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FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-89995
PROSPECTUS
10,714,000 SHARES
[ALAMOSA LOGO]
ALAMOSA PCS HOLDINGS, INC.
COMMON STOCK
$17.00 PER SHARE
We are selling 9,956,411 shares of our common stock to the public at $17.00
per share and 757,589 shares of our common stock to our existing stockholders at
$15.8525 per share. The underwriters named in this prospectus may purchase up to
1,607,100 additional shares of common stock from us after the closing of this
offering.
This is an initial public offering of our common stock. Our common stock
has been approved for quotation on the Nasdaq National Market under the symbol
"APCS."
---------------------
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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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price $17.0000 $ 169,258,987
Underwriting Discount $ 1.1475 $ 11,424,982
Offering Price to Existing Stockholders $15.8525 $ 12,009,680
Proceeds to Alamosa PCS Holdings, Inc. (before expenses) $15.8525 $ 169,843,685
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about February 8,
2000.
SALOMON SMITH BARNEY LEHMAN BROTHERS
------------------
CREDIT SUISSE FIRST BOSTON DEUTSCHE BANC ALEX. BROWN
February 3, 2000
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[Pictures of the inside of three of our retail store locations, the Alamosa logo
and two wireless handsets]
[Fold-out page showing the Alamosa logo and a map of United States showing areas
where Alamosa PCS, a Sprint PCS affiliate, has the right to provide wireless
services and will derive its revenues in yellow and areas where Sprint PCS and
other Sprint PCS affiliates have the right to provide wireless services in red.]
Sprint PCS customers can use their phones in 280 major metropolitan areas and
connecting travel corridors throughout the United States.
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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......... 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 31
Our Affiliation Agreements with Sprint PCS.................. 53
Description of Our Indebtedness............................. 62
Management.................................................. 70
Principal Stockholders...................................... 82
Certain Relationships and Related Transactions.............. 85
The Reorganization.......................................... 88
Regulation of the Wireless Telecommunications Industry...... 89
Description of Capital Stock................................ 94
Shares Eligible for Future Sale............................. 101
Important United States Federal Tax Consequences of Our
Common Stock to Non-U.S. Holders.......................... 102
Underwriting................................................ 105
Legal Matters............................................... 107
Experts..................................................... 107
Where You Can Find Additional Information................... 108
Index to Financial Statements............................... F-1
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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.
ALAMOSA
GENERAL
Alamosa is a provider of wireless personal communications services,
commonly referred to as PCS, in the southwestern and midwestern United States.
We are a network partner of Sprint PCS, the personal communications services
group of Sprint Corporation. 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 personal
communications services under the Sprint and Sprint PCS brand names in a
territory comprising approximately 8.4 million residents. These residents are
primarily located in smaller cities and in markets with above average growth
rates in Texas, New Mexico, Arizona, Colorado and Wisconsin. We are a
development stage company with very limited operations, very limited revenues,
significant losses, substantial future capital requirements and an expectation
of continued significant losses.
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
cover approximately 2.7 million residents out of approximately 3.9 million total
residents in those markets. We expect to cover a total of approximately 4.1
million residents by the end of 2000 and 5.5 million residents 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 65% of the resident
population in our territory. The number of residents covered by our systems does
not represent the number of Sprint PCS subscribers that we expect to be based in
our territory. As of December 31, 1999, approximately 31,850 Sprint PCS
subscribers were 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 our affiliation agreements with Sprint PCS, 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 "Our Affiliation Agreements with Sprint
PCS -- The Management Agreement -- Service Pricing, Roaming and Fees." We also
receive other revenues, including Sprint PCS roaming revenues for each minute
that Sprint PCS customers based outside our territory use our portion of the
Sprint PCS network and 100% of revenues from handset sales.
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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. For example, we
benefit from Sprint PCS's:
- Marketing. We market products and services through Sprint PCS's existing
relationships with major national retailers under the highly recognizable
Sprint and Sprint PCS brand names.
- National Network. Customers in our territory can immediately access
Sprint PCS's growing network in 280 major metropolitan areas across the
country.
- Advanced Technology. We believe that the technology used by Sprint PCS
provides advantages in capacity and voice-quality, as well as access to
advanced features such as wireless Internet access.
- Handset and Equipment Availability and Pricing. Sprint PCS's purchasing
leverage allows us to acquire handsets and network equipment more quickly
and at a lower cost than we could without our affiliation with Sprint
PCS.
ATTRACTIVE TERRITORY
We believe that our territory is attractive for several reasons, including:
- High Growth Markets. The overall population growth rate in our territory
has been approximately 42% above the national average.
- Fewer Competitors. We expect to face fewer competitors in our markets
than is generally the case for wireless service providers operating in
more urban areas.
- 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.
ADEQUATE FUNDING TO COMPLETE OUR NETWORK
Starting in June 1999, we have launched Sprint PCS service in eleven
markets. We anticipate that the proceeds of this offering, when combined with
the committed level of debt financing from Nortel Networks, Inc., will be
adequate to fund future 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 65% of the resident population in our
territory by the end of 2001 and to exceed the build-out requirements contained
in our affiliation agreements with Sprint PCS. However, we may need additional
capital or debt financing due to greater than expected operating losses, the
addition of new markets to our territory or unanticipated increases in the
capital required to build-out our portion of the Sprint PCS network.
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THE OFFERING
Common stock offered....... 10,714,000 shares
Common stock outstanding
after the offering......... 59,747,508 shares
Use of proceeds............ We will use the proceeds from this sale of our
common stock, together with 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 working capital
requirements;
- interest expense, principal payments and loan
origination fees; and
- general corporate purposes.
See "Use of Proceeds" for more detailed
information.
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.
As part of this sale of our common stock, the underwriters reserved a
maximum of 10% of the shares of our common stock to be sold in this offering for
sale to our current stockholders at a price per share equal to the public
offering price less the underwriting discount. The underwriters are not entitled
to any discount or commission on these shares and the proceeds to us are the
same as if the shares were sold to the general public. Current stockholders will
purchase 757,589 shares pursuant to this arrangement.
Unless otherwise indicated, the share information in this prospectus
excludes:
- up to 1,607,100 shares that may be issued to the underwriters to cover
over-allotments. See "Underwriting."
- 7,000,000 shares of common stock reserved for issuance under our 1999
Long Term Incentive Plan, including grants to employees, directors and
consultants of options to acquire 5,554,000 shares at a per share
exercise price equal to the initial public offering price and 97,000
shares at per share exercise prices ranging from $1.13 to $1.42, to be
effective as of the closing of this offering. See "Management -- Benefit
Plans -- 1999 Long Term Incentive Plan."
- 1,307,960 shares, or 1,340,102 shares if the underwriters exercise their
over-allotment option, of our common stock representing two percent of
the total equity outstanding as of the closing of the initial public
offering, which shares are issuable upon exercise of warrants at an
exercise price equal to the initial public offering price. See
"Description of Our Indebtedness -- The Nortel Credit
Facility -- Warrants."
THE NOTES OFFERING
We are also proposing to offer senior discount notes in a separate public
offering pursuant to a separate prospectus. The completion of this offering of
common stock is not conditioned on a successful completion of the offering of
senior discount notes and we cannot assure you that our offering of senior
discount notes will be completed. This prospectus relates only to the offering
of common stock and not to the offering of notes.
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SUMMARY FINANCIAL AND OPERATING DATA
The financial data presented below under the captions "Statement of
Operations Data," "Per Share Data," "Other Data" and "Balance Sheet Data" for,
and as of the end of, the period from inception to December 31, 1998, the
nine-month period ended September 30, 1999 and the period from inception to
September 30, 1999 are derived from the audited financial statements of Alamosa
PCS LLC, the predecessor to 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 periods ended December 31, 1998 and September
30, 1999, the related notes and the independent auditors' report.
The summary unaudited financial data presented below as of and for the
period from inception to September 30, 1998 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
nine-month period ended September 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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FOR THE FOR THE FOR THE
PERIOD PERIOD PERIOD
JULY 16, 1998 JULY 16, 1998 FOR THE NINE- JULY 16, 1998
(INCEPTION) (INCEPTION) MONTH PERIOD (INCEPTION)
THROUGH THROUGH ENDED THROUGH
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999 1999
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(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND SUBSCRIBER DATA)
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STATEMENT OF OPERATIONS DATA:
Revenues................................ $ -- $ -- $ 2,000 $ 2,000
Cost of sales........................... -- -- 1,614 1,614
Total operating expenses................ 958 401 17,634 18,592
Operating loss.......................... (958) (401) (17,247) (18,206)
Net loss................................ (924) (400) (17,688) (18,612)
PER SHARE DATA:
Basic and diluted net loss per share of
common stock(1)(2)................... $(0.02) $(0.01) $ (0.36) $ (0.38)
Pro forma net loss per share of common
stock(1)(2).......................... (0.02) (0.01) (0.36) (0.38)
OTHER DATA:
Number of subscribers................... -- -- 9,850 9,850
</TABLE>
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AS OF SEPTEMBER 30,
1999
AS OF -----------------------------------
DECEMBER 31, AS AS FURTHER
1998 ACTUAL ADJUSTED(3) ADJUSTED(4)
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(DOLLARS IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents..................... $13,529 $ 7,454 $176,278 $297,723
Construction in progress...................... 1,979 28,940 28,940 28,940
Property and equipment, net................... 114 36,930 36,930 36,930
Total assets.................................. 15,674 88,412 257,236 384,654
Total debt.................................... 752(5) 60,885(6) 60,885(6) 188,303
Equity........................................ 14,076 13,210 182,034 182,034
</TABLE>
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(1) For the period ended September 30, 1999, diluted weighted average shares
outstanding exclude the common shares issuable on exercise of stock options
because inclusion would have been antidilutive. The presentation of the pro
forma net loss per share of common stock gives effect to adjustments for
federal and state income taxes as if Alamosa had been taxed as a C
Corporation for the periods presented.
(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 this offering of
10,714,000 shares of common stock and the application of $168.8 million in
net proceeds therefrom.
(4) As further adjusted Balance Sheet Data reflects (a) the sale in this
offering of 10,714,000 shares of common stock and the application of $168.8
million in net proceeds therefrom, (b) the issuance of an aggregate
principal amount at maturity of $350.0 million in senior discount notes with
gross proceeds of $187.1 million, less underwriting discounts and
commissions and estimated offering expenses of $6.0 million and (c) the
prepayment of an aggregate of $75.0 million of indebtedness under the Nortel
facility, consisting of the prepayment of $59.7 million outstanding on
September 30, 1999 and cash equal to $15.3 million designated to prepay
borrowings under the Nortel facility incurred after September 30, 1999.
(5) Reflects capital lease obligations of $728,219 and other notes payable of
$23,637.
(6) Reflects indebtedness incurred under the Nortel facility of $59,678,288,
other notes payable of $352,988 and capital lease obligations of $853,965.
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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 TERMINATION OF OUR AFFILIATION AGREEMENTS WITH SPRINT PCS WOULD
SEVERELY RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS
Our relationship with Sprint PCS is governed by our affiliation agreements
with Sprint PCS. Since we do not own any licenses to operate a wireless network,
our business depends on the continued effectiveness of those affiliation
agreements. However, Sprint PCS can terminate our affiliation agreements if we
materially breach them. Among other things, a failure to meet the 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 terminates any of our affiliation agreements, we
would no longer be a part of the Sprint PCS network and would have extreme
difficulty conducting our business.
IF SPRINT PCS DOES NOT RENEW OUR AFFILIATION AGREEMENTS WITH THEM, OUR
ABILITY TO CONDUCT OUR BUSINESS WOULD BE SEVERELY RESTRICTED
Our affiliation agreements with Sprint PCS 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 our affiliation agreements with them, we would no
longer be a part of the Sprint PCS network and would have extreme difficulty
conducting our business.
PROVISIONS OF OUR AFFILIATION AGREEMENTS WITH SPRINT PCS 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%,
depending on the circumstances, of the "entire business value" of Alamosa, which
value includes the spectrum licenses, business operations and other assets more
fully described in "Our Affiliation Agreements with Sprint PCS -- The Management
Agreement -- Determination of Entire Business Value." Sprint PCS must approve
any change of control of our ownership and consent to any assignment of our
affiliation agreements with them. In addition, 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 our
affiliation agreements with Sprint PCS 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 reduce the "entire
business value" of Alamosa.
SPRINT PCS MAY MAKE DECISIONS THAT COULD INCREASE OUR EXPENSES, REDUCE OUR
REVENUES OR MAKE OUR AFFILIATE RELATIONSHIP WITH THEM LESS COMPETITIVE
Sprint PCS, under our affiliation agreements with them, has a substantial
amount of control over the conduct of our business. Accordingly, Sprint PCS may
make decisions that adversely affect our business, such as the following:
- Sprint PCS 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 could change the per minute rate for Sprint PCS roaming fees
and increase the costs for Sprint PCS to perform back office services.
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- Sprint PCS could withhold its consent, which is required for us to sell
non-Sprint PCS approved equipment.
- 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.
A CHANGE OF CONTROL OF SPRINT OR SPRINT PCS MAY RESULT IN A NAME CHANGE OR
COULD INCREASE THE LIKELIHOOD THAT OUR AFFILIATION AGREEMENTS WILL NOT BE
RENEWED
Sprint or 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. 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 our affiliation
agreements with the merged company would be on the same terms as our current
affiliation agreements with Sprint PCS. However, the consummation of the merger
may increase the likelihood that our affiliation agreements will not be renewed
if, among other reasons, the combined company has a different strategy related
to affiliate relationships. Additionally, we may lose the use of the
recognizable Sprint and Sprint PCS brand names if the merger results in a name
change.
PROBLEMS EXPERIENCED BY SPRINT PCS WITH ITS INTERNAL SUPPORT SYSTEMS COULD
LEAD TO CUSTOMER DISSATISFACTION OR INCREASE OUR COSTS
We rely on Sprint PCS's internal support systems, including customer care,
billing and back-office support. As Sprint PCS has expanded, its internal
support systems 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. It is likely that problems with Sprint PCS's internal support
systems could cause:
- delays or problems in our own operations or service;
- delays or difficulty in gaining access to customer and financial
information, which we are currently experiencing with respect to our
direct electronic access to significant aspects of Sprint PCS's internal
support systems and financial data;
- a loss of Sprint PCS customers; and
- an increase in the costs of customer care, billing and back office
services.
OUR COSTS FOR INTERNAL SUPPORT SYSTEMS MAY INCREASE IF SPRINT PCS
TERMINATES OUR SERVICES AGREEMENT
We estimate that our costs for the services provided to us by Sprint PCS
under our services agreement in the year 2000 will be approximately $12 million.
We expect this number to significantly increase as the number of Sprint PCS
subscribers based in our territory increases. Our services agreement with Sprint
PCS provides that, upon nine months' prior written notice, Sprint PCS may
terminate any service provided under that agreement. We do not have a
contingency plan if Sprint PCS terminates any such 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.
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WE MAY HAVE DIFFICULTY IN OBTAINING HANDSETS AND EQUIPMENT, WHICH ARE IN
SHORT SUPPLY
We depend on our relationship with Sprint PCS to obtain handsets and
equipment. 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. 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, we could
suffer delays in the build-out of our portion of the Sprint PCS network,
disruptions in service and a reduction in subscribers.
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, including the right to foreclose on those
assets, in a manner not otherwise permitted under our affiliation agreements
with Sprint PCS.
IF SPRINT PCS DOES NOT MAINTAIN CONTROL OVER ITS LICENSED SPECTRUM, OUR
AFFILIATION AGREEMENTS WITH SPRINT PCS MAY BE TERMINATED
Sprint PCS, not Alamosa, owns the licenses necessary to provide wireless
services in our territory. The Federal Communications Commission requires that
licensees like Sprint PCS maintain control of their licensed systems and not
delegate control to third party operators or managers like Alamosa. Although our
affiliation agreements with Sprint PCS reflect an arrangement that the parties
believe meets the Federal Communications Commission requirements for licensee
control of licensed spectrum, we cannot assure you that the Federal
Communications Commission will agree with us. If the Federal Communications
Commission were to determine that our affiliation agreements with Sprint PCS
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 we would have extreme difficulty in
conducting our business.
THE FEDERAL COMMUNICATIONS COMMISSION MAY NOT RENEW THE SPRINT PCS
LICENSES, WHICH WOULD PREVENT US FROM PROVIDING WIRELESS SERVICES
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 Federal Communications Commission has adopted
specific standards that apply to wireless personal communications services
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 Federal
Communications Commission that Sprint PCS has met the five-year and ten-year
construction requirements for each of its wireless personal communications
services licenses, it can lose those licenses. If Sprint PCS loses its licenses
in our territory for any of these reasons, we would not be able to provide
wireless services without obtaining rights to other licenses.
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RISKS PARTICULAR TO ALAMOSA'S OPERATIONS
BECAUSE OF THE NATURE OF OUR RELATIONSHIP WITH CHR SOLUTIONS, INC., ANY
CONFLICTS THAT ARISE BETWEEN US AND CHR SOLUTIONS COULD NEGATIVELY AFFECT OUR
ABILITY TO EFFECTIVELY CONDUCT OUR BUSINESS
We rely heavily on CHR Solutions, Inc. for engineering, marketing,
operating and other consulting services. We have paid or will pay CHR Solutions
substantial amounts for these services, including approximately:
- $3.8 million paid during 1999;
- $3.5 million that we estimate will be paid during 2000;
- an aggregate of $7.4 million in current and prior contractual commitments
beginning in 1998; and
- an anticipated additional $5 million in contractual commitments that we
are currently negotiating with CHR Solutions.
If CHR Solutions interests become adverse to ours, we may be forced to
acquire consulting services from an alternate source, which could be very
difficult or costly or result in delays in our network build-out. Additionally,
Mr. David Sharbutt, our chairman and chief executive officer, is also a senior
consultant, director and shareholder of CHR Solutions. Consequently, if CHR
Solution's interests become adverse to ours, Mr. Sharbutt may face a conflict of
interest. In addition, although the employment agreement related to Mr.
Sharbutt's position as a senior consultant of CHR Solutions does not specify the
time requirements of his employment, his responsibilities as an employee of CHR
Solutions may require significant professional time and effort and may reduce
the time and effort he is able to devote to Alamosa. However, his employment
agreement with us requires Mr. Sharbutt to devote his full time and effort to
the business and affairs of Alamosa. See "Certain Relationships and Related
Transactions" for details related to this and other related party transactions.
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 persons may be subject to conflicts of
interest because of their investments or status as director that will have to be
resolved by those persons and Alamosa. This conflict could require that such
persons not participate in the decision-making related to, or implementation of,
transactions or issues in which such conflicts arise. For a discussion of the
magnitude of these risks, please see "Management -- Directors and Executive
Officers" and "Certain Relationships and Related Transactions."
WE HAVE A VERY LIMITED OPERATING HISTORY AND MAY NOT ACHIEVE OR SUSTAIN
OPERATING PROFITABILITY OR POSITIVE CASH FLOWS, WHICH WOULD LIKELY RESULT IN A
DROP IN OUR STOCK PRICE
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. We have already incurred
$18.2 million in operating losses through September 30, 1999. 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 stock price could fall and you could lose all or part of your
investment.
FAILURE TO OBTAIN ADDITIONAL CAPITAL, IF NEEDED TO COMPLETE THE BUILD-OUT
OF OUR PORTION OF THE SPRINT PCS NETWORK, COULD CAUSE DELAY OR ABANDONMENT OF
OUR DEVELOPMENT PLANS
The build-out of our portion of the Sprint PCS network will require
substantial capital. As of January 1, 2000, we estimated that requirements to
complete the current build-out plan and fund working
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<PAGE> 13
capital losses through the year 2001 were approximately $283 million. We plan to
finance these requirements using the funds received from this offering and the
remaining $178.1 million available under the Nortel financing as of December 31,
1999. Additional funds could be required for a variety of reasons, including
unforeseen delays, unanticipated expenses, increased capital requirements,
higher than expected operating losses, engineering design changes and other
technology risks or other corporate purposes. 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.
These additional funds may not be available. Even if those funds are available,
we may not be able to obtain them on a timely basis, on terms acceptable to us
or within limitations permitted under our existing debt covenants or the
covenants with respect to the senior discount notes. Failure to obtain
additional funds, should the need for them develop, could result in the delay or
abandonment of our development and expansion plans and we may be unable to fund
our ongoing operations.
BECAUSE WE DEPEND HEAVILY ON OUTSOURCING, THE INABILITY OF THIRD PARTIES TO
FULFILL THEIR CONTRACTUAL OBLIGATIONS TO US MAY DISRUPT OUR SERVICES OR THE
BUILD-OUT OF OUR PORTION OF THE SPRINT PCS NETWORK
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 those persons to:
- design and engineer our systems;
- construct base stations, switch facilities and towers;
- lease base stations;
- install T-1 lines; and
- deploy our wireless personal communications services network systems.
Specifically, our financing arrangements with Nortel make us especially
dependent on them for network equipment, since we must use a specified amount of
any funds borrowed from Nortel to purchase their equipment. In addition, we
lease almost all of the tower sites for our wireless systems through a master
lease agreement with Specialty Capital Services, Inc., now a subsidiary of
American Tower Corporation. Specialty in turn has separate leasing arrangements
with each of the owners of the sites. If Specialty or American Tower Corporation
were to become insolvent or Specialty 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 Sprint PCS network.
OUR ROAMING ARRANGEMENTS MAY NOT BE COMPETITIVE WITH OTHER WIRELESS SERVICE
PROVIDERS, WHICH MAY RESTRICT OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS
We rely on roaming arrangements with other wireless service providers for
coverage in some areas. Some risks related to these arrangements are as follows:
- 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;
- the price of a roaming call may not be competitive with prices of other
wireless companies for roaming calls;
- customers may have to use a more expensive dual-band/dual mode handset
with diminished standby and talk time capacities;
- customers must end a call in progress and initiate a new call when
leaving the Sprint PCS network and entering another wireless network; and
10
<PAGE> 14
- Sprint PCS customers may not be able to use Sprint PCS advanced features,
such as voicemail notification, while roaming.
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.
IF WE RECEIVE LESS REVENUES OR INCUR MORE FEES THAN WE ANTICIPATE FOR
SPRINT PCS ROAMING, WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS PROFITABLY
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. 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. In addition, Sprint PCS could
change the current fee for each Sprint PCS roaming minute used. If we were to
receive less Sprint PCS roaming net revenue, we may not be able to operate our
business profitably. For more information on roaming, see "Business -- Roaming."
WE ARE LIKELY TO RECEIVE VERY LITTLE NON-SPRINT PCS ROAMING REVENUE SINCE
THE SPRINT PCS NETWORK IS NOT COMPATIBLE WITH MANY OTHER NETWORKS
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 many 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 service providers 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, see "Business -- Roaming." For further information on the Sprint PCS
network technology, see "Business -- Technology."
OUR RAPID GROWTH MAY IMPAIR OUR ABILITY TO EXPAND OUR COVERAGE AND MANAGE
OUR SYSTEMS
Since our inception in July 1998, we have experienced rapid growth and
development in a relatively short period of time. As we open more markets, we
expect to continue to experience growth. The management of that growth will
require, among other things:
- continued development of our operational and administrative systems;
- stringent control of costs of network build-out;
- integration of our network infrastructure with the rest of the Sprint PCS
network;
- increased marketing activities;
- the ability to attract and retain qualified management, technical and
sales personnel; and
- the training of new personnel.
Failure to successfully manage our expected rapid growth and development
could impair our ability to complete the build-out of our portion of the Sprint
PCS network, manage the expanding systems in our territory and achieve
profitability.
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<PAGE> 15
OUR PROJECTED BUILD-OUT PLAN DOES NOT COVER ALL OF OUR TERRITORY, WHICH
COULD MAKE IT DIFFICULT TO MAINTAIN A PROFITABLE CUSTOMER BASE
Our projected build-out plan for our territory does not cover all areas of
our territory. Upon completion of our current build-out plan, we expect to cover
65% of the resident population in 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 not have the financial resources to complete or
may be unable to do profitably.
