SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from _______________________________
to ______________________________
Commission File Number: 0-9881
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, Virginia 22824
(Address of principal executive offices) (Zip Code)
(540) 984-4141
(Registrant's telephone number, including area code)
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. |X| YES |_| NO
Indicate by check mark whether the registration is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |X| YES |_| NO
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 July 28, 2004
- -------------------------- ----------------------------
Common Stock, No Par Value 7,612,785 Shares
SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX
Page
Numbers
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
June 30, 2004 and December 31, 2003 3-4
Unaudited Condensed Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2004 and 2003 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2004 and 2003 6
Unaudited Condensed Consolidated Statements of
Shareholders' Equity and Comprehensive Income
for the Six Months Ended June 30, 2004 and the
Year Ended December 31, 2003 7
Notes to Unaudited Condensed Consolidated
Financial Statements 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-28
Item 3. Quantitative and Qualitative Disclosures about Market Risk 28
Item 4. Controls and Procedures 29-30
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders 31
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 33
Exhibit Index 34
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets June 30, December 31,
2004 2003
-------- ------------
Current Assets
Cash and cash equivalents $ 34,931 $ 28,696
Accounts receivable, net 7,639 6,488
Income tax receivable 2,077 1,526
Materials and supplies 2,324 2,062
Prepaid expenses and other (Note 10) 7,021 1,669
Deferred income taxes 411 522
-------- --------
Total current assets 54,403 40,963
Securities and investments
Available-for-sale securities 195 199
Other investments 7,705 7,268
-------- --------
Total securities and investments 7,900 7,467
Property, plant and equipment, net 127,396 127,686
Other Assets
Cost in excess of net assets of business
acquired 5,105 5,105
Deferred charges and other assets, net 1,146 999
Escrow account (Note 10) -- 5,000
-------- --------
6,251 11,104
Accumulated amortization 1,862 1,856
-------- --------
Net other assets 4,389 9,248
-------- --------
Total Assets $194,088 $185,364
======== ========
(continued)
3
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
June 30, December 31,
Liabilities and Shareholders' Equity 2004 2003
-------- ------------
Current Liabilities
Current maturities of long-term debt $ 4,285 $ 4,230
Accounts payable 8,331 4,729
Advance billings and deposits 3,183 3,326
Other current liabilities 3,920 3,511
-------- --------
Total current liabilities 19,719 15,796
Long-term debt, less current maturities 36,961 39,116
Other Liabilities
Deferred income taxes 23,522 20,819
Pension and other 2,203 3,425
-------- --------
Total other liabilities 25,725 24,244
Shareholders' Equity
Common stock 6,016 5,733
Retained earnings 105,642 100,449
Accumulated other comprehensive income 24 26
-------- --------
Total shareholders' equity 111,682 106,208
-------- --------
Total Liabilities and Shareholders' Equity $194,088 $185,364
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
4
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
(in thousands, except per share data) June 30, June 30,
2004 2003 2004 2003
-----------------------------------------------------
Operating Revenues
Wireless $ 20,679 $ 16,769 $ 39,632 $ 32,403
Wireline 7,608 6,309 14,757 13,948
Other revenues 1,676 1,766 3,383 3,440
-----------------------------------------------------
Total revenues 29,963 24,844 57,772 49,791
Operating Expenses
Cost of goods and services 3,037 2,661 6,024 4,989
Network operating costs 9,127 8,647 17,441 16,532
Depreciation and amortization 4,395 4,127 8,732 8,148
Selling, general and administrative 8,379 7,011 16,264 13,452
-----------------------------------------------------
Total operating expense 24,938 22,446 48,461 43,121
-----------------------------------------------------
Operating Income 5,025 2,398 9,311 6,670
Other Income (expense):
Non-operating income, net 191 142 415 223
Gain (loss) on investments, net 146 9 128 (319)
Interest expense (773) (893) (1,571) (1,847)
-----------------------------------------------------
Income before income taxes, discontinued
operations and cumulative effect of change in accounting 4,589 1,655 8,282 4,727
Income tax provision (1,709) (611) (3,090) (1,752)
-----------------------------------------------------
Income from continuing operations 2,880 1,044 5,193 2,975
Income from discontinued operations, net of
income taxes -- -- -- 22,628
Cumulative effect of a change in accounting,
net of income taxes -- -- -- (76)
-----------------------------------------------------
Net income $ 2,880 $ 1,044 $ 5,193 $ 25,527
=====================================================
Net income per share, basic
Continuing operations $ 0.38 $ 0.14 $ 0.68 $ 0.39
Discontinued operations, net of income taxes -- -- -- 2.99
Cumulative effect of a change in accounting,
net of income taxes -- -- -- (0.01)
-----------------------------------------------------
Total net income per share, basic $ 0.38 $ 0.14 $ 0.68 $ 3.37
=====================================================
Net income per share, diluted
Continuing operations $ 0.38 $ 0.14 $ 0.68 $ 0.39
Discontinued operations, net of income taxes -- -- -- 2.98
Cumulative effect of a change in accounting,
net of income taxes -- -- -- (0.01)
-----------------------------------------------------
Total net income per share, diluted $ 0.38 $ 0.14 $ 0.68 $ 3.36
=====================================================
Weighted average shares outstanding, basic 7,609 7,575 7,608 7,570
=====================================================
Weighted average shares, diluted 7,658 7,606 7,656 7,594
=====================================================
See accompanying notes to unaudited condensed consolidated financial statements.
5
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
2004 2003
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 5,193 $ 2,975
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 8,726 8,145
Amortization 6 3
Deferred income taxes 2,815 1,683
Gain on investments -- (161)
(Income) loss from patronage and equity investments (236) 288
Loss on disposal of equipment 133 29
Other (75) (20)
Changes in current assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,151) 2,195
Materials and supplies (262) 54
Increase (decrease) in:
Accounts payable 494 (460)
Other prepaids, deferrals and accruals (1,930) 986
-----------------------
Net cash provided by operating activities 13,713 15,717
Cash Flows from Investing Activities
Purchases of property, plant and equipment (5,489) (4,284)
Purchases of other investments (479) (384)
Proceeds from investment activities 278 513
Proceeds from disposal of assets 29 33
-----------------------
Net cash used in investing activities (5,661) (4,122)
Cash Flows from Financing Activities
Payments on long-term debt and revolving loan (2,100) (10,136)
Proceeds from issuance of common stock upon
exercise of stock options 283 317
-----------------------
Net cash used in financing activities (1,817) (9,819)
-----------------------
Net cash provided by continuing operations 6,235 1,776
Net cash provided by discontinued operations -- 27,750
-----------------------
Net increase in cash and cash equivalents 6,235 29,526
Cash and Cash Equivalents
Beginning 28,696 2,209
-----------------------
Ending $ 34,931 $ 31,735
=======================
Cash paid for:
Interest paid $ 1,585 $ 1,911
Income taxes (net of refunds) $ 491 $ 7,085
Other non-cash transactions:
The Company received but has not paid for equipment with a cost of $3.1 million
and $0.1 million as of June 30, 2004and 2003 repectively.
See accompanying notes to unaudited condensed consolidated financial statements.
6
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(in thousands)
Accumulated
Other
Common Retained Comprehensive
Shares Stock Earnings Income (Loss) Total
--------------------------------------------------------------------
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 the
exercise of stock options
and stock grants 41 487 -- -- 487
--------------------------------------------------------------------
Balance, December 31, 2003 7,593 $5,733 $ 100,449 $ 26 $ 106,208
(unaudited) Comprehensive income:
Net income -- -- 5,193 -- 5,193
Net unrealized change in securities
available-for-sale, net of tax $1 -- -- -- (2) (2)
----------------------
Total comprehensive income 5,191
Common stock issued through the
exercise of stock options 19 283 -- -- 283
--------------------------------------------------------------------
Balance, June 30, 2004 7,612 $6,016 $ 105,642 $ 24 $ 111,682
====================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
7
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The interim condensed consolidated financial statements of Shenandoah
Telecommunications Company and Subsidiaries (collectively, the "Company") are
unaudited. In the opinion of management, all adjustments necessary for a fair
presentation of the interim results have been reflected therein. All such
adjustments were of a normal and recurring nature. These statements should be
read in conjunction with the consolidated financial statements and related notes
in the Company's Annual Report on Form 10-K for the year ended December 31,
2003. The balance sheet information at December 31, 2003 was derived from the
audited December 31, 2003 consolidated balance sheet.
2. Operating revenues and income from continuing operations and discontinued
operations for any interim period are not necessarily indicative of results that
may be expected for the entire year.
3. To account for its stock options granted under the Company Stock Incentive
Plan (the "Plan"), 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 APB Opinion No. 25
and related interpretations. Accordingly, no compensation expense has been
recognized under the Plan for years prior to the 2004 grants. In 2004, the
Company issued tandem awards of stock options and stock appreciation rights. As
a result of the tandem awards, the Company recognized compensation expense for
the vested portion of the awards, which totaled $26 thousand for the second
quarter of 2004. Had compensation expense been recorded for the options 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 for the three and six months
ended June 30:
(in thousands, except Three Months Ended Six Months Ended
per share amounts) June 30, June 30,
-------------------------------------------------------------
Net Income 2004 2003 2004 2003
As reported $ 2,880 $ 1,044 $ 5,193 $ 25,527
Pro forma 2,846 989 5,128 25,419
Earnings per share, basic and diluted
As reported, basic $ 0.38 $ 0.14 $ 0.68 $ 3.37
As reported, diluted 0.38 0.14 0.68 3.36
Pro forma, basic 0.37 0.13 0.67 3.36
Pro forma, diluted $ 0.37 $ 0.13 $ 0.67 $ 3.36
8
4. Basic net income per share was computed on the weighted average number of
shares outstanding. Diluted net income per share was computed under the treasury
stock method, assuming the conversion as of the beginning of the period, for all
dilutive stock options. There were no adjustments to net income in the
computation of dilutive net income per share for any period.
5. The Company has identified ten reporting segments based on the products and
services each provides. Each segment is managed and evaluated separately because
of diverse technologies and marketing strategies. A summary of unaudited
external operating revenues (revenues generated from outside customers or
subscribers), internal operating revenues (revenues generated between the
Company's operating segments), operating income (loss), and net income (loss) of
each segment is as follows for the three months ended June 30, 2004 and June 30,
2003.
