<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ALAMOSA PCS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 4812 75-2843707
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification no.)
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4403 BROWNFIELD HIGHWAY
LUBBOCK, TEXAS 79407
(806) 722-1100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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DAVID E. SHARBUTT
CHIEF EXECUTIVE OFFICER
4403 BROWNFIELD HIGHWAY
LUBBOCK, TEXAS 79407
(806) 722-1100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of communications to:
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WM. S. KLEINMAN MARC S. ROSENBERG
HAYNES AND BOONE, LLP CRAVATH, SWAINE & MOORE
901 MAIN STREET, SUITE 3100 WORLDWIDE PLAZA
DALLAS, TEXAS 75202-3789 825 EIGHTH AVENUE
(214) 651-5000 NEW YORK, NEW YORK 10019
(212) 474-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
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Common Stock, $.01 par value.............................. $185,000,000(1) $51,430
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
SHARES
[LOGO TO COME]
ALAMOSA PCS HOLDINGS, INC.
COMMON STOCK
$ PER SHARE
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We are selling shares of our common stock. The underwriters named
in this prospectus may purchase up to additional shares of common
stock from us after the closing of this offering.
This is an initial public offering of our common stock. We currently expect
the initial public offering price to be between $ and $ per share and
the maximum number of shares offered to be , and intend to have the
common stock included for quotation on the Nasdaq National Market under the
symbol "APCS."
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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PER SHARE TOTAL
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Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Alamosa PCS Holdings, Inc. (before expenses) $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
, 1999
<PAGE> 3
As used in this prospectus, unless the context otherwise requires, "we,"
"us," "our" or "Alamosa" collectively refers to Alamosa PCS Holdings, Inc.,
Alamosa PCS, Inc., Alamosa Texas L.P., Alamosa Wisconsin L.P. and their
predecessor, Alamosa PCS, LLC. Where necessary, we will identify the specific
entity by its legal name. For further information on these entities and the
reorganization of Alamosa PCS, LLC, see "The Reorganization."
Statements in this prospectus regarding Sprint Corporation (Sprint) or the
PCS Group of Sprint (Sprint PCS) are derived from information contained in our
affiliation agreements (Sprint PCS Agreements) with Sprint and Sprint PCS and
periodic reports and other documents filed with the Securities and Exchange
Commission by, or press releases issued by, Sprint and Sprint PCS. Recently, we
signed a letter of intent with Sprint PCS to modify the Sprint PCS Agreements to
expand our territory to include additional markets. Unless otherwise identified,
the term "market" refers to Basic Trading Area as defined by the Federal
Communications Commission (FCC). We are currently negotiating definitive
agreements with Sprint PCS to reflect these additional markets. We expect that
we will finalize the modification of the Sprint PCS Agreements prior to the
completion of the offering. All references in the prospectus to our markets and
the markets and population counts in our territory include these additional
markets. References to Alamosa as a provider of wireless personal communications
services or similar phrases generally refer to our building, owning and managing
our portion of the Sprint PCS network pursuant to the Sprint PCS Agreements.
Sprint PCS holds the spectrum licenses and controls the network through its
agreements with us.
All references to population counts (pops) are based on projections of
year-end 1999 population counts calculated by applying the annual growth rate
from 1990 to 1998 to estimates of 1998 population counts compiled by the U.S.
Census Bureau. Unless otherwise indicated, growth rate statistics are based on
U.S. Census Bureau data for growth during the period from 1990 to 1998.
<PAGE> 4
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 6
This Prospectus Contains Forward-Looking Statements......... 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 27
The Sprint PCS Agreements................................... 46
Description of the Nortel Financing......................... 54
Management.................................................. 60
Principal Stockholders...................................... 68
Certain Relationships and Related Transactions.............. 70
The Reorganization.......................................... 73
Description of Capital Stock................................ 77
Shares Eligible for Future Sale............................. 80
Important United States Federal Tax Consequences of Our
Common Stock to Non-U.S. Holders.......................... 81
Underwriting................................................ 84
Legal Matters............................................... 85
Experts..................................................... 86
Where You Can Find Additional Information................... 86
Index to Financial Statements............................... F-1
</TABLE>
Until , 2000, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information that we believe is especially important
concerning our business and this offering of common stock. It does not contain
all of the information that may be important to your investment decision. You
should read the entire prospectus, including "Risk Factors" and our financial
statements and related notes, before deciding to invest in our common stock.
Unless otherwise indicated, the information in this prospectus does not
take into account the possible issuance of additional shares of common stock to
the underwriters pursuant to their rights to purchase additional shares to cover
over-allotments. In addition, unless otherwise indicated, information throughout
this prospectus assumes that the reorganization of our business from a limited
liability company into a holding company structure has already occurred.
ALAMOSA
GENERAL
Alamosa is a provider of wireless personal communications services (PCS) in
the southwestern and midwestern United States. We are part of the Sprint PCS
network. Sprint PCS, directly and through affiliates such as us, provides
wireless services in more than 4,000 cities and communities across the country.
We have the exclusive right to provide digital PCS services under the Sprint and
Sprint PCS brand names in a territory comprising approximately 9.2 million
licensed pops. These pops are primarily located in smaller cities and in markets
with above average growth rates in Texas, New Mexico, Arizona, Colorado and
Wisconsin.
We entered into the Sprint PCS Agreements in July 1998. Recently, we signed
a letter of intent with Sprint PCS to modify the Sprint PCS Agreements to expand
our territory so that it will include approximately 9.2 million licensed pops.
We launched Sprint PCS service in Laredo in June 1999, and have since commenced
service in ten additional markets: Albuquerque, Santa Fe, El Paso, Las Cruces,
Lubbock, Amarillo, Midland, Odessa, Abilene and San Angelo. Our systems reach
approximately 2.7 million covered pops out of approximately 3.9 million licensed
pops in those markets. We expect to have a total of approximately 5.0 million
covered pops by the end of 2000, and 5.9 million covered pops by the end of
2001, at which point we expect to have completed our build-out obligations to
Sprint PCS and expect to have covered approximately 64% of the licensed pops in
our territory. As of September 30, 1999, we served approximately 9,850 Sprint
PCS subscribers based in our territory.
We were formed in July 1998, as a Texas limited liability company.
Immediately before the closing of this offering, we will reorganize into a
Delaware holding company structure. See "The Reorganization." Our principal
executive office is located at 4403 Brownfield Highway, Lubbock, Texas 79407.
Our telephone number is (806) 722-1100.
STRATEGIC RELATIONSHIP WITH SPRINT PCS
We believe that our strategic relationship with Sprint PCS provides
significant competitive advantages. Sprint PCS is a national provider of
wireless services and products. Sprint PCS's subscriber base has more than
tripled in size since the end of June 1998, making Sprint PCS one of the fastest
growing wireless service providers in the United States.
Under the Sprint PCS Agreements, we have the exclusive right to provide
wireless services under the Sprint and Sprint PCS brand names in our territory.
Sprint PCS handles our billing and collections and pays us 92% of "collected
revenues" from subscribers based in our territory and retains the remaining 8%,
as more fully described in "The Sprint PCS Agreements -- The Management
Agreement -- Service Pricing, Roaming and Fees." We also receive 100% of other
revenues, including handset revenues and fees for each minute that Sprint PCS
customers based outside our territory use our portion of the Sprint PCS network.
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<PAGE> 6
We believe that our affiliation with Sprint PCS allows us to establish high
quality, branded wireless services more quickly, at a lower cost and with lower
initial capital requirements than would otherwise be possible. Specifically, we
benefit from:
- Immediate Brand Recognition. We market products and services directly
under the Sprint and Sprint PCS brand names. We immediately benefit from
the recognizable Sprint and Sprint PCS brand names and national
advertising campaigns as we open markets.
- Existing Distribution Channels. We benefit from relationships with major
national retailers who distribute Sprint PCS products and services under
existing Sprint PCS contracts, including RadioShack, Circuit City, Best
Buy, K-Mart, Office Max and Office Depot. Our markets contain
approximately 280 of these third party retail outlets.
- Sprint PCS's National Footprint. Customers in our territory can
immediately access the growing Sprint PCS wireless network, with service
in more than 4,000 cities and communities across the United States.
- High Capacity Network. Sprint PCS built its network around code division
multiple access (CDMA) digital technology, which we believe provides
advantages in capacity, voice-quality, security and handset battery life.
- Sprint PCS's Licensed Spectrum. Our early stage financing requirements
have been reduced as a result of Sprint PCS's investment of approximately
$100 million to purchase the PCS licenses in our territory and to pay
other costs related to the licensed spectrum.
- Better Equipment Availability and Pricing. We expect to be able to
acquire handsets and network equipment more quickly and at a lower cost
than we could without our affiliation with Sprint PCS.
- Established Back Office Support Services. We are able to accelerate our
market launches and capitalize upon economies of scale by contracting
with Sprint PCS to provide critical back office services, including
customer activation, handset logistics, billing, customer care and
network monitoring services.
- Access to New Wireless Services. We have access to new wireless services
introduced by Sprint PCS, including wireless Internet access.
ATTRACTIVE MARKET FOOTPRINT
We believe that our territory is attractive for several reasons, including:
- High Growth Markets. The overall population growth rate in our territory
was approximately 1.5% per year, approximately 45% above the national
average. We serve nine of the 50 fastest growing markets in the United
States, including all of Laredo and a portion of Las Vegas, the two
fastest growing markets.
- Fewer Competitors. We expect to face fewer competitors in our markets
than is generally the case for carriers operating in more urban markets.
As of September 30, 1999, three or fewer carriers (other than Alamosa)
operated in markets that comprise over 80% of the licensed pops in our
territory. By comparison, less than 10% of the licensed pops in the 50
most populated markets in the United States are served by four or fewer
carriers. In addition, no single competitor or affiliated group of
competitors has launched service that reaches more than half of the
licensed pops in our territory.
- Opportunity for Sprint PCS Roaming Revenue. We anticipate that we will
have significant roaming revenue from Sprint PCS subscribers based
outside our territory who use our portion of the Sprint PCS network. Our
territory adjoins several major Sprint PCS markets, including Dallas/Fort
Worth, Phoenix, Minneapolis, Denver, Las Vegas, Milwaukee, San Antonio
and Austin, from which we expect significant Sprint PCS roaming revenue.
The metropolitan statistical areas (as defined by
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<PAGE> 7
the U.S. Census Bureau) in which these markets are located contain
approximately 19.3 million licensed pops.
LAUNCHED SERVICE AND FULLY FUNDED PLAN OF NETWORK BUILD-OUT
We have launched Sprint PCS service in eleven markets with approximately
2.7 million covered pops out of the 3.9 million licensed pops in those markets.
We anticipate that the proceeds of this offering, when combined with previously
funded equity and the committed level of debt financing from Nortel Networks,
Inc. (Nortel), will be adequate to fund required capital expenditures, working
capital requirements, operating losses and other cash needs of our business.
Further, we believe that this level of financing is adequate to achieve the
objective in our business plan of covering approximately 64% of the licensed
pops in our territory by the end of 2001 and to exceed the build-out
requirements contained in the Sprint PCS Agreements. For more information see
"Risk Factors -- Risks Particular to Alamosa -- We may not achieve or sustain
operating profitability or positive cash flow from operating activities" and
"-- We may need more capital than we currently project to build-out our portion
of the Sprint PCS network."
3
<PAGE> 8
THE OFFERING
Common stock offered....... shares
Common stock outstanding
after the offering......... shares
Use of proceeds............ We will use the proceeds from this sale of our
common stock, together with our previously funded
equity and the financing provided by Nortel, to
fund the following:
- capital expenditures, including the build-out
of our portion of the Sprint PCS network;
- operating losses; and
- general corporate purposes.
See "Use of Proceeds" for more detailed
information.
Proposed Nasdaq National
Market symbol............ "APCS"
Dividend policy............ We do not intend to pay cash dividends on our
common stock in the foreseeable future. See
"Dividend Policy" for more information.
Unless otherwise indicated, the share information in this prospectus
excludes:
- up to shares that may be issued to the underwriters to cover
over-allotments. See "Underwriting."
- 3,149,930 shares of common stock issuable upon exercise of options
granted to our employees in connection with their employment agreements.
See "Management -- Employment Agreements."
- 5,500,000 shares of common stock reserved for issuance under our 1999
Omnibus Securities Plan, including grants to employees and directors of
options to acquire shares to be effective as of the closing of
this offering. See "Management -- Benefit Plans -- 1999 Omnibus
Securities Plan."
- shares of our common stock representing two percent of the
total equity outstanding as of the closing date, which shares are
issuable upon exercise of warrants at an exercise price equal to the
initial public offering price. See "Description of the Nortel
Financing -- The Nortel Credit Facility -- Warrants."
RISK FACTORS
Investing in shares of our common stock involves risks. See "Risk Factors"
beginning on page 6 for a discussion of matters that you should consider before
purchasing shares of our common stock.
4
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SUMMARY FINANCIAL AND OPERATING DATA
The financial data presented below under the captions "Statement of
Operations Data," "Per Share Data" and "Balance Sheet Data" for, and as of the
end of, the period from inception to December 31, 1998 are derived from the
audited financial statements of Alamosa PCS Holdings, Inc. These financial
statements have been audited by PricewaterhouseCoopers LLP, independent
certified public accountants.
It is important that you also read "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements for the period ended December 31, 1998, the related
notes and the independent auditors' report.
The summary unaudited financial data presented below as of and for the six
months ended June 30, 1999 are derived from our unaudited financial statements
included elsewhere in this prospectus. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, that
management considers necessary for a fair presentation of financial position and
results of operations. Operating results for the six month period ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1999.
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PERIOD FROM
JULY 16, 1998 FOR THE SIX MONTH
(INCEPTION), THROUGH PERIOD ENDED
DECEMBER 31, 1998 JUNE 30, 1999
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ -- $ 35
Cost of sales......................................... -- 35
Total operating expenses.............................. 958 5,969
Operating loss........................................ (958) (5,968)
Net loss.............................................. (924) (5,763)
Number of subscribers.................................
PER SHARE DATA:
Basic and diluted net loss per share of common
stock(1)(2)........................................ $(.02) $ (.14)
Pro forma net loss per share of common stock(1)(2).... (.02) (.14)
</TABLE>
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AS OF AS OF
DECEMBER 31, 1998 JUNE 30, 1999
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ACTUAL AS ADJUSTED(3)
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(DOLLARS IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents.......................... $13,529 $ 8,077 $
Property and equipment, net........................ 114 8,113
Total assets....................................... 15,674 70,751
Total debt(4)...................................... 752 36,649
Equity............................................. 14,076 14,926
</TABLE>
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(1) For the periods presented, diluted weighted average shares outstanding
exclude the common shares issuable on exercise of stock options and warrants
issuable to Nortel because inclusion would have been antidilutive. Pro forma
net loss per share of common stock has been presented for the latest fiscal
year and interim period. This presentation gives effect to adjustments for
federal and state income taxes as if Alamosa had been taxed as a C
Corporation for the periods ended December 31, 1998 and June 30, 1999.
(2) Reflects the reorganization as if it had occurred upon inception of Alamosa
PCS, LLC.
(3) As adjusted Balance Sheet Data reflects the sale in the common stock
offering of shares of common stock at an initial offering price of
$ per share, the midpoint of the range on the cover of the prospectus,
less underwriting discounts and commissions and estimated offering expenses
of $ million.
(4) Includes capital lease obligations of $728,219 as of December 31, 1998, and
indebtedness incurred under the Nortel facility of $35,400,679 and capital
lease obligations of $858,962 as of June 30, 1999.
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RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information contained in this prospectus before purchasing our common
stock.
RISKS RELATED TO OUR RELATIONSHIP WITH SPRINT PCS
The conduct of our business depends heavily on our relationship with Sprint
PCS. The relationship is governed by the Sprint PCS Agreements, which have a
scheduled termination date and may be terminated early. Under those agreements,
Sprint PCS maintains a substantial amount of control over our operations, and
will continue to do so for the foreseeable future. Sprint PCS, not Alamosa,
holds the spectrum licenses for our portion of the Sprint PCS network. For a
more detailed description of the Sprint PCS Agreements, see "The Sprint PCS
Agreements."
THE TERMINATION OR NON-RENEWAL OF THE SPRINT PCS AGREEMENTS WOULD SEVERELY
RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS
Since we do not own any licenses to operate a wireless network, our
business depends on the continued effectiveness of the Sprint PCS Agreements.
However, Sprint PCS can terminate the Sprint PCS Agreements if we materially
breach them. Among other things, a failure to meet our build-out requirements
for any one of the individual markets in our territory or a failure to meet
Sprint PCS's technical or customer service requirements would constitute a
material breach of our management agreement with Sprint PCS that could lead to
its termination. If Sprint PCS terminated any of the Sprint PCS Agreements, we
would no longer be a part of the Sprint PCS network and it would be extremely
difficult to conduct our business.
In addition, the Sprint PCS Agreements are not perpetual, and will
eventually expire. Sprint PCS can choose not to renew these agreements at the
expiration of the 20-year initial term or any ten-year renewal term. If Sprint
PCS decides not to renew or the Sprint PCS Agreements terminate in accordance
with their terms, we would no longer be a part of the Sprint PCS network and it
would be extremely difficult to conduct our business.
PROVISIONS OF THE SPRINT PCS AGREEMENTS MAY DIMINISH OUR VALUE AND RESTRICT THE
SALE OF OUR BUSINESS
Under specific circumstances and without further stockholder approval,
Sprint PCS may purchase our operating assets or capital stock for 72% or 80% of
the "entire business value" of Alamosa, which includes the value of the spectrum
licenses, business operations and other assets more fully described in "The
Sprint PCS Agreements -- The Management Agreement -- Determination of Entire
Business Value." In addition, Sprint PCS must approve any change of control of
our ownership and consent to any assignment of the Sprint PCS Agreements. Sprint
PCS has a right of first refusal if we decide to sell our operating assets to a
third party. We are also subject to a number of restrictions on the transfer of
our business including a prohibition on the sale of Alamosa or our operating
assets to competitors of Sprint or Sprint PCS. These restrictions and other
restrictions in the Sprint PCS Agreements could adversely affect the value of
our common stock, may limit our ability to sell the business, may reduce the
value a buyer would be willing to pay for our business and may operate to reduce
the "entire business value" of Alamosa.
WE MAY BE ADVERSELY AFFECTED BY THE ACTIONS OR INACTIONS OF SPRINT PCS
We have no control over the actions or inactions of Sprint PCS. Sprint PCS
may make decisions that adversely affect our business. Sprint PCS prices its
national plans based on its own objectives and could set price levels that may
not be economically sufficient for our business. Sprint PCS also determines the
per minute rate for Sprint PCS roaming fees and the costs for Sprint PCS to
perform back office services. We must obtain Sprint PCS's consent to sell
non-Sprint PCS approved equipment, which consent could be withheld. In addition,
Sprint PCS may alter its network and technical requirements or request that we
build-out additional areas within our territory, which could result in increased
equipment and build-out costs or in Sprint PCS building-out that area itself or
assigning it to another affiliate. Moreover, Sprint or
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Sprint PCS may experience a change of control, sale or merger that could
adversely affect our relationships with them or result in a name change. MCI
WorldCom Inc. (MCI) and Sprint have announced a proposed merger in which owners
of each class of Sprint's common stock would exchange their Sprint stock for MCI
common stock. If the merger is completed, we expect that affiliate and related
contracts with the merged company would be on the same terms as the Sprint PCS
Agreements. However, we cannot guarantee that we will not be adversely affected
as a result of the proposed merger. Sprint or Sprint PCS may also take actions
which could adversely affect the Sprint and Sprint PCS brand names, products or
services. If Sprint PCS were to fail to perform its obligations under the Sprint
PCS Agreements, our ability to conduct business would be severely restricted.
WE RELY ON SPRINT PCS'S CUSTOMER CARE AND OTHER INTERNAL SUPPORT SYSTEMS
As Sprint PCS has expanded, its internal support systems, including
customer care and billing, have been subject to increased demand and in some
cases, suffered a degradation in service. We cannot assure you that Sprint PCS
will be able to successfully add system capacity or that its internal support
systems will be adequate. Currently, we do not have direct electronic access to
significant aspects of Sprint PCS's internal support systems and financial data.
Although Alamosa and Sprint PCS are in the process of making these systems and
data available electronically, we cannot assure you that this will occur.
Additionally, our services agreement with Sprint PCS provides that, upon nine
months' prior written notice, Sprint PCS may terminate any service. If Sprint
PCS terminates a service for which we have not developed a cost-effective
alternative or increases the amount it charges us for these services, our
operating costs may increase beyond our expectations and our operations may be
interrupted or restricted.
WE ARE DEPENDENT ON OUR RELATIONSHIP WITH SPRINT PCS TO OBTAIN HANDSETS AND
EQUIPMENT, WHICH ARE IN SHORT SUPPLY
We purchase some of our handsets and infrastructure equipment directly from
Sprint PCS or through its relationships with vendors and suppliers. The demand
for the equipment we require to construct our portion of the Sprint PCS network
is considerable, and manufacturers of this equipment have substantial order
backlogs. The lead time for the delivery of equipment may be long even with our
reliance on our relationship with Sprint PCS. This long lead time could cause
material delays in the build-out of our infrastructure. In addition, the demand
for specific types of handsets is strong and the manufacturers of those handsets
may have to distribute their limited supply of products among the manufacturers'
numerous customers. If Sprint PCS modifies its handset logistics and delivery
plan or if we are not able to continue to rely on Sprint PCS's relationships
with suppliers and vendors, some of which provide us with vendor discounts on
equipment, we could have difficulty obtaining specific types of handsets and
equipment in a timely manner and our equipment costs would increase. As a
result, our ability to provide services may be adversely affected.
IF SPRINT PCS CUSTOMERS ARE NOT ABLE TO ROAM INSTANTANEOUSLY OR EFFICIENTLY ONTO
OTHER WIRELESS NETWORKS, WE MAY LOSE CURRENT SPRINT PCS SUBSCRIBERS AND OUR
SPRINT PCS SERVICES WILL BE LESS ATTRACTIVE TO NEW CUSTOMERS
The Sprint PCS network is not compatible with many other wireless systems.
To access an incompatible system, a Sprint PCS customer must use a more
expensive dual-band/dual-mode handset. When used on another system, this handset
may have diminished standby and talk time capacities. In addition, (1) the
quality of the service provided by another provider during a roaming call may
not approximate the quality of the service provided by Sprint PCS, (2) the price
of a roaming call may not be competitive with prices of other wireless companies
for roaming calls, (3) customers must end a call in progress and initiate a new
call when leaving the Sprint PCS network and entering another wireless network
and (4) Sprint PCS customers may not be able to use Sprint PCS advanced
features, such as voicemail notification, while roaming. These factors may be
competitive disadvantages for Sprint PCS service.
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IF WE FAIL TO PAY OUR DEBT, OUR LENDERS MAY SELL OUR LOANS TO SPRINT PCS AND
GIVE SPRINT PCS RIGHTS OF A CREDITOR TO FORECLOSE ON OUR ASSETS
Sprint PCS has contractual rights to purchase Nortel's rights as a senior
lender under the Nortel financing documents. These rights are triggered by an
acceleration of the maturity of the Nortel financing. To the extent Sprint PCS
purchases these obligations, Sprint PCS's interests as a creditor could conflict
with ours. Sprint PCS's rights as a senior lender would enable it to exercise
rights with respect to our assets in a manner not otherwise permitted under the
Sprint PCS Agreements.
IF SPRINT PCS DOES NOT MAINTAIN CONTROL OVER ITS LICENSED SPECTRUM, THE SPRINT
PCS AGREEMENTS MAY BE TERMINATED
Sprint PCS owns the licenses necessary to provide wireless services in our
territory. Sprint PCS's control over our business is due in part to FCC
regulatory requirements. The FCC is the government agency primarily responsible
for regulation of wireless telecommunications systems. One of the FCC's
principal legal requirements is that licensees like Sprint PCS must maintain
control of their licensed systems and may not delegate control to third party
operators or managers like Alamosa. Although the Sprint PCS Agreements reflect
an arrangement that the parties believe meets the FCC requirements for licensee
control of licensed spectrum, we cannot assure you that the FCC will agree with
us. If the FCC were to determine that the Sprint PCS Agreements need to be
modified to increase the level of licensee control, we have agreed with Sprint
PCS to use our best efforts to modify the agreements to comply with applicable
law. If we cannot agree with Sprint PCS to modify the agreements, they may be
terminated. If the agreements are terminated, we would no longer be a part of
the Sprint PCS network and it would be extremely difficult to conduct our
business.
NON-RENEWAL OR REVOCATION BY THE FCC OF THE SPRINT PCS LICENSES WOULD
SIGNIFICANTLY HARM OUR BUSINESS
We do not own any licenses to operate a wireless network. We are dependent
on Sprint PCS's licenses, which are subject to renewal and revocation. Sprint
PCS's licenses in our territory will expire in 2005 or 2007 but may be renewed
for additional ten-year terms. The FCC has adopted specific standards to apply
to PCS license renewals. Any failure by Sprint PCS or us to comply with these
standards could cause revocation or forfeiture of the Sprint PCS licenses for
our territory. Additionally, if Sprint PCS does not demonstrate to the FCC that
Sprint PCS has met the five-year and ten-year construction requirements for each
of its PCS licenses, it can lose those licenses.
RISKS PARTICULAR TO ALAMOSA
WE MAY NOT ACHIEVE OR SUSTAIN OPERATING PROFITABILITY OR POSITIVE CASH FLOW FROM
OPERATING ACTIVITIES
Our operating history is very limited. We initiated commercial operations
in our first market in June 1999. We expect to incur significant operating
losses and to generate significant negative cash flow from operating activities
at least through the year ending December 31, 2001. Our operating profitability
will depend upon many factors, including, among others, our ability to market
Sprint PCS services, achieve our projected market penetration and manage
customer turnover rates. If we do not achieve and maintain operating
profitability and positive cash flow from operating activities on a timely
basis, our business would be adversely affected and we may require additional
funds to build-out our portion of the Sprint PCS network or continue operations.
We cannot assure you that we would have access to additional funds at that time.
WE MAY NEED MORE CAPITAL THAN WE CURRENTLY PROJECT TO BUILD-OUT OUR PORTION OF
THE SPRINT PCS NETWORK
The build-out of our portion of the Sprint PCS network will require
substantial capital. Additional funds could be required in the event of:
- significant departures from the current business plan, including
acceleration of the current build-out plan or expansion into additional
markets;
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- unforeseen delays;
- cost overruns;
- unanticipated expenses;
- regulatory changes;
- engineering design changes;
- changes in Sprint PCS's network specifications;
- changes in technology; and
- other technological modifications due to competitive pressures.
Additional financing may not be available or, if available, we may not be
able to obtain it on a timely basis or on terms acceptable to us and within
limitations permitted under our existing debt covenants. Failure to obtain
additional financing, should the need for it develop, could result in the delay
or abandonment of our development and expansion plans.
WE HAVE SUBSTANTIAL DEBT WHICH WE MAY NOT BE ABLE TO SERVICE AND WHICH MAY
RESULT IN OUR LENDERS CONTROLLING OUR ASSETS
As of June 30, 1999, our outstanding long-term debt totaled $35.4 million.
In addition, under our current business plan, we expect to incur substantial
additional debt before achieving break-even operating cash flow.
Our substantial debt will have a number of important consequences for our
operations and our investors, including the following:
- we will have to dedicate a substantial portion of any cash flow from
operations to the payment of interest on, and principal of, our debt,
which will reduce funds available for other purposes;
- we may not have sufficient funds to pay interest on, and principal of,
our debt;
- we may not be able to obtain additional financing for currently
unanticipated capital requirements, capital expenditures, working capital
requirements and other corporate purposes;
- our Nortel loan agreement places restrictions on the ability of our
subsidiaries to raise additional debt or equity capital without Nortel's
consent;
- borrowings under our financing from Nortel are at variable rates of
interest, which would result in higher interest expense in the event of
increases in market interest rates;
- due to the liens on substantially all of our assets that secure our
senior debt, lenders or holders of our senior debt may control our assets
or our subsidiaries' assets upon a default;
- we may be more highly leveraged than some of our competitors, which may
put us at a competitive disadvantage; and
- we may be unable to refinance the Nortel financing if we do not have
access to the capital markets on terms reasonably satisfactory to us. Our
ability to repay the Nortel financing at maturity may depend on our
ability to refinance such financing at maturity. Further, subject to
market conditions, we intend to refinance a portion of the Nortel
financing before we are required to issue the warrants to Nortel.
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IF WE DO NOT MEET ALL OF THE CONDITIONS REQUIRED UNDER OUR NORTEL FINANCING
AGREEMENTS, WE MAY NOT BE ABLE TO DRAW DOWN ALL OF THE FUNDS WE ANTICIPATE
RECEIVING FROM NORTEL AND MAY NOT BE ABLE TO COMPLETE THE BUILD-OUT OF OUR
PORTION OF THE SPRINT PCS NETWORK
We have received $35.4 million to date under our financing agreements with
Nortel. The remaining $214.6 million which we expect to receive in the future is
subject at each funding date to several conditions, including:
- acquiring minimum numbers of Sprint PCS subscribers and achieving minimum
covered pops on schedule; and
- the adherence to financial covenants.
If we do not meet these conditions at each funding date, Nortel may choose
not to lend any or all of the remaining amounts. If other sources of funds are
not available, we may be unable to complete the build-out of our portion of the
Sprint PCS network. If we do not have sufficient funds to complete our network
build-out, we may be in breach of our management agreement with Sprint PCS and
be in default under our financing from Nortel.
FACTORS OUTSIDE OUR CONTROL MAY ADVERSELY AFFECT OUR PORTION OF THE SPRINT PCS
NETWORK
Factors such as tower site availability, local regulatory approvals,
weather delays, labor and materials shortages, delays in integrating our portion
of the Sprint PCS network with the rest of the Sprint PCS network and similar
factors may delay the build-out of our portion of the Sprint PCS network, delay
the opening of markets, limit network capacity or reduce the number of new
customers. The local governmental authorities in various locations in our
territory have at times placed moratoriums on the construction of additional
towers and base stations. These moratoriums may materially and adversely affect
the timing of the planned build-out and quality of the network operations in
those markets. We have experienced difficulty, and may continue to have
difficulty, in obtaining tower sites in some areas of our territory on a timely
basis.
WE DEPEND HEAVILY ON THIRD PARTIES FOR OUR SUCCESS
Because we decided to outsource portions of our business, we depend heavily
on third-party vendors, suppliers, consultants, contractors and local exchange
carriers. We have retained Nortel, Hicks & Ragland Engineering Co., Inc. (Hicks
& Ragland), American Tower Corporation and other consultants, contractors and
local exchange carriers to (1) design and engineer our systems, (2) construct
base stations, switch facilities and towers, (3) lease base stations, (4)
install T-1 lines and (5) deploy our PCS network systems. For a description of
our related party relationships with Hicks & Ragland and American Tower
Corporation, see "Certain Relationships and Related Transactions." Our financing
arrangements with Nortel make us especially dependent on them for equipment. In
addition, we lease almost all of the tower sites for our wireless systems
through a master lease agreement with American Tower Corporation. American Tower
Corporation in turn has separate leasing arrangements with each of the owners of
the sites. If American Tower Corporation were to become insolvent or were to
breach those arrangements, we may lose access to those base stations and
experience extended service interruption in the areas serviced by those sites.
The failure by any of our vendors, suppliers, consultants, contractors or local
exchange carriers to fulfill their contractual obligations to us could
materially delay construction and adversely affect the operations of our portion
of the PCS network.
THE LOSS OF OUR KEY OFFICERS AND SKILLED EMPLOYEES COULD IMPAIR OUR ABILITY TO
COMPLETE OUR NETWORK
BUILD-OUT OR OFFER PCS PRODUCTS AND SERVICES
Our business is managed by a small number of executive officers. We believe
that our future success will depend in large part on our continued ability to
attract and retain highly qualified technical and management personnel. We
believe that there is, and will continue to be, intense competition for
qualified personnel in the PCS industry as the PCS market continues to grow and
develop. We may not be
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successful in retaining our key personnel or in attracting and retaining other
highly qualified technical and management personnel.
WE MAY NOT RECEIVE AS MUCH SPRINT PCS ROAMING REVENUE AS WE ANTICIPATE AND OUR
NON-SPRINT PCS ROAMING REVENUE IS LIKELY TO BE LOW
We are paid a fee from Sprint PCS or a Sprint PCS affiliate for every
minute that a Sprint PCS subscriber based outside of our territory uses the
Sprint PCS network in our territory. Similarly, we pay a fee to Sprint PCS for
every minute that a Sprint PCS subscriber based in our territory uses the Sprint
PCS network outside our territory. Sprint PCS customers from our territory may
spend more time in other Sprint PCS coverage areas than we anticipate and Sprint
PCS customers from outside our territory may spend less time in our territory or
may use our services less than we anticipate. Sprint PCS could also change the
current fee for each Sprint PCS roaming minute used. As a result, we may receive
less Sprint PCS roaming revenue than we anticipate or we may have to pay more
Sprint PCS roaming fees than we collect.
A portion of our revenue may be derived from payments by other wireless
service providers for use by their subscribers of the Sprint PCS network in our
territory. However, the technology used in the Sprint PCS network is not
compatible with the technology used by other systems, which diminishes the
ability of other wireless service providers' subscribers to use our services.
Sprint PCS has entered into few agreements that enable customers of other
wireless carriers to roam onto the Sprint PCS network. As a result, the actual
non-Sprint PCS roaming revenue that we receive in the future is likely to be low
relative to other wireless service providers. For more information on roaming
revenue, see "Business -- Roaming Revenue." For further information on the
Sprint PCS network technology, see "Business -- Technology."
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH
We have experienced rapid growth and development in a relatively short
period of time and expect to continue to experience growth in the future. The
management of that growth will require, among other things, continued
development of our operational and administrative systems, stringent control of
costs, increased marketing activities, the ability to attract and retain
qualified management personnel and the training of new personnel. We intend to
hire additional personnel in order to manage our expected growth and expansion.
Failure to successfully manage our expected rapid growth and development, and
difficulties in managing the build-out of our territory, could impair our
ability to achieve profitability.
OUR TERRITORY IS SUBJECT TO REGIONAL RISKS
Our territory consists of two regions in the southwestern and the
midwestern United States, and includes several border markets. Accordingly, our
business may be adversely affected as a result of downturns in the economies in
either of those two regions or in Mexico. In addition, different regions in our
territory are subject to various extreme weather conditions such as high heat,
snow, ice, freezing temperatures, wind and tornadoes. Any or all of these
conditions could result in damage to our network equipment or base stations.
OUR PLAN OF COVERAGE FOR OUR TERRITORY MAY BE INADEQUATE
Our projected build-out plan for our territory does not cover all areas of
our territory. As a result, our plan may not adequately serve the needs of the
potential customers in our territory or attract enough subscribers to operate
our business successfully. To correct this potential problem, we may have to
cover a greater percentage of our territory than we anticipate, which we may be
unable to do profitably.
PARTS OF OUR TERRITORY HAVE LIMITED LICENSED SPECTRUM, AND THIS MAY AFFECT THE
QUALITY OF OUR SERVICE OR RESTRICT OUR ABILITY TO PURCHASE SPECTRUM LICENSES
FROM SPRINT PCS IN THOSE AREAS
While Sprint PCS has licenses to use 30 MHz of spectrum throughout most of
our territory, it has licenses covering only 10 MHz in New Mexico and Durango
and 20 MHz in El Paso. In the future, as the number of subscribers in those
areas increases, this limited licensed spectrum may not be able to accommodate
any increases in call volume and may lead to more dropped calls than in other
parts of our
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territory. In addition, under the Sprint PCS Agreements, we have no right to
compel Sprint PCS to sell spectrum licenses to us in areas where Sprint PCS owns
less than 20 MHz of spectrum. Accordingly, if Sprint PCS were to terminate the
Sprint PCS Agreements, it is likely that we would be unable to operate our
business in New Mexico and Durango.
THE TECHNOLOGY WE USE HAS LIMITATIONS, COULD BECOME OBSOLETE AND HAS AN
UNCERTAIN FUTURE
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of digital upgrades in
existing analog wireless systems, evolving industry standards, ongoing
improvements in the capacity and quality of digital technology, shorter
development cycles for new products and enhancements and changes in customer
requirements and preferences. We employ CDMA, the digital wireless
communications technology selected by Sprint PCS for its network. CDMA may not
provide the advantages expected by Sprint PCS. If another technology becomes the
preferred industry standard, we would be at a competitive disadvantage and
competitive pressures may require Sprint PCS to change its digital technology.
We may be unable to respond to these pressures and implement new technology on a
timely basis or at an acceptable cost. For more information on technology,
including CDMA technology, see "Business -- Technology."
UNAUTHORIZED USE OF, OR INTERFERENCE WITH, THE SPRINT PCS NETWORK COULD DISRUPT
OUR BUSINESS
Although CDMA reduces some of the risks associated with fraud and cloning,
we may incur costs associated with the unauthorized use of the Sprint PCS
network. Fraudulent use of the Sprint PCS network increases operating costs. In
addition, our border markets are susceptible to uncertainties related to areas
not governed by the FCC. For example, unauthorized microwave radio signals near
the border in Mexico could disrupt our service in the United States.
WE FACE RISKS RELATING TO THE YEAR 2000 ISSUE
Our systems, the systems of Sprint or Sprint PCS and the systems of other
third parties upon whom we depend may be unable to recover from system
interruptions resulting from the year 2000 date change. If difficulties do
arise, our business may not be operational for a period of time. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Year 2000 Issue on the Operations and Financial
Condition of Alamosa."
INDUSTRY RISKS
WE MAY EXPERIENCE A HIGH RATE OF CUSTOMER TURNOVER WHICH WOULD INCREASE OUR
COSTS OF OPERATIONS AND REDUCE OUR REVENUE
The PCS industry in general and Sprint PCS in particular have experienced a
higher rate of customer turnover as compared to cellular industry averages. The
rate of customer turnover may be the result of several factors, including:
- network coverage;
- reliability issues such as blocked calls, dropped calls and handset
problems;
- non-use of handsets;
- change of employment;
- non-use of customer contracts;
- affordability;
- price competition;
- customer care concerns; and
- other competitive factors.
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A high rate of customer turnover could adversely affect our competitive
position, results of operations and our costs of, or losses incurred in,
obtaining new subscribers, especially because we subsidize some of the costs of
initial purchases of handsets by customers. In particular, Sprint PCS's handset
return policy, which we are required to follow, allows customers to return used
handsets within 30 days of purchase and receive a full refund. However, we may
incur some costs in connection with reissuing the handsets to customers and, if
we return the handsets to Sprint PCS, we receive a credit which is less than the
amount we originally paid for the handset. Accordingly, we may lose money in
connection with this handset return policy and it is possible that a significant
number of handsets will be returned to us, particularly after the year-end
holiday shopping season.
REGULATION BY GOVERNMENT AGENCIES AND TAXING AUTHORITIES MAY INCREASE OUR COSTS
OF PROVIDING SERVICE OR REQUIRE US TO CHANGE OUR SERVICES
The licensing, construction, use, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the FCC, the Federal Trade Commission, the Federal Aviation
Administration, the Environmental Protection Agency, the Occupational Safety and
Health Administration and, depending on the jurisdiction, state and local
regulatory agencies and legislative bodies. Adverse decisions regarding these
regulatory requirements could negatively impact Sprint PCS's operations and our
costs of doing business. In addition, changes in tax laws or the interpretation
of existing tax laws by state and local authorities could subject us to
increased income, sales, gross receipts or other tax costs or require us to
alter the structure of our relationship with Sprint PCS.