PARTS OF OUR TERRITORY HAVE LIMITED LICENSED SPECTRUM, AND THIS MAY AFFECT
THE QUALITY OF OUR SERVICE OR 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
increases in call volume and may lead to more dropped calls than in other parts
of our territory. In addition, Sprint PCS has no obligation to sell us spectrum
licenses in areas where Sprint PCS owns less than 20 MHz of spectrum.
Accordingly, if Sprint PCS were to terminate our affiliation agreements with
them, it is likely that we would be unable to operate our business in New Mexico
and Durango.
THE TECHNOLOGY WE USE MAY BECOME OBSOLETE OR LIMIT OUR ABILITY TO COMPETE
EFFECTIVELY WITHIN THE WIRELESS INDUSTRY
The wireless telecommunications industry is experiencing significant
technological change. We employ code division multiple access digital
technology, the digital wireless communications technology selected by Sprint
PCS for its network. Code division multiple access technology may not provide
the advantages expected by us or 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 code division multiple access technology, see
"Business -- Technology."
UNAUTHORIZED USE OF, OR INTERFERENCE WITH, THE SPRINT PCS NETWORK COULD
DISRUPT OUR SERVICE AND INCREASE OUR COSTS
We may incur costs associated with the unauthorized use of the Sprint PCS
network including administrative and capital costs associated with detecting,
monitoring and reducing the incidence of fraud. Fraudulent use of the Sprint PCS
network may impact interconnection costs, capacity costs, administrative costs,
fraud prevention costs and payments to other carriers for unbillable fraudulent
roaming. In addition, our border markets are susceptible to uncertainties
related to areas not governed by the Federal Communications Commission. For
example, unauthorized microwave radio signals near the border in Mexico could
disrupt our service in the United States.
RISKS RELATING TO THE YEAR 2000 ISSUE MAY CAUSE INTERRUPTIONS IN SERVICE
Our systems, the systems of Sprint or Sprint PCS and the systems of other
third parties upon whom we depend may experience 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."
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<PAGE> 16
RISKS PARTICULAR TO ALAMOSA'S INDEBTEDNESS
WE HAVE SUBSTANTIAL DEBT AND EXPECT TO INCUR SUBSTANTIAL ADDITIONAL DEBT,
WHICH WILL REQUIRE LARGE PAYMENTS AND MAY RESULT IN OUR LENDERS CONTROLLING OUR
ASSETS
As of December 31, 1999, our outstanding long-term debt totaled $72.9
million. In addition, under our current business plan, we expect to incur
substantial additional debt, including an anticipated $187.1 million if we
complete our senior discount notes offering, 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; and
- 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.
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 $71.9 million as of December 31, 1999 under our financing
agreements with Nortel. The remaining $178.1 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;
- providing coverage to a minimum number of residents; and
- adhering 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.
IF WE DO NOT HAVE ACCESS TO THE CAPITAL MARKETS ON TERMS REASONABLY
SATISFACTORY TO US, WE MAY BE UNABLE TO REPAY THE NORTEL FACILITY AT MATURITY,
OR REFINANCE THE NORTEL FACILITY BEFORE WE ARE REQUIRED TO ISSUE WARRANTS TO
NORTEL
Failure to repay the Nortel facility at maturity will result in a default
under that agreement. It is unlikely that we can repay the Nortel facility
without refinancing the facility, and we may have inadequate access to the
capital markets to permit such refinancing. A default under the Nortel facility
could:
- prevent us from operating or completing the build-out of our portion of
the Sprint PCS network;
- constitute a default under the senior discount notes or a default under
our affiliation agreements with Sprint PCS; and
- could make it extremely difficult for us to obtain any future financing.
If we are unable to refinance and repay a portion of the Nortel financing
prior to the second anniversary of the closing date of the Nortel facility, we
will likely be required to issue warrants to purchase shares of our stock to
Nortel, which would be dilutive to our stockholders if Nortel exercises those
warrants.
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<PAGE> 17
OUR NEW INDEBTEDNESS WILL PLACE RESTRICTIONS ON US WHICH MAY LIMIT OUR
OPERATING FLEXIBILITY AND OUR ABILITY TO PAY DIVIDENDS
The indenture governing the senior discount notes we plan to sell will
impose material operating and financial restrictions on us. These restrictions,
subject to ordinary course of business exceptions, may limit our ability to
engage in some transactions, including the following:
- consummating designated types of mergers or consolidations;
- paying dividends or other distributions to our stockholders;
- making investments;
- selling assets;
- repurchasing our common stock;
- changing lines of business;
- borrowing additional money; and
- engaging in transactions with affiliates.
These restrictions could limit our ability to obtain debt financing,
repurchase stock, refinance or pay principal or interest on our outstanding
debt, consummate acquisitions for cash or debt or react to changes in our
operating environment.
INDUSTRY RISKS
WE MAY EXPERIENCE A HIGH RATE OF CUSTOMER TURNOVER WHICH WOULD INCREASE OUR
COSTS OF OPERATIONS AND REDUCE OUR REVENUE
The wireless personal communications services industry in general and
Sprint PCS in particular have experienced a higher rate of customer turnover as
compared to cellular industry averages. In particular, our customer turnover may
be high because:
- Sprint PCS does not require its customers to sign long term contracts;
and
- Sprint PCS's handset return policy allows customers to return used
handsets within 30 days of purchase and receive a full refund.
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.
REGULATION BY GOVERNMENT AGENCIES AND TAXING AUTHORITIES MAY INCREASE OUR
COSTS OF PROVIDING SERVICE OR REQUIRE US TO CHANGE OUR SERVICES
Our operations and those of Sprint PCS may be subject to varying degrees of
regulation by the Federal Communications Commission, the Federal Trade
Commission, the Federal Aviation Administration, the Environmental Protection
Agency, the Occupational Safety and Health Administration and state and local
regulatory agencies and legislative bodies. Adverse decisions or regulations of
these regulatory bodies could negatively impact Sprint PCS's operations and our
costs of doing business. For example, 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 current relationship with Sprint PCS.
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<PAGE> 18
CONCERNS OVER HEALTH RISKS POSED BY THE USE OF WIRELESS HANDSETS MAY REDUCE
THE CONSUMER DEMAND FOR OUR SERVICES
Media reports have suggested that radio frequency emissions from wireless
handsets may:
- be linked to various health problems resulting from continued or
excessive use, including cancer;
- interfere with various electronic medical devices, including hearing aids
and pacemakers; and
- cause explosions if used while fueling an automobile.
Widespread concerns over radio frequency emissions may expose us to
potential litigation or discourage the use of wireless handsets. Any resulting
decrease in demand for our services could impair our ability to profitably
operate our business.
WORSE THAN EXPECTED FOURTH QUARTER RESULTS MAY CAUSE OUR STOCK PRICE TO
DROP AND SIGNIFICANTLY REDUCE OUR OVERALL RESULTS OF OPERATIONS
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.
The price of our common stock may drop and our overall results of
operations could be significantly reduced if Alamosa has a worse than expected
fourth quarter for any reason, including the following:
- Alamosa's inability to match or beat pricing plans offered by
competitors;
- the failure to adequately promote Sprint PCS's products, services and
pricing plans;
- the inability of Alamosa to obtain an adequate supply or selection of
handsets;
- a downturn in the economy of some or all markets in our territory; or
- a poor holiday shopping season.
SIGNIFICANT COMPETITION IN THE WIRELESS COMMUNICATIONS SERVICES INDUSTRY
MAY RESULT IN OUR COMPETITORS OFFERING NEW SERVICES OR LOWER PRICES THAT WOULD
PREVENT US FROM OPERATING PROFITABLY
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.
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 are larger than us, with greater resources and more extensive
coverage areas, and may market other services, such as landline telephone
service, cable television and Internet access, with their wireless
communications services. In addition, we may be at a competitive disadvantage
since we may be more highly leveraged than some of our competitors.
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. 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."
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<PAGE> 19
A LACK OF SUITABLE TOWER SITES MAY DELAY THE BUILD-OUT OF OUR PORTION OF
THE SPRINT PCS NETWORK AND RESTRICT OUR OPERATING CAPACITY
A lack of tower site availability due to difficulty in obtaining local
regulatory approvals or other reasons 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 Sprint PCS subscribers. 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.
RISKS RELATING TO THE OFFERING
OUR EXISTING STOCKHOLDERS, DIRECTORS AND OFFICERS 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, directors and officers will beneficially own approximately 84% of
our outstanding common stock on a diluted basis. 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 even though a
change in ownership may be economically beneficial to us and our stockholders.
For more information on this subject, please refer to "Management" and
"Principal Stockholders."
ACTUAL OR ANTICIPATED SALES OF OUR COMMON STOCK BY OUR CURRENT STOCKHOLDERS
COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECREASE
Many of our current stockholders hold large portions of our common stock.
Six months after the completion of this initial public offering, approximately
47,763,659 shares of common stock, including shares issuable pursuant to stock
options immediately exercisable or exercisable prior to the termination of the
lock-up period, will no longer have transfer restrictions imposed by a lock-up
period. One year after the completion of this initial public offering,
approximately 48,500,008 shares of common stock will be eligible for sale
pursuant to Rule 144 of the Securities Act of 1933. The occurrence of sales of a
large number of these shares, or the perception that these sales could occur,
could cause a drop in our stock price and could impair our ability to obtain
capital through an offering of equity securities. 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 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 -- Provisions of
the Certificate of Incorporation and Bylaws That May Prevent Takeovers" for more
information.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE, WHICH COULD RESULT IN WIDE
FLUCTUATIONS IN OUR STOCK PRICE
The market price of initial public offerings of growth stage
technology-industry stocks have recently experienced wide fluctuations. Our
stock price may fluctuate in a manner unrelated to or disproportionate to our
performance.
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<PAGE> 20
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 wireless personal
communications 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 wireless personal communications service in particular
markets;
- statements regarding expectations or projections about markets in our
territory;
- statements regarding 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 that 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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<PAGE> 21
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 $168.8 million, or an
aggregate of $194.3 million if the underwriters exercise their over-allotment
option in full. We intend to use the net proceeds from the common stock
offering, together with remaining cash proceeds available under the Nortel loan
financing at January 1, 2000 of $152.5 million, to fund the following cash
expenditures through 2002:
- capital expenditures of approximately $216 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;
- net operating losses and working capital requirements of approximately
$11 million;
- interest expense, principal payments and loan origination fees of
approximately $45 million; and
- general corporate purposes.
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. 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.
We anticipate that the proceeds from our proposed offering of senior
discount notes will not be needed to fund the required capital expenditures,
working capital requirements, operating losses and other cash needs of our
current business plan. However, we cannot assure you that our notes offering
will be completed.
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. The Nortel financing
does not restrict Alamosa PCS Holdings, Inc.'s ability to pay dividends.
However, the Nortel financing prohibits our subsidiaries from paying dividends
or making distributions, except for stock dividends and for distributions to
fund the payment of the interest on our senior discount notes, without Nortel's
consent. Accordingly, the Nortel financing makes it very difficult for us to pay
any cash dividends to our stockholders.
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<PAGE> 22
CAPITALIZATION
The following table shows our cash and cash equivalents, short-term debt,
long-term debt, stockholders' equity and capitalization:
- as of September 30, 1999;
- as adjusted to reflect the sale in the offering of 10,714,000 shares of
common stock and the application of $168.8 million in net proceeds
therefrom; and
- as further adjusted to reflect (1) the sale in the offering of 10,714,000
shares of common stock and the application of $168.8 million in net
proceeds therefrom, (2) the issuance of an aggregate principal amount at
maturity of $350.0 million in senior discount notes with gross proceeds
of $187.1 million, less underwriting discounts and commissions and
estimated offering expenses of $6.0 million and (3) the prepayment of an
aggregate of $75.0 million of indebtedness under the Nortel facility,
consisting of the prepayment of $59.7 million outstanding on September
30, 1999 and cash equal to $15.3 million designated to prepay borrowings
under the Nortel facility incurred after September 30, 1999.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------------
AS FURTHER
ACTUAL(1) AS ADJUSTED ADJUSTED
--------- ----------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 7,454 $176,278 $297,723
======== ======== ========
Short-term debt:
Notes payable........................................... $ 144 $ 144 $ 144
Long-term debt:
Nortel financing........................................ 59,678 59,678 --
Senior discount notes -- -- 187,096
Other notes payable..................................... 209 209 209
Capital lease obligations(2)............................ 854 854 854
-------- -------- --------
Total long-term debt.................................... 60,741 60,741 188,159
Stockholders' equity (deficit):
Preferred stock, par value $.01 per share; 10,000,000
shares authorized; no shares issued and
outstanding.......................................... -- -- --
Common stock, par value $.01 per share, 290,000,000
shares authorized; 48,500,008 shares outstanding,
actual; 59,214,008 shares outstanding, as adjusted... 485 592 592
Additional paid-in capital.............................. 35,709 204,426 204,426
Unearned compensation................................... (4,372) (4,372) (4,372)
Accumulated deficit..................................... (18,612) (18,612) (18,612)
-------- -------- --------
Total stockholders' equity (deficit)................. 13,210 182,034 182,034
-------- -------- --------
Total capitalization............................ $ 74,095 $242,919 $370,481
======== ======== ========
</TABLE>
- ---------------
(1) Reflects the reorganization as if it had occurred upon the inception of
Alamosa PCS, LLC.
(2) Includes current maturities.
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DILUTION
Our net tangible book value at September 30, 1999, was $13.2 million or
$0.27 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 10,714,000 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 September 30,
1999 would have been approximately $182 million, or $3.07 per share. This
represents an immediate dilution of $13.93 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 $2.80 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>
Initial public offering price per share..................... $17.00
Net tangible book value per share as of September 30,
1999...................................................... $0.27
Increase in net tangible book value per share attributable
to the offering........................................... 2.80
-----
As adjusted net tangible book value per share after the
offering.................................................. 3.07
------
Dilution per share to new investors......................... $13.93
======
</TABLE>
The following table summarizes, on an as-adjusted basis as of September 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
purchasers of shares of common stock in this offering, before the deduction of
underwriting discounts and commissions and estimated offering expenses of $12.4
million payable by us:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
---------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT ($) PERCENT SHARE($)
----------- -------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 48,500,008 81.9% 37,000,000 17.0% 0.76
Purchasers in this
offering(2)................... 10,714,000 18.1% 181,268,667 83.0% 16.92
----------- -------- ------------- -------- --------
Total................. 59,214,008 100% 218,268,667 100% 3.69
</TABLE>
- ---------------
(1) Reflects the reorganization as if it had occurred upon the inception of
Alamosa PCS, LLC.
(2) As part of this sale of our common stock, the underwriters reserved a
maximum of 10% of the shares of our common stock to be sold in this offering
for sale to our current stockholders at a price per share equal to the
public offering price less the underwriting discount. The underwriters are
not entitled to any discount or commission on these shares and the proceeds
to us are the same as if the shares were sold to the general public. Current
stockholders will purchase 757,589 shares pursuant to this arrangement.
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 at exercise prices below the net tangible book value
per share in connection with outstanding options, you will experience further
dilution. See "Management -- Benefit Plans -- 1999 Long Term Incentive Plan,"
"Management -- Employment Agreements" and "Description of Our
Indebtedness -- The Nortel Credit Facility -- Warrants."
20
<PAGE> 24
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement
of Operations Data," "Per Share Data," "Other Data" and "Balance Sheet Data"
for, and as of the end of, the period from inception to December 31, 1998, the
nine-month period ended September 30, 1999 and the period from inception to
September 30, 1999 are derived from the audited financial statements of Alamosa
PCS LLC, the predecessor to Alamosa PCS Holdings, Inc. These financial
statements have been audited by PricewaterhouseCoopers LLP, independent
certified public accountants.
It is important that you also read "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements for
the periods ended December 31, 1998 and September 30, 1999, the related notes
and the independent auditors' report.
The selected unaudited financial data presented below as of and for the
period from inception to September 30, 1998 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
nine-month period ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1999.
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD PERIOD FOR THE PERIOD
JULY 16, 1998 JULY 16, 1998 FOR THE NINE- JULY 16, 1998
(INCEPTION) (INCEPTION) MONTH PERIOD (INCEPTION)
THROUGH THROUGH ENDED THROUGH
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999 1999
-------------- -------------- -------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND SUBSCRIBER DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ -- $ -- $ 2,000 $ 2,000
Cost of sales......................... -- -- 1,614 1,614
Total operating expenses.............. 958 401 17,634 18,592
Operating loss........................ (958) (401) (17,247) (18,206)
Net loss.............................. (924) (400) (17,688) (18,612)
PER SHARE DATA:
Basic and diluted net loss per share
of common stock(1)(2).............. $ (.02) $ (.01) $ (.36) $ (.38)
Pro forma net loss per share of common
stock(1)(2)........................ (.02) (.01) (.36) (.38)
OTHER DATA:
Number of subscribers................. -- -- 9,850 9,850
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999
AS OF -----------------------------------
DECEMBER 31, AS AS FURTHER
1998 ACTUAL ADJUSTED(3) ADJUSTED(4)
------------ ------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $13,529 $ 7,454 $176,278 $297,723
Construction in progress...................... 1,979 28,940 28,940 28,940
Property and equipment, net................... 114 36,930 36,930 36,930
Total assets.................................. 15,674 88,412 257,236 384,654
Short-term debt(5)............................ 44 165 165 165
Long-term debt................................ 708(6) 60,720(7) 60,720(7) 188,138
Total liabilities............................. 1,598 75,202 75,202 202,620
Equity........................................ 14,076 13,210 182,034 182,034
</TABLE>
21
<PAGE> 25
- ---------------
(1) For the period ended September 30, 1999, diluted weighted average shares
outstanding exclude the common shares issuable on the exercise of stock
options 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. The presentation of the pro forma net loss per share of
common stock gives effect to adjustments for federal and state income taxes
as if Alamosa had been taxed as a C Corporation for the periods presented.
(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 this common stock
offering of 10,714,000 shares of common stock and the application of $168.8
million in net proceeds therefrom.
(4) As further adjusted Balance Sheet Data reflects (a) the sale in this common
stock offering of 10,714,000 shares of common stock and the application of
$168.8 million in net proceeds therefrom, (b) the issuance of an aggregate
principal amount at maturity of $350.0 million in senior discount notes with
gross proceeds of $187.1 million, less underwriting discounts and
commissions and estimated offering expenses of $6.0 million and (c) the
prepayment of an aggregate of $75.0 million of indebtedness under the Nortel
facility, consisting of the prepayment of $59.7 million outstanding on
September 30, 1999 and cash equal to $15.3 million designated to prepay
borrowings under the Nortel facility incurred after September 30, 1999.
(5) Reflects notes payable of $20,145 and capital lease obligations of $23,637
as of December 31, 1998 and notes payable of $143,690 and capital lease
obligations of $21,281 as of September 30, 1999.
(6) Reflects capital lease obligations of $708,074.
(7) Reflects indebtedness incurred under the Nortel facility of $59,678,288
capital lease obligations of $832,684 and other long term notes payable of
$209,298.
22
<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
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 September 30, 1999, we had not generated significant revenues
from customers, and our accumulated deficit was $18.6 million. Through September
30, 1999 we incurred $66.8 million, and through December 31, 1999 we incurred
$82.0 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.
On July 17, 1998, we entered into our affiliation agreements with Sprint
PCS. We have recently amended our affiliation agreements with Sprint PCS to
expand our territory so that it will include approximately 8.4 million
residents.
As a Sprint PCS affiliate, we have the exclusive right to provide digital
wireless personal communication 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
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 cover approximately 2.7 million residents out of
approximately 3.9 million total residents in those markets. The number of
residents covered by our systems does not represent the number of Sprint PCS
subscribers that we expect to be based in our territory. As of December 31,
1999, approximately 31,850 Sprint PCS subscribers were based in our territory.
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 our affiliation agreements with Sprint PCS, 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.
23
<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
FOR THE PERIOD JULY 16, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998
Revenues, Direct Costs and Net Loss. From inception through December 31,
1998, our operating activities were directed towards the development of our
business. During July 1998, we signed our affiliation agreements with Sprint PCS
to operate as the exclusive affiliate of Sprint PCS in our territory. Our
operating activities were focused on executing our build-out plan and developing
our network infrastructure. As our first market did not launch until June 1999,
the 1998 period reflects no service revenues, product sales or related costs
associated with services or products. Our net loss for the period was $923,822,
which was principally comprised of selling, general and administrative expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the period in the amount of $949,445 were comprised
primarily of legal and other professional services of $704,381 related to the
start up of our business and the development of our systems. In addition, we
incurred $166,850 of human resource costs related to preparation for the 1999
launch of our network. Virtually all selling, general and administrative
expenses during this period related to the start-up of the business and were
expensed according to American Institute of Certified Public Accountants
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
Net Loss. Our net loss for the nine months ended September 30, 1999 was
$17,688,419 and was comprised primarily of the continued incurrence of start-up
expenses relative to the preparation of our initial commercial market launch in
June 1999 and six other market launches during the period.
Service Revenues. Service revenues during the period in the amount of
$1,187,008 are comprised of subscriber revenue, Sprint PCS roaming revenue,
non-Sprint PCS roaming revenue and long distance revenue, all of which initially
began accruing to us at or near our first initial commercial launch in June
1999. 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 national plans offered by Sprint PCS 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.
24
<PAGE> 28
Pursuant to our affiliation agreements with Sprint PCS, 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 monthly revenue per user for Sprint PCS
customers in our territory, including long distance and roaming revenue, was
$110.01 for the period from June 26, 1999 to September 30, 1999.
Product Sales. 100% of the revenue from the sale of handsets and
accessories are recorded, net of an allowance for returns, as product sales. The
amount recorded during this period totaled $813,052. 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 totaling $818,678 during this period related to
providing wireless services to customers and 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 our affiliation
agreements with Sprint PCS, Sprint PCS can change this per minute rate. We pay
non-Sprint PCS roaming fees to other wireless service providers when Sprint PCS
customers based in our territory use their network.
Cost of Products Sold. The cost of products sold totaling $794,963 during
this period 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. For the nine months ended September 30, 1999, the handset
subsidy totaled $1,194,000 and there was no expense related to handset subsidy
in the period prior to the nine months ended September 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses totaling $9,194,937 during the period include sales and
marketing expenses of $2,282,000, the 8% of collected revenue retained by Sprint
PCS of $57,200 and amounts retained by Sprint PCS for customer service of
$198,000, as well as billing, network monitoring, human resources 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 selling, general and administrative 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 American
Institute of Certified Public Accountants Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities."
Equity Participation Compensation Expense. Equity participation
compensation expense totaled $6,822,037 for the period. This expense was
determined using the provisions of Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" for variable options and was based on
the estimated intrinsic value of the options at September 30, 1999. The
estimated intrinsic value represents the excess of the estimated fair value
equal to the initial public offering price over the exercise price of the
option.
25
<PAGE> 29
General and Administrative Expenses -- Related Parties. General and
administrative expenses -- related parties totaled $680,006 for the period and
was primarily comprised of information technology and other professional
consulting expenses incurred in connection with a contract between us and a
telecommunications engineering and consulting firm. Several key officers and
owners of this consulting firm have an equity ownership interest in us.
Depreciation and Amortization. Depreciation and amortization during the
period totaled $936,736. 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 totaling $444,746
during this period generally have been generated from the investment of equity
and loan proceeds held in liquid accounts waiting to be deployed.
Interest Expense. Interest expense totaled $885,868 during this period and
primarily related to the Nortel financing. Interest on the Nortel financing may
be paid with loans obtained under the Tranche C Commitment of the Nortel
financing until, in most circumstances, February 2002. See "Description of Our
Indebtedness -- 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." Had we applied the provisions of SFAS No. 109 for the period from
inception on July 16, 1998 through September 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 September 30, 1999, we had a $123.0 million senior credit facility with
Nortel, of which $59.7 million had been drawn. We have since signed a letter of
intent to increase the facility to $250.0 million to be effective as of the
closing of this offering. The terms of the facility do not require cash interest
payments until the earlier of:
- February 2001, only if we have not borrowed at least $100.0 million under
the Nortel financing by that time;
- February 2002; and
- the date the Tranche C Commitment is fully funded.
