysis
procedures requested by Manager in accordance with this paragraph.
38. Emailing Notices [NEW]. Section 9.1 of the Services Agreement is
amended to read as follows:
9.1 Notices. Any notice, payment, invoice, demand or communication
required or permitted to be given by any provision of this agreement must
be in writing and mailed (certified or registered mail, postage prepaid,
return receipt requested), sent by hand or overnight courier, charges
prepaid or sent by facsimile or email (in either instance with
acknowledgement or read receipt received), and addressed as described in
section 17.1(b) of the Management Agreement, or to any other address or
number as the person or entity may from time to time specify by written
notice to the other parties.
The subject line of any email notice that purports to add any
additional service to Schedule 2.1.1 must read "Additional Service to
Schedule 2.1.1". The new Schedule 2.1.1 must also be attached to the
email, and notice will also be provided to those individuals listed for
notices for Manager regarding Program Requirement Changes set forth in
section 17.1(b) of the Management Agreement.
Any notice, demand or communication intended to be notice of a
breach of an agreement or notice of an Event of Termination must clearly
indicate that intent, state the section(s) of the agreements allegedly
breached, and in addition to any other form of notice it must be mailed or
sent by overnight courier in the manner described in the first paragraph
of this section 9.1.
Manager will promptly give Sprint Spectrum a copy of any notice
Manager receives from the Administrative Agent or any Lender, and a copy
of any notice Manager gives to the Administrative Agent or any Lender.
Sprint Spectrum will promptly give Manager a copy of any notice that
Sprint Spectrum receives from the
63
Administrative Agent or any Lender and a copy of any notice that Sprint
Spectrum gives to the Administrative Agent or any Lender.
All notices and other communications given to a party in accordance
with the provisions of this agreement will be deemed to have been given
when received.
39. Force Majeure [NEW]. The second paragraph of section 9.8 of the
Services Agreement is amended to read as follows:
Neither Manager nor Sprint Spectrum, as the case may be, is in
breach of any covenant in this agreement and no Event of Termination will
occur as a result of the failure of such party to comply with any
covenant, if the party's non-compliance with the covenant results
primarily from:
(i) any FCC order or any other injunction that any
governmental authority issues that impedes the party's ability to
comply with the covenant;
(ii) the failure of any governmental authority to grant any
consent, approval, waiver or authorization or any delay on the part
of any governmental authority in granting any consent, approval,
waiver or authorization;
(iii) the failure of any vendor to deliver in a timely manner
any equipment or service; or
(iv) any act of God, act of war or insurrection, riot, fire,
accident, explosion, labor unrest, strike, civil unrest, work
stoppage, condemnation or any similar cause or event not reasonably
within the control of the party;
40. Governing Law [Addm III, ss.2]]. Section 9.11 of the Services
Agreement is replaced with the following language:
9.11 Governing Law. The internal laws of the State of Kansas
(without regard to principles of conflicts of law) govern the
validity of this agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
Trademark License Agreements
41. Marking: Compliance with Trademark Laws [Addm I, ss.29]. The following
sentence is added at the end of section 2.3 to both Trademark License
Agreements: "Licensor shall advise Licensee periodically as to the appropriate
designations for each Licensed Mark."
42. Ownership of Advertising Materials [Addm I, ss.29]. The first sentence
of section 11.5 of both Trademark License Agreements are amended to read as
follows: "All agreements entered into by Licensee with advertising agencies
shall provide that Licensor shall own all
64
advertising materials (including concepts, themes, characters and the like)
created or developed thereunder which incorporate the Licensed Marks."
43. Notices [NEW]. Section 15.1 of each of the Trademark License
Agreements is amended to read as follows:
Section 15.1. Notices. Any notice, payment, invoice, demand or
communication required or permitted to be given by any provision of this
agreement must be in writing and mailed (certified or registered mail,
postage prepaid, return receipt requested), sent by hand or overnight
courier, or sent by facsimile (with acknowledgment received), charges
prepaid and addressed as described in section 17.1(b) of the Management
Agreement, or to any other address or number as the person or entity may
from time to time specify by written notice to the other parties.
Any notice, demand or communication intended to be notice of a
breach of an agreement or notice of an Event of Termination must clearly
indicate that intent, state the section(s) of the agreements allegedly
breached, and be mailed or sent by overnight courier in the manner
described in the preceding paragraph.
Licensee will promptly give Licensor a copy of any notice Licensee
receives from any Administrative Agent or any Lender, and a copy of any
notice Licensee gives to any Administrative Agent or any Lender. Licensor
will promptly give Licensee a copy of any notice that Licensor receives
from the Administrative Agent or any Lender and a copy of any notice that
Licensor gives to the Administrative Agent or any Lender.
All notices and other communications given to a party in accordance
with the provisions of this agreement will be deemed to have been given
when received.
44. Governing Law and Jurisdiction [Addm III, ss.2]. (a) Section 15.8 of
each of the Trademark License Agreements is replaced by the following language:
15.8 Governing Law. The internal laws of the State of Kansas
(without regard to principles of conflicts of law) govern the validity of
this agreement, the construction of its terms and the interpretation of
the rights and duties of the parties.
(b) Section 15.13 of each of the Trademark License Agreements is replaced
by the following language:
15.13 Jurisdiction; Consent to Service of Process.
(a) Each party hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of any
Kansas State court sitting in the County of Johnson or any Federal court
of the United States of America sitting in the District of Kansas, and any
appellate court from any such
65
court, in any suit action or proceeding arising out of or relating to this
agreement, or for recognition or enforcement of any judgment, and each
party hereby irrevocably and unconditionally agrees that all claims in
respect of any such suit, action or proceeding may be heard and determined
in such Kansas State Court or, to the extent permitted by law, in such
Federal court.
(b) Each party hereby irrevocably and unconditionally waives,
to the fullest extent it may legally do so, any objection which it may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this agreement in Kansas State court sitting
in the County of Johnson or any Federal court sitting in the District of
Kansas. Each party hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance
of such suit, action or proceeding in any such court and further waives
the right to object, with respect to such suit, action or proceeding, that
such court does not have jurisdiction over such party.
(c) Each party irrevocably consents to service of process in
the manner provided for the giving of notices pursuant to this agreement,
provided that such service shall be deemed to have been given only when
actually received by such party. Nothing in this agreement shall affect
the right of a party to serve process in another manner permitted by law.