USE OF WIRELESS HANDSETS MAY POSE HEALTH RISKS
Media reports have suggested that radio frequency emissions from wireless
handsets may be linked to various health problems, including cancer, may
interfere with various electronic medical devices, including hearing aids and
pacemakers, and may cause explosions if used while fueling an automobile.
Concerns over radio frequency emissions may discourage use of wireless handsets
or expose us to potential litigation.
DEPENDENCE ON FOURTH QUARTER RESULTS
The wireless industry is heavily dependent on fourth quarter results. Among
other things, the industry relies on significantly higher customer additions and
handset sales in the fourth quarter as compared to the other three fiscal
quarters. A number of factors contribute to this trend, including:
- the increasing use of retail distribution which is dependent upon the
year-end holiday shopping season, the timing of new product and service
announcements and introductions;
- competitive pricing pressures; and
- aggressive marketing and promotions.
If Alamosa has a worse than expected fourth quarter for any reason,
including (1) Alamosa's inability to match or beat pricing plans offered by
competitors, (2) the failure to adequately promote Sprint PCS's products,
services and pricing plans, (3) the inability of Alamosa to obtain an adequate
supply or selection of handsets, (4) a downturn in the economy of some or all
markets in our territory or (5) a poor holiday shopping season due to extreme
weather conditions or otherwise, then the price of our common stock and our
results of operations could be adversely affected.
WE FACE SIGNIFICANT COMPETITION
Competition in the wireless communications services industry is intense. We
anticipate that competition will cause the market prices for two-way wireless
products and services to decline in the future. Our ability to compete will
depend, in part, on our ability to anticipate and respond to various competitive
factors affecting the telecommunications industry. Several of these factors
include the introduction of new services, changes in consumer preferences,
demographic trends or economic conditions
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and discount pricing strategies by competitors. Our dependence on Sprint PCS to
develop competitive products and services and the requirement that we obtain
Sprint PCS's consent to sell non-Sprint PCS approved equipment may limit our
ability to keep pace with our competitors on the introduction of new products,
services and equipment. Some of our competitors (1) have substantially greater
financial, technological, marketing and sales and distribution resources than
us, (2) have more extensive coverage in specific areas of our territory or have
broader regional coverage than us and (3) may market other services, such as
traditional landline telephone service, cable television access and access to
the Internet, with their wireless communications services. Furthermore, there
has been a recent trend in the wireless communications industry towards
consolidation of wireless service providers through joint ventures, mergers and
acquisitions. We expect this consolidation to lead to larger competitors over
time. Several large competitors already exist, such as AT&T Wireless with over
11.0 million subscribers and the recent partnership of Bell Atlantic-GTE and
Vodafone AirTouch with over 19.0 million combined subscribers. We may be unable
to compete successfully with larger competitors who have substantially greater
resources or who offer more services than we do. For more information on the
competition we face in the wireless communications industry see
"Business -- Competition."
RISKS RELATING TO THE OFFERING
OUR EXISTING STOCKHOLDERS MAY BE ABLE TO CONTROL THE OUTCOME OF SIGNIFICANT
MATTERS PRESENTED TO STOCKHOLDERS FOLLOWING THE COMPLETION OF THIS OFFERING
Upon completion of this offering of common stock, our existing stockholders
will beneficially own approximately % of our outstanding common stock on a
diluted basis, or approximately % if the underwriters' over-allotment option
is exercised in full. Consequently, those persons, if they act as a group, will
be able to control the outcome of matters submitted for stockholder action
including the election of members to our board of directors and the approval of
significant change in control transactions. This may have the effect of delaying
or preventing a change in control. For more information on this subject, please
refer to "Management" and "Principal Stockholders."
OUR STOCKHOLDERS, MEMBERS OF MANAGEMENT AND DIRECTORS MAY BE SUBJECT TO
CONFLICTS OF INTEREST
Some of our stockholders and members of management have significant
investments in communications services companies that compete with Alamosa. In
addition, several of our directors serve as directors of other communications
services companies. As a result, these directors may be subject to conflicts of
interest during their tenure as directors of Alamosa. For example, David
Sharbutt, our chairman and chief executive officer, is also a senior consultant,
director and shareholder of Hicks & Ragland. Hicks & Ragland is an engineering
consulting firm that provides services to us as well as other telecommunications
companies. Hicks & Ragland's interests may be adverse to ours, which could
create a conflict of interest for Mr. Sharbutt. In addition, the employment
agreement related to Mr. Sharbutt's position as a senior consultant of Hicks &
Ragland does not specify the time requirements of his employment. However, his
employment agreement with us requires Mr. Sharbutt to devote his full time and
effort to the business and affairs of Alamosa. We cannot assure you that Mr.
Sharbutt's responsibilities as an employee of Hicks & Ragland will not require
significant professional time and effort. See "Certain Relationships and Related
Transactions" for details related to these and other related party transactions.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The market price of our common stock could be subject to significant
fluctuations due to a variety of factors. Those factors include:
- variations in quarterly operating results and financial performance;
- announcements of technological innovations or new products and services
by Sprint PCS, us or our competitors;
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- our failure to achieve operating results consistent with securities
analysts' projections;
- the operating and stock price performance of, or rumors related to,
Sprint PCS, our competitors or other companies that investors may deem
comparable to us;
- announcements of the introduction of new or enhanced services or related
products by Sprint PCS, us or our competitors;
- announcements of joint development efforts, mergers or corporate
partnerships in the wireless telecommunications market; and
- market conditions in the technology, telecommunications and other
emerging growth sectors.
The stock market has recently experienced extreme price volatility. Under
these market conditions, stock prices of many emerging growth and development
stage companies like us have often fluctuated in a manner unrelated or
disproportionate to the operating performance of those companies.
PURCHASERS IN THIS OFFERING WILL EXPERIENCE DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of our common stock after the offering. Any common
stock you purchase in the offering will have a post-offering net tangible book
value per share of $ , which will be $ less than the price you paid for
the share, assuming an initial public offering price of $ per share, the
midpoint of the range on the cover page of this prospectus. In addition, there
will be more dilution if stock options are exercised and the Nortel warrants are
issued. See "Dilution" for more information.
POSSIBLE SALES OF OUR COMMON STOCK BY EXISTING INVESTORS COULD CAUSE THE MARKET
PRICE OF OUR COMMON STOCK TO DECREASE
A substantial number of shares of our common stock could be sold into the
public market after this offering. The occurrence of these sales, or the
perception that these sales could occur, could materially and adversely affect
our stock price and could impair our ability to obtain capital through an
offering of equity securities. The shares of common stock being sold in this
offering will be freely transferable under the securities laws immediately after
issuance, except for any shares sold to our "affiliates." All of our
stockholders, members of our senior management and our directors have agreed
pursuant to written "lock-up" agreements that, for a period of 180 days from the
date of this prospectus, they will not, among other things, sell their shares.
As a result, upon the expiration of the lock-up agreements 180 days after the
date of this prospectus, an additional shares of our common stock will be
eligible for sale subject, in most cases, to volume and other restrictions under
federal securities laws. See "Shares Eligible for Future Sale" for more
information.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BYLAWS COULD LIMIT OUR SHARE PRICE
AND DELAY A TAKEOVER OR CHANGE IN CONTROL OF ALAMOSA
Our certificate of incorporation provides that our board of directors may
issue preferred stock without stockholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a three-year
term. These provisions, among others, may have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of Alamosa, even though a change in ownership might be economically beneficial
to us and our stockholders. See "Description of Capital Stock -- Delaware Law
and Selected Charter, Bylaw and Sprint PCS Agreement Provisions" for more
information.
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THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events and expectations,
which are "forward-looking statements." Any statement in this prospectus that is
not a statement of historical fact may be deemed to be a forward-looking
statement. These forward-looking statements include:
- forecasts of growth in the number of consumers using PCS services and in
estimated populations;
- statements regarding our plans for, schedule for and costs of the
build-out of our portion of the Sprint PCS network;
- statements regarding our anticipated revenues, expense levels, liquidity
and capital resources, operating losses and projections of when we will
launch commercial PCS service in particular markets;
- statements regarding expectations or projections about markets in our
territory;
- statements regarding our preparedness for the year 2000 date change; and
- other statements, including statements containing words such as "may,"
"might," "could," "would," "anticipate," "believe," "plan," "estimate,"
"project," "expect," "seek," "intend" and other similar words that
signify forward-looking statements.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements.
Specific factors that might cause such a difference include, but are not limited
to:
- our dependence on our affiliation with Sprint PCS;
- the need to successfully complete the build-out of our portion of the
Sprint PCS network on our anticipated schedule;
- our limited operating history and anticipation of future losses;
- our dependence on Sprint PCS's back office services;
- potential fluctuations in our operating results;
- our potential need for additional capital or the need for refinancing
existing indebtedness;
- our potential inability to expand our services and related products in
the event of substantial increases in demand for these services and
related products;
- changes or advances in technology;
- our competition; and
- our ability to attract and retain skilled personnel.
For a discussion of some of these factors, see "Risk Factors" beginning on
page 6.
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USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
common stock we are offering, after deducting underwriting discounts and
commissions and estimated offering expenses will be approximately $ million,
or approximately $ million if the underwriters exercise their over-
allotment option in full, based on an assumed initial public offering price of
$ per share, the midpoint of the range set forth on the cover page of this
prospectus. We intend to use the net proceeds from the common stock offering,
together with previously funded equity and the committed level of Nortel loan
financing, to fund:
- capital expenditures of approximately $ million, representing the
build-out of markets in Wisconsin, Arizona and Colorado, as well as the
further expansion of coverage in existing markets in Texas and New
Mexico;
- operating losses and working capital requirements of approximately $
million; and
- general corporate purposes of $ million.
We will retain broad discretion in the allocation of the net proceeds of
this offering. This discussion represents our best estimate of the allocation of
the net proceeds of this offering based upon our current plans. Actual
expenditures may vary substantially from these estimates and we may find it
necessary or advisable to reallocate the net proceeds within the above-described
categories or to use portions for other purposes. The timing and the coverage of
our build-out plan may change due to various reasons, including shifts in
populations or network focus, changes or advances in technology, acquisition of
other markets, businesses, products or technologies and factors causing a delay
in the build-out of some markets. Any changes in the timing or build-out plan
may cause changes in our use of proceeds. Additionally, we may use a portion of
the net proceeds to acquire or invest in businesses, products or technologies
that are complementary to our business. Other than the proposed changes to the
Sprint PCS Agreements, we currently do not have any commitments or agreements
for any acquisitions or investments of this kind.
Pending these uses, we expect to invest the net proceeds from the sale of
the common stock in short-term investment grade securities which will earn
interest.
DIVIDEND POLICY
We do not expect to pay cash dividends on our capital stock in the
foreseeable future. We currently intend to retain our future earnings, if any,
to fund the development and growth of our business. Future dividends, if any,
will be determined by our board of directors and will depend upon our results of
operations, financial condition and capital expenditure plans, as well as other
factors that our board of directors considers relevant. In addition, our
existing indebtedness restricts, and we anticipate our future indebtedness may
restrict, our ability to pay dividends.
17
<PAGE> 22
CAPITALIZATION
The following table shows our cash and cash equivalents, short term debt
and capitalization:
- as of June 30, 1999; and
- as adjusted to reflect the sale in the offering of shares of common
stock at an initial offering price of $ per share, the midpoint of
the range on the cover of the prospectus, after deducting underwriting
discounts and commissions and estimated offering expenses of $
million.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------
ACTUAL(1) AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 8,077 $
======= ======
Short-term debt
Notes payable............................................. $ 389 $
Long-term debt:
Nortel financing.......................................... 35,401
Capital lease obligations(2).............................. 859
-------
Total long-term debt...................................... 36,260
Stockholders' equity (deficit):
Preferred stock, par value $.01 per share; 5,000,000
shares authorized; no shares issued and outstanding.... --
Common stock, par value $.01 per share, 150,000,000 shares
authorized; 40,000,000 shares outstanding, actual;
shares outstanding, as adjusted........................ 400
Additional paid-in capital................................ 24,536
Unearned compensation..................................... (3,324)
Accumulated deficit....................................... (6,686)
------- ------
Total stockholders' equity (deficit)................... 14,926
------- ------
Total capitalization.............................. $51,575 $
======= ======
</TABLE>
- ---------------
(1) Reflects the reorganization as if it had occurred upon the inception of
Alamosa PCS, LLC.
(2) Includes current maturities.
18
<PAGE> 23
DILUTION
Our net tangible book value at June 30, 1999, was $ million or $
per share of common stock. Net tangible book value per share represents the
amount of our total tangible assets reduced by the amount of total liabilities
and divided by the number of shares of common stock outstanding. After giving
effect to our sale of shares of common stock in the offering, and deducting
underwriting discounts and commissions and estimated offering expenses, our
as-adjusted net tangible book value as of June 30, 1999 would have been
approximately $ million, or $ per share. This represents an immediate
dilution of $ per share to new investors purchasing shares of common stock
in the offering and an immediate increase in net tangible book value to existing
stockholders of $ per share.
Dilution per share represents the difference between the price per share to
be paid by new investors and the net tangible book value per share immediately
after the sale of common stock in this offering. The following table illustrates
the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share as of June 30, 1999....... $
Increase in net tangible book value per share attributable
to the offering...........................................
--------
As adjusted net tangible book value per share after the
offering..................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes, on an as-adjusted basis as of June 30,
1999, the number of shares of common stock purchased, the total consideration
paid and the average price per share paid by our existing stockholders and by
new investors purchasing shares of common stock in the offering, assuming an
offering price of $ per share, the midpoint of the range on the cover page
of this prospectus, before the deduction of underwriting discounts and
commissions and estimated offering expenses of $ million payable by us:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)................
New investors...........................
Total.........................
</TABLE>
- ---------------
(1) Reflects the reorganization as if it had occurred upon the inception of
Alamosa PCS, LLC.
The foregoing tables assume no exercise of the underwriters' over-allotment
option and no exercise of outstanding stock options and warrants. To the extent
that any shares are issued in connection with the underwriters' over-allotment
option, outstanding options or warrants, you will experience further dilution.
See "Management -- Benefit Plans -- 1999 Omnibus Securities Plan,"
"Management -- Employment Agreements" and "Description of the Nortel
Financing -- The Nortel Credit Facility -- Warrants."
19
<PAGE> 24
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement
of Operations Data," "Per Share Data" and "Balance Sheet Data" for, and as of
the end of, the period from inception to December 31, 1998 are derived from the
audited financial statements of Alamosa PCS Holdings, Inc. These financial
statements have been audited by PricewaterhouseCoopers LLP, independent
certified public accountants.
It is important that you also read the section of this prospectus titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements for the period ended December 31, 1998,
the related notes and the independent auditors' report.
The selected unaudited financial data presented below as of and for the six
months ended June 30, 1999 are derived from our unaudited financial statements
included elsewhere in this prospectus. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, that
management considers necessary for a fair presentation of financial position and
results of operations. Operating results for the six month period ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1999.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 16, 1998 FOR THE SIX MONTH
(INCEPTION), THROUGH PERIOD ENDED
DECEMBER 31, JUNE 30,
1998 1999
-------------------- -----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................... $ -- $ 35
Cost of sales............................................ -- 35
Total operating expenses................................. 958 5,969
Operating loss........................................... (958) (5,968)
Net loss................................................. (924) (5,763)
Number of subscribers....................................
PER SHARE DATA:
Basic and diluted net loss per share of common
stock(1)(2)........................................... $(.02) $ (.14)
Pro forma net loss per share of common stock(1)(2)....... (.02) (.14)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
1999
AS OF ---------------------
DECEMBER 31, AS
1998 ACTUAL ADJUSTED(3)
------------ ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $13,529 $ 8,077 $
Property and equipment, net.............................. 114 8,113
Total assets............................................. 15,674 70,751
Short-term debt(4)....................................... 44 410
Long-term debt(5)........................................ 708 36,239
Total liabilities........................................ 1,598 55,825
Equity................................................... 14,076 14,926
</TABLE>
- ---------------
(1) For the periods presented, diluted weighted average shares outstanding
exclude the common shares issuable on the exercise of stock options and
warrants issuable to Nortel because inclusion would have been antidilutive.
Pro forma net loss per share of common stock has been presented for the
latest fiscal year and interim period. This presentation gives effect to
adjustments for federal and state income taxes as if Alamosa had been taxed
as a C Corporation for the periods ended December 31, 1998 and June 30,
1999.
20
<PAGE> 25
(2) Reflects the reorganization as if it had occurred upon inception of Alamosa
PCS, LLC.
(3) As adjusted Balance Sheet Data reflects the sale in the common stock
offering of shares of common stock at an initial offering price of
$ per share, the midpoint of the range on the cover of the prospectus,
less underwriting discounts and commissions and estimated offering expenses
of $ million.
(4) Reflects notes payable of $20,145 and capital lease obligations of $23,637
as of December 31, 1998 and notes payable of $388,910 and capital lease
obligations of $21,030 as of June 30, 1999.
(5) Reflects capital lease obligations of $708,074 as of December 31, 1998, and
indebtedness incurred under the Nortel facility of $35,400,679 and capital
lease obligations of $837,932 as of June 30, 1999.
21
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis when you read the
consolidated financial statements and the related notes included in this
prospectus. The discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from the
results anticipated in these forward-looking statements as a result of factors
including, but not limited to, those under "Risk Factors" and "This Prospectus
Contains Forward-Looking Statements."
OVERVIEW
On July 17, 1998, we entered into the Sprint PCS Agreements. We have
recently signed a letter of intent with Sprint PCS to modify the Sprint PCS
Agreements to expand our territory so that it will include approximately 9.2
million licensed pops.
As a Sprint PCS affiliate, we have the exclusive right to provide digital
PCS services under the Sprint and Sprint PCS brand names in our territory. We
are responsible for building, owning and managing the portion of the Sprint PCS
network located in our territory. We market wireless products and services in
our territory under the Sprint and Sprint PCS brand names. We offer national
plans designed by Sprint PCS and intend to offer specialized local plans
tailored to our market demographics. Our portion of the Sprint PCS network is
designed to offer a seamless connection with Sprint PCS's national, 100% digital
wireless network. We market wireless products and services through a number of
distribution outlets located in our territory, including our own Sprint PCS
stores, major national distributors and third party local representatives.
We launched Sprint PCS service in our first market, Laredo, in June 1999,
and have since commenced service in ten additional markets: Albuquerque, Santa
Fe, El Paso, Las Cruces, Lubbock, Amarillo, Midland, Odessa, Abilene and San
Angelo. Our systems reach approximately 2.7 million covered pops out of
approximately 3.9 million licensed pops in those markets.
We recognize 100% of revenues from Sprint PCS subscribers based in our
territory, proceeds from the sales of handsets and accessories and fees from
Sprint PCS and other wireless service providers when their customers roam onto
our portion of the Sprint PCS network. Sprint PCS handles our billing and
collections and retains 8% of all collected revenue from Sprint PCS subscribers
based in our territory and fees from wireless service providers other than
Sprint PCS when their subscribers roam onto our portion of the Sprint PCS
network. We report the amount retained by Sprint PCS as an operating expense.
As part of the Sprint PCS Agreements, we have the option of contracting
with Sprint PCS to provide back office services such as customer activation,
handset logistics, billing, customer service and network monitoring services. We
have elected to delegate the performance of these services to Sprint PCS to take
advantage of Sprint PCS's economies of scale, to accelerate our build-out and
market launches and to lower our initial capital requirements. The cost for
these services is primarily calculated on a per subscriber and per transaction
basis and is recorded as an operating expense.
Since our inception, we have incurred substantial costs to negotiate our
contracts with Sprint PCS and our debt financing from Nortel, to engineer our
wireless system, to develop our business infrastructure and distribution
channels and to begin the build-out of our portion of the Sprint PCS network.
Prior to the opening of Laredo on June 22, 1999, we did not have any markets in
operation. As of June 30, 1999, we had not generated significant revenues from
customers and our accumulated deficit was $3.9 million. Through June 30, 1999,
we incurred $50.6 million of capital expenditures and construction in progress
related to the build-out of our portion of the Sprint PCS network. While we
anticipate operating losses to continue, we expect revenue to increase
substantially as the base of Sprint PCS subscribers located in our territory
increases.
22
<PAGE> 27
REGULATORY DEVELOPMENTS
See "Regulation of the Wireless Telecommunications Industry" for a
discussion of regulatory developments that could have a future impact on us.
SEASONALITY
Our business is subject to seasonality because the wireless industry is
heavily dependent on fourth quarter results. Among other things, the industry
relies on significantly higher customer additions and handset sales in the
fourth quarter as compared to the other three fiscal quarters. A number of
factors contribute to this trend, including the increasing use of retail
distribution, which is dependent upon the year-end holiday shopping season, the
timing of new product and service announcements and introductions, competitive
pricing pressures and aggressive marketing and promotions.
RESULTS OF OPERATIONS
During July 1998, we signed the Sprint PCS Agreements to operate as the
exclusive affiliate of Sprint PCS in our territory. Our operating activities
have been focused on executing our build-out plan and developing our network
infrastructure. Because we did not open our first market until June 22, 1999, we
have not had significant revenue.
REVENUE AND EXPENSE COMPONENTS
Service Revenues. Service revenues are comprised of subscriber revenue,
Sprint PCS roaming revenue, non-Sprint PCS roaming revenue and long distance
revenue. Subscriber revenue consists of payments received from Sprint PCS
subscribers based in our territory for monthly Sprint PCS service in our
territory under a variety of service plans. These plans generally reflect the
terms of plans offered by Sprint PCS nationally and are issued on a
month-to-month basis. We receive Sprint PCS roaming revenue at a per minute rate
from Sprint PCS or another Sprint PCS affiliate when Sprint PCS subscribers
based outside of our territory use our portion of the Sprint PCS network.
Pursuant to the Sprint PCS Agreements, Sprint PCS can change this per minute
rate. Non-Sprint PCS roaming revenue primarily consists of fees collected from
Sprint PCS customers based in our territory when they roam on non-Sprint PCS
networks. These fees are based on rates specified in the customers' contracts.
However, it is possible that in some cases these fees may be less than the
amount we must pay to other wireless service providers that provide service to
Sprint PCS customers based in our territory. Non-Sprint PCS roaming revenue also
includes payments from wireless service providers, other than Sprint PCS, when
those providers' customers roam on our portion of the Sprint PCS network. Our
average revenue per user for Sprint PCS customers in our territory, including
long distance but excluding roaming revenue, was $ for the period from
to .
Product Sales. 100% of the revenue from the sale of handsets and
accessories are recorded, net of an allowance for returns, as product sales.
Sprint PCS's handset return policy allows customers to return their handsets for
a full refund within 30 days of purchase. When handsets are returned to us, we
may be able to reissue the handsets to customers at little additional cost to
us. However, when handsets are returned to Sprint PCS for refurbishing, we
receive a credit from Sprint PCS, which is less than the amount we originally
paid for the handset.
Cost of Services. Expenses related to providing wireless services to
customers are included in cost of services. Among these costs are the cost of
operations, fees related to data transfer via T-1 and other transport lines,
inter-connection fees, Sprint PCS roaming fees, non-Sprint PCS roaming fees and
other expenses related to operations. We pay Sprint PCS roaming fees when Sprint
PCS subscribers based in our territory use the Sprint PCS network outside of our
territory. Pursuant to the Sprint PCS Agreements, Sprint PCS can change this per
minute rate. We pay non-Sprint PCS roaming fees to other carriers when Sprint
PCS customers based in our territory use their network.
23
<PAGE> 28
Cost of Products Sold. The cost of products sold includes the cost of
accessories and the cost of handsets up to the retail sales price. We expect the
cost of handsets to exceed the retail sales price because we subsidize the price
of handsets for competitive reasons. We recognize any excess of the cost of
handsets over the retail sales price as an advertising expense.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses include sales and marketing expenses, the 8% of
collected revenue retained by Sprint PCS and amounts retained by Sprint PCS for
customer service, billing, network monitoring and other services. Sales and
marketing expenses include advertising expenses, promotion costs, sales
commissions and expenses related to our distribution channels. Advertising
expenses include any excess of the cost of a handset over the retail price. We
have incurred significant SG&A expenses related to the development of our
system. Virtually all of these expenses are related to the start-up of the
business and were expensed according to AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities."
Depreciation and Amortization. Depreciation is calculated using the
straight line method over the useful life of the asset. We begin to depreciate
the assets for each market only after we open that market.
Interest and Other Income. Interest and other income generally has been
generated from the investment of equity and loan proceeds held in liquid
accounts waiting to be deployed.
Interest Expense. Interest expense on the Nortel financing may be paid with
loans obtained under the Tranche C Commitment of the Nortel facility until, in
most circumstances, January 2002. See "Description of the Nortel
Financing -- The Nortel Credit Facility -- Loans and Interest Options." Gains or
losses on hedging transactions related to interest rates will be netted against
interest expense.
INCOME TAXES
Our financial statements did not report any benefit for federal and state
income taxes since we had elected to be taxed as a partnership prior to our
reorganization. For the periods presented, the members of the limited liability
company recorded our tax losses on their own income tax returns. Subsequent to
the reorganization, we will account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Had we applied the provisions of SFAS No. 109 for the
period from inception (July 16, 1998) through June 30, 1999, the deferred tax
asset generated, primarily from temporary differences related to the treatment
of start-up costs, unearned compensation and from net operating loss carry
forwards, would have been offset by a full valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through capital
contributions from our owners and through debt financing provided by Nortel. As
of June 30, 1999, we had a $123.0 million senior credit facility with Nortel, of
which, $35.4 million had been drawn. The agreement has since been amended to
increase the facility to $250.0 million as of the closing of this offering. This
financing agreement allows us to borrow up to 150% of the value of equipment we
purchase from Nortel to build our portion of the Sprint PCS network. The terms
of the facility do not require cash interest payments until the earlier of (1)
January 2001, only if we have not borrowed at least $100.0 million under the
Nortel financing by that time, (2) January 2002 and (3) the date the Tranche C
Commitment is fully funded. Principal payments are scheduled to begin on the
earlier of (1) June 30, 2001, only if we have not borrowed at least $100.0
million under the Nortel financing by January 31, 2001 and (2) September 30,
2002. Our financing with Nortel will be used to purchase equipment, pay interest
and cover approved working capital costs. In connection with the facility, we
are required, unless we meet specified conditions, to issue warrants to Nortel
on the second anniversary of the closing date of the facility. Subject to market
conditions, we intend to refinance a portion of the Nortel financing through a
subordinated debt offering, a portion of the proceeds of which will be used to
prepay outstanding amounts of the Nortel loans. We will attempt to complete this
offering before the second anniversary of the closing of the Nortel facility,
thus preventing the issuance of the warrants to Nortel. The warrants are
exercisable to purchase shares of our common
24
<PAGE> 29
stock representing 2% of the total shares outstanding as of the closing of the
offering. The exercise price of the warrants would be equal to the initial
public offering price of the common stock sold in this offering. We will
amortize the fair value of these contingent warrants as debt issuance costs over
the term of the Nortel loan. For more information on the financing facility, see
"Description of the Nortel Financing."
Net cash used in and provided by operating activities was $(127,954) for
the period ending December 31, 1998, and $10,425,070 for the six months ending
June 30, 1999. Cash used in operating activities for the periods were
attributable to operating losses and working capital needs.
Net cash used in investing activities was $(1,342,969) for the inception
period ending December 31, 1998, and $(19,680,167) for the six month period
ending June 30, 1999. The expenditures were related primarily to the purchase of
office equipment, telephone equipment and network infrastructure needed to begin
construction of our portion of the Sprint PCS network.
Net cash provided by financing activities was $15,000,000 for the inception
period ending December 31, 1999, and $3,803,115 for the six month period ending
June 30,1999.
As of June 30, 1999, the primary sources of liquidity for Alamosa were $8.1
million in cash and $87.6 million of unused capacity under the Nortel credit
facility.
We anticipate that the proceeds from this offering, when combined with
previously funded equity and the committed level of debt financing from Nortel,
will be adequate to fund required capital expenditures, working capital
requirements, operating losses and other cash needs of our business. We believe
that we will require approximately $400.0 million to complete the current
build-out plan and fund working capital losses through the year 2001. However,
the actual funds required to build-out our portion of the Sprint PCS network and
to fund operating losses and working capital needs may vary materially from
these estimates, and additional funds could be required in the event of
unforeseen delays, cost overruns, unanticipated expenses, engineering design
changes and other technology risks. In addition, if we complete our build-out
more rapidly than currently anticipated, or if we contract to develop additional
markets, we will need to raise additional equity or debt capital. We cannot be
sure that we will be able to obtain the additional financing necessary to
satisfy our cash requirements or to implement our growth strategy on acceptable
terms or at all. In particular, covenants in our loan agreement with Nortel
place restrictions on our subsidiaries' ability to raise additional equity or
debt capital without Nortel's consent. If we cannot obtain financing on terms
acceptable to us, we may be forced to curtail our planned business expansion and
may be unable to fund our ongoing operations. For more information see "Risk
Factors -- Risks Particular to Alamosa -- We may need more capital than we
currently project to build-out our portion of the Sprint PCS network."
Included in construction in progress are several capital leases related to
network equipment and build-out. At December 31, 1998, the capital leases
totaled $728,219 and included long-term capital lease obligations of $708,074.
At June 30, 1999, the capital leases totaled $858,962 and included long-term
capital lease obligations of $837,932. See "Description of the Nortel
Financing -- The Nortel Credit Facility -- Loans and Interest Options." No
amortization was recorded under these leases through June 30, 1999.
IMPACT OF YEAR 2000 ISSUE ON THE OPERATIONS AND FINANCIAL CONDITION OF ALAMOSA
The year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year. Consequently, that software has the potential to
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in normal business activities.
We believe that our computer systems and software are year 2000 compliant.
To the extent that we implement our own computer systems and software in the
future, we will assess year 2000 compliance prior to their implementation. We
have not incurred any costs relating to year 2000 compliance. In the process of
constructing our portion of the Sprint PCS network, we have entered into
material agreements
25
<PAGE> 30
with several third-party vendors. We rely on them for all of our important
operating, computer and non-information technology systems. We will purchase
critical back office services from Sprint PCS, and our network infrastructure
equipment will be contractually provided by Nortel. We are highly dependent on
Sprint PCS and other vendors for year 2000 compliance of their network elements,
computer systems, software applications and other business systems. If Sprint
PCS, Nortel or any other third party vendors fail to become year 2000 compliant,
our services could be interrupted and our business could be adversely effected.
We have contacted our third party vendors and believe that they will be year
2000 compliant. However, we have no contractual or other right to compel their
compliance.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not engage in commodity futures trading activities and do not enter
into derivative financial instrument transactions for trading or other
speculative purposes. We also do not engage in transactions in foreign
currencies that could expose us to market risk.
We are subject to some interest rate risk on our financing from Nortel and
any future floating rate financing.
The following table presents the estimated future outstanding long-term
debt at the end of each year and future required annual principal payments for
each year then ended associated with the Nortel financing based on our projected
level of long-term indebtedness:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
---------------------------------------
1999 2000 2001 2002 2003 2004 THEREAFTER
---- ---- ---- ---- ---- ---- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Instruments:
Capital Leases......................................... $ 53 $106 $106 $106 $106 $111 $1,088
Average Interest Rate................................ 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Variable Rate Instruments:
Nortel Senior Debt(1).................................. $ 87 $139 $233 $233 $189 $113 --
Average Effective Interest Rate...................... 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% --
Principal payments....................................... -- -- -- $ 17 $ 38 $195 --
</TABLE>
- ---------------
(1) Interest rate on the Nortel financing equals, at our option, either the
London Interbank Offered Rate (LIBOR) + 3.75%, or the prime or base rate of
Citibank, N.A. plus 2.75%. LIBOR is assumed to equal 5.5% for all periods
presented.
Our primary market risk exposure relates to:
- the interest rate risk on long-term and short-term borrowings; and
- the impact of interest rate movements on our ability to meet interest
expense requirements and meet financial covenants.
The carrying value of the financial instruments approximates fair value.
As a condition to the Nortel financing, we must maintain one or more
interest rate protection agreements in an amount equal to 50% of the total debt
under the financing. While we cannot predict our ability to refinance existing
debt or the impact interest rate movements will have on our existing debt, we
continue to evaluate our financial position on an ongoing basis.
INFLATION
Management believes that inflation has not had, and is not likely to have,
a material adverse effect on our results of operations.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
We do not believe that any recently issued accounting pronouncements will
have any material impact on our financial position, results of operations or
cash flows.
26
<PAGE> 31
BUSINESS
OVERVIEW
Alamosa is a provider of wireless personal communication services in the
southwestern and midwestern United States. We are part of the Sprint PCS
network. Sprint PCS, directly and through affiliates such as us, provides
wireless services in more than 4,000 cities and communities across the country.
We have the exclusive right to provide digital PCS services under the Sprint and
Sprint PCS brand names in our territory. We have recently signed a letter of
intent to expand our territory so that it will include approximately 9.2 million
licensed pops. These pops are primarily located in smaller cities and in markets
with above average growth rates in Texas, New Mexico, Arizona, Colorado and
Wisconsin.
We believe that our strategic relationship with Sprint PCS provides
significant competitive advantages by allowing us to establish high quality,
branded wireless services more quickly, at a lower cost and with lower initial
capital requirements than would be possible without our affiliation with Sprint
PCS.
Our territory offers several competitive advantages as a result of its
attractive market footprint. Our territory is a high growth area. The overall
population growth rate in our territory for the period from 1990 to 1998 was
approximately 1.5% per year, approximately 45% above the national average. We
expect to face fewer competitors in our territory than is generally the case for
carriers operating in more urban markets. We expect to have significant Sprint
PCS roaming revenue because our territory adjoins several major Sprint PCS
markets and contains several vacation destinations and border markets.
Since inception in July 1998, we have launched Sprint PCS service in eleven
markets with approximately 2.7 million covered pops out of approximately 3.9
million licensed pops in those markets. We anticipate that the proceeds of this
offering, when combined with previously funded equity and the committed level of
debt financing from Nortel, will be adequate to fund required capital
expenditures, working capital requirements, operating losses and other cash
needs of our business.
WIRELESS INDUSTRY GROWTH
Wireless communications systems use a variety of radio frequencies to
transmit voice and data. Broadly defined, the wireless communications industry
includes one-way radio applications, such as paging or beeper services, and
two-way radio applications, such as PCS, cellular telephone services and
enhanced specialized mobile radio service (ESMR).
Since the introduction of commercial cellular service in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers for cellular, PCS and ESMR has increased from an estimated 340,213
at the end of 1985 to an estimated 79.7 million as of October 7, 1999, according
to the Cellular Telecommunications Industry Association (CTIA), an international
association for the wireless industry. The following chart sets forth statistics
for the domestic wireless telephone industry as a whole, as published by the
CTIA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
WIRELESS INDUSTRY STATISTICS(1)
Total service revenues (in billions).............. $14.2 $19.1 $23.6 $27.5 $33.1
Wireless subscribers at end of period (in
millions)....................................... 24.1 33.8 44.0 55.3 69.2
Subscriber growth................................. 50.8% 40.0% 30.4% 25.6% 25.1%
Average local monthly bill(2)..................... $56.21 $51.00 $47.70 $42.78 $39.43
</TABLE>
- ---------------
(1) Reflects domestic commercial cellular, ESMR and PCS providers.
(2) Does not include revenue from roaming and long distance.
27
<PAGE> 32
Paul Kagan Associates, Inc., an independent media and telecommunications
consultant, estimates that the number of wireless users will increase to
approximately 131 million by the end of 2002 and 160 million by the end of 2005.
This growth is expected to be driven largely by a substantial projected increase
in PCS users, who are forecast to account for approximately 31% of total
wireless users in 2002 and 37% in 2005, representing a significant increase from
approximately 10% as of the end of 1998. Paul Kagan Associates, Inc. projects
that total wireless industry penetration, defined as the number of wireless
subscribers nationwide divided by total United States population, will grow from
an estimated 26% in 1998 to 54% in 2005.
We believe that a significant portion of the predicted growth in the
consumer market for wireless telecommunications will result from anticipated
declines in costs of service, increased versatility and increased awareness of
the productivity, convenience and privacy benefits associated with the services
offered by PCS providers. We also believe that the rapid growth in the use of
notebook computers and personal digital assistants, combined with emerging
software applications for delivery of electronic mail, fax and database
searching, will contribute to the growing demand for wireless services.
SPRINT PCS
Sprint is a diversified telecommunications service provider whose principal
activities include long distance service, local service, wireless telephone
products and services, product distribution and directory publishing activities,
and other telecommunications activities, investments and alliances. The PCS
Group of Sprint, commonly referred to as Sprint PCS, is a wholly-owned operating
unit of Sprint and operates the only 100% digital PCS wireless network in the
United States with licenses to provide service nationwide using a single
technology. Sprint PCS owns licenses to provide wireless service to an area
containing approximately 270 million licensed pops throughout the United States,
including Puerto Rico and the U.S. Virgin Islands. The Sprint PCS network uses
CDMA technology nationwide.
Sprint PCS launched commercial PCS in the United States in November 1995.
Since then, Sprint PCS has experienced rapid customer growth and has reported
providing service to approximately 4.0 million customers with average revenue
per subscriber of $54 as of June 30, 1999. In the fourth quarter of 1998, Sprint
PCS added approximately 836,000 net wireless subscribers. Sprint PCS added
approximately 1.4 million net wireless subscribers in the first six months of
1999. As of June 30, 1999, Sprint PCS, directly and through affiliates such as
us, operated PCS systems in more than 4,000 cities and communities across the
United States. The following table, showing the quarterly end-of-period
subscriber data for Sprint PCS, illustrates Sprint PCS's subscriber growth from
the beginning of 1997 to the end of the second quarter of 1999.
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- ----------------------------- -------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
--- --- --- --- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total subscribers
(in thousands).......... 192 347 570 887 1,114 1,365 1,751 2,587 3,350 3,967
</TABLE>
COMPETITIVE STRENGTHS
STRATEGIC RELATIONSHIP WITH SPRINT PCS
We are one of the largest affiliates of Sprint PCS based on number of
licensed pops and our territory adjoins several major Sprint PCS markets. The
build-out of our territory will significantly extend Sprint PCS's coverage in
the southwestern and midwestern United States, which we believe is important to
Sprint PCS's national strategy. We believe that our affiliation with Sprint PCS
allows us to establish high quality, branded wireless services more quickly, at
a lower cost and with lower initial capital requirements than would otherwise be
possible. Specifically, we benefit from:
Immediate Brand Recognition. We market products and services directly under
the Sprint and Sprint PCS brand names. We immediately benefit from the
recognizable Sprint and Sprint PCS brand names and national advertising as we
open markets. We offer pricing plans, promotional campaigns and handset
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<PAGE> 33
and accessory promotions of Sprint PCS. We expect that customers will choose
Sprint PCS services in large part based on the Sprint and Sprint PCS brand names
and national advertising. Furthermore, because of the Sprint and Sprint PCS
brand names, we are able to reduce the advertising costs that would be required
to establish our own brand in the wireless services market.