Three Months Ended June 30, 2004
Operating
In thousands (unaudited) External Internal Income Net Income
Revenues Revenues (loss) (loss)
--------------------------------------------------------
Holding $ -- $ -- $ (421) $ (152)
PCS 19,913 -- 1,832 896
Telephone 5,986 883 2,717 1,713
ShenTel Service 1,657 76 176 80
Cable TV 1,103 9 90 7
Mobile 766 325 494 250
Long Distance 349 336 79 50
Network 170 29 127 80
ShenTel Communications 17 -- (68) (43)
Leasing 2 -- (1) (1)
------------------------------------------------------
Combined totals 29,963 1, 658 5,025 2,880
Inter-segment eliminations -- (1,658) -- --
------------------------------------------------------
Consolidated totals $29,963 $ -- $ 5,025 $ 2,880
======================================================
Three Months Ended June 30, 2003
Operating
In thousands (unaudited) External Internal Income Net Income
Revenues Revenues (loss) (loss)
--------------------------------------------------------
Holding $ -- $ -- $ (173) $ 110
PCS 16,056 1 (426) (788)
Telephone 4,685 764 1,911 1,135
ShenTel Service 1,747 75 284 150
Cable TV 1,109 1 215 45
Mobile 713 305 364 252
Long Distance 330 -- 80 51
Network 185 39 149 92
ShenTel Communications 15 -- (6) (4)
Leasing 4 -- 1 1
------------------------------------------------------
Combined totals 24,844 1,185 2,399 1,044
Inter-segment eliminations -- (1,185) (1) --
------------------------------------------------------
Consolidated totals $24,844 $ -- $ 2,398 $ 1,044
======================================================
9
A summary of unaudited external operating revenues (revenues generated from
outside customers or subscribers), internal operating revenues (revenues
generated between the Company's operating segments), operating income (loss),
income (loss) from continuing operations, income (loss) from discontinued
operations, cumulative effect of accounting change, and net income (loss) of
each segment is as follows for the six months ended June 30, 2004 and June 30,
2003.
Six Months Ended June 30, 2004
-------------------------------------------------------------------------------------------
Net Income Income
Operating (loss) from (loss) from
In thousands External Internal Income continuing discontinued Cum. Net Income
(unaudited) Revenues Revenues (loss) operations operations effect (loss)
- -------------------------------------------------------------------------------------------------------------------
Holding $ -- $ -- $ (949) $ (452) -- -- $ (452)
PCS 38,134 1 2,995 1,380 -- -- 1,380
Telephone 11,532 1,815 5,325 3,302 -- -- 3,302
ShenTel Service 3,345 153 394 185 -- -- 185
Cable TV 2,207 15 272 77 -- -- 77
Mobile 1,498 645 956 500 -- -- 500
Long Distance 687 668 128 82 -- -- 82
Network 331 67 256 160 -- -- 160
ShenTel --
Communications 34 (64) (40) -- -- (40)
Leasing 4 -- (2) (1) -- -- (1)
-----------------------------------------------------------------------------------------
Combined totals 57,772 3,364 9,311 5,193 -- -- 5,193
Inter-segment
eliminations -- (3,364) -- -- -- -- --
-----------------------------------------------------------------------------------------
Consolidated totals $57,772 $ -- $ 9,311 $ 5,193 -- -- $ 5,193
=========================================================================================
Six Months Ended June 30, 2003
-------------------------------------------------------------------------------------------
Net Income Income
Operating (loss) from (loss) from
In thousands External Internal Income continuing discontinued Cum. Net Income
(unaudited) Revenues Revenues (loss) operations operations Effect (loss)
- -------------------------------------------------------------------------------------------------------------------
Holding $ -- $ -- $ (313) $ 63 $ -- $ -- $ 63
PCS 31,032 -- (731) (1,472) -- -- (1,472)
Telephone 10,688 1,498 5,484 3,297 12 -- 3,309
ShenTel Service 3,406 155 654 359 -- -- 359
Cable TV 2,206 2 461 118 -- -- 118
Mobile 1,371 605 744 246 22,628 (76) 22,798
Long Distance 671 127 286 182 -- -- 182
Network 383 70 304 188 -- -- 188
ShenTel
Communications 26 1 (14) (8) -- -- (8)
Leasing 8 -- 2 2 -- -- 2
-----------------------------------------------------------------------------------------
Combined totals 49,791 2,458 6,877 2,975 22,640 (76) 25,539
Inter-segment
eliminations -- (2,458) (207) -- (12) -- (12)
-----------------------------------------------------------------------------------------
Consolidated totals $49,791 $ -- $ 6,670 $ 2,975 $ 22,628 $ 76 $ 25,527
=========================================================================================
10
The Company's assets by segment as of June 30, 2004, December 31, 2003, and June
30, 2003 are as follows:
In thousands June 30, December 31, June 30,
(unaudited) 2004 2003 2003
-----------------------------------------
Holding $ 143,813 $ 141,658 $ 142,828
PCS 74,430 68,773 67,811
Telephone 61,747 57,533 57,903
ShenTel Service 6,957 6,721 6,365
Cable TV 10,230 10,340 10,782
Mobile 18,813 18,396 16,826
Long Distance 934 808 570
Network 1,807 1,557 1,284
ShenTel Communications 43 78 110
Leasing 187 188 187
-----------------------------------------
Combined totals 318,961 306,052 304,666
Inter-segment eliminations (124,873) (120,688) (117,418)
-----------------------------------------
Consolidated totals $ 194,088 $ 185,364 $ 187,248
=========================================
6. Comprehensive income includes net income along with net unrealized gains and
losses on the Company's available-for-sale investments. Following is a summary
of comprehensive income for the periods indicated:
Three Months Ended Six Months Ended
In thousands (unaudited) June 30, June 30,
---------------------------------------------
2004 2003 2004 2003
---------------------------------------------
Net income $2,880 $1,044 $ 5,193 $25,527
Net unrealized income (loss) -- 33 (2) 21
---------------------------------------------
Comprehensive income $2,880 $1,077 $ 5,191 $25,548
=============================================
7. Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported results of operations or retained earnings.
8. On February 20, 2004, the Company effected a 2-for-1 stock split with a
record date of January 30, 2004. Shareholders received one additional share of
common stock for each share of common stock held on the record date. All share
and per share amounts have been retroactively adjusted to reflect the impact of
the split.
11
9. The following table presents pension and other post-retirement benefits
information for the periods presented.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------
In thousands (unaudited) 2004 2003 2004 2003
- --------------------------------------------------------------------------------------------------
Net periodic benefit cost recognized:
Service cost $ 166 $ 133 $ 332 $ 255
Interest cost 189 163 378 317
Expected return (135) (135) (270) (270)
Amortization of unrecognized transition asset (2) (12) (4) (19)
Recognized gains or losses 16 8 32 16
Prior service cost recognized 17 15 34 23
-----------------------------------------
Total $ 251 $ 172 $ 502 $ 322
=========================================
The Company's contribution to the pension plan for 2004 was $2.0 million, which
was contributed on April 30, 2004, of which $0.1 million was a required
contribution.
10. As a result of the previously reported February 2003 sale of the Company's
cellular operation, the Company reflected those operations and the sales
proceeds as discontinued operations in the 2003 first quarter results. Of the
sales price, $5.0 million has been held in escrow and is now reflected as a
current asset under "Prepaid expenses and other" line on the accompanying
balance sheet, as of June 30, 2004. The Company expects to receive the entire
$5.0 million on or about February 28, 2005.
12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This management's discussion and analysis includes "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. When used in this report,
the words "anticipate," "believe," "estimate," "expect," "intend," "plan" and
similar expressions as they relate to Shenandoah Telecommunications Company or
its management are intended to identify these forward-looking statements. All
statements regarding Shenandoah Telecommunications Company's expected future
financial position and operating results, business strategy, financing plans,
forecasted trends relating to the markets in which Shenandoah Telecommunications
Company operates and similar matters are forward-looking statements. We cannot
assure you that the Company's expectations expressed or implied in these
forward-looking statements will turn out to be correct. The Company's actual
results could be materially different from its expectations because of various
factors, including those discussed below and under the caption "Business--Risk
Factors" in the Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 2003. The following management's discussion and analysis should be
read in conjunction with the Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 2003, including the financial statements and related
notes included therein.
Unless indicated otherwise, dollar amounts fifty thousand and over have
been rounded to the nearest hundred thousand dollars and dollar amounts of less
than fifty thousand have been rounded to the nearest thousand dollars.
Overview
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, and 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 in Virginia,
during 2002. In addition, the Company sells and leases equipment, mainly related
to services it provides, and 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 generated
by operations of the Personal Communications Company (a PCS Affiliate of Sprint)
and the Mobile Company. Wireline revenues are generated by operations of the
Telephone Company, Network Company, Cable Television Company, and Long Distance
Company. Other revenues are generated by operations of ShenTel Service Company,
the Leasing Company, ShenTel Communications Company and the Holding Company.
13
Selected Operating Statistics
The following table shows selected operating statistics of the Company for the
most recent five quarters. This information is unaudited, and is provided as a
supplement to the financial statements.