Principal payments are scheduled to begin on the earlier of:
- June 30, 2001, only if we have not borrowed at least $100.0 million under
the Nortel financing by February 2001; and
- December 31, 2002.
26
<PAGE> 30
Our financing with Nortel will be used to purchase equipment, pay interest
and cover approved working capital costs. We are required to purchase a total of
$167.0 million of equipment and services from Nortel, and as of December 31,
1999, we had remaining commitments of $117.6 million. In connection with the
facility, we are to issue springing warrants to Nortel that come into existence
and become exercisable on the second anniversary of the closing of the facility
unless we meet specified conditions prior to that date. If we complete our
offering of senior discount notes, the Nortel facility requires that we prepay
at least $75.0 million of indebtedness under the Nortel financing, which
prepayment will prevent the exercise of the warrants by Nortel. We cannot assure
you that we will choose to complete our notes offering and prepay any portion of
the Nortel financing. The warrants would be exercisable to purchase shares of
our common stock representing 2% of the total shares outstanding on a
fully-diluted basis 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 loans. For more
information on the financing facility, see "Description of Our
Indebtedness -- The Nortel Credit Facility."
Net cash used by operating activities was $127,954 for the inception period
ending December 31, 1998, and $9,338,888 for the nine months ending September
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 $18,784,600 for the nine month period
ending September 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 consisting of
capital contributions for the inception period ending December 31, 1998 and
$22,048,720 consisting primarily of capital contributions of $10,000,000 and
Nortel draws of $12,289,286 for the nine month period ending September 30, 1999.
As of September 30, 1999, the primary sources of liquidity for Alamosa were
$7.5 million in cash and $63.3 million of unused capacity under the $123.0
million Nortel credit facility.
We anticipate that the proceeds from this offering, when combined with 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 current business plan. We estimate that we will require
approximately $283 million to complete the current build-out plan and fund
working capital losses through the year 2001. The following table does not
reflect the consummation of our senior discount notes offering and sets forth
our estimates at January 1, 2000 of our sources and uses of funds necessary to
fund our capital expenditures through the completion of our network build-out
plan in 2002:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
SOURCES:
Cash on hand at January 1, 2000............................. $ 6.2
Gross proceeds of this offering of common stock............. 181.3
Proceeds from the Nortel financing -- cash proceeds......... 152.5
------
Total sources..................................... $340.0
======
USES:
Capital expenditures and microwave relocation............... 215.7
Working capital needs and cash operating gains
(losses)(1)............................................... 11.1
Debt service(2)............................................. 45.0
Fees and expenses of this offering.......................... 12.4
------
Total uses........................................ 284.2
------
Cash on hand at December 31, 2002................. 55.8
------
Total uses and cash on hand at December 31,
2002........................................ $340.0
======
</TABLE>
27
<PAGE> 31
- ---------------
(1) We expect to incur losses in earnings before interest, taxes,
depreciation and amortization in excess of $52 million, but expect to
offset a portion of these losses in the period presented.
(2) Debt service payments are composed of:
<TABLE>
<S> <C>
Cash interest payment....................................... $29.4
Payment of equipment financing debt principal............... 13.7
Payment of capitalized interest equipment, debt principal
and origination fee....................................... 1.9
-----
$45.0
</TABLE>
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. For
information see "Risk Factors -- Risks Particular to Alamosa's
Operations -- Failure to obtain additional capital, if needed to complete the
build-out of our portion of the Sprint PCS network, could cause delay or
abandonment of our development plans."
We include capital leases related to network equipment and build-out in
construction in progress until service has commenced in their respective
markets. Once that service has commenced, those capital leases are reclassified
to property and equipment. At December 31, 1998, capital leases totaled $728,219
and included long-term capital lease obligations of $708,074. At September 30,
1999 the capital leases totaled $853,965 and included long-term capital lease
obligations of $832,684. See "Description of Our Indebtedness -- The Nortel
Credit Facility -- Loans and Interest Options." Amortization in the amount of
$20,661 was recorded under these leases through September 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 began acquiring items that comprise our internal information technology
systems in late 1998 when we commenced operations. As we purchased those
components, we determined their year 2000 readiness. As a result, our direct
costs with respect to year 2000 compliance have not been significant and we do
not expect any significant costs in the future. Our non-information technology
systems, particularly our network equipment, have been acquired from Nortel and
are susceptible to year 2000 issues. Nortel has represented to us that such
systems are year 2000 ready.
To determine the state of readiness of our internal systems, we performed
steps that included the following:
- the compilation of an inventory of core critical systems and
applications, facilities and processes;
- the review of core critical systems and applications;
- the testing and validation of core critical systems and applications;
- the development of contingency and continuity plans for all core critical
systems and applications independent of Sprint PCS.
28
<PAGE> 32
We depend on several third-party vendors and providers to operate our
business, particularly Sprint PCS and local exchange carriers. Sprint PCS
provides us with critical back office services as well as access to its network.
We have contacted Sprint PCS and other third party vendors and providers and
believe they are year 2000 compliant.
While we believe our systems are year 2000 compliant, there is the risk
they may not be compliant. We believe our greatest risk is the failure of the
systems of our third-party vendors or providers. However, should any failure
occur that affects us, we believe it would result in only a temporary disruption
of our service. Should a disruption occur, there could be a material loss of
revenue; however, we do not believe such losses, if any, will be significant.
We have not experienced any material disruptions of our systems or
operations as a result of the year 2000 issue, nor are we aware of any
disruptions in the systems or operations of Sprint PCS or our third-party
vendors or providers that would have a material effect on us. However, it is
still possible that future problems could arise with respect to the year 2000
issue.
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 senior discount notes, capital leases
and 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 MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Instruments:
Senior discount notes..................... -- $ 207 $ 235 $ 266 $ 301 $ 341 $ 350
Fixed interest rate..................... -- 12.875% 12.875% 12.875% 12.875% 12.875% 12.875%
Principal payments...................... -- -- -- -- -- -- $ 350
Capital Leases -- Annual Minimum Lease
Payments(1)............................. $.05 $ .11 $ .11 $ .11 $ .11 $ .11 $ 1.09
Average Interest Rate................... 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Variable Rate Instruments:
Nortel Senior Debt(2)..................... $ 72 $ 64 $ 158 $ 158 $ 114 $ 38 --
Average Interest Rate(3)................ 9.1% 9.75% 9.75% 9.75% 9.75% 9.75% --
Principal payments...................... -- -- -- $ 17 $ 38 $ 195 --
</TABLE>
- ---------------
(1) These amounts represent the estimated minimum annual payments due under our
estimated capital lease obligations for the periods presented.
(2) The amounts presented for periods subsequent to December 31, 1999 represent
estimated year-end balances under the Nortel facility based on a projection
of the funds borrowed under that facility pursuant to our current plan of
network build-out.
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<PAGE> 33
(3) 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 6.0% for all periods
presented, other than the year ending December 31, 1999.
Our primary market risk exposure relates to:
- the interest rate risk on long-term and short-term borrowings;
- our ability to refinance our senior discount notes at maturity at market
rates; 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 that 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.
30
<PAGE> 34
BUSINESS
References in this prospectus 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 our
affiliation agreements with Sprint PCS. Sprint PCS holds the spectrum licenses
and controls the network through its agreements with us.
All references contained in this prospectus to resident population and
residents 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.
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 wireless personal communications
services under the Sprint and Sprint PCS brand names in our territory. We have
recently amended our affiliation agreements with Sprint PCS to expand our
territory so that it will include approximately 8.4 million residents. These
residents 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. 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 42%
above the national average. We expect to face fewer competitors in our territory
than is generally the case for wireless service providers 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 our inception in July 1998, we have launched Sprint PCS service in
eleven markets in which our systems cover approximately 2.7 million residents
out of approximately 3.9 million total residents. The number of residents
covered by our systems does not represent the number of Sprint PCS subscribers
that we expect to be based in our territory. As of December 31, 1999,
approximately 31,850 Sprint PCS subscribers were 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.
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 wireless personal communications services,
cellular telephone services and enhanced specialized mobile radio service.
Since the introduction of commercial cellular service in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers for cellular, wireless personal communications services and enhanced
specialized mobile radio service has increased from an estimated
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<PAGE> 35
340,213 in June of 1985 to an estimated 76.3 million as of June, 1999, according
to the Cellular Telecommunications Industry Association, an international
association for the wireless industry. The following chart sets forth statistics
for the domestic wireless telephone industry as a whole, as published by the
Cellular Telecommunications Industry Association.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
WIRELESS INDUSTRY STATISTICS(1)
Total service revenues (in billions)...... $ 12.6 $ 16.5 $ 21.5 $ 25.6 $ 29.6 $ 37.2
Wireless subscribers at end of period (in
millions)............................... 19.3 28.2 38.2 48.7 60.8 76.3
Subscriber growth......................... 47.6% 46.0% 35.7% 27.5% 24.9% 25.4%
Average local monthly bill(2)............. $58.65 $52.45 $48.84 $43.86 $39.88 $40.24
</TABLE>
- ---------------
(1) Reflects domestic commercial cellular, enhanced specialized mobile radio
service and wireless personal communications services providers.
(2) Does not include revenue from roaming and long distance.
Paul Kagan Associates, Inc., an independent media and telecommunications
research firm, estimates in its publication, Kagan's Wireless Telecom Financial
Databook - 1998, 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 wireless personal communications services users, who are forecast to account
for approximately 29% of total wireless users in 2002 and 36% in 2005,
representing a significant increase from approximately 8% 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 wireless personal communications
services 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.
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<PAGE> 36
Sprint PCS is a wholly-owned operating unit of Sprint and operates the only
100% digital wireless personal communications services network in the United
States with licenses to provide service nationwide using a single technology.
Sprint PCS has licenses to provide wireless service to an area containing over
270 million residents located throughout the United States, including Puerto
Rico and the U.S. Virgin Islands. The Sprint PCS network uses code division
multiple access technology nationwide.
Sprint PCS launched commercial wireless personal communications services in
the United States in November 1995. Since then, Sprint PCS has experienced rapid
customer growth and has reported providing service to approximately 4.7 million
customers with average revenue per subscriber of $54 as of September 30, 1999.
In the fourth quarter of 1998, Sprint PCS added approximately 836,000 net
wireless subscribers. Sprint PCS added approximately 2.1 million net wireless
subscribers in the first nine months of 1999. As of September 30, 1999, Sprint
PCS, directly and through affiliates such as us, operated wireless personal
communications services 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 Q3
--- --- --- --- ----- ----- ----- ----- ----- ----- -----
<S> <C> <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 4,687
</TABLE>
Statements in this prospectus regarding Sprint or Sprint PCS are derived
from information contained in our affiliation 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.
COMPETITIVE STRENGTHS
STRATEGIC RELATIONSHIP WITH SPRINT PCS
We are one of the largest affiliates of Sprint PCS based on the resident
population in our territory 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 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. These national retailers have approximately 470
retail outlets in 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 Network. We believe that our ability to offer access
to Sprint PCS's wireless network, with service in 280 major metropolitan areas
across the country, 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.
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<PAGE> 37
High Capacity Network. Sprint PCS built its network around code division
multiple access digital technology, which we believe provides advantages in
capacity, voice-quality, security and handset battery life. For more information
on the benefits of this technology, see "-- Technology -- Code Division Multiple
Access Technology."
Sprint PCS's Licensed Spectrum. Sprint PCS has invested approximately $100
million to purchase the wireless personal communications services 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 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 TERRITORY
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 42% 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 residents 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 wireless service providers operating in more urban
markets. As of September 30, 1999, three or fewer wireless service providers,
other than Alamosa, operated in markets that comprise over 80% of the residents
in our territory. By comparison, less than 10% of the resident population in the
50 most populated markets in the United States are served by four or fewer
wireless service providers. In addition, no single competitor or affiliated
group of competitors has launched service that reaches more than half of the
residents in our territory. We believe that our most extensive competition comes
from Nextel Communications, Inc., which has launched service to less than 40% of
the residents in our territory, followed by VoiceStream Wireless Corporation,
SBC Communications Inc. and United States Cellular Corporation, each of which
has launched service to less than 30% of the residents in our territory. AT&T
Wireless Services, Inc. has launched service to less than 15% of the residents
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 its national network to anywhere in
the United States.
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<PAGE> 38
Opportunity for 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, see "-- Roaming." We anticipate that we will have significant
Sprint PCS roaming revenue for several reasons, including the following:
- Our territory adjoins several major Sprint PCS markets that are already
operational, including Dallas/Ft. Worth, Phoenix, Minneapolis, Las Vegas,
Milwaukee, San Antonio and Colorado Springs.
These metropolitan statistical areas contain approximately 15.6 million
residents and the growth rates in these markets was approximately 21.0%
from 1990 to 1998.
- We plan to build-out numerous interstate corridors in our territory,
including:
- 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);
- 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 resident will be
higher than other areas due to the lower resident population counts along
those interstate corridors.
- Our territory contains popular vacation and tourist destinations,
including major ski resorts in Colorado and New Mexico such as Taos and
Telluride.
- Our territory contains several markets near the Mexico border that 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 November 1998 to October 1999, Laredo had border crossings
of approximately:
- 17 million cars;
- two million trucks, the highest number of truck crossings along the
U.S.-Mexico border; and
- 8 million pedestrians.
In the same period, El Paso had border crossings of approximately:
- 14 million cars; and
- 12 million pedestrians.
Source: Texas A&M International University, Texas Center for Border
Economic and Enterprise Development, as published in Border Business
Indicators, December 1999, Volume 23, Number 12.
35
<PAGE> 39
ADEQUATE FUNDING TO COMPLETE OUR NETWORK
We entered into our affiliation agreements with Sprint PCS 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 cover
approximately 2.7 million residents out of approximately 3.9 million total
residents in these markets. We expect to cover a total of approximately 4.2
million residents by the end of 2000, and 5.5 million residents 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 65% of the resident
population in our territory. The number of residents covered by our systems does
not represent the number of Sprint PCS subscribers that we expect to be based in
our territory. As of December 31, 1999, approximately 31,850 Sprint PCS
subscribers were 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 65% of the resident population in our
territory by the end of 2001 and to exceed the build-out requirements contained
in our affiliation agreements with Sprint PCS. We anticipate that the proceeds
from our proposed offering of senior discount notes will not be needed to fund
the required capital expenditures, working capital requirements, operating
losses and other cash needs of our current business plan. For more information,
see "Risk Factors -- Risks Particular to Alamosa's Operations -- We have a very
limited operating history and may not achieve or sustain operating profitability
or positive cash flows, which would likely result in a drop in our stock price"
and "-- Failure to obtain additional capital, if needed to complete the
build-out of our portion of the Sprint PCS network, could cause delay or
abandonment of our development plans."
BUSINESS STRATEGY
We intend to become a leading provider of wireless personal communications
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 roaming and
bundled long distance aspects of the "Free and Clear" plans, particularly in
those markets where competitors are not offering one rate plans for service in
areas across the country.
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 CHR Solutions, Inc., a national
engineering consulting firm formerly known as Hicks & Ragland Engineering
Co., Inc. This relationship allows us to quickly plan and begin network
operations without the initial need to hire additional specialized
technical personnel.
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<PAGE> 40
- We entered into a "build-to-suit" contract with Specialty Capital
Services, Inc., 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 code division multiple access technology
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 these
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 wireless personal communications services 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
code division multiple access technology, will allow our system to handle more
customers with fewer dropped calls and better clarity than our competitors.
IMPLEMENT EFFECTIVE OPERATING STRUCTURE
Our organization and management structure is based on a market-focused
model. Each market area, averaging 1.5 million residents, will be supported by a
small corporate staff that provides services including:
- network technical support;
- accounting;
- human resources;
- roaming administration;
- marketing; 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.
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<PAGE> 41
MARKETS AND NETWORK BUILD-OUT PLAN
The following table lists the location, basic trading area number, actual
or projected launch date for network coverage, frequency, megahertz of spectrum,
estimated total residents, estimated covered residents, actual customers and
population growth rates, for each of the markets that comprise our territory
under our affiliation agreements with Sprint PCS. The number of estimated
covered residents does not represent the number of Sprint PCS subscribers that
we expect to be based in our territory.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED POPULATION
BTA LAUNCH MHZ OF TOTAL COVERED ACTUAL GROWTH
LOCATION NO.(1) DATE(2) FREQUENCY SPECTRUM RESIDENTS(3) RESIDENTS(4) CUSTOMERS(5) RATE(6)
- -------- ------ ------------ --------- -------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Laredo, TX................ 242 June 1999 A 30 223,000 185,000 4,823 4.0%
El Paso, TX............... 128 July 1999 D/E 20 787,000 652,000 8,571 2.0%
Las Cruces, NM............ 244 Aug 1999 D 10 251,000 209,000 1,109 2.5%
Amarillo, TX.............. 013 Aug 1999 B 30 405,000 255,000 2,486 0.7%
Lubbock, TX............... 264 Aug 1999 B 30 400,000 251,000 4,658 0.2%
Midland, TX............... 296 Aug 1999 B 30 127,000 80,000 885 1.4%
Odessa, TX................ 327 Aug 1999 B 30 221,000 135,000 1,493 0.3%
Albuquerque, NM........... 008 Oct 1999 D 10 812,000 544,000 5,500 1.7%
Santa Fe, NM.............. 407 Oct 1999 D 10 213,000 142,000 867 2.1%
San Angelo, TX............ 400 Nov 1999 B 30 164,000 110,000 639 0.5%
Abilene, TX............... 003 Nov 1999 B 30 258,000 172,000 845 0.2%
--------- --------- -----------
SUBTOTAL......... 3,861,000 2,735,000 31,876
Del Rio/Eagle Pass, TX.... 121 2nd Qtr 2000 A 30 121,000 79,000 0 1.9%
--------- --------- -----------
SUBTOTAL......... 3,982,000 2,814,000 31,876
Flagstaff, AZ............. 144 3rd Qtr 2000 B 30 118,000 77,000 0 2.1%
Prescott, AZ.............. 362 3rd Qtr 2000 B 30 157,000 103,000 0 4.0%
Grand Junction, CO........ 168 3rd Qtr 2000 A 30 242,000 145,000 0 2.7%
Pueblo, CO................ 366 3rd Qtr 2000 A 30 304,000 184,000 0 1.4%
--------- --------- -----------
SUBTOTAL......... 4,803,000 3,323,000 31,876
Appleton/Oshkosh, WI...... 018 4th Qtr 2000 A 30 443,000 303,000 0 1.1%
Fond du Lac, WI........... 148 4th Qtr 2000 A 30 96,000 65,000 0 0.6%
Green Bay, WI............. 173 4th Qtr 2000 A 30 345,000 235,000 0 1.1%
Manitowoc, WI............. 276 4th Qtr 2000 A 30 83,000 56,000 0 0.3%
Sheboygan, WI............. 417 4th Qtr 2000 A 30 111,000 76,000 0 0.7%
Milwaukee, WI(7).......... 297 4th Qtr 2000 A 30 85,000 59,000 0 1.5%
Colorado Springs, CO(7)... 089 4th Qtr 2000 A 30 17,000 17,000 0 0.1%
--------- --------- -----------
SUBTOTAL......... 5,983,000 4,134,000 31,876
Eau Claire, WI............ 123 2nd Qtr 2001 A 30 192,000 120,000 0 0.6%
El Centro/Calexico, CA.... 124 2nd Qtr 2001 A 30 151,000 101,000 0 3.4%
La Crosse, WI/Winona,
MN...................... 234 2nd Qtr 2001 A 30 312,000 153,000 0 0.6%
Las Vegas, NV(7).......... 245 2nd Qtr 2001 A 30 139,000 83,000 0 4.1%
Madison, WI(7)............ 272 2nd Qtr 2001 A 30 147,000 106,000 0 1.5%
Minneapolis/St. Paul,
MN(7)................... 298 2nd Qtr 2001 A 30 84,000 52,000 0 1.1%
Phoenix, AZ(7)............ 347 2nd Qtr 2001 B 30 7,000 7,000 0 0.1%
Sierra Vista/Douglas,
AZ...................... 420 2nd Qtr 2001 B 30 115,000 92,000 0 1.7%
Wausau/Rhinelander, WI.... 466 2nd Qtr 2001 A 30 244,000 102,000 0 1.1%
Yuma, AZ.................. 486 2nd Qtr 2001 B 30 137,000 117,000 0 2.6%
</TABLE>
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<PAGE> 42
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED POPULATION
BTA LAUNCH MHZ OF TOTAL COVERED ACTUAL GROWTH
LOCATION NO.(1) DATE(2) FREQUENCY SPECTRUM RESIDENTS(3) RESIDENTS(4) CUSTOMERS(5) RATE(6)
- -------- ------ ------------ --------- -------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stevens Point/Marshfield/
Wisconsin Rapids, WI.... 432 2nd Qtr 2001 A 30 214,000 120,000 0 0.6%
Big Spring, TX............ 040 2nd Qtr 2001 B 30 34,000 28,000 0 -0.1%
Clovis, NM................ 087 2nd Qtr 2001 B 30 77,000 55,000 0 0.9%
Hobbs, NM................. 191 2nd Qtr 2001 B 30 56,000 42,000 0 0.1%
Farmington, NM/ Durango,
CO...................... 139 2nd Qtr 2001 D 10 200,000 82,000 0 2.2%
Tucson, AZ(7)............. 447 2nd Qtr 2001 B 30 5,000 5,000 0 0.0%
San Diego, CA(7).......... 402 2nd Qtr 2001 A 30 5,000 5,000 0 0.0%
--------- --------- -----------
SUBTOTAL......... 8,102,000 5,404,000 31,876
Roswell, NM............... 386 3rd Qtr 2001 D 10 81,000 26,000 0 1.5%
Carlsbad, NM.............. 068 3rd Qtr 2001 D 10 55,000 18,000 0 1.2%
Gallup, NM................ 162 3rd Qtr 2001 D 10 139,000 46,000 0 1.3%
--------- --------- ----------- ----
TOTAL............ 8,377,000 5,494,000 31,876 1.5%
</TABLE>
- ---------------
(1) BTA No. refers to the basic trading area number assigned to that market by
the Federal Communications Commission 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's
Operations."
(3) Estimated total residents is 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 residents are based on our actual or projected network
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) Actual customers represents the number of Sprint PCS subscribers based in
the market indicated as of December 31, 1999.
(6) Population growth rate represents the average annual growth rate during the
period from 1990 to 1998, based on U.S. Census Bureau data.
(7) Total residents, covered residents and actual customers for these markets
reflect only those residents or customers contained in our territory, not
the total residents, covered residents and actual customers in the entire
basic trading area.
Pursuant to our affiliation agreements with Sprint PCS, we have agreed to
cover a minimum percentage of the resident population 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 "Our Affiliation Agreements with Sprint PCS -- The
Management Agreement -- Network Build-Out." We believe that our build-out plan
is achievable based on our progress to date, the proven digital wireless
personal communications services 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.
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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 December 31, 1999, our portion of the Sprint PCS network included 221
base stations and four switching centers. As of December 31, 2000, we anticipate
our portion of the Sprint PCS network will include 547 base stations and seven
switching centers.
NORTEL EQUIPMENT AGREEMENT
On December 21, 1998, we entered into a three year agreement with Nortel,
which will be amended effective as of the closing of the Nortel financing, for
our network equipment and infrastructure, including switches, base stations and
controllers. Pursuant to the amended agreement, 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 amended agreement we have committed to purchase $167.0 million of equipment
and services from Nortel. Nortel finances these purchases pursuant to the Nortel
credit facility described in "Description of Our Indebtedness -- The Nortel
Credit Facility." As of December 31, 1999, we have remaining commitments of
$117.6 million to purchase equipment and infrastructure under the amended
agreement. We submit purchase orders to Nortel for the equipment and services as
needed. Under the amended agreement, we receive a discount on the network
equipment and services because of our affiliation with Sprint PCS, but we must
pay a premium on any equipment and services financed by Nortel. We are not
obligated to pay this premium once we purchase an additional $32.6 million in
equipment and infrastructure under this amended agreement. 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 rental payments
to Specialty monthly, 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.