Schedule of Definitions
45. Deleted Definitions [NEW]. The definition of "Available Services is
deleted.
46. Additional, Amended or Supplemented Definitions [NEW]. The following
are new or amended definitions, unless otherwise indicated.
"Allocable Software Fee" has the meaning set forth in section
1.3.4(f) of the Management Agreement.
"Allocated Write-offs" has the meaning set forth in section 10.3.4
of the Management Agreement. "Amended Exhibit 2.1" has the meaning set
forth in section 1 of Addendum III.
"Amount Billed (Net of Customer Credits)" has the meaning set forth
in section 10.3.3 of the Management Agreement.
"Away Network" means:
(i) any portion of the Sprint PCS Network other than Manager's
Service Area Network, in the case of Customers with an NPA-NXX
assigned to the Service Area (or any other such designation in
accordance with section 17.17 of the Management Agreement), and
66
(ii) Manager's Service Area Network, in the case of Customers
with an NPA-NXX assigned to an area outside the Service Area (or any
other designation in accordance with section 17.17 of the Management
Agreement).
"Billed Component(s)" has the meaning set forth in section 10.3.2 of
the Management Agreement.
"Billed Month" has the meaning set forth in section 10.2.1 of the
Management Agreement.
"Billed Revenue" has the meaning set forth in section 10.2.1 of the
Management Agreement.
"Capital Program Requirement Change" has the meaning set forth in
section 9.3.1(b) of the Management Agreement.
"CCPU Services" means those Services listed in section A of Schedule
2.1.1 to the Services Agreement.
"Chief Financial Officer of Sprint PCS", "Sprint PCS Chief Financial
Officer" and other references to the Chief Financial Officer of Sprint PCS
mean the Senior Vice President - Finance of Sprint Corporation designated
to serve as the chief financial officer of Sprint PCS or if none, the
individual serving in that capacity.
"CPGA Services" means those Services listed in section B of Schedule
2.1.1 to the Services Agreement.
"CSA" has the meaning set forth in section 10.2.1 of the Management
Agreement.
"Customer" means any customer, except Reseller Customers or
customers of third parties for which Manager provides solely switching
services, who purchases Sprint PCS Products and Services, regardless of
where their NPA-NXX is assigned.
"Customer Credits" has the meaning set forth in section 10.2.1 of
the Management Agreement.
"Customer Equipment Charges" has the meaning set forth in section
10.3.2.5 of the Management Agreement.
"Customer Equipment Credits" has the meaning set forth in section
10.3.2.2 of the Management Agreement.
"Customer-Related Services" has the meaning set forth in section
3.2.2 of the Services Agreement.
"Customer Taxes" means the amounts that Sprint PCS bills to Manager
Accounts for taxes, including, without limitation, federal, state, and
local sales, use, gross and excise tax.
67
"Effective Date" has the meaning set forth in the preamble of
Addendum V.
"Enterprise Value" means the combined book value of an entity's
outstanding debt and equity less cash.
"E911 Phase I Surcharges" means all costs related to Phase I E911
functionality.
"E911 Phase II Surcharges" has the meaning set forth in section
10.3.2.6 of the Management Agreement.
"ETC" has the meaning set forth in section 10.6.1 of the Management
Agreement.
"Fee Based on Billed Revenue" has the meaning set forth in section
10.2.1 of the Management Agreement.
"Gross Customer Additions in Manager's Service Area" means the
average number of Customers activated (without taking into consideration
the number of Customers lost) during the previous month with an NPA-NXX
assigned to the Service Area as reported in Sprint PCS' most recent
monthly KPI report.
"Initial 3G Data Fee Period" has the meaning set forth in section
10.4.1.3(a) of the Management Agreement.
"Initial Pricing Period" has the meaning set forth in section 3.2.1
of the Services Agreement.
"Inter Service Area Fee" has the meaning set forth in section 4.3 of
the Management Agreement.
"Investment Banker" has the meaning set forth in section 9.3.2 of
the Management Agreement.
"Manager Accounts" has the meaning set forth in section 10.2.1 of
the Management Agreement.
"Manager Management Process" has the meaning set forth in section
12.1.2 of the Management Agreement.
"Manager Management Report" has the meaning set forth in section
12.1.2 of the Management Agreement.
"Net Billed Revenue" has the meaning set forth in section 10.2.1 of
the Management Agreement.
"Net Software Cost" means the amount paid by Sprint PCS to the
vendor directly associated with the Software used by Manager in the
Service Area for
68
which Manager is not obligated to pay the Software vendor directly, net of
any discounts or rebates and excluding any mark-up by Sprint PCS for
administrative or other fees, and is limited to that proportionate amount
attributable to Manager.
"New Coverage" means the build-out in the Service Area that is in
addition to the build-out required under the then-existing Build-out Plan,
which build-out Sprint PCS or Manager decides should be built-out.
"NPA-NXX" means NPA-NXX or an equivalent identifier, such as a
network access identifier (NAI).
"Non-Capital Program Requirement Change" has the meaning set forth
in section 9.3.1(a) of the Management Agreement.
"Number of Customers in Manager's Service Area" means the average
number of Customers with NPA-NXXs assigned to the Service Area reported in
Sprint PCS' most recent monthly KPI report.
"Offered Spectrum" has the meaning set forth in section 17.15.5 of
the Management Agreement.
"Operating Assets" [Addm I, ss.28] means the assets Manager owns and
uses in connection with the operation of the Service Area Network, at the
time of termination, to provide the Sprint PCS Products and Services.
Operating Assets does not include items such as furniture, fixtures and
buildings that Manager uses in connection with other businesses. Operating
Assets includes any contracts or agreements between Manager and its
Related Parties that are necessary to operate the Service Area Network.
Operating Assets does not include any logos or trademarks registered to
Manager or its Related Parties or any rights of Manager that survive
termination of the agreement. Examples of Operating Assets include without
limitation: switches, towers, cell sites, systems, records and retail
stores.
"Outbound Roaming Fees" means the amounts that Sprint PCS or its
Related Parties bills to Manager Accounts for calls placed on a non-Sprint
PCS Network.
"Overall Changes" has the meaning set forth in section 1.10(a) of
the Management Agreement.