Three Months Ended
------------------------------------------------------------
(Unaudited) Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30,
2004 2004 2003 2003 2003
------------------------------------------------------------
Telephone Access Lines 24,867 24,901 24,877 24,951 24,972
Cable Television Subscribers 8,709 8,701 8,696 8,796 8,750
Dial-up Internet Subscribers 16,422 17,063 17,420 17,616 17,798
DSL Subscribers 1,856 1,637 1,298 1,163 1,080
Retail PCS Subscribers 94,475 89,632 85,139 81,015 77,398
Wholesale PCS Users (1) 18,059 16,349 12,858 7,531 4,690
Paging Subscribers 1,782 1,862 1,989 2,107 2,315
Long Distance Subscribers 9,559 9,542 9,526 9,517 9,520
Fiber Route Miles 554 552 552 552 552
Total Fiber Miles 28,770 28,743 28,740 28,740 28,739
Wholesale PCS Minutes (000) 10,373 8,492 4,974 3,207 2,303
Long Distance Calls (000) (2) 6,228 5,821 5,851 6,078 5,001
Total Switched Access Minutes (000) 60,874 58,099 55,932 54,349 51,124
Originating Switched Access MOU (000) 18,280 18,252 17,829 18,285 18,343
Employees (full time equivalents) 284 272 268 264 266
CDMA Base Stations (sites) 257 257 253 248 246
Towers (100 foot and over) 78 78 77 76 73
Towers (under 100 foot) 10 11 11 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) 1,610 1,585 1,581 1,581 1,574
PCS Average Revenue Per User (ARPU) (ex. Travel) $ 50.63 $ 50.38 $ 52.05 $ 55.09 $ 52.84
PCS Travel Revenue per subscriber (4) $ 20.12 $ 18.20 $ 20.84 $ 16.50 $ 17.18
PCS Ave. Management Fee per subscriber $ 4.06 $ 4.07 $ 4.02 $ 4.62 $ 4.58
PCS Ave. Monthly Churn % 1.9% 2.2% 2.3% 2.4% 2.1%
PCS Cost Per Gross Addition (CPGA) $428.19 $371.49 $387.47 $418.22 $376.98
PCS Cash Cost Per User (CCPU) (4) $ 37.78 $ 38.57 $ 36.31 $ 40.05 $ 44.23
(1) - Wholesale Digital PCS Users are private label subscribers based in the
Company's wireless network service area.
(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 revenue before travel, roaming
revenue, and management fee, net of adjustments divided by average
subscribers. PCS Travel revenue includes travel, roaming and wholesale
revenue and is divided by the average number of subscribers. PCS Average
management fee per subscriber is 8% of revenue retained by Sprint,
excluding travel and wholesale revenue. 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
14
includes selling costs, product costs, and advertising costs. CCPU
includes network, customer care and other costs.
(4) - On a normalized basis, PCS travel revenue per subscriber in the fourth
quarter of 2003 would have been $19.25 and PCS CCPU would have been
approximately $38.66 taking into account the adjustments and true-ups
recorded in December 2003.
Significant Transactions
As previously disclosed in a Form 8-K report filed with the SEC on May 26, 2004,
the Company entered into an amendment to the Management Agreement with Sprint on
May 24, 2004. The agreement is filed as an exhibit to this report. Under the
terms of the agreement, the Company has agreed to participate in all new and
renewed reseller agreements signed through December 31, 2006. Additionally, the
Company signed a letter of agreement to participate in all existing Sprint
reseller arrangements applicable to the Company's service area. In consideration
for this participation, the Company received a reduction in the monthly fee per
subscriber paid to Sprint for back office services and certain network services.
The reduction per subscriber per month is $0.45 in 2004, $0.70 in 2005 and $0.95
in 2006, from the amounts agreed upon in the management agreement amendment
dated January 2004.
As previously disclosed in a Form 8-K report filed with the SEC on May 26, 2004,
the Company signed a contract with Lucent Technologies on May 21, 2004. The
contract with Lucent provides for the Company to purchase up to $20 million of
third generation (3G) CDMA2000 mobile network equipment in 2004. As part of the
agreement, the Company has committed to use Lucent as its vendor of choice for
all switching and base station requirements for its existing CDMA2000 mobile
network through 2007.
On May 18, 2004, AT&T announced a five-year non-exclusive agreement with Sprint
that will allow AT&T to sell wireless service that will be provided over
Sprint's wireless network. AT&T announced that it intends to begin selling
wireless service using the Sprint network later this year. The Company believes
it should benefit from this relationship as a result of the amendment it signed
with Sprint on May 24, 2004, discussed above, but is unable at this date to
determine the extent of the potential benefit.
On June 1, 2004, the Company was informed by the Virginia Department of
Transportation ("VDOT") that it was not the winning bidder for the new statewide
511 Travel contract effective February 2005. The Company is the current provider
of 511 Travel to the Interstate 81 corridor under contract with VDOT through
January 2005. The Company recorded $0.6 million in revenue for the six months
ended June 30, 2004 from this contract.
On June 22, 2004, Sprint announced plans to deploy EV-DO (Evolution Data
Optimized) technology across its PCS network to provide its customers average
user speeds of 300-500 kilobits per second and peak rates of up to 2.4 Megabits
per second for downloads. Sprint announced that it expects to deploy EV-DO in
select markets in the second half of 2004 and the majority of the top U.S.
metropolitan markets in 2005. The Company, as a PCS Affiliate of Sprint, is
evaluating the impact of deploying EV-DO into its network, but has not yet
determined the timing, cost or the extent of this deployment.
15
Results of Operations
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 made up of traditional telephone operations,
a cable TV operation, fiber network leasing and a company that resells
long-distance. Other businesses include the Company's Internet operation, the
Interstate 81 corridor Travel 511 project, and the sales and service of
telecommunications systems.
Since the mid 1990's, the principal source of the Company's revenues has shifted
from traditional wireline revenues to wireless and other revenues. For the three
months ended June 30, 2004, wireless revenues accounted for 69.0% of total
revenues, wireline revenues accounted for 25.4% of total revenues, and other
revenues accounted for 5.6% of total revenues. For the three months ended June
30, 2003, wireless revenues accounted for 67.5%, wireline revenues for 25.4% and
other revenues for 7.1% of total revenues.
The Company's strategy is to expand its services and the geographic areas
served. This strategy has been implemented primarily through enhancing the PCS
network, through Call Division Multiple Access ("CDMA") technology, under the
national brand of Sprint. The Company's efforts to market its services in the
expanded PCS network area contributed to new subscribers purchasing phones and
services, which continued to increase revenues during the three months ended
June 30, 2004. The Company had 257 PCS CDMA base stations in service at June 30,
2004, compared to 246 base stations in service at June 30, 2003. This increase
in base stations is primarily the result of supplementing network capacity and
gradually extending coverage along highly traveled secondary roads in the
Company's market areas.
The Company operates its wireless network as a PCS affiliate of Sprint. The
Company receives revenues from Sprint for subscribers that obtain service in the
Company's network coverage area and subscribers that use 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 each financial period.
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 Sprint five-year non-exclusive wholesale agreement with AT&T, discussed
above, may facilitate a significant increase in the wholesale minutes of use on
the Company's wireless network. This potential for increased traffic, however,
could require additional investment by the Company in expansion of its wireless
network capacity.
For the third consecutive quarter, the Company's PCS operation recorded
profitable operations, largely as a result of attainment by the PCS operation of
a break-even level in the number of customers in the Company's service area.
Achievement of the break-even level has enabled the Company to cover all fixed
costs of operation in addition to the coverage of all variable costs . The
16
PCS operation achieved this level due to more favorable pricing from Sprint on
customer care services, reduced bad debt expense, and a continued favorable net
travel position.
The Company's net travel and wholesale roaming, including the long distance and
3G data portions of that traffic, increased to a $2.7 million receivable for the
current quarter, compared to a $2.3 million receivable for the same quarter last
year. The Company's travel receivable minutes increased 43.7% to 71.8 million
and the travel payable minutes increased by 35.8% to 49.8 million, compared to
the second quarter of 2003. The increases in travel minutes receivable and
payable are primarily the result of an increase in usage of the Company's
network facilities by subscribers based in other markets and growth in
subscribers in the Company's markets.
On a per-subscriber basis, the Company's average of travel payable minutes
increased to 176 minutes in the second quarter of 2004, which represented an
increase of 28 minutes from second quarter of 2003. A continuation of this trend
could negatively affect the results of the PCS operation and overall results of
the Company absent any changes in the Company's arrangements with Sprint.
In the second quarter of 2004, the Company's average PCS customer turnover, or
churn, rate decreased to 1.9%, compared to 2.1% in the second quarter of 2003.
To date, Wireless Local Number Portability has not had a significant effect on
the churn rate, although there is no certainty that the rate will not be
affected in future periods. Bad debt expense has declined for the last five
quarters due to the implementation of deposits and more restrictive credit
policies. Bad debt expense for the PCS operation, as a percentage of service
revenues, declined from 4.8% in the second quarter of 2003 to 1.4% in the second
quarter of 2004. Although management continues to monitor receivables,
collection efforts and new subscriber credit ratings, there is no certainty that
the improving bad debt trend will continue in the future.
The Company has experienced a decline in ARPU, which it believes is the result
of a lower rate plan mix in the first six months of 2004. If this trend
continues, the Company expects a negative impact on ARPU, but a favorable impact
on churn and bad debt expense.
The wireline business is made up of the Company's traditional telephony, cable
TV, fiber network operations, yellow page directory and 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 residents, 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 access line count declined in the third and fourth
quarters of 2003, increased by a net 24 lines in first quarter of 2004, and
declined by 34 lines in the second quarter of 2004. The Company believes that
the declines are attributable to the migration of traditional telephone lines to
wireless and DSL services. Based on industry experience, the Company anticipates
the trend of further access line declines may continue for the foreseeable
future.
Other revenues are derived primarily from Internet services, which are provided
through both dial-up and DSL high-speed service. The Company has experienced a
decline in dial up subscriptions
17
over the last year. Over the same period, customer desire for faster Internet
connections has contributed to growth of almost 100% in revenues from the DSL
service.
In the third quarter of 2004, the Company will begin offering compression
technology to its dial-up Internet customers as part of its basic service. The
compression technology offers download speeds of up to five times faster than
traditional service for certain applications. This offering is intended to
enhance the Internet experience of the dial-up subscriber base, particularly in
areas where the Company cannot offer high-speed broadband access.
The Company is facing competition for revenues it generates in all lines of
business, which may 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.
The Company continues to devote significant resources to comply with the various
requirements of the Sarbanes-Oxley Act.
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003
General
Total revenues for the second quarter of 2004 were $30.0 million, which
represented an increase of $5.1 million, or 20.6%, compared to $24.8 million for
the second quarter of 2003. Total revenues include wireless revenue of $20.7
million, which increased by $3.9 million, or 23.3%; wireline revenues of $7.6
million, which increased by $1.3 million, or 20.6%; and other revenues of $1.7
million, which decreased $0.1 million from the second quarter of 2003. Operating
income increased $2.6 million, to $5.0 million, compared to $2.4 million for the
same period in 2003. Income per share from continuing operations, diluted was
$0.38 cents per share for the 2004 second quarter, compared to $0.14 per share
for the 2003 second quarter.