Existing Distribution Channels. We benefit from relationships with major
national retailers who distribute Sprint PCS products and services under
existing Sprint PCS contracts. Approximately 300 retail outlets will sell and
distribute Sprint PCS products and services throughout our territory.
Furthermore, we will benefit from sales made by Sprint PCS to customers in our
territory through its national telemarketing sales force, national account sales
team and Internet sales capability. These existing distribution channels provide
immediate access to customers as our services become available in their area.
For more information on our distribution plan, see "-- Sales and Distribution."
Sprint PCS's National Footprint. We believe that our ability to offer
access to Sprint PCS's national wireless network represents a competitive
advantage over regional offerings. We also expect to derive additional revenue
from Sprint PCS when its customers based outside of our territory roam on our
portion of the Sprint PCS network.
High Capacity Network. Sprint PCS built its network around CDMA digital
technology, which we believe provides advantages in capacity, voice-quality,
security and handset battery life. For more information on the benefits of CDMA
technology, see "-- Technology -- CDMA Technology."
Sprint PCS's Licensed Spectrum. Sprint PCS has invested approximately $100
million to purchase the PCS licenses in our territory and to pay costs to remove
sources of microwave signals that interfere with the licensed spectrum, a
process generally referred to as microwave clearing. Our early stage financing
requirements have been significantly reduced as a result of this investment by
Sprint PCS.
Better Equipment Availability and Pricing. We expect to be able to acquire
handsets and network equipment more quickly and at a lower cost than we would
without our affiliation with Sprint PCS. For example, Sprint PCS will use
commercially reasonable efforts to obtain for us the same discounted
volume-based pricing on wireless-related products and warranties as Sprint PCS
receives from its vendors.
Established Back Office Support Services. We have contracted with Sprint
PCS to provide critical back office services, including customer activation,
handset logistics, billing, customer care and network monitoring services.
Because we do not have to establish and operate our own systems, we are able to
accelerate our market launches and capitalize upon Sprint PCS's economies of
scale.
Access to the Sprint PCS Wireless Web. We plan to support the recently
announced Sprint PCS Wireless Web service in our portion of the Sprint PCS
network. For more information on the Sprint PCS Wireless Web, see "-- Products
and Services -- Access to the Sprint PCS Wireless Web."
ATTRACTIVE MARKET FOOTPRINT
We believe that our territory is attractive for several reasons, including:
Favorable Demographics. The overall population growth rate in our territory
was approximately 1.5% per year from 1990 to 1998, approximately 45% above the
national average. We serve nine of the 50 fastest growing markets in the United
States, including all of Laredo and a portion of Las Vegas, the two fastest
growing markets. Furthermore, the cities in Mexico directly across from our
border markets have over one million pops and the northbound border crossings
for these markets are approximately 165,000 persons per day. We expect that some
of these people who enter our territory will use the Sprint PCS network.
Fewer Competitors. We expect to face fewer competitors in our markets than
is generally the case for carriers operating in more urban markets. As of
September 30, 1999, three or fewer carriers (other than Alamosa) operated in
markets that comprise over 80% of the licensed pops in our territory. By
comparison, less than 10% of the licensed pops in the 50 most populated markets
in the United States are served by four or fewer carriers. In addition, no
single competitor or affiliated group of competitors has
29
<PAGE> 34
launched service that reaches more than half of the licensed pops in our
territory. We believe that our most extensive competition comes from Nextel
Communications, Inc., which has launched service in less than 40% of the
licensed pops in our territory, followed by the contemplated partnership between
Bell Atlantic Corp./GTE Corp. and Vodafone AirTouch Plc, that has launched
service in less than 30% of the licensed pops in our territory. AT&T Wireless
Services, Inc. has launched service in less than 20% of the licensed pops in our
territory. We anticipate that the Sprint PCS brand and the bundled long distance
offers of the "Free and Clear" plans will be effective in this competitive
environment. Sprint PCS's "Free and Clear" calling plans includes free long
distance calling from anywhere on the national PCS network to anywhere in the
United States.
Opportunity for Sprint PCS Roaming Revenue. We anticipate that we will have
significant Sprint PCS roaming revenue. We receive Sprint PCS roaming revenue
from Sprint PCS when its subscribers based outside our territory roam on our
portion of the Sprint PCS network. For a more detailed description of Sprint PCS
roaming revenue, see "-- Roaming Revenue."
- Our territory adjoins several major Sprint PCS markets that are already
operational, including Dallas/Ft. Worth, Phoenix, Minneapolis, Denver,
Las Vegas, Milwaukee, San Antonio and Austin. These metropolitan
statistical areas contain approximately 19.3 million licensed pops and
the growth rates in these markets was approximately 2.5% from 1990 to
1998. The interstate corridors in our territory include I-17 (Phoenix to
Flagstaff), I-25 (El Paso to Albuquerque/Santa Fe and Pueblo to Colorado
Springs), I-27 (Lubbock to Amarillo), I-35 (San Antonio to Laredo),
sections of I-35 (Dallas/Ft. Worth to Austin), I-20 (Abilene to Dallas),
I-43 (Green Bay to Milwaukee), I-94 (Eau Claire to Minneapolis), I-90
(LaCrosse to Madison) and I-39 (Madison to Wausau). While we believe that
the build-out of these interstate corridors will generate revenue for us,
the cost of build-out per covered pop will be higher than other areas due
to the lower resident population counts along those interstate corridors.
- Our territory receives approximately million visitors each year
at popular vacation and tourist destinations, which include major ski
resorts in Colorado and New Mexico such as Aspen, Taos and Telluride.
- Our territory contains several markets near the Mexico border which we
believe will benefit from high Sprint PCS roaming revenues generated from
U.S. business travel to factories along the border and other border
traffic. From May 1998 to April 1999, Laredo had border crossings of
approximately 14 million cars, two million trucks, the highest number of
truck crossings along the U.S.-Mexico border, and 8 million pedestrians.
El Paso had border crossings of approximately 20 million cars, half a
million trucks and 11 million pedestrians in the same period.
LAUNCHED SERVICE AND FULLY FUNDED PLAN OF NETWORK BUILD-OUT
We entered into the Sprint PCS Agreements in July 1998. We launched Sprint
PCS service in Laredo in June 1999, and have since commenced service in ten
additional markets: Albuquerque, Santa Fe, El Paso, Las Cruces, Lubbock,
Amarillo, Midland, Odessa, Abilene and San Angelo. Our systems reach
approximately 2.7 million covered pops out of approximately 3.9 million licensed
pops in these markets. We expect to have a total of approximately 5.0 million
covered pops by the end of 2000, and 5.9 million covered pops by the end of
2001, at which point we expect to have completed our build-out obligations to
Sprint PCS and expect to have covered approximately 64% of the licensed pops in
our territory. As of September 30, 1999, we served approximately 9,850 Sprint
PCS subscribers based in our territory.
We anticipate that the proceeds of this offering, when combined with
previously funded equity and the committed level of debt financing from Nortel,
will be adequate to fund required capital expenditures, working capital
requirements, operating losses and other cash needs of our business. Further, we
believe that this level of financing is adequate to achieve the objective in our
business plan of covering approximately 64% of the licensed pops in our
territory by the end of 2001 and to exceed the build-out requirements contained
in the Sprint PCS Agreements. For more information, see "Risk Factors -- Risks
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<PAGE> 35
Particular to Alamosa -- We may not achieve or sustain operating profitability
or positive cash flow from operating activities" and "-- We may need more
capital than we currently project to build-out our portion of the Sprint PCS
network."
BUSINESS STRATEGY
We intend to become a leading provider of wireless PCS services in our
territory. We believe that the following elements of our business strategy will
enable us to rapidly launch our portion of the Sprint PCS network, distinguish
our wireless service offerings from those of our competitors and compete
successfully in the wireless communications marketplace.
CAPITALIZE ON OUR AFFILIATION WITH SPRINT PCS
In all of our markets, we plan to capitalize upon the extensive benefits of
our Sprint PCS affiliation, in particular the Sprint and Sprint PCS brands and
established distribution system. We also plan to emphasize the nationwide
roaming and bundled long distance aspects of the "Free and Clear" plans,
particularly in those markets where competitors are not offering nationwide one
rate plans.
ACCELERATE MARKET LAUNCH THROUGH EXPERTISE OF THIRD PARTIES
We have entered into outsourcing or other relationships to benefit from
specialized expertise or economies of scale of third parties and to build-out
our portion of the Sprint PCS network more quickly and with lower initial
capital and staffing requirements. Specifically, those relationships include:
- The radio frequency design, project management, and networking
interconnection is being performed by Hicks & Ragland, a national
engineering consulting firm. This relationship allows us to quickly plan
and begin network operations without the initial need to hire additional
specialized technical personnel.
- We entered into a "build-to-suit" contract with Specialty Capital
Services, Inc. (Specialty), now a subsidiary of American Tower
Corporation. Specialty is responsible for site acquisition, zoning, tower
construction and identifying collocation opportunities. This arrangement
allows us to focus on the development of a distribution network rather
than the time consuming task of site acquisition and zoning.
- We entered into a supply and installation contract with Nortel for
network infrastructure. Nortel is an international equipment supplier
well-known for its leadership in CDMA networks. In addition to assuming
the responsibility for the integration of system operations, Nortel
provides us with resources for product and service development.
- We have contracted with Sprint PCS to provide back office services, such
as customer activation, handset logistics, billing, customer care and
network monitoring services. Because Sprint PCS provides these services,
we can be sure that those services are compatible with, and similar to,
the rest of Sprint PCS's infrastructure and services and that we are in
compliance with Sprint PCS's customer service standards.
For more information, see "-- Network Operations" and "-- Competitive
Strengths -- Strategic Relationship with Sprint PCS -- Established Back Office
Support Services."
EXECUTE OPTIMAL BUILD-OUT PLAN
We have targeted the high population density areas within our territory for
network build-out as well as areas expected to generate significant Sprint PCS
roaming revenue such as major interstates and the border crossings. We are
building an all digital PCS network. Our radio frequency design is optimized to
provide in-building coverage with high capacity traffic. We believe that our
cell density, together with the use of CDMA technology, will allow our system to
handle more customers with fewer dropped calls and better clarity than our
competitors.
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<PAGE> 36
IMPLEMENT EFFECTIVE OPERATING STRUCTURE
Our organization and management structure is based on a market-focused
model. Each market area, averaging 1.5 million pops, will be supported by a
small corporate staff that provides services including network technical
support, accounting, human resources, roaming administration, marketing support
and Sprint liaison. The general manager in each market has responsibility for
the profits and losses for his or her region. We believe that by placing
experienced managers in these markets with the authority to tailor our marketing
programs to local conditions, we can effectively market our products across a
wide geographic area.
EXPLORE STRATEGIC OPPORTUNITIES TO EXPAND AND FURTHER BUILD-OUT OUR
TERRITORY IN THE FUTURE
Upon the successful build-out of our current territory, we plan to explore
strategic expansion of our territory through additional affiliations and further
build-out of our existing territory.
MARKETS AND NETWORK BUILD-OUT PLAN
The following table lists the location, actual or projected launch date for
network coverage, frequency, megahertz of spectrum, estimated licensed pops,
estimated covered pops and population growth rates, for each of the markets that
comprise our territory under the Sprint PCS Agreements.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED POPULATION
BTA LAUNCH MHZ OF LICENSED COVERED GROWTH
DESCRIPTION NO.(1) DATE(2) FREQUENCY SPECTRUM POPS(3) POPS(4) RATE(5)
- ----------- ------ ------------ --------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
El Paso, TX................ 128 July 1999 D/E 20 787,000 659,000 2.0%
Laredo, TX................. 242 July 1999 A 30 224,000 187,000 4.1%
Las Cruces, NM............. 244 July 1999 D 10 252,000 210,000 2.6%
Amarillo, TX............... 013 Sept 1999 B 30 405,000 244,000 0.7%
Lubbock, TX................ 264 Sept 1999 B 30 400,000 240,000 0.2%
Midland, TX................ 296 Sept 1999 B 30 127,000 76,000 1.4%
Odessa, TX................. 327 Sept 1999 B 30 221,000 133,000 0.4%
--------- ---------
SUBTOTAL......... 2,416,000 1,749,000
Abilene, TX................ 003 4th Qtr 1999 B 30 258,000 173,000 0.2%
Albuquerque, NM............ 008 4th Qtr 1999 D 10 813,000 545,000 1.8%
San Angelo, TX............. 400 4th Qtr 1999 B 30 164,000 110,000 0.5%
Santa Fe, NM............... 407 4th Qtr 1999 D 10 213,000 143,000 2.1%
--------- ---------
SUBTOTAL......... 3,864,000 2,720,000
Del Rio/Eagle Pass, TX..... 121 2nd Qtr 2000 A 30 121,000 76,000 2.0%
Flagstaff, AZ.............. 144 2nd Qtr 2000 B 30 118,000 74,000 2.1%
Prescott, AZ............... 362 2nd Qtr 2000 B 30 158,000 98,000 4.1%
--------- ---------
SUBTOTAL......... 4,261,000 2,968,000
Austin, TX(6).............. 027 4th Qtr 2000 B 30 57,000 45,000 3.8%
Dallas/Fort Worth, TX(6)... 101 4th Qtr 2000 B 30 72,000 57,000 1.0%
San Antonio, TX(6)......... 401 4th Qtr 2000 A 30 88,000 69,000 2.7%
Temple/Killeen, TX(6)...... 442 4th Qtr 2000 B 30 188,000 146,000 2.4%
Waco, TX(6)................ 459 4th Qtr 2000 B 30 206,000 161,000 0.9%
Appleton/Oshkosh, WI....... 018 4th Qtr 2000 A 30 443,000 186,000 1.1%
Eau Claire, WI............. 123 4th Qtr 2000 A 30 192,000 80,000 0.6%
El Centro/Calexico, CA..... 124 4th Qtr 2000 A 30 152,000 71,000 3.5%
Fond du Lac, WI............ 148 4th Qtr 2000 A 30 96,000 40,000 0.6%
Grand Junction, CO......... 168 4th Qtr 2000 A 30 234,000 110,000 2.8%
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED POPULATION
BTA LAUNCH MHZ OF LICENSED COVERED GROWTH
DESCRIPTION NO.(1) DATE(2) FREQUENCY SPECTRUM POPS(3) POPS(4) RATE(5)
- ----------- ------ ------------ --------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Green Bay, WI.............. 173 4th Qtr 2000 A 30 345,000 145,000 1.1%
La Crosse, WI/Winona, MN... 234 4th Qtr 2000 A 30 312,000 131,000 0.6%
Las Vegas, NV(6)........... 245 4th Qtr 2000 A 30 139,000 65,000 4.3%
Madison, WI(6)............. 272 4th Qtr 2000 A 30 131,000 55,000 1.5%
Manitowoc, WI.............. 276 4th Qtr 2000 A 30 83,000 35,000 0.3%
Milwaukee, WI(6)........... 297 4th Qtr 2000 A 30 85,000 35,000 1.1%
Minneapolis/St. Paul,
MN(6).................... 298 4th Qtr 2000 A 30 145,000 61,000 1.5%
Phoenix, AZ(6)............. 347 4th Qtr 2000 B 30 101,000 47,000 2.8%
Pueblo, CO................. 366 4th Qtr 2000 A 30 304,000 143,000 1.4%
Sheboygan, WI.............. 417 4th Qtr 2000 A 30 111,000 47,000 0.7%
Sierra Vista/Douglas, AZ... 420 4th Qtr 2000 B 30 116,000 54,000 1.8%
Stevens Point/Marshfield/
Wisconsin Rapids, WI..... 432 4th Qtr 2000 A 30 214,000 90,000 0.6%
Wausau/Rhinelander, WI..... 466 4th Qtr 2000 A 30 244,000 102,000 1.1%
Yuma, AZ................... 486 4th Qtr 2000 B 30 138,000 65,000 2.7%
--------- ---------
SUBTOTAL......... 8,457,000 5,008,000
Big Spring, TX............. 040 2nd Qtr 2001 B 30 34,000 24,000 -0.1%
Brownwood, TX.............. 057 2nd Qtr 2001 B 30 62,000 43,000 0.7%
Clovis, NM................. 087 2nd Qtr 2001 B 30 77,000 54,000 0.9%
Hobbs, NM.................. 191 2nd Qtr 2001 B 30 56,000 39,000 0.1%
Wisconsin Corridors........ -- 2nd Qtr 2001 A 30 * 116,000 *
--------- ---------
SUBTOTAL......... 8,686,000 5,284,000
Carlsbad, NM............... 068 3rd Qtr 2001 D 10 54,000 22,000 1.2%
Denver, CO(6).............. 110 3rd Qtr 2001 A 30 62,000 88,000 2.9%
Farmington, NM/ Durango,
CO....................... 139 3rd Qtr 2001 D 10 201,000 82,000 2.2%
Gallup, NM................. 162 3rd Qtr 2001 D 10 139,000 57,000 1.4%
Roswell, NM................ 386 3rd Qtr 2001 D 10 81,000 33,000 1.5%
--------- ---------
SUBTOTAL......... 9,223,000 5,566,000
Other Wisconsin
Corridors................ -- 4th Qtr 2001 A 30 * 362,000 *
--------- ---------
SUBTOTAL......... 9,223,000 5,928,000
Waco, TX Corridors......... -- 2nd Qtr 2002 B 30 * 94,000 *
--------- ---------
TOTAL............ 9,223,000 6,022,000 1.5%
</TABLE>
- ---------------
* The estimated licensed pops and population growth rates along these
interstates are included in this table under the appropriate market BTAs.
(1) BTA No. refers to the Basic Trading Area (BTA) number assigned to that
market by the FCC for the purposes of issuing licenses for wireless
services.
(2) These projected launch dates may change based on a number of factors,
including shifts in populations or network focus, changes or advances in
technology, acquisition of other markets and delays in market build-out due
to reasons identified in "Risk Factors -- Risks Particular to
Alamosa -- Factors outside our control may adversely affect our portion of
the Sprint PCS network."
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<PAGE> 38
(3) Estimated licensed pops are based on projections of year-end 1999 population
counts calculated by applying the annual growth rate from 1990 to 1998 to
estimates of 1998 population counts compiled by the U.S. Census Bureau.
(4) Estimated covered pops are based on our actual or projected coverage in
markets at the launch date using current projections of year-end 1999
population counts calculated by applying the annual growth rate from 1990 to
1998 to estimates of 1998 population counts compiled by the U.S. Census
Bureau.
(5) Population growth rate represents the average annual growth rate during the
period from 1990 to 1998, based on U.S. Census Bureau data.
(6) Licensed pops for these markets reflect only those licensed pops contained
in our territory, not the total licensed pops in the entire BTA.
Pursuant to the Sprint PCS Agreements, we have agreed to cover a minimum
percentage of the pops in our territory within specified time periods. We plan
to build-out our territory more rapidly than those network build-out
requirements. For more information on the network build-out requirements, see
"The Sprint PCS Agreements -- The Management Agreement -- Network Build-Out." We
believe that our build-out plan is achievable based on our progress to date, the
proven digital PCS technology we will use to build our portion of the Sprint PCS
network and the established standards of Sprint PCS. However, our build-out plan
may change for a number of reasons, including those described in footnote (1) to
the table above.
NETWORK OPERATIONS
GENERAL
The effective operation of our portion of the Sprint PCS network requires
public switched and long distance interconnection, the implementation of roaming
arrangements, and the development of network monitoring systems. Our network
connects to the public switched telephone network to facilitate the origination
and termination of traffic between our network and both local exchange and long
distance carriers. Sprint provides preferred rates for long distance services.
Through our arrangements with Sprint PCS and Sprint PCS's arrangements with
other wireless service providers, Sprint PCS subscribers based in our territory
have roaming capabilities on other networks. We have a network monitoring system
in our Lubbock switching center where we monitor our portion of the Sprint PCS
network during normal business hours. For after hours monitoring, Sprint PCS's
Network Operation Center provides 24 hour, seven day a week monitoring of our
portion of the Sprint PCS network and notification to our designated personnel.
This network monitoring process assists our staff in improving our network
reliability without having to staff 24 hours a day.
As of September 30, 1999, our portion of the Sprint PCS network currently
includes 180 base stations and four switching centers. As of December 31, 2000,
we anticipate our portion of the Sprint PCS network will include 588 base
stations and nine switching centers.
NORTEL EQUIPMENT AGREEMENT
On December 21, 1998, we entered into a three year agreement with Nortel
for our network equipment and infrastructure, including switches, base stations
and controllers. Pursuant to the agreement, as amended effective as of the
closing of the Nortel financing, Nortel will also provide installation and
optimization services, such as network engineering and radio frequency
engineering, for the equipment and grant us a nonexclusive license to use all
the software associated with the Nortel equipment. During the term of the
agreement we have committed to purchase $167.0 million worth of equipment and
services from Nortel. Nortel finances these purchases pursuant to the Nortel
credit facility described in "Description of the Nortel Financing." We submit
purchase orders to Nortel for the equipment and services as needed. Under the
agreement, we receive a discount on the network equipment and services because
of our affiliation with Sprint PCS, but we must pay a 3% premium on any
equipment and services
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<PAGE> 39
financed by Nortel until the closing of the Nortel financing. After the closing
of the Nortel financing, we are not required to pay this 3% premium. If our
affiliation with Sprint PCS ends, Nortel has the right to either terminate the
agreement or, with our consent, modify the agreement to establish new prices,
terms and conditions.
TOWER AGREEMENT WITH SPECIALTY
In August 1998, we entered into a nonexclusive master site development and
lease agreement for tower sites with Specialty, now a subsidiary of American
Tower Corporation. Pursuant to the agreement, Specialty arranges for collocation
of our equipment, or constructs new facilities, in areas we identify for
build-out. Subject to our approval, Speciality provides site acquisition,
leasing and construction services and secures zoning, permitting and surveying
approvals and licenses for each base station location. The initial term of the
master agreement expires in August 2003, with automatic renewal for three
additional terms of five years each. We lease all individual tower sites that
Specialty provides for an initial term of five years, with automatic renewals at
our option for three additional terms of five years each. We pay monthly rental
payments to Specialty, in the amounts indicated on each individual leased site
schedule, subject to an annual adjustment based on the Consumer Price Index. In
any situation where Specialty's rights in a site are derived from a lease with a
third party, the terms of our agreement with Specialty, including the lease
term, are subordinate to the terms of that lease.
AGREEMENTS WITH HICKS & RAGLAND
We have entered into a number of agreements with Hicks & Ragland to perform
aspects of our network build-out. Those agreements include the following:
Engineering Service Contract. Pursuant to an engineering service contract
dated July 27, 1998, as amended, Hicks & Ragland performs design and
construction inspection services in connection with the deployment of switching
centers and base stations. The term of the contract covers three periods through
August 2001, though either party may terminate the agreement for cause before
August 2001. We pay Hicks & Ragland hourly rates for the employees who work on
the project as well as the employees' associated expenses. We also pay Hicks &
Ragland for the costs of test equipment and computer usage. The hourly rates and
the test equipment and computer usage costs are reviewed and modified by mutual
agreement annually until completion of the services or termination of the
agreement. A guaranteed maximum fee amount has been set for each period of the
contract, and those fees aggregate to approximately $7.0 million, excluding
taxes. If the total billing for the project is less than the guaranteed maximum
fee amount for the agreement, then we will pay an incentive bonus to Hicks &
Ragland equal to 50% of the difference.
Data Communications Services Contract. We entered into a data
communications services contract with H&R Data Com, an affiliate of Hicks &
Ragland, as of April 9, 1999, for the design and implementation of network
interconnection systems for our local area networks and wide area network.
Similar to the engineering service contract, we pay Hicks & Ragland hourly rates
and test equipment and computer usage costs, subject to a guaranteed maximum fee
amount for the project of $262,040, excluding taxes. If the total billing for
the project is less than the guaranteed maximum fee amount, then we will pay an
incentive bonus to Hicks & Ragland equal to 50% of the difference. We may also
require additional services during the course of the contract and have been
guaranteed a fee not to exceed $50,000 for any of those services. The agreement
lasts until the project is completed, unless either party terminates it earlier
for cause.
Marketing and Operations Consulting Services Contract. Pursuant to a
special service contract, from September 20, 1998 through January 15, 1999,
Hicks & Ragland provided marketing and operations consulting services relating
to the setup and operation of our PCS system.
Wisconsin Marketing and Operations Consulting Services Contract. As of
October 8, 1999, we entered into a similar marketing and operations consulting
services contract with Hicks & Ragland relating to the setup and operation of
the PCS system in selected areas in Wisconsin. We pay Hicks & Ragland
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hourly rates for the employees who work on the project as well as the employees'
associated expenses. We also pay Hicks & Ragland for the costs of computer
usage. The hourly rates and computer usage costs are reviewed and modified by
mutual agreement annually until completion of the services or termination of the
agreement. The maximum fee for the services is not to exceed $100,000, excluding
taxes. The agreement lasts until the project is completed, unless either party
terminates it earlier.
Business Planning and Consulting Services Contracts. Pursuant to a special
service contract dated as of October 8, 1999, Hicks & Ragland provides us with
business planning and consulting services and a feasibility study for selected
areas of Wisconsin for a fixed fee of $81,000. The agreement lasts until the
project is completed, unless either party terminates it earlier.
We have entered into an additional special service contract with Hicks &
Ragland dated as of October 8, 1999. Pursuant to this contract, Hicks & Ragland
provides us with business planning and consulting services and a feasibility
study for additional selected areas in our territory. We pay Hicks & Ragland
hourly rates for the employees who work on the project as well as the employees'
associated expenses. We also pay Hicks & Ragland for the costs of computer
usage. The hourly rates and computer usage costs are reviewed and modified by
mutual agreement annually until completion of the services or termination of the
agreement. The estimated probable cost of the services is $200,000, excluding
taxes. The agreement lasts until the project is completed, unless either party
terminates it earlier.
Radio Frequency "Drive Testing" Contract. Pursuant to a special service
contract dated as of October 8, 1999, Hicks & Ragland provides us with "drive
testing" to predict the radio frequency propagation characteristics of given
areas. We pay Hicks & Ragland hourly rates for the employees who work on the
project as well as the employees' associated expenses. We also pay Hicks &
Ragland for the costs of computer usage. The hourly rates and computer usage
costs are reviewed and modified by mutual agreement annually until completion of
the services or termination of the agreement. The estimated probable cost of the
services is $62,085, excluding taxes. The agreement lasts until the project is
completed, unless either party terminates it earlier.
Hicks & Ragland is planning to merge with Cathey, Hutton & Associates, Inc.
effective as of November 1, 1999, with the newly merged company to be called CHR
Solutions, Inc. We do not anticipate that this merger will have a material
effect on our business relationship with Hicks & Ragland.
PRODUCTS AND SERVICES
We offer established products and services throughout our territory under
the Sprint and Sprint PCS brand names. Our products and services are designed to
mirror the service offerings of Sprint PCS and to integrate with the Sprint PCS
network. The Sprint PCS service packages we currently offer include the
following:
100% DIGITAL WIRELESS NETWORK WITH NATIONAL SERVICE
We are part of the largest 100% digital PCS network in the nation. Sprint
PCS customers based in our territory may access Sprint PCS services throughout
the Sprint PCS national network, which includes more than 4,000 cities and
communities across the United States. Dual-band/dual-mode handsets allow roaming
on wireless networks where Sprint PCS has roaming agreements.
ACCESS TO THE SPRINT PCS WIRELESS WEB
We plan to support the recently announced Sprint PCS Wireless Web offer in
our portion of the Sprint PCS network. The Sprint PCS Wireless Web allows
customers with data capable handsets to connect their portable computers or
personal digital assistants to the Internet. Sprint PCS customers with data
capable handsets also have the ability to receive periodic information updates
such as stock prices, sports scores and weather reports. Sprint PCS customers
with web-browser enabled handsets have the ability to connect to and browse
specially designed text-based Internet sites on an interactive basis. Sprint PCS
has agreements with Internet providers including Yahoo!, Bloomberg.com, CNN
Interactive,
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MapQuest.com and Weather.com to provide services for the Sprint PCS Wireless
Web. Sprint PCS offers various pricing options including a fixed number of
updates or a bundle of data minutes as add-ons to existing Sprint PCS "Free and
Clear" plans or a bundle of minutes for a set price that can be used for either
data or voice.
Special network equipment and support software is required to offer Sprint
PCS Wireless Web services in our territory. We plan to install this capability
in our networks before the end of 1999.
PRICING AND FEATURES
Sprint PCS's consumer pricing plans are typically structured with monthly
recurring charges, large local calling areas, bundles of minutes and service
features such as voicemail, caller ID, call waiting, call forwarding and
three-way calling. The increased capacity of CDMA technology allows us to market
high usage customer plans at per minute rates lower than analog cellular and
certain digital providers. All of Sprint PCS's current national plans:
- include minutes on any portion of the Sprint PCS network with no roaming
charges for the customer;
- offer advanced features and generally require no long-term contracts;
- offer a selection of handsets to meet the needs of individual consumers
and businesses;
- provide a limited-time money back guarantee on Sprint PCS handsets; and
- provide the first incoming minute free.
In addition, Sprint PCS's "Free and Clear" calling plans include free long
distance calling from anywhere on its national PCS network to anywhere in the
United States.
ADVANCED HANDSETS
We offer a selection of single and dual-band handsets with various advanced
features and technology, such as Internet readiness described in "-- Access to
the Sprint PCS Wireless Web" above. All handsets are equipped with preprogrammed
features such as caller ID, call waiting, phone books, speed dial and last
number redial, and are sold under the Sprint and Sprint PCS brand names. CDMA
single-band/single-mode handsets weighing approximately 5 - 7 ounces offer up to
five days of standby time and approximately four hours of talk time. We also
offer dual-band/dual-mode handsets that allow customers to make and receive
calls on both PCS and cellular frequency bands with the applicable digital or
analog technology. These handsets allow roaming on cellular networks where
Sprint PCS digital service is not available.
PRIVACY AND SECURITY
Sprint PCS provides voice transmissions encoded into a digital format with
a significantly lower risk of cloning and eavesdropping than on analog-based
systems. Sprint PCS customers using dual-band/dual-mode handsets in analog mode
do not have the benefit of digital security.
SIMPLE ACTIVATION
Customers can purchase a Sprint PCS handset at a retail location and
activate their service and program the handset by calling Sprint PCS customer
care.
CUSTOMER CARE
Sprint PCS provides customer care services to customers based in our
territory under our services agreement. Sprint PCS offers customer care 24 hours
a day, seven days a week. Customers can call the
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Sprint PCS toll-free customer care number from anywhere in the country. All
Sprint PCS handsets are preprogrammed with a speed dial feature that allows
customers to easily reach customer care at any time.
OTHER SERVICES
In addition to these services, we may also offer wireless local loop
services in our territory, but only where Sprint is not a local exchange
carrier. Wireless local loop is a wireless substitute for the landline-based
telephones in homes and businesses. We also believe that new features and
services will be developed on the Sprint PCS national network to take advantage
of CDMA technology. Sprint PCS conducts ongoing research and development to
produce innovative services that are intended to give Sprint PCS a competitive
advantage. We may incur additional expenses in modifying our technology to
provide these additional features and services.
ROAMING REVENUE
In addition to revenue from usage of our portion of the Sprint PCS network
by Sprint PCS subscribers based in our territory, we also generate roaming
revenue. The term "Sprint PCS roaming" is used when a Sprint PCS subscriber
based outside of our territory uses our portion of the Sprint PCS network
(inbound Sprint PCS roaming) and when a Sprint PCS subscriber based in our
territory uses the Sprint PCS network outside of our territory (outbound Sprint
PCS roaming). The term "non-Sprint PCS roaming" is used when a non-Sprint PCS
subscriber uses our portion of the Sprint PCS network (inbound non-Sprint PCS
roaming) and when a Sprint PCS subscriber based in our territory uses a
non-Sprint PCS network (outbound non-Sprint PCS roaming).
Sprint PCS pays us a per minute fee for inbound Sprint PCS roaming.
Similarly, we pay a per minute fee to Sprint PCS for outbound Sprint PCS
roaming. Pursuant to the Sprint PCS Agreements, Sprint PCS has the discretion to
change the per minute rate for Sprint PCS roaming fees. Because we serve smaller
markets adjacent to larger metropolitan areas, we believe inbound Sprint PCS
roaming will exceed outbound Sprint PCS roaming. See "Risk Factors -- Risks
Particular to Alamosa -- We may not receive as much Sprint PCS roaming revenue
as we anticipate and our non-Sprint PCS roaming revenue is likely to be low."
Pursuant to roaming agreements between Sprint PCS and other wireless
service providers, when another wireless service provider's subscriber uses our
portion of the Sprint PCS network, we earn inbound non-Sprint PCS roaming
revenue. These wireless service providers must pay fees for their subscribers'
use of our portion of the Sprint PCS network, and as part of our collected
revenues, we are entitled to 92% of fees. Currently, pursuant to our services
agreement with Sprint PCS, Sprint PCS bills these wireless service providers for
these fees. When another wireless service provider provides service to one of
the Sprint PCS subscribers based in our territory, we pay outbound non-Sprint
PCS roaming fees. We pay the wireless service provider for that subscriber's use
and that subscriber incurs outbound non-Sprint PCS roaming fees at rates
specified in his or her contract. As a result, we retain the collection risk for
outbound non-Sprint PCS roaming charges incurred by the subscribers based in our
territory. We are entitled to 100% of the outbound non-Sprint PCS roaming fees
collected from subscribers based in our territory. Currently, pursuant to our
services agreement with Sprint PCS, Sprint PCS bills Sprint PCS subscribers
based in our territory the outbound non-Sprint PCS roaming fees, and pays us the
fees it has collected on a monthly basis.
MARKETING STRATEGY
Our marketing strategy is to complement Sprint PCS's national marketing
strategies with techniques tailored to each of the specific markets in our
territory.
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USE SPRINT PCS'S BRAND EQUITY
We feature exclusively and prominently the nationally recognized Sprint and
Sprint PCS brand names in our marketing and sales effort. From the customers'
point of view, they use our portion of the Sprint PCS network and the rest of
the Sprint PCS network as a unified national network.
ADVERTISING AND PROMOTIONS
Sprint PCS uses national as well as regional television, radio, print,
outdoor and other advertising campaigns to promote its products. We benefit from
the national advertising at minimal costs to us. In addition to Sprint PCS's
national advertising campaigns, we advertise and promote Sprint PCS products and
services on a local level in our markets at our cost. We have the right to use
any promotion or advertising materials developed by Sprint PCS and only have to
pay the incremental cost of using those materials, such as the cost of local
radio and television advertisement placements, advertisement production and
material costs and incremental printing costs. We also benefit from any
advertising or promotion of Sprint PCS products and services by third party
retailers in our territory, such as RadioShack, Circuit City and Best Buy. We
must pay the cost of specialized Sprint PCS print advertising by third party
retailers. Sprint PCS also runs numerous promotional campaigns which provide
customers with benefits such as additional features at the same rate or free
minutes of use for limited time periods. We offer these promotional campaigns to
potential customers in our territory.
SPONSORSHIPS
Sprint PCS is a sponsor of numerous national, regional and local events.
These sponsorships provide Sprint PCS with brand name and product recognition in
high profile events and provide a forum for sales and promotions. Additionally,
we have been a sponsor for events and activities in our territory such as the
Albuquerque Balloon Fest, the Western Professional Hockey League, minor league
baseball teams, local school programs, March of Dimes and other charity events.
BUNDLING OF SERVICES
We are able to take advantage of the complete array of communications
services offered by Sprint PCS and Sprint by bundling our PCS services with
other Sprint products, such as long distance and Internet access.
SALES FORCE WITH LOCAL PRESENCE
We have established local sales forces to execute our marketing strategy
through direct business-to-business contacts, our company-owned retail stores,
local distributors and other channels. In addition, we have targeted
maquiladoras (factories with locations on both sides of the border) and the
numerous college campuses in our territory. Our market teams also participate in
local clubs and civic organizations such as the Chamber of Commerce, Rotary and
Kiwanis.
SALES AND DISTRIBUTION
Our sales and distribution plan is designed to exploit Sprint PCS's
multiple channel sales and distribution plan and to enhance it through the
development of local distribution channels. Key elements of our sales and
distribution plan consist of the following:
SPRINT PCS RETAIL STORES
As of September 30, 1999, we owned and operated eight Sprint PCS stores.
These stores provide us with a local presence and visibility in the markets
within our territory. Following the Sprint PCS model, these stores are designed
to facilitate retail sales, activation, bill collection and customer service,
although we currently do not have direct electronic access to Sprint PCS
customer care at these stores. We plan to
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add two new stores by year-end 1999, another 17 new stores by year-end 2000 and
another five new stores by year-end 2001.
SPRINT STORE WITHIN A RADIOSHACK STORE
Sprint has an exclusive arrangement with RadioShack to install a "store
within a store," making Sprint PCS the exclusive brand of PCS services and
products sold through RadioShack stores. RadioShack has approximately 165 stores
in our territory.
OTHER NATIONAL THIRD PARTY RETAIL STORES
In addition to RadioShack, we benefit from the distribution agreements
established by Sprint PCS with other national and regional retailers which
currently include Best Buy, Circuit City, Office Depot, Office Max, Dillards,
The Sharper Image, Montgomery Ward, Ritz Camera, K-Mart, Sam's Wholesale Clubs
and selected May Company department stores. These retailers have approximately
118 stores in our territory.
NATIONAL ACCOUNTS AND DIRECT SELLING
We participate in Sprint PCS's national accounts program. Sprint PCS has a
national accounts team which focuses on the corporate headquarters of large
companies. Once a representative reaches an agreement with the corporate
headquarters, we service the offices of that corporation located in our
territory. Our direct sales force targets the employees of these corporations in
our territory and contacts other local business clients.
TELEMARKETING
Sprint PCS provides telemarketing sales when customers call from our
territory. As the exclusive provider of Sprint PCS products and services in our
market, we will benefit from the national Sprint PCS 1-800-480-4PCS number
campaigns that generate call-in leads. These leads are then handled by Sprint
PCS's inbound telemarketing group.
ELECTRONIC COMMERCE
Sprint PCS maintains an Internet site, www.sprintpcs.com, which contains
information on Sprint PCS products and services. A visitor to Sprint PCS's
Internet site can order and pay for a handset and select a rate plan. Sprint PCS
customers visiting the site can review the status of their account, including
the number of minutes used in the current billing cycle. We will recognize the
revenues generated by Sprint PCS customers in our territory who purchase
products and services over the Sprint PCS Internet site.
TECHNOLOGY
GENERAL
In the commercial wireless communication industry there are two principal
services licensed by the FCC for transmitting two-way, real time voice and data
signals: "cellular" and "PCS." In addition, ESMR, a new but not yet widely used
technology, also allows for interconnected two-way real time voice and data
services. The FCC licenses these applications, each of which operates in a
distinct radio frequency block. Cellular, which uses the 800 MHz frequency
block, was the original form of widely-used commercial wireless voice
communications. Cellular systems are predominantly analog-based, but over the
last several years cellular operators have started to use digital service in the
800 MHz frequency block. Digital services have been deployed, as a complement to
the analog based services, in most of the major metropolitan markets.