"Program Requirement Change" means a change in a Program Requirement
issued by Sprint PCS in accordance with section 9.2 of the Management
Agreement.
"Real Property" has the meaning set forth in paragraph 1.7 of
Exhibit 11.8 to the Management Agreement.
"Related Party" means, with respect to any Person, any other Person
that directly or indirectly through one or more intermediaries controls,
is controlled by, or is under common control with the Person. For purposes
of the Management Agreement, Sprint
69
Spectrum L.P., a Delaware limited partnership, WirelessCo, L.P., a
Delaware limited partnership, SprintCom, Inc., a Kansas corporation,
PhillieCo Partners I, L.P., a Delaware limited partnership, PhillieCo,
L.P., a Delaware limited partnership, Sprint Telephony PCS, L.P., a
Delaware limited partnership, Sprint PCS License, L.L.C., a Delaware
limited liability company, American PCS Communications, LLC, a Delaware
limited liability company, APC PCS, LLC, a Delaware limited liability
company, and Sprint Communications Company L.P., a Delaware partnership,
will be deemed to be Related Parties of Sprint PCS. For purposes of this
definition, the term "controls" (including its correlative meanings
"controlled by" and "under common control with") means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"Reseller Customer" means customers of companies or organizations
with a Private Label PCS Services or similar resale agreement with Sprint
PCS or Manager.
"Reseller Customer Fees" has the meaning set forth in section
10.4.1.1 of the Management Agreement.
"SCCLP" has the meaning set forth in section 3.4.2(b) of the
Management Agreement.
"Selected Services" means Services.
"Service Area Network" means the network that is directly required
for the provision of Sprint PCS Products and Services to Customers and is
managed by Manager under the Management Agreement in the Service Area
under the License.
"Services" has the meaning set forth in section 2.1.1 of the
Services Agreement.
"Settled-Separately Manager Expenses" has the meaning set forth in
section 3.2.5 of the Services Agreement.
"Software" means only that software and software features currently
existing or developed in the future that are used in connection with
telecommunications equipment owned or leased by Manager in Manager's
provisioning of Sprint PCS Products and Services and that are necessary in
Manager's provisioning of Sprint Products and Services in the Service Area
and includes, without limitation, software maintenance, updates,
improvements, upgrades and modifications to the software. "Software"
expressly excludes:
(i) software "rights to use" licenses to the extent paid
to the licensor directly by Manager, and
(ii) software operating Sprint PCS' national platforms,
billing system platforms, customer service platforms and like
applications.
70
"Software Fees" means costs associated (including applicable license
fees) with procuring software, software maintenance, software upgrades and
other software costs needed to provide uniform and consistent operation of
the wireless systems within the Sprint PCS Network.
"Spectrum Offer" has the meaning set forth in section 17.15.5 of the
Management Agreement.
"Sprint PCS" means any or all of the following Related Parties who
are License holders or signatories to the Management Agreement: Sprint
Spectrum L.P., a Delaware limited partnership, WirelessCo, L.P., a
Delaware limited partnership, SprintCom, Inc., a Kansas corporation,
PhillieCo Partners I, L.P., a Delaware limited partnership, PhillieCo,
L.P., a Delaware limited partnership, Sprint Telephony PCS, L.P., a
Delaware limited partnership, Sprint PCS License, L.L.C., a Delaware
limited liability company, American PCS Communications, LLC, a Delaware
limited liability company, and APC PCS, LLC, a Delaware limited liability
company. Any reference in the Management Agreement or Services Agreement
to Cox Communications PCS, L.P., a Delaware limited partnership, or Cox
PCS License, L.L.C., a Delaware limited liability company, is changed to
Sprint Telephony PCS, L.P., a Delaware limited partnership, or Sprint PCS
License, L.L.C., a Delaware limited liability company, respectively, to
reflect name changes filed with the Delaware Secretary of State in 2002.
"Sprint PCS ARPU" means the average revenue per user publicly
announced by Sprint PCS or its Related Parties for the most recent
calendar year. Sprint PCS ARPU is generally calculated by dividing
wireless service revenues by average wireless subscribers.
"Sprint PCS CCPU" means the cash cost per user publicly announced by
Sprint PCS or its Related Parties for the most recent quarter. Sprint PCS
CCPU is generally calculated by dividing costs of wireless service
revenues, service delivery and other general and administrative costs by
average wireless subscribers.
"Sprint PCS CPGA" means the cost per gross addition publicly
announced by Sprint PCS or its Related Parties for the most recent
quarter. Sprint PCS CPGA is calculated by dividing the aggregate costs of
acquiring new wireless subscribers, including equipment subsidies,
marketing costs and selling expenses, by gross additional subscribers.
"Sprint PCS Retail Yield for Voice and 2G Data Usage" means the
quotient calculated by dividing (a) Sprint PCS ARPU less the 3G data
component in the Sprint PCS ARPU by (b) the reported minutes of use per
subscriber for the calendar year for which the Sprint PCS ARPU was
calculated.
"Sprint PCS Retail Yield for 3G Data Usage" means the quotient
calculated by dividing (a) the 3G data component in the Sprint PCS ARPU by
(b) the kilobytes of use for 3G data usage per subscriber for the calendar
year for which the Sprint PCS ARPU was calculated.
71
"Subsidy Funds" has the meaning set forth in section 10.6.1 of the
Management Agreement.
"Transition Date" has the meaning set forth in section 10.12.3 of
the Management Agreement.
"3G Net Travel Amount" has the meaning set forth in section
10.4.1.3(b)(i)(A) of the Management Agreement.
"3G Standard Travel Rate" has the meaning set forth in section
10.4.1.3(a) of the Management Agreement.
"3G Travel Ratio" means an amount determined where the numerator is
the total billed kilobytes of use that Customers with an NPA-NXX that is
not assigned to the Service Area Network use the Service Area Network for
Inter Service Area 3G Data during a calendar month, calendar year or other
period and the denominator is total billed kilobytes of use that Customers
with an NPA-NXX assigned to the Service Area use a portion of the Sprint
PCS Network other than the Service Area Network for Inter Service Area 3G
Data for the same measured period.
"Type II Report" has the meaning set forth in section 12.1.2 of the
Management Agreement.
"USF Charges" has the meaning set forth in section 10.3.2.7 of the
Management Agreement.