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AGREEMENTS WITH CHR SOLUTIONS
We have entered into a number of agreements with CHR Solutions to perform
aspects of our network build-out. CHR Solutions resulted from a merger between
Hicks & Ragland Engineering Co., Inc., and Cathey, Hutton & Associates, Inc.
effective as of November 1, 1999. Those agreements include the following:
Engineering Service Contract. Pursuant to an engineering service contract
dated July 27, 1998, as amended, CHR Solutions 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 CHR Solutions hourly rates for the employees who work on the
project as well as the employees' associated expenses. We also pay CHR Solutions
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 CHR
Solutions equal to 50% of the difference.
Data Communications Services Contract. We entered into a data
communications services contract with CHR Solutions 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 CHR Solutions hourly rates and test equipment and computer usage costs,
subject to a guaranteed maximum fee amount for the project of $262,040,
excluding taxes. 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. If the total billing for the
project is less than the guaranteed maximum fee amount, then we will pay an
incentive bonus to CHR Solutions 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 CHR Solutions or we
terminate it earlier for cause.
Marketing and Operations Consulting Services Contract. Pursuant to a
special service contract, from September 20, 1998 through January 15, 1999, CHR
Solutions provided marketing and operations consulting services relating to the
setup and operation of our wireless personal communications services 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 CHR Solutions relating to the setup and operation of the
wireless personal communications services system in selected areas in Wisconsin.
We pay CHR Solutions hourly rates for the employees who work on the project as
well as the employees' associated expenses. We also pay CHR Solutions 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, CHR Solutions 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 CHR
Solutions dated as of October 8, 1999. Pursuant to this contract, CHR Solutions
provides us with business planning and consulting services and a feasibility
study for additional selected areas in our territory. We pay CHR Solutions
hourly rates for the employees who work on the project as well as the employees'
associated
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<PAGE> 45
expenses. We also pay CHR Solutions 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, CHR Solutions provides us with "drive
testing" to predict the radio frequency propagation characteristics of given
areas. We pay CHR Solutions hourly rates for the employees who work on the
project as well as the employees' associated expenses. We also pay CHR Solutions
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.
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 SERVICE ACROSS THE COUNTRY
We are part of the largest 100% digital wireless personal communications
services network in the country. Sprint PCS customers based in our territory may
access Sprint PCS services throughout the Sprint PCS 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 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, Amazon.com, AmeriTrade.com, 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.
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.
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The increased capacity of code division multiple access 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 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 sold under the Sprint and
Sprint PCS brand names and are equipped with preprogrammed features such as:
- caller ID;
- call waiting;
- phone books;
- speed dial; and
- last number redial.
Code division multiple access single-band/single-mode handsets, weighing
approximately five to seven 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 wireless
personal communications services 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 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.
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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 network to take advantage of code
division multiple access 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
SPRINT PCS ROAMING
Sprint PCS roaming includes both inbound Sprint PCS roaming, when a Sprint
PCS subscriber based outside of our territory uses our portion of the Sprint PCS
network, and outbound Sprint PCS roaming, when a Sprint PCS subscriber based in
our territory uses the Sprint PCS network outside of our territory. 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 our
affiliation agreements with Sprint PCS, 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's Operations -- If we receive less revenues or incur more
fees than we anticipate for Sprint PCS roaming, we may not be able to operate
our business profitably."
NON-SPRINT PCS ROAMING
Non-Sprint PCS roaming includes both inbound non-Sprint PCS roaming, when a
non-Sprint PCS subscriber uses our portion of the Sprint PCS network, and
outbound non-Sprint PCS roaming, when a Sprint PCS subscriber based in our
territory uses a non-Sprint PCS network. 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 these 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 directly to that
provider. Sprint PCS, pursuant to our current services agreement with Sprint
PCS, then bills the Sprint PCS subscriber for use of that provider's network at
rates specified in his or her contract and pays us 100% of this outbound
non-Sprint PCS roaming revenue collected from that subscriber on a monthly
basis. As a result, we retain the collection risk for outbound non-Sprint PCS
roaming fees incurred by the subscribers based in our territory.
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.
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.
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ADVERTISING AND PROMOTIONS
Sprint PCS promotes its products through the use of national as well as
regional television, radio, print, outdoor and other advertising campaigns. 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 expect to take advantage of the complete array of communications
services offered by Sprint PCS and Sprint, which may include bundling wireless
personal communications 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, which are 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 December 31, 1999, we owned and operated 13 Sprint PCS stores and two
kiosks at military base locations. 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
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customer care at these stores. We plan to add 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 wireless personal
communications services and products sold through RadioShack stores. As of
December 31, 1999, RadioShack had approximately 225 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;
- Staples;
- Heilig Meyer;
- Target;
- K-Mart;
- Dillards;
- Montgomery Ward;
- Foley's;
- Ritz Camera; and
- selected May Company department stores.
As of December 31, 1999, these retailers had approximately 240 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.
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TECHNOLOGY
GENERAL
In the commercial wireless communication industry there are two principal
services licensed by the Federal Communications Commission for transmitting
two-way, real time voice and data signals: "cellular" and wireless "personal
communications services." In addition, enhanced specialized mobile radio
service, a new but not yet widely used technology, also allows for
interconnected two-way real time voice and data services. The Federal
Communications Commission 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 Federal Communications Commission allocated the 1900 MHz
frequency block of the radio spectrum for wireless personal communications
services. Wireless personal communications services differ from traditional
analog cellular telephone service principally in that wireless personal
communications services systems operate at a higher frequency and employ
advanced digital technology. Analog-based systems send signals in which the
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 wireless personal communications services or cellular frequencies,
to offer new and enhanced services, including 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 wireless personal communications
services or cellular, are divided into multiple geographic coverage areas, known
as "cells." In both wireless personal communications services 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 wireless personal communications services 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 Federal Communications Commission has not mandated a universal air interface
protocol for wireless personal communications services systems. Wireless
personal communications systems operate under one of three principal air
interface protocols, code division multiple access, time division multiple
access, commonly referred to as TDMA, or global system for mobile
communications, commonly referred to as GSM. Time division multiple access and
global system for mobile communications are both time division multiple access
systems but are incompatible with each other. The code division multiple access
system is incompatible with both global system for mobile
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communications and time division multiple access systems. Accordingly, a
subscriber of a system that utilizes code division multiple access technology is
unable to use a code division multiple access handset when traveling in an area
not served by code division multiple access-based wireless personal
communications services 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 time division
multiple access or global system for mobile communications systems. All of the
wireless personal communications services 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.
CODE DIVISION MULTIPLE ACCESS TECHNOLOGY
Sprint PCS's network and its affiliates' networks all use digital code
division multiple access technology. We believe that code division multiple
access provides important system performance benefits such as:
Greater capacity. We believe, based on studies by code division multiple
access manufacturers, that code division multiple access 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 time
division multiple access and global system for mobile communications systems.
Privacy and security. One of the benefits of code division multiple access
technology is that it combines a constantly changing coding scheme with a low
power signal to enhance call security and privacy.
Soft hand-off. Code division multiple access systems transfer calls
throughout the code division multiple access 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.
Code division multiple access 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,
time division multiple access and global system for mobile communications
networks use a "hard hand-off" and disconnect the call from the current base
station as it connects with a new one without any simultaneous connection to
both base stations.
Simplified frequency planning. Frequency planning is the process used to
analyze and test alternative patterns of frequency used within a wireless
network to minimize interference and maximize capacity. Unlike time division
multiple access and global system for mobile communications based systems, code
division multiple access 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,
code division multiple access 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 code division multiple access has the inherent benefits discussed
above, time division multiple access networks are generally less expensive when
overlaying existing analog systems since the time division multiple access
spectrum usage is more compatible with analog spectrum planning. In addition,
global system for mobile communications technology, unlike code division
multiple access, allows multi-vendor equipment to be used in the same network.
This, along with the fact that the global system for mobile communications
technology is currently more widely used throughout the world than code division
multiple access, provides economies of scale for handset and equipment
purchases. A standards process is also underway which will allow wireless
handsets to support analog, time division multiple access and global system for
mobile communications technologies in a single unit. Currently, there are no
plans to
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have code division multiple access handsets that support either the time
division multiple access or global system for mobile communications
technologies.
COMPETITION
Competition in the wireless communications services industry is intense. We
compete with a number of wireless service 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.;
- 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;
- VoiceStream Wireless Corporation; and
- United States Cellular Corporation.
Furthermore, a number of wireless service providers compete with us on a
local basis, such as:
- Airadigm Communications;
- Poka Lambro PCS, Inc.; and
- Amarillo CellTelCo.
We also face competition from resellers, which provide wireless services to
customers but do not hold Federal Communications Commission 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 Federal Communications Commission
currently requires all cellular and wireless personal communications services
licensees to permit resale of carrier services to a reseller.
In addition, we compete with existing communications technologies such as
paging, enhanced specialized mobile radio service dispatch and conventional
landline telephone companies in our markets. Potential users of wireless
personal communications services 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 20 MHz 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 wireless personal
communications services 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.
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Many of our competitors have significantly greater financial and technical
resources and subscriber bases than we do. AT&T Wireless has over 11 million
subscribers and the recent partnership of Bell Atlantic-GTE and Vodafone
AirTouch has over 19 million combined subscribers. Some of our competitors also
have established infrastructures, marketing programs and 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. Wireless personal
communications services 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 Federal Communications Commission 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;
- the location of our markets;
- our 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.
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The trademark license agreements contain numerous restrictions with respect
to the use and modification of any of the licensed marks. See "Our Affiliation
Agreements with Sprint PCS -- The Trademark and Service Mark License Agreements"
for more information on this topic.
EMPLOYEES
As of December 31, 1999, we employed 182 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 December 31, 1999, we leased space on 248 towers and
owned one tower. We collocate with other wireless service providers on
approximately 37% of our towers. As of December 31, 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 Laredo, Texas 5,000 Five years beginning on
Center February 1, 1999 and ending
on January 31, 2004 with two
five-year renewal options
Retail Store and Regional Lubbock, Texas 10,225 15 years beginning on July 1,
Office Space 1999
Retail Store, Switching El Paso, Texas 11,970 Ten years and two months
Center and Office Space 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 Lubbock, Texas 11,011 Ten years beginning on June
Center and Corporate Office 1, 1999
Space
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
</TABLE>
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<TABLE>
<CAPTION>
PURPOSE LOCATION SQUARE FEET LEASE TERM
- ------- -------- ----------- ----------
<S> <C> <C> <C>
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
Retail Store and Office Space El Paso, Texas 2,584 Five years beginning on
October 1, 1999 and ending on
September 30, 2004 with one
five year renewal option
Retail Store and Office Space El Paso, Texas 2,438 Five years beginning on
completion of Lessor's Work
in January 2000 and ending in
January 2005
Retail Store and Office Space Eagle Pass, Texas 1,250 Five years beginning on
January 1, 2000 and ending on
December 31, 2004 with one
five year renewal option
</TABLE>
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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OUR AFFILIATION AGREEMENTS WITH SPRINT PCS
Our four major agreements with Sprint and Sprint PCS, are:
- the management agreement;
- the services agreement; and
- two trademark and service mark license agreements with different Sprint
entities.
We entered into one set of these four major agreements with Sprint and
Sprint PCS for our territory in the southwestern part of the United States and
we entered into another set of these four major agreements for our territory in
Wisconsin. The following is a description of the material terms and provisions
of our affiliation agreements with Sprint PCS and the consent and agreement with
Nortel modifying the Sprint PCS management agreement. Unless otherwise indicated
below, the description of our affiliation agreements applies to the affiliation
agreements for both of our territories. We have filed the text of our
affiliation agreements with Sprint PCS and the consent and agreement as exhibits
to the registration statement of which this prospectus is a part.
Under our affiliation agreements with Sprint PCS, we have the exclusive
right to provide wireless services under the Sprint and Sprint PCS brand names
in our territory. We have recently amended our affiliation agreements with
Sprint PCS to include additional markets in our territory. Sprint PCS holds the
spectrum licenses and controls the network through its agreements with us. Our
affiliation agreements with Sprint PCS 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 wireless personal communications services
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. Also, Sprint PCS has
agreed to propose modifications to the management agreement, and perhaps the
other affiliation agreements, to enhance our ability to obtain financing for our
territory.
THE MANAGEMENT AGREEMENT
Under our management agreement with Sprint PCS, we have agreed to:
- own, construct and manage a wireless personal communications services
network in our territory in compliance with Federal Communications
Commission 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 wireless personal communications services
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.
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EXCLUSIVITY
We are designated as the only person or entity that can manage or operate a
wireless personal communications services 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 Federal Communications Commission, to permit
resale of the Sprint PCS products and services in our territory. The management
agreement prohibits us from interfering with 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 a 90 day right of first refusal to build-out
the proposed area. If we choose not to build-out of the proposed area, then
Sprint PCS may build-out the area itself or allow another Sprint PCS network
partner 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. Under the Wisconsin management
agreement, if Sprint PCS begins to offer nationally a product or service that we
already offer, then that product or service will be considered to be a Sprint
PCS product or service.
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
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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, amounts collected with respect to taxes
and, for our Wisconsin territory only, proceeds from sales of our products and
services, 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 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 will use
commercial reasonableness to adjust the program requirements for cities located
within our territory that have a population of less than 100,000. 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:
- cause us to incur a cost exceeding 5% of the sum of our stockholders'
equity plus our outstanding long term debt; or
- 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.
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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 wireless personal communications 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 wireless personal
communications services network to a third party if the third party agrees to be
bound by the terms of the management agreement and the services agreement.
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, without further stockholder
approval, 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;
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- 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 either the original cost to Sprint PCS of the license plus any
microwave clearing costs paid by Sprint PCS or 9% of our Entire Business
Value; or
- choose not to terminate the management agreement and sue Sprint PCS for
damages or submit the matter to arbitration.
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.
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, without further stockholder approval, 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 either
the original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS or 10% of our Entire Business Value;
- 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.
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 either the original cost to Sprint PCS of the license plus any
microwave relocation costs paid by Sprint PCS or 10% of our Entire
Business Value.
If we give Sprint PCS timely notice of non-renewal, or we both give notice
of non-renewal, or the management agreement 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, without further stockholder
approval, 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 either
the original cost to Sprint PCS of the license plus any microwave
clearing costs paid by Sprint PCS or 10% of our Entire Business Value.
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See "Risk Factors -- Risks Related to our Relationship with Sprint
PCS -- Provisions of our affiliation agreements with Sprint PCS 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 our
affiliation agreements with Sprint PCS;
- that we own the spectrum and frequencies presently owned by Sprint PCS
and subject to our affiliation agreements with Sprint PCS; 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 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.
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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
twelve 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.
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
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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 HOLDERS OF THE 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 affiliation agreements with Sprint PCS, for the benefit of Nortel and
future holders of the Nortel senior financing and any refinancing thereof, which
was a condition to the funding of any amounts under the Nortel financing.
The consent and agreement with Nortel generally provides, among other
things, the following:
- Sprint PCS's consent to the pledge of substantially all of our assets,
including our rights in our affiliation agreements with Sprint PCS;
- that our affiliation agreements with Sprint PCS may not be terminated by
Sprint PCS until the Nortel financing is satisfied in full pursuant to
the terms of the consent and agreement with Nortel, 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, who will initially be Nortel as
discussed in more detail in "Description of Our Indebtedness -- The
Nortel Credit Facility -- Syndication;"
- for Sprint PCS to maintain 10 MHz of wireless personal communications
services 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 our affiliation agreements with Sprint PCS after
an acceleration of our financing from Nortel or an event of termination
under our affiliation agreements with Sprint PCS;
- subject to certain requirements and limitations, the ability of the
administrative agent or Sprint PCS to assign our affiliation agreements
with Sprint PCS 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 consent and agreement with Nortel in the same manner at
the administrative agent's request; consequently, from time to time,
Nortel and Sprint PCS may modify the consent and agreement so that it
will contain terms and conditions more favorable to Nortel.
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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 our affiliation agreements with
Sprint PCS; or
- to sell the assets or partnership interests to any third party, subject
to specified conditions.
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DESCRIPTION OF OUR INDEBTEDNESS
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 to be effective as of the closing
of this offering. As of December 31, 1999, we had borrowed $71.9 million under
the facility. This facility constitutes senior debt secured by a first priority
security interest in substantially all of our assets, including all the assets
of Texas Telecommunications, LP and Alamosa Wisconsin Limited Partnership, our
operating subsidiaries. This facility will be between Nortel, as lender and
administrative agent, 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 increasing the facility
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
evidenced by a single promissory note of $250.0 million. The Tranche A
Commitment provides for borrowings up to $167.0 million, the Tranche B
Commitment provides for borrowings up to $58.0 million and the Tranche C
Commitment provides for borrowings up to $25.0 million. This facility is used to
purchase equipment and services from Nortel, to fund other costs of the
build-out of our portion of the Sprint PCS network and to fund costs associated
with the financing. Nortel is the primary vendor of the equipment and services
necessary to install our portion of the Sprint PCS network, and pursuant to our
equipment agreement with Nortel, we are required to purchase a total of $167.0
million of equipment and services from Nortel, $117.6 million of which we were
still required to purchase as of December 31, 1999. See "Business -- Network
Operations -- Nortel Equipment Agreement."
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 of the
commitments, 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, except for reductions that
result from prepayments made with proceeds of our senior notes offering.
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. These 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, including borrowings under the June 10, 1999 facility;
- upon a change of control of Alamosa PCS Holdings, Inc. or Alamosa PCS,
Inc.;
- if we voluntarily terminate any commitment; and
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- if the administrative agent terminates one or all of the commitments due
to the occurrence of an event of default under the credit agreement.
A change in control will occur if:
- Alamosa PCS Holdings, Inc. ceases to own all of the capital stock of
Alamosa PCS, Inc.;
- Alamosa PCS, Inc. ceases to own all of the capital stock of each
subsidiary of Alamosa PCS, Inc., except that:
- Alamosa Texas GP may own up to one percent of the ownership interests of
Alamosa Texas;
- Alamosa Wisconsin GP may own up to one percent of Alamosa Wisconsin; and
- Wisconsin telephone companies may own up to three percent of Alamosa
Wisconsin;
- any person or group acquires more than 35% of the voting stock of Alamosa
PCS Holdings, Inc.;
- the directors of Alamosa PCS Holdings, Inc. who are elected or approved
by the board of directors as of the closing of this offering, cease for
any reason to constitute at least a majority of the board of directors of
Alamosa PCS Holdings, Inc.; or
- any person or group acquires more voting stock of Alamosa PCS Holdings,
Inc. than is owned collectively by specific persons delineated in the
credit agreement.
SYNDICATION
Nortel may reduce part or all of its total 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 as either a base rate loan with an interest rate
equal to the prime or base rate of Citibank, N.A. (New York), plus 2.75%,
or a Eurodollar loan with an interest rate equal to the London interbank
offered rate, as adjusted for reserve requirements, plus 3.75%;
- 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:
- the second anniversary of the closing date;
- the date the Tranche C Commitment is fully funded; and
- the first anniversary of the closing date only if we have not borrowed
at least $100.0 million under the Nortel financing by that date,
including borrowings under the June 10, 1999 facility;
- 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.
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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, after March 31, 2003, or
after March 31, 2001 if the commitments terminate on the first
anniversary of the closing date;
- 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; and
- if we complete our senior notes offering, the credit agreement obligates
us to prepay on the Nortel facility the lesser of $75.0 million or the
amount then outstanding under that facility.
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:
- an origination fee of $3.8 million, 3% of the additional $127.0 million
loan commitment made in the amended and restated credit agreement, at the
execution of the credit agreement; and
- 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 that 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 spring into existence
and be exercisable by Nortel on the second anniversary of the closing date,
unless, among other options, we contribute $75.0 million of equity to Alamosa
PCS, Inc. and prepay indebtedness outstanding under the Nortel facility. We
intend to use a portion of the proceeds from our offering of senior discount
notes to prepay enough of the Nortel financing to prevent the exercise of the
warrants.
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However, we cannot assure you that we will choose to complete our notes offering
and prepay any portion of the Nortel financing. Other options to terminate the
warrants include:
- the assignment of a portion of the loans by Nortel to unrelated lenders;
- the combination of a minimum amount of loan prepayments and assignments
of loans; or
- the achievement of a maximum ratio of senior debt to total capitalization
as of the second anniversary of the closing date and for the two
consecutive calendar quarters immediately prior to the second anniversary
of the closing date.
However, if we do not complete an additional offering of equity or debt, we
do not anticipate that the warrants will be terminated. The exercise price for
the warrants will be the price paid for our common stock in this offering.
Nortel may not transfer any of its rights with respect to the warrants before
the first anniversary of the closing date, and any warrants transferred before
the second anniversary of the closing date will be subject to the provisions
preventing exercise of the warrants. In no event may the warrants be exercised
after the eighth anniversary of the closing date.
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 earnings before interest, taxes, depreciation and
amortization 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.
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 our affiliation agreements with Sprint PCS;
- a pledge by Alamosa PCS Holdings, Inc. to Nortel of shares of Borrower's
capital stock owned by Alamosa 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.
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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
contributed by our current stockholders. The current stockholders have
contributed an aggregate of $37.0 million.
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 and the guarantees of the senior discount notes,
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;
- acquire all or a material or substantial part of the business or
properties of another person; or
- issue any capital stock other than to Alamosa PCS Holdings, Inc. or to
Alamosa PCS, Inc.
Alamosa PCS, Inc. further agreed not to issue, sell, assign or otherwise
dispose of, to any person:
- any of its capital stock;
- any securities exchangeable for or convertible into or carrying any
rights to acquire any of its capital stock; or
- any option to acquire its capital stock.
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;
- intercompany dividends; and
- dividends from Alamosa PCS, Inc. to Alamosa PCS Holdings, Inc. for use
to pay interest on the senior discount notes;
- any redemption, conversion, exchange, retirement, sinking fund, or other
similar purchase of shares of capital stock;
- any payment or prepayment of principal, premium, if any, or interest on,
any subordinated debt;
- any redemption, conversion, exchange, purchase, retirement or defeasance
of any subordinated debt;
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- 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:
- our affiliation agreements with Sprint PCS;
- 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 operating leases or sale/leaseback transactions, other
than specified exceptions;
- 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 Sprint PCS network,
before the third anniversary of the closing date, or before 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 when its senior debt is 40% or more of
its total debt and 0.80 to 1 or less when its senior debt is less than 40% of
its total debt.
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, which is the ratio of
EBITDA plus cash and the unused portion of the loan to consolidated fixed
charges.
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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 with Nortel, the
consent and agreement with Nortel or our affiliation agreements with
Sprint PCS;
- any change in control of Alamosa PCS Holdings, Inc.; or
- any Material Adverse Effect occurs, which effect is 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.
SENIOR DISCOUNT NOTES
We intend to raise $187.1 million through a public offering of our senior
discount notes. The senior discount notes will be unsecured obligations, will
rank equally with all our existing and future senior debt and will rank senior
to all our existing and future subordinated debt.
The senior discount notes will be fully and unconditionally, jointly and
severally guaranteed on a senior subordinated basis by our current subsidiaries
and our future restricted subsidiaries. See "The Reorganization" regarding the
ownership structure of our subsidiaries. The guarantees will be unsecured
obligations and:
- will be subordinate to each subsidiary guarantor's obligations under the
Nortel financing and other credit facilities with banks or institutional
lenders;
- will rank equally with all existing and future senior subordinated debt
of each subsidiary guarantor; and
- will be senior to all existing and future subordinated debt of each
subsidiary guarantor.
We may redeem some or all of the senior discount notes beginning in 2005,
and until 2003 we may redeem a portion of the senior discount notes with the net
proceeds of an equity offering.
The senior discount notes will be issued at a discount to their principal
amount and will accrete in value until 2005, at which time their accreted value
will equal their principal amount. Interest will begin to accrue at this time
and will be payable semi-annually. The senior discount notes will contain
covenants limiting our ability and the ability of our subsidiaries to:
- incur additional debt or issue preferred stock;
- pay dividends, redeem capital stock or make other restricted payments or
investments;
- create liens on assets;
- merge, consolidate or dispose of assets;
- enter into transactions with affiliates; and
- change lines of business.