Revenues in the 2004 and 2003 quarters were affected by revenue adjustments
occurring in other fiscal periods. The first adjustment resulted from the
resolution of a $0.3 million revenue dispute, reported in the first quarter of
2004, which involved issuing several of the Company's inter-exchange carrier
customers credit for $154 thousand and adjusting the remaining reserve of $146
thousand, through access revenues in second quarter of 2004. The results in the
2003 second quarter were affected by an adjustment of $1.5 million to reduce
access revenues for disputed charges from two previous years involving
inter-exchange carrier customers.
Revenues
Wireless revenues are primarily derived from the PCS business. As of June 30,
2004, the Company had 94,975 retail PCS subscribers. The PCS operation added
17,577 net retail subscribers since June 30, 2003, and 4,843 since March 31,
2004. Wireless service revenues were $12.7 million for the second quarter of
2004, which represented an increase of $2.0 million, or 15.8%, compared to $10.7
million for the second quarter of 2003. The Company's ARPU, exclusive of travel
revenue, decreased 4.2% to $50.63 for the second quarter of 2004, from $52.84
for the second quarter of 2003. These changes in ARPU were primarily
attributable to subscribers generating fewer minutes over plan usage and the
popularity of additional Add-a-Phone SM plans, which dilute the per subscriber
revenue.
18
PCS travel, wholesale and roaming revenues combined for the second quarter 2004
were $6.3 million, which represented a $1.4 million, or 28.5%, increase compared
to the travel, wholesale and roaming revenue for the second quarter of 2003. The
travel, wholesale and roaming revenue increase, which resulted from an increase
in travel usage and growth in wholesale minutes, was offset in part by a decline
in roaming usage for the same period.
PCS equipment sales increased $0.5 million, or 52.0%, to $0.9 million for the
second quarter of 2004. The increase was primarily due to more subscribers
upgrading their handsets to access new features provided with the service.
Wireline revenues were $7.6 million in the 2004 second quarter, which
represented an increase of $1.3 million, or 20.6%, from the second quarter of
2003. Access revenue in the telephone business increased $1.3 million, due
primarily to a reduction of $1.5 million for access revenue disputes recorded in
revenue in the second quarter of 2003. Total switched minutes of use increased
by 20.1% compared to the first quarter of 2003, but reflected the decrease in
access rates and settlements from the National Exchange Carrier Association
("NECA") pools. The mix of wireless traffic to total traffic shifted from 31.0%
for the second quarter of 2003 to 40.8% for the second quarter of 2004. This
increase was primarily attributable to terminating traffic that comes into the
Company's telephone network and is delivered to wireless users.
Other revenues of $1.7 million decreased $0.1 million compared to other revenues
for the second quarter of 2003. Internet revenues increased $0.1 million, or
5.0%. The total subscriber base for the Company's dial-up and DSL Internet
services was 18,278 as of June 30, 2004, compared to 18,878 as of June 30, 2003,
a decrease of 3.2%. While DSL subscribers increased 776, or 71.9%, compared to
the June 30, 2003 subscriber base, there was a decline of 1,376 dial-up
subscribers, or 7.7%, from the level at June 30, 2003. The Company has
experienced increased subscriber deactivations due to migration to competing
high-speed Internet services in those areas where the Company does not offer a
high-speed Internet access alternative.
The revenue from the Travel 511 contract with the Virginia Department of
Transportation, which expires January 31, 2005, decreased by $0.1 million due to
a lower price negotiated for the final year of the contract period.
Operating Expenses
Total operating expense for the second quarter of 2004 was $24.9 million, which
represented an increase of $2.5 million, or 11.4%, compared to the second
quarter of 2003. The higher operating expense was primarily attributable to an
increase in the number of PCS subscribers, the expanded PCS network operation,
and an increase in selling, general and administrative expenses. The effect of
these factors was offset in part by a significant decline in bad debt expense.
Costs of goods and services were $3.0 million, which represented an increase of
$0.4 million, or 14.1%, from the second quarter of 2003. This increase was due
primarily to an increase in gross additions in the quarter, an increase of
approximately $51 in the cost per gross additions, from $377 for the second
quarter of 2003, to $428 for the second quarter of 2004, including action by
current PCS customers to upgrade their handsets. During the second quarter of
2004, the Company added 10,201 gross new PCS subscribers compared to the 9,742
gross new subscribers it added in the second quarter of 2003. Existing
subscribers are purchasing Company subsidized new handsets to
19
replace their current handsets as new features become available, and new
services are offered that are not available on earlier model handsets. The
upgrade cost for the second quarter of 2004 was $0.5 million. Management
anticipates the upgrade trend may continue, and may increase significantly, in
future periods as wireless carriers offer subsidized handsets as an inducement
for subscribers to extend the term of their service agreements.
The Company's cost per gross addition ("CPGA") in the PCS business for the
second quarter of 2004 increased to $428.19, or 13.6%, from the second quarter
of 2003, due to handset upgrade costs included in the CPGA measure. Cost of
goods sold per gross addition basis contributed $21.39, or 5.7%, to the increase
in the CPGA measure. Currently, the Company classifies 100% of the handset cost,
including the costs of existing subscribers electing to up-grade their handsets,
as a cost per gross addition.
Network operating costs for the second quarter of 2004 were $9.1 million, which
represented an increase of $0.5 million, or 5.6%, compared to the second quarter
of 2003. Increased travel costs of $1.0 million were offset in part by lower
network costs of $0.3 million in the PCS operation and lower rental costs of
$0.2 million for buildings and towers. The travel costs increased due to an
increase in subscribers and an increase in the average travel minutes used by
the Company's subscribers in the Sprint or Sprint affiliate markets not operated
by the Company, to 176 minutes per month in the 2004-second quarter, from 148
minutes per month in the 2003-second quarter.
Depreciation and amortization expense for the 2004 second quarter was $4.4
million, which represented an increase of $0.3 million, or 6.5%, compared to
$4.1 million for the second quarter of 2003, as new assets, primarily in the PCS
and telephone operation, have been added to the networks.
Selling, general and administrative costs were $8.4 million, which represented
an increase of $1.4 million, or 19.5%. Billing and customer care costs incurred
in the PCS operation, primarily charges from Sprint, increased $0.4 million as a
result of the increase in the total number of PCS subscribers, net of cost
reductions obtained as part of amendments signed with Sprint on January 30, 2004
and May 24, 2004. Increased administrative staff and increases in wages and
benefits for existing employees contributed $0.5 million in added costs compared
to the second quarter of 2003. The Company has previously announced plans to
increase staff to manage existing and future growth and for expanded reporting
requirements. Additional costs incurred in connection with Sarbanes-Oxley
compliance were $0.2 million in the second quarter of 2004. Selling and
marketing expenses increased $0.3 million due to added internal sales staff,
additional third party sales agents and expanded advertising efforts related to
the new Shentel Pages phone book, which began selling advertising for its 2005
book in the later part of the second quarter. Bad debt expense decreased $0.4
million compared to the second quarter of 2003 primarily due to reduced PCS
subscriber terminations for non-payment. PCS bad debt expense, net of
recoveries, was 1.4% of total PCS service revenues in the second quarter of
2004; compared to 4.8% of total PCS service revenues in the second quarter of
2003.
In the Company's PCS operation, cash cost per user ("CCPU") for the second
quarter of 2004 declined to $37.78, which represented a 14.6% decrease from the
second quarter of 2003. The change was primarily the result of the amendments to
the Company management contract with Sprint that were signed on January 30, 2004
and May 24, 2004, and economies of scale due to an increase of 22.4% in the
average number of customers over the second quarter of 2003.
20
Other Income (Expense)
Gains on external investments totaled $146 thousand in the second quarter of
2004, compared to a nominal gain in the second quarter of 2003. Second quarter
2004 interest expense decreased by $0.1 million, or 16.5%, a result of decreased
borrowing levels compared to the second quarter of 2003. The Company's total
debt as of June 30, 2004 was $41.2 million, compared to $45.4 million as of June
30, 2003 and $43.3 million as of December 31, 2003.
Income before income taxes, discontinued operations and cumulative effect of
accounting changes was $4.6 million, which represented an increase of $2.9
million from the $1.7 million reported for the second quarter of 2003.
Income from continuing operations was $2.8 million for the second quarter of
2004, compared to $1.0 million for the second quarter 2003, which represented an
increase of $1.8 million.
The results of discontinued operations in 2003 were from the VA 10 RSA limited
partnership, which was sold in February 2003. There were no discontinued
operations in the second quarter of 2004 or 2003. The Company's 2004 second
quarter net income was $2.8 million compared to $1.0 million in 2003.
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
General
Total revenues for the six months ended June 30, 2004 (the "2004 six-month
period") was $57.8 million, which represented an increase of $8.0 million, or
16.0%, compared to $49.8 million for the six months ended June 30, 2003 (the
"2003 six-month period"). Total revenues for the 2004 six-month period include
wireless revenue of $39.6 million, which increased by $7.2 million, or 22.3%;
wireline revenues of $14.8 million, which increased by $0.8 million, or 5.8%;
and other revenues of $3.4 million, which were essentially unchanged for the
2003 six month period. Operating income increased $2.6 million, to $9.3 million,
compared to $6.7 million for the same period in 2003. Income per share from
continuing operations, diluted was $0.68 cents per share for the 2004 six-month
period, compared to $0.39 per share for the same period of 2003.
The 2003 six-month period includes a reduction in wireline revenue of $1.5
million, which related to access revenue recorded in prior periods that was
disputed by interexchange carrier customers.
Revenues
Wireless service revenues were $24.7 million for the 2004 six-month period,
which represented an increase of $4.1 million, or 19.8%, compared to $20.6
million for same period of 2003. The Company's average customer base increased
by 24.4% in 2004, compared to the same period of 2003. The ARPU exclusive of
travel revenue has decreased as a result of the implementation of a significant
number of Add-a-Phone SM customer plans, which generate significantly lower
revenues than the normal customer base. Management is monitoring the add-a-phone
sales, which have negatively affected the ARPU of the PCS operation.