In 1993, the FCC allocated the 1900 MHz frequency block of the radio
spectrum for PCS. PCS differs from traditional analog cellular telephone service
principally in that PCS systems operate at a higher frequency and employ
advanced digital technology. Analog-based systems send signals in which the
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transmitted signal resembles the input signal, the caller's voice. Digital
systems convert voice or data signals into a stream of digits that permit a
single radio channel to carry multiple simultaneous transmissions. Digital
systems also achieve greater frequency reuse than analog systems resulting in
greater capacity than analog systems. This enhanced capacity, along with
enhancements in digital protocols, allows digital-based wireless technologies,
whether using PCS or cellular frequencies, to offer new and enhanced services,
such as greater call privacy and more robust data transmission, such as
facsimile, electronic mail and connecting notebook computers with computer/data
networks.
Wireless communications systems, whether PCS or cellular, are divided into
multiple geographic coverage areas, known as "cells." In both PCS and cellular
systems, each cell contains a transmitter, a receiver and signaling equipment,
known as the "base station." The base station is connected by microwave or
landline telephone lines to a switch that uses computers to control the
operation of the cellular or PCS communications system. The system controls the
transfer of calls from cell to cell as a subscriber's handset travels,
coordinates calls to and from handsets, allocates calls among the cells within
the system and connects calls to the local landline telephone system or to a
long distance carrier. Wireless communications providers establish
interconnection agreements with local exchange carriers and interexchange
carriers, thereby integrating their system with the existing landline
communications system. Because the signal strength of a transmission between a
handset and a base station declines as the handset moves away from the base
station, the switching office and the base station monitor the signal strength
of calls in progress. When the signal strength of a call declines to a
predetermined level, the switching office may "hand off" the call to another
base station where the signal strength is stronger.
Wireless digital signal transmission is accomplished through the use of
various forms of frequency management technology or "air interface protocols."
The FCC has not mandated a universal air interface protocol for PCS systems. PCS
systems operate under one of three principal air interface protocols, CDMA, TDMA
or GSM. TDMA and GSM are both time division multiple access systems but are
incompatible with each other. CDMA is a code division multiple access system and
is incompatible with both GSM and TDMA. Accordingly, a subscriber of a system
that utilizes CDMA technology is unable to use a CDMA handset when traveling in
an area not served by CDMA-based PCS operators, unless the customer carries a
dual-band/dual-mode handset that permits the customer to use the analog cellular
system in that area. The same issue would apply to users of TDMA or GSM systems.
All of the PCS operators now have dual-mode or tri-mode handsets available to
their customers. Because digital networks do not cover all areas in the country,
these handsets will remain necessary for segments of the subscriber base.
CDMA TECHNOLOGY
Sprint PCS's national network and its affiliates' networks all use digital
CDMA technology. We believe that CDMA provides important system performance
benefits such as:
Greater capacity. We believe, based on studies by CDMA manufacturers, that
CDMA systems can provide system capacity that is approximately seven to ten
times greater than that of current analog technology and approximately three
times greater than TDMA and GSM systems.
Privacy and security. One of the benefits of CDMA technology is that it
combines a constantly changing coding scheme with a low power signal to enhance
call security and privacy.
Soft hand-off. CDMA systems transfer calls throughout the CDMA network
using a technique referred to as a soft hand-off, which connects a mobile
customer's call with a new base station while maintaining a connection with the
base station currently in use. CDMA networks monitor the quality of the
transmission received by multiple base stations simultaneously to select a
better transmission path and to ensure that the network does not disconnect the
call in one cell unless replaced by a stronger signal from another base station.
Analog, TDMA and GSM networks use a "hard hand-off" and disconnect the call from
the current base station as it connects with a new one without any simultaneous
connection to both base stations.
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Simplified frequency planning. Frequency planning is the process used to
analyze and test alternative patterns of frequency use within a wireless network
to minimize interference and maximize capacity. Unlike TDMA and GSM based
systems, CDMA based systems can reuse the same subset of allocated frequencies
in every cell, substantially reducing the need for costly frequency reuse
patterning and constant frequency plan management.
Longer battery life. Due to their greater efficiency in power consumption,
CDMA handsets can provide longer standby time and more talk time availability
when used in the digital mode than handsets using alternative digital or analog
technologies.
While CDMA has the inherent benefits discussed above, TDMA networks are
generally less expensive when overlaying existing analog systems since the TDMA
spectrum usage is more compatible with analog spectrum planning. In addition,
GSM technology, unlike CDMA, allows multi-vendor equipment to be used in the
same network. This, along with the fact that the GSM technology is currently
more widely used throughout the world than CDMA, provides economies of scale for
handset and equipment purchases. A standards process is also underway which will
allow wireless handsets to support analog, TDMA and GSM technologies in a single
unit. Currently, there are no plans to have CDMA handsets that support either
the TDMA or GSM technologies.
COMPETITION
Competition in the wireless communications services industry is intense. We
compete with a number of wireless service providers and other PCS providers in
our markets. We believe that our primary competition is with national wireless
providers such as Nextel Communications, Inc., AT&T Wireless Services, Inc. and
the company that will result from the pending merger between Bell Atlantic Corp.
and GTE Corp. and Bell Atlantic Corp.-GTE Corp.'s recently announced partnership
with Vodafone AirTouch Plc. We also compete with regional wireless providers.
The principal regional wireless competitors are the company that will result
from the pending merger between SBC Communications Inc. and Ameritech
Corporation, as well as VoiceStream Wireless and United States Cellular
Corporation. Furthermore, a number of wireless carriers such as Airadigm
Communications, Poka Lambro PCS, Inc. and Amarillo CellTelCo compete with us on
a local basis.
We also face competition from resellers, which provide wireless services to
customers but do not hold FCC licenses or own facilities. Instead, the resellers
buy blocks of wireless telephone numbers and capacity from a licensed carrier
and resell services through their own distribution network to the public. The
FCC currently requires all cellular and PCS licensees to permit resale of
carrier services to a reseller.
In addition, we compete with existing communications technologies such as
paging, ESMR dispatch and conventional landline telephone companies in our
markets. Potential users of PCS systems may find their communications needs
satisfied by other current and developing technologies. One or two-way paging or
beeper services that feature voice messaging and data display as well as
tone-only service may be adequate for potential customers who do not need to
speak to the caller.
In the future, we expect to face increased competition from entities
providing similar services using other communications technologies, including
satellite-based telecommunications and wireless cable systems. While some of
these technologies and services are currently operational, others are being
developed or may be developed in the future.
Many of our competitors have access to more licensed spectrum than the 10
MHz licensed to Sprint PCS in New Mexico and Durango and the 20MHz licensed to
Sprint PCS in El Paso. Among other things, increased spectrum allows for higher
call volume and fewer dropped calls. Cellular service providers have licenses
covering 25 MHz of spectrum, and three competing PCS providers have licenses to
use 30 MHz in New Mexico. Except for New Mexico (10 MHz), Durango (10 MHz) and
El Paso (20 MHz), Sprint PCS has licenses to use 30 MHz of spectrum throughout
our territory.
Many of our competitors have significantly greater financial and technical
resources and subscriber bases than we do. Some of our competitors also have
established infrastructures, marketing programs and
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brand names. In addition, some of our competitors may be able to offer regional
coverage in areas not served by the Sprint PCS network, or, because of their
calling volumes or relationships with other wireless providers, may be able to
offer regional roaming rates that are lower than those we offer. PCS operators
will likely compete with us in providing some or all of the services available
through the Sprint PCS network and may provide services that we do not.
Additionally, we expect that existing cellular providers will continue to
upgrade their systems to provide digital wireless communication services
competitive with Sprint PCS. Recently, there has been a trend in the wireless
communications industry towards consolidation of wireless service providers
through joint ventures, mergers and acquisitions. We expect this consolidation
to lead to larger competitors over time. These larger competitors may have
substantial resources or may be able to offer a variety of services to a large
customer base.
Over the past several years the FCC has auctioned and will continue to
auction large amounts of wireless spectrum that could be used to compete with
Sprint PCS services. Based upon increased competition, we anticipate that market
prices for two-way wireless services generally will decline in the future. We
will compete to attract and retain customers principally on the basis of the
strength of the Sprint and Sprint PCS brand names, services and features, the
size of our territory and the location of our markets, network coverage and
reliability, customer care and pricing. Our ability to compete successfully will
also depend, in part, on our ability to anticipate and respond to various
competitive factors affecting the industry, including new services and
technologies that may be introduced, changes in consumer preferences,
demographic trends, economic conditions and discount pricing strategies by
competitors.
INTELLECTUAL PROPERTY
The Sprint diamond design logo is a service mark registered with the United
States Patent and Trademark Office. The service mark is owned by Sprint. We use
the Sprint and Sprint PCS brand names, the Sprint diamond design logo and other
service marks of Sprint in connection with marketing and providing wireless
services within our territory. Under the terms of the trademark and service mark
license agreements with Sprint and Sprint PCS, we do not pay a royalty fee for
the use of the Sprint and Sprint PCS brand names and Sprint service marks.
Except in certain instances and other than in connection with the national
distribution agreements, Sprint PCS has agreed not to grant to any other person
a right or license to use the licensed marks in our territory. In all other
instances, Sprint PCS reserves the right to use the licensed marks in providing
its services within or without our territory.
The trademark license agreements contain numerous restrictions with respect
to the use and modification of any of the licensed marks. See "The Sprint PCS
Agreements -- The Trademark and Service Mark License Agreements" for more
information on this topic.
EMPLOYEES
As of August 31, 1999, we employed 129 full-time employees. None of our
employees are represented by a labor union. We believe that our relations with
our employees are good.
PROPERTIES
Our headquarters are located in Lubbock, Texas and we lease space in a
number of locations, primarily for our Sprint PCS stores, base stations and
switching centers. As of September 30, 1999, we leased space on 229 towers and
owned four towers. We collocate with other wireless service providers on
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approximately 40% of our towers. As of September 30, 1999, our material leased
properties were as listed below:
<TABLE>
<CAPTION>
PURPOSE LOCATION SQUARE FEET LEASE TERM
- ------- -------- ----------- ----------
<S> <C> <C> <C>
Switching Center Albuquerque, New Mexico 3,120 Five years beginning on
January 1, 1999 and ending on
December 31, 2004 with two
five-year renewal options
Retail Store and Switching
Center Laredo, Texas 5,000 Five years beginning on
February 1, 1999 and ending
on January 31, 2004 with two
five-year renewal options
Retail Store and Regional
Office Space Lubbock, Texas 8,000 15 years beginning on July 1,
1999
Retail Store, Switching
Center and Office Space El Paso, Texas 11,970 Ten years and two months
beginning on February 1, 1999
and ending on March 31, 2009
Retail Store and Office Space Albuquerque, New Mexico 9,000 Seven years beginning on July
1, 1999 and ending on June
30, 2006
Retail Store, Switching
Center and Corporate Office
Space Lubbock, Texas 11,011 Ten years beginning on June
1, 1999
Retail Store and Office Space Abilene, Texas 3,200 Five years and five months
beginning on October 15, 1999
and ending on March 14, 2005
with one five year renewal
option
Retail Store and Office Space Amarillo, Texas 6,840 Five years beginning on June
1, 1999 and ending on May 31,
2004 with one five year
renewal option
Retail Store and Office Space Las Cruces, New Mexico 1,020 Five years beginning on June
1, 1999 and ending on May 31,
2004 with one five year
renewal option
Retail Store and Office Space Midland, Texas 3,628 Five years beginning on May
1, 1999 and ending on April
30, 2004 with one five year
renewal option
Retail Store and Office Space Odessa, Texas 3,000 Five years beginning on June
1, 1999 and ending on May 31,
2004 with one five year
renewal option
Retail Store and Office Space San Angelo, Texas 3,782 Five years beginning on
October 1, 1999 and ending on
September 30, 2004
Retail Store and Office Space Santa Fe, New Mexico 2,415 Five years beginning on
August 1, 1999 and ending on
July 31, 2004 with one five
year renewal option
</TABLE>
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LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings that we believe would,
if adversely determined, individually or in the aggregate, have a material
adverse effect on our financial condition or results of operations.
ENVIRONMENTAL COMPLIANCE
Our environmental compliance expenditures primarily result from the
operation of standby power generators for our telecommunications equipment and
compliance with various environmental rules during network build-out and
operations. The expenditures arise in connection with standards compliance or
permits which are usually related to generators, batteries or fuel storage. Our
environmental compliance expenditures have not been material to our financial
statements or to our operations and are not expected to be material in the
future.
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THE SPRINT PCS AGREEMENTS
Our four major agreements with Sprint and the PCS Group of Sprint, commonly
referred to as Sprint PCS, a wholly-owned operating unit of Sprint, are:
- the management agreement;
- the services agreement; and
- two trademark and service mark license agreements with different Sprint
entities.
The following is a summary of the material terms and provisions of the
Sprint PCS Agreements and the Nortel consent and agreement modifying the Sprint
PCS management agreement. We have filed the Sprint PCS Agreements and the
consent and agreement as exhibits to the registration statement of which this
prospectus is a part and urge you to review them carefully.
Under the Sprint PCS Agreements, we have the exclusive right to provide
wireless services under the Sprint and Sprint PCS brand names in our territory.
We have recently entered into a letter of intent with Sprint PCS to modify the
Sprint PCS Agreements to include additional markets in our territory. We expect
that we will finalize the definitive agreements prior to the completion of the
offering. Sprint PCS holds the spectrum licenses and controls the network
through its agreements with us. The Sprint PCS Agreements require us to
interface with the Sprint PCS wireless network by building our portion of the
Sprint PCS network to operate on the 10, 20 or 30 MHz of PCS frequencies
licensed to Sprint PCS in the 1900 MHz range. The management agreement has an
initial term of 20 years with three 10-year renewal options, which would
lengthen the contract to a total term of 50 years. The three 10-year renewal
terms automatically occur unless we or Sprint PCS provide the other with two
years prior written notice to terminate the agreements or unless we are in
material default of our obligations under the agreements.
In addition, we have entered into a consent and agreement with Sprint PCS
and Nortel that modifies the management agreement for the benefit of Nortel and
the holders of any refinancing of the Nortel indebtedness.
THE MANAGEMENT AGREEMENT
Under our management agreement with Sprint PCS, we have agreed to:
- own, construct and manage a PCS network in our territory in compliance
with FCC license requirements and other technical requirements contained
in the management agreement;
- distribute Sprint PCS products and services;
- use Sprint PCS's and our own distribution channels in our territory;
- conduct advertising and promotion activities in our territory; and
- manage that portion of Sprint PCS's customer base assigned to our
territory.
Sprint PCS will supervise our PCS network operations and has the right to
unconditional access to our portion of the Sprint PCS network, including the
right to test and monitor any of our facilities and equipment.
EXCLUSIVITY
We are designated as the only person or entity that can manage or operate a
PCS network for Sprint PCS in our territory. Sprint PCS is prohibited from
owning, operating, building or managing another wireless communications network
in our territory while our management agreement is in place and no event has
occurred that would permit the agreement to terminate. Sprint PCS is permitted
to make national sales to companies in our territory and, as required by the
FCC, to permit resale of the Sprint PCS products and services in our territory.
The management agreement prohibits us from interfering with
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others who resell Sprint PCS products and services in our territory. If Sprint
PCS decides to expand the geographic size of our build-out, Sprint PCS must
provide us with written notice of the proposed expansion. We have 90 days to
determine whether we will build-out the proposed area. If we do not exercise
this right, Sprint PCS can build-out the territory or permit a third party to do
so.
NETWORK BUILD-OUT
The management agreement specifies the terms of the Sprint PCS affiliation,
including the required network build-out plan. We have agreed to cover a
specified percentage of the population within each of the markets which make up
our territory by specified dates. Our current build-out plan will satisfy the
network build-out requirements set forth in the management agreement. If
technically feasible and commercially reasonable, we have agreed to provide for
a seamless handoff of a call initiated in our territory to a neighboring Sprint
PCS network. The management agreement requires us to reimburse Sprint PCS
one-half of the microwave clearing costs for our territory.
PRODUCTS AND SERVICES
The management agreement identifies the products and services that we can
offer in our territory. These services include, but are not limited to, Sprint
PCS consumer and business products and services available as of the date of the
agreement, or as modified by Sprint PCS. We are allowed to sell wireless
products and services that are not Sprint PCS products and services if those
additional products and services do not cause distribution channel conflicts or,
in Sprint PCS's sole determination, consumer confusion with Sprint PCS's
products and services. We also cannot sell non-Sprint PCS products and services
if it would hamper our build-out of the network. We may also sell services such
as specified types of long distance service, Internet access, handsets, and
prepaid phone cards with Sprint, Sprint PCS and other Sprint PCS affiliates. If
we decide to use third parties to provide these services, we must give Sprint
PCS an opportunity to provide the services on the same terms and conditions. We
cannot offer wireless local loop services specifically designed for the
competitive local exchange market in areas where Sprint owns the local exchange
carrier unless we name the Sprint-owned local exchange carrier as the exclusive
distributor or Sprint PCS approves the terms and conditions. Sprint does not own
the local exchange carrier in a majority of the markets in our territory.
NATIONAL SALES PROGRAMS
We must participate in the Sprint PCS sales programs for national sales to
customers, and will pay the expenses and receive the compensation from Sprint
PCS sales to national accounts located in our territory. We must use Sprint's
long distance service, which we can buy at the best prices offered to comparably
situated Sprint customers.
SERVICE PRICING, ROAMING AND FEES
We must offer Sprint PCS subscriber pricing plans designated for regional
or national offerings, including Sprint PCS's "Free and Clear" plans. We are
permitted to establish our own local price plans for Sprint PCS's products and
services offered only in our territory, subject to Sprint PCS's approval. We are
entitled to receive a weekly fee from Sprint PCS equal to 92% of "collected
revenues" for all obligations under the management agreement, adjusted by the
cost of customer services provided by Sprint PCS. "Collected revenues" include
revenue from Sprint PCS subscribers based in our territory and inbound non-
Sprint PCS roaming. Sprint PCS will retain 8% of the collected revenues.
Outbound non-Sprint PCS roaming revenue, inbound and outbound Sprint PCS roaming
fees, proceeds from the sales of handsets and accessories, proceeds from sales
not in the ordinary course of business and amounts collected with respect to
taxes are not considered collected revenues. Except in the case of taxes, we
will retain 100% of these revenues. Many Sprint PCS subscribers purchase bundled
pricing plans that allow Sprint PCS roaming anywhere on the Sprint PCS network
without incremental Sprint PCS roaming charges. However, we will earn Sprint PCS
roaming revenue for every minute that a Sprint PCS subscriber from outside our
territory enters our territory and uses our services. We will earn revenue from
Sprint PCS based on a per minute
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rate established by Sprint PCS when Sprint PCS's or its affiliates' subscribers
roam on our portion of the Sprint PCS network. Similarly, we will pay the same
rate for every minute Sprint PCS subscribers who are based in our territory use
the Sprint PCS network outside our territory. The analog roaming rate onto a
non-Sprint PCS provider's network is set under Sprint PCS's third party roaming
agreements.
VENDOR PURCHASE AGREEMENTS
We may participate in discounted volume-based pricing on wireless-related
products and warranties Sprint PCS receives from its vendors. Sprint PCS will
use commercially reasonable efforts to obtain for us the same prices as Sprint
PCS receives from its vendors.
ADVERTISING AND PROMOTIONS
Sprint PCS uses national as well as regional television, radio, print,
outdoor and other advertising campaigns to promote its products. We benefit from
the national advertising at no additional cost to us. In addition to Sprint
PCS's national advertising campaigns, we advertise and promote Sprint PCS
products and services on a local level in our markets at our cost. We have the
right to use any promotion or advertising materials developed by Sprint PCS and
only have to pay the incremental cost of using those materials, such as the cost
of local radio and television advertisement placements and incremental printing
costs. Sprint PCS also runs numerous promotional campaigns which provide
customers with benefits such as additional features at the same rate or free
minutes of use for limited time periods. We offer these promotional campaigns to
potential customers in our territory.
PROGRAM REQUIREMENTS
We must comply with Sprint PCS's program requirements for technical
standards, customer service standards, roaming coverage and national and
regional distribution and national accounts programs. Sprint PCS can adjust the
program requirements at any time. We have the right to appeal to management of
Sprint PCS if adjustments to program requirements will: (1) cause us to incur a
cost exceeding 5% of the sum of our stockholders' equity plus our outstanding
long term debt, or (2) cause our operating expenses on a per-unit basis using a
ten year time frame to increase by more than 10% on a net present value basis.
If Sprint PCS denies our appeal and we fail to comply with the program
adjustment, Sprint PCS has the termination rights described below.
NON-COMPETITION
We may not offer Sprint PCS products and services outside our territory
without the prior written approval of Sprint PCS. Within our territory we may
offer, market or promote telecommunications products and services only under the
Sprint PCS brands, our own brand, brands of related parties of ours or other
products and services approved under the management agreement, except that no
brand of a significant competitor of Sprint PCS or its related parties may be
used for those products and services. To the extent we have or obtain licenses
to provide PCS services outside our territory, we may not use the spectrum to
offer Sprint PCS products and services without prior written consent from Sprint
PCS.
INABILITY TO USE NON-SPRINT PCS BRAND
We may not market, promote, advertise, distribute, lease or sell any of the
Sprint PCS products and services on a non-branded, "private label" basis or
under any brand, trademark or trade name other than the Sprint PCS brand, except
for sales to resellers or as otherwise permitted under the trademark and service
mark license agreements.
TRANSFER OF SPRINT PCS NETWORK
Sprint PCS can sell, transfer or assign its PCS network to a third party if
the third party agrees to be bound by the terms of the management agreement and
the services agreement.
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CHANGE IN CONTROL
Sprint PCS must approve a change in control of Alamosa, but this consent
cannot be unreasonably withheld.
RIGHTS OF FIRST REFUSAL
Sprint PCS has rights of first refusal to buy our assets upon a proposed
sale of all or substantially all of our assets used in the operation of our
portion of the Sprint PCS network.
TERMINATION OF MANAGEMENT AGREEMENT
The management agreement can be terminated as a result of the following
events:
- termination of Sprint PCS's spectrum licenses;
- an uncured breach under the management agreement;
- bankruptcy of a party to the management agreement;
- the management agreement not complying with any applicable law in any
material respect; or
- the termination of either of the trademark and service mark license
agreements.
The termination or non-renewal of the management agreement triggers some of
our rights and those of Sprint PCS. The right of either party to require the
other to purchase or sell the operating assets is discussed below.
If we have the right to terminate the management agreement because of an
event of termination caused by Sprint PCS, generally we may:
- require Sprint PCS to purchase all of our operating assets used in
connection with our portion of the Sprint PCS network for an amount equal
to at least 80% of our Entire Business Value as defined below;
- in all areas in our territory where Sprint PCS is the licensee for 20 MHz
or more of the spectrum on the date we terminate the management
agreement, require Sprint PCS to assign to us, subject to governmental
approval, up to 10 MHz of licensed spectrum for an amount equal to the
greater of (1) the original cost to Sprint PCS of the license plus any
microwave clearing costs paid by Sprint PCS or (2) 9% of our Entire
Business Value (see "Business -- Markets and Network Build-Out Plan" for
a listing of our markets in which Sprint PCS is currently the licensee
for 20 MHz or more of the spectrum); or
- not terminate the management agreement and sue Sprint PCS for damages or
submit the matter to arbitration.
If Sprint PCS has the right to terminate the management agreement because
of an event of termination caused by us, generally Sprint PCS may:
- require us to sell our operating assets to Sprint PCS for an amount equal
to 72% of our Entire Business Value;
- require us to purchase, subject to governmental approval, the licensed
spectrum in our territory for an amount equal to the greater of (1) the
original cost to Sprint PCS of the license plus any microwave relocation
costs paid by Sprint PCS or (2) 10% of our Entire Business Value;
- take any action as Sprint PCS deems necessary to cure our breach of the
management agreement, including assuming responsibility for, and
operating, our portion of the Sprint PCS network; or
- not terminate the management agreement and sue us for damages or submit
the matter to arbitration.
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NON-RENEWAL
If Sprint PCS gives us timely notice that it does not intend to renew the
management agreement, we may:
- require Sprint PCS to purchase all of our operating assets used in
connection with our portion of the Sprint PCS network for an amount equal
to 80% of our Entire Business Value; or
- in all areas in our territory where Sprint PCS is the licensee for 20 MHz
or more of the spectrum on the date we terminate the management
agreement, require Sprint PCS to assign to us, subject to governmental
approval, up to 10 MHz of licensed spectrum for an amount equal to the
greater of (1) the original cost to Sprint PCS of the license plus any
microwave relocation costs paid by Sprint PCS or (2) 10% of our Entire
Business Value.
If we give Sprint PCS timely notice of non-renewal, or we both give notice
of non-renewal, or the management agreement expires with neither party giving a
written notice of non-renewal, or the management agreement can be terminated for
failure to comply with legal requirements or regulatory considerations, Sprint
PCS may:
- purchase all of our operating assets for an amount equal to 80% of our
Entire Business Value; or
- require us to purchase, subject to governmental approval, the licensed
spectrum in our territory for an amount equal to the greater of (1) the
original cost to Sprint PCS of the license plus any microwave clearing
costs paid by Sprint PCS or (2) 10% of our Entire Business Value.
See "Risk Factors -- Risks Related to our Relationship with Sprint
PCS -- Provisions of the Sprint PCS Agreements may diminish our value and
restrict the sale of our business" for a discussion of possible effects of this
part of the management agreement.
DETERMINATION OF ENTIRE BUSINESS VALUE
If the Entire Business Value is to be determined, we and Sprint PCS will
each select one independent appraiser and the two appraisers will select a third
appraiser. The three appraisers will determine the Entire Business Value on a
going concern basis using the following guidelines:
- the Entire Business Value is based on the price a willing buyer would pay
a willing seller for the entire on-going business;
- then-current customary means of valuing a wireless telecommunications
business will be used;
- the business is conducted under the Sprint and Sprint PCS brands and the
Sprint PCS Agreements;
- that we own the spectrum and frequencies presently owned by Sprint PCS
and subject to the Sprint PCS Agreements; and
- the valuation will not include any value for businesses not directly
related to the Sprint PCS products and services, and those businesses
will not be included in the sale.
The rights and remedies of Sprint PCS outlined in the management agreement
resulting from an event of termination of the management agreement have been
materially amended by the consent and agreement as discussed below.
INSURANCE
We are required to obtain and maintain with financially reputable insurers
who are licensed to do business in all jurisdictions where any work is performed
under the management agreement and who are reasonably acceptable to Sprint PCS,
workers' compensation insurance, commercial general liability
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insurance, business automobile insurance, umbrella excess liability insurance
and "all risk" property insurance.
INDEMNIFICATION
We have agreed to indemnify Sprint PCS and its directors, employees and
agents and related parties of Sprint PCS and their directors, employees and
agents against any and all claims against any of the foregoing arising from our
violation of any law, a breach by us of any representation, warranty or covenant
contained in the management agreement or any other agreement between us and
Sprint PCS, our ownership of the operating assets or the actions or the failure
to act of anyone employed or hired by us in the performance of any work under
this agreement, except we will not indemnify Sprint PCS for any claims arising
solely from the negligence or willful misconduct of Sprint PCS. Sprint PCS has
agreed to indemnify us and our directors, employees and agents against all
claims against any of the foregoing arising from Sprint PCS's violation of any
law and from Sprint PCS's breach of any representation, warranty or covenant
contained in this agreement or any other agreement between Sprint PCS and us,
except Sprint PCS will not indemnify us for any claims arising solely from our
negligence or willful misconduct.
DISPUTE RESOLUTION
If the parties cannot resolve any dispute between themselves and the
management agreement itself does not provide a remedy, then either party may
require that any dispute be resolved by a binding arbitration.
THE SERVICES AGREEMENT
The services agreement outlines various back office services provided by
Sprint PCS and available to us for an adjustment to our 92% fee. Sprint PCS can
change the amount of adjustment for any or all of the services one time in any
12 month period. We have the option to cancel a service upon notification of a
fee increase, and if we decide to cancel the service, then Sprint PCS, at our
option, must continue to provide that service for nine months at the original
price. Some of the available services include: billing, customer care,
activation, credit checks, handset logistics, home locator record, voice mail,
prepaid services, directory assistance, operator services, roaming fees, roaming
clearinghouse fees, interconnect fees and inter-territory fees. Sprint PCS
offers three packages of available services. Each package identifies which
services must be purchased from Sprint PCS and which may be purchased from a
vendor or provided in-house. Essentially, services such as billing, activation
and customer care must all be purchased from Sprint PCS or none may be purchased
from Sprint PCS. We have chosen to initially delegate the performance of these
services to Sprint PCS but may develop an independent capability with respect to
these services over time. Sprint PCS may contract with third parties to provide
expertise and services identical or similar to those to be made available or
provided to us. We have agreed not to use the services performed by Sprint PCS
in connection with any other business or outside our territory. We may
discontinue use of any service upon three months' prior written notice, while
Sprint PCS must give nine months notice if it will no longer offer any service.
We have agreed with Sprint PCS to indemnify each other as well as officers,
directors, employees and other related parties and their officers, directors and
employees for violations of law or the services agreement except for any
liabilities resulting from the negligence or willful misconduct of the person
seeking to be indemnified or its representatives. The services agreement also
provides that no party to the agreement will be liable to the other party for
special, indirect, incidental, exemplary, consequential or punitive damages, or
loss of profits arising from the relationship of the parties or the conduct of
business under, or breach of, the services agreement except as may otherwise be
required by the indemnification provisions. The services agreement automatically
terminates upon termination of the management agreement, and neither party may
terminate the services agreement for any reason other than the termination of
the management agreement.
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THE TRADEMARK AND SERVICE MARK LICENSE AGREEMENTS
We have non-transferable licenses to use, at no additional cost to us, the
Sprint and Sprint PCS brand names and "diamond" symbol, and several other U.S.
trademarks and service marks such as "The Clear Alternative to Cellular" and
"Clear Across the Nation" on Sprint PCS products and services. We believe that
the Sprint and Sprint PCS brand names and symbols enjoy a high degree of
awareness, providing us an immediate benefit in the market place. Our use of the
licensed marks is subject to our adherence to quality standards determined by
Sprint and Sprint PCS and use of the licensed marks in a manner which would not
reflect adversely on the image of quality symbolized by the licensed marks. We
have agreed to promptly notify Sprint and Sprint PCS of any infringement of any
of the licensed marks within our territory of which we become aware and to
provide assistance to Sprint and Sprint PCS in connection with Sprint's and
Sprint PCS's enforcement of their respective rights. We have agreed with Sprint
and Sprint PCS to indemnify each other for losses incurred in connection with a
material breach of the trademark license agreements. In addition, we have agreed
to indemnify Sprint and Sprint PCS from any loss suffered by reason of our use
of the licensed marks or marketing, promotion, advertisement, distribution,
lease or sale of any Sprint or Sprint PCS products and services other than
losses arising solely out of our use of the licensed marks in compliance with
certain guidelines.
Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if we file for bankruptcy, materially breach the agreement or our
management agreement is terminated. We can terminate the trademark and service
mark license agreements upon Sprint's or Sprint PCS's abandonment of the
licensed marks or if Sprint or Sprint PCS files for bankruptcy or the management
agreement is terminated. However, Sprint and Sprint PCS can assign their
interests in the licensed marks to a third party if that third party agrees to
be bound by the terms of the trademark and service mark license agreements.
CONSENT AND AGREEMENT FOR THE BENEFIT OF THE HOLDER OF NORTEL FINANCING
Sprint PCS has entered into a consent and agreement with Nortel, which has
been acknowledged by Alamosa, that modifies Sprint PCS's rights and remedies
under our management agreement, for the benefit of Nortel and future holders of
the Nortel senior financing and any refinancing thereof (the Nortel Consent),
which was a condition to the funding of any amounts under the Nortel financing.
The Nortel Consent generally provides, among other things, the following:
- Sprint PCS's consent to the pledge of substantially all of our assets,
including our rights in the Sprint PCS Agreements;
- that the Sprint PCS Agreements may not be terminated by Sprint PCS until
the Nortel financing is satisfied in full pursuant to the terms of the
Nortel Consent, unless our subsidiaries or assets are sold to a purchaser
who does not continue to operate the business as a Sprint PCS network,
which sale requires the approval of the administrative agent (Nortel is
the initial administrative agent as discussed in more detail in
"Description of the Nortel Financing -- Syndication");
- for Sprint PCS to maintain 10 MHz of PCS spectrum in all of our markets
until the Nortel financing is satisfied or our operating assets are sold
after our default under the Nortel financing;
- for redirection of payments due to Alamosa under the management agreement
from Sprint PCS to the administrative agent during the continuation of
our default under the Nortel financing;
- for Sprint PCS and the administrative agent to provide to each other
notices of default by us under the Sprint PCS management agreement and
Nortel financing, respectively;
- the ability to appoint interim replacements, including Sprint PCS or a
designee of the administrative agent, to operate our portion of the
Sprint PCS network under the Sprint PCS Agreements after an acceleration
of our financing from Nortel or an event of termination under the Sprint
PCS Agreements;
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- subject to certain requirements and limitations, the ability of the
administrative agent or Sprint PCS to assign the Sprint PCS Agreements
and sell our assets or the partnership interests of our operating
subsidiaries to a qualified purchaser that is not a major competitor of
Sprint PCS or Sprint, free of the restrictions on assignment and change
of control in the management agreement, if the Nortel financing has been
accelerated after our default; and
- subject to certain requirements and limitations, that if Sprint PCS
enters consent and agreement documents with similarly-situated lenders
that have provisions that are more favorable to the lender, Sprint PCS
will give the administrative agent written notice of the amendments and
will amend the Nortel Consent and agreement in the same manner at the
administrative agent's request.
SPRINT PCS'S RIGHT TO PURCHASE ON ACCELERATION OF AMOUNTS OUTSTANDING UNDER
THE NORTEL FINANCING
Subject to the requirements of applicable law, so long as the Nortel
financing remains outstanding, Sprint PCS has the right to purchase our
operating assets or the partnership interests of our operating subsidiaries,
upon its receipt of notice of an acceleration of the Nortel financing, under the
following terms:
- Sprint PCS elects to make such a purchase within a specified period;
- the purchase price is the greater of an amount equal to 72% of our Entire
Business Value or the amount we owe under the Nortel financing;
- if Sprint PCS has given notice of its intention to exercise the purchase
right, then the administrative agent is prohibited for a specified period
after the acceleration or until Sprint PCS rescinds its intention to
purchase, from enforcing its security interest; and
- if we receive a written offer that is acceptable to us to purchase our
operating assets or the partnership interests of our operating
subsidiaries after the acceleration, then Sprint PCS has the right to
purchase our operating assets or the partnership interests of our
operating subsidiaries on terms at least as favorable to us as the offer
we receive. Sprint PCS must agree to purchase the operating assets or the
partnership interests of our operating subsidiaries within 14 business
days of its receipt of the offer, on acceptable conditions, and in an
amount of time acceptable to us.
SALE OF OPERATING ASSETS OR THE PARTNERSHIP INTERESTS OF OUR OPERATING
SUBSIDIARIES TO THIRD PARTIES
If Sprint PCS does not purchase our operating assets or the partnership
interests of our operating subsidiaries after an acceleration of the obligations
under the Nortel financing, then the administrative agent may sell the operating
assets or partnership interests. Subject to the requirements of applicable law
(including the law relating to foreclosures of security interests), the
administrative agent has two options:
- to sell the assets or partnership interests to an entity that meets the
requirements to be our successor under the Sprint PCS Agreements; or
- to sell the assets or partnership interests to any third party, subject
to specified conditions.
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DESCRIPTION OF THE NORTEL FINANCING
THE NORTEL CREDIT FACILITY
GENERAL
We entered into a credit facility effective June 10, 1999 with Nortel for
$123.0 million. We have since entered into a commitment letter with Nortel to
increase the credit facility to $250.0 million effective as of the closing of
this offering. As of June 30, 1999, we had borrowed $35.4 million under the
facility. This facility is used to purchase equipment from Nortel, to fund the
build-out of our portion of the Sprint PCS network and to fund costs associated
with the financing. This facility constitutes senior debt secured by a first
priority security interest in substantially all of our assets (including all the
assets of Alamosa Texas, LP and Alamosa Wisconsin, LP, our operating
subsidiaries). This facility will be between Nortel and our subsidiary, Alamosa
PCS, Inc., a Delaware corporation, as borrower. We have agreed, and our current
and future subsidiaries have agreed, to guarantee this facility. This
description of the facility assumes that the terms of the commitment letter are
currently in place. Nortel will not fund this increase in the facility unless
various conditions are met, such as the negotiation, execution and delivery of
definitive loan documents and the absence of adverse changes affecting us or our
operations. There can be no assurance that we will fulfill all of these
conditions.
AMOUNT AND PURPOSE OF LOANS
The credit agreement provides for three different tranches of borrowings
(each, a Commitment) evidenced by a single promissory note of $250.0 million.
Borrowings obtained under the Tranche A Commitment (up to $167.0 million) may be
used to fund the purchase of equipment and services from Nortel, the primary
vendor of the equipment and services necessary to install our portion of the
Sprint PCS network. Borrowings obtained under the Tranche B Commitment (up to
$58.0 million) may be used to pay specified third party expenses. Borrowings
obtained under the Tranche C Commitment (up to $25.0 million) may be used to pay
loan fees and interest accrued, in most cases, through January 2002, under
Tranches A, B and C, an origination fee of $3.8 million and specified third
party expenses.
The amount that can be borrowed under Tranche B, and the amount that can be
borrowed under Tranche C to pay third party expenses, is further limited to a
borrowing base that is computed by the administrative agent at specified times,
as provided in the credit agreement. The borrowing base is defined as 50% of the
amount paid to Nortel to purchase equipment and services used in our portion of
the Sprint PCS network. We have the option to reduce the amount of any
Commitment and avoid the periodic fee charged on those unborrowed amounts. Any
reduction must be at least $3.0 million. This is not a revolving credit
arrangement so reductions cannot be reinstated.
COMMITMENT TERMINATION
The Tranche A Commitment and the Tranche B Commitment are both scheduled to
terminate 30 months from the closing date of the credit facility. The Tranche C
Commitment is scheduled to terminate six months earlier. The Commitments may
also terminate:
- when any Commitment is fully funded;
- on the first anniversary of the closing date if we have borrowed less
than an aggregate of $100.0 million under all three Commitments by that
date;
- upon a change of control of Alamosa PCS, Inc.;
- if we voluntarily terminate any Commitment; and
- if the administrative agent terminates one or all of the Commitments due
to the occurrence of an event of default under the credit agreement.
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SYNDICATION
Nortel may reduce part or all of its commitment through syndicating the
loan to other lenders. If the loan is syndicated, then the administrative agent
may change from Nortel to any successor administrative agent, acting on behalf
of the lenders in the syndicated group.
LOANS AND INTEREST OPTIONS
We have multiple interest rate options available under the credit
agreement:
- we may borrow money at either the prime or base rate of Citibank, N.A.