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Holders of the senior discount notes will have the right to require us to
repurchase all or any part of their senior discount notes, at 101% of the
accreted value, if before 2005, or 101% of the aggregate principal amount
thereafter, together with accrued and unpaid interest, upon a change of control
of Alamosa.
Events of default in respect of the senior discount notes include, among
others, failure to pay interest or principal on the senior discount notes when
due, failure to perform covenants, acceleration of the maturity of other debt,
events of bankruptcy, certain judgments against us and the occurrence of any
event of default pursuant to our affiliation agreements with Sprint PCS.
We anticipate that the proceeds from our proposed offering of senior
discount notes will not be needed to fund the required capital expenditures,
working capital requirements, operating losses and other cash needs of our
current business plan. We intend to use a portion of the proceeds of that
offering to prepay $75.0 million of indebtedness outstanding under the Nortel
facility. We may decide to use the remaining proceeds of that offering to:
- accelerate coverage within our existing territory
- build-out additional areas within our existing territory;
- expand our existing territory;
- pursue additional telecommunications business opportunities or acquire
other telecommunications businesses or assets; or
- cover general corporate purposes.
However, if we do not use the remaining proceeds of our notes offering for
these purposes, we may decide to:
- prepay additional debt outstanding under the Nortel facility; or
- avoid drawing additional amounts under the Nortel facility.
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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 and
Chief Executive Officer
Jerry W. Brantley......................... 54 Chief Operating Officer
Kendall W. Cowan.......................... 45 Chief Financial Officer
W. Don Stull.............................. 37 Chief Technology Officer
Michael R. Budagher....................... 41 Director
Ray M. Clapp, Jr.......................... 39 Director
Scotty Hart............................... 49 Director
Thomas Hyde............................... 54 Director
Schuyler B. Marshall...................... 54 Director
Tom M. Phelps............................. 50 Director
Reagan W. Silber.......................... 39 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 on October 1, 1999. Mr. Sharbutt was formerly the President and Chief
Executive Officer of Hicks & Ragland, now known as CHR Solutions, Inc. Mr.
Sharbutt is currently employed by CHR Solutions as a Senior Consultant. He has
been at CHR Solutions 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 CHR Solutions,
Mr. Sharbutt was employed by Southwestern Bell. Mr. Sharbutt holds a Bachelor of
Science degree in Electrical Engineering from Texas Tech University. Mr.
Sharbutt was Vice President of Alamo IV LLC until its dissolution in November
1999. He also serves as a director for, and is a shareholder of, CHR Solutions
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, 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 wireless
personal communications services 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.
Kendall W. Cowan. Mr. Cowan became our Chief Financial Officer in December
1999. From October 1993 to December 1999, he was a partner in the public
accounting firm of Robinson Burdette Martin & Cowan, L.L.P. and from January
1986 to September 1993, he was a partner in the Lubbock and Dallas offices of
Coopers & Lybrand. He provided consulting and accounting services to a wide
range of clients at both firms including public companies. He is a Certified
Public Accountant and a member of both the American Institute of Certified
Public Accountants and the Texas Society of Certified Public Accountants. Mr.
Cowan is Chairman of the Board and a stockholder of ShaCo Xpress, Inc., a
director of Robert Heath Trucking, Inc., and a member of C.C. & Co., L.L.C., all
of which are non-public companies.
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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. 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, Jr. Mr. Clapp has served as a director since Alamosa was
founded in July 1998. Since 1995, Mr. Clapp has been Managing Director,
Acquisitions and Investments for The Rosewood Corporation, the primary holding
company for the Caroline Hunt Trust Estate. 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 Telephone
Cooperative, a wireline and wireless telecommunications company, since April 10,
1995, and previously as Assistant Manager of South Plains Telephone Cooperative.
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 South Plains Telephone
Cooperative. He is also General Manager of South Plains Advanced Communications
& Electronics, Inc., a wholly owned subsidiary of South Plains Telephone
Cooperative, and Secretary of Alamo Cellular, Inc., a non-public holding company
with interests in a wireless telecommunications service provider and an
affiliate of South Plains Advanced Communications & Electronics, Inc. In
addition, Mr. Hart is the general partner and a limited partner of Lubbock HLH,
Ltd. He was President of Alamo IV LLC until its 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 was
also Secretary of Alamo IV LLC until its 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.
Schuyler B. Marshall. Mr. Marshall has served as a director of Alamosa
since November 1999. He has served as President of The Rosewood Corporation, the
primary holding company for the Caroline Hunt Trust Estate, since January 1,
1999. From 1996 through 1998, he served as Senior Vice President and General
Counsel, and Executive Director of The Rosewood Corporation, and as director and
president of various of its subsidiaries. He currently serves as a member of the
advisory board of Rosewood Capital IV, L.P., a San Francisco based venture
capital fund that will focus on e-commerce, telecommunications and other
consumer oriented investments. Mr. Marshall also serves as the sole manager of
Rosewood Telecommunications, L.L.C., a stockholder of Alamosa. Prior to his
employment with The Rosewood Corporation, Mr. Marshall was a senior shareholder
with Thompson & Knight, P.C., in Dallas, where he practiced law since 1970.
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<PAGE> 75
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, 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
Telecommunications Holdings East. 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 was the Treasurer of Alamo
IV LLC until its 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.
BOARD OF DIRECTORS
Under the terms of 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 the financial members,
comprised of Rosewood Telecommunications, LLC, Tregan International Corp., West
Texas PCS LLC, Longmont PCS LLC and Yellow Rock PCS, L.P., 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 dissolution in November 1999, Alamo IV no longer holds any right to
appoint managers, but the former members of Alamo IV are currently still 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 nine
members. We will divide our board of directors into three classes. Ray M. Clapp,
Jr., Jimmy White and Thomas Hyde constitute Class I and will stand for election
at the annual meeting of stockholders to be held in 2001. Michael R. Budagher,
Schuyler B. Marshall and Reagan W. Silber constitute Class II and will stand for
election at the annual meeting of stockholders to be held in 2002. 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 2003. After the
initial term following the offering, directors in each class will serve for a
term of three years, or until his or her successor has been elected and
qualified and will be compensated at the discretion of the board of directors.
Executive officers are ordinarily elected annually and serve at the discretion
of the board of directors.
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<PAGE> 76
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. Starting in June 1999, we had an arrangement with Hicks & Ragland, now
known as CHR Solutions, 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.
Pursuant to the 1999 Long Term Incentive Plan, each of our current
directors who is an independent director because he or she is not an officer or
employee of Alamosa has received an initial option to purchase 28,000 shares of
our common stock. We granted an option to purchase an additional 15,000 shares
of our common stock to Mr. Clapp for his performance of additional duties as
director with respect to this initial public offering and our proposed debt
offering. These initial options become exercisable with respect to 100% of the
shares covered thereby upon consummation of this offering. Directors joining
Alamosa after this offering will automatically receive an initial option to
purchase 28,000 shares of our common stock on the date he or she becomes one of
our directors. All initial options 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 Long Term Incentive 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.
BOARD COMMITTEES
Our board of directors has established five committees. They are the:
- audit committee;
- compensation committee;
- finance committee;
- stock option plan committee; and
- nominating committee.
The audit committee is responsible for recommending to the board of
directors the engagement of our independent auditors and reviewing with the
independent auditors the scope and results of the audits, our internal
accounting controls, audit practices and the professional services furnished by
the independent auditors. The current members of the audit committee are Messrs.
White, Phelps, Budagher and Clapp.
The compensation committee is responsible for reviewing and approving all
compensation arrangements for our officers. The current members of the
compensation committee are Messrs. Silber, Marshall and Hyde.
The finance committee is responsible for providing budget oversight and
dealing with capital structure issues. The current members of the finance
committee are Messrs. Clapp, White, Sharbutt and Hart.
The stock option plan committee is responsible for reviewing and approving
the terms of any stock option grants or other awards under the 1999 Long Term
Incentive Plan and reviewing and approving the terms of any future stock option
plans. The current members of the stock option plan committee are Messrs.
Silber, Marshall and Hyde.
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<PAGE> 77
The nominating committee is responsible for:
- seeking out possible candidates for the board of directors;
- reviewing the slate of directors to be elected by the stockholders;
- reviewing the qualifications for candidates for corporate offices
recommending the officers for approval by the board of directors;
- and evaluating the performance of current directors.
The current members of the nominating committee are Messrs. Phelps,
Budagher, White, Clapp, Silber, Marshall, Hyde and Sharbutt.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of our board of directors currently consists of
Messrs. Silber, Marshall and Hyde. None of these committee members are or have
been executive officers of us or our subsidiaries. From our inception on July
16, 1998 through December 9, 1999, our board of directors determined the
compensation of our executive officers. David Sharbutt, our Chief Executive
Officer, is Chairman of our board of directors. He is also employed as a Senior
Consultant and is a director and shareholder of CHR Solutions, 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 dissolution in November 1999, had been
controlled by its members. Mr. Sharbutt represents a company called Harlamo LLC
that was a member of Alamo IV LLC and he also served as Vice President of Alamo
IV LLC. Thomas Hyde, who is one of our directors, along with Scotty Hart and
Jimmy White, served as executive officers of Alamo IV LLC.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Our full board of directors addressed all matters concerning executive
compensation until December 9, 1999, when we formed an executive compensation
committee consisting of Messrs. Silber, Marshall and Hyde. Since its formation,
the compensation committee has addressed executive compensation matters.
Our executive compensation philosophy reflects our belief that the
compensation of executives should:
- be linked to achievement of our business and strategic goals;
- be aligned with the interests of stockholders through awards of stock
options and other stock-based compensation;
- recognize individual contributions, as well as overall business results;
and
- 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:
- our financial performance from year to year; and/or
- significant individual contributions; and
- Long-term incentive compensation, primarily in the form of stock options.
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<PAGE> 78
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 October 1, 1999, when David Sharbutt was elected Chief
Executive Officer. Mr. Sharbutt has served as our chief executive officer since
that time. The structure of Mr. Brantley's fiscal 1999 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 amended and restated employment agreement with Mr. Brantley,
effective October 1, 1999. This agreement provides for a base salary of
$175,000, subject to 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 three years. See "-- Employment
Agreements -- Jerry W. Brantley." Pursuant to this employment agreement, Mr.
Brantley received compensation totaling $324,509 for fiscal 1999, representing a
salary of $175,000, a bonus of $142,309 and a car allowance of $7,200. 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.
The structure of Mr. Sharbutt's fiscal 1999 compensation was also based in
part on comparisons to the compensation of executives in similar positions with
other companies in the industry, as well as Mr. Sharbutt'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. Sharbutt, effective October 1,
1999. This agreement provides for a base salary of $175,000, subject to
increases at our board's discretion. In addition, the agreement provides that
Mr. Sharbutt is eligible for quarterly bonuses upon the achievement of certain
performance targets established by our board. See "-- Employment
Agreements -- David E. Sharbutt." Pursuant to this employment agreement, Mr.
Sharbutt received compensation totaling $91,250 for fiscal 1999, representing a
salary of $43,750, a bonus of $43,750 and a car/club dues allowance of $3,750.
Our board believes that the structure of Mr. Sharbutt'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. Sharbutt and our stockholders.
Other than Mr. Brantley as Chief Operating Officer and Mr. Sharbutt as
Chief Executive Officer, W. Don Stull, as Chief Technology Officer, also
received substantial compensation during fiscal 1999. 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:
- bonus eligibility, based on a combination of our performance and
individual achievement; and
- stock option awards.
In August 1993, as part of the Omnibus Budget Reconciliation Act of 1993,
Section 162(m) of the Internal Revenue 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 Internal
Revenue 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.
<TABLE>
<S> <C>
David E. Sharbutt (Chairman) Schuyler B. Marshall
Michael R. Budagher Tom M. Phelps
Ray M. Clapp, Jr. Reagan W. Silber
Scotty Hart Jimmy R. White
Thomas Hyde
</TABLE>
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<PAGE> 79
EXECUTIVE COMPENSATION
The following table presents summary information with respect to the
compensation paid to David E. Sharbutt, Jerry W. Brantley, Kendall W. Cowan and
W. Don Stull during the period from the inception of Alamosa, July 16, 1998, to
December 31, 1998 and for the year ended December 31, 1999. We had no chief
executive officer during the period from inception, July 16, 1998, to December
31, 1998. Mr. Brantley, as Chief Operating Officer, acted in a capacity similar
to that of chief executive officer during that period. David E. Sharbutt became
our chief executive officer effective as of October 1, 1999, and has served as
our chief executive officer since that time.
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 COMPENSATION
- --------------------------- ---- -------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
David E. Sharbutt
Chief Executive
Officer(1).................. 1999 $ 43,750 $ 43,750 -- 1,697,500 $ 3,750(2)
Jerry W. Brantley
Chief Operating Officer... 1999 $175,000 $142,309 -- 1,697,500(3) $ 7,200(4)
1998 $ 43,077 $ 25,823 -- --(3) $ 1,662(4)
Kendall W. Cowan
Chief Financial
Officer(5).................. 1999 $ 12,500 $ 12,500 -- 1,455,000 $ 600(4)
W. Don Stull
Chief Technology
Officer..................... 1999 $ 90,000 $ 66,750 -- 145,500(6) $ 4,800(4)
1998 16,108 $ 0 -- --(6) $ 554(4)
</TABLE>
- ---------------
(1) Mr. Sharbutt became Chief Executive Officer on October 1, 1999.
(2) Consists of a monthly car and club dues allowance.
(3) During 1998, we granted Mr. Brantley three series of options to purchase up
to an aggregate 1.5% membership interest in Alamosa PCS, LLC. The exercise
price per share was $1.08 for the first of these series, $1.15 for the
second series and $1.25 for the third series. We will record compensation
expense totaling $11,523,600 in connection with these options. As part of
the reorganization, these options were terminated and replaced by two
options granted under the 1999 Long-Term Incentive Plan. The first option is
exercisable immediately for 242,500 shares of our common stock at an
exercise price of $1.15 per share. The second option vests over the next
four years and is exercisable for 1,455,000 shares of our common stock with
an exercise price equal to the initial public offering price.
(4) Consists of a monthly car allowance.
(5) Mr. Cowan became Chief Financial Officer on December 1, 1999.
(6) During 1998, we granted Mr. Stull three series of options to purchase up to
an aggregate 0.3% membership interest in Alamosa PCS, LLC that vest monthly
beginning on April 29, 2000 and expire on December 31, 2006. As part of the
reorganization, these options will be terminated and replaced by three
series of options to purchase an aggregate of 145,500 shares of our common
stock. The exercise price per share is $1.1296 for the first series, $1.2477
for the second series and $1.4238 for the third series of these common stock
options. One-third of each option series is fully vested and exercisable and
another one-third of each series will vest on each of October 29, 2000 and
October 29, 2001.
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<PAGE> 80
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The table below provides information regarding stock options granted to the
named executive officers in fiscal year 1999. None of the named executive
officers received stock appreciation rights, or SARs.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------------------------
POTENTIAL POTENTIAL REALIZABLE VALUE
% OF TOTAL REALIZABLE AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS VALUE AT OF STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE INITIAL PUBLIC FOR OPTION TERM(1)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION OFFERING PRICE ---------------------------
NAME OPTIONS FISCAL YEAR (PER SHARE) DATE OF $17($) 5%($) 10%($)
- ---- ---------- ------------ -------------- ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David E. Sharbutt.... 242,500(2) 5% $1.15 12/5/2009 3,843,625 6,436,243 10,413,828
1,455,000 29% $17.00 12/5/2009 -- 15,555,709 39,421,220
Jerry W. Brantley.... 242,500(3) 5% $1.15 12/5/2009 3,843,625 6,436,243 10,413,828
1,455,000(3) 29% $17.00 12/5/2009 -- 15,555,709 39,421,220
Kendall W. Cowan..... 1,455,000 29% $17.00 12/5/2009 -- 15,555,709 39,421,220
W. Don Stull......... 48,500(4) 1% $1.13 12/5/2009 769,714 1,288,238 2,083,755
48,500(4) 1% $1.25 12/5/2009 763,987 1,282,510 2,078,027
48,500(4) 1% $1.42 12/5/2009 755,446 1,273,969 2,069,486
</TABLE>
- ---------------
(1) Based on the initial public offering price of $17.00.
(2) In connection with these options, we will record compensation expense
totaling $3,843,625.
(3) During 1998, we granted Mr. Brantley three series of options to purchase up
to an aggregate 1.5% membership interest in Alamosa PCS, LLC. The exercise
price per share was $1.08 for the first of these series, $1.15 for the
second series and $1.25 for the third series. We will record compensation
expense totaling $11,523,600 in connection with these options. As part of
the reorganization, these options were terminated and replaced by two
options granted under the 1999 Long-Term Incentive Plan. The first option is
exercisable immediately for 242,500 shares of our common stock at an
exercise price of $1.15 per share. The second option vests over the next
four years and is exercisable for 1,455,000 shares of our common stock with
an exercise price equal to the initial public offering price.
(4) During 1998, we granted Mr. Stull three series of options to purchase up to
an aggregate 0.3% membership interest in Alamosa PCS, LLC that vest monthly
beginning on April 29, 2000 and expire on December 31, 2006. As part of the
reorganization, these options will be terminated and replaced by three
series of options to purchase an aggregate of 145,500 shares of our common
stock. The exercise price per share is $1.1296 for the first series, $1.2477
for the second series and $1.4238 for the third series of these common stock
options. One-third of each option series is fully vested and exercisable and
another one-third of each series will vest on each of October 29, 2000 and
October 29, 2001.
AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table provides summary information regarding options held by
our named executive officers as of December 31, 1999. There was no public market
for the common stock as of December 31, 1999. Accordingly, the value of
unexercised in-the-money options is based on the initial public offering price
of $17.00, 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>
David E. Sharbutt............... -- -- 242,500/1,455,000 $3,843,625/$0
Jerry W. Brantley............... -- -- 242,500/1,455,000 $3,843,625/$0
Kendall W. Cowan................ -- -- --/1,455,000 --/$0
W. Don Stull.................... -- -- 48,500/97,000 $763,049/$1,526,098
</TABLE>
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<PAGE> 81
BENEFIT PLANS
1999 LONG TERM INCENTIVE PLAN
The 1999 Long Term Incentive Plan has been adopted by our board of
directors and stockholders. The purpose of the plan is to attract and retain the
services of our key management employees, outside directors and consultants by
providing those persons with a proprietary interest in us. The plan allows us to
provide that proprietary interest through the grant of:
- incentive stock options;
- nonqualified stock options;
- tandem and independent stock appreciation rights;
- stock bonuses; and
- restricted stock.
The aggregate number of shares of common stock that may be issued under the
plan is 7,000,000. We have granted options effective as of the closing of this
offering to purchase 5,554,000 shares of our common stock with an exercise price
equal to the initial public offering price per share to directors, officers,
employees and consultants and to purchase 630,500 shares of our common stock
with per share exercise prices ranging from $1.12 to $1.42 to three of our
executive officers, of which options to purchase 533,500 shares were exercised
immediately prior to this offering.
The option plan is administered by our board of directors or by a stock
option plan committee appointed by our board of directors, which is 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.
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.
The committee determines and designates those persons to whom awards are
granted and determines:
- the award period;
- the date of grant;
- the vesting period; and
- other terms, provisions, limitations and performance requirements
approved by the committee, but not inconsistent with the plan.
The committee also has the discretion to reprice stock option awards.
An option will not be transferable except by will or by the laws of descent
or distribution, unless specified in the plan or determined otherwise by our
board of directors or the committee.
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Awards under the plan may contain provisions that, if a change in control
of Alamosa occurs, give the stock option plan committee discretion to offer to
purchase awards from plan participants and make adjustments or modifications to
outstanding awards to protect and maintain the rights and interests of the plan
participants or take any other action the award agreements may authorize. A
change in control of Alamosa is deemed to occur for purposes of the plan upon
any of the following events:
- the approval by our stockholders of a plan to dissolve or liquidate
Alamosa;
- continuing directors, who are persons who were serving on our board of
directors when the plan was adopted or who afterwards were elected to the
board of directors by majority of the directors in office, cease to
constitute at least 50% of the board of directors;
- a consolidation or merger in which we do not survive, or in which our
stockholders do not retain the same proportionate common stock ownership
in the surviving company after the merger; or
- a sale of substantially all of our assets, unless the sale is due to the
default by us or our affiliates under any:
- credit or related agreement among us or our affiliates or successors and
Nortel Networks, Inc. or any other lender; or
- management or related agreement among us or our affiliates or successors
and Sprint Spectrum, LP, SprintCom, Inc., WirelessCo, LP, Sprint
Communications Company, LP or their affiliates or successors.
The events described in the third and fourth bullet points above will not
be deemed a change in control of Alamosa if after the event:
- continuing directors constitute at least 50% of the board of directors of
the continuing, surviving or acquiring entity, or that entity's ultimate
parent entity if the parent entity has at least a majority of the voting
power of the entity; and
- the continuing, surviving or acquiring entity, or that entity's ultimate
parent entity, assumes all of the outstanding stock options under the
plan.
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 a party to an employment agreement with David E.
Sharbutt, 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 no less often than 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. Mr.
Sharbutt is also entitled to $5,000,000 in term life insurance coverage,
reimbursement for reasonable expenses, $1,250 per month as a vehicle and club
dues allowance, reimbursement for vehicle business mileage at the standard 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 other than for cause, a
change in control or for non-performance, all as defined in the employment
agreement, or due to his death or disability, we would be required to pay him
severance pay equal to one year's base salary. If Mr. Sharbutt should terminate
his
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employment agreement for cause, as defined in the employment agreement he will
be entitled to severance pay equal to the lessor of one year's base salary and
the unpaid balance of his salary that would be payable to him through September
30, 2002. If Mr. Sharbutt is terminated by us within one year after a change in
control or any reason other than cause, he will be entitled to severance pay
equal to the unpaid balance of the base salary which would have been payable to
him through September 30, 2002. Pursuant to the employment agreement, Mr.
Sharbutt has agreed not to compete with us during his employment and not to
compete with us within a defined area for a period of two years following
termination of his employment. The employment by CHR Solutions, Mr. Sharbutt's
investment in the securities of any public company where such investment does
not represent greater than five percent of the outstanding stock of that company
and Mr. Sharbutt's investment in any company or entity in which Mr. Sharbutt was
an owner or stockholder at the time of entering into the employment agreement
are exceptions to the non-competition covenant. Further Mr. Sharbutt has agreed
not to disclose any of our confidential information at any time during or
subsequent to his employment with us without our written consent.
Jerry W. Brantley. We are a party to an employment agreement with Jerry W.
Brantley effective October 1, 1999. This employment agreement has a four-year
term and provides that Mr. Brantley receive a minimum base salary of $175,000,
payable no less often than semi-monthly, 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. Mr.
Brantley is also entitled to reimbursement for reasonable expenses, $600 per
month as a vehicle allowance, reimbursement for vehicle business mileage at the
standard 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 cause or nonperformance, or within one year after a change in control, all
as defined in the employment agreement, or due to his death or disability, we
would be required to pay him severance pay equal to one year's base salary. If
Mr. Brantley should terminate his employment for cause, as defined in the
employment agreement, he would be entitled to severance pay equal to the lesser
of one year's base salary or the unpaid balance of the base salary which would
be payable to him through September 30, 2003. If Mr. Brantley is terminated by
us for any reason other than cause within one year after a change in control, he
will be entitled to severance pay equal to the unpaid balance of the base salary
which would have been payable to him through September 30, 2003. Pursuant to the
employment agreement, Mr. Brantley has agreed not to compete with us during his
employment and not to compete with us within a defined area for a period of two
years following termination of employment. Mr. Brantley's investment in the
securities of any public company where such investment does not represent
greater than five percent of the outstanding stock of that company and Mr.
Brantley's investment in any company or entity in which Mr. Brantley was an
owner or stockholder at the time of entering into the employment agreement are
exceptions to the non-competition covenant. Further, Mr. Brantley has agreed not
to disclose any of our confidential information at any time during or subsequent
to his employment with us without our written consent.