"Vendor Software" has the meaning set forth in section 1.3.4(b) of
the Management Agreement.
"Voice and 2G Adjusted Travel Rates" has the meaning set forth in
section 10.4.1.2(b)(i)(A)of the Management Agreement.
"Voice and 2G Net Travel Amount" has the meaning set forth in
section 10.4.1.2(b)(ii)(A) of the Management Agreement.
"Voice and 2G Standard Travel Rates" has the meaning set forth in
section 10.4.1.2(a) of the Management Agreement.
"Voice and 2G Travel Ratio" means an amount determined where the
numerator is the total billed minutes of use that Customers with an
NPA-NXX that is not assigned to the Service Area Network use the Service
Area Network for Inter Service Area Voice and 2G Data during a calendar
month, calendar year or other period and the denominator is total billed
minutes of use that Customers with an NPA-NXX assigned to the Service Area
use a portion of the Sprint PCS Network other than the Service Area
Network for Inter Service Area Voice and 2G Data for the same measured
period.
72
"WLNP Surcharges" has the meaning set forth in section 10.2.4 of the
Management Agreement.
"Write-offs" has the meaning set forth in section 10.3.1 of the
Management Agreement.
"Year 2000 Compliance" has the meaning set forth in section 17.29 of
the Management Agreement.
73
B. Cross-references to Other Paragraphs in Previous Addenda.
Listed below are those paragraphs in the previous addenda that are
hereby deleted in their entirety.
Addendum I
8. Switching Charges
12. Deployment of Cellular by Manager's Related Parties
Listed below are those paragraphs in the previous addenda that are
interpretations or applications of the Management Agreement, the Services
Agreement, the Trademark License Agreements or the Schedule of Definitions and
that are not listed above. These serve as cross-references to facilitate finding
provisions in the previous addenda. The number shown at the beginning of each
item is the paragraph reference in the designated Addendum.
Addendum I
1. Ownership of Spectrum
6. Development and Purchase of Cell Sites
8. Switching Charges (Deleted by Addm V, B)
10. Branding and Retail Store Presentation
11. Use of Manager's PCS Licenses and GSM Assets
12. Deployment of Cellular by Manager's Related Parties (Deleted
by Addm V, B)
18. Regulatory Approvals for Transfers
27. Result of Services Agreement Breach
Addendum II
1. Transfer of Spectrum (Deleted by Addm IV, ss.1)
2. Counterparts
Addendum III
None
Addendum IV
1. Transfer of Spectrum - Deleted
2. NPA-NXX-X Transfer
3. Counterparts.
74
C. Other Provisions.
1. Manager and Sprint PCS' Representations. Manager and Sprint PCS each
represents and warrants that its respective execution, delivery and performance
of its obligations described in this Addendum have been duly authorized by
proper action of its governing body and do not and will not violate any material
agreements to which it is a party. Each of Manager and Sprint PCS also
represents and warrants that there are no legal or other claims, actions,
counterclaims, proceedings or suits, at law or in arbitration or equity, pending
or, to its knowledge, threatened against it, its Related Parties, officers or
directors that question or may affect the validity of this Addendum, the
execution and performance of the transactions contemplated by this Addendum or
that party's right or obligation to consummate the transactions contemplated by
this Addendum.
2. Reaffirmation of Sprint Agreements. Each of the undersigned reaffirms
in their entirety the Management Agreement, the Services Agreement and the
Trademark License Agreements, together with their respective rights and
obligations under those agreements.
3. Counterparts. This Addendum may be executed in one or more
counterparts, including facsimile counterparts, and each executed counterpart
will have the same force and effect as an original instrument as if the parties
to the aggregate counterparts had signed the same instrument.
[THE REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY.]
75
The parties have caused this Addendum V to be executed as of the date
first above written.
SPRINT SPECTRUM L.P.
By: /S/ David B. Bottoms
-----------------------------------
Name: David B. Bottoms
Title: VP Alliances
WIRELESSCO, L.P.
By: /S/ David B. Bottoms
-----------------------------------
Name: David B. Bottoms
Title: VP Alliances
APC PCS, LLC
By: /S/ David B. Bottoms
-----------------------------------
Name: David B. Bottoms
Title: VP Alliances
PHILLIECO, L.P.
By: /S/ David B. Bottoms
-----------------------------------
Name: David B. Bottoms
Title: VP Alliances
SPRINT COMMUNICATIONS COMPANY L.P.