(New York), plus 2.75% (a Base Rate Loan), or the London interbank
offered rate, as adjusted for reserve requirements, plus 3.75% (a
Eurodollar Loan);
- we may convert a Base Rate Loan to a Eurodollar Loan or a Eurodollar Loan
to a Base Rate Loan, at any time;
- accrued interest is payable either on the last day of each month (for
Base Rate Loans), the last day of the interest period (for Eurodollar
Loans) or, in the case of an interest period greater than three months,
at three month intervals after the first day of such interest period;
- we have the option to pay interest due on the loans with borrowings
obtained under the Tranche C Commitment until the earlier of (1) January
2002, (2) the date the Tranche C Commitment is fully funded and (3)
January 2001 only if we have not borrowed at least $100.0 million under
the Nortel financing by that date;
- interest is due upon any prepayment or conversion from one interest type
to another; and
- all outstanding interest is due on the maturity date, which is 90 months
after the closing date of the credit facility unless all of the
Commitments are terminated on the first anniversary of the closing date
because we have borrowed less than $100.0 million, in which case the
maturity date is the sixth anniversary of the closing date.
PAYMENT OF PRINCIPAL
Scheduled. At the termination of the Tranche A and Tranche B Commitments,
we must begin to repay, in quarterly installments, the principal on all
borrowings made under that Commitment. A fixed percentage is due each quarter:
- for the first eight quarters, 3.75% of the principal balance of the loan
is due per quarter;
- for quarters nine through twelve, 5.00% per quarter; and
- for quarters thirteen through the maturity date, 6.25% per quarter.
Any principal that has not been paid by the maturity date is due at that time.
Optional Prepayments. We may voluntarily prepay any of the loans at any
time, but any amount repaid may not be reborrowed since there are no revolving
credit features.
Mandatory Prepayments. We also must make mandatory prepayments under
certain circumstances, including among others:
- 50% of Alamosa PCS, Inc.'s "Excess Cash Flow" (as computed under the
credit agreement) after March 31, 2003 (or March 31, 2001, if the
Commitments terminate on the first anniversary of the closing date); and
- any amount in excess of $250,000 received for asset sales outside the
ordinary course of business or insurance proceeds, to the extent not
reinvested in property or assets within a stated period of time.
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All prepayments are applied to the outstanding loan balances pro rata in
the inverse order of maturity, except where there is a borrowing base shortage,
in which case prepayments are first applied there, and then pro rata among all
three Commitment tranches.
All payments of principal, including voluntary and mandatory prepayments,
reduce the amount of the Commitments by the amount of the principal paid.
FEES
We are required to pay (1) an origination fee of $3.8 million (3% of $127.0
million, the additional loan commitment made in the amended and restated credit
agreement) at the execution of the credit agreement and (2) a fee on the
unfunded portion of each Commitment, computed by multiplying the average daily
unused amount of each Commitment by 0.75% per year. This second fee begins to
accrue on the date which is six months after the closing date, and is payable in
arrears on the last day of each calendar quarter until the termination of the
relevant Commitment. We must also pay a separate, annual agent's fee of $35,000
to the administrative agent.
WARRANTS
As additional consideration to Nortel for its financing commitment, we are
required to issue to Nortel warrants for 2% of our total equity as of the
closing date, on a fully-diluted basis. The warrants will be issued and will be
exercisable by Nortel on the second anniversary of the closing date, unless,
prior to that date, (1) we contribute $75.0 million of equity to Alamosa PCS,
Inc. which is used to prepay any loans under the Nortel facility, (2) Nortel
assigns $75.0 million of the loans to unrelated lenders, (3) there is a
combination of loan prepayments and assignment of the loans to unrelated lenders
totaling at least $100.0 million or (4) Alamosa PCS, Inc. has a ratio of senior
debt to total capitalization of .40 to 1.0 or less for two consecutive calendar
quarters prior to the second anniversary of the closing date. The exercise price
for the warrants will be the price paid for our common stock in this offering.
Nortel may not transfer any of its rights with respect to the warrants before
the first anniversary of the closing date, and any warrants transferred before
the second anniversary of the closing date will be subject to the provisions
preventing exercise of the warrants.
Nortel is entitled to multiple demand registration rights and unlimited
piggyback registration rights of the common stock warrants.
BOARD OBSERVATION RIGHT
So long as Nortel holds any loans or commitments under the credit
agreement, it is entitled to receive notices of all of our board and committee
meetings and to have a non-voting observer in attendance at any of those
meetings. However, Nortel will not have these rights if Alamosa PCS, Inc.'s
ratio of annualized EBITDA to annualized cash interest expense plus principal
payments is 1.0 to 1 or more for four consecutive quarters. Nortel may share
information learned at those meetings with employees, officers, directors and
attorneys who have a professional need to know the information, but the
information must be kept confidential by those persons. The observer may be
excused from a meeting at the request of a majority of the directors present
during discussions involving sensitive information regarding Nortel or
competitors of Nortel.
MANAGEMENT TEAM; EMPLOYMENT AGREEMENTS
The credit agreement requires us to have an experienced telecommunications
management team reasonably satisfactory to the administrative agent, including a
chief executive officer, chief financial officer, chief operating officer and
chief technology officer. As a condition to closing the financing, key
management is required to enter into employment agreements with a minimum term
of two years, non-competition agreements and non-disclosure agreements.
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COLLATERAL
The Nortel financing is secured by:
- a perfected first priority lien on substantially all of Alamosa PCS
Holdings, Inc.'s, Alamosa PCS, Inc.'s and the operating subsidiaries'
current and future assets, and the assets of future subsidiaries;
- a collateral assignment of the Sprint PCS Agreements;
- a pledge by Alamosa PCS Holdings, Inc. to Nortel of Borrower's capital
stock and by Borrower of its ownership interests in the operating
subsidiaries; and
- guarantees from Alamosa PCS Holdings, Inc., the operating subsidiaries
and all future direct or indirect subsidiaries of Alamosa PCS, Inc..
We are obligated to grant to the administrative agent a first lien mortgage
on any real property we acquire, together with a mortgagee policy of title
insurance, a survey, an appraisal and an environmental survey.
MINIMUM EQUITY REQUIREMENTS
As a closing condition of the credit facility, we must raise a combined
$148.0 million in equity capital. This amount will be comprised of the net
proceeds from this offering of our common stock and the amount of capital
previously contributed by our current stockholders. The current stockholders
will have contributed an aggregate of $37.5 million by December 31, 1999.
CONDITIONS
Alamosa PCS, Inc. must meet certain conditions before it may obtain any
future borrowings under the credit agreement, including:
- that there has been no event of default;
- a reaffirmation of representations;
- Alamosa PCS, Inc. has a debt to contributed capital ratio of less than or
equal to 1.5 to 1;
- submission of a borrowing base report;
- that the loan would not exceed the borrowing base (if applicable); and
- that there has not been a Material Adverse Effect, as defined in the
credit agreement.
NEGATIVE COVENANTS
Other Debt. With limited exceptions such as intercompany debt incurred in
the ordinary course of business, Alamosa PCS, Inc. and the operating
subsidiaries have agreed not to incur additional debt.
Organizational Issues and Capital Stock. Alamosa PCS, Inc. and the
operating subsidiaries have agreed, with an exception for mergers with
subsidiaries, not to:
- become a party to a merger or a consolidation,
- wind-up, dissolve or liquidate, or
- acquire all or a material or substantial part of the business or
properties of another person.
Alamosa PCS, Inc. further agreed not to issue, sell, assign or otherwise
dispose of, to any person (a) any of its capital stock; (b) any securities
exchangeable for or convertible into or carrying any rights to acquire any of
its capital stock; or (c) any option to acquire its capital stock.
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Payments and Investments. Alamosa PCS, Inc. and the operating subsidiaries
have agreed not to make any "restricted payments." Restricted payments include:
- dividends or distributions on account of shares of capital stock, except
one payable solely in shares of stock;
- any redemption, conversion, exchange, retirement, sinking fund, or other
similar purchase of shares of capital stock;
- any payment or prepayment of principal, premium, if any, or interest on,
or any redemption, conversion, exchange, purchase, retirement, or
defeasance of, or payment with respect to any subordinated debt;
- any loan, advance or payment to any officer, director or shareholder,
except for reasonable compensation paid to officers or directors in the
ordinary course; and
- any payment made to retire any outstanding warrants, options or other
rights to acquire capital stock.
Modification of Agreements. Alamosa PCS, Inc. has agreed that, with limited
exceptions, it will not consent to or implement any termination, amendment,
modification, supplement or waiver of:
- the capital contribution agreement;
- the Sprint PCS Agreements;
- its business plan; or
- any material contract.
Other Negative Covenants. Alamosa PCS, Inc. and the operating subsidiaries
have agreed not to:
- dispose of property except in certain circumstances;
- enter into any sale/leaseback transactions;
- engage in any line of business other than operation of our portion of the
Sprint PCS network, and related ownership and financing activities;
- conduct any activity on real property that would violate environmental
laws;
- restrict any subsidiary's ability to pay dividends;
- pay management fees (other than to Sprint PCS);
- terminate the Supply Agreement (the agreement pursuant to which Nortel
provides goods and services to us relating to the PCS network), before
the third anniversary of the closing date (or the first anniversary of
the closing date if less than $100.0 million has been borrowed at that
time);
- take certain actions that would violate ERISA; or
- prepay fees owed to Sprint PCS.
Alamosa PCS Holdings, Inc. has agreed not to engage in any business other
than the ownership of capital stock and other capital raising activities.
Alamosa PCS Holdings, Inc. has also agreed to maintain a ratio of total debt to
total capitalization of 0.75 to 1 or less.
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FINANCIAL AND OPERATING COVENANTS
Alamosa PCS, Inc. is subject to financing and operating covenants
including:
- a maximum ratio of total debt to total capitalization;
- a maximum ratio of total debt to annualized earnings before interest,
taxes, depreciation and amortization, referred to as EBITDA, for each
quarter;
- minimum annualized EBITDA for each quarter;
- minimum number of subscribers;
- minimum quarterly revenue;
- maximum cumulative capital expenditures not to exceed a specified amount;
- maximum yearly payments under operating leases; and
- minimum quarterly fixed charge coverage ratio (ratio of EBITDA plus cash
and the unused portion of the loan to consolidated fixed charges).
EVENTS OF DEFAULT
In addition to failing to perform, observe or comply with the covenants,
agreements and terms of the credit agreement, it is an event of default under
the credit agreement if any party with financial responsibility for the loans or
the outstanding, unsecured equity commitments, or Sprint PCS signatory to the
management agreement with Sprint PCS:
- becomes insolvent, commences or suffers bankruptcy proceedings or suffers
other indicia of extreme financial duress.
Other events of default include:
- an attachment against Alamosa PCS, Inc.'s or its subsidiaries' property
that is not released within 30 days and the amount of the proceedings is
greater than $500,000;
- a judgment against Alamosa PCS, Inc. or its subsidiaries of greater than
$500,000;
- failure to pay other loans as they become due;
- a breach by Alamosa PCS, Inc. under the Supply Agreement, Nortel Consent
Agreement or the Sprint PCS Agreements;
- any change in control of Alamosa PCS Holdings, Inc.; or
- any Material Adverse Effect occurs (broadly defined in the credit
agreement to include things that could have a material adverse effect on
Alamosa PCS, Inc.'s business, on Alamosa PCS, Inc.'s ability to repay the
loan, or on Nortel's collateral).
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table presents information with respect to our directors and
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David E. Sharbutt......................... 50 Chairman of the Board of Directors, Chief
Executive Officer and Chief Financial
Officer
Jerry W. Brantley......................... 54 Chief Operating Officer
W. Don Stull.............................. 37 Chief Technology Officer
Michael R. Budagher....................... 41 Director
Ray M. Clapp.............................. 39 Director
Scotty Hart............................... 49 Director
Thomas Hyde............................... 54 Director
Tom M. Phelps............................. 50 Director
Reagan W. Silber.......................... 38 Director
Jimmy R. White............................ 60 Director
</TABLE>
David E. Sharbutt. Mr. Sharbutt has been our Chairman and a director since
Alamosa was founded in July 1998. Mr. Sharbutt was named our Chief Executive
Officer and Chief Financial Officer on October 1, 1999. Mr. Sharbutt was
formerly the President and Chief Executive Officer of Hicks & Ragland. Mr.
Sharbutt is currently employed by Hicks & Ragland as a Senior Consultant. He has
been at Hicks & Ragland since 1977, where he has worked with independent
telephone companies in developing strategic, engineering and implementation
plans for various types of telecommunications services. Before he joined Hicks &
Ragland, Mr. Sharbutt was employed with Southwestern Bell. Mr. Sharbutt holds a
Bachelor of Science degree in Electrical Engineering from Texas Tech University.
Mr. Sharbutt will be Vice President of Alamo IV LLC until its proposed
dissolution in November 1999. He also serves as a director for, and is a
shareholder of, Hicks & Ragland and is a director for, and shareholder and
President of US Consultants, Inc. In addition, he is a director for TechTel
Communications Corporation, Accipiter Communications, and previously was a
director of Alamo Cellular, Inc., all non-public companies.
Jerry W. Brantley. Mr. Brantley has been our Chief Operating Officer since
October 1998. He is responsible for overseeing all aspects of operations
including market operations, network build-out, human resources, marketing and
distribution. From June 1996 to October 1998 he was General Manager of the H&R
Strategic Group of Hicks & Ragland. From December 1994 to June 1996 Mr. Brantley
was Executive Vice President and General Manager for Mainstreet Wireless, a
national PCS consortium of independent telecommunications companies and other
companies. From May 1993 to November 1994 Mr. Brantley was President and General
Manager of the Business Crime Council of South Texas, Inc., a crime prevention
organization. From 1984 to 1993, Mr. Brantley held various executive management
positions in sales, marketing, public relations and regulatory matters for
Southwestern Bell Mobile Systems. Mr. Brantley holds a Bachelor of Business
Administration degree from the University of Oklahoma.
W. Don Stull. Mr. Stull has been our Chief Technology Officer since October
1998. He was formerly Vice President of Hicks & Ragland. He has held various
management and engineering positions at Hicks & Ragland since 1988. From 1985 to
1988 he was an engineer at Turner Collie & Braden, Inc. From 1980 to 1984 he was
an engineering technician for different companies. Mr. Stull received his M.B.A.
from Texas Tech University and holds a Bachelor of Science degree in Civil
Engineering from Texas Tech University.
Michael R. Budagher. Mr. Budagher has served as a director of Alamosa since
December 21, 1998. Mr. Budagher was the founder of Specialty Constructors, a
wholly owned subsidiary of Specialty Teleconstructors, Inc., a wireless
infrastructure installation company. He served as the President, Chairman of the
Board, Chief Executive Officer and Chief Operating Officer of Specialty from
1990 to 1998.
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Mr. Budagher is also a founder, stockholder and the President of Specialty
Antenna Site Resources, Inc. and was a founder and served as the President of
Specialty Constructors Coatings, Inc. until March 1997. He also serves as the
managing member and President of the Budagher Family LLC as well as a Manager of
West Texas PCS, LLC, both non-public limited liability companies.
Ray M. Clapp. Mr. Clapp has served as a director since Alamosa was founded
in July 1998. Mr. Clapp has been Managing Director, Acquisitions and Investments
for The Rosewood Corporation, the primary holding company for the Caroline Hunt
Trust Estate, since 1995. From 1989 to 1995 he has held various officer level
positions with The Rosewood Corporation and its subsidiaries. Prior to his
employment with The Rosewood Corporation, Mr. Clapp was a consultant with Booz,
Allen & Hamilton, a management consulting firm.
Scotty Hart. Mr. Hart has served as a director since Alamosa was founded in
July 1998. He has also served as General Manager of South Plains
Telecommunications Cooperative (SPTC), a wireline and wireless
telecommunications company, since April 10, 1995, and previously as Assistant
Manager of SPTC. Mr. Hart is currently Vice President of SPPL, Inc., Chairman of
the General Partners Committee for Caprock Cellular Limited Partnership and past
Chairman for Texas RSA3 Limited Partnership, all affiliates of SPTC. He is also
General Manager of South Plains Advanced Communications & Electronics, Inc.
(SPACE), a wholly owned subsidiary of SPTC, and Secretary of Alamo Cellular,
Inc., a non-public holding company with interests in a wireless
telecommunications service provider and an affiliate of SPACE. In addition, he
is the general partner and a limited partner of Lubbock HLH, Ltd. He also will
be President of Alamo IV LLC until its proposed dissolution in November 1999.
Mr. Hart also serves as a director of Texas Statewide Telephone Cooperative,
Inc., a non-public company.
Thomas Hyde. Mr. Hyde has served as a director since Alamosa was founded in
July 1998. From 1996 to 1997, Mr. Hyde served as an Assistant Manager of Taylor
Telephone Cooperative, Inc., a landline telephone service provider, and has
served as Manager of that company since 1998. He has also served as Manager of
Taylor Telecommunications, Inc., a cellular services provider. Prior to 1996,
Mr. Hyde was self-employed in the farming and ranching business. Mr. Hyde also
will be Secretary of Alamo IV LLC until its proposed dissolution in November
1999. Mr. Hyde currently serves as a director of Alamo Cellular, Inc. and was a
director of Taylor Telephone Cooperative, Inc. and Taylor Telecommunications,
Inc. from 1979 to 1996.
Tom M. Phelps. Mr. Phelps has served as a director of Alamosa since
December 21, 1998. He has served as Executive Vice President and General Manager
of ENMR Telephone Cooperative, a telecommunications services provider, and of
Telecommunications Holdings East (THE), since September 1997. Mr. Phelps is also
currently Executive Vice President of Plateau Telecommunications Incorporated, a
wireless and wireline telecommunications provider and wholly owned subsidiary of
THE. Additionally, Mr. Phelps served as Assistant Manager of ENMR Telephone
Cooperative and its wholly owned subsidiaries from 1995 to 1997, and as Area
Manager of GTE Corporation, a telephone service provider, from 1994 to 1995. He
is currently a director of Rocky Mountain Telecommunications Association, a non-
public company.
Reagan W. Silber. Mr. Silber has served as a director since Alamosa was
founded in July 1998. He has been the founder and managing shareholder of Silber
Pearlman, P.C., a law firm, since 1989. He is also a director and the President
of Tregan International Corp., a director and the President of BPS Realty, Inc.,
and a director of Independent Bank of Plano, all non-public companies.
Jimmy R. White. Mr. White has served as a director since Alamosa was
founded in July 1998. He has served as the General Manager of XIT Rural
Telephone Cooperative, Inc. and its subsidiaries, XIT Telecommunication &
Technology, Inc., XIT Cellular, and XIT Fiber, Inc., all wireline and wireless
telecommunications services providers, since 1975. He will be the Treasurer of
Alamo IV LLC until its proposed dissolution in November 1999. Mr. White
currently serves as the President of Alamo Cellular, Inc. He also currently
serves as a director of Texas Telephone Association, a non-public company, and
Forte of Colorado, a general partnership.
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BOARD OF DIRECTORS
Under the terms Alamosa PCS, LLC's Regulations the number of managers to
serve on the Alamosa's board of managers was fixed at nine managers. Alamo IV
had the right to appoint five of the managers and Rosewood Telecommunications,
LLC, Tregan International Corp., West Texas PCS LLC, Longmont PCS LLC and Yellow
Rock PCS, L.P. (combined, the Financial Members) had the right to appoint a
total of four of the managers. If Alamo IV's percentage interest in Alamosa PCS,
LLC fell below 45% then the number of managers it was able to appoint also fell
in a corresponding manner. Likewise, if the Financial Members combined
percentage interest in Alamosa PCS, LLC fell below 33% then the number of
managers they were able to appoint as a group also fell in a corresponding
manner. Neither Alamo IV's number of appointments nor the Financial Members'
number of appointments increased as a result of a decrease in the other group's
percentage interest. Any remaining manager position was to be filled by a
manager elected by a majority of the members of Alamosa PCS, LLC. As a result of
Alamo IV's proposed dissolution in November 1999, Alamo IV will no longer hold
any right to appoint managers, but the former members of Alamo IV will still be
able to act together to appoint five of the managers. Prior to the closing of
this offering, Alamosa PCS, LLC will be reorganized and the current managers of
Alamosa PCS, LLC will become directors of Alamosa PCS Holdings, Inc. Upon this
reorganization, the former members of Alamo IV and the Financial Members will
lose their right to appoint any future directors. For further information on the
reorganization, see "The Reorganization."
After the reorganization, our board of directors will be fixed at eight
members. We will divide our board of directors into three classes. Ray M. Clapp,
Jimmy White and Thomas Hyde constitute Class I and will stand for election at
the annual meeting of stockholders to be held in 2000. Michael R. Budagher and
Reagan W. Silber constitute Class II and will stand for election at the annual
meeting of stockholders to be held in 2001. Tom M. Phelps, David E. Sharbutt,
and Scotty Hart constitute Class III and will stand for election at the annual
meeting of stockholders to be held in 2002. After the initial term following the
offering, directors in each class will serve for a term of three years, or until
his or her successor has been elected and qualified and will be compensated at
the discretion of the board of directors. Executive officers are ordinarily
elected annually and serve at the discretion of the board of directors.
COMPENSATION OF DIRECTORS
Currently, we do not compensate our directors. No director who is an
employee of Alamosa receives separate compensation for services rendered as a
director. In the past, we have had an arrangement with Hicks & Ragland to pay
$175 per hour for David Sharbutt's services as Chairman of our board of
directors. This arrangement with Hicks & Ragland ended on October 1, 1999, when
Mr. Sharbutt became our Chief Executive Officer.
Following the closing of this offering, pursuant to the 1999 Omnibus
Securities Plan, each of our directors who is not an officer or employee of
Alamosa (an Independent Director) will automatically receive an initial option
to purchase 32,000 shares of our common stock upon the closing of this offering
or on the date he or she becomes one of our directors. The initial option
becomes exercisable with respect to 100% of the shares covered thereby six
months after the date of grant and will expire on the tenth anniversary of the
date of grant. In addition to the initial option, each Independent Director will
receive a grant pursuant to our 1999 Omnibus Securities Plan of an annual option
to purchase that number of shares of our common stock equal to $60,000 divided
by the fair market value of our common stock on the date of grant. The annual
option will be automatically granted on the date of the first full meeting of
our board of directors following the end of each fiscal year. The annual option
will immediately vest on the date of grant and will expire on the tenth
anniversary of the date of grant. The exercise price of all options granted to
Independent Directors must be equal to the fair market value of our common stock
on the date of grant. Directors who are also our officers or employees receive
no additional compensation for serving as directors. All of our directors are
entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to, and attendance at, meetings of the board of
directors or committees thereof.
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BOARD COMMITTEES
To date, our board has not had either an audit committee or a compensation
committee. Our board of directors has determined the compensation for our
executive officers. Prior to the completion of this offering, our board will
establish an audit committee and a compensation committee. Each of these
committees will be comprised solely of Independent Directors.
The audit committee will be responsible for recommending to the board of
directors the engagement of our independent auditors and reviewing with the
independent auditors the scope and results of the audits, our internal
accounting controls, audit practices and the professional services furnished by
the independent auditors.
The compensation committee will be responsible for reviewing and approving
all compensation arrangements for our officers, and is also responsible for
administering the 1999 Omnibus Securities Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We currently do not have a compensation committee. To date, our board of
directors has determined the compensation of our executive officers. David
Sharbutt, our Chief Executive Officer and Chief Financial Officer is Chairman of
our board of directors. He is also employed as a Senior Consultant and is a
director and shareholder of Hicks & Ragland, an engineering consulting firm that
provides services to us. See "Certain Relationships and Related Transactions"
for more details on these transactions. Mr. Sharbutt has also served on the
board of directors of Alamo Cellular, Inc. Currently Scotty Hart is Secretary of
Alamo Cellular, Inc. and Jimmy White is President of Alamo Cellular, Inc. Both
Mr. Hart and Mr. White are also on our board of directors. In addition, Alamo IV
LLC, prior to its proposed dissolution in November 1999, has been controlled by
its members. Mr. Sharbutt represents a company called Harlamo LLC that is a
member of Alamo IV LLC and Mr. Sharbutt also serves as Vice President of Alamo
IV LLC. Thomas Hyde, who is one of our directors, along with Scotty Hart and
Jimmy White, serve as executive officers of Alamo IV LLC. Prior to completion of
this offering, our board of directors will establish a compensation committee
that will be comprised solely of Independent Directors.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
To date, our board has not had a compensation committee. Accordingly, our
board of directors is primarily responsible for our executive compensation
policies and practices.
Our executive compensation philosophy reflects our belief that the
compensation of executives should (1) be linked to achievement of our business
and strategic goals; (2) be aligned with the interests of stockholders through
awards of stock options and other stock-based compensation; (3) recognize
individual contributions, as well as overall business results; and (4) result in
attracting, motivating and retaining highly-talented executives to serve us. To
achieve these objectives, our current compensation program consists of the
following elements:
- Base salary;
- Annual incentive compensation, the receipt of which is based on (1) our
financial performance from year to year and/or (2) significant individual
contributions; and
- Long-term incentive compensation, primarily in the form of stock options.
Jerry Brantley, as Chief Operating Officer, acted in a capacity similar to
that of chief executive officer during the period from the inception of Alamosa,
July 16, 1998, to December 31, 1998. The structure of Mr. Brantley's fiscal 1998
compensation was based in part on comparisons to the compensation of executives
in similar positions with other companies in the industry, as well as Mr.
Brantley's level of responsibility, experience and contribution to our business
objectives and the board's ongoing assessment of our operations. In accordance
with such factors, we entered into an employment agreement with Mr. Brantley,
effective October 2, 1998. This agreement provides for a base salary of $175,00,
subject to
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increases at our board's discretion. In addition, the agreement provides that
Mr. Brantley is eligible for quarterly bonuses upon the achievement of certain
performance targets established by our board, and grants Mr. Brantley stock
options that vest over 3 years. See "-- Employment Agreements -- Jerry
Brantley." Pursuant to this employment agreement, Mr. Brantley received
compensation totaling $55,892.28 for fiscal 1998, representing a salary of
$40,384.62, a bonus of $13,843.14, and a car allowance of $1,661.52. Our board
believes that the structure of Mr. Brantley's compensation, with its emphasis on
our performance, is in the best interest of our stockholders because it more
closely aligns the interests of Mr. Brantley and our stockholders.
Other than Mr. Brantley as Chief Operating Officer, we had no other
executive officers receiving substantial salaries during fiscal 1998. Our
philosophy for the compensation of our executive officers focuses on each
individual's level of responsibility, experience and contribution to our
business objectives and the board's ongoing assessment of our operations. The
board places emphasis on compensation that closely aligns the executive's
interests with the stockholders' interests. Therefore, a significant percentage
of each executive officer's total compensation is tied to our performance
through (1) bonus eligibility, based on a combination of our performance and
individual achievement, and (2) stock option awards.
In August 1993, as part of the Omnibus Budget Reconciliation Act of 1993,
Section 162(m) of the Internal Revenue Code (the Code) was enacted, which
section provides for an annual one million dollar limitation on the deduction
that an employer may claim for compensation of certain executives. Section
162(m) of the Code provides an exception to the deduction limitation for certain
performance-based compensation, and it is the intent of the board to qualify
executive compensation for such exception to the extent necessary, feasible and
in our best interests.
David E. Sharbutt (Chairman)
Michael R. Budagher
Ray M. Clapp
Scotty Hart
Thomas Hyde
Tom M. Phelps
Reagan W. Silber
Jimmy R. White
EXECUTIVE COMPENSATION
The following table presents summary information with respect to the
compensation paid to Jerry W. Brantley during the period from the inception of
Alamosa, July 16, 1998, to December 31, 1998. We had no chief executive officer
during this period. Mr. Brantley, as Chief Operating Officer, acted in a
capacity similar to that of chief executive officer during this period. No other
executive officer had a salary and bonus that exceeded $100,000 during this
period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------------------ STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS(1) COMPENSATION
- --------------------------- ---- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jerry W. Brantley
Chief Operating Officer..... 1998 $40,384.62 $13,846.14 -- 633,580 $1,661.52(2)
</TABLE>
- ---------------
(1) All option grants were initially grants of options to purchase membership
interests in the limited liability company. The numbers in this column give
effect to the reorganization of the limited liability company into a holding
company structure, which will occur immediately prior to the closing of this
offering, as if it had occurred prior to December 31, 1998.
(2) Consists of a monthly car allowance.
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<PAGE> 69
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The table below provides information regarding stock options granted to the
named executive officers from the inception of Alamosa, July 16, 1998, to
December 31, 1998. All option grants were initially grants of options to
purchase membership interests in the limited liability company. The numbers in
this table give effect to the reorganization which will occur immediately prior
to the closing of this offering as if it had occurred as of the inception of
Alamosa PCS, LLC. None of the named executive officers received stock
appreciation rights, or SARs.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------------
% OF TOTAL OPTIONS
GRANTED TO EXERCISE VALUE AT DATE
NUMBER OF SECURITIES EMPLOYEES IN PRICE EXPIRATION OF
NAME UNDERLYING OPTIONS FISCAL YEAR (PER SHARE) DATE GRANT (1)
- ---- -------------------- ------------------ ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Jerry W. Brantley......... 633,580 83% (2) 1/5/2008
</TABLE>
- ---------------
(1) Value at date of grant is based on the product of the public offering price
of $ per share, the midpoint of the range on the cover page of the
prospectus, minus the exercise price, multiplied by the number of securities
underlying the options granted.
(2) The exercise price per share is $1.3095 for one-third of the options,
$1.3944 for one-third of the options and $1.5156 for the remaining one-third
of the options.
AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table provides summary information regarding options held by
our named executive officers as of December 31, 1998. There was no public market
for the common stock as of December 31, 1998. Accordingly, the value of
unexercised in-the-money options is based on an assumed initial public offering
price of $ , less the exercise price payable for such shares.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/
ACQUIRED VALUE YEAR-END(#) SARS AT FISCAL YEAR-END
NAME ON EXERCISE(#) REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- -------------- -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Jerry W. Brantley......... -- -- --/633,580 --/
</TABLE>
BENEFIT PLANS
1999 OMNIBUS SECURITIES PLAN
The 1999 Omnibus Securities Plan has been adopted by our board of directors
and stockholders. The plan provides for stock based and non-stock based
compensation to plan participants, including incentive stock options,
nonqualified stock options, tandem and independent stock appreciation rights,
other derivative securities, stock bonuses, restricted stock, awards denominated
in stock units, securities convertible into stock, phantom stock, dividend
equivalent rights and performance awards that are contingent upon our
performance or performance of the plan participant. The aggregate number of
shares of common stock that may be issued under the plan is 5,500,000. On
, 1999, we granted options effective as of the closing of this
offering to purchase shares of common stock with an exercise price equal to
the initial public offering price per share to directors, officers and
employees.
The option plan will be administered by our board of directors or by a
compensation committee appointed by our board of directors, which will be
authorized, subject to the provisions of the option plan, to grant awards and
establish rules and regulations as it deems necessary for the proper
administration of the option plan and to make whatever determinations and
interpretations it deems necessary or advisable.
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An incentive option may not have an exercise price less than the fair
market value of the common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant and is subject to other limitations
which allow the option holder to qualify for favorable tax treatment.
Nonqualified options may have an exercise price of less than, equal to or
greater than the fair market value of the underlying common stock on the date of
grant but, like incentive options, are limited to an exercise period of no
longer than ten years.
An option will not be not transferable except by will or by the laws of
descent or distribution or unless determined otherwise by our board of
directors.
Awards under the Omnibus Plan may contain provisions that, if a change in
control of Alamosa occurs, give the Compensation Committee discretion to offer
to purchase awards from Omnibus Plan participants and make adjustments or
modifications to outstanding awards to protect and maintain the rights and
interests of the Omnibus Plan participants or take any other action the award
agreements may authorize. A change in control of Alamosa is deemed to occur upon
any of the following events (1) a consolidation or merger in which we do not
survive, unless our stockholders retain the same proportionate common stock
ownership in the surviving company after the merger, (2) a sale of substantially
all of our assets, (3) the approval by our stockholders of a plan to dissolve or
liquidate Alamosa, (4) a third party acquires 20% or more of our voting
securities or (5) during any two-year period, persons who constituted a majority
of our Board of Directors at the beginning of such period cease to serve as
directors for any reason other than death, unless each new director was approved
by at least two-thirds of the directors then still in office who were directors
at the beginning of the two-year period.
401(K) RETIREMENT PLAN
We have established a tax-qualified employee savings and retirement plan.
Employees may elect to contribute up to 20% of their annual compensation on a
pre-tax basis and up to an additional 10% of their annual compensation on an
after-tax basis to the retirement plan. "Highly Compensated Employees," as
defined in the retirement plan, are subject to certain other provisions
regarding the amount of eligible contributions. Employee contributions may begin
from the date of hire and are immediately vested. Currently, we do not make
matching or profit-sharing contributions to the retirement plan.
EMPLOYMENT AGREEMENTS
David E. Sharbutt. We are currently negotiating an employment agreement
with David E. Sharbutt, to be effective October 1, 1999. This employment
agreement has a three-year term and provides that Mr. Sharbutt receive a minimum
base salary of $175,000, payable semi-monthly, subject to increases at our
discretion. Additionally, Mr. Sharbutt is entitled to receive a bonus of up to
$43,750 for each calendar quarter in which we meet certain corporate milestones.
The employment agreement also grants Mr. Sharbutt stock options that vest
immediately as well as additional options that vest over three years and give
Mr. Sharbutt the right to purchase up to a 3.5% interest in us. These options
will be exchanged for two options to purchase 215,749 shares of our common stock
with an exercise price of $1.3944 per share, which option is exercisable
immediately after the exchange, and 1,294,491 shares of common stock with an
exercise price per share equal to the initial public offering price, which
option will vest over the next three years. Mr. Sharbutt is also entitled to
reimbursement for reasonable expenses, a $1,250 per month vehicle allowance plus
the standard mileage rate set by the Internal Revenue Service, and incentive,
retirement, profit-sharing, life, medical, disability and other benefit plans as
may be available to our other executives with comparable responsibilities,
subject to the terms of those programs. If we terminate Mr. Sharbutt's
employment for other than good cause or his death or disability, we would be
required to pay him severance pay equal to one year's base salary. Pursuant to
the employment agreement, Mr. Sharbutt has agreed not to compete with us during
employment and for a period of two years following termination of employment and
has agreed not to disclose any of our confidential information or trade secrets.
The employment by Hicks & Ragland or any company in which Mr. Sharbutt is an
owner or stockholder at the time of entering into the employment agreement,
however, is an exception to both the non-disclosure and non-competition
covenants.
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Jerry W. Brantley. We are a party to an employment agreement with Jerry W.
Brantley, dated October 2, 1998. This employment agreement has a three-year term
and provides that Mr. Brantley receive a minimum base salary of $175,000,
subject to increases at our discretion. Additionally, Mr. Brantley is entitled
to receive a bonus of up to $30,000 for each calendar quarter in which we meet
certain corporate milestones. The employment agreement also grants Mr. Brantley
stock options in three series, vesting monthly over three years and giving Mr.
Brantley the right to purchase up to a 1.5% interest in us at any time after
January 1, 2004 but before January 5, 2008. Mr. Brantley is also entitled to
reimbursement for reasonable expenses. Additionally, Mr. Brantley receives a
$600 per month vehicle allowance plus the standard mileage rate set by the
Internal Revenue Service, and incentive, retirement, profit-sharing, life,
medical, disability and other benefit plans as may be available to our other
executives with comparable responsibilities, subject to the terms of those
programs. If we terminate Mr. Brantley's employment for other than good cause or
his death or disability, we would be required to pay him severance pay equal to
six months' base salary. Pursuant to the employment agreement, Mr. Brantley has
agreed not to compete with us during employment and for a period of two years
following termination of employment and has agreed not to disclose any of our
confidential information or trade secrets. We are currently negotiating an
employment agreement with Mr. Brantley under which the stock options will be
exchanged for two options to purchase 215,749 shares of our common stock with an
exercise price of $1.3944 per share, which option is exercisable immediately
after the exchange, and 1,294,491 shares of common stock with an exercise price
per share equal to the initial public offering price, which option will vest
over the next three years. In addition, we may make other material changes to
his employment agreement.
W. Don Stull. We are a party to an employment agreement with W. Don Stull,
dated October 29, 1998. This agreement has a three year term and provides that
Mr. Stull receive a minimum base salary of $90,000, subject to increases at our
discretion. Additionally, Mr. Stull is entitled to receive a bonus of up to
$15,000 for each calendar quarter in which we meet certain corporate milestones.
The employment agreement also grants Mr. Stull stock options in three series
that begin vesting monthly on April 29, 2000, expire on December 31, 2006, and
give Mr. Stull the right to purchase up to 0.3% interest in us. These options
will be exchanged for three series of options to purchase an aggregate of
129,450 shares of our common stock with exercise prices of $1.3095, $1.3944 and
$1.5156 per share. Upon our sale, or the sale of substantially all of our
assets, all vested options shall be considered to be exercised. Mr. Stull is
also entitled to reimbursement for reasonable expenses and a $400 per month
vehicle allowance plus 18 cents per mile. If we terminate Mr. Stull's employment
for other than good cause or his death or disability, we would be required to
pay him severance pay equal to one months' base salary. Pursuant to the
employment agreement, Mr. Stull has agreed not to compete with us during
employment and for a period of two years following termination of employment and
has agreed not to disclose any of our confidential information or trade secrets.
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PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of common stock, as of September , 1999 and assumes (1) that each member of
Alamosa PCS, LLC has contributed its membership interest to Alamosa in exchange
for its proportional number of shares of Alamosa common stock immediately prior
to completion of this offering and (2) the proposed dissolution of Alamo IV, LLC
has occurred, with respect to:
- each person who, to our knowledge, is the beneficial owner of 5% or more
of the outstanding common stock;
- each of the directors;
- each of the executive officers; and
- all executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES OWNERSHIP PRIOR OWNERSHIP AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) TO OFFERING OFFERINGS(3)
- ------------------- --------------------- --------------- ---------------
<S> <C> <C> <C>
5% STOCKHOLDERS:
Rosewood Telecommunications, L.L.C. ........ 8,020,619 20.1% %
500 Crescent Court, Suite 300
Dallas, TX 75201
South Plains Advanced Communications &
Electronics, Inc.(4)...................... 7,135,740 17.8
Post Office Box 1379
Lubbock, TX 79408
West Texas PCS, LLC......................... 5,833,332 14.6
3702 Holland Avenue #2
Dallas, TX 75219
Taylor Telecommunications, Inc.(4).......... 4,206,186 10.5
9796 N. Interstate 20
Merkel, TX 79536
Tregan International Corp. ................. 2,474,227 6.2
2711 North Haskell Avenue
5th Floor LB 32
Dallas, TX 75204
Plateau Telecommunications,
Incorporated(4)........................... 2,474,227 6.2
7111 North Prince
Clovis, NM 88102-1947
XIT Telecommunication & Technology,
Inc.(4)................................... 2,268,041 5.7
Highway 87 North
Dalhart, TX 79022
LEC Development, Inc.(4).................... 2,061,856 5.2
1807 Main Street
Tahoka, TX 79373
Wes-Tex Telecommunications, Inc.(4)......... 2,061,856 5.2
1500 West Business 20
Stanton, TX 79782
</TABLE>
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<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES OWNERSHIP PRIOR OWNERSHIP AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) TO OFFERING OFFERINGS(3)
- ------------------- --------------------- --------------- ---------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
David E. Sharbutt(5)........................ 771,101 1.9
Jerry W. Brantley........................... -- --
W. Don Stull(6)............................. 80,533 *
Michael R. Budagher(7)...................... 5,833,332 14.6
Ray M. Clapp................................ -- --
Scotty Hart(8).............................. 7,135,740 17.8
Thomas Hyde(9).............................. 4,206,186 10.5
Tom M. Phelps(10)........................... 2,474,227 6.2
Reagan W. Silber(11)........................ 2,474,227 6.2
Jimmy R. White(12).......................... 2,268,041 5.7
All Directors and Executive Officers as a
Group (10 persons)........................ 25,243,387 63.1
</TABLE>
- ---------------
* Less than one percent.