Kendall W. Cowan. We are party to an employment agreement with Kendall
Cowan, effective December 1, 1999. This employment agreement has a five-year
term and provides that Mr. Cowan receive a minimum base salary of $150,000,
subject to increases at our discretion. Additionally, Mr. Cowan is entitled to
receive a bonus of up to $37,500 for each calendar quarter in which we meet
certain corporate milestones. Mr. Cowan is also entitled to reimbursement for
reasonable expenses, a $600 per month vehicle allowance, reimbursement for
vehicle business mileage at 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.
Pursuant to the employment agreement, we will pay the costs of all continuing
professional education courses required for Mr. Cowan to maintain his certified
public accountant license, as well as all professional dues and licenses
attributable to his certified public accountant license. If we terminate Mr.
Cowan's employment for other than cause or non-performance, both as defined in
the employment agreement, or due to his death or disability, we would be
required to pay him severance pay equal to one year's base salary. If Mr. Cowan
should terminate his employment for cause, as defined in
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the employment agreement, he will be entitled to severance pay equal to the
lesser of one year's base salary and the unpaid balance of his salary which
would be payable to him through November 30, 2004. Mr. Cowan has agreed,
pursuant to the employment agreement, not to compete with us during employment
and for a period of two years following termination of his employment. Mr.
Cowan's investment in the securities of any publicly traded company where such
investment does not represent greater than five percent of the outstanding stock
of that company, and Mr. Cowan's investment in any company or entity in which
Mr. Cowan is an owner or stockholder at the time of entering into the employment
agreement are, however, exceptions to the non-competition covenant. Further, Mr.
Cowan has agreed not to disclose any of our confidential information at any time
during or subsequent to his employment with us without our written consent.
W. Don Stull. We are a party to an amended and restated employment
agreement with W. Don Stull, effective October 29, 1999 and continuing until
October 31, 2001. This amended employment agreement provides that Mr. Stull
receive a minimum base salary of $90,000, payable no less often than
semi-monthly, 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. Mr. Stull also is entitled to
reimbursement for reasonable expenses, $400 per month as a vehicle allowance,
reimbursement for vehicle business mileage at eighteen cents per mile, 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.
Stull's employment for other than cause or nonperformance, both as defined in
the employment agreement, or due to his death or disability, we would be
required to pay him severance pay equal to one year's base salary. If Mr. Stull
should terminate his employment for cause, as defined in the employment
agreement, he will be entitled to severance pay equal to lesser of one year's
base salary or the unpaid balance of the base salary that would be payable to
him through September 30, 2001. Pursuant to the employment agreement, Mr. Stull
has agreed not to compete with us during his employment and not to compete with
us within a defined area for a period of two years following termination of his
employment. Mr. Stull's investment in the securities of any public company where
such investment does not represent greater than five percent of the outstanding
stock of that company and Mr. Stull's investment in any company or entity in
which Mr. Stull was an owner or stockholder at the time of entering into the
employment agreement are exceptions to the non-competition covenant. Further,
Mr. Stull has agreed not to disclose any of our confidential information at any
time during or subsequent to his employment with us without our written consent.
The employment agreement also modifies the options granted to Mr. Stull to
convert those options into three series of options, each series consisting of an
option to purchase 48,500 shares, for an aggregate of 145,500 shares. The three
series of options provide for exercise prices of $1.1296, $1.2477 and $1.4238
per share, respectively. One-third of each option series is fully vested and
exercisable and another one-third of each series will vest on each of October
29, 2000 and October 29, 2001. In addition, upon Mr. Stull's death or disability
he shall be vested in a fractional portion of the series options that would have
vested on the October 29 immediately following such death or disability based on
the number of months since the previous October 29. If Mr. Stull should
terminate his employment for cause, as defined in the employment agreement, he
shall be vested in the portion of the series options that would have vested on
the October 29 immediately following such termination. If we terminate Mr.
Stull's employment for other than cause or nonperformance, both as defined in
the employment agreement, all of the options in each series not previously
vested shall be immediately vested, and if we terminate his employment for cause
all of his previously unexercised options in each series, regardless of whether
or not previously vested, shall be forfeited. All vested options not exercised
by December 31, 2006, shall be canceled.
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PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of common stock as of January 31, 2000, and assumes that each member of Alamosa
PCS, LLC has received its proportional number of shares of Alamosa common stock
as of such date, with respect to:
- each person who, to our knowledge, is the beneficial owner of 5% or more
of the outstanding common stock;
- each of the directors;
- each of the executive officers; and
- all executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF NUMBER OF PERCENTAGE OF
BENEFICIALLY OWNERSHIP PRIOR SHARES PURCHASED OWNERSHIP AFTER
NAME AND ADDRESS(1) OWNED(2) TO OFFERING IN THE OFFERING OFFERINGS(3)
- ------------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Rosewood Telecommunications,
L.L.C. ............................. 9,725,000 20.1% 4,500 16.4%
100 Crescent Court, Suite 1700
Dallas, TX 75201
Caroline Hunt Trust Estate(4)......... 9,725,000 20.1 4,500 16.4
South Plains Advanced Communications &
Electronics, Inc.(5)................ 8,652,085 17.8 117,647 14.8
Post Office Box 1379
Lubbock, TX 79408
South Plains Telephone
Cooperative(6)...................... 8,652,085 17.8 117,647 14.8
West Texas PCS, LLC................... 7,072,915 14.6 235,294 12.3
3702 Holland Avenue #2
Dallas, TX 75219
Taylor Telecommunications, Inc.(5).... 5,100,000 10.5 8,824 8.6
9796 N. Interstate 20
Merkel, TX 79536
Tregan International Corp. ........... 3,000,000 6.2 17,647 5.1
2711 North Haskell Avenue
5th Floor LB 32
Dallas, TX 75204
Trevor Pearlman(7).................... 3,000,000 6.2 17,647 5.1
Plateau Telecommunications,
Incorporated(5)..................... 3,000,000 6.2 217,647 5.4
7111 North Prince
Clovis, NM 88102-1947
XIT Telecommunication & Technology,
Inc.(5)............................. 2,750,000 5.7 -- 4.6
Highway 87 North
Dalhart, TX 79022
LEC Development, Inc.(5)(8)........... 2,500,000 5.2 35,294 4.3
1807 Main Street
Tahoka, TX 79373
Wes-Tex Telecommunications,
Inc.(5)(9).......................... 2,500,000 5.2 -- 4.2
1500 West Business 20
Stanton, TX 79782
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF NUMBER OF PERCENTAGE OF
BENEFICIALLY OWNERSHIP PRIOR SHARES PURCHASED OWNERSHIP AFTER
NAME AND ADDRESS(1) OWNED(2) TO OFFERING IN THE OFFERING OFFERINGS(3)
- ------------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
David E. Sharbutt..................... 1,177,462(10) 2.4 -- 2.0
Jerry W. Brantley..................... 242,500(11) * -- *
Kendall W. Cowan...................... -- -- -- --
W. Don Stull.......................... 146,147(12) * -- *
Michael R. Budagher................... 7,100,915(13) 14.6 235,294(13) 12.4
Ray M. Clapp.......................... 43,000(14) * -- *
Scotty Hart........................... 8,680,085(15) 17.9 117,647(15) 14.9
Thomas Hyde........................... 5,128,000(16) 10.6 8,824(16) 8.7
Schuyler B. Marshall.................. 9,753,000(17) 20.1 4,500(17) 16.5
Tom M. Phelps......................... 3,028,000(18) 6.2 217,647(18) 5.5
Reagan W. Silber...................... 3,028,000(19) 6.2 17,647(19) 5.1
Jimmy R. White........................ 2,778,000(20) 5.7 -- 4.7
All Directors and Executive Officers
as a Group (12 persons)............. 41,105,109 83.4 601,559 69.5
</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) Consists of shares beneficially owned by Rosewood Telecommunications,
L.L.C. The Caroline Hunt Trust estate is a beneficial owner of these shares
based on its 100% ownership of the Rosewood Corporation, which owns a 100%
interest in DFL Investing, Inc., which owns a 100% interest in Rosewood
Financial, Inc. Rosewood Financial, Inc. and the Caroline Hunt Trust Estate
together own approximately 84.4% of Rosewood Telecommunications, L.L.C. The
address for the Caroline Hunt Trust Estate is the same as the address for
Rosewood Telecommunications, L.L.C.
(5) 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.
(6) Consists of shares beneficially owned by South Plains Advanced
Communications & Electronics, Inc., SPACE. South Plains Telephone
Cooperative is a beneficial owner of these shares based on its 100%
ownership of SPACE. The address for South Plains Telephone Cooperative is
the same as the address for SPACE.
(7) Consists of shares beneficially owned by Tregan International Corp. Mr.
Pearlman is a director, officer and 50% stockholder of Tregan International
Corp. and is a beneficial owner of these shares. The address for Mr.
Pearlman is the same as the address for Tregan International Corp.
(8) Wilton J. Payne is the General Manager of LEC Development, Inc. and may be
considered the beneficial owner of these shares. Mr. Payne disclaims
beneficial ownership of these shares. The address for Mr. Payne is the same
as the address for LEC Development, Inc.
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(9) J.R. Wilson is the general manager of Wes-Tex Telecommunications, Inc. and
may be considered the beneficial owner of these shares. Mr. Wilson
disclaims beneficial ownership of these shares. The address for Mr. Wilson
is the same as the address for Wes-Tex Telecommunications, Inc.
(10) Consists of 48,824 shares held in Mr. Sharbutt's 401(k) plan, 242,500
shares issuable pursuant to options exercisable within 60 days, 593,200
shares beneficially owned by Five S, Ltd. and 292,938 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
a 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 a 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.
(11) Consists of shares issuable pursuant to options exercisable within 60 days.
(12) Consists of 73,235 shares held individually by Mr. Stull, 48,500 shares
issuable pursuant to options exercisable within 60 days and 24,412 shares
held in Mr. Stull's 401(k) plan.
(13) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days as well as 7,072,915 and 235,294 shares beneficially owned by West
Texas PCS, LLC. Mr. Budagher is a Manager of West Texas PCS, LLC and is a
beneficial owner of the shares owned by West Texas PCS, LLC. Mr. Budagher's
address is the same as the address for West Texas PCS, LLC.
(14) Consists of shares issuable pursuant to options exercisable within 60 days.
(15) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days as well as 8,652,085 and 117,647 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 the
shares owned by SPACE. Mr. Hart disclaims beneficial ownership of these
shares. Mr. Hart's address is the same as the address for SPACE.
(16) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days as well as 5,100,000 and 8,824 shares beneficially owned by Taylor
Telecommunications, Inc. Mr. Hyde is a Manager of Taylor
Telecommunications, Inc. and may be considered the beneficial owner of the
shares owned by Taylor Telecommunications, Inc. Mr. Hyde disclaims
beneficial ownership of these shares. Mr. Hyde's address is the same as the
address for Taylor Telecommunications, Inc.
(17) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days as well as 9,725,000 and 4,500 shares beneficially owned by
Rosewood Telecommunications, L.L.C. Mr. Marshall is the Manager of Rosewood
Telecommunications, L.L.C. and may be considered the beneficial owner of
the shares owned by Rosewood Telecommunications, L.L.C. Mr. Marshall
disclaims beneficial ownership of these shares. The address for Mr.
Marshall is the same as the address for Rosewood Telecommunications, L.L.C.
(18) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days as well as 3,000,000 and 217,647 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 the shares owned by Plateau Telecommunications,
Incorporated. Mr. Phelps disclaims beneficial ownership of these shares.
The address for Mr. Phelps is the same as the address for Plateau
Telecommunications, Incorporated.
(19) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days as well as 3,000,000 and 17,647 shares beneficially owned by Tregan
International Corp. Mr. Silber is a director, the President and 50%
stockholder of Tregan International Corp. and is a beneficial owner of the
shares owned by Tregan International Corp. Mr. Silber's address is the same
as the address for Tregan International Corp.
(20) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days as well as 2,750,000 shares beneficially owned by XIT
Telecommunications & Technology, Inc. Mr. White is the General Manager of
XIT Telecommunications & Technology, Inc. and may be considered the
beneficial owner of the shares owned by XIT Telecommunications &
Technology, Inc. Mr. White disclaims beneficial ownership of these shares.
Mr. White's address is the same as the address for XIT Telecommunications &
Technology, Inc.
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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. Yellow Rock agreed to contribute a
total of $400,000 of capital in exchange for a 0.82% membership interest in us.
Pursuant to the agreement, Yellow Rock committed to a funding schedule beginning
with a payment of $123,711 on December 15, 1998 and ending on January 1, 2001.
The original investors retained the remaining 99.18% membership interest in us
in exchange for their capital commitments of $48,100,000. In November 1999, the
members of Alamo IV LLC dissolved Alamo IV LLC and distributed 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 CHR SOLUTIONS
We have entered into a number of arrangements with CHR Solutions as
described in more detail below. David Sharbutt, our Chairman and Chief Executive
Officer, was at the time the agreements were executed the President, Chief
Executive Officer, a director and a shareholder of CHR Solutions. Mr. Sharbutt
is currently employed as a Senior Consultant by CHR Solutions.
- On July 27, 1998, we entered into an engineering service contract with
CHR Solutions 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 CHR Solutions, 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 CHR Solutions, to install and provide 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 approximately $212,000.
- As of April 9, 1999, we entered into a data communications services
contract with CHR Solutions 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.
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- As of August 13, 1999, we entered into a distribution agreement with
TechTel Communications Corporation, an affiliate of CHR Solutions,
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
CHR Solutions 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
CHR Solutions 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
CHR Solutions 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
CHR Solutions 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 $62,085, 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, which was, 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 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.
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SALE OF COMMON STOCK IN THIS OFFERING TO CURRENT STOCKHOLDERS
As part of this sale of our common stock, the underwriters reserved a
maximum of 10% of the shares of our common stock to be sold in this offering for
sale to our current stockholders at a price per share equal to the public
offering price less the underwriting discount. The underwriters are not entitled
to any discount or commission on these shares and the proceeds to us are the
same as if the shares were sold to the general public. Current stockholders will
purchase 757,589 shares pursuant to this arrangement.
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 commencing
January 1, 1999, 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, 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. South Plains 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 December
31, 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 99.75% owned subsidiary, Alamosa Wisconsin Limited Partnership,
a Wisconsin limited partnership. 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
the same proportion to their membership interests in Alamosa PCS, LLC. 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.
STRUCTURE OF ALAMOSA AS OF THE CLOSING OF THIS OFFERING
[STRUCTURE GRAPHIC]
Alamosa PCS Holdings, Inc., a Delaware corporation, was formed in October
1999 to operate as a holding company and has no assets or operations other than
investments in its subsidiaries. Alamosa PCS Holdings, Inc. is the legal entity
that is selling its common stock in this offering and that is proposing to sell
the senior discount notes in the notes offering. Alamosa PCS, Inc., a wholly
owned subsidiary of Alamosa PCS Holdings, Inc., is the legal entity that is the
borrower under the Nortel financing.
Texas Telecommunications, LP was formed in December 1999 and does not
currently have any assets or operations. In connection with the reorganization,
Texas Telecommunications, LP will receive the assets of Alamosa PCS, LLC related
to operations in the southwest United States and operate the current business of
Alamosa PCS, LLC. Alamosa PCS, Inc. will hold a 99% limited partnership interest
in Texas Telecommunications, LP. Alamosa Delaware GP, LLC, a wholly-owned
subsidiary of Alamosa PCS, Inc., will hold a 1% general partnership interest in
Texas Telecommunications, L.P.
Alamosa Wisconsin Limited Partnership was formed in December 1999.
Currently, its only assets are the recently signed affiliation agreements
covering parts of Wisconsin with Sprint PCS. In connection with the
reorganization, Alamosa Wisconsin Limited Partnership will receive the assets of
Alamosa PCS, LLC related to operations in Wisconsin. After the reorganization,
Alamosa Wisconsin Limited Partnership will commence our business operations in
Wisconsin. We expect that Alamosa PCS, Inc. will hold a 98.75% voting limited
partnership interest and that Chibardun Telephone Cooperative, Inc., a rural
telephone company in Wisconsin, or one of its affiliates, will own a 0.25%
non-voting limited partnership interest in Alamosa Wisconsin Limited
Partnership. Alamosa Wisconsin GP, LLC, a wholly owned subsidiary of Alamosa
PCS, Inc., will hold a 1% general partnership interest in Alamosa Wisconsin
Limited Partnership.
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REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
The Federal Communications Commission can have a substantial impact upon
entities that manage wireless personal communications services systems and/or
provide wireless personal communications services because the Federal
Communications Commission regulates the licensing, construction, operation,
acquisition and interconnection arrangements of wireless telecommunications
systems in the United States.
The Federal Communications Commission 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 wireless personal communications services
frequencies;
- grant or deny wireless personal communications services license renewals;
- rule on assignments and/or transfers of control of wireless personal
communications services licenses;
- govern the interconnection of wireless personal communications services
networks with other wireless and wireline service providers;
- establish access and universal service funding provisions;
- impose fines and forfeitures for violations of any of the Federal
Communications Commission's rules; and
- regulate the technical standards of wireless personal communications
services networks.
The Federal Communications Commission currently prohibits a single entity
from having a combined attributable interest, of 20% or greater interest in any
license, in broadband wireless personal communications services, cellular and
specialized mobile radio, commonly referred to as SMR, licenses totaling more
than 45 MHz in any geographic area.
TRANSFERS AND ASSIGNMENTS OF WIRELESS PERSONAL COMMUNICATIONS SERVICES LICENSES
The Federal Communications Commission must give prior approval to the
assignment of, or transfers involving, substantial changes in ownership or
control of a wireless personal communications services license. This means that
our stockholders and we will receive advance notice of any and all transactions
involved in transferring control of Sprint PCS or the assignment of some or all
of the wireless personal communications services licenses held by Sprint PCS.
The Federal Communications Commission proceedings afford our stockholders and us
an opportunity to evaluate proposed transactions well in advance of closing, and
to take actions necessary to protect our interests. Non-controlling interests in
an entity that holds a wireless personal communications services license or
operates wireless personal communications services networks generally may be
bought or sold without prior Federal Communications Commission approval. In
addition, a recent Federal Communications Commission order requires only post-
consummation notification of pro forma assignments or transfers of control.
CONDITIONS OF WIRELESS PERSONAL COMMUNICATIONS SERVICES LICENSES
All wireless personal communications services licenses are granted for ten
year terms conditioned upon timely compliance with the Federal Communications
Commission's build-out requirements. Pursuant to the Federal Communications
Commission's build-out requirements, all 30 MHz broadband wireless personal
communications services licensees must construct facilities that offer coverage
to one-third of the population within five years and to two-thirds of the
population within ten years, and all 10 MHz broadband wireless personal
communications services licensees must construct facilities that offer coverage
to at least one-quarter of the population within five years or make a showing of
"substantial service" within that five year period. If the build-out
requirements are not met, wireless personal communications services licenses
could be forfeited. The Federal Communications Commission also requires
licensees to maintain control over their licenses. Our affiliation agreements
with Sprint PCS reflect a management agreement that the parties believe meets
the Federal Communications Commission requirements for licensee control of
licensed spectrum. If the Federal Communications Commission were to determine
that
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our affiliation agreements with Sprint PCS 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 Federal Communications Commission could impose
monetary penalties on us.
WIRELESS PERSONAL COMMUNICATIONS SERVICES LICENSE RENEWAL
Wireless personal communications services licensees can renew their
licenses for additional ten year terms. Wireless personal communications
services renewal applications are not subject to auctions. However, under the
Federal Communications Commission'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 Federal Communications Commission's rules afford wireless
personal communications services 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 wireless personal communications services renewal applicant has:
- provided "substantial service" during its license term; and
- substantially complied with all applicable laws and Federal
Communications Commission rules and policies.
The Federal Communications Commission'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. The Federal
Communications Commission's renewal expectancy and procedures make it very
likely that Sprint PCS will retain the wireless personal communications services
licenses managed by us for the foreseeable future.
INTERCONNECTION
The Federal Communications Commission has the authority to order
interconnection between commercial mobile radio services, commonly referred to
as CMRS, providers and any other common carrier. The Federal Communications
Commission has ordered local exchange carriers to provide reciprocal
compensation to commercial mobile radio services, 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. The Federal
Communications Commission rules and rulings, as well as the state arbitration
proceedings, will directly impact the nature and cost of the facilities
necessary for interconnection of the Sprint PCS systems with local, national and
international telecommunications networks. They will also determine the nature
and amount of revenues we and Sprint PCS can receive for terminating calls
originating on the networks of local exchange and other telecommunications
carriers.
OTHER FEDERAL COMMUNICATIONS COMMISSION REQUIREMENTS
In June 1996, the Federal Communications Commission adopted rules that
prohibit broadband wireless personal communications services 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 Federal Communications Commission is also considering
whether wireless providers should be required to offer unbundled communications
capacity to resellers who intend to operate their own switching facilities.
These existing resale requirements and their expiration may somewhat affect the
number of resellers competing with us and Sprint PCS in various markets.
However, to date, wireless
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resellers have not significantly impacted wireless service providers. Any losses
in retail customers have been offset, in major part, by increases in wireless
customers, traffic and wholesale revenues.
The Federal Communications Commission also adopted rules in June 1996 that
require local exchange and most commercial mobile radio services providers, 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 Federal Communications Commission requires most commercial
mobile radio services providers to implement wireless service provider number
portability where requested in the 100 largest metropolitan areas in the United
States by November 24, 2002. Most commercial mobile radio services providers are
required to implement nationwide roaming by November 24, 2002 as well. The
Federal Communications Commission currently requires most commercial mobile
radio services 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. Implementation of wireless service provider number portability
will require wireless personal communications services providers like us and
Sprint PCS to purchase more expensive switches and switch upgrades. However, it
will also enable existing cellular customers to change to wireless personal
communications services without losing their existing wireless telephone
numbers, which should make it easier for wireless personal communications
services providers to market their services to existing cellular users.
The Federal Communications Commission has adopted rules permitting
broadband wireless personal communications services and other commercial mobile
radio services providers to provide wireless local loop and other fixed services
that would directly compete with the wireline services of local exchange
carriers. This creates new markets and revenue opportunities for us, Sprint PCS
and other wireless providers, and may do so increasingly in future years. In
June 1996, the Federal Communications Commission adopted rules requiring
broadband wireless personal communications services and other commercial mobile
radio services providers to implement enhanced emergency 911 capabilities within
18 months after the effective date of the Federal Communications Commission's
rules. In December 1997, the Federal Communications Commission revised these
rules to extend the compliance deadline for phase I until October 1, 1998 and
for phase II until October 1, 2001 for digital commercial mobile radio services
providers to ensure access for customers using devices for the hearing-impaired.
The Federal Communications Commission recently extended the phase I compliance
deadline to January 1, 1999. Further waivers of the enhanced emergency 911
capability requirements may be obtained by individual service providers by
filing a waiver request. The Federal Communications Commission's waivers and
extensions are enabling us, Sprint PCS and other commercial mobile radio
services industry members to delay emergency 911 implementation until the
required equipment becomes more functional and less expensive. However, at a
more reasonable future cost, emergency 911 services may afford wireless carriers
substantial and attractive new service and marketing opportunities.
On June 10, 1999, the Federal Communications Commission 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 Federal Communications Commission's tentative conclusion that the
Communications Act of 1934, as amended, requires utilities to permit
telecommunications service providers 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 service providers should be required to make access
available to all other telecommunications service providers on a
nondiscriminatory basis, and whether the Federal Communications
Commission 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.
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COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT ACT
The Communications Assistance for Law Enforcement Act, or CALEA, enacted in
1994 requires wireless personal communications services and other
telecommunications service providers to meet capability and capacity
requirements needed by federal, state and local law enforcement to preserve
their electronic surveillance capabilities. Wireless personal communications
services providers 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. Wireless personal communications services
providers must comply with the CALEA capacity requirements by March 12, 2001. At
present, most wireless personal communications services providers 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 Federal Communications Commission is considering petitions
from numerous parties to establish and implement technical compliance standards
pursuant to CALEA requirements. In sum, CALEA capability and capacity
requirements are likely to impose some additional switching and network costs
upon us, Sprint PCS and other wireless entities. However, it is possible that
some of these costs will be reduced or delayed if current law enforcement or
legislative initiatives are adopted and implemented during 2000 or thereafter.