By: /S/ Thomas E. Murphy
-----------------------------------
Name: Thomas E. Murphy
Title: Sr. VP Communications & Brand
Management
SHENANDOAH PERSONAL
COMMUNICATIONS COMPANY
By: /S/ Christopher E. French
-----------------------------------
Name: Christopher E. French
Title: President
76
EXHIBIT 1
ILLUSTRATIVE CALCULATION FOR CASH SETTLEMENT
Cash Simplification
Illustrative Only
---------------------
Monthly
---------------------
Write-offs $ 1,235
Billed Revenue $ 10,350
Customer Credits (970)
--------
Net Billed Revenue $ 9,380 82.5%
Customer Equipment Credits (66) -0.6%
100% Affiliate Retained Amounts 235 2.1%
100% Sprint PCS Retained Amounts 1,479 13.0%
Customer Equipment Charges 175 1.5%
E911 Surcharges 65 0.6%
Wireless Local Number Portability Charges 26 0.2%
USF Charges 74 0.7%
--------------------
Amount Billed (Net of Customer Credits) $ 11,368 100.0%
Fee Calculation
Net Billed Revenue $ 9,380
Allocated Write-off (1,019)
--------
$ 8,361
92%
--------
Fee Based on Billed Revenue $ 7,692
100% Affiliate Retained Amounts $ 235
Allocated Write-off (26)
Phase II E911 Surcharges 53
Allocated Write-off (6)
Wireless Local Number Portability Charges 2
Allocated Write-off (0)
Customer Equipment Credits (66)
Allocated Write-off 7
Write-off for Customer Equipment Charges (19)
--------
$ 180
Total $ 7,872
---------------------
77
Schedule 2.1.1
-SECTION A-
Presently Offered CCPU Services - Activity Applied as % to Sprint PCS reported
CCPU
3G Fees
A/P Backhaul/Facility Disputes
Affiliate Utilities
ATM Soft Hand Off
Bank Fees
BI Performance Services - Initiation
BI Performance Services - Maintenance
Bid Cost
Billing
Check Free
Clarify Maintenance Fee
CO Usage
Collection Agency Fees
Conferences
Costs associated with rollout of new products and services
Credit Card Processing/Fees
Customer Care
Customer Solutions - Mature Life
Directory Assistance
DS3
E - Commerce PT
Enhanced Voicemail
Entrance Facility Expenses (Includes Terminating/Trunking Charge)
Ford Revenue
Ford Telematics
Gift Card Payable
Gift Card Receivable
Hal Riney Ad Kit
High Speed Remote Access Server
ICS Clearing House Costs (Includes Illuminet, Roaming Clearing House, and TSI)
IMT Charges
Interconnection
Inter-Machine Trunk
IT (Includes E-Commerce)
LD Verification
LIDB / CNAM
Local Loop, COC, ACF, IXC, etc. (National Platform Expense - Local Loop Cost,
Central Office Connection (COC), access Coordination Fee (ACF),
Co-Location Charges, and Inter Exchange Carrier (IXC) Charges)
Lockbox 261
MCI Disconnect Adjusted
National Platform - COA
National Platform Disputes
National Platform (2G) (Includes Voice Activated Dialing)
78
National Platform Component
FCAPS (Fault, Configuration, Accounting, Performance, Security)
Capital Projects
Expense Projects
Circuit Expense
CLOH
Labor
Forecasts
IN (Intelligent Network)
Capital Expense
Expense Projects
Circuit Expense
CLOH
Labor
Forecasts
OSSN
Capital Expense
Expense Projects
Circuit Expense
CLOH
Labor
Forecasts
3G
Capital Projects
Expense Projects
Circuit Expense
CLOH
Labor
Forecasts
Operator Service
Vendor Fee
Wireless Web
Capital Projects
Expense Projects
Circuit Expense
CLOH
Labor
Forecasts
Messaging
Capital Projects
Expense Projects
Circuit Expense
CLOH
79
Labor
Forecasts
VAD
Capital Projects
Expense Projects
Circuit Expense
CLOH
Labor
Forecasts
Voice Mail
Capital
Expense Projects
Circuit Expense
CLOH
Labor
Forecasts
Software Maintenance
Openwave
Hewlett Packard
Comverse
Marconi
Lucent
Commworks
Four Corners
Other Vendors (39)
Northwest Frequent Flyer
Premium Vision Services
PreNet
Pricing
Pro Text Messaging Plan
Ringers & More (Includes SBF and PT fees)
Roadside Rescue
Sprint Synch Services
Telecheck Charge
Telematics
Text Messaging Plan
TSC Usage
Type 1 Affiliate Long Distance
Voice Command Web
Wireless Web
80
-SECTION B-
Presently Offered CPGA Services - Activity Applied as % to Sprint PCS reported
CPGA
500 Minute Promotion Credit
Activations - Customer Solutions
Activations - E-Commerce (Includes On Line (Web) Activations)
Activations - Telesales
Credit Check Fee
Customer Solutions - Early Life
Demo Phones
EarthLink
Hal Riney Service
Handset Logistics
Handset Obsolescence Fee and Carrying Costs
Local/Indirect Commission
Marketing Collateral Destruction
NAM/CAM
One Sprint Telesales
PGA Expenses
PLS Commission
SmartWorks Printing
-SECTION C-
Presently Offered CCPU Services - Activity Settled Separately
Affiliate Project Authorizations
Long Distance
E911 Phase I Revenue
Microwave Clearing
Roaming
Software Fees
Sprint Local Telephone Usage
Taxes Paid on Behalf of Type III Affiliates
Tower Lease
Travel Revenue and Expense
Upgrade Commission - 2 Step Channel
Vendor Usage-Based Charges on New Products
Wholesale Revenue and Expense
-SECTION D-
Presently Offered CPGA Services -Activity Settled Separately
3G Device Logistics Fee
3rd Party Spiffs
Accessory Margin
Commissions - National 3rd Party
Commissions - Other 3rd Party
Coop Advertising - Local 3rd Party
Coop Advertising - National 3rd Party
Handset returns
81
Handset subsidies
Handsets
Marketing Collateral (excluding destruction)
Meeting Competition Fund
RadioShack Promos (Includes RadioShack Golden Quarter, Jumpstart, Relaunch,
Sprint to Vegas, and Break the Bank)
Rebate Administrative Expense
Rebates
Reciprocal Retail Store Cost Recovery
Sprint LDD Commission
Third Party Promotions
Upgrade Commission - RadioShack
82
EXHIBIT 10.14
SHENANDOAH TELEPHONE COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
Effective May 12, 2003
Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
TABLE OF CONTENTS
INTRODUCTION..................................................................1
ARTICLE I DEFINITIONS........................................................2
1.01. Actuarial Equivalent............................................2
1.02. Accrued Benefit.................................................2
1.03. Affiliate.......................................................2
1.04. Applicable Percentage...........................................2
1.05. Beneficiary.....................................................2
1.06. Board...........................................................2
1.07. Committee.......................................................3
1.08. Company.........................................................3
1.09. Compensation....................................................3
1.10. Credited Service................................................3
1.11. Early Retirement Date...........................................3
1.12. Employee........................................................3
1.13. Final Compensation..............................................3
1.14. Hour of Service.................................................3
1.15. Normal Retirement Date..........................................3
1.16. Participant.....................................................4
1.17. Plan Year.......................................................4
1.18. Regular Retirement Plan.........................................4
1.19. Surviving Spouse................................................4
ARTICLE II PARTICIPATION.....................................................5
ARTICLE III RETIREMENT BENEFITS..............................................6
3.01. Normal Retirement Benefit.......................................6
3.02. Early Retirement Benefit........................................6
3.03. Deferred Retirement Benefit.....................................6
3.04. Pre-Retirement Death Benefit....................................6
3.05. Post-Retirement Death Benefit...................................6
3.06. Forfeiture of Benefit...........................................7
3.07. Optional Forms of Retirement Payments...........................7
ARTICLE IV ADMINISTRATION OF THE PLAN........................................9
4.01. Administrative Rules............................................9
4.02. Claims Procedure................................................9
ARTICLE V AMENDMENTS AND TERMINATION........................................11
ARTICLE VI MISCELLANEOUS....................................................12
6.01. No Guarantee of Employment.....................................12
6.02. Liability......................................................12
6.03. Nonassignability...............................................12
- i -
Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
6.04. Construction...................................................12
6.05. Governing Law..................................................12
SIGNATURE PAGE...............................................................13
- ii -
Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
INTRODUCTION
Effective May 12, 2003, the Board of Directors of Shenandoah Telephone
Company ("Shenandoah") adopted this Executive Supplemental Retirement Plan (the
"Plan") for selected key employees who are Participants in the Shenandoah
Telephone Company Retirement Plan (such plan hereinafter referred to as "the
Regular Retirement Plan").