21
PCS travel, wholesale and roaming revenue combined for the 2004 six-month period
were $11.7 million, which represented a $2.2 million, or 22.8%, increase
compared to the travel, wholesale and roaming revenue for the 2003 six-month
period. The travel, wholesale and roaming revenue increase resulted from an
increase in travel usage and the growth of wholesale minutes, the effect of
which was offset in part by a decline in roaming usage for the same period.
PCS equipment sales increased $0.8 million, or 103.0% to $1.7 million for 2004
six-month period. The increase was primarily due to an increase in gross
additions and in the number of subscribers replacing phones and upgrading their
handsets to access added features provided with the service.
Wireline revenues were $14.8 million in the 2004 six-month period, which
represented an increase of $0.8 million, or 5.8%, from the 2003 six-month
period. Access revenue in the telephone business increased $1.1 million, due
primarily to a recorded reduction in revenue of $1.5 million in 2003 related to
a dispute with inter-exchange carriers. Total switched minutes of use increased
20.1% in the 2004 six-month period, compared to the 2003 six-month period. The
increased traffic, which is primarily due to wireless traffic over the Company's
telephone subsidiary's network, is billed at a lower rate.
Other revenues of $3.4 million decreased $0.1 million compared to the 2003
six-month period other revenues. Internet revenues increased $0.1 million, or
4.0%, while 511 Travel revenue and other equipment sales and service revenues
decreased $0.2 million from the 2003 six-month period. The Company was informed
by the Virginia Department of Transportation in the second quarter of 2004 that
the Company's contract for the 511 Virginia travel business would not be renewed
beyond the term of the existing contract, which extends through January 2005.
Operating Expenses
Total operating expense for the 2004 six-month period was $48.5 million, which
represented an increase of $5.4 million, or 12.4%, compared to the 2003
six-month period. The higher operating expense was primarily attributable to an
increase in the number of PCS subscribers; the expanded PCS network operation,
and an increase in selling, general and administrative expenses. The effect of
these factors was offset in part by a significant decline in bad debt expense.
Costs of goods and services were $6.0 million for the 2004 six-month period,
which represented an increase of $1.0 million, or 20.7%, from the 2003 six-month
period. This increase was due primarily to an increase in the number of PCS
gross subscriber additions, higher cost per gross additions and action by
current PCS customers to upgrade their handsets.
Network operating costs for the 2004 six-month period were $17.4 million, which
represented an increase of $0.9 million, or 5.5%, compared to the same period of
2003. Increased travel costs of $1.7 million were offset in part by lower other
network costs of $0.7 million in the PCS operation. The travel costs increased
due to an increase in PCS subscribers and an increase in the average minutes of
use for travel by the Company's subscribers.
Depreciation and amortization expense for the 2004 six-month period was $8.7
million, which represented an increase of $0.6 million, or 7.2%, compared to
$8.1 million for the 2003 six-month period, as new assets, primarily in the PCS
and telephone operation, have been added to the networks.
22
Selling, general and administrative costs were $16.3 million, which represented
an increase of $2.8 million, or 20.9%. Billing and customer care costs incurred
in the PCS operation, primarily charges from Sprint, increased $0.6 million as a
result of the increase in the total number of PCS subscribers, net of cost
reductions obtained as part of the amendments signed with Sprint on January 30,
2004 and May 24, 2004. Increased administrative staff and increases in wages and
benefits for existing employees contributed $0.5 million in added costs compared
to the first six months of 2003. Additional costs incurred in connection with
Sarbanes-Oxley compliance were $0.7 million for the 2004 six-month period.
Selling and marketing expenses increased $0.9 million due to added internal
sales staff and expanded advertising efforts on the new Shentel Pages phone book
introduced in early 2004. Bad debt expense decreased $0.6 million as a result of
reduced PCS subscriber terminations for non-payment, which were attributable to
an improved credit profile of the subscriber base in the Company's operating
area.
Other Income (Expense)
Gains on external investments totaled $128 thousand in the 2004 six-month
period, compared to a $0.3 million loss for the 2003 six-month period. Interest
expense decreased $0.3 million, or 15.0%, in the 2004 six-month period compared
to the 2003 six-month period, a result of decreased borrowing levels.
Income before income taxes, discontinued operations and cumulative effect of
accounting changes was $8.3 million in the 2004 six-month period, which
represented an increase of $3.6 million from the $4.7 million reported for the
2003 six-month period.
Income from continuing operations increased $2.2 million, or 74.6%, to $5.2
million for the 2004 six-month period from $3.0 million for the 2003 six-month
period.
The results of discontinued operations in 2003 were from the VA 10 RSA limited
partnership, which was sold in February 2003. Income from discontinued
operations, net of the tax effect of the transaction, was $22.6 million in the
2003 six-month period. There were no discontinued operations in the 2004
six-month period.
The Company adopted Statement of Financial Accounting Standards No. 143,
"Accounting of 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 in the 2003 six-month period.
The Company's net income for the 2004 six-month period was $5.2 million compared
to $25.5 million for the 2003 six-month period.
Investments In Non-Affiliated Companies
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 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 student housing properties at universities and colleges. For those
investments that eventually become publicly-
23
traded, the Company evaluates whether to hold or sell parts or all of each
investment on an individual basis.
As of June 30, 2004, the Company held shares in two companies that are
publicly-traded, with the following market values: $49 thousand in Net IQ
(NTIQ), with 3,744 shares held, and $146 thousand in Deutsche Telekom, AG (DT),
with 8,219 shares held.
Liquidity And Capital Resources
The Company generated $16.8 million in cash from operations in the 2004
six-month period, compared to $15.8 million in the 2003 six-month period. During
the second quarter of 2004, the Company contributed $2.0 million in cash to the
Company's defined benefit pension plan, of which $0.1 million was a mandatory
contribution. This disbursement is reflected as a component of the "other
prepaids, deferrals and accruals" line of the cash flows from operating
activities, appearing elsewhere in this report.
The Company expects that operations may continue to generate positive cash flows
as PCS operations continue to improve and the number of subscribers continues to
increase. The Company may liquidate some of its short-term investments, to pay
for new equipment purchased from Lucent during the current year, under the $20
million equipment purchase contract signed in the second quarter of 2004.
As of June 30, 2004, the Company's total debt was $41.2 million, with an
annualized overall weighted average interest rate of approximately 7.5%. As of
June 30, 2004, the Company was in compliance with the covenants in its credit
agreements.
The Company is obligated to make future payments under various contracts,
including amounts pursuant to its various long-term debt facilities, and
non-cancelable operating lease agreements for retail space, tower space and cell
sites.
Capital expenditures budgeted for 2004 total approximately $34 million,
including approximately $24.3 million for additional PCS base stations,
additional towers, additional sites, and switch upgrades to enhance the PCS
network, and approximately $5 million to the telephone operation. An additional
$5 million will be expended for building renovations, vehicles, office
equipment, and other miscellaneous capital needs including the renovation to the
Shentel Center in Edinburg, Virginia, which will house the Company's corporate
offices. The Company has increased its capital budget for 2004 by $1.3 million
to provide funds for new site acquisitions in preparation to improve and expand
the coverage of the PCS network. This funding will cover the initial site
identification costs.
For the 2004 six-month period, the Company spent $5.5 million in capital
projects. Management anticipates its spending will accelerate during the third
quarter of 2004, as a significant number of the base station replacements occur
during that period
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 dividend payments, from cash on hand, operating cash
flow, and amounts expected to be available under the Company's existing
financing facility. The Company may, at its election, liquidate some of its
investments to generate additional cash for its capital needs.
24
Risks
The Company is one of eleven PCS Affiliates of Sprint, and accordingly, is
affected by decisions and requirements adopted by Sprint in regard to its
wireless operation. Management continually reviews its relationship with Sprint
in light of new developments and requirements.
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 applicable fiscal periods. Corrections, if any, are made no
earlier than the period in which the parties agree to the corrections. The
Company is at risk for reporting errors that may be made by Sprint.
The net balance of PCS travel revenue and expense, which is currently favorable
to the Company, 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
their ability to maintain their segment of the Sprint network may affect the
Company's ability to add new subscribers.
Wireless Local Number Portability ("WLNP") permits a subscriber to change
wireless service providers in the same market area while retaining the
subscriber's existing telephone number. This Federal Communications Commission
mandate was effective November 24, 2003 in the 100 largest metropolitan areas
and became effective in all areas of the United States on May 24, 2004. Although
the initial impact of WLNP on the Company's operations appears to be immaterial,
WLNP may have a significant future effect on the Company's operations. 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. To date, the impact of WLNP has been marginally
favorable to the Company.
The Company has limited control over the service plans and marketing promotions
offered by Sprint in the competitive wireless telecommunications industry.
Sprint controls the marketing plans, advertising message and market promotions
offered in the Company's market area. The plans and promotions offered may have
a materially 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. These services include text
messaging, video, data transfer, and push-to-talk walkie-talkie features. If
these services do not operate properly or if Sprint should not continue to
develop new competitive products, the results could have a materially 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 affect
25
the Company. These distribution and reseller programs may have an adverse impact
on the Company's results.
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, those difficulties 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 may 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 telephone access revenue may be adversely impacted by legislative
or regulatory actions that decrease access rates or exempt certain traffic from
paying access or by industry trends that shift minutes from the Company's
regulated telephone network. An unfavorable finding, trend or ruling may have an
adverse effect on the Company's telephone operations.
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 and the
elimination of a second line dedicated to dial-up Internet as customers migrate
to broadband connections. The Company has not seen a material reduction in its
number of access lines to date. An acceleration of this trend could have a
materially adverse effect on the Company's telephone operations in the future.
On May 24, 2004, Local Number Portability ("LNP") was implemented in the
Company's local wireline service area. The Company's customers are 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. To date, there has
been insignificant activity, but the Company cannot estimate the future impact
of LNP on its telephone operations. If a significant number of customers
disconnect the Company's service, such disconnections may have an adverse impact
on the Company's telephone operating results.