OTHER FEDERAL REGULATIONS
We must bear the expense of compliance with Federal Communications
Commission and Federal Aviation Administration regulations regarding the siting,
lighting and construction of transmitter towers and antennas. In addition,
Federal Communications Commission environmental regulations may cause some of
our base station locations to become subject to the additional expense of
regulation under the National Environmental Policy Act. The Federal
Communications Commission is required to implement the Act by requiring service
providers to meet land use and radio frequency standards.
REVIEW OF UNIVERSAL SERVICE REQUIREMENTS
The Federal Communications Commission 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 Federal Communications Commission 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 Federal
Communications Commission'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. However,
some wireless entities are seeking state commission designation as "eligible
telecommunications carriers," enabling them to receive federal and state
universal service support, and are preparing to compete aggressively with
wireline telephone companies for universal service revenue. Because we serve
substantial rural areas, we are likely to obtain revenues in the future from
federal and state universal service support funds that are much greater than the
contributions we will pay.
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PARTITIONING; DISAGGREGATION
The Federal Communications Commission has modified its rules to allow
broadband wireless personal communications services 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. These
rules may enable us to purchase wireless personal communications services
spectrum from Sprint PCS and other wireless personal communications services
licensees as a supplement or alternative to the existing management
arrangements.
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 Federal Communications Commission'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. These rules are designed to make it possible for us, Sprint PCS and
other wireless entities to acquire necessary tower sites in the face of local
zoning opposition and delays. The Federal Communications Commission 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
service providers for toll services. This enables us and Sprint PCS to generate
additional revenues by reselling the toll services of Sprint PCS and other
interexchange carriers from whom we can obtain favorable volume discounts.
However, the FCC is authorized to require unblocked access to toll service
providers 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 Federal Communications Commission to regulate those
providers and the Federal Communications Commission may grant that petition if
the state demonstrates that:
- market conditions fail to protect subscribers from unjust and
unreasonable rates or rates that are unjustly or unreasonably
discriminatory; or
- when commercial mobile radio service is a replacement for landline
telephone service within the state.
To date, the Federal Communications Commission has granted no such petition. To
the extent we provide fixed wireless service, we may be subject to additional
state regulation. These standards and rulings have prevented states from
delaying the entry of wireless personal communications services and other
wireless carriers into their jurisdictions via certification and similar
requirements, and from delaying or inhibiting aggressive or flexible wireless
price competition after entry.
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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 300,000,000 shares of authorized capital stock, including 290,000,000
shares of common stock, par value $0.01 per share and 10,000,000 shares of
preferred stock, par value $0.01 per share. As of January 31, 2000, after 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 48,500,008 shares of common stock and no
shares of preferred stock issued and outstanding. As of that date, there would
have been approximately 29 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 legally available
funds. 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
10,000,000 shares of preferred stock. The preferred stock may be issued in one
or more series. Each series may have different rights, preferences and
designations and qualifications, limitations and restrictions that may be
established by our board of directors without approval from the stockholders.
These rights, designations and preferences include:
- number of shares to be issued;
- dividend rights;
- dividend rates;
- conversion rights;
- voting rights;
- liquidation preferences; and
- terms of redemption.
If our board of directors decides to issue any preferred stock, it 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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The Series A preferred stock described under "Stockholder Rights Plan"
below is a series of preferred stock that will be authorized by our board of
directors in connection with a stockholder rights plan.
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 spring into existence
and be exercisable by Nortel on the second anniversary of the closing date,
unless, among other options, we contribute $75.0 million of equity to Alamosa
PCS, Inc. and prepay indebtedness outstanding under the Nortel facility. We
intend to use a portion of the proceeds from our offering of senior discount
notes to prepay enough of the Nortel financing to prevent the exercise of the
warrants. However, we cannot assure you that we will choose to complete our
notes offering or that we will prepay any portion of the Nortel financing. Other
options to terminate the warrants include:
- the assignment of a portion of the loans by Nortel to unrelated lenders;
- a minimum combination of loan prepayments and assignment of the loans; or
- a maximum ratio of senior debt to total capitalization as of the second
anniversary of the closing date and for the two consecutive calendar
quarters immediately prior to the second anniversary of the closing date.
However, if we do not complete an additional offering of equity or debt, we do
not anticipate that the warrants will be terminated. The exercise price for the
warrants will be the price paid for our common stock in this offering. Nortel
may not transfer any of its rights with respect to the warrants before the first
anniversary of the closing date, and any warrants transferred before the second
anniversary of the closing date will be subject to the provisions preventing
exercise of the warrants. In no event may the warrants be exercised after the
eighth anniversary of the closing date.
Nortel is entitled to multiple demand registration rights and unlimited
piggyback registration rights of the common stock warrants.
DELAWARE LAW
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. 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 that the person became an interested stockholder, the
transaction or business combination that resulted in the person becoming
an interested stockholder 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 our 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.
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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.
PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS THAT MAY PREVENT
TAKEOVERS
Our certificate of incorporation contains provisions that may delay, defer
or prevent a change in control of Alamosa and make removal of our management
more difficult.
Our certificate of incorporation provides 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. Our bylaws provide that a stockholder may nominate directors only
if the stockholder delivers written notice to us not less than 45 days or more
than 75 days before the first anniversary of the date on which we first mailed
our proxy materials for the preceding year's annual meeting. If the date of the
annual meeting is advanced more than 30 days before or delayed more than 30 days
after the anniversary of the preceding year's annual meeting, then we must
receive the stockholder's notice not after the later of the ninetieth day before
the annual meeting or the tenth day after the day the public announcement of the
date of the annual meeting is made.
Our certificate of incorporation provides that any newly created
directorship resulting from an increase in the number of directors or a vacancy
on the board of directors may be filled only by vote of a majority of the
remaining directors then in office, even if less than a quorum. Under no
circumstances will our stockholders fill any newly created directorships.
Directors elected to fill a vacancy or by reason of an increase in the number of
directors 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
80% of the then outstanding shares of stock entitled to vote on the matter.
Our certificate of incorporation provides that any action required or
permitted to be taken by our stockholders may be taken only at a duly called
annual or special meeting of the stockholders, and may not be taken by written
consent of the stockholders. Special meetings may be called only by the Chairman
of the board of directors, if there is one, the President, the board of
directors or the holders of not less than a majority of the then outstanding
shares entitled to vote generally in an election of directors. 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 our outstanding voting securities, would be unable to call a special meeting
of the stockholders and would further be unable in most situations 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.
Our certificate of incorporation also contains fair price provisions
designed to provide safeguards for stockholders when a stockholder owning 20% or
more of our voting stock, referred to as an interested stockholder, or that
interested stockholder's affiliates or associates, attempts to effect a business
combination with Alamosa.
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Events that are deemed business combinations include:
- any merger or consolidation of Alamosa involving an interested
stockholder;
- specified dispositions of assets, cash flow or earning power of Alamosa
to an interested stockholder, any issuance of our securities to an
interested stockholder or our entering into loans or other arrangements
involving an interested stockholder, in each case, meeting specified
threshold amounts;
- the adoption of any plan of liquidation or dissolution of Alamosa; and
- any issuance or reclassification of our securities having the effect of
increasing the proportionate share of ownership of an interested
stockholder.
Regarding the 20% threshold for the definition of interested stockholder,
persons who were stockholders in our company before the date of this sale of our
common stock may enter into voting agreements with each other, without being
deemed the beneficial owner of securities owned by the other parties to the
voting agreements, only if the voting agreements:
- were approved by our board of directors prior to the time they were
entered into;
- do not govern the voting of our common stock in matters other than the
election of members of our board of directors; and
- do not govern the voting of our common stock held by persons other than
persons who were stockholders in our company before the date of this sale
of our common stock.
In general, a business combination between Alamosa and an interested stockholder
must be approved by the affirmative vote of the holders of 80% of our
outstanding voting stock, excluding voting stock owned by such interested
stockholder, unless the transaction is approved by a majority of the members of
the board of directors who are not interested stockholders and who are not
affiliated with the interested stockholder. Minimum price and form consideration
requirements must also be satisfied. See also "-- Delaware Law."
Delaware Law 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 80% of the outstanding voting stock to amend or repeal any of the
provisions of the certificate of incorporation or bylaws described above. Except
as otherwise provided by law, holders of our common stock are not entitled to
vote on any amendment to our certificate of incorporation that changes the
powers, preferences, rights or other terms of an outstanding series of our
preferred stock, if the holders of the affected series of preferred stock are
entitled to vote on the proposed amendment. The bylaws may be amended or
repealed by the board of directors, except if the bylaw provisions affect
provisions of the certificate of incorporation or bylaws described above, then
the affirmative vote of the holders of at least 80% of the outstanding voting
stock is required. The 80% stockholder vote would be in addition to any separate
vote that each class of preferred stock is entitled to that might in the future
be required in accordance with the terms of any preferred stock that might be
outstanding at the time any amendments are submitted to stockholders.
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.
The certificate of incorporation requires us to indemnify our directors and
officers to the fullest extent permitted by law. In addition, as permitted by
Delaware law, the certificate of incorporation provides that no director will be
liable to us or our stockholders for monetary damages for breach of certain
fiduciary
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duties as a director. The effect of this provision is to restrict our rights and
the 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 Delaware law;
- any breach of the duty of loyalty to Alamosa or our stockholders; or
- any transaction from which the director derived an improper personal
benefit.
CERTAIN PROVISIONS OF THE SPRINT PCS AGREEMENTS
Pursuant to our affiliation agreements with the Sprint PCS, 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 "Our Affiliation Agreements
with Sprint PCS -- 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 our affiliation agreements with
Sprint PCS. 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 our affiliation agreements with Sprint
PCS may limit our ability to sell the business and may have a substantial
anti-takeover effect.
STOCKHOLDER RIGHTS PLAN
Rights and rights certificates
Our board of directors currently expects to adopt a stockholder rights plan
at or prior to the closing of this offering. On the date the stockholder rights
plan is adopted, we will declare a dividend of one right for each share of
common stock outstanding. A right will also attach to each share of common stock
issued at the closing of the offering and each share of common stock issued
subsequent to the closing of the offering. Each right, when exercisable,
entitles the holder to purchase from us one one-thousandth of a share of Series
A Preferred Stock at a purchase price of $84 per one one-thousandth of a share,
subject to adjustment. Each fractional share of the Series A Preferred Stock
will essentially be the economic equivalent of one share of common stock.
A stockholder rights plan is designed to deter coercive takeover tactics
and to otherwise encourage third parties interested in acquiring us to negotiate
with our board of directors. The stockholder rights plan achieves these goals by
significantly diluting the ownership interest of a person who acquires a
specified percentage of common stock.
Initially, the rights will be attached to all certificates representing
outstanding shares of common stock and will be transferred with and only with
such certificates. The rights will separate from the common stock and become
exercisable upon the earlier to occur of:
- the close of business on the tenth business day after the public
announcement that a person or group of persons has acquired 20% or more
of our outstanding common stock, except in connection with an offer
approved by our board of directors; or
- the close of business on the tenth business day after the commencement
of, or announcement of an intention to commence a tender offer or
exchange offer that would result in a person or group of persons
acquiring 20% or more of our outstanding common stock.
A person or group of persons will be considered to have acquired beneficial
ownership of common stock if they have the power to vote or direct the voting of
the common stock. Stockholders in existence
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prior to the date of this sale of our common stock may enter into voting
agreements with each other only, at any time, without being deemed the
beneficial owner of securities owned by the other parties to the voting
agreements, if the voting agreements:
- were approved by our board of directors prior to the time they were
entered into;
- do not govern the voting of our common stock regarding matters other than
the election of members of our board of directors; and
- do not govern the voting of our common stock held by persons other than
stockholders in existence prior to the date of this sale of our common
stock.
Expiration of rights
The rights will expire at the close of business on the tenth anniversary of
the date of issuance, unless we redeem or exchange the rights before that date
or amend the stockholder rights plan to extend the term of the rights.
Flip-in right
If any person or group of persons acquires 20% or more of our outstanding
common stock, each holder of a right, other than the acquiring person, will have
the right to receive the number of shares of common stock, or in certain
circumstances, cash, property or other securities of Alamosa, having a value
equal to two times the purchase price of the right. The acquiring person's
rights will automatically become null and void in that event. In other words,
the stockholders other than the acquiring person will be able to buy common
stock at half price.
Flip-over right
If at any time after a person or group of persons acquires 20% or more of
our outstanding common stock and the following occurs:
- we effect a merger or other business combination in which we are not the
surviving corporation;
- we are the surviving corporation in a consolidation, merger or similar
transaction in which our shares of common stock are changed into or
exchanged for other securities; or
- we sell or otherwise transfer more than 50% of our assets, cash flow or
earning power,
then each holder of a right, except a person who has acquired beneficial
ownership of 20% or more of the outstanding common stock, may purchase, upon the
exercise of each right at the then-current purchase price, that number of shares
of common stock of the acquiring company with a market value equal to two times
the purchase price of the right. In other words, the stockholders other than the
acquiring person will be able to buy common stock of the acquiring company at
half price.
Adjustments
The purchase price and the number of shares of Series A preferred stock or
other securities issuable upon exercise of the rights may be adjusted to prevent
dilution upon:
- stock dividends, subdivisions, combinations or reclassifications of the
Series A preferred stock;
- below market issuances of rights or warrants to subscribe for or convert
into Series A preferred stock; or
- distributions to holders of the Series A preferred stock of evidence of
indebtedness, cash, excluding regular quarterly cash dividends, assets,
excluding dividends payable in Series A preferred stock, or subscription
rights or warrants.
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Exchange of rights
After a person or group of persons acquires 20% of our outstanding common
stock but before that person or group beneficially owns 50% or more of our
common stock, we may, at our option, exchange the rights at an exchange ratio of
one-half the number of shares of common stock, Series A preferred stock, or
other property for which a right is exercisable immediately prior to our
decision to exchange the rights, subject to adjustment. Rights held by an
acquiring person are not entitled to these exchange rights. In that event, the
stockholders other than the acquiring person would receive common stock in
exchange for their rights.
Redemption of rights
At any time before a person or group of persons acquires 20% or more of our
outstanding common stock, we may redeem the rights at a price of $0.001 per
right. Upon the effective date of the redemption of the rights, the rights will
terminate and the rights holders will only be entitled to receive the $0.001
redemption price.
Rights as a stockholder
Until a right is exercised, the rights will not entitle the holder to the
rights as an Alamosa stockholder, including, without limitation, the right to
vote or to receive dividends.
The preferred stock
The terms of the Series A preferred stock will be contained in a
Certificate of Designations, Rights and Preferences filed with the Delaware
Secretary of State and attached as an exhibit to the Stockholder Rights Plan,
which is filed as an exhibit to the registration statement.
Anti-takeover effects
The rights will have certain anti-takeover effects. The rights will cause
substantial dilution to any person or group that attempts to acquire us without
the approval of our board of directors. As a result, the overall effect of the
rights may be to make more difficult a merger, tender offer, other business
combination or proxy contest, even if such event would be favorable to the
interest of stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, Dallas, Texas.
LISTING
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "APCS."
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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
59,747,508 shares of common stock, assuming no exercise of the underwriters'
over-allotment option. 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.
Additional shares of common stock are available for future grants under our
1999 Long Term Incentive Plan. See "Management -- Benefit Plans -- 1999 Long
Term Incentive 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, our members of senior management and directors, and some of our current
stockholders 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, or otherwise dispose of any shares of capital
stock, including but not limited to the filing, or participation in the filing,
of a registration statement with the Securities and Exchange Commission in
respect of, or establish or increase a put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Section 16 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder with respect to,
any shares of capital stock or any securities convertible into, or exercisable
or exchangeable for such capital stock, or publicly announce an intention to
effect any such a transaction,
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without the prior written consent of Salomon Smith Barney Inc. Salomon Smith
Barney Inc. has informed the Company that it has no current intentions of
releasing any shares subject to the lock-up agreements. Any determination by
Salomon Smith Barney Inc. to release any shares subject to the lock-up
agreements would be based on a number of factors at the time of determination,
including the market price of the common stock, the liquidity of the trading
market for the common stock, general market conditions, the number of shares
proposed to be sold, and the timing, purpose and terms of the proposed sale.
There are no exceptions to the lock-up, except that West Texas PCS, LLC may
transfer shares to Budagher Family, LLC, which will also enter into a lock-up
agreement, and Rosewood Telecommunications, L.L.C. may transfer shares to Yellow
Rock PCS, L.P., which will also enter into a lock-up agreement and everyone
subject to the lock-up may dispose of shares as bona fide gifts to persons who
also enter into lock-up agreements which terminate 180 days after the date of
this prospectus.
Following the lock-up period, approximately 47,763,659 shares of common
stock, including shares issuable pursuant to stock options immediately
exercisable or exercisable prior to the termination of the lock-up period, will
first 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, which generally, is 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 shall 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.
- 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
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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; and
- 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 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 creditable 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.
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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 not 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. Information reporting, 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 February 2, 2000, 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. .................................. 2,166,000
Lehman Brothers Inc. ....................................... 2,166,000
Credit Suisse First Boston Corporation...................... 2,166,000
Deutsche Bank Securities Inc. .............................. 2,166,000
ABN AMRO Incorporated....................................... 170,000
A.G. Edwards & Sons, Inc. .................................. 170,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 170,000
J.P. Morgan Securities Ltd. ................................ 170,000
Warburg Dillon Read LLC .................................... 170,000
Sanford C. Bernstein & Co., Inc. ........................... 100,000
William Blair & Company, L.L.C.............................. 100,000
J.C. Bradford & Co. ........................................ 100,000
First Union Securities, Inc. ............................... 100,000
Jefferies & Company......................................... 100,000
C.L. King & Associates, Inc. ............................... 100,000
Legg Mason Wood Walker, Incorporated........................ 100,000
Loop Capital Markets........................................ 100,000
Raymond James & Associates, Inc. ........................... 100,000
The Robinson-Humphrey Company, LLC.......................... 100,000
Sanders Morris Mundy Inc. .................................. 100,000
Williams Capital Group...................................... 100,000
----------
Total............................................. 10,714,000
==========
</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., Lehman Brothers 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 $0.688 per share. The underwriters may
allow, and such dealers may reallow, a concession not in excess of $0.100 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 1,607,100 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.
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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.
As part of this sale of our common stock, the underwriters reserved a
maximum of 10% of the shares of our common stock to be sold in this offering for
sale to our current stockholders at a price per share equal to the public
offering price less the underwriting discount. The underwriters are not entitled
to any discount or commission on these shares and the proceeds to us are the
same as if the shares were sold to the general public. Current stockholders will
purchase 757,589 shares pursuant to this arrangement. Accordingly, the number of
shares of common stock available for sale to the general public is 9,956,411.
At our request, Salomon Smith Barney Inc. reserved up to approximately five
percent of the shares being offered as 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 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.
Our common stock has been approved 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. The per share amounts are
based on only those shares sold to the public and not the 757,589 shares sold to
current stockholders for which the underwriters will not be paid any discounts
or commissions.
<TABLE>
<CAPTION>
PAID BY ALAMOSA
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................. $ 1.1475 $ 1.1475
Total........................................... $11,424,982 $13,269,129
</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
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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, excluding
underwriting discounts and commissions, will be $1,020,000.
The representatives may, from time to time, engage in transactions with and
perform services for us in the ordinary course of their business. In particular,
Salomon Smith Barney Inc., Credit Suisse First Boston Corporation and Lehman
Brothers Inc. are also acting as underwriters in the offering of our senior
discount notes.
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.
EXPERTS
The financial statements of Alamosa PCS, LLC as of December 31, 1998 and
September 30, 1999, and for the period from inception, July 16, 1998 to December
31, 1998, the nine-month period ended September 30, 1999 and the period from
inception, July 16, 1998 to September 30, 1999, 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.
107
<PAGE> 111
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.
108
<PAGE> 112
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1998, September 30, 1999,
and as adjusted September 30, 1999 (unaudited)............ F-3
Statements of Operations for the period July 16, 1998,
(inception), through December 31, 1998, for the period
July 16, 1998, (inception), through September 30, 1998
(unaudited), for the nine-month period ended September 30,
1999, and for the period July 16, 1998, (inception),
through September 30, 1999................................ F-4
Statements of Members' Equity for the period July 16, 1998,
(inception), through December 31, 1998, and the nine-month
period ended September 30, 1999........................... F-5
Statements of Cash Flows for the period July 16, 1998,
(inception), through December 31, 1998, for the period
July 16, 1998, (inception), through September 30, 1998
(unaudited), for the nine-month period ended September 30,
1999, and for the period July 16, 1998, (inception),
through September 30, 1999................................ F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 113
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and
Members of Alamosa PCS LLC:
In our opinion, the accompanying balance sheets 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 September 30, 1999, and the results of its
operations and its cash flows for the period from July 16, 1998 (inception)
through December 31, 1998, the nine-month period ended September 30, 1999 and
the period from July 16, 1998 (inception) through September 30, 1999, 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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
December 5, 1999, except as to Note 11 which is as of December 31, 1999
F-2
<PAGE> 114
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS ADJUSTED
SEPTEMBER 30, 1999
DECEMBER 31, 1998 SEPTEMBER 30, 1999 (UNAUDITED)
----------------- ------------------ ------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $13,529,077 $ 7,454,309 $ 7,454,309
Accounts receivable, net of allowance for
doubtful accounts of $24,355 at
September 30, 1999..................... -- 832,827 832,827
Inventory................................. -- 4,989,500 4,989,500
Prepaid expenses and other assets......... 52,046 686,102 686,102
Interest receivable....................... -- 19,255 19,255
----------- ------------ ------------
Total current assets.............. 13,581,123 $ 13,981,993 $ 13,981,993
----------- ------------ ------------
Notes receivable from related party......... -- 100,000 100,000
Debt issuance costs......................... -- 3,892,678 3,892,678
Restricted cash............................. -- 1,000,000 1,000,000
Construction in progress.................... 1,978,770 28,940,359 28,940,359
Property and equipment, net................. 113,992 36,929,808 36,929,808
Microwave relocations, net.................. -- 3,333,189 3,333,189
Other non-current assets.................... -- 233,700 233,700
----------- ------------ ------------
Total assets...................... $15,673,885 $ 88,411,727 $ 88,411,727
=========== ============ ============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses..... $ 395,355 $ 9,656,578 $ 9,656,578
Payable to related parties................ 450,496 1,043,259 1,043,259
Current installments of capital leases.... 20,145 21,281 21,281
Notes payable............................. 23,637 143,690 143,690
Microwave relocation obligation........... -- 3,372,484 3,372,484
Other current liabilities................. -- 244,369 244,369
----------- ------------ ------------
Total current liabilities......... $ 889,633 $ 14,481,661 $ 14,481,661
Capital lease obligations, noncurrent....... 708,074 832,684 832,684
Long-term debt, excluding current
maturities................................ -- 59,887,586 59,887,586
----------- ------------ ------------
Total liabilities................. 1,597,707 75,201,931 75,201,931
Commitments and contingencies
Equity:
Contributed capital....................... $15,000,000 $ 25,000,000 $ --
Deficit accumulated during the development
stage.................................. (923,822) (18,612,241) (18,612,241)
Preferred stock, par value $.01 per share;
10,000,000 shares authorized; no shares
issued and outstanding.................