The purpose of this Plan is to provide retirement benefits in addition to
those provided under the Regular Retirement Plan. The Plan is intended to be a
plan that is unfunded and maintained primarily for the purpose of providing
deferred compensation for a "select group of management or highly compensated
employees" (as such phrase is used in the Employee Retirement Income Security
Act of 1974). The Plan must be administered and construed in a manner that is
consistent with that intent.
- 1 -
Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
ARTICLE I
DEFINITIONS
The terms used herein shall have the meanings set forth in Article I of
the Shenandoah Telephone Company Retirement Plan (the "Regular Retirement Plan")
except as modified below or otherwise provided in this document.
1.01. Actuarial Equivalent
Actuarial Equivalent means, when used in reference to any form of benefit,
a form of benefit which has the same value as the referenced benefit based on
actuarial assumptions and methods employed in determining actuarial equivalence
under the Regular Retirement Plan.
1.02. Accrued Benefit
Accrued Benefit means, on any given date, a monthly benefit for the life
of a Participant determined as follows:
(1) the Applicable Percentage of the Participant's Final Compensation;
less
(2) the accrued monthly benefit payable at age 65 to the Participant
under the Regular Retirement Plan on that date; less
(3) the Participant's estimated monthly Primary Social Security Benefit
payable at age 65.
1.03. Affiliate
Affiliate means any corporation which, when considered with the Company,
would constitute, a controlled group of corporations within the meaning of Code
section 1563(a) determined without reference to Code section 1563(a)(4) and
1563(e)(3)(C).
1.04. Applicable Percentage
Applicable Percentage means 50% for Participants with 20 years or less of
Credited Service. The Applicable Percentage is increased by 1% for each
additional year of Credited Service up to a maximum of 70% with 40 years of
Credited Service.
1.05. Beneficiary
Beneficiary means any person designated by a Participant to receive such
benefits as may become payable under the Plan after the death of the
Participant.
1.06. Board
Board means the Board of Directors of the Company.
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
1.07. Committee
Committee means the committee appointed by the Board to administer the
Plan.
1.08. Company
Company means the Shenandoah Telephone Company.
1.09. Compensation
Compensation means the taxable earnings paid in cash by the Company to the
Participant, plus amounts deferred under Code section 401(k) and amounts of
earnings that are reduced under Code section 125 pursuant to the Participant's
salary reduction agreement.
1.10. Credited Service
Credited Service means credited service as defined in the Regular
Retirement Plan.
1.11. Early Retirement Date
Early Retirement Date means the first day of the month coinciding with or
next following the month in which the Participant attains age sixty (60) and
completes ten (10) years of Credited Service.
1.12. Employee
Employee means an employee of the Company or an Affiliate of the Company.
1.13. Final Compensation
Final Compensation means, as of the date of determination, one-twelfth
(1/12th) of the Participant's total Compensation for the twelve consecutive
months immediately preceding the date of determination.
1.14. Hour of Service
Hour of Service means hour of service as defined in the Regular Retirement
Plan.
1.15. Normal Retirement Date
Normal Retirement Date means the first day of the month coinciding with or
next following the month in which the Participant attains age sixty-five (65)
and completes ten (10) years of credited service with the Company.
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
1.16. Participant
Participant means an Employee who becomes a Participant in the Plan
pursuant to Plan Article II hereof.
1.17. Plan Year
Plan Year means each 12-month period beginning on January 1 and ending on
December 31.
1.18. Regular Retirement Plan
Regular Retirement Plan means the Shenandoah Telephone Company Retirement
Plan as amended for the applicable time.
1.19. Surviving Spouse
Surviving Spouse means the person to whom the Participant is legally
married on the Participant's date of death.
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
ARTICLE II
PARTICIPATION
(a) Any Employee who is selected by the Board to participate in the Plan
and whose participation is approved in writing by a resolution adopted by the
Board will become a Participant.
(b) A Participant shall cease to be a Participant in the Plan if his
employment terminates prior to his Early Retirement Date, upon the Participant's
death or when his Accrued Benefit under the Plan is paid in full.
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
ARTICLE III
RETIREMENT BENEFITS
3.01. Normal Retirement Benefit
A Participant who retires on his Normal Retirement Date shall be entitled
to receive his Accrued Benefit as of his Normal Retirement Date. The monthly
retirement benefit shall begin on the first day of the month after the month in
which the Participant retires and, except as provided in section 3.07, shall
continue until the month in which the Participant dies.
3.02. Early Retirement Benefit
A Participant who retires on his Early Retirement Date shall be entitled
to receive his Accrued Benefit as of his Early Retirement Date reduced by
five-ninths of one percent (5/9%) for each of the first 60 months and
five-eighteenths of one percent (5/18%) for each of the next 60 months by which
the Participant's date of retirement precedes his Normal Retirement Date. The
monthly retirement benefit shall begin on the first day of the month after the
month in which the Participant retires and, except as provided in section 3.07,
shall continue until the month in which the Participant dies.
3.03. Deferred Retirement Benefit
A Participant who retires on his Deferred Retirement Date shall be
entitled to receive his Accrued Benefit as of his Deferred Retirement Date. The
monthly retirement benefit shall begin on the first day of the month after the
month in which the Participant retires and, except as provided in section 3.07,
shall continue until the month in which the Participant dies.
3.04. Pre-Retirement Death Benefit
(a) If a Participant dies while in the Company's employ, and on or after
either (i) completing fifteen (15) years of Credited Service, or (ii) his Early
Retirement Date, there shall be payable to the Surviving Spouse the monthly
retirement allowance that would have been payable to the Surviving Spouse if the
Participant had retired on the day before his death, elected to receive his
Accrued Benefit as a joint and 50% survivor annuity (Option 3 in section 3.07)
and died one day later.