(1) Except as otherwise indicated below, the address for each executive officer
and director is 4403 Brownfield Hwy., Lubbock, Texas 79407.
(2) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities Exchange Act. A person is deemed to be the beneficial owner of
any shares of common stock if that person has or shares voting power or
investment power with respect to that common stock, or has the right to
acquire beneficial ownership at any time within 60 days of the date of the
table. As used herein, "voting power" is the power to vote or direct the
voting of shares and "investment power" is the power to dispose or direct
the disposition of shares.
(3) Assumes no exercise of the underwriters over-allotment option.
(4) Previous member of Alamo IV, LLC. Prior to its dissolution, Alamo IV LLC
held 56.3% of Alamosa PCS, LLC, and was comprised of these previous members
and Harlamo, LLC.
(5) Consists of 40,266 shares held in Mr. Sharbutt's 401(k) plan, 489,237
shares beneficially owned by Five S, Ltd. and 241,598 shares beneficially
owned by Harness, Ltd. Mr. Sharbutt is a limited partner of Five S, Ltd.
and President of Sharbutt Inc., the general partner of Five S Ltd., and is
the beneficial owner of the shares owned by Five S, Ltd. Five S, Ltd. is a
limited partner of Harness, Ltd. and Mr. Sharbutt is a director,
shareholder and the President of US Consultants, Inc., the general partner
of Harness, Ltd., and is the beneficial owner of the shares owned by
Harness, Ltd. The address for Five S Ltd. is 4606 91st Street, Lubbock,
Texas 79424 and the address for Harness, Ltd. is P.O. Box 65700, 4747 S.
Loop 289, Lubbock, Texas 79464.
(6) Consists of 60,400 shares held individually by Mr. Stull and 20,133 shares
held in Mr. Stull's 401(k) plan.
(7) Consists of shares beneficially owned by West Texas PCS, LLC. Mr. Budagher
is a Manager of West Texas PCS, LLC and is the beneficial owner of these
shares. Mr. Budagher's address is the same as the address for West Texas
PCS, LLC.
(8) Consists of shares beneficially owned by South Plains Advanced
Communications & Electronics, Inc. (SPACE). Mr. Hart is General Manager of
SPACE and may be considered the beneficial owner of these shares. Mr. Hart
disclaims beneficial ownership of these shares. Mr. Hart's address is the
same as the address for SPACE.
(9) Consists of shares beneficially owned by Taylor Telecommunications, Inc.
Mr. Hyde is a Manager of Taylor Telecommunications, Inc. and may be
considered the beneficial owner of these shares.
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Mr. Hyde disclaims beneficial ownership of these shares. Mr. Hyde's address
is the same as the address for Taylor Telecommunications, Inc.
(10) Consists of shares beneficially owned by Plateau Telecommunications,
Incorporated. Mr. Phelps is the Executive Vice President of Plateau
Telecommunications, Incorporated and may be considered the beneficial owner
of these shares. Mr. Phelps disclaims beneficial ownership of these shares.
The address for Mr. Phelps is the same as the address for Plateau
Telecommunications, Incorporated.
(11) Consists of shares beneficially owned by Tregan International Corp. Mr.
Silber is a director and the President of Tregan International Corp. and is
the beneficial owner of these shares. Mr. Silber's address is the same as
the address for Tregan International Corp.
(12) Consists of shares beneficially owned by XIT Telecommunication &
Technology, Inc. Mr. White is the General Manager of XIT Telecommunication
& Technology, Inc. and may be considered the beneficial owner of these
shares. Mr. White disclaims beneficial ownership of these shares. Mr.
White's address is the same as the address for XIT Telecommunication &
Technology, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FORMATION OF ALAMOSA PCS, LLC
On July 24, 1998, Alamo IV LLC, Rosewood Telecommunications, L.L.C., Tregan
International Corp., West Texas PCS, LLC and Longmont PCS, LLC formed Alamosa
PCS, LLC. Those investors received membership interests in exchange for their
capital commitments. The investors amended the formation documents on December
11, 1998 to allow for a new member Yellow Rock PCS, L.P., and to modify their
membership interests and capital commitments. The members of Alamo IV LLC plan
to dissolve Alamo IV LLC and distribute Alamo IV's membership interest in
Alamosa PCS, LLC to Alamo IV's members.
The obligations to commit capital and the other regulations under the
formation documents will be eliminated when we reorganize from a limited
liability company to a holding company structure prior to closing of this
offering.
NORTEL CREDIT AGREEMENT GUARANTIES
In connection with our credit agreement with Nortel, each of our
stockholders pledged its ownership interest in Alamosa to Nortel to guaranty our
obligations under the credit agreement. Our stockholders were required to secure
their unfunded contributions with either a letter of credit or a marketable
securities pledge agreement. Each guaranty, pledge, letter of credit and
marketable securities pledge agreement will be terminated prior to the closing
of this offering.
AGREEMENTS WITH HICKS & RAGLAND ENGINEERING CO., INC.
We have entered into a number of arrangements with Hicks & Ragland as
described in more detail below. David Sharbutt, our Chairman, Chief Executive
Officer and Chief Financial Officer, was at the time the agreements were
executed the President, Chief Executive Officer, director and a shareholder of
Hicks & Ragland. Mr. Sharbutt is currently employed as a Senior Consultant by
Hicks & Ragland.
- On July 27, 1998, we entered into an engineering service contract with
Hicks & Ragland that is to last through August 2001 for a maximum fee of
approximately $7.0 million, excluding taxes. We paid $902,243 for these
services during 1998.
- On November 20, 1998, we entered into a special service contract
effective as of September 20, 1998 with Hicks & Ragland, who provided us
with marketing and operations consulting services for a maximum amount of
$100,000, excluding taxes.
- As of April 6, 1999, we entered into a telecommunications service
agreement with Tech Telephone Company Limited Partnership, an affiliate
of Hicks & Ragland, to install and provide
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DS1 telecommunications lines between Sprint PCS and our Lubbock
operations and between our Lubbock operations and our other markets. The
original term of the agreement is three years, with automatic renewal for
successive 30-day terms until terminated by either party. The total
amount of fees paid through the end of 1999 was $ .
- As of April 9, 1999, we entered into a data communications services
contract with H&R Data Com, an affiliate of Hicks & Ragland, to perform
design and implementation services for us in connection with our wide
area network and local area networks for a maximum fee of $262,040,
excluding taxes. The agreement lasts until the project is completed,
unless either party terminates it earlier for cause.
- As of August 13, 1999, we entered into a distribution agreement with
TechTel Communications Corporation, an affiliate of Hicks & Ragland,
authorizing it to become a third party distributor of Sprint PCS products
and services for Alamosa in Lubbock. This is a standard agency agreement
identical with numerous other agreements between Alamosa and other third
party distributors, under which TechTel Communications Corporation is
obligated to purchase ten handsets from us every quarter for the term of
one year.
- As of October 8, 1999, we entered into a special service contract with
Hicks & Ragland to perform marketing and operations consulting services
in selected areas in Wisconsin for a maximum fee of $100,000, excluding
taxes. This agreement lasts until the project is completed, unless either
party terminates it earlier.
- As of October 8, 1999, we entered into a special service contract with
Hicks & Ragland to perform business planning and consulting services and
a feasibility study in selected areas of Wisconsin for a fixed fee of
$81,000. This agreement lasts until the project is completed, unless
either party terminates it earlier.
- As of October 8, 1999, we entered into a special service contract with
Hicks & Ragland to perform business planning and consulting services and
a feasibility study in selected areas of our territory for an estimated
probable cost of $200,000, excluding taxes. This agreement lasts until
the project is completed, unless either party terminates it earlier.
- As of October 8, 1999, we entered into a special service contract with
Hicks & Ragland to provide us with radio frequency "drive testing" to
predict the propagation characteristics of given areas in our territory
for an estimated probable cost of $61,085, excluding taxes. This
agreement lasts until the project is completed, unless either party
terminates it earlier.
AGREEMENT WITH AMERICAN TOWER CORPORATION
In August 1998, we entered into a master site development and lease
agreement with Specialty, a subsidiary of Specialty Teleconstructors, Inc. that
has since merged with American Tower Corporation. Pursuant to the agreement,
Specialty arranges for collocation of our equipment, or constructs new
facilities, in areas we identify for build-out. The initial term of this lease
is for five years, with automatic renewal for three additional terms of five
years each. The agreement provides for monthly payments aggregating to
approximately $5 million a year, subject to an annual adjustment based on the
Consumer Price Index. Michael Budagher, who is one of our directors and a
manager of West Texas PCS, LLC, one of our stockholders, was, at the time the
agreement was entered into the Vice Chairman, Chief Operating Officer and a
director of Specialty Teleconstructors, Inc., and the Chief Executive Officer,
President and sole director of Specialty. Michael Budagher is also a member and
the General Manager of the Budagher Family LLC, at the time the agreement was
entered into, a stockholder of Specialty Teleconstructors, Inc. Mr. Budagher no
longer holds any of these positions at Specialty or Specialty Teleconstructors,
Inc. and the Budagher Family LLC is no longer a stockholder of Specialty
Teleconstructors, Inc. Additionally, Jeff Howard, who was one of our directors
at the time the agreement was entered into, is a manager of Longmont PCS, LLC,
one of our stockholders, is a stockholder of Specialty Teleconstructors, Inc.
and
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acts as a Vice President of American Tower Corporation though he has not been
designated as an officer by American Tower Corporation's board of directors and
has no management authority.
OTHER RELATED PARTY TRANSACTIONS
In November 1998, we entered into a lease agreement to lease space for
telephone switching equipment in Albuquerque with SASR Limited Partnership, 50%
owned by Michael Budagher, one of our directors and a manager of West Texas PCS,
LLC, one of our stockholders. The lease has a term of five years with two
optional five year terms. The lease provides for monthly payments aggregating to
$18,720 a year, as well as a pro rata portion of real estate taxes on the
property, and subject to adjustment.
In connection with our distribution and sales of Sprint PCS wireless
communications equipment, on December 28, 1998, we entered into a build-to-suit
lease agreement for a retail store in Lubbock with Lubbock HLH, Ltd.,
principally owned by Scotty Hart, one of our directors and the General Manager
of South Plains Advanced Communications & Electronics, Inc. (SPACE). SPACE is
one of our stockholders. This lease, as amended, has a term of 15 years
commencing on July 1, 1999 and provides for monthly payments aggregating to
approximately $110,000 a year, subject to adjustment based on the Consumer Price
Index on the first day of the sixth lease year and on the first day of the
eleventh lease year.
On April 23, 1999, we entered into a note with our Chief Operating Officer,
Jerry W. Brantley, evidencing a loan to Mr. Brantley in the amount of $100,000.
This loan was made pursuant to Mr. Brantley's employment agreement, which
provides that Mr. Brantley is entitled to receive this loan upon his relocation
from the San Antonio, Texas vicinity. The loan matures in April 2014 and accrues
interest at an annual rate of 7.75%. Principal and interest is payable in
monthly installments of $1,052.91 each beginning April 23, 2000. As of September
30, 1999, the entire $100,000 was still outstanding on the loan.
We believe that the terms of each of the transactions described above,
taken as a whole, were no less favorable than we could have obtained from
unaffiliated third parties.
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THE REORGANIZATION
We are currently comprised of Alamosa PCS, LLC, a Texas limited liability
company, and its 97% owned subsidiary, Alamosa Wisconsin, LP, a Wisconsin
limited partnership. , and , rural telephone
companies in Wisconsin, own the remaining 3% of Alamosa Wisconsin, LP.
Immediately prior to the closing of this offering, we will reorganize the
business into the holding company structure outlined below. In connection with
the reorganization, the members of Alamosa PCS, LLC will receive shares of
common stock of Alamosa PCS Holdings, Inc. in exchange for their membership
interests in the limited liability company.
STRUCTURE OF ALAMOSA AS OF THE CLOSING OF THIS OFFERING
[ALAMOSA CLOSING STRUCTURE GRAPH]
Alamosa PCS Holdings, Inc. is the legal entity that is selling its common
stock in this offering. Alamosa PCS, Inc. is the legal entity that is the
borrower under the Nortel Financing.
Alamosa PCS, Inc. will be a wholly-owned subsidiary of Alamosa PCS
Holdings, Inc. Alamosa PCS, Inc. will hold a 99% limited partnership interest in
Alamosa Texas, LP and Alamosa Partners, Inc., a wholly-owned subsidiary of
Alamosa PCS, Inc., will hold a 1% general partnership interest. Alamosa PCS,
Inc. will hold a 96% limited partnership interest in Alamosa Wisconsin, LP, the
Wisconsin rural telephone companies will hold a 3% limited partnership interest
and Alamosa Partners, Inc. will hold a 1% general partnership interest.
REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
The FCC regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States.
The FCC has promulgated, and is in the process of promulgating, a series of
rules, regulations and policies to, among other things:
- grant or deny licenses for PCS frequencies;
- grant or deny PCS license renewals;
- rule on assignments and/or transfers of control of PCS licenses;
- govern the interconnection of PCS networks with other wireless and
wireline carriers;
- establish access and universal service funding provisions;
- impose fines and forfeitures for violations of any of the FCC's rules;
and
- regulate the technical standards of PCS networks.
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The FCC currently prohibits a single entity from having a combined
attributable interest, of 20% or greater interest in any license, in broadband
PCS, cellular and SMR licenses totaling more than 45 MHz in any geographic area.
TRANSFERS AND ASSIGNMENTS OF PCS LICENSES
The FCC must give prior approval to the assignment of, or transfers
involving, substantial changes in ownership or control of a PCS license.
Non-controlling interests in an entity that holds a PCS license or operates PCS
networks generally may be bought or sold without prior FCC approval. In
addition, a recent FCC order requires only post-consummation notification of pro
forma assignments or transfers of control.
CONDITIONS OF PCS LICENSES
All PCS licenses are granted for ten year terms conditioned upon timely
compliance with the FCC's build-out requirements. Pursuant to the FCC's
build-out requirements, all 30 MHz broadband PCS licensees must construct
facilities that offer coverage to one-third of the population within 5 years and
to two-thirds of the population within ten years, and all 10 MHz broadband PCS
licensees must construct facilities that offer coverage to at least one-quarter
of the population within 5 years or make a showing of "substantial service"
within that 5 year period. If the build-out requirements are not met, PCS
licenses could be forfeited. The FCC also requires licensees to maintain control
over their licenses. The Sprint PCS Agreements reflect a management agreement
that the parties believe meets the FCC requirements for licensee control of
licensed spectrum. If the FCC were to determine that the Sprint PCS Agreements
need to be modified to increase the level of licensee control, we have agreed
with Sprint PCS to use our best efforts to modify the agreements necessary to
cause the agreements to comply with applicable law and to preserve to the extent
possible the economic arrangements set forth in the agreements. If the
agreements cannot be modified, the agreements may be terminated pursuant to
their terms. In addition to revoking the licenses, the FCC could impose monetary
penalties on us.
PCS LICENSE RENEWAL
PCS licensees can renew their licenses for additional ten year terms. PCS
renewal applications are not subject to auctions. However, under the FCC's
rules, third parties may oppose renewal applications and/or file competing
applications. If one or more competing applications are filed, a renewal
application will be subject to a comparative renewal hearing. The FCC's rules
afford PCS renewal applicants involved in comparative renewal hearings with a
"renewal expectancy." The renewal expectancy is the most important comparative
factor in a comparative renewal hearing and is applicable if the PCS renewal
applicant has: (1) provided "substantial service" during its license term; and
(2) substantially complied with all applicable laws and FCC rules and policies.
The FCC's rules define "substantial service" in this context as service that is
sound, favorable and substantially above the level of mediocre service that
might minimally warrant renewal.
INTERCONNECTION
The FCC has the authority to order interconnection between CMRS providers
and any other common carrier. The FCC has ordered local exchange carriers to
provide reciprocal compensation to CMRS providers for the termination of
traffic. Using these new rules, we will negotiate interconnection agreements for
the Sprint PCS network in our market area with all of the major regional Bell
operating companies, GTE and several smaller independent local exchange
carriers. Interconnection agreements are negotiated on a state-wide basis. If an
agreement cannot be reached, parties to interconnection negotiations can submit
outstanding disputes to state authorities for arbitration. Negotiated
interconnection agreements are subject to state approval.
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OTHER FCC REQUIREMENTS
In June 1996, the FCC adopted rules that prohibit broadband PCS providers
from unreasonably restricting or disallowing resale of their services or
unreasonably discriminating against resellers. Resale obligations will
automatically expire on November 24, 2002. The FCC is also considering whether
wireless providers should be required to offer unbundled communications capacity
to resellers who intend to operate their own switching facilities.
The FCC also adopted rules in June 1996 that require local exchange and
most CMRS carriers, to program their networks to allow customers to change
service providers without changing telephone numbers, which is referred to as
service provider number portability. The FCC requires most CMRS carriers to
implement wireless service provider number portability where requested in the
100 largest metropolitan areas in the United States by November 24, 2002. Most
CMRS carriers are required to implement nationwide roaming by November 24, 2002
as well. The FCC currently requires most CMRS providers to be able to deliver
calls from their networks to ported numbers anywhere in the country, and to
contribute to the Local Number Portability Fund.
The FCC has adopted rules permitting broadband PCS and other CMRS providers
to provide wireless local loop and other fixed services that would directly
compete with the wireline services of LECs. In June 1996, the FCC adopted rules
requiring broadband PCS and other CMRS providers to implement enhanced emergency
911 capabilities within 18 months after the effective date of the FCC's rules.
In December 1997, the FCC revised these rules to extend the compliance deadline
for phase 1 until October 1, 1998 and for phase II until October 1, 2001 for
digital CMRS carriers to ensure access for customers using devices for the
hearing-impaired. The FCC recently extended the phase 1 compliance deadline to
January 1, 1999. Further waivers of the enhanced emergency 911 capability
requirements may be obtained by individual carriers by filing a waiver request.
On June 10, 1999, the FCC initiated a regulatory proceeding seeking comment
from the public on a number of issues related to competitive access to
multiple-tenant buildings, including the following:
- the FCC's tentative conclusion that the Communications Act of 1934, as
amended, requires utilities to permit telecommunications carriers access
to rooftop and other rights-of-way in multiple tenant buildings under
just, reasonable and nondiscriminatory rates, terms and conditions; and
- whether building owners that make access available to a
telecommunications carrier should be required to make access available to
all other telecommunications carriers on a nondiscriminatory basis, and
whether the FCC has the authority to impose such a requirement.
This proceeding could affect the availability and pricing of sites for our
antennae and those of our competitors.
COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT ACT
The Communications Assistance for Law Enforcement Act, or CALEA, enacted in
1994 requires PCS and other telecommunications carriers to meet capability and
capacity requirements needed by federal, state and local law enforcement to
preserve their electronic surveillance capabilities. PCS carriers must comply
with the current industry CALEA capability standard (known as J-STD-025) by June
30, 2000, and with recently adopted additions by September 30, 2001. PCS
carriers must comply with the CALEA capacity requirements by March 12, 2001. At
present, most PCS carriers are ineligible for federal reimbursement for the
software and hardware upgrades necessary to comply with the CALEA capability and
capacity requirements, but several bills pending in Congress may expand
reimbursement rights if they are enacted. In addition, the Federal Bureau of
Investigation has been discussing with the industry options for reducing or
waiving CALEA compliance requirements in geographic areas with minimal or
nonexistent electronic surveillance needs.
In addition, the FCC is considering petitions from numerous parties to
establish and implement technical compliance standards pursuant to CALEA
requirements.
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OTHER FEDERAL REGULATIONS
Wireless systems must comply with FCC and FAA regulations regarding the
siting, lighting and construction of transmitter towers and antennas. In
addition, FCC environmental regulations may cause some base station locations to
become subject to regulation under the National Environmental Policy Act. The
FCC is required to implement the Act by requiring carriers to meet land use and
radio frequency standards.
REVIEW OF UNIVERSAL SERVICE REQUIREMENTS
The FCC and the states are required to establish a "universal service"
program to ensure that affordable, quality telecommunications services are
available to all Americans. Sprint PCS is required to contribute to the federal
universal service program as well as existing state programs. The FCC has
determined that the Sprint PCS's "contribution" to the federal universal service
program is a variable percentage of "end-user telecommunications revenues."
Although many states are likely to adopt a similar assessment methodology, the
states are free to calculate telecommunications service provider contributions
in any manner they choose as long as the process is not inconsistent with the
FCC's rules. At the present time it is not possible to predict the extent of the
Sprint PCS total federal and state universal service assessments or its ability
to recover from the universal service fund.
PARTITIONING; DISAGGREGATION
The FCC has modified its rules to allow broadband PCS licensees to
partition their market areas and/or to disaggregate their assigned spectrum and
to transfer partial market areas or spectrum assignments to eligible third
parties.
WIRELESS FACILITIES SITING
States and localities are not permitted to regulate the placement of
wireless facilities so as to "prohibit" the provision of wireless services or to
"discriminate" among providers of those services. In addition, so long as a
wireless system complies with the FCC's rules, states and localities are
prohibited from using radio frequency health effects as a basis to regulate the
placement, construction or operation of wireless facilities. The FCC is
considering numerous requests for preemption of local actions affecting wireless
facilities siting.
EQUAL ACCESS
Wireless providers are not required to provide equal access to common
carriers for toll services. However, the FCC is authorized to require unblocked
access to toll carriers subject to certain conditions.
STATE REGULATION OF WIRELESS SERVICE
Section 332 of the Communications Act preempts states from regulating the
rates and entry of commercial mobile radio service providers. Section 332 does
not prohibit a state from regulating the other terms and conditions of
commercial mobile services, including consumer billing information and
practices, billing disputes and other consumer protection matters. However,
states may petition the FCC to regulate those providers and the FCC may grant
that petition if the state demonstrates that (1) market conditions fail to
protect subscribers from unjust and unreasonable rates or rates that are
unjustly or unreasonably discriminatory, or (2) when commercial mobile radio
service is a replacement for landline telephone service within the state. To
date, the FCC has granted no such petition. To the extent we provide fixed
wireless service, we may be subject to additional state regulation.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summarizes all of the material terms and provisions of our
capital stock as they are contemplated to be as of the closing of this offering.
We have shares of authorized capital stock, including shares
of common stock, par value $ per share and shares of
preferred stock, par value $ per share. As of , assuming the
reorganization of our business form into a holding company structure, and the
simultaneous exchange of limited liability company membership interests into
shares of common stock, there were shares of common stock and
shares of preferred stock issued and outstanding. As of that date,
there would have been approximately holders of record of the
outstanding shares of common stock.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have any
cumulative rights. Subject to the rights of the holders of any series of
preferred stock, holders of common stock are entitled to receive ratably those
dividends as may be declared by the board of directors out of funds legally
available therefor. However, our credit agreement with Nortel prohibits the
payment of dividends of common stock. Holders of shares of common stock have no
preemptive, conversion, redemption, subscription or similar rights. All shares
of common stock, when validly issued and fully paid, will be non-assessable. If
we liquidate, dissolve or wind up, the holders of shares of common stock are
entitled to share ratably in the assets which are legally available for
distribution, if any, remaining after the payment or provision for the payment
of all debts and other liabilities and the payment and setting aside for payment
of any preferential amount due to the holders of shares of any series of
preferred stock.
PREFERRED STOCK
Under our certificate of incorporation, the board of directors is
authorized, subject to limitations prescribed by law, without further
stockholder approval, from time to time to issue up to an aggregate of
shares of preferred stock. The preferred stock may be issued in one or
more series. Each series may have different rights, preferences and designations
and qualifications, limitations and restrictions that may be established by our
board of directors without approval from the stockholders. These rights,
designations and preferences include:
- number of shares to be issued;
- dividend rights;
- dividend rates;
- right to convert the preferred shares into a different type of security;
- voting rights attributable to the preferred shares;
- right to set aside an amount of assets for payment relating to the
preferred shares; and
- prices to be paid upon redemption of the preferred shares or a bankruptcy
type event.
If our board of directors decides to issue any preferred stock, it may
discourage or make more difficult a merger, tender offer, business combination
or proxy contest, assumption of control by a holder of a large block of our
securities or the removal of incumbent management, even if these events were
favorable to the interests of stockholders. The board of directors, without
stockholder approval, may issue preferred stock with voting and conversion
rights and dividend and liquidation preferences which may adversely affect the
holders of common stock.
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WARRANTS
As additional consideration to Nortel for its financing commitment, we are
required to issue to Nortel warrants for 2% of our total equity as of the
closing date, on a fully-diluted basis. The warrants will be issued and will be
exercisable by Nortel on the second anniversary of the closing date, unless,
prior to that date, (1) we contribute $75.0 million of equity to Alamosa PCS,
Inc., which is used to prepay any loans under the Nortel Facility, (2) Nortel
assigns $75.0 million of the loans to unrelated lenders, (3) there is a
combination of loan prepayments and assignment of the loans to unrelated lenders
totaling at least $100.0 million or (4) Alamosa PCS, Inc. has a ratio of senior
debt to total capitalization of .40 to 1.0 or less for two consecutive calendar
quarters prior to the second anniversary of the closing date. The exercise price
for the warrants will be the price paid for our common stock in this offering.
Nortel may not transfer any of its rights with respect to the warrants before
the first anniversary of the closing date, and any warrants transferred before
the second anniversary of the closing date will be subject to the provisions
preventing exercise of the warrants.
Nortel is entitled to multiple demand registration rights and unlimited
piggyback registration rights of the common stock warrants.
DELAWARE LAW AND SELECTED CHARTER, BYLAW AND SPRINT PCS AGREEMENT PROVISIONS
The acquisition of Alamosa by means of a tender offer, a proxy contest or
otherwise and the removal of incumbent officers and directors may be more
difficult due to provisions of Delaware law. These provisions are expected to
discourage types of coercive takeover practices and inadequate takeover bids and
to encourage persons seeking to acquire control of Alamosa to first negotiate
with us. We believe the increased protection of our potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire
or restructure Alamosa outweighs the disadvantages of discouraging these
proposals because, among other things, negotiation of these proposals could
result in an improvement of the terms of any of these proposals.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law (the DGCL). In general, the statute prohibits us from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date that the person became an interested stockholder,
unless:
- prior to the date of the business combination, the transaction is
approved by the board of directors;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of our outstanding voting stock; or
- on or after that date, the business combination is approved by the board
of directors and by the affirmative vote of at least 66 2/3% of our
outstanding voting stock that is not owned by the interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the stockholder. Subject
to certain exceptions, an "interested stockholder" is a person who, together
with that person's affiliates and associates, owns or within the previous three
years, did own 15% or more of our voting stock.
Our certificate of incorporation and bylaws provide for the division of the
board of directors into three classes, as nearly equal in size as possible, with
each class beginning its three year term in a different year. Our certificate of
incorporation also provides that only the board of directors may fix the number
of directors and that a stockholder may nominate directors only if the
stockholder delivers written notice to us 60 days in advance of an annual
meeting, or within ten days after the date of notice or our public disclosure of
a special meeting, involving the election of directors. The certificate also
provides that any newly created directorship resulting from an increase in the
number of directors or a vacancy on the board of directors may only be filled by
vote of a majority of the remaining directors then in office, even if less than
a quorum. Directors elected to fill a vacancy or by reason of an increase in the
number of directors
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will hold office until the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires. Directors may be
removed from office only for cause and only by the affirmative vote of
two-thirds of the then outstanding shares of stock entitled to vote on the
matter.
The provisions described above could make it more difficult for a third
party to acquire control of Alamosa and, furthermore, could discourage a third
party from making any attempt to acquire control of Alamosa.
Our certificate of incorporation provides that any action required or
permitted to be taken by the stockholders of Alamosa may be taken only at a duly
called annual or special meeting of the stockholders, and may not be taken by
written consent of the stockholders. Special meetings may be called only by
resolution adopted by a majority of the board of directors, or as otherwise
provided in the bylaws. These provisions could have the effect of delaying until
the next annual stockholders meeting stockholder actions that are favored by the
holders of a majority of the outstanding voting securities. These provisions may
also discourage another person or entity from making an offer to stockholders
for the common stock. This is because the person or entity making the offer,
even if it acquired a majority of the outstanding voting securities of Alamosa,
would be unable to call a special meeting of the stockholders and would further
be unable to obtain unanimous written consent of the stockholders. As a result,
any meeting as to matters they endorse, including the election of new directors
or the approval of a merger, would have to wait for the next duly called
stockholders meeting.
The DGCL provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or bylaws, unless the corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. Our
certificate of incorporation requires the affirmative vote of the holders of at
least two-thirds of the outstanding voting stock to amend or repeal any of the
provisions of the certificate of incorporation described above. The two-thirds
vote is also required to amend or repeal any of our bylaw provisions described
above. The bylaws may also be amended or repealed by the board of directors. The
two-thirds stockholder vote would be in addition to any separate vote that each
class of preferred stock is entitled to that might in the future be required in
accordance with the terms of any preferred stock that might be outstanding at
the time any amendments are submitted to stockholders.
The foregoing provisions, together with the ability of the board of
directors to issue preferred stock without further stockholder action, may delay
or frustrate the removal of incumbent directors or the completion of
transactions that would be beneficial, in the short term, to our stockholders.
The provisions may also discourage or make more difficult a merger, tender
offer, other business combination or proxy contest, the assumption of control by
a holder of a large block of our securities or the removal of incumbent
management, even if these events would be favorable to the interests of our
stockholders.
Pursuant to the Sprint PCS Agreements, under specific circumstances and
without further stockholder approval, Sprint PCS may purchase our operating
assets or capital stock for 72% or 80% of the "entire business value" of
Alamosa, which includes the value of the spectrum licenses, business operations
and other assets more fully described in "The Sprint PCS Agreements -- The
Management Agreement -- Determination of Entire Business Value." In addition,
Sprint PCS must approve any change of control of our ownership and consent to
any assignment of the Sprint PCS Agreements. Sprint PCS has a right of first
refusal if we decide to sell our operating assets to a third party. We are also
subject to a number of restrictions on the transfer of our business including a
prohibition on the sale of Alamosa or our operating assets to competitors of
Sprint or Sprint PCS. These restrictions and other restrictions in the Sprint
PCS Agreements may limit our ability to sell the business and may have a
substantial anti-takeover effect.
The certificate of incorporation and bylaws require us to indemnify our
directors and officers to the fullest extent permitted by law. In addition, as
permitted by the DGCL, the certificate of incorporation and bylaws provide that
no director will be liable to us or our stockholders for monetary damages for
breach of certain fiduciary duties as a director. The effect of this provision
is to restrict our rights and the
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rights of our stockholders in derivative suits to recover monetary damages
against a director for breach of certain fiduciary duties as a director, except
that a director will be personally liable for:
- acts or omissions not in good faith for which involve intentional
misconduct or a knowing violation of law;
- the payment of dividends or the redemption or purchase of stock in
violation of the DGCL;
- any breach of the duty of loyalty to us or our stockholders; or
- any transaction from which the director derived an improper personal
benefit.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
LISTING
Application will be made to list the shares of common stock on the Nasdaq
National Market under the symbol "APCS."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect market prices of the common stock prevailing from time to time.
Furthermore, because only a limited number of shares will be available for sale
shortly after the consummation of this offering due to contractual and legal
restrictions on resale, as described below, sales of substantial amounts of
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price of the common stock and our ability to raise
equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and based upon the number of shares outstanding as of
, 1999. Of these shares, all of the shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by our affiliates may generally
only be sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES; OPTIONS
All of the shares of common stock sold in this offering will be freely
tradeable under the Securities Act, unless purchased by our "affiliates," as the
Securities Act defines that term. In general, under Rule 144 as currently in
effect, a person or persons whose shares are aggregated, including an affiliate,
who has beneficially owned restricted stock for at least one year is entitled to
sell, within any three-month period, a number of shares of stock that does not
exceed the greater of:
- one percent of the then outstanding shares of common stock, or
- the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of that sale is filed.
In addition, under Rule 144(k), a person who is not an affiliate and has
not been an affiliate for at least three months prior to the sale and who has
beneficially owned shares of restricted stock for at least two years may resell
those shares without compliance with the foregoing requirements. In meeting the
one and two year holding periods described above, a holder of restricted stock
can include the holding periods of prior owners who were not an affiliate.
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Additional shares of common stock are available for future grants under our
1999 Omnibus Securities Plan. See "Management -- Benefit Plans -- 1999 Omnibus
Securities Plan." We intend to file one or more registration statements on Form
S-8 under the Securities Act to register all shares of common stock subject to
outstanding stock options and common stock issuable pursuant to our benefit
plans that do not qualify for an exemption under Rule 701 from the registration
requirements of the Securities Act. We expect to file these registration
statements as soon as practicable following the closing of this offering, and
these registration statements are expected to become effective upon filing.
Shares covered by these registration statements will be eligible for sale in the
public markets subject to the lock-up agreements, to the extent applicable.
LOCK-UP AGREEMENTS
We and all of our current stockholders, members of senior management and
directors have agreed, pursuant to the lock-up agreements that, during the
period beginning from the date of this prospectus and continuing and including
the date 180 days after the date of this prospectus, they will not, directly or
indirectly offer, pledge, sell, contract to sell, grant any option, right or
warrant to purchase, or otherwise dispose of any shares of common stock,
including but not limited to any common stock or securities convertible into or
exercisable or exchangeable for common stock which may be deemed to be
beneficially owned in accordance with the rules and regulations of the
Securities and Exchange Commission or enter into any swap or other agreement
that transfers, in whole or in part, the economic consequence of ownership of
common stock, or make any demand for, or exercise and right with respect to, the
registration of common stock or any securities convertible into or exercisable
or exchangeable for common stock, without the prior written consent of Salomon
Smith Barney Inc.
Following the lock-up period, shares of common stock will become
eligible for sale, subject to compliance with Rule 144 of the Securities Act as
described above.
IMPORTANT UNITED STATES FEDERAL TAX CONSEQUENCES
OF OUR COMMON STOCK TO NON-U.S. HOLDERS
This is a general discussion of United States federal tax consequences of
the acquisition, ownership, and disposition of our common stock by a holder
that, for U.S. federal income tax purposes, is not a U.S. person as we define
that term below. A holder of our common stock who is not a U.S. person is a
non-U.S. holder. We assume in the discussion that you will hold our common stock
issued pursuant to the offering as a capital asset (generally, property held for
investment). We do not discuss all aspects of U.S. federal taxation that may be
important to you in light of your individual investment circumstances, such as
special tax rules that would apply to you, for example, if you are a dealer in
securities, financial institution, bank, insurance company, tax-exempt
organization, partnership or owner of more than 5% of our common stock. Our
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended, Treasury regulations, judicial opinions, published positions of the
U.S. Internal Revenue Service and other applicable authorities, all as in effect
on the date of this prospectus and all of which are subject to differing
interpretations or change, possibly with retroactive effect. We have not sought,
and all not seek, any ruling from the IRS with respect to the tax consequences
discussed in this prospectus, and there can be no assurance that the IRS will
not take a position contrary to the tax consequences discussed below or that any
position taken by the IRS would not be sustained. We urge you to consult your
tax advisor about the U.S. federal tax consequences of acquiring, holding, and
disposing of our common stock, as well as any tax consequences that may arise
under the laws of any foreign, state, local, or other taxing jurisdiction.
For purposes of this discussion, a U.S. person means any one of the
following:
- a citizen or resident of the U.S.
- a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of the
U.S.
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- an estate, the income of which is includable in gross income for U.S.
federal income tax purposes regardless of its source
- a trust, the administration of which is subject to the primary
supervision of a U.S. court and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust
DIVIDENDS
Dividends paid to a non-U.S., holder will generally be subject to
withholding of U.S. federal income tax at the rate of 30%. If, however, the
dividend is effectively connected with the conduct of a trade or business in the
U.S. by the non-U.S. holder, the dividend will be subject to U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax. Non-U.S. holders should consult any applicable income tax treaties
that may provide for a reduction of, or exemption from, withholding taxes. For
purposes of determining whether tax is to be withheld at a reduced rate as
specified by a treaty, we generally will presume that dividends we pay on or
before December 31, 2000, to an address in a foreign country are paid to a
resident of that country.
Under recently finalized Treasury regulations, which in general apply to
dividends that we pay after December 31, 2000, to obtain a reduced rate of
withholding under a treaty, a non-U.S. holder generally will be required to
provide certification as to that non-U.S. holder's entitlement to treaty
benefits. These regulations also provide special rules to determine whether, for
purposes of applying a treaty, dividends that we pay to a non-U.S. holder that
is an entity should be treated as paid to holders of interests in that entity.
GAIN ON DISPOSITION
A non-U.S. holder will generally not be subject to United States federal
income tax, including by way of withholding, on gain recognized on a sale or
other disposition of our common stock unless any one of the following is true:
- the gain is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder
- the non-U.S. holder is a nonresident alien individual present in the U.S.
for 183 or more days in the taxable year of the disposition and other
requirements are met
- the non-U.S. holder is subject to tax pursuant to provisions of the U.S.
federal income tax law applicable to certain U.S. expatriates
- we are or have been during certain periods a "United States real property
holding corporation" for U.S. federal income tax purposes
If we are or have been a United States real property holding corporation, a
non-U.S. holder will generally not be subject to U.S. federal income tax on gain
recognized on a sale or other disposition of our common stock provided that:
- the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding common
stock and
- our common stock is and continues to be traded on an established
securities market for U.S. federal income tax purposes
We believe that our common stock will be traded on an established securities
market for this purpose in any quarter during which it is included for quotation
on the Nasdaq National Market.
If we are or have been during certain periods a U.S. real property holding
corporation and the above exception does not apply, a non-U.S. holder will be
subject to U.S. federal income tax with respect to gain
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realized on any sale or other disposition of our common stock as well as to a
withholding tax, generally at a rate of 10% of the proceeds. Any amount withheld
pursuant to a withholding tax will be credible against a non-U.S. holder's
federal income tax liability.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder will be subject to the U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax, but will generally not be subject to withholding. Non-U.S. holders
should consult any applicable income tax treaties that may provide for different
rules.
UNITED STATES FEDERAL ESTATE TAXES
Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the U.S., as specially defined for U.S. federal
estate tax purposes, on the date of that person's death will be included in his
or her estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends. This information may also be made available to the
tax authorities of a country in which the non-U.S. holder resides.
Under current U.S. Treasury regulations, U.S. information reporting
requirements and backup withholding tax will generally no apply to dividends
that we pay on our common stock to a non-U.S. holder at an address outside the
U.S. Payments of the proceeds of a sale or other taxable disposition of our
common stock by a U.S. office or a broker are subject to both backup withholding
at a rate of 31% and information reporting, unless the holder certifies as to
its non-reporting requirements, but not backup withholding tax, will also apply
to payments of the proceeds of a sale or other taxable disposition of our common
stock by foreign offices of U.S. brokers or foreign brokers with certain types
of relationships to the U.S., unless the broker has documentary evidence in its
records that the holder is a non-U.S. holder and certain other conditions are
met or the holder otherwise established an exemption.
Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS.