The Company's revenue from fiber leases may be adversely affected 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 manage this risk.
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 programming procurement. The
continued success of the satellite television providers may have an adverse
impact on the Company's cable television results.
The Company may not be able to utilize all of its net operating loss carry
forwards for taxes in certain states before they expire. As a result, the
Company may have to write off some of its deferred tax assets, which could
adversely affect its future cash position.
26
Recent Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board, (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," which was issued in January 2003. The Company is required to apply
FIN 46R to variable interests in Variable Interest Entities created after
December 31, 2003. For variable interests in Variable Interest Entities created
before January 1, 2004, the Interpretation was applied beginning on January 1,
2004, except that the interpretation was required to be applied in the fourth
quarter of 2003 for any Variable Interest Entities that were considered to be
special purpose entities. For any Variable Interest Entities that must be
consolidated under FIN 46R that were created before January 1, 2004, the assets,
liabilities and non-controlling interests of the Variable Interest Entities
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 has determined the application
of FIN 46R to Variable Interest Entities in which the Company has variable
interests has no impact on the Company's consolidated financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards
("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 became 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 FASB issued SFAS No.132(R). SFAS No.132(R) is a revision
of SFAS No.132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." SFAS No.132(R) is effective for financial statements with fiscal
years ending after December 15, 2003. SFAS No.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
post-retirement 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. See note 9 to
the financial statements appearing elsewhere in this report for the disclosures
required by this pronouncement.
27
ITEM 3. 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. The Company's 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 June
30, 2004, the Company's variable rate debt balance was zero. The Company has a
variable rate line of credit totaling $0.5 million with SunTrust Bank. The
Company's remaining debt has fixed rates through its maturity. A 10.0% decline
in market interest rates would increase the fair value of the fixed rate debt by
approximately $1.3 million, while the estimated current fair value of the fixed
rate debt is approximately $39.9 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 $23.7
million of cash equivalents in money market funds, which are accruing interest
at 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 affect 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
affected 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, there is limited risk related to the
Company's available-for-sale securities. General economic conditions affected by
regulatory changes, competition or other external influences may play a higher
risk to the Company's overall results.
As of June 30, 2004, the Company had $7.9 million invested in privately-held
companies directly or through investments with portfolio managers. Most of the
companies are at an early stage of development, 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 $1.3 million committed under contracts the
Company has signed with portfolio managers.
28
ITEM 4. Controls and Procedures
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 reports under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission, 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.
The Company's management, with the participation of its Chief Executive Officer,
who is the Company's principal executive officer, and its Chief Financial
Officer, who is the Company's principal financial officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures as of June 30,
2004. Based upon that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures are effective in alerting them in a timely manner to material
information relating to Shenandoah Telecommunications Company, including its
consolidated subsidiaries, required to be included in this report and the other
reports that the Company files or submits under the Securities Exchange Act of
1934.
During the second fiscal quarter of 2004, there were no changes in the Company's
internal control over financial reporting that have materially affected, or that
are reasonably likely to materially affect, its internal control over financial
reporting.
Under our agreements with Sprint, Sprint provides us with billing, collections,
customer care, certain network operations and other back office services for the
PCS operation. As a result, Sprint remits to the Company approximately 63% of
the Company's total revenues based on the results of the 2004 second quarter,
while approximately 44% 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 PCS
affiliate network partners. To address this issue, Sprint engages its
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 to September. The most recent report
indicated there were no issues which would adversely affect the information used
to support the recording of the revenues and expenses provided by Sprint related
to our relationship with them.
29
In connection with 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, documenting, and improving our internal control
processes and intend to engage a regional accounting firm to assist in the
testing of these controls.
The Company dedicated significant resources during the second quarter of 2004 in
preparing for the conversion of its PCS point of sale system. The conversion
will involve a change from a stand-alone, Company-hosted system, to a system
hosted by Sprint that is integrated into the Sprint PCS billing system. Through
this integration, the Company has eliminated several points of multiple data
entry, thereby reducing the risk of error, and enhancing internal control, while
improving the sales process. The new system was placed in service during
mid-July 2004.
As part of the preparation for meeting the requirements of Section 404 of the
Sarbanes-Oxley Act, the Company has spent time formalizing and further
documenting existing internal controls. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Because of the inherent
limitations in all control systems no evaluation of controls can provide
absolute assurance that all control issues, if any, within a company have been
detected.
30
PART II. OTHER INFORMATION
ITEM 4. Submissions of Matters to a Vote of Security Holders set forth below:
(a) The Company held its 2004 annual meeting of shareholders on April 20,
2004.
(c) The following sets forth information regarding the election of
Directors at the 2004 annual meeting, which was the only matter voted upon
at the 2004 annual meeting. There were 7,604,257 shares of common stock
outstanding as of the record date for, and entitled to vote at, the 2004
annual meeting, of which 5,666,479 shares were present in person or by
proxy, and constituted a quorum.
The shareholders approved a proposal to elect each of the three nominees
to the board of directors for a three-year term, which will expire at the
annual meeting of shareholders in 2007. The tabulation of votes on this
proposal is as follows:
NOMINEE FOR WITHHELD
Christopher E. French 5,642,403 24,076
Dale S. Lam 5,627,289 39,190
James E. Zerkel II 5,631,071 35,408
31
ITEM 5. Other Information
Amendment to Sprint Management Agreement executed
May 24, 2004.
Attached
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this Quarterly Report on Form
10-Q:
10.15 Addendum VI dated May 24, 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.
31 Certifications 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. 1350.
(b) The following Current Reports on Form 8-K were furnished during the
period covered by this report:
Filing Date of Report Item Reported
--------------------- -------------
April 15, 2004 Item 9 (press release announcing first
quarter 2004 financial results)
May 26, 2004 Item 5 (press release announcing the
signing of a $20 Million Agreement with
Lucent Technologies for 3G Network
Equipment)
May 26, 2004 Item 5 (press release announcing the
signing of an amendment to the
management agreement with Sprint)
32
SIGNATURES
Pursuant to the requirements 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
(Registrant)
August 4, 2004 /S/ Earle A. MacKenzie
------------------------------------------------
Earle A. MacKenzie
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
33
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
10.15 Addendum VI dated May 24, 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.
31 Certifications 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. 1350.
34
Exhibit 10.15
ADDENDUM VI
TO
SPRINT PCS MANAGEMENT AGREEMENT AND
SPRINT PCS SERVICES AGREEMENT
Amending these agreements further and restating certain paragraphs in
Addenda I through VI
Dated as of May 24, 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 VI (this "Addendum") contains amendments to 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,
(4) Addendum IV dated as of May 22, 2003, and
(5) Addendum V dated as of January 30, 2004.
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
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 entered into Addendum V dated January 30, 2004, but the
parties acknowledge that Addendum V is superseded in its entirety by this
Addendum as of the Effective Date of this Addendum V. For the avoidance of
doubt, the parties acknowledge and agree that Addendum V shall remain in full
force and effect with respect to the period prior to the Effective Date of this
Addendum V. The parties are executing this Addendum as of the date noted above,
but this Addendum becomes effective on (the "Effective Date") either (1) April
1, 2004, if the parties execute this Addendum on or before May 24, 2004 or (2)
the first calendar day of the first calendar month after this Addendum is
executed if the parties execute this Addendum after May 24, 2004.
On the Effective Date of this Addendum, the following provisions of
the Management Agreement, the Services Agreement, the Trademark License
Agreements and the Schedule of Definitions are amended and, in certain cases,
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.
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
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.
(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 Total 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 all systems 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.
(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
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.
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.
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 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 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:
(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 the effective
date expressly stated in the amendment or other instrument containing
these changes and the date of the addendum 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 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 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. For purposes of clarification, if the addendum or other
instrument between Sprint PCS and the Other Manager provides or defines a
specific date that is the effective date of the addendum or other
instruments, then the effective date of the new addendum will be the same
as that specific date. 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 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 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 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 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 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 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 Area 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 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.
(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 [NEW]. Section 9 of Addendum
I is deleted. Schedule 1 attached to this Addendum replaces and supersedes the
heading, preamble, general terms and all attachments to the Program Requirement
3.5.2 dated August 13, 2002, which is labeled "Exhibit 3.5.2 Program Requirement
for Voluntary Resale of Products and Services By Voluntary Resellers Under the
Private Label Solutions Program". Program Requirement 3.5.2 - VMU which is
labeled "Exhibit 3.5.2 - VMU Program Requirements for Voluntary Resale of
Products and Services by Virgin Mobile USA, LLC (version 7/07/02)" continues in
effect, as amended from time to time, except its label is amended to read
"Program Requirement 3.5.2 - VMU Program Requirements for Resale of Products and
Services By Virgin Mobile USA, LLC (version 7/07/02)".
Section 3.5.2 to the Management Agreement is amended and restated in its
entirety to read as follows:
3.5.2 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. Other terms of the resale program are governed by Program
Requirement 3.5.2.
Manager will continue to participate in any resale arrangements
that, before April 1, 2004, Manager had opted in to under the Program
Requirement 3.5.2, effective as of January 1, 2004, and before the
amendment to the Program Requirement 3.5.2 by this Addendum, except that
those resale arrangements will be governed by Program Requirement 3.5.2 as
amended by this Addendum. Compensation for Manager's participation in
these resale arrangements will be paid to Manager in accordance with
section 10.4.1.1(a)(i) of this agreement, unless compensation was
otherwise negotiated between Manager and Sprint PCS (e.g., Virgin Mobile
USA).
Manager will participate in all resale arrangements entered into,
renewed or extended during the Required Resale Participation Period
(regardless of whether Manager was participating in the resale arrangement
on or before April 1, 2004) in all cases with compensation being paid to
Manager as set forth in section 10.4.1.1(a)(ii) or (iii),
whichever is applicable. Additionally, Manager will continue to support
resale arrangements entered into, renewed or extended during the Required
Resale Participation Period to the end of their respective terms. Sprint
PCS agrees that the compensation, payment and other terms and conditions
under each resale arrangement entered into, renewed or extended during the
Required Resale Participation Period will be the same as the compensation,
payment and other terms and conditions applicable to Sprint PCS and each
Other Manager with respect to such reseller.