(b) The monthly retirement allowance payable to the Surviving Spouse shall
begin on the first day of the month after the month of the Participant's death
and shall continue until the month in which the Surviving Spouse dies.
3.05. Post-Retirement Death Benefit
Upon the death of a Participant who is receiving benefits under the Plan,
his Surviving Spouse or Beneficiary shall be entitled to receive the monthly
retirement allowance, if any,
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
payable under the form of benefit in which the Participant was receiving the
benefit prior to his death.
3.06. Forfeiture of Benefit
A Participant forfeits his Accrued Benefit if his employment is terminated
for any reason prior to his Early Retirement Date, except as provided in Section
3.04.
3.07. Optional Forms of Retirement Payments
Each Participant shall have the right to make a written election, subject
to the approval of the Committee, to have his retirement allowance under Plan
section 3.01, 3.02 or 3.03 paid under one of the options set forth in this Plan
section. The optional forms of benefit set forth in this Plan section shall be
Actuarially Equivalent to the benefits payable under Plan section 3.01, 3.02 or
3.03.
OPTION 1. TEN YEARS CERTAIN AND CONTINUOUS OPTION
A Participant may elect to receive a reduced retirement allowance during
his lifetime and, upon his death after retirement but before 120 monthly
retirement allowance payments have fallen due, such reduced retirement
allowance shall be continued to his designated Beneficiary until the
remainder of such 120 monthly payments have been made. If the designated
Beneficiary is not living at the death of the Participant, the Actuarial
Equivalent of the remaining guaranteed payments shall be paid in a lump
sum to the estate of the Participant or to such members of the
Participant's family as the Committee in its sole discretion shall
designate. If payments are continued to the Beneficiary and the
Beneficiary should then die before a combined total of 120 monthly
payments have been made to the Participant and the Beneficiary, the
Actuarial Equivalent of the remaining guaranteed payments shall be paid in
a lump sum to the estate of the Beneficiary.
OPTION 2. FIFTEEN YEARS CERTAIN AND CONTINUOUS OPTION
A Participant may elect to receive a reduced retirement allowance during
his lifetime and, upon his death after retirement but before 180 monthly
retirement allowance payments have fallen due, such reduced retirement
allowance shall be continued to his designated Beneficiary until the
remainder of such 180 monthly payments have been made. If the designated
Beneficiary is not living at the death of the Participant, the Actuarial
Equivalent of the remaining guaranteed payments shall be paid in a lump
sum to the estate of the Participant or to such members of the
Participant's family as the Committee in its sole discretion shall
designate. If payments are continued to the Beneficiary and the
Beneficiary should then die before a combined total of 180 monthly
payments have been made to the Participant and the Beneficiary, the
Actuarial Equivalent of the remaining guaranteed payments shall be paid in
a lump sum to the estate of the Beneficiary.
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
OPTION 3. JOINT AND 50% SURVIVOR ANNUITY
A Participant may elect to receive a reduced retirement allowance during
his lifetime and, upon his death after retirement, a monthly benefit shall
be paid to his Surviving Spouse, if any, equal to 50% of the monthly
annuity payable to the Participant during his lifetime. The Surviving
Spouse's benefit shall be payable beginning with the month following the
Participant's death and shall continue to be paid to the Surviving Spouse
during the Surviving Spouse's lifetime.
OPTION 4. JOINT AND 75% SURVIVOR ANNUITY
A Participant may elect to receive a reduced retirement allowance during
his lifetime and, upon his death after retirement, a monthly benefit shall
be paid to his Surviving Spouse, if any, equal to 75% of the monthly
annuity payable to the Participant during his lifetime. The Surviving
Spouse's benefit shall be payable beginning with the month following the
Participant's death and shall continue to be paid to the Surviving Spouse
during the Surviving Spouse's lifetime.
OPTION 5. JOINT AND 100% SURVIVOR ANNUITY
A Participant may elect to receive a reduced retirement allowance during
his lifetime and, upon his death after retirement, a monthly benefit shall
be paid to his Surviving Spouse, if any, equal to the monthly annuity
payable to the Participant during his lifetime. The Surviving Spouse's
benefit shall be payable beginning with the months following the
Participant's death and shall continue to be paid to the Surviving Spouse
during the Surviving Spouse's lifetime.
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01. Administrative Rules
The Company reserves the right to adopt any rules for the administration
and application of the Plan as necessary which are not inconsistent with the
express terms hereof, to amend or revoke any such rule, and to interpret the
Plan and any rules adopted pursuant to this Plan Article. All actions taken and
all determinations made by the Company in good faith shall be final and binding
upon all Participants, beneficiaries, or other persons interested in the Plan.
4.02. Claims Procedure
(a) All claims for benefits under the Plan shall be submitted to the
Committee or such person as the Committee may designate in writing who shall
have the initial responsibility for determining the eligibility of any claim for
benefits. All claims for benefits shall be made in writing and shall set forth
the facts which such claimant believes to be sufficient to entitle him to the
benefit claimed.
(b) In the event a claim for benefits is denied the claimant shall be
notified in writing or by electronic mail within ninety (90) days after the
claim is submitted. The notice shall be written in a manner calculated to be
understood by the claimant and shall include:
(1) The specific reason or reasons for the denial;
(2) Specific references to the pertinent Plan provisions on which
the denial is based;
(3) A description of any additional material or information
necessary for the claimant to perfect the claim and an explanation why
such material or information is necessary; and
(4) An explanation of the Plan's claim review procedures and time
limits applicable to such procedures, including the claimant's right to
bring a civil action under ERISA section 502(a) following an adverse
benefit determination on review.
If special circumstances require an extension of time for processing the
initial claim, a written notice of the extension and the reason therefore shall
be furnished to the claimant before the end of the initial 90 day period. In no
event shall the extension exceed 90 days.