The U.S. Treasury Department has promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
those regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify reliance standards. The final regulations are generally
effective for payments made after December 31, 2000, subject to transition
rules.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and Alamosa has agreed to sell to the underwriter, the number of
shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
Salomon Smith Barney Inc....................................
Credit Suisse First Boston Corporation......................
Deutsche Bank Securities Inc................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation and Deutsche Bank Securities Inc. are acting as
representatives, propose to offer some of the shares directly to the public at
the public offering price set forth on the cover page of this prospectus and
some of the shares to selected dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share on sales
to other dealers. If all of the shares are not sold at the initial offering
price, the representatives may change the public offering price and the other
selling terms. The representatives have advised Alamosa that the underwriters do
not intend to confirm any sales to any accounts over which they exercise
discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter will be obligated, subject to specified
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment.
We, our officers and directors, and some of our other stockholders have
agreed that, for a period of 180 days from the date of this prospectus, we and
they will not, without the prior written consent of Salomon Smith Barney Inc.,
offer, sell, contract to sell, pledge, assign or otherwise dispose of or hedge
any shares of common stock of Alamosa or any securities convertible into or
exchangeable for common stock. Salomon Smith Barney Inc. in its sole discretion
may release any of the securities subject to these lock-up agreements at any
time without notice.
At our request, Salomon Smith Barney Inc. reserved up to approximately %
of the shares being offered (Directed Shares) for sale at the initial public
offering price to persons who are directors, officers or our employees, or who
are otherwise associated with us and our affiliates or employees, and who have
advised us of their desire to purchase these shares. The number of shares of
common stock available for sale to the general public will be reduced to the
extent of sales of Directed Shares to any of the persons for whom they have been
reserved. Any shares not so purchased will be offered by the underwriters on the
same basis as all other shares of common stock offered hereby. We have agreed to
indemnify the underwriters against specified liabilities and expenses, including
liabilities under the Securities Act of 1933, in connection with the sales of
the Directed Shares.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were our record of
operations, our current financial condition, our future prospects, our markets,
the economic conditions in and future
84
<PAGE> 89
prospects for the industry in which we compete, our management, and currently
prevailing general conditions in the equity securities markets, including
current market valuations of publicly traded companies considered comparable to
us. There can be no assurance, however, that the prices at which the shares will
sell in the public market after this offering will not be lower than the price
at which they are sold by the underwriters or that an active trading market in
the common stock will develop and continue after this offering.
We will apply to have the common stock included for quotation on the Nasdaq
National Market under the symbol "APCS."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
PAID BY ALAMOSA
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................... $ $
Total............................................. $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
We estimate that the total expenses of this offering will be $ .
The representatives may, from time to time, engage in transactions with and
perform services for us in the ordinary course of their business.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of common
stock offered hereby will be passed upon for Alamosa by Haynes and Boone, LLP,
Dallas, Texas and for the underwriters by Cravath, Swaine & Moore.
85
<PAGE> 90
EXPERTS
The financial statements of Alamosa PCS, LLC as of December 31, 1998, and
for the period from inception, July 16, 1998, to December 31, 1998, have been
included herein and in the registration statement in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, appearing elsewhere herein,
given on authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The prospectus constitutes a part of the registration statement on Form S-1
(together with all amendments, supplements, schedules and exhibits to the
registration statement, referred to as the registration statement) which we have
filed with the Securities and Exchange Commission with respect to the common
stock offered in this prospectus. This prospectus does not contain all of the
information in the registration statement. For further information about us and
our securities, see the registration statement and its exhibits. This prospectus
contains a description of the material terms and features of some material
contracts, reports or exhibits to the registration statement required to be
disclosed. However, as the descriptions are summaries of the contracts, reports
or exhibits, we urge you to refer to the copy of each material contract, report
and exhibit attached to the registration statement. Copies of the registration
statement and the exhibits to the registration statement, as well as the
periodic reports, proxy statements and other information we will file with the
Securities and Exchange Commission, may be examined without charge in the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W. Room 1024, Washington, DC 20549, and the Securities and Exchange
Commission's regional offices located at 500 West Madison Street, Suite 1400,
Chicago, IL 60661, and 7 World Trade Center, 13th Floor, New York, NY 10048 or
on the Internet at http://www.sec.gov. You can get information about the
operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. Copies of all or a portion of the registration
statement can be obtained from the Public Reference Section of the Securities
and Exchange Commission upon payment of prescribed fees. In addition, the
Securities and Exchange Commission maintains a Web site which provides online
access to periodic reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission at the address http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will be
required to file periodic reports, proxy statements and other information with
the Securities and Exchange Commission. We will send an annual report to
shareholders and any additional reports or statements required by the Securities
and Exchange Commission. The annual report to shareholders will contain
financial information that has been examined and reported on, with an opinion
expressed by an independent public accountant.
86
<PAGE> 91
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet as of December 31, 1998....................... F-3
Statement of Operations for the period July 16, 1998,
(inception), through December 31, 1998.................... F-4
Statement of Members' Equity for the period July 16, 1998,
(inception), through December 31, 1998.................... F-5
Statement of Cash Flows for the period July 16, 1998,
(inception), through December 31, 1998.................... F-6
Notes to Financial Statements............................... F-7
Unaudited Balance Sheets as of June 30, 1999................ F-18
Unaudited Statement of Operations for the six-month period
ended June 30, 1999....................................... F-19
Unaudited Statement of Cash Flows for the six-month period
ended June 30, 1999....................................... F-20
Notes to Unaudited Financial Statements..................... F-21
</TABLE>
F-1
<PAGE> 92
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and
Members of Alamosa PCS LLC:
In our opinion, the accompanying balance sheet and the related statements
of operations, members' equity and cash flows present fairly, in all material
respects, the financial position of Alamosa PCS LLC (a development stage
enterprise) at December 31, 1998, and the results of its operations and its cash
flows for the period from July 16, 1998 (inception) through December 31, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
March 31, 1999, except as to the information presented in
Notes 7, 10 and 11 for which the date is October 25, 1999.
F-2
<PAGE> 93
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents................................... $13,529,077
Prepaid expenses and other assets........................... 52,046
-----------
Total current assets.............................. 13,581,123
Construction in progress.................................... 1,978,770
Property and equipment, net................................. 113,992
-----------
Total assets...................................... $15,673,885
===========
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued expenses....................... $ 395,355
Payable to related parties.................................. 450,496
Current installments of capital leases...................... 20,145
Notes payable............................................... 23,637
-----------
Total current liabilities......................... 889,633
Capital lease obligations, noncurrent....................... 708,074
-----------
Total liabilities................................. 1,597,707
Commitments and contingencies
Members' equity............................................. 14,076,178
-----------
Total liabilities and members' equity............. $15,673,885
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 94
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 16, 1998 (INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Costs and expenses:
Selling, general and administrative expenses.............. $ 949,445
General and administrative expenses-related parties....... 6,886
Depreciation expense...................................... 2,063
-----------
Total costs and expenses.......................... 958,394
-----------
Loss from operations...................................... (958,394)
Interest income............................................. 34,589
Interest expense............................................ (17)
-----------
Net loss.......................................... (923,822)
Deficit accumulated during the development stage, beginning
of period................................................. --
-----------
Deficit accumulated during the development stage, end of
period.................................................... $ (923,822)
-----------
Basic and diluted net loss per common share (unaudited)..... $ (0.02)
===========
Pro forma basic and diluted weighted average common shares
outstanding (unaudited)................................... 40,000,000
===========
Pro forma information (unaudited):
Net loss.................................................. (923,822)
Pro forma income tax adjustment:
Income tax benefit..................................... 317,592
Deferred tax valuation allowance....................... (317,592)
-----------
Pro forma net loss........................................ $ (923,822)
===========
Basic and diluted proforma net loss per common share...... $ (0.02)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 95
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD JULY 16, 1998 (INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
YELLOW
ALAMO IV ROSEWOOD WEST TX TREGAN LONGMONT ROCK TOTAL
---------- ---------- ---------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 16, 1998
(inception)...................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Members' contributions......... 8,443,944 3,007,732 2,187,500 927,835 309,278 123,711 15,000,000
Net loss....................... (520,047) (185,240) (134,724) (57,144) (19,048) (7,619) (923,822)
---------- ---------- ---------- -------- -------- -------- -----------
Balance, December 31, 1998....... $7,923,897 $2,822,492 $2,052,776 $870,691 $290,230 $116,092 $14,076,178
========== ========== ========== ======== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 96
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD JULY 16, 1998 (INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (923,822)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation........................................... 2,063
Changes in assets and liabilities:
Prepaid expenses and other assets.................... (52,046)
Accounts payable and accrued expenses................ 395,355
Payable to related parties........................... 450,496
-----------
Net cash used in operating activities............. (127,954)
-----------
Cash flows from investing activities:
Additions to construction in progress..................... (1,250,551)
Additions to property and equipment....................... (92,418)
-----------
Net cash used in investing activities............. (1,342,969)
-----------
Cash flows from financing activities:
Members' contributions.................................... 15,000,000
-----------
Net cash provided by financing activities......... 15,000,000
-----------
Increase in cash and cash equivalents....................... 13,529,077
Cash and cash equivalents, beginning of period.............. --
-----------
Cash and cash equivalents, end of period.................... $13,529,077
===========
Supplemental disclosure -- interest paid.................... $ --
===========
Supplemental disclosure of noncash activities:
Liabilities assumed in connection with asset purchase..... $ 23,637
===========
Capital lease obligations incurred........................ $ 728,219
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 97
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS OPERATIONS
Alamosa PCS LLC (the "Company" or "Alamosa") was formed in July 1998 as a
Texas limited liability company. In July, 1998, Alamosa entered into affiliation
agreements (the "Agreements") with Sprint Spectrum L.P. and SprintCom, Inc.,
entities controlled by the PCS Group of Sprint Corporation, ("Sprint PCS"). The
Agreements provide Alamosa with the exclusive right to build, own and manage a
wireless voice and data services network in certain basic trading areas ("BTAs")
located in Texas, New Mexico, Arizona, and Colorado under the Sprint PCS brand.
Alamosa is required to build out the wireless network according to Sprint PCS
specifications. The Agreements are in effect for a term of 20 years with three
10-year renewal options unless terminated by either party under provisions
outlined in the agreement. The Agreements include certain indemnification
clauses including an agreement between Alamosa and Sprint to indemnify each
other against claims arising from violations of laws or the Agreements except
for any liabilities resulting from negligence or willful misconduct of the party
seeking to be indemnified.
Alamosa is currently in the development stage. This stage is characterized
by significant expenditures for the design and construction of the wireless
network. Management currently estimates network build-out expenditures of
approximately $142 million, including site acquisition, design, construction,
equipment, and capitalized interest costs, through 2003. These expenditures will
be funded through additional member contributions of $33.5 million and a
financing agreement with Northern Telecom, Inc. ("Nortel") of $123 million.
Alamosa has signed an agreement with a related party for the provision of
engineering services related to the network build-out. Once the initial
build-out is completed within a BTA, the Company's focus will be the development
of the Sprint PCS subscriber base within that BTA. The successful implementation
of the Company's business strategy is dependent upon receipt of the financing
described above as well as the development of a sufficient subscriber base.
The Regulations of the Company, as amended, provide for the governance and
administration of the Company's business, allocation of profits and losses, tax
allocations, transactions with partners, disposition of ownership interest and
other matters. The Regulations establish two classes of membership interests.
Class I members have full voting rights and full benefits of ownership of the
Sprint PCS share of the Company. Class II members consist of additional
non-voting share interests of the Company which the Board of Managers may
authorize to be distributed to employees of the Company under an incentive bonus
plan.
The Regulations generally provide for the allocation of profits and losses
pro-rata based on the proportion that a percentage interest of a member bears to
the aggregate percentage interests of all members, as defined in the
Regulations.
The members of the Company have the following class I ownership interests
as of December 31, 1998:
<TABLE>
<S> <C>
Alamo IV, LLC............................................. 56.2930%
Rosewood Telecommunications, L.L.C........................ 20.0515%
West Texas PCS, LLC....................................... 14.5833%
Tregan International Corp................................. 6.1856%
Longmont PCS, LLC......................................... 2.0619%
Yellow Rock PCS, L.P...................................... 0.8247%
</TABLE>
F-7
<PAGE> 98
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
Cash and cash equivalents
Cash and cash equivalents include cash, money market funds, and commercial
paper with minimal interest rate risk and original maturities of three months or
less at the date of acquisition. The carrying amount approximates fair value.
Inventory
Inventory will consist of handsets and related accessories. Inventories
purchased for resale will be carried at the lower of cost (determined using
weighted average) or market. Market will be determined using replacement cost in
accordance with industry standards.
Microwave relocation
Microwave relocation includes costs incurred to relocate incumbent
microwave frequencies in Alamosa's service area. Microwave relocation costs are
amortized on a straight-line basis over 20 years.
Property, equipment, and construction in progress
Property and equipment are reported at cost less accumulated depreciation.
Construction in progress represents costs incurred to design and construct the
wireless network. Repair and maintenance costs are charged to expense as
incurred; significant renewals and betterments are capitalized.
When depreciable assets are retired or otherwise disposed of, the related
costs and accumulated depreciation are removed from the respective accounts, and
any gains or losses on disposition are recognized in income. Impairment losses
are recognized in operating income, as they are determined. The Company
periodically reviews its property and equipment to determine if its carrying
cost will be recovered from future operating cash flows. In cases when the
Company does not expect to recover its carrying cost, the Company recognizes an
impairment loss. No such losses have been recognized to date.
Property and equipment are depreciated using the straight-line method based
on estimated useful lives of the assets.
Asset lives are as follows:
<TABLE>
<S> <C>
Buildings................................................ 20 years
Network equipment........................................ 10 years
Vehicles................................................. 5 years
Furniture and office equipment........................... 5-7 years
</TABLE>
Leasehold improvements are depreciated over the shorter of the remaining
term of the lease or the estimated useful life of the improvement.
Interest will be capitalized in connection with the construction of the
wireless network. The capitalized interest will be recorded as part of the asset
to which it relates and will be amortized over the asset's estimated useful
life. No interest was capitalized in 1998.
Software costs
Initial operating systems software is capitalized and amortized using the
straight-line method, generally over a period of three years. Capitalized
software of approximately $11,546 at December 31,
F-8
<PAGE> 99
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1998 is recorded in property and equipment. The Company amortized computer
software costs of approximately $841 for the period July 16, 1998 through
December 31, 1998.
Start-up costs
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This statement is effective January 1, 1999
and requires that costs of start up activities and organization costs be
expensed as incurred.
The Company has expensed start-up and organization costs as incurred. The
adoption of this statement will have no effect on the Company's financial
position or results of operations.
Advertising costs
Advertising costs are expensed as incurred. Advertising expenses totaled
approximately $2,100 during 1998. Advertising costs will include handset subsidy
expenses representing the excess of the cost of handsets over the retail sales
price.
Income taxes
At December 31, 1998, Alamosa is organized as a Texas limited liability
company. Therefore, the results of operations of the Company are included in the
income tax returns of its members. Accordingly, no provision for income taxes is
recorded in the accompanying financial statements.
Revenue recognition
The Company will recognize revenue as services are performed. Sprint PCS
will handle Alamosa's billings and collections and will retain 8% of collected
service revenues from Sprint PCS subscribers based in Alamosa's territory and
from non-Sprint PCS subscribers who roam onto Alamosa's network. The amount
retained by Sprint will be recorded as an operating expense. Revenues generated
from the sale of handsets and accessories and from roaming services provided to
Sprint PCS customers who are not based in Alamosa's territory are not subject to
the 8% retainage.
Sprint PCS will pay Alamosa a Sprint PCS roaming fee for each minute that a
Sprint PCS subscriber based outside of Alamosa's territory roams on Alamosa's
portion of the Sprint PCS network. Revenue from these services will be
recognized as the services are performed. Similarly, Alamosa will pay Sprint PCS
roaming fees to Sprint PCS, when a Sprint PCS subscriber based in Alamosa's
territory roams on the Sprint PCS network outside of Alamosa's territory. These
costs will be included as cost of sales when incurred.
Product revenues consisting of proceeds from sales of handsets and
accessories will be recorded net of an allowance for sales returns. The
allowance will be estimated based on Sprint's handset return policy which allows
customers to return handsets for a full refund within 30 days of purchase. When
handsets are returned to Alamosa, the Company may be able to reissue the
handsets to customers at little additional cost. However, when handsets are
returned to Sprint PCS for refurbishing, Alamosa will receive a credit from
Sprint PCS, which is less than the amount the Company originally paid for the
handset.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities on the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
F-9
<PAGE> 100
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Risks and uncertainties
Emergence from the development stage is dependent upon successful
implementation of the Company's business strategy and development of a
sufficient subscriber base. The Company will continue to incur significant
expenditures in connection with expanding and improving its operations. The
members have entered into agreements (Regulations of the Company and the Capital
Contribution Agreement executed in conjunction with obtaining financing
described in Note 10) which contractually obligate them to provide remaining
financial support through December 2000 totaling $33.5 million.
Concentration of risk
The Company maintains cash and cash equivalents in accounts with a
financial institution in excess of the amount insured by the Federal Deposit
Insurance Corporation. The Company monitors the financial stability of this
institution regularly and management does not believe there is significant
credit risk associated with deposits in excess of federally insured amounts.
Effects of recent accounting pronouncements
In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") and Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). These Statements require companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedging
accounting. SFAS 133 will be effective for Alamosa's fiscal year ending December
31, 2001. Management believes that the adoption of these statements will not
have a significant impact on the Company's financial results.
The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities," in April
1998. Effective for financial statements for fiscal years beginning after
December 15, 1998, SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. Start-up activities are defined
as those one-time activities related to opening a new facility, introducing a
new product or service, conducting business in a new territory, conducting
business with a new class of customer or beneficiary, initiating a new process
in an existing facility, or commencing some new operation. The Company has not
capitalized any expenses with such characteristics for financial reporting
purposes. Therefore, the Company believes adoption of this SOP will not
materially impact the financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). This statement requires that all items required to be recognized
under accounting standards as components of comprehensive income, be reported in
a financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for financial statement periods
beginning after December 31, 1997. However, in the current year, no items
represent comprehensive income as defined in SFAS No. 130.
3. UNAUDITED PRO FORMA INFORMATION
The unaudited pro forma information reflects certain assumptions regarding
transactions and their effects that would occur as a result of the Offering as
described in Note 11.
F-10
<PAGE> 101
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma income information
The unaudited pro forma information as shown on the statement of operations
is presented to show the effects of income taxes related to the Company's
anticipated termination of its limited liability company status. The unaudited
pro forma income tax adjustment is presented as if the Company had been a C
Corporation subject to federal and state income taxes throughout the periods
presented at an effective tax rate of 34%. Application of the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109") would have resulted in a deferred tax asset primarily from
temporary differences related to the treatment of start-up costs and from net
operating loss carryforwards. The deferred tax asset would have been offset by a
full valuation allowance as there is not currently sufficient positive evidence
as required by SFAS 109 to substantiate recognition of the asset.
The pro forma information is presented for informational purposes only and
is not necessarily indicative of operating results that would have occurred had
the Company elected to terminate its limited liability company status as of the
beginning of each of the periods presented, nor are they necessarily indicative
of future operating results.
Unaudited pro forma net loss per share
Pro forma net loss per share is calculated by dividing pro forma net loss
by the weighted average number of shares of common stock which would have been
outstanding before the Offering after giving effect to the reorganization of the
Company described in Note 11.
Unaudited pro forma weighted average shares outstanding
Unaudited pro forma weighted average shares outstanding is computed after
giving effect to the reorganization of the Company described in Note 11. The
calculation was made in accordance with Statement of Financial Accounting
Standards No. 128. Diluted weighted average shares outstanding exclude the
potential common shares from stock options because inclusion would have been
antidilutive.
4. PROPERTY, EQUIPMENT AND CONSTRUCTION IN PROGRESS
Property and equipment consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Vehicles.................................................. $ 23,637
Furniture and fixtures.................................... 40,399
Computer equipment........................................ 52,019
--------
116,055
Accumulated depreciation.................................. (2,063)
--------
Total........................................... $113,992
========
</TABLE>
Construction in progress consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Engineering fees......................................... $ 900,052
Network equipment........................................ 728,219
Leasehold improvements................................... 350,499
----------
Total.......................................... $1,978,770
==========
</TABLE>
F-11
<PAGE> 102
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
Operating leases
The Company has various operating leases, primarily related to rentals for
towers sites and offices. Rental expense was $15,208 for the period ended
December 31, 1998. At December 31, 1998, the aggregate minimum rental
commitments under noncancelable operating leases for the periods shown are as
follows:
<TABLE>
<S> <C>
YEARS:
1999................................................... $ 196,029
2000................................................... 294,699
2001................................................... 297,064
2002................................................... 299,536
2003................................................... 308,237
2004................................................... 317,310
Thereafter............................................. 1,599,093
----------
Total.......................................... $3,311,968
==========
</TABLE>
Included in total minimum rental commitments is $1,170,210 which will be
paid to related parties.
Capital leases
Capital leases at December 31, 1998 consist of leases for rental of retail
space and switch usage. The net present value of the leases was $728,219 and was
included in construction in progress. No amortization was recorded under these
leases during 1998.
At December 31, 1998, the future payments under capital lease obligations,
less imputed interest, are as follows:
<TABLE>
<S> <C>
YEARS:
1999................................................... $ 79,750
2000................................................... 87,000
2001................................................... 87,000
2002................................................... 87,000
2003................................................... 87,000
2004................................................... 95,250
Thereafter............................................. 917,000
----------
Total minimum lease payments............................. 1,440,000
Less: imputed interest................................... 711,781
----------
Present value of minimum lease payments.................. 728,219
Less: current installments............................... 20,145
----------
Long-term capital lease obligations at December 31,
1998................................................... $ 708,074
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Alamosa has a $500,000 revolving line of credit with Norwest Bank that
expires December 9, 1999. The line of credit has a variable interest rate (8.5%
at December 31, 1998). Proceeds from this line of credit are used to purchase
vehicles for service representatives. As of December 31, 1998, $476,363 remained
available on the line of credit. The vehicles purchased under this line of
credit and all of
F-12
<PAGE> 103
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Alamos's cash and cash equivalents held at Norwest Bank are pledged as
collateral under the terms of the Agreement. No interest amounts were paid
during the period ended December 31, 1998.
On December 21, 1998, Alamosa entered into a three-year agreement with
Nortel for network equipment and infrastructure. Pursuant to the agreement,
Nortel will also provide installation and optimization services, such as network
engineering and radio frequency engineering, for the equipment and grant Alamosa
a nonexclusive license to use the software associated with the Nortel equipment.
As described in Note 10, Alamosa has committed to purchase $82.0 million worth
of equipment and services from Nortel. Nortel will finance these purchases
pursuant to the Nortel credit facility. Under the agreement, Alamosa will
receive a discount on the network equipment and services because of the
Company's affiliation with Sprint PCS, but must pay a 3% premium on any
equipment and services financed by Nortel. If Alamosa's affiliation with Sprint
PCS ends, Nortel has the right to either terminate the agreement or, with
Alamosa's consent modify the agreement to establish new prices, terms and
conditions.
7. RELATED PARTY TRANSACTIONS
Note receivable
On April 23, 1999, the Company entered into a $100,000 loan agreement with
an officer of the Company. The loan matures on April 2014 and accrues interest
at an annual rate of 7.75%.
Agreements with Hicks & Ragland Engineering Co., Inc.
Alamosa has entered into a number of agreements with Hicks & Ragland as
described in more detail below. David Sharbutt, Alamosa's Chairman, Chief
Executive Officer and Chief Financial Officer, was at the time the agreements
were executed the President and Chief Executive Officer of Hicks & Ragland. Mr.
Sharbutt is currently employed as a senior consultant by Hicks & Ragland. Hicks
& Ragland is also affiliated with a membership interest holder of Alamosa.
On July 27, 1998, Alamosa entered into an engineering services contract
with Hicks & Ragland for design and construction inspection services in
connection with the network deployment. The term of the contract covers three
periods through August 2001, though either party may terminate the agreement for
cause before August 2001. A guaranteed maximum fee amount has been set for each
period of the contract, and those fees aggregate to approximately $7.0 million,
excluding taxes. If the total billing for the project is less than the
guaranteed maximum fee, Alamosa will pay an incentive bonus equal to 50% of the
difference. Alamosa paid $902,243 for these services during 1998. Engineering
fees under this agreement are recorded in construction in progress at December
31, 1998 and comprise approximately 72% of construction-related purchases during
1998. At December 31, 1998, amounts payable under these agreements amounted to
$443,610.
Effective September 20, 1998, Alamosa entered into a special services
contract with Hicks & Ragland, to provide marketing and operations consulting
services for a maximum amount of $100,000. Subsequent contracts for marketing,
consulting, business planning and radio frequency "drive testing" were approved
on October 1999, in an aggregate amount of approximately $500,000.
On April 9, 1999, Alamosa entered into a data communications services
contract with H&R Data Com, an affiliate of Hicks & Ragland, to perform design
and implementation services in connection with corporate enterprise wide area
network and local area networks for a maximum fee of $262,040.
As of April 6, 1999, Alamosa entered into a telecommunications service
agreement with Tech Telephone Company Limited Partnership, an affiliate of Hicks
& Ragland, to install and provide DS1 telecommunications lines between Sprint
PCS and Alamosa's Lubbock-based operations and between
F-13
<PAGE> 104
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Alamosa's Lubbock based operations and other markets for an estimated annual
cost of $567,000. The original term of the agreement is three years, but the
agreement automatically renews upon expiration for additional successive 30-day
terms by either party.
As of August 13, 1999, Alamosa entered into a distribution agreement with
TechTel Communications Corporation, an affiliate of Hicks & Ragland, authorizing
it to become a third party distributor of Sprint PCS products and services for
Alamosa in Lubbock.
Agreement with American Tower Corporation
In August 1998, Alamosa entered into a master site development and lease
agreement with Specialty, now a subsidiary of American Tower Corporation.
Pursuant to the agreement, Specialty arranges for collocation of equipment or
constructs new facilities in areas identified for build-out. Specialty provides
site acquisitions, leasing and construction services, and secures zoning,
permitting and surveying approvals and licenses for each base station. This
initial term master agreement expires in August 2003, with automatic renewal for
three additional terms of five years each. The agreement provides for monthly
payments subject to an annual adjustment based on the Consumer Price Index.
Prior to becoming a subsidiary of American Tower Corporation, Specialty was
related to Alamosa through one of Alamosa's directors who owned interests in
both Alamosa and Specialty and was an employee and officer of Specialty and
Specialty's then parent company. In addition, another individual who was one of
Alamosa's directors at the time the agreement was entered into, is a manager of
Longmont PCS, LLC, one of Alamosa's members, is a stockholder of Specialty
Teleconstructors, Inc. and acts as a vice president of American Tower
Corporation. No amounts were paid or outstanding under this agreement during
1998.
Other related party transactions
In November 1998, the Company entered into an agreement to lease space for
telephone switching equipment in Albuquerque with SASR Limited Partnership, 50%
owned by one of Alamosa's directors and a manager of West Texas PCS, LLC, one of
Alamosa's interest holders. The lease has a term of five years with two optional
five year terms. The lease provides for monthly payments aggregating to $18,720
a year, as well as a pro rata portion of real estate taxes on the property, and
subject to adjustment.
In connection with Alamosa's distribution and sales of Sprint PCS wireless
communications equipment, on December 28, 1998, Alamosa entered into a long-term
agreement to lease space for a retail store in Lubbock. Texas with Lubbock HLH,
Ltd., principally owned by one of Alamosa's directors and the general manager of
South Plains Advance Communications & Electronics, Inc. (SPACE). SPACE holds an
ownership interest in Alamosa. This lease has a term of 15 years and provides
for monthly payments aggregating to approximately $110,000 a year, subject to
adjustment based on the Consumer Price Index on the first day of the sixth lease
year and on the first day of the eleventh lease year. No amounts were paid or
outstanding under this lease at December 31, 1998.
During 1998, certain members paid costs on behalf of the Company, which
were subsequently reimbursed. Such payments amounted to approximately $100,714
during 1998. No amounts payable to members were outstanding at December 31,
1998.
8. EMPLOYEE BENEFITS
Effective November 13, 1998, the Company elected to participate in the NTCA
Savings Plan, a defined contribution employee savings plan sponsored by the
National Telephone Cooperative Association (NTCA) under Section 401(k) of the
Internal Revenue Code. No employer contributions were made to the Plan for the
period ended December 31, 1998.
F-14
<PAGE> 105
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On October 2, 1998, the Company entered into an employee agreement with its
Chief Operating Officer. The agreement provides for the granting of stock
options in three series. The initial exercise price will be determined based on
the following formula: $48,500,000 (Committed Capital at September 30, 1998)
multiplied by the percentage interest represented by the option exercised. The
exercise price for each series will increase by an annual rate of 8%, 15% or 25%
compounded monthly beginning at the date of grant as specified by the agreement.
Options may be exercised any time from January 1, 2004 to January 5, 2008. The
options vest over a three year period. During 1998, one option from each series
was granted under this agreement.
On October 14, 1998, the Board of Members approved an Incentive Ownership
Plan. The plan consists of 3,500 units (1200 Series 8, 1150 Series 15, 1150
Series 25). The exercise price for each series is based on a pre-defined strike
price which increases by an annual rate 8%, 15% or 25% compounded monthly
beginning July 1, 2000. The initial exercise prices are $564.79, $623.84 and
$711.88 for the Series 8, Series 15 and Series 25 options, respectively. Each
unit provides the holder an option to purchase an interest in the Company.
Vested units may be exercised any time from July 1, 2000 to December 31, 2006.
On October 29, 1998, under an employment agreement with the company's Chief
Technology Officer, 300 units were granted under this plan.
The Company applies Accounting Principals Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations, in
accounting for its plans. Under APB 25, no compensation expense or deferred
compensation was recorded as of December 31, 1998. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") provides the Company the option of recognizing the cost of options granted
based on fair values of the options at the time of the grant. The Company has
decided not to elect the cost-recognition provisions of SFAS 123.
The fair value of each stock option is estimated at December 31, 1998 using
the Black-Scholes option pricing model: dividend yield of 0%; risk free interest
of 5.5%; expected lives of the options equal to 8.5 years; and a volatility rate
of 70%.
Had the compensation expense for the options granted during 1998 been based
on the fair value pricing model described above, additional compensation expense
of $73,587 would have been recognized at December 31, 1998. The effects of
applying SFAS 123 in this proforma disclosure are not indicative of future
amounts. The company anticipates making awards in the future under its Incentive
Ownership Plan.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts payable, and accrued expenses
approximate fair value because of the short maturity of these items.
The carrying amount of the debt issued pursuant to the Company's credit
agreement with Nortel is expected to approximate fair value because the interest
rate changes with market interest rates.
These fair value estimates are subjective in nature and involve
uncertainties and matters of considerable judgement and therefore, cannot be
determined with precision. Changes in assumptions could significantly affect
these estimates.
10. FINANCING AGREEMENTS
On June 10, 1999, the Company entered into a credit agreement with Nortel.
The proceeds will be used to purchase equipment and to fund the construction of
the PCS network. The financing terms permit Alamosa to borrow $123 million
through three commitment tranches through February 18, 2002, and will require
minimum equipment purchases of $82 million.
F-15
<PAGE> 106
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the agreement, the Company is required to maintain
certain financial ratios. In addition, the company is required to satisfy other
financial conditions including minimum levels of revenue and wireless
subscribers. All of the Company's assets and capital stock, including future
issues, will serve as collateral for the loan.
In connection with the credit agreement with Nortel, each of the members
pledged its ownership interest in Alamosa to Nortel to collateralize the
Company's obligations under the credit agreement. The members were required to
secure their unfunded contributions with either a letter of credit or a
marketable securities pledge agreement. Each letter of credit or marketable
securities pledge agreement will be terminated prior to the closing of the
Offering. In addition, each member had to execute a capital contribution
agreement to confirm their obligations to make capital contributions of at least
$48.5 million.
Interest will be charged based on a variable rate of either prime plus 2.5%
("Base Rate Loan") or the Eurodollar rate plus 3.5% ("Eurodollar Loan") at the
discretion of the Company. Interest accrued through the two-year anniversary
date of the closing is added to the principal amount of the loan. Thereafter,
interest is payable monthly in the case of Base Rate Loans and at the end of the
interest period, not to exceed a three-month period, in the case of Eurodollar
Loans. In addition, an annual unused facility fee of 0.75% will be charged
beginning 6 months after the closing date. Principal is payable in 20 quarterly
installments beginning February 18, 2002. Alamosa may voluntarily prepay any of
the loans at any time, but any amount repaid may not be reborrowed since there
are no revolving credit features. Alamosa must make mandatory prepayments under
certain circumstances, equal to 50% of "Excess Cash Flow" (as computed under the
credit agreement) after March 31, 2002; and any amount in excess of $250,000
received for asset sales outside the ordinary course of business or insurance
proceeds, to the extent not reinvested in property or assets within a stated
period of time.
As a condition of the financing, Sprint PCS has entered into a consent and
agreement with Nortel that modifies Sprint's rights and remedies under its
agreements with Alamosa. Among other things Sprint consented to the pledge
substantially all of Alamosa's assets, including the Sprint agreements to
Nortel. In addition, Sprint may not terminate the Sprint agreements with Alamosa
and must maintain 10 MHz of PCS spectrum in Alamosa's markets until the Nortel
financing is satisfied or Alamosa's assets are sold pursuant to the terms of the
Nortel Consent.
11. OTHER SUBSEQUENT EVENTS
In October 1999, the Company entered into a letter of intent to amend its
Sprint PCS Agreement to expand its service networks to include certain BTA's
located in Wisconsin. As a result, Alamosa formed its 97% owned subsidiary,
Alamosa Wisconsin LP to perform Alamosa's obligations under the Sprint PCS
Agreements.
The Company intends to file a registration statement for equity financing
through an initial public offering ("Offering"). Immediately prior to the
closing of this Offering, the Company will reorganize the business into a
holding company structure. In connection with the reorganization, the members of
Alamosa PCS, LLC will receive shares of common stock of Alamosa PCS Holdings,
Inc. in exchange for their membership interests in the limited liability
company. The Company plans to utilize the proceeds from the aforementioned
offerings to fund the build-out of its expanded network.
In October 1999, the Company entered into a commitment letter to amend its
Nortel financing to increase the facility from $123 million to $250 million. As
consideration for the amendment, the Company is required to issue to Nortel
warrants for 2% of the total equity as of the closing of the Offering, on a
fully diluted basis. The warrants will be issued and will be exercisable by
Nortel on the second anniversary of the closing date, unless, prior to that
date, (i) Alamosa raises an additional $75.0 million of capital and uses the
proceeds to prepay any loans under the Nortel facility, (ii) Nortel assigns
$75.0 million of the
F-16
<PAGE> 107
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
loans to unrelated lenders, (iii) there is a combination of loan prepayments and
assignment of the loans to unrelated lenders totaling at least $100.0 million or
(iv) Alamosa has a ratio of senior debt to total capitalization of .40 to 1.0 or
less for two consecutive calendar quarters prior to the second anniversary of
the closing date. The exercise price for the warrants will be the price paid for
the common stock in the Offering. Nortel may not transfer any of its rights with
respect to the warrants before the first anniversary of the closing date, and
any warrants transferred before the second anniversary of the closing date will
be subject to the provisions preventing exercise of the warrants. In addition,
subsequent to the closing of the amended Nortel agreement, Alamosa will no
longer be required to pay a 3% premium on any equipment and services financed by
Nortel.
In October 1999, David Sharbutt, Alamosa's chairman, was named Chief
Executive Officer and Chief Financial Officer. The Company has not finalized the
terms of Mr. Sharbutt's employment agreement which will include granting of
options that vest immediately, as well as options that vest over three years and
give Mr. Sharbutt the right to purchase up to a 3.5% interest in Alamosa. The
options will be exercisable beginning January 1, 2004 and will expire January 5,
2009.
In October 1999, the Company amended its Incentive Ownership Plan to
establish a fixed exercise price for all outstanding options. In addition during
October 1999, the Company and its Chief Operating Officer, Jerry Brantley, began
negotiations to amend Mr. Brantley's employment agreement dated October 2, 1998.
The terms of the amendment will increase the percentage interest in Alamosa that
Mr. Brantley may purchase from 1.5% to 3.5%. In addition, the vesting period and
exercise prices of the options will be modified.
On June 22, 1999, Alamosa commenced operations in Texas providing service
in the Laredo, Texas market. At October 25, 1999, Alamosa had commenced service
in eight additional markets: Albuquerque, Santa Fe, El Paso, Las Cruces,
Lubbock, Amarillo, Midland, and Odessa.