The resale arrangement between Sprint PCS and Virgin Mobile USA will
be treated as a new resale arrangement and subject to the compensation set
forth in section 10.4.1.1(a)(ii) or (iii), whichever is applicable, if
continued after the expiration of the initial term of the arrangement.
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.
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 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.
(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:
(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 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 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 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.
(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.
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 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".
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 the 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.
(a) 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"):
(i) with respect to arrangements between Sprint PCS and
resellers in existence as of April 1, 2004 that Manager has opted
into, other than Virgin Mobile USA, the amount of fees set forth in
subsections 10.4.1.2 and 10.4.1.3, and with respect to Virgin Mobile
USA, the amount of fees set forth in Program Requirement 3.5.2 -
VMU; except, that the resale arrangement between Sprint PCS and
Virgin Mobile USA will each be treated as a new resale arrangement
and subject to the compensation set forth in section 10.4.1.1(a)(ii)
or (iii), whichever is applicable, if continued after the expiration
of the initial term of the arrangement;
(ii) with respect to arrangements between Sprint PCS and
resellers that are entered into after April 1, 2004 and before
January 1, 2007, or that are renewed or extended during that period,
the amount of fees
collected by Sprint PCS from the resellers as payment for the
Reseller Customer's use of the Service Area Network; and
(iii) with respect to arrangements between Sprint PCS
and resellers that are entered into, renewed or extended during the
three-year period beginning on January 1, 2007, or a subsequent
three-year period beginning on the third anniversary of the
beginning of the previous three-year period, the amount of fees
determined as described in section 10.4.1.1(c).
(b) With respect to resale arrangements described in
section 10.4.1.1(a)(ii), Sprint PCS will give Manager Manager's
proportional share of (i) any cash payments, in addition to the reseller
rate, relating specifically to the resale arrangements (other than those
cash payments for reimbursement of expenses incurred to implement the
resale arrangement), and (ii) to the extent reasonably able to be made
available to Manager, non-cash payments relating specifically to the
resale arrangements. For purposes of clarification, payments made to
Sprint PCS by the other party to a resale arrangement to reimburse Sprint
PCS for actual costs incurred to implement some aspect of the resale
arrangement are not cash or non-cash payments subject to this section.
Each resale arrangement will provide that the other party to the resale
arrangement will reimburse Manager for Manager's actual costs incurred to
implement the resale arrangement if (A) Sprint PCS obtains from the other
party to the resale arrangement a commitment for that party to reimburse
Sprint PCS for Sprint PCS' actual costs of implementing the resale
arrangement and (B) Sprint PCS reasonably expects Manager to incur actual
costs in implementing the resale arrangement for the reseller.
If the reseller is a Related Party of Sprint PCS, then
Sprint PCS, Manager and all Other Managers must agree on the Reseller
Customer Fee to be paid by Sprint PCS to Manager and all Other Managers
and any proportional sharing of any other cash and non-cash payments. If
Manager does not so agree in writing with any such reseller arrangement
with a Related Party of Sprint PCS, then Manager will have no obligation
to opt into or support such reseller arrangement.
(c) For each three-year period described in section
10.4.1.1(a)(iii):
(i) Sprint PCS will give Manager proposed terms, fees
and conditions applicable to Manager's participation in resale
arrangements by October 31 of the calendar year before the calendar
year in which the then current reseller period ends (e.g., the
initial reseller period ends on December 31, 2006 so the amount has
to be presented by October 31, 2005). Manager's representative and
the Sprint PCS representative will begin discussions regarding the
proposed terms, fees and conditions applicable to Manager's
participation in resale arrangements within 20 days after Manager
receives the proposed terms, fees and conditions applicable to
Manager's participation in resale arrangements from Sprint PCS.
(ii) If the parties do not agree on the new terms, fees
and conditions applicable to Manager's participation in resale
arrangements 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.
(iii) If the parties cannot agree on the new terms, fees
and conditions applicable to Manager's participation in resale
arrangements through the escalation process within 20 days after the
escalation process begins, then without Manager's prior written
consent, Manager will not be required to participate in any resale
arrangement that is entered into by Sprint PCS, or renewed or
extended, after the Required Resale Participation Period. Manager
will, however, continue to allow resellers with executed contracts
under resale arrangements existing prior to or entered into, renewed
or extended during the Required Resale Participation Period, with
which Manager opted into or was required to participate under this
agreement, to activate subscribers with an NPA-NXX assigned to
Manager's Service Area and support such resellers throughout the
then remaining term of their resale arrangement with Sprint PCS,
including any applicable renewal terms and phase out periods.
Manager will continue to receive Reseller Customer Fees with respect
to such resale arrangements at the same rates in effect at the end
of the Required Resale Participation Period.
Sprint PCS 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, except as expressly provided in this
section. 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 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 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 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 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 for arrangements between Sprint PCS and resellers in existence as of
April 1, 2004, 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 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 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 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 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 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).
10.4.1.33G Data Rate. The amount of the Inter Service
Area 3G Data Fee and Reseller Customer 3G Data Fee for arrangements
between Sprint PCS and resellers in existence as of April 1, 2004, 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 a Reseller Customer uses the Service Area
Network, will be $0.0020, except as described below in section
10.4.1.3(b); and except with respect to Sprint 3G Data Service as
defined and set out in the Program Requirement 3.5.2.
(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.
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.
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 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.
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.
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
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 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 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 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 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 6th 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 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 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.
(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. 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 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
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;
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 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:
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.
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
of Addendum V, 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 for CCPU Services and
CPGA Services.
2.1.2 Discontinuance of Services. If Sprint Spectrum
determines to no longer offer a Service, then Sprint Spectrum must
(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:
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 an 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 VI until December 31, 2006
("Initial Pricing Period"), will be:
(a) for the CCPU Services:
(i) from the Effective Date of Addendum VI through
December 31, 2004, $7.25 per subscriber;
(ii) from January 1, 2005, through December 31,
2005, $7.00 per subscriber; and
(iii) from January 1, 2006, through December 31,
2006, $6.75 per subscriber;
each multiplied by the Number of Customers in Manager's Service Area, and
(b) for the CPGA Services: $23.00 per Gross Customer
Addition in Manager's Service Area multiplied by 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. The parties will reset the CCPU
and CPGA amounts 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 amounts is as follows:
(a) Sprint Spectrum will give Manager proposed CCPU and
CPGA amounts 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 amounts have to be presented by October
31, 2005). The proposed amounts 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 amounts within 20 days after Manager receives the
proposed CCPU and CPGA amounts 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
amounts 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
amounts 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
amounts 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 amounts the arbitrator determines, or
(ii) procure from a vendor other than Sprint
Spectrum or self-provision all of the Services.
Manager will begin paying Sprint Spectrum under the CCPU and CPGA
amounts 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 amounts, whichever occurs first. Within 30 days
after the amounts 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-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 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's 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 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 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 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 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 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
(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.
"Effective Date" has the meaning set forth in the preamble of
Addendum VI.
"Enterprise Value" means either:
(i) if the entity has issued publicly-traded equity, the combined
book value of the entity's outstanding debt and preferred stock less cash
plus the fair market value of each class of its publicly-traded equity
other than any publicly-traded preferred stock. For the purposes of this
definition, the fair market value of a class of the entity's
publicly-traded equity (other than publicly-traded preferred stock) is
equal to the product of:
(A) the number of issued and outstanding shares of the
class of publicly-traded equity as of the date of
determination, times
(B) the applicable average closing price (or average
closing bid, if traded on the over-the-counter market) per
share of the class of publicly-traded equity over the 21
consecutive trading days immediately preceding the date of
determination; or
(ii) if the entity does not have issued publicly-traded equity, the
combined book value of the 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.
"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 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.
"Required Resale Participation Period" means the period from April
1, 2004, until the later of (1) December 31, 2006 and (2) the expiration
of any three-year period beginning after December 31, 2006, for which
Sprint PCS and Manager have reached agreement in accordance with section
10.4.1.1(c) with respect to the terms, fees and conditions applicable to
Manager's participation in resale arrangements entered into by Sprint PCS.
For the avoidance of doubt, if Manager and Sprint PCS are not able to
reach agreement in accordance with section 10.4.1.1(c) with respect to the
terms, fees and conditions applicable to Manager's participation in resale
arrangements entered into by
Sprint PCS, then the "Required Resale Participation Period" will
automatically end at the expiration of the then current three-year period.
"Reseller Customer" means customers of companies or organizations
with a Private Label PCS Services or similar resale arrangement 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 PCS 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.
"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 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.
"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.
"Total Software Cost" means the amount paid by Sprint PCS to the
vendor directly associated with the Software used by Sprint PCS, Manager
and Other Managers (if and to the extent Manager and the Other Managers
have agreed to pay any Allocable Software Fee) for the Sprint PCS Network
for 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.
"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.
"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.
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.
Addendum V (initial simplified pricing addendum)
None (all are superseded by Addendum VI as of the Effective Date of
Addendum VI)
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.]
The parties have caused this Addendum VI to be executed as of the
date first above written.
SPRINT SPECTRUM L.P.
By: ________________________________
Name:___________________________
Title:__________________________
WIRELESSCO, L.P.
By: ________________________________
Name:___________________________
Title:__________________________
APC PCS, LLC
By: ________________________________
Name:___________________________
Title:__________________________
PHILLIECO, L.P.
By: ________________________________
Name:___________________________
Title:__________________________
SPRINT COMMUNICATIONS COMPANY L.P.
By: ________________________________
Name:___________________________
Title:__________________________
SHENANDOAH PERSONAL
COMMUNICATIONS COMPANY
By: ________________________________
Name:___________________________
Title:__________________________
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
Schedule 1
Program Requirement 3.5.2 dated August 13, 2002, and labeled "Exhibit 3.5.2
Program Requirement for Voluntary Resale of Products and Services By Voluntary
Resellers Under the Private Label Solutions Program" is amended by replacing the
title, preamble and general terms with the following, and by deleting all
attachments:
Program Requirement for Resale of Products and Services
By
Resellers Under the Private Label Solutions Program
(5/1/04)
Sprint PCS' Resale Program ("Resale Program") is described in
Section 3.5.2 of the Sprint PCS Management or Affiliations Agreement and
consists of this Program Requirement 3.5.2 (the "Program Requirement 3.5.2") and
separate attachments to the Program Requirement 3.5.2 ("Attachment(s)"). Each
Attachment is a separate Resale Program and includes a specific list of
companies with which Sprint PCS contracts to sell Sprint PCS Products and
Services under brand names other than the Brands.