Common stock, $.01 par value; 290,000,000
shares authorized, 48,500,008 issued
and outstanding........................ -- -- 485,000
Additional paid-in capital................ -- 11,193,751 35,708,751
Unearned compensation..................... -- (4,371,714) (4,371,714)
----------- ------------ ------------
Total Equity...................... 14,076,178 13,209,796 13,209,796
Total liabilities and members'
equity.......................... $15,673,885 $ 88,411,727 $ 88,411,727
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
F-3
<PAGE> 115
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE FOR THE
FOR THE PERIOD FOR THE PERIOD PERIOD
JULY 16, 1998 JULY 16, 1998 FOR THE NINE-MONTH JULY 16, 1998
(INCEPTION) THROUGH (INCEPTION) THROUGH PERIOD ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------- ------------------- ------------------ -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Service revenues................ $ -- $ -- $ 1,187,008 1,187,008
Product sales................... -- -- 813,052 813,052
---------- --------- ------------ ------------
Total revenue........... -- -- 2,000,060 2,000,060
Cost of services.................. -- -- 818,678 818,678
Cost of products sold............. -- -- 794,963 794,963
---------- --------- ------------ ------------
Gross profit............ -- -- 386,419 386,419
Operating expenses:
Selling, general and
administrative expenses
(excluding equity
participation compensation
expense)..................... 949,445 400,631 9,194,937 10,144,382
Equity participation
compensation expense......... -- -- 6,822,037 6,822,037
General and administrative
expenses -- related
parties...................... 6,886 -- 680,006 686,892
Depreciation and amortization... 2,063 -- 936,736 938,799
---------- --------- ------------ ------------
Loss from operations.... (958,394) (400,631) (17,247,297) (18,205,691)
Interest and other income......... 34,589 170 444,746 479,335
Interest expense.................. (17) -- (885,868) (885,885)
---------- --------- ------------ ------------
Net loss................ (923,822) (400,461) (17,688,419) (18,612,241)
Pro forma basic and diluted
weighted average common shares
outstanding (unaudited)......... 48,500,008 48,500,008 48,500,008 48,500,008
Pro forma information (unaudited):
Net loss........................ (923,822) (400,461) (17,688,419) (18,612,241)
Pro forma income tax adjustment:
Income tax benefit........... 317,592 137,671 6,014,062 6,331,558
Deferred tax valuation
allowance.................. (317,592) (137,671) (6,014,062) (6,331,558)
---------- --------- ------------ ------------
Pro forma net loss........... (923,822) (400,461) (17,688,419) (18,612,241)
Basic and diluted pro forma net
loss per common share........ $ (0.02) $ (0.01) $ (0.36) $ (0.38)
========== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
F-4
<PAGE> 116
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF MEMBERS' EQUITY
FOR THE PERIOD JULY 16, 1998 (INCEPTION) THROUGH
DECEMBER 31, 1998 AND THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
<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
----------- ----------- ----------- ----------- --------- --------- ------------
Members' contributions....... 5,629,300 2,005,150 1,458,330 618,560 206,190 82,470 10,000,000
Net loss..................... (9,957,342) (3,546,793) (2,579,555) (1,094,135) (364,718) (145,876) (17,688,419)
Additional paid in capital... 11,193,751
Unearned compensation........ (4,371,714)
----------- ----------- ----------- ----------- --------- --------- ------------
Balance, September 30, 1999.... $ 3,595,855 $ 1,280,849 $ 931,551 $ 395,116 $ 131,702 $ 52,686 $ 13,209,796
=========== =========== =========== =========== ========= ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 117
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD CUMULATIVE FOR THE
JULY 16, 1998 JULY 16, 1998 FOR THE PERIOD
(INCEPTION) (INCEPTION) THROUGH NINE-MONTH JULY 16, 1998
THROUGH SEPTEMBER 30, 1998 PERIOD ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 (UNAUDITED) SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
----------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (923,822) $(400,461) $(17,688,419) $(18,612,241)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity participation compensation
expense.................................. -- -- 6,822,037 6,822,037
Depreciation and amortization.............. 2,063 -- 936,736 938,799
Amortization of debt issuance costs........ -- -- 178,264 178,264
Deferred interest expense.................. -- -- 544,055 544,055
(Increase) decrease in:
Accounts receivable...................... -- -- (832,827) (832,827)
Inventory................................ -- -- (4,989,500) (4,989,500)
Prepaid expenses and other assets........ (52,046) -- (634,056) (686,102)
Interest receivable...................... -- -- (19,255) (19,255)
Increase (decrease) in:
Accounts payable and accrued expenses.... 845,851 403,744 6,344,077 7,189,928
----------- --------- ------------ ------------
Net cash provided (used) by
operating activities.............. (127,954) 3,283 (9,338,888) (9,466,842)
----------- --------- ------------ ------------
Cash flows from investing activities:
Issuance of notes receivable............... -- -- (100,000) (100,000)
Increase in restricted cash................ -- -- (1,000,000) (1,000,000)
Additions to construction in progress...... (1,250,551) (396,812) (8,225,571) (9,476,122)
Additions to property and equipment........ (92,418) -- (9,459,029) (9,551,447)
----------- --------- ------------ ------------
Net cash used investing
activities........................ (1,342,969) (396,812) (18,784,600) (20,127,569)
----------- --------- ------------ ------------
Cash flows from financing activities:
Debt issuance cost......................... -- -- (230,942) (230,942)
Capital contribution....................... 15,000,000 500,000 10,000,000 25,000,000
Increase in notes payable.................. 12,289,626 12,289,626
Payments on capital leases................. -- -- (20,633) (20,633)
Interest rate cap premiums................. -- -- (233,700) (233,700)
Bank overdraft............................. -- -- 244,369 244,369
----------- --------- ------------ ------------
Net cash provided by financing
activities........................ 15,000,000 500,000 22,048,720 37,048,720
----------- --------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................. 13,529,077 106,471 (6,074,768) 7,454,309
Cash and cash equivalents at beginning of
period..................................... -- -- 13,529,077 --
----------- --------- ------------ ------------
Cash and cash equivalents at end of period... $13,529,077 $ 106,471 $ 7,454,309 $ 7,454,309
=========== ========= ============ ============
Supplemental disclosure -- cash paid for
interest................................... $ -- $ -- $ 60,093 $ 60,093
=========== ========= ============ ============
Supplemental disclosure of noncash
activities:
Capitalized lease obligations incurred..... $ 728,219 $ -- $ 146,379 $ 874,598
Liabilities assumed in connection with
acquisition of construction in progress
and property and equipment............... 23,637 -- 46,843,867 46,867,504
Liabilities assumed in connection with debt
issuance cost............................ -- -- 3,840,000 3,840,000
Liabilities assumed in connection with
microwave relocations.................... -- -- 3,372,484 3,372,484
----------- --------- ------------ ------------
$ 751,856 $ -- $ 54,202,730 $ 54,954,586
=========== ========= ============ ============
</TABLE>
The accompanying notes are integral part of the unaudited financial statements.
F-6
<PAGE> 118
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS OPERATIONS
Alamosa PCS LLC, referred to in these financial statements as the Company
or Alamosa, was formed in July 1998 as a Texas limited liability company. In
July, 1998, Alamosa entered into affiliation agreements with Sprint PCS, the PCS
Group of Sprint Corporation. These affiliation agreements provide Alamosa with
the exclusive right to build, own and manage a wireless voice and data services
network in markets with over 5.2 million residents located in Texas, New Mexico,
Arizona, and Colorado under the Sprint PCS brand. As described in Note 11,
Alamosa amended its affiliation agreements with Sprint PCS to expand its
services network so that it includes 8.4 million residents. Alamosa is required
to build out the wireless network according to Sprint PCS specifications. The
affiliation 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 affiliation agreements. The affiliation agreements include indemnification
clauses between Alamosa and Sprint PCS to indemnify each other against claims
arising from violations of laws or the affiliation agreements, other than
liabilities resulting from negligence or willful misconduct of the party seeking
to be indemnified.
As described in Note 11, Alamosa PCS Holdings Inc. was formed in October
1999 in anticipation of an initial public offering. Immediately prior to the
offering and as part of the reorganization of the Company, holders of the
Company's membership interests will receive shares of common stock of Alamosa
PCS Holdings Inc., the registrant.
Alamosa is currently in the development stage. This stage is characterized
by significant expenditures for the design and construction of the wireless
network. Management estimates total network build-out expenditures related to
the markets included in the affiliation agreements with Sprint PCS, of
approximately $272 million, including site acquisition, design, and construction
equipment through 2002. These expenditures will be funded through member
contributions of $37 million, a financing agreement with Nortel Networks Inc. of
$250 million and proceeds of the initial public offering described in Note 11.
From inception through September 30, 1999, the Company has commenced operations
in seven markets. Since inception, the Company has incurred revenues and
expenses of $2,000,060 and $20,612,301 resulting in a deficit accumulated during
the development stage of $18,612,241 at September 30, 1999. 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 market, the Company's focus will be the development of the Sprint PCS
subscriber base within that market.
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 are entitled to full benefits of
ownership of their 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.
F-7
<PAGE> 119
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The members of the Company have the following class I ownership interests
as of December 31, 1998 and September 30, 1999:
<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>
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.
As of September 30, 1999, other liabilities consist of a bank overdraft of
$244,369. This overdraft was mainly due to the timing of transfers between
Alamosa's operating and investment accounts.
Inventory
Inventory consists 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 and the related obligation incurred to
relocate incumbent microwave frequencies in Alamosa's service area. Microwave
relocation costs are amortized on a straight-line basis over 20 years beginning
upon commencement of services in respective markets. The amortization of
microwave relocation costs was insignificant in 1998 and totaled $39,295 for the
nine-month period ended September 30, 1999.
Property, equipment, and construction in progress
Property and equipment are reported at cost less accumulated depreciation.
Cost incurred to design and construct the wireless network in a market are
classified as construction in progress. When the wireless network for a
particular market is completed and placed into service, the related costs are
transferred from construction in progress to property and equipment. 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. If facts or
circumstances support the possibility of impairment, the Company will prepare a
projection of future operating cash flows, undiscounted and without interest. If
based on this projection, the Company does not expect to recover its carrying
cost, an impairment loss equal to the difference between the fair value of the
asset and its carrying value will be recognized in operating income. 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.
F-8
<PAGE> 120
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Asset lives are as follows:
<TABLE>
<S> <C>
Buildings............................................... 20 years
Network equipment....................................... 5-10 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. Total interest capitalized is
$656,800 as of September 30, 1999.
Software costs
Initial operating systems software is capitalized and amortized using the
straight-line method, generally over a period of five years. Capitalized
software of approximately $11,500 and $323,000 at December 31, 1998 and
September 30, 1999 are recorded in property and equipment. The Company amortized
computer software costs of approximately $800 and $12,200 during 1998 and for
the nine month period ended September 30, 1999.
Start-up costs
In April 1998, the American Institute of Certified Public Accountants
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 and $2,282,000 during 1998 and for the nine-month period
ended September 30, 1999 respectively. Advertising costs include handset subsidy
expenses representing the excess of the cost of handsets over the retail sales
price. There was no handset subsidy expense during 1998. Handset subsidy expense
was approximately $1,194,000 for the nine-month period ended September 30, 1999.
Income taxes
At December 31, 1998 and September 30, 1999, Alamosa was 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 PCS 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.
F-9
<PAGE> 121
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 PCS's handset return policy which
allows customers to return handsets for a full refund within 30 days of
purchase. When handsets are returned to the Company, the Company may be able to
reissue the handsets to customers at little additional cost. However, when
handsets are returned to Sprint PCS for refurbishing, the Company will receive a
credit from Sprint PCS, which will be less than the amount the Company
originally paid for the handset. For the nine-month period ended September 30,
1999 product revenue was $818,678. The cost of these products was $1,991,963;
$797,633 of this cost has been classified as cost of products sold and
$1,194,000 of the cost which represents the excess of the cost of handsets over
the retail sales price of handsets has been included in advertising costs. The
basis for inclusion of the excess handset cost in advertising expense is to
reflect the promotional nature of these transactions. Alamosa sells handsets
solely as a means to attract wireless subscribers. There were no product
revenues or related costs for the period from inception to December 31, 1998.
Stock based compensation
The Company has elected to follow Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options. Under APB 25, the Company recorded no
compensation expense related to stock options at December 31, 1998. At September
30, 1999, the Company recorded compensation expense of $6,822,037 which is
presented as equity participation compensation expense in the Company's
Statement of Operations. The equity participation compensation expense relates
to two employees whose normal compensation is recorded in selling, general and
administrative expenses. The Company has implemented the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock Based Compensation."
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.
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.
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.
F-10
<PAGE> 122
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Effects of recent accounting pronouncements
In June 1998 and June 1999, the Financial Accounting Standards Board,
commonly referred to as FASB, issued Statement of Financial Accounting
Standards, or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging
Activities" and SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133." 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
No. 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 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, this statement 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 statement 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." 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 AND AS ADJUSTED INFORMATION
The unaudited pro forma and as adjusted information reflects certain
assumptions regarding transactions and their effects that would occur as a
result of the initial public offering described in Note 11.
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 at an effective tax rate
of 34% for the period from inception through December 31, 1998 and the
nine-month period ended September 30, 1999. Application of the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" would have resulted in a deferred tax asset primarily from temporary
differences related to the treatment of start-up costs and from net operating
loss carryforwards. The deferred tax asset would have been offset by a full
valuation allowance as there is not currently sufficient positive evidence as
required by SFAS No. 109 to substantiate recognition of the asset.
The 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.
F-11
<PAGE> 123
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 initial public 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, "Earnings Per Share." Diluted weighted average shares
outstanding at September 30, 1999 exclude 487,288 incremental 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:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Vehicles.................................. $ 23,637 $ 430,753
Furniture and office equipment............ 92,418 1,679,017
Network equipment......................... -- 33,635,587
Land and building......................... -- 2,080,526
---------- -----------
116,055 37,825,883
Accumulated depreciation.................. (2,063) (896,075)
---------- -----------
Total........................... $ 113,992 $36,929,808
========== ===========
</TABLE>
Construction in progress consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Network equipment......................... $1,628,271 $23,009,205
Leasehold improvements.................... 350,499 5,931,154
---------- -----------
Total........................... $1,978,770 $28,940,359
========== ===========
</TABLE>
F-12
<PAGE> 124
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
Operating leases
The Company has various operating leases, primarily related to rentals of
towers sites and offices. Rental expense was $15,208 and $664,622 for the period
ended December 31, 1998 and for the nine-month period ended September 30, 1999
respectively. At September 30, 1999, the aggregate minimum rental commitments
under noncancelable operating leases for the periods shown are as follows:
<TABLE>
<S> <C>
YEARS:
1999.................................................. $ 684,167
2000.................................................. 2,965,083
2001.................................................. 2,978,702
2002.................................................. 2,997,820
2003.................................................. 3,030,731
2004.................................................. 3,086,337
Thereafter............................................ 15,633,791
-----------
Total......................................... $31,376,631
===========
</TABLE>
Included in total minimum rental commitments is $16,049,515 which will be
paid to related parties.
Capital leases
Capital leases consist of leases for rental of retail space and switch
usage. The net present value of the leases was $728,219 and $853,965 at December
31, 1998 and September 30, 1999, respectively, and was included in construction
in progress and property and equipment. Amortization recorded under these leases
was minimal during 1998 and was $20,661 for the nine-month period ended
September 30, 1999.
At September 30, 1999, the future payments under capital lease obligations,
less imputed interest, are as follows:
<TABLE>
<S> <C>
YEARS:
1999................................................... $ 26,430
2000................................................... 105,720
2001................................................... 105,720
2002................................................... 105,720
2003................................................... 105,720
2004................................................... 113,970
Thereafter............................................. 1,085,480
----------
Total minimum lease payments............................. 1,648,760
Less: imputed interest................................... 794,795
----------
Present value of minimum lease payments.................. 853,965
Less: current installments............................... 21,281
----------
Long-term capital lease obligations at September 30,
1999................................................... $ 832,684
==========
</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, 9.0%
at September 30, 1999. Proceeds from this line of credit are used to purchase
vehicles for service representatives. As of September 30, 1999, $147,012
remained available on the line of credit. The vehicles purchased under this line
of credit and all of Alamosa'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. A total of $8,686 was paid
during the nine-month period ended September 30, 1999.
F-13
<PAGE> 125
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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 CHR Solutions, Inc.
Alamosa has entered into a number of agreements with CHR Solutions as
described in more detail below. CHR Solutions resulted from a merger between
Hicks & Ragland Engineering Co., Inc., and Cathey, Hutton & Associates, Inc.
effective as of November 1, 1999. David Sharbutt, Alamosa's Chairman and Chief
Executive 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 CHR Solutions. 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 and $1,834,853 for these services during 1998
and for the nine-month period ended September 30, 1999 respectively. Engineering
fees under this agreement are recorded in construction in progress and property
and equipment and comprise approximately 72% and 3% of fixed asset purchases
during 1998 and 1999 respectively. At December 31, 1998 and September 30, 1999,
amounts payable under these agreements amounted to $443,610 and $737,753.
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
in October 1999, in an aggregate amount of approximately $500,000. Alamosa paid
$235,550 for these services for the nine-month period ended September 30, 1999.
The amounts payable under these agreements was $189,444 at September 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
$88,486 for these services for the nine-month period ended September 30, 1999.
F-14
<PAGE> 126
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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. This individual is also 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. As of September 30, 1999, $165,300 had been paid under
this agreement.
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. South Plains 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. As of September 30, 1999,
$27,501 had been paid under this lease.
During 1998, certain members paid costs on behalf of the Company, which
were subsequently reimbursed. Such payments amounted to approximately $101,000
during 1998 and were minimal during 1999. No amounts payable to members were
outstanding at December 31, 1998 and September 30, 1999.
F-15
<PAGE> 127
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 under Section 401(k) of the Internal
Revenue Code. No employer contributions were made to this plan for the period
ended December 31, 1998 and the nine-month period ended September 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. The options to acquire membership interests
described above will be exchanged for options to acquire an equivalent number of
common shares: 242,500 at $1.08 per share, 242,500 at $1.15 per share and
242,500 at $1.25 per share.
On October 14, 1998, the Board of Members approved an Incentive Ownership
Plan. The plan consists of 3,500 units comprised of 1200 Series 8, 1150 Series
15 and 1150 Series 25 units. The exercise price for each series is based on a
pre-defined strike price which increases by an annual rate of 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
options to acquire membership interests described above will be exchanged for
options to acquire an equivalent number of common shares: 48,500 at $1.13 per
share, 48,500 at $1.25 per share and 48,500 at $1.42 per share.
The Company applies Accounting Principals Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations, in accounting for
its plans. Under opinion no. 25, no compensation expense or deferred
compensation was recorded as of December 31, 1998. As of September 30, 1999, the
Company has recorded unearned compensation of $11,193,751, which was calculated
based on the assumed initial public offering price of $14 per share. This amount
is being amortized in accordance with FASB Interpretation No. 28 over the
vesting periods of the individual options. For the nine-month period ended
September 30, 1999, equity participation compensation expense of $6,822,037 has
been recognized. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" 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. Due to the floating exercise price of the options granted
through September 30, 1999, the accounting provisions of opinion no. 25 for
variable plans have been followed. The Company has subsequently amended the
options outstanding at September 30, 1999 to establish a fixed exercise price
creating a new measurement date. Following this amendment, the provisions of
opinion no. 25 for fixed plans will be followed. The Company has decided not to
elect the cost-recognition provisions of SFAS No. 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%.
F-16
<PAGE> 128
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had the compensation expense for the options granted during 1998 been based
on the fair value pricing model described above, additional compensation expense
of $73,709 would have been recognized at December 31, 1998. This additional
compensation expense would have resulted in net loss of $997,531 and net loss
per share of $.02 at December 31, 1998. There would have been no additional
compensation expense for the nine-month period ended September 30, 1999. The
effects of applying SFAS No. 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.
Alamosa utilizes interest rate cap agreements to limit the impact of
increases in interest rates on its floating rate debt. The interest rate cap
agreements require premium payments to counterparties based upon a notional
principal amount. Interest rate cap agreements entitle the Company to receive
from the counterparties the amounts, if any, by which the selected market
interest rates exceed the strike rates stated in the agreements. The fair value
of the interest rate cap agreements is estimated by obtaining quotes from
brokers and represents the cash requirement if the existing contracts had been
settled at the balance sheet dates.
Selected information related to the Company's interest rate cap agreements
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Notional amount........................................... $-- $ 28,750,000
Fair value................................................ -- 71,094
Carrying amount........................................... -- 233,700
--- ------------
Net unrecognized gain (loss).............................. $-- $ (162,606)
=== ============
</TABLE>
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 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 used to purchase equipment and to fund the construction of the
Company's portion of the Sprint 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.
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 $1,000,000 cash balance as
security against the facility. This balance is recorded as a noncurrent asset.
F-17
<PAGE> 129
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
initial public offering described in Note 11. In addition, Nortel required the
members to execute capital contribution agreements to confirm their collective
obligations to make capital contributions of at least $48.5 million.
Alamosa may borrow money as either a base rate loan with an interest rate
of prime plus 2.5%, or a Eurodollar loan with an interest rate of the London
interbank offered rate, commonly referred to as LIBOR, plus 3.5%. This interest
rate was 9.4% at September 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
September 30, 1999 totaled $544,055. 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 the 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 September 30, 1999, the Company borrowed $59,678,288 against this
facility.
As a condition of the financing, Sprint PCS has entered into a consent and
agreement with Nortel that modifies Sprint PCS's rights and remedies under its
affiliation agreements with Alamosa. Among other things Sprint PCS consented to
the pledge substantially all of Alamosa's assets, including the affiliation
agreements to Nortel. In addition, Sprint PCS may not terminate the affiliation
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 consent and assignment with Nortel.
The Company incurred approximately $4,074,000 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.
11. OTHER SUBSEQUENT EVENTS
In December 1999, the Company amended the affiliation agreements with
Sprint PCS to expand its service networks in the southwest and to include
markets located in Wisconsin. As a result, Alamosa formed its 99.75% owned
subsidiary, Alamosa Wisconsin Limited Partnership, to perform Alamosa's
obligations under the affiliation agreements in Wisconsin with Sprint PCS.
The Company has filed a registration statement for equity financing through
an initial public offering. Immediately prior to the closing of initial public
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 48,500,008 shares of common stock of Alamosa PCS Holdings, Inc.
The ownership percentages among the Company's shareholders following the
reorganization will remain consistent with the ownership percentages described
in Note 1, except that as a result of the dissolution of Alamo IV, LLC in
November 1999, its members will receive their pro rata portions of common stock
of Alamosa PCS Holdings, Inc. The Company plans to utilize the proceeds from the
aforementioned offerings to fund the build-out of its expanded network.
F-18
<PAGE> 130
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the initial public offering described above, the Company has
filed a registration statement for senior discount notes. The senior discount
notes will be unsecured obligations and will rank equally with all existing and
future senior debt and senior to all existing and future subordinated debt. The
senior discount notes will be fully and unconditionally, jointly and severally
guaranteed on a senior subordinated, unsecured basis, by all the existing and
any future restricted subsidiaries of Alamosa PCS Holdings, Inc. In addition,
Alamosa PCS Holdings, Inc. will have no assets or operations other than its
investments in Alamosa PCS Inc., and there are no non-guarantor subsidiaries.
Therefore, financial statements of guarantor subsidiaries have been omitted.
Alamosa may redeem some or all of the senior discount notes beginning in
2005, and until 2003 may redeem a portion of the senior discount notes with the
net proceeds of an equity offering.
The senior discount notes will be issued at a discount to their principal
amount and will accrete in value until 2005, at which time their accreted value
will equal their principal amount. Interest will begin to accrue at this time
and will be payable semi-annually. The senior discount notes will contain
covenants limiting Alamosa PCS Holding, Inc.'s ability and the ability of its
subsidiaries to:
- incur additional debt or issue preferred stock;
- pay dividends, redeem capital stock or make other restricted payments or
investments;
- create liens on assets;
- merge, consolidate or dispose of assets;
- enter into transactions with affiliates; and
- change lines of business.
Holders of the senior discount notes will have the right to require Alamosa
PCS Holdings, Inc. to repurchase all or any part of their senior discount notes,
at 101% of the accreted value, if before 2005, or 101% of the aggregate
principal amount thereafter, together with accrued and unpaid interest, upon a
change of control of Alamosa.
Events of default in respect of the senior discount notes include, among
others, failure to pay interest or principal on the senior discount notes when
due, failure to perform covenants, acceleration of the maturity