In addition to the leases described in footnote 5, the Company entered into
various lease agreements for sites and offices that commenced between January 1,
1999 through September 30, 1999. Minimum lease payments under these lease
agreements for the following periods are approximately:
<TABLE>
<S> <C>
YEARS:
1999.................................................. $ 1,309,948
2000.................................................. 2,366,973
2001.................................................. 2,375,863
2002.................................................. 2,390,038
2003.................................................. 2,405,545
2004.................................................. 2,453,145
Thereafter............................................ 12,446,900
-----------
Total......................................... $25,748,412
===========
</TABLE>
F-17
<PAGE> 108
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AS ADJUSTED
JUNE 30, 1999 JUNE 30, 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 8,077,095 $ 8,077,095
Accounts receivable....................................... 1,230 1,230
Inventory................................................. 1,245,915 1,245,915
Prepaid expenses and other assets......................... 54,521 54,521
Interest receivable....................................... 160,961 160,961
----------- -----------
Total current assets.............................. 9,539,722 9,539,722
----------- -----------
Notes receivable from related party......................... 100,000 100,000
Debt issuance costs......................................... 4,148,613 4,148,613
Restricted cash............................................. 500,000 500,000
Construction in progress.................................... 44,686,131 44,686,131
Property and equipment, net................................. 8,113,368 8,113,368
Microwave relocations, net.................................. 3,663,207 3,663,207
----------- -----------
Total assets...................................... $70,751,041 $70,751,041
=========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $13,378,386 $13,378,386
Payable to related parties................................ 2,133,933 2,133,933
Current installments of capital leases.................... 21,030 21,030
Notes payable............................................. 388,910 388,910
Microwave relocation obligation........................... 3,663,972 3,663,972
----------- -----------
Total current liabilities......................... 19,586,231 19,586,231
Capital lease obligations, noncurrent....................... 837,932 837,932
Long-term debt, excluding current maturities................ 35,400,679 35,400,679
----------- -----------
Total liabilities................................. 55,824,842 55,824,842
Commitments and contingencies
Equity:
Contributed capital....................................... 24,936,551 --
Deficit accumulated during the development stage.......... (6,686,384) (6,686,384)
Common stock, $.01 par value; 150,000,000 shares
authorized, 40,000,000 issued and outstanding.......... -- 400,000
Additional paid-in capital................................ -- 24,536,551
Unearned compensation..................................... (3,323,968) (3,323,968)
----------- -----------
Total liabilities and members' equity............. $70,751,041 $70,751,041
=========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
F-18
<PAGE> 109
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<S> <C>
Revenues:
Service revenues.......................................... $ 1,379
Product sales............................................. 33,588
-----------
Total revenue..................................... 34,967
Cost of services............................................ 1,018
Cost of products sold....................................... 33,588
-----------
Gross profit...................................... 361
Operating expenses:
Selling, general and administrative expenses.............. 2,981,787
Equity participation compensation expense................. 2,793,832
General and administrative expenses -- related parties.... 65,938
Depreciation and amortization............................. 127,056
-----------
Loss from operations.............................. (5,968,252)
Interest and other income................................... 347,075
Interest expense............................................ (141,385)
-----------
Net loss.......................................... (5,762,562)
Deficit accumulated during the development stage, beginning
of period................................................. (923,822)
-----------
Deficit accumulated during the development stage, end of
period.................................................... $(6,686,384)
===========
Basic and diluted net loss per common share (unaudited)..... $ (0.14)
===========
Pro forma basic and diluted weighted average common shares
outstanding (unaudited)................................... 40,000,000
Pro forma information (unaudited):
Net loss.................................................. (5,762,562)
Pro forma income tax adjustment:
Income tax benefit..................................... 1,954,426
Deferred tax valuation allowance....................... (1,954,426)
-----------
Pro forma net loss.......................................... (5,762,562)
Basic and diluted pro forma net loss per common share..... $ (0.14)
===========
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
F-19
<PAGE> 110
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................... $ (5,762,562)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity participation compensation expense................. 2,793,832
Depreciation and amortization............................. 127,056
Deferred interest expense................................. 10,859
(Increase) decrease in:
Accounts receivable.................................... (1,230)
Inventory.............................................. (1,245,915)
Prepaid expenses and other assets...................... (2,475)
Interest receivable.................................... (160,961)
Increase (decrease) in:
Accounts payable and accrued expenses.................. 14,666,466
------------
Net cash provided by operating activities......... 10,425,070
------------
Cash flows from investing activities:
Issuance of notes receivable.............................. (100,000)
Debt issuance cost........................................ (234,371)
Increase in restricted cash............................... (500,000)
Additions to construction in progress..................... (10,745,593)
Additions to property and equipment....................... (8,100,203)
------------
Net cash used investing activities................ (19,680,167)
------------
Cash flows from financing activities:
Capital contribution...................................... 3,818,751
Payments on capital leases................................ (15,636)
------------
Net cash provided by financing activities......... 3,803,115
------------
Net decrease in cash and cash equivalents......... (5,451,982)
Cash and cash equivalents at beginning of period............ 13,529,077
------------
Cash and cash equivalents at end of period.................. $ 8,077,095
============
Supplemental disclosure -- cash paid for interest........... $ 3,892
============
Supplemental disclosure of noncash activities:
Capitalized lease obligations incurred.................... $ 146,379
Liabilities assumed in connection with asset
acquisition............................................ 31,815,383
Liabilities assumed in connection with debt issuance
cost................................................... 3,950,567
------------
$ 35,912,329
============
</TABLE>
The accompanying notes are integral part of the unaudited financial statements.
F-20
<PAGE> 111
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements represent the accounts of
Alamosa PCS LLC (the "Company" or "Alamosa"). These unaudited financial
statements have been prepared in accordance with instructions for preparing
interim financial information and, therefore, do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles. All adjustments, consisting of normal recurring accruals, which, in
the opinion of management, are necessary to a fair presentation of financial
position and results of operations have been included. The accompanying
unaudited financial statements should be read in conjunction with the Company's
audited financial statements and related notes appearing elsewhere herein.
2. DEVELOPMENT STAGE ENTERPRISE
Alamosa was formed on July 16, 1998 (inception) and is currently in the
development stage. This stage is characterized by significant expenditures for
the design and construction of the wireless network. From inception through June
30, 1999, the Company has incurred expenses of $6,721,351, resulting in an
accumulated deficit during the development stage of $6,686,384 as of June 30,
1999. On June 22, 1999, Alamosa commenced services in its first market, Laredo,
Texas. Revenues at June 30, 1999 consist of revenues in this market totaling
$34,967.
3. UNAUDITED PRO FORMA AND AS ADJUSTED INFORMATION
The following unaudited pro forma information reflects certain assumptions
regarding transactions and their effects that would occur as a result of the
Offering as described in Note 9.
Unaudited pro forma income information
The unaudited pro forma information as shown on the statement of operations
is presented to show the effects of income taxes related to the Company's
anticipated termination of its limited liability company status. The unaudited
pro forma income tax adjustment is presented as if the Company had been a C
Corporation subject to federal and state income taxes throughout the periods
presented, at an effective tax rate of 34%. Application of the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109") would have resulted in a deferred tax asset primarily from
temporary differences related to the treatment of start-up costs, equity
participation compensation and from net operating loss carryforwards. The
deferred tax asset would have been offset by a full valuation allowance as there
is not currently sufficient positive evidence as required by SFAS 109 to
substantiate recognition of the asset.
The pro forma information is presented for informational purposes only and
is not necessarily indicative of operating results that would have occurred had
the Company elected to terminate its limited liability company status as of the
beginning of each of the periods presented, nor are they necessarily indicative
of future operating results.
Unaudited pro forma net loss per share
Pro forma net loss per share has been computed by dividing pro forma net
loss by the weighted average number of shares of common stock which would have
been outstanding before the Offering after giving effect to the reorganization
of the company described in Note 9.
F-21
<PAGE> 112
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited as adjusted balance sheet and unaudited pro forma weighted average
shares outstanding
The unaudited balance sheet as adjusted and unaudited pro forma weighted
average shares outstanding reflects adjustments to effect the reorganization of
the company described in Note 9. The calculation was made in accordance with
Statement of Financial Accounting Standards No. 128. Diluted weighted average
shares outstanding exclude the potential common shares from stock options
because inclusion would have been antidilutive.
4. PROPERTY, EQUIPMENT AND CONSTRUCTION IN PROGRESS
Property and equipment consists of the following at June 30, 1999:
<TABLE>
<S> <C>
Vehicles............................................... $ 430,751
Furniture and office equipment......................... 647,258
Network equipment...................................... 5,928,840
Land and building...................................... 1,209,409
-----------
8,216,258
Accumulated depreciation............................... (102,890)
-----------
Total........................................ $ 8,113,368
===========
</TABLE>
Construction in progress consists of the following at June 30, 1999:
<TABLE>
<S> <C>
Land and building...................................... $ 823,934
Network equipment...................................... 31,458,778
Leasehold improvements................................. 12,403,419
-----------
Total........................................ $44,686,131
===========
</TABLE>
5. LEASES
Operating leases
The Company has various operating leases, primarily related to rentals for
tower sites and buildings. Rental expense was $210,180 for the period ended June
30, 1999. At June 30, 1999, the aggregate minimum rental commitments under
noncancelable operating leases for the periods shown are as follows:
<TABLE>
<S> <C>
YEARS:
1999.................................................. $ 854,211
2000.................................................. 1,833,649
2001.................................................. 1,841,798
2002.................................................. 1,855,226
2003.................................................. 1,876,089
2004.................................................. 1,923,232
Thereafter............................................ 9,701,793
-----------
Total......................................... $19,885,998
===========
</TABLE>
Included in total minimum rental commitments is $1,170,210 which will be
paid to related parties.
F-22
<PAGE> 113
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
Capital leases
Capital leases at June 30, 1999 consist of leases for rental of retail
space and switch usage. The net present value of the leases was $874,598 and was
included in construction in progress and property, plant and equipment.
Amortization recorded under these leases during 1999 was immaterial.
At June 30, 1999, the future minimum payments under capital lease
obligations, less imputed interest, are as follows:
<TABLE>
<S> <C>
YEARS:
1999................................................... $ 52,860
2000................................................... 105,720
2001................................................... 105,720
2002................................................... 105,720
2003................................................... 105,720
2004................................................... 111,240
Thereafter............................................. 1,088,210
----------
Total minimum lease payments................... 1,675,190
Less: imputed interest................................... 816,228
----------
Present value of minimum lease payments.................. 858,962
Less: current installments............................... 21,030
----------
Long-term capital lease obligations at June 30, 1999..... $ 837,932
==========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Note receivable
On April 23, 1999, the Company entered into a $100,000 loan agreement with
an officer of the Company. The loan matures on April 2014 and accrues interest
at an annual rate of 7.75%.
Agreements with Hicks & Ragland Engineering Co., Inc.
Alamosa has entered into a number of arrangements with Hicks & Ragland as
described in more detail below. David Sharbutt, Alamosa's Chairman,Chief
Executive Officer and Chief Financial Officer, was at the time the agreements
were executed the President and Chief Executive Officer of Hicks & Ragland.
Hicks & Ragland is also affiliated with a membership interest holder of Alamosa.
On July 27, 1998, Alamosa entered into an engineering service contract with
Hicks & Ragland for design and construction inspection services in connection
with the network deployment. The term of the contract covers three periods
through August 2001, though either party may terminate the agreement for cause
before August 2001. A guaranteed maximum fee amount has been set for each period
of the contract, and those fees aggregate to approximately $7.0 million,
excluding taxes. If the total billing for the project is less than the
guaranteed maximum fee, Alamosa will pay an incentive bonus equal to 50% of the
difference. Alamosa paid $902,243 and $1,343,035 for these services during 1998
and for the six-month period ended June 30, 1999, respectively. Engineering fees
under this agreement are recorded in construction in progress at December 31,
1998 and June 30, 1999 and comprise approximately 72% and 12% of
construction-related purchases during 1998 and 1999. At December 31, 1998 and
June 30, 1999, amounts payable under these agreements amounted to $443,610 and
$2,112,098.
Effective September 20, 1998, Alamosa entered into a special service
contract with Hicks & Ragland, to provide marketing and operations consulting
services for a maximum amount of $100,000. Subsequent
F-23
<PAGE> 114
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
contracts for marketing consulting, business planning and radio frequency "drive
testing" were approved on October 1999, in an aggregate amount of approximately
$500,000. Alamosa paid $245,726 for these services for the six-month period
ended June 30, 1999. The amount payable under these agreements was $11,311 at
June 30, 1999.
On April 9, 1999, Alamosa entered into a data communications services
contract with H&R Data Com, an affiliate of Hicks & Ragland, to perform design
and implementation services in connection with corporate enterprise wide area
network and local area networks for a maximum fee of $262,040. Alamosa paid
$231,484 for these services for the six-month period ended June 30, 1999.
As of April 6, 1999, Alamosa entered into a telecommunications service
agreement with Tech Telephone Company Limited Partnership, an affiliate of Hicks
& Ragland, to install and provide DS1 telecommunications lines between Sprint
PCS and Alamosa's Lubbock-based operations and between Alamosa's Lubbock based
operations and other markets for an estimated annual cost of $567,000. The
original term of the agreement is three years, but the agreement automatically
renews upon expiration for additional successive 30-day terms by either party.
As of August 13, 1999, Alamosa entered into a distribution agreement with
TechTel Communications Corporation, an affiliate of Hicks & Ragland, authorizing
it to become a third party distributor of Sprint PCS products and services for
Alamosa in Lubbock.
Agreement with American Tower Corporation
In August 1998, Alamosa entered into a master site development and lease
agreement from Specialty, now a subsidiary of American Tower Corporation.
Pursuant to the agreement, Specialty arranges for collocation of equipment or
constructs new facilities in areas identified for build-out. Specialty provides
site acquisitions, leasing and construction services, and secures zoning,
permitting and surveying approvals and licenses for each base station. This
initial term master agreement expires in August 2003, with automatic renewal for
three additional terms of five years each. The agreement provides for monthly
payments subject to an annual adjustment base on the Consumer Price Index. Prior
to becoming a subsidiary of American Tower Corporation, Specialty was related to
Alamosa through one of Alamosa's directors who owned interests in both Alamosa
and Specialty and was an employee and officer of Specialty and Specialty's then
parent company. In addition, another individual who was one of Alamosa's
directors at the time the agreement was entered into, is a manager of Longmont
PCS, LLC, one of Alamosa's members, is a stockholder of Specialty
Teleconstructors, Inc. and acts as a vice president of American Tower
Corporation. No amounts were paid or outstanding under this agreement as of
December 31, 1998 and June 30, 1999.
Other related party transactions
In November 1998, the Company entered into an agreement to lease space for
telephone switching equipment in Albuquerque with SASR Limited Partnership, 50%
owned by one of our directors and a manager of West Texas PCS, LLC, one of our
interest holders. The lease has a term of five years with two optional five year
terms. The lease provides for monthly payments aggregating to $18,720 a year, as
well as a pro rata portion of real estate taxes on the property, and subject to
adjustment.
In connection with Alamosa's distribution and sales of Sprint PCS wireless
communications equipment, on December 28, 1998, Alamosa entered into a long-term
agreement to lease space for a retail store in Lubbock, Texas with Lubbock HLH,
Ltd., principally owned by one of Alamosa's directors and the president of South
Plains Advanced Communications & Electronics, Inc. (SPACE). SPACE holds and
ownership interest in Alamosa. This lease has a term of 15 years and provides
for monthly payments
F-24
<PAGE> 115
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
aggregating to approximately $110,000 a year, subject to adjustment based on the
Consumer Price Index on the first day of the sixth lease year and on the first
day of the eleventh lease year. No amounts were paid or outstanding under this
lease at December 31, 1998 and June 30, 1999.
7. FINANCING AGREEMENT
On February 3, 1999, the Company issued a letter of credit for $7,500,000
in favor of Nortel. The letter of credit expired in June 1999.
On June 10, 1999, the Company entered into a credit agreement with Nortel.
The proceeds are primarily to be used to purchase equipment and to fund the
construction of the PCS network. The financing terms permit Alamosa to borrow up
to $123 million through three commitment tranches through February 18, 2002 and
require minimum equipment purchases of $82 million.
The credit facility is collateralized by all of the Company's assets and
capital stock including future issues under the terms of the agreement. The
Company is required to maintain certain financial ratios and other financial
conditions including minimum levels of revenue and wireless subscribers. In
addition, the Company is required to maintain a $500,000 cash balance as
security against the facility. This balance is recorded as a noncurrent asset.
In connection with the credit agreement with Nortel, each of the members
pledged its ownership interest in Alamosa to Nortel to collateralized the
Company's obligations under the credit agreement. The members were required to
secure their unfunded contributions with either a letter of credit or a
marketable securities pledge agreement. Each letter of credit or marketable
securities pledge agreement will be terminated prior to the closing of this
Offering. In addition, each member had to execute a capital contribution
agreement to confirm their obligations to make capital contributions of at least
$48.5 million.
Interest is charged based on a variable rate of either prime plus 2.5%
("Base Rate Loan") or the Eurodollar rate plus 3.5% ("Eurodollar Loan") at the
discretion of the Company (8.75% at June 30, 1999). In addition, an annual
unused facility fee of 0.75% will be charged beginning six months after the
closing date. Interest accrued through the two year anniversary from the closing
date is added to the principal amount of the loan. Thereafter, interest is
payable monthly in the case of Base Rate Loans and at end of the interest
period, not to exceed three months, in the case of Eurodollar Loans. Interest
expense for the period ended June 30, 1999 totaled $10,860. Principal is payable
in 20 quarterly installments beginning February 18, 2002. Alamosa may
voluntarily prepay any of the loans at any time, but any amount repaid may not
be reborrowed since there are no revolving credit features. Alamosa must make
mandatory prepayments under certain circumstances, equal to 50% of "Excess Cash
Flow" (as computed under the credit agreement) after March 31, 2002; and any
amount in excess of $250,000 received for asset sales outside the ordinary
course of business or insurance proceeds, to the extent not reinvested in
property or assets within a stated period of time. All prepayments are applied
to the outstanding loan balances pro rata in the inverse order of maturity,
except where there is a borrowing base shortage, in which case prepayments are
first applied there, and then pro rata among all three Commitment tranches.
At June 30, 1999, the Company had borrowed $35,400,679 against this
facility.
As a condition of the financing, Sprint PCS has entered into a consent and
agreement with Nortel that modifies Sprint's rights and remedies under its
agreements with Alamosa. Among other things Sprint consented to the pledge of
substantially all of Alamosa's assets, including the Sprint agreements to
Nortel. In addition, Sprint may not terminate the Sprint agreements with Alamosa
and must maintain 10 MHz of PCS spectrum in Alamosa's markets until the Nortel
financing is satisfied or Alamosa's assets one sold pursuant to the terms of the
Nortel Consent.
F-25
<PAGE> 116
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
The Company incurred approximately $3,900,000 of costs associated with
obtaining the Nortel financing. These costs consist of a loan origination fee
and debt issue costs which have been capitalized and are being amortized to
interest expense using the effective interest method over the term of the credit
facility.
8. EMPLOYEE BENEFITS
Effective November 13, 1998, the Company elected to participate in the NTCA
Savings Plan, a defined contribution employee savings plan sponsored by the
National Telephone Cooperative Association (NTCA) under Section 401(k) of the
Internal Revenue Code. No employer contributions were made to the Plan for the
periods ended December 31, 1998 and June 30, 1999.
On October 2, 1998, the Company entered into an employee agreement with its
Chief Operating Officer. The agreement provides for the granting of stock
options in three series. The initial exercise price will be determined based on
the following formula: $48,500,000 (Committed Capital at September 30, 1998)
multiplied by the percentage interest represented by the option exercised. The
exercise price for each series will increase by an annual rate of 8%, 15% or 25%
compounded monthly beginning at the date of grant as specified by the agreement.
Options may be exercised any time from January 1, 2004 to January 5, 2008. The
options vest over a three year period. During 1998, one option from each series
was granted under this agreement.
On October 14, 1998, the Board of Members approved an Incentive Ownership
Plan. The plan consists of 3,500 units (1200 Series 8, 1150 Series 15, 1150
Series 25). The exercise price for each series is based on a pre-defined strike
price which increases by an annual rate 8%, 15% or 25% compounded monthly
beginning July 1, 2000. The initial exercise prices are $564.79, $623.84 and
$711.88 for the Series 8, Series 15 and Series 25 options, respectively. Each
unit provides the holder an option to purchase an interest in the Company.
Vested units may be exercised any time from July 1, 2000 to December 31, 2006.
On October 29, 1998, under an employment agreement with the Company's Chief
Technology Officer, 300 units were granted under this plan.
The Company applies Accounting Principals Board Opinion No. 25, "Accounting
for Stock Issue to Employees" ("APB 25") and related interpretations, in
accounting for its plans. Under APB 25, no compensation expense or deferred
compensation was recorded as of December 31, 1998. Compensation expense totaling
$2,793,832 and unearned compensation of $3,323,968 was recorded at June 30,
1999. Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") provides the Company the option of
recognizing the cost of options granted based on fair values of the options at
the time of the grant. The Company has decided not to elect the cost-recognition
provisions of SFAS 123.
The fair value of each stock option is estimated at December 31, 1998 and
June 30, 1999, using the Black-Scholes option pricing model: dividend yield of
0%; risk free interest of 5.5%; expected lives of the options equal to 8.5
years; and a volatility rate of 70%. The fair value of these options is
estimated using the Company's estimated offering price.
Had the compensation expense for the options granted during 1998 been based
on the fair value pricing model described above, additional compensation expense
of $73,587 and $37,009 would have been recognized at December 31, 1998 and June
30, 1999, respectively. The effects of applying SFAS 123 in this proforma
disclosure are not indicative of future amounts. The Company anticipates making
awards in the future under its Incentive Ownership Plan.
F-26
<PAGE> 117
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
9. OTHER SUBSEQUENT EVENTS
In October 1999, the Company entered into a letter of intent to amend its
Sprint PCS Agreement to expand its service networks to include certain BTA's
located in Wisconsin. As a result, Alamosa formed its 97% owned subsidiary,
Alamosa Wisconsin LP to perform Alamosa's obligations under the Sprint PCS
Agreements.
The Company intends to file a registration statement for equity financing
through an initial public offering ("Offering"). Immediately prior to the
closing of this Offering, the Company will reorganize the business into a
holding company structure. In connection with the reorganization, the members of
Alamosa PCS, LLC will receive shares of common stock of Alamosa PCS Holdings,
Inc. in exchange for their membership interests in the limited liability
company. The Company plans to utilize the proceeds from the aforementioned
offerings to fund the build-out of its expanded network.
In October 1999, the Company entered into a commitment letter to amend its
Nortel financing to increase the facility from $123 million to $250 million. As
consideration for the amendment, the company is required to issue to Nortel
warrants for 2% of the total equity as of the closing of the Offering, on a
fully diluted basis. The warrants will be issued and will be exercisable by
Nortel on the second anniversary of the closing date, unless, prior to that
date, (i) Alamosa raises an additional $75.0 million of capital and uses the
proceeds to prepay any loans under the Nortel facility, (ii) Nortel assigns
$75.0 million of the loans to unrelated lenders (iii) there is a combination of
loan prepayments and assignment of the loans to unrelated lenders totaling at
least $100.0 million or (iv) Alamosa has a ratio of senior debt to total
capitalization of .40 to 1.0 or less for two consecutive calendar quarters prior
to the second anniversary of the closing date. The exercise price for the
warrants will be the price paid for the common stock in the Offering. Nortel may
not transfer any of its rights with respect to the warrants before the first
anniversary of the closing date, and any warrants transferred before the second
anniversary of the closing date will be subject to the provisions preventing
exercise of the warrants. In addition, subsequent to the closing of the amended
Nortel agreement, Alamosa will no longer be required to pay a 3% premium on any
equipment and services financed by Nortel.
In October 1999, David Sharbutt, Alamosa's Chairman, was named Chief
Executive Officer and Chief Financial Officer. The Company has not finalized the
terms of Mr. Sharbutt's employment agreement which will include granting of
options that vest immediately, as well as options that vest over three years and
give Mr. Sharbutt the right to purchase up to a 3.5% interest in Alamosa. The
options will be exercisable beginning January 1, 2004 and will expire January 5,
2009.
In October 1999, the Company amended its Incentive Ownership Plan to
establish a fixed exercise price for all outstanding options. In addition,
during October 1999, the Company and its Chief Operating Officer, Jerry
Brantley, began negotiations to amend Mr. Brantley's employment agreement dated
October 2, 1998. The terms of the amendment will increase the percentage
interest in Alamosa that Mr. Brantley may purchase from 1.5% to 3.5%. In
addition, the vesting period and exercise prices of the options will be
modified.
On June 22, 1999, Alamosa commenced operations in Texas providing service
in the Laredo, Texas. At October 25, 1999, Alamosa had commenced service in
eight additional markets: Albuquerque, Santa Fe, El Paso, Las Cruces, Lubbock,
Amarillo, Midland, and Odessa.
F-27
<PAGE> 118
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has entered into various site lease agreements that commenced
between July 1, 1999 through September 30, 1999. Minimum lease payments under
these lease agreements for the following periods are approximately:
<TABLE>
<S> <C>
YEARS:
1999................................................... $ 330,415
2000................................................... 809,303
2001................................................... 812,408
2002................................................... 815,627
2003................................................... 818,974
2004................................................... 828,503
Thereafter............................................. 4,250,600
----------
Total.......................................... $8,665,830
==========
</TABLE>
F-28
<PAGE> 119
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
ALAMOSA PCS HOLDINGS, INC.
COMMON STOCK
[LOGO TO COME]
------------
PROSPECTUS
, 1999
------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities to be registered. All of
the amounts shown are estimated except for the Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $51,430
NASD filing fee............................................. 19,000
Nasdaq National Market listing fees......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Transfer agent and registrar fees........................... *
Miscellaneous expenses...................................... *
-------
Total.................................................. $ *
=======
</TABLE>
- ---------------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation of Alamosa PCS Holdings, Inc. ("Alamosa")
provides that the liability of the directors of Alamosa to Alamosa or any of its
stockholders for monetary damages arising from acts or omissions occurring in
their capacity as directors shall be limited to the fullest extent permitted by
the laws of Delaware or any other applicable law. This limitation does not apply
with respect to any action in which a director would be liable under Section 174
of the General Corporation Law of the State of Delaware (the "DGCL") nor does it
apply with respect to any liability in which a director (1) breached his duty of
loyalty to Alamosa or its stockholders; (2) did not act in good faith or, in
failing to act, did not act in good faith; (3) acted in a manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law; or (4) derived an improper personal benefit.
Alamosa's Certificate of Incorporation provides that Alamosa shall
indemnify its directors, officers and employees and former directors, officers
and employees to the fullest extent permitted by the laws of Delaware or any
other applicable law. Pursuant to the provisions of Section 145 of the DGCL,
Alamosa has the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding (other than an action by or in the right of Alamosa) by
reason of the fact that he is or was a director, officer, employee, or agent of
Alamosa, against any and all expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action,
suit, or proceeding. The power to indemnify applies only if such person acted in
good faith and in a manner he reasonably believed to be in the best interest, or
not opposed to the best interest, of Alamosa and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
The power to indemnify applies to actions brought by or in the right of
Alamosa as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself and with
the further limitation that in such actions no indemnification shall be made in
the event of any adjudication of negligence or misconduct unless the court, in
its discretion, believes that in light of all the circumstances indemnification
should apply.
II-1
<PAGE> 121
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
Reference is made to the Form of Underwriting Agreement (to be filed as
Exhibit 1.1 to this registration statement) which provides for indemnification
by the Underwriters under certain circumstances of the directors and officers of
Alamosa signing the registration statement and certain controlling persons of
Alamosa against certain liabilities, including those arising under the
Securities Act.
Alamosa has directors' and officers' liability insurance covering its
directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Alamosa pursuant
to the foregoing provisions, Alamosa has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have not sold any securities since October 19, 1999, the date of our
inception. We will, however, issue 40,000,000 shares of our common stock and
options to purchase 3,149,930 shares of our common stock to the members of
Alamosa PCS, LLC immediately prior to the completion of the offering covered by
this prospectus. These members will contribute their membership interests, or
options to purchase membership interests, in Alamosa PCS, LLC in exchange for
the shares of our common stock. The following table sets forth information
regarding these transactions.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF OUR MEMBERSHIP INTEREST
TYPE OF COMMON STOCK RECEIVED IN EXCHANGE
MEMBER SECURITIES TO BE ISSUED FOR OUR COMMON STOCK(1)
- ------ ---------- ------------- -----------------------
<S> <C> <C> <C>
Rosewood Telecommunications, L.L.C. ...... Membership 8,020,619 20.05%
Interest
South Plains Advanced Communications &
Electronics, Inc. ...................... Membership 7,135,740 17.84
Interest
West Texas PCS, LLC....................... Membership 5,833,332 14.58
Interest
Taylor Telecommunications, Inc. .......... Membership 4,206,186 10.52
Interest
Plateau Telecommunications,
Incorporated............................ Membership 2,474,227 6.19
Interest
Tregan International Corp. ............... Membership 2,474,227 6.19
Interest
XIT Telecommunication & Technology,
Inc. ................................... Membership 2,268,041 5.67
Interest
LEC Development, Inc. .................... Membership 2,061,856 5.15
Interest
Wes-Tex Telecommunications, Inc. ......... Membership 2,061,856 5.15
Interest
Longmont PCS, LLC......................... Membership 824,742 2.06
Interest
J&M Family Partnership Ltd................ Membership 549,636 1.37
Interest
</TABLE>
II-2
<PAGE> 122
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF OUR MEMBERSHIP INTEREST
TYPE OF COMMON STOCK RECEIVED IN EXCHANGE
MEMBER SECURITIES TO BE ISSUED FOR OUR COMMON STOCK(1)
- ------ ---------- ------------- -----------------------
<S> <C> <C> <C>
Five S, Ltd............................... Membership 489,237 1.22
Interest
Yellow Rock PCS, L.P...................... Membership 329,897 0.82
Interest
John St. Clair............................ Membership 241,598 0.60
Interest
Harness, Ltd.............................. Membership 241,598 0.60
Interest
Tony Bliss................................ Membership 237,572 0.59
Interest
Rick Overman.............................. Membership 146,972 0.37
Interest
W. Don Stull.............................. Membership 80,533 0.20
Interest
Frank Eldridge............................ Membership 60,400 0.15
Interest
David E. Sharbutt......................... Membership 40,266 0.10
Interest
Barry Moore............................... Membership 40,266 0.10
Interest
Randy Yeisley............................. Membership 40,266 0.10
Interest
Addie Lee Hicks........................... Membership 20,133 0.05
Interest
Steven Steele............................. Membership 20,133 0.05
Interest
Paula Sexton.............................. Membership 20,133 0.05
Interest
Will Payne................................ Membership 20,133 0.05
Interest
Gail McVicker............................. Membership 20,133 0.05
Interest
Gaylord Ellerman.......................... Membership 20,133 0.05
Interest
Jim McDuff................................ Membership 20,133 0.05
Interest
David E. Sharbutt......................... Options 1,510,240(2) 3.50(2)
Jerry W. Brantley......................... Options 1,510,240(2) 3.50(2)
W. Don Stull.............................. Options 129,450(2) 0.30(2)
</TABLE>
- ---------------
(1) All percentages of membership interests, except options, are calculated on a
non-fully diluted basis. Percentages for options to purchase membership
interests are calculated on a fully diluted basis.
(2) Represents options to acquire securities, not issued securities.
II-3
<PAGE> 123
None of the foregoing transactions involved any public offering, and all
sales were made in reliance on Section 4(2) of the Securities Act, Rule 701
promulgated under the Securities Act and/or Regulation D promulgated under the
Securities Act. These sales were made without general solicitation or
advertising. The recipients in each such transaction represented their intention
to acquire the securities for investment only and not with a view to sell or for
sale in connection with any distribution thereof. All recipients had adequate
access, through their relationship with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1* -- Form of Reorganization Agreement to be entered into by
Alamosa PCS, LLC and Alamosa.
3.1* -- Amended and Restated Certificate of Incorporation of
Alamosa.
3.2* -- Amended and Restated Bylaws of Alamosa.
3.3* -- Amendment No. 1 to the Certificate of Incorporation of
Alamosa.
4.1* -- Specimen Common Stock Certificate.
5.1* -- Opinion of Haynes and Boone, LLP, regarding legality of
the Common Stock being issued.
10.1* -- CDMA 1900 Additional Affiliate Agreement dated as of
December 21, 1998 by and between Alamosa PCS, LLC and
Northern Telecom, Inc.
10.2* -- Amendment No. 1 to DMS-MTX Cellular Supply Agreement
dated as of January 12, 1999 by and between Alamosa PCS,
LLC and Nortel Networks, Inc. and being an amendment to
10.1 described immediately hereinabove.
10.3* -- Amendment No. 2 to DMS-MTX Cellular Supply Agreement
dated as of March 1, 1999 by and between Alamosa PCS, LLC
and Nortel Networks, Inc. and being an amendment to 10.1
described immediately hereinabove.
10.4* -- Sprint PCS Management Agreement (as amended) dated as of
July 17, 1998 by and between Sprint Spectrum, LP,
SprintCom, Inc., and Alamosa PCS, LLC.
10.5* -- Sprint PCS Services Agreement dated as of July 17, 1998
by and between Sprint Spectrum, LP and Alamosa PCS, LLC.
10.6* -- Sprint Trademark and Service Mark License Agreement dated
July 17, 1998 by and between Sprint Communications
Company, LP and Alamosa PCS, LLP.
10.7* -- Sprint Spectrum Trademark and Service Mark License
Agreement dated as of July 17, 1998 by and between Sprint
Spectrum, LP and Alamosa PCS, LLP.
10.8* -- Consent and Agreement dated as of June 10, 1999 by and
between Nortel Networks, Inc., Sprint Spectrum, LP,
Sprint Communications Company, LP, Wireless Co, LP, and
SprintCom, Inc.
10.9* -- Engineering Service Contract, System Design and
Construction Inspection, dated as of July 27, 1998, as
amended, by and between Alamosa PCS, LLC and Hicks &
Ragland Engineering Co., Inc.
10.10* -- Special Service Contract dated as of November 20, 1998 by
and between Alamosa PCS, LLC and Hicks & Ragland
Engineering Co., Inc.
10.11* -- Master Site Development and Lease Agreement dated as of
August 1998 by and between Alamosa PCS, LLC and Specialty
Capital Services, Inc.
10.12* -- Addendum I to Master Site Development and Lease Agreement
dated as of August 20, 1998 by and between Alamosa PCS,
LLC and Specialty Capital Services, Inc.
10.13* -- Credit Agreement dated as of June 10, 1999 by and between
Alamosa PCS, LLC and Nortel Networks, Inc. for a $123,000
credit facility.
</TABLE>
II-4
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.14* -- Data Communication Services Contract, LAN/WAN Design and
Implementation, dated as of April 9, 1999 by and between
Alamosa PCS, LLC and Hicks & Ragland Engineering Co.,
Inc.
10.15* -- Form of 1999 Omnibus Securities Plan.
10.16* -- Employment Agreement dated as of October 2, 1998 by and
between Alamosa PCS, LLC and Jerry Brantley.
10.17* -- Employment Agreement dated as of October 29, 1998 by and
between Alamosa PCS, LLC and Don Stull.
10.18* -- Employment Agreement dated as of November 1, 1999 by and
between Alamosa PCS Holdings, Inc. and David Sharbutt.
21.1* -- Subsidiaries of Alamosa.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of Haynes and Boone, LLP (contained in legal
opinion filed as Exhibit 5.1).
24.1* -- Powers of Attorney (set forth on the signature page of
this registration statement).
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules:
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by Alamosa pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Alamosa
pursuant to the foregoing provisions, or otherwise, Alamosa has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Alamosa of expenses incurred
or paid by a director, officer or controlling person of Alamosa in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Alamosa will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Alamosa has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of Dallas, State of Texas, on
the 29th day of October, 1999.
ALAMOSA PCS HOLDINGS, INC.
By: /s/ DAVID E. SHARBUTT
----------------------------------
David E. Sharbutt
Chairman of the Board of
Directors,
Chief Executive Officer and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Alamosa PCS Holdings, Inc. hereby constitutes and appoints David E.
Sharbutt, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and on his behalf and in his name, place and stead, in any
and all capacities, to sign, execute and file any and all documents relating to
this Registration Statement, including any and all amendments, exhibits and
supplements thereto and including any Registration Statement filed pursuant to
Rule 462(b) of the Securities Act of 1933, with any regulatory authority,
granting unto said attorney full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as he
himself might or could do if personally present, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 29th day of October, 1999.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <C> <S>
/s/ DAVID E. SHARBUTT Chairman of the Board of October 29, 1999
- ----------------------------------------------------- Directors, Chief Executive Officer
David E. Sharbutt and Chief Financial Officer
/s/ MICHAEL R. BUDAGHER Director October 29, 1999
- -----------------------------------------------------
Michael R. Budagher
/s/ RAY M. CLAPP Director October 29, 1999
- -----------------------------------------------------
Ray M. Clapp
/s/ SCOTTY HART Director October 29, 1999
- -----------------------------------------------------
Scotty Hart
/s/ THOMAS HYDE Director October 29, 1999
- -----------------------------------------------------
Thomas Hyde
/s/ TOM M. PHELPS Director October 29, 1999
- -----------------------------------------------------
Tom M. Phelps
</TABLE>
II-6
<PAGE> 126
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <C> <S>
/s/ REAGAN W. SILBER Director October 29, 1999
- -----------------------------------------------------
Reagan W. Silber
/s/ JIMMY R. WHITE Director October 29, 1999
- -----------------------------------------------------
Jimmy R. White
</TABLE>
II-7
<PAGE> 127
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1* -- Form of Reorganization Agreement to be entered into by
Alamosa PCS, LLC and Alamosa.
3.1* -- Amended and Restated Certificate of Incorporation of
Alamosa.
3.2* -- Amended and Restated Bylaws of Alamosa.
3.3* -- Amendment No. 1 to the Certificate of Incorporation of
Alamosa.
4.1* -- Specimen Common Stock Certificate.
5.1* -- Opinion of Haynes and Boone, LLP, regarding legality of
the Common Stock being issued.
10.1* -- CDMA 1900 Additional Affiliate Agreement dated as of
December 21, 1998 by and between Alamosa PCS, LLC and
Northern Telecom, Inc.
10.2* -- Amendment No. 1 to DMS-MTX Cellular Supply Agreement
dated as of January 12, 1999 by and between Alamosa PCS,
LLC and Nortel Networks, Inc. and being an amendment to
10.1 described immediately hereinabove.
10.3* -- Amendment No. 2 to DMS-MTX Cellular Supply Agreement
dated as of March 1, 1999 by and between Alamosa PCS, LLC
and Nortel Networks, Inc. and being an amendment to 10.1
described immediately hereinabove.
10.4* -- Sprint PCS Management Agreement (as amended) dated as of
July 17, 1998 by and between Sprint Spectrum, LP,
SprintCom, Inc., and Alamosa PCS, LLC.
10.5* -- Sprint PCS Services Agreement dated as of July 17, 1998
by and between Sprint Spectrum, LP and Alamosa PCS, LLC.
10.6* -- Sprint Trademark and Service Mark License Agreement dated
July 17, 1998 by and between Sprint Communications
Company, LP and Alamosa PCS, LLP.
10.7* -- Sprint Spectrum Trademark and Service Mark License
Agreement dated as of July 17, 1998 by and between Sprint
Spectrum, LP and Alamosa PCS, LLP.
10.8* -- Consent and Agreement dated as of June 10, 1999 by and
between Nortel Networks, Inc., Sprint Spectrum, LP,
Sprint Communications Company, LP, Wireless Co, LP, and
SprintCom, Inc.
10.9* -- Engineering Service Contract, System Design and
Construction Inspection, dated as of July 27, 1998, as
amended, by and between Alamosa PCS, LLC and Hicks &
Ragland Engineering Co., Inc.
10.10* -- Special Service Contract dated as of November 20, 1998 by
and between Alamosa PCS, LLC and Hicks & Ragland
Engineering Co., Inc.
10.11* -- Master Site Development and Lease Agreement dated as of
August 1998 by and between Alamosa PCS, LLC and Specialty
Capital Services, Inc.
10.12* -- Addendum I to Master Site Development and Lease Agreement
dated as of August 20, 1998 by and between Alamosa PCS,
LLC and Specialty Capital Services, Inc.
10.13* -- Credit Agreement dated as of June 10, 1999 by and between
Alamosa PCS, LLC and Nortel Networks, Inc. for a $123,000
credit facility.
10.14* -- Data Communication Services Contract, LAN/WAN Design and
Implementation, dated as of April 9, 1999 by and between
Alamosa PCS, LLC and Hicks & Ragland Engineering Co.,
Inc.
10.15* -- Form of 1999 Omnibus Securities Plan.
10.16* -- Employment Agreement dated as of October 2, 1998 by and
between Alamosa PCS, LLC and Jerry Brantley.
10.17* -- Employment Agreement dated as of October 29, 1998 by and
between Alamosa PCS, LLC and Don Stull.
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.18* -- Employment Agreement dated as of November 1, 1999 by and
between Alamosa PCS Holdings, Inc. and David Sharbutt.
21.1* -- Subsidiaries of Alamosa.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of Haynes and Boone, LLP (contained in legal
opinion filed as Exhibit 5.1).
24.1* -- Powers of Attorney (set forth on the signature page of
this registration statement).
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
(File No. ) of our report dated March 31, 1999, except as to the
information described in Notes 7, 10 and 11 for which the date is October 25,
1999, relating to the financial statements of Alamosa PCS LLC (a development
stage enterprise), which appear in such Registration Statement. We also consent
to the references to us under the headings "Experts," "Summary Financial and
Operating Data" and "Selected Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Dallas, Texas
October 29, 1999