(c) In the event a claim for benefits is wholly or partly denied, the
claimant or his duly authorized representative, at the claimant's sole expense,
may appeal the denial to the Committee within 60 days of the receipt of written
notice of the denial. In pursuing the appeal the claimant or his duly authorized
representative:
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
(1) may request in writing that the Committee review the denial,
taking into account all comments, documents, records and information
submitted by the claimant relating to the claim without regard to whether
the information was submitted or considered in the initial benefit
determination;
(2) upon request, and free of charge, may review or receive copies
of documents and records relevant to the claim for benefits; and
(3) may submit documents, records and written issues relating to the
claim.
The decision on review shall be made within 60 days of receipt of the
request for review, unless special circumstances require an extension of time
for processing, in which case a decision shall be rendered as soon as possible,
but not later than 120 days after receipt of the request for review. If such an
extension of time is required, written notice of the extension shall be
furnished to the claimant before the end of the original 60 day period. The
decision on review shall be made in writing, shall be written in a manner
calculated to be understood by the claimant, and shall include specific
references to the provisions of the Plan on which the denial is based.
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
ARTICLE V
AMENDMENTS AND TERMINATION
The Company hopes and expects to continue the Plan indefinitely, but
reserves the right, by resolution of the Board or any executive committee of the
Board, to amend, modify, or terminate the Plan at any time and for any reason by
a majority vote of its members, by unanimous consent in lieu of a meeting or in
any other manner applicable under state law. In addition, the Board or the
executive committee of the Board may delegate to an appropriate officer, or
officers of the Company, or committee, may delegate to the all or part of the
authority to amend or terminate the Plan.
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
ARTICLE VI
MISCELLANEOUS
6.01. No Guarantee of Employment
The Plan does not in any way limit the right of the Company or an
Affiliate at any time and for any reason to terminate the Participant's
employment or such Participant's status as an officer of the Company or an
Affiliate. In no event shall the Plan by its terms or implications constitute an
employment contract of any nature whatsoever between the Company or an Affiliate
and a Participant.
6.02. Liability
A Participant's right to a benefit under the Plan shall be solely that of
an unsecured creditor of the Company. The source of Plan benefits pursuant to
the Plan shall be the general funds of the Company; no assets of the Company or
its subsidiaries shall be segregated or committed to insure the Company's or its
subsidiaries' obligations hereunder. No officer, director, or stockholder of the
Company or its subsidiaries shall be individually liable therefore, or on
account of any claim arising by reason of the provisions of this Plan or of any
instrument or instruments implementing the provisions or purposes hereof.
6.03. Nonassignability
The rights, interests, and benefits of a Participant (or beneficiary
thereof) in this Plan shall not be subject to assignment, anticipation,
transfer, pledge, hypothecation or other transfer, and such rights, interests
and benefits shall not be liable for the debts, contracts, or engagements of a
Participant (or beneficiary thereof), or otherwise subject to execution,
attachment, garnishment, or similar process.
6.04. Construction
Headings are given for ease of reference and must be disregarded in
interpreting the Plan. Masculine pronouns wherever used shall include feminine
pronouns and the use of the singular shall include the plural.
6.05. Governing Law
This Plan shall be governed by the laws of the Commonwealth of Virginia
(other than its choice-of-law provisions) except to the extent that the laws of
the Commonwealth of Virginia are preempted by the laws of the United States.
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Shenandoah Telephone Company
Executive Supplemental Retirement Plan
Effective May 12, 2003
SIGNATURE PAGE
As evidence of its adoption of the Shenandoah Telephone Company Executive
Supplemental Retirement Plan Effective May 12, 2003, the Company has caused this
document to be executed by its duly authorized officer as of the ____ day of
_______________, 2003.
SHENANDOAH TELEPHONE COMPANY
By:
------------------------------
Christopher E. French
President
- 13 -
EXHIBIT 21 LIST OF SUBSIDIARIES SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES The following are all subsidiaries of Shenandoah Telecommunications Company, and are incorporated in the Commonwealth of Virginia. Shenandoah Telephone Company Shenandoah Cable Television Company ShenTel Service Company Shenandoah Long Distance Company Shenandoah Valley Leasing Company Shenandoah Mobile Company Shenandoah Network Company ShenTel Communications Company Shenandoah Personal Communications Company
EXHIBIT 23.1 Consent of Independent Accountants The Board of Directors Shenandoah Telecommunications Company: We consent to the incorporation by reference in the registration statements No. 333-21733 on Form S-8 and No. 333-74297 on Form S3-D of Shenandoah Telecommunications Company of our report dated February 6, 2004, with respect to the consolidated balance sheets of Shenandoah Telecommunications Company as of December 31, 2003, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for the years then ended, which report is included in the 2003 Annual Report on Form 10-K of Shenandoah Telecommunications Company. Our report refers to changes in the methods of accounting for goodwill in 2002 and asset retirement obligations in 2003. /s/KPMG LLP Richmond, Virginia March 4, 2004
EXHIBIT 31.1
CERTIFICATION
I, Christopher E. French, certify that:
1. I have reviewed this annual report on Form 10-K of Shenandoah
Telecommunications Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
/s/ CHRISTOPHER E. FRENCH
- -------------------------
Christopher E. French, President and Chief Executive Officer
Date: March 8, 2004
EXHIBIT 31.2
CERTIFICATION
I, Earle A. MacKenzie, certify that:
1. I have reviewed this annual report on Form 10-K of Shenandoah
Telecommunications Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
/s/EARLE A. MACKENZIE
- ---------------------
Earle A. MacKenzie, Executive Vice President and Chief Financial Officer
Date: March 8, 2004
EXHIBIT 32
Written Statement of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Each of the undersigned, the President and Chief Executive Officer and the
Executive Vice President and Chief Financial Officer, of Shenandoah
Telecommunications Company (the "Company"), hereby certifies that, on the date
hereof:
(1) The annual report on Form 10-K of the Company for the twelve months
ended December 31, 2003 filed on the date hereof with the Securities and
Exchange Commission (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) Information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/S/CHRISTOPHER E. FRENCH
Christopher E. French
President and Chief Executive Officer
March 8, 2004
/S/EARLE A. MACKENZIE
Earle A. MacKenzie
Executive Vice President and
Chief Financial Officer
March 8, 2004
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b)
under the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document. This certification shall not be deemed "filed" for purposes
of Section 18 of the Exchange Act or otherwise subject to liability under that
section. This certification shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Exchange Act except to
the extent this Exhibit 32 is expressly and specifically incorporated by
reference in any such filing.