"Capitalized terms used and not otherwise defined in this Program
Requirement 3.5.2 have the meaning ascribed to them in the Schedule of
Definitions in the Management or Affiliations Agreement. Section and Exhibit
references are to Sections and Exhibits of the Management or Affiliations
Agreement unless otherwise noted.
"As used in this Program Requirement "NPA-NXX" of Manager or
Affiliate means a NPA-NXX in the Service Area of that Manager or Affiliate or an
equivalent identifier, such as a network access identifier (NAI).
General Terms
Unless otherwise specified, the Program Requirements outlined below apply to the
resellers set forth in the Attachments.
1. Products and Services Offered. Sprint PCS may from time to time limit
the Sprint PCS Products and Services that are provided to resellers. Manager
will provide to resellers those Sprint PCS Products and Services that Sprint PCS
provides to the resellers, and Manager will support products and services
offered resellers in the same fashion that Manager supports similar Sprint PCS
Products and Services.
2. Information and MINs. Manager will allow Sprint PCS access to
information necessary to bill resellers, including Call Detail Records and basic
provisioning information. For purposes of clarification, all such information
will constitute "Confidential Information" for purposes of the Management
Agreement. Neither Sprint PCS nor Manager will have access to resellers'
end-users' personal information. Sprint PCS will administer NPA-NXXs available
for resellers in a manner substantially the same as the MIN allocation process
in place for Sprint PCS owned markets. Sprint PCS will provide resellers with an
unbranded coverage map and zip code
information for the Manager's service area(s) substantially the same as the
coverage map and zip code information provided for Sprint PCS owned service
areas.
3. Contacts and Disputes. Manager will direct any questions or disputes
regarding a reseller or resale arrangement to the designated representative(s)
within the Management Agreement and will not contact the resellers directly. Any
disputes between Manager and Sprint PCS regarding a resale arrangement will be
resolved under the terms of the Management Agreement.
4. Pricing: Six-second Increment Billing. For all QuickNet Connect (QNC)
data and other traffic on the Manager's Service Area Network for which Sprint
PCS bills a reseller in six-second increments or some other incremental
measurement other than one-minute ("Other Increment"), Sprint PCS will settle
with Manager in six-second increments or such Other Increment, as applicable.
Billed charges (per call or event) that result in fractional cents may be
rounded up to the next whole cent.
5. Sprint 3G Data Service. In addition to reselling certain Sprint PCS
Products and Services under brand names other than the Brands, some resellers
are also permitted to sell Sprint's 1XRTT advanced multimedia data services and
premium services associated with the PCS Vision service ("Sprint 3G Data
Service") using the Sprint and PCS Vision service marks. If Manager specifically
consented to a reseller's use of the Brands in selling Sprint 3G Data Service in
the Manager's Service Area, the Manager will be compensated for Sprint 3G Data
Service as follows:
The revenue for Sprint 3G Data Service sold by resellers using the Brands
to reseller subscribers having an NPA-NXX of Manager will be treated as
Billed Revenue under the Management Agreement. Billed Revenue will be
based on reseller specific Sprint 3G Data Service pricing set forth in
Attachment 1.1 to Program Requirement 3.5.2. From time to time, Sprint may
amend the rates charged to Voluntary Resellers for Sprint 3G Data Service.
6. Short Message Service (SMS). For SMS messages on the Manager's network
used by subscribers of Voluntary Resellers with an NPA-NXX of Manager, Manager
will be compensated at the rate set forth in Attachment 1.2 to Program
Requirement 3.5.2, which may be amended from time to time in accordance with the
Management Agreement. For SMS messages used by subscribers of Voluntary
Resellers with an NPA-NXX of Manager, there will be no compensation either paid
or owed when such subscribers are traveling outside of the Manager's Service
Area.
SMS messages means circuit-switched short alphanumeric messages on a
Voluntary Reseller subscriber's handset.
7. Future Services. If Sprint PCS elects to enter into resale arrangement
with any then existing resellers or new resellers for any services other than
those services described in the current Attachments to this Program Requirement
3.5.2 ("Future Services"), Manager is not required to activate subscribers for
the Future Services with an NPA-NXX of Manager until the next available opt out
date. If Manager does not elect to opt out of a Future Services at the first opt
out date following the date that Manager is notified in writing of the resale
arrangement for Future Services, Manager must allow the then existing resellers
of the Future Services and all future resellers of the Future Services to
activate subscribers with an NPA-NXX of Manager and Manager must support those
resellers of Future Services throughout the term of their resale arrangements
with Sprint PCS, including any renewal or phase out periods. Sprint PCS will
compensate Manager for the resale of Future Services at rates to be established
in future Attachments to Program Requirement 3.5.2, as amended from time to time
in accordance with the Management Agreement, which rates will be communicated in
writing to Manager in advance.
Attachment No. 1.0 to Program Requirement 3.5.2
Resale Program
This Attachment No. 1.0 to Program Requirement 3.5.2 contains the list of
resellers included in the Resale Program as of April 1, 2004.
Resellers
Effective Renewal Renewal
Date Date Period *
---- ---- --------
Vartec Telecom, Inc. (Excel) 9/15/2000 12/15/2003 3 Years
ZefCom, L.L.C. (Telespire) 11/17/2000 11/17/2003 3/31/2006
Working Assets Funding Service, Inc.(Working Assets) 12/1/2001 12/31/2003 3 Years
Wherify Wireless, Inc. (Wherify Wireless) 1/7/2002 1/7/2005
QUALCOMM Incorporated (Qualcomm / GlobalTracs) 1/8/2002 1/8/2005
Star Number, Inc. (Liberty Wireless) 8/2/2002 8/2/2005
Telco Group, Inc. (STI Mobile) 2/25/2003 2/25/2006
TRANZACT (Sears Connect) 3/21/2003 3/21/2006
Hal Inc. (U-Mobile PCS) 6/12/2003 6/12/2006
Wireless Retail Inc. (Airlink Mobile) 6/17/2003 6/17/2006
Phonetec, L.P. (PhoneTec) 6/26/2003 6/26/2006
Qwest Wireless, LLC (Qwest) 8/3/2003 3/3/2009
TracFone Wireless, Inc. (TracFone) 1/22/2004 1/22/2007
* If applicable. Not including phase out periods.
Attachment No. 1.0 to Program Requirement 3.5.2 will be updated as new resellers
enter into a resale arrangement with Sprint PCS.
Attachment No. 1.1 to Program Requirement 3.5.2
Sprint 3G Data Service Pricing
A) Qwest Wireless
Listed below are the Qwest monthly recurring charges ("MRC") and Adjustment
Rates for Sprint 3G Data Service. Qwest will be billed the following MRC and
Adjustment Rate for each subscriber that uses any Qwest service enabled by
Sprint 3G Data Service.
Handset Data Service
Data Transport/Web Browsing/Third Party Instant Messaging
o MRC $8.10 (unlimited)
o Adjustment Rate $0.002 per Kb
Adjustment Rate:
On a monthly basis, Sprint will calculate (as described below) the Sprint
average kilobytes per retail handset subscriber ("SAKPS") and the Qwest average
kilobytes per handset subscriber ("QAKPS"). If the QAKPS exceeds the SAKPS,
Sprint will charge Qwest an amount equal to the difference between the SAKPS and
the QAKPS multiplied by the total number of End users, multiplied by the
Adjustment Rate detailed above.
Sprint will calculate SAKPS by using the total number of kilobytes generated by
Sprint retail handset end users divided by the average number of Sprint retail
handset end users for the previous fiscal quarter. For example, the SAKPS for
May will be divided by the average number of Sprint retail handset end users for
the 1st fiscal quarter (January-March).
Average number of Sprint retail handset end users for the quarter is equal to
the beginning number of Sprint retail handset end users plus the ending number
of Sprint retail handset end users, divided by two.
QAKPS is equal to the total number of kilobytes generated by Qwest handset End
Users divided by the average number of Qwest handset End Users for the previous
fiscal quarter.
Average number of Qwest handset End Users for the quarter is equal to the
beginning number of Qwest handset End Users plus the ending number of Qwest
handset End Users, divided by two.
In making the calculations described in this section, PDAs, "smart phones" and
other similar devices along with air cards will not be considered "handsets" as
that term is used therein.
The pricing in this Attachment No. 1.1 to Program 3.5.2 is subject to change as
Sprint retail prices or included services change.
Attachment No. 1.2 to Program Requirement 3.5.2
Short Message Service Pricing
Unless otherwise specified in this Attachment 1.2 to Program Requirement 3.5.2,
Manager will be compensated at the rates listed below by Voluntary Reseller.
Short Message Service Rate: $0.0246 per SMS message
Qwest SMS Rate: $0.0110 per SMS message
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)
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
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
-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
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
Exhibit 31
CERTIFICATION
I, Christopher E. French, President and Chief Executive Officer of Shenandoah
Telecommunications Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Shenandoah
Telecommunications Company;
2. Based on my knowledge, this quarterly 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 function(s)):
(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.
Date: August 4, 2004 /S/ Christopher E. French
-------------------------
Christopher E. French
President and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Earle A. MacKenzie, Executive Vice President and Chief Financial Officer of
Shenandoah Telecommunications Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Shenandoah
Telecommunications Company;
2. Based on my knowledge, this quarterly 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 function(s)):
(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.
Date: August 4, 2004 /S/ Earle A. MacKenzie
----------------------
Earle A. MacKenzie
Executive Vice President and
Chief Financial Officer
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 quarterly report on Form 10-Q of the Company for the three months
ended June 30, 2004 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
August 4, 2004
/S/ Earle A. MacKenzie
----------------------
Earle A. MacKenzie
Executive Vice President and
Chief Financial Officer
August 4, 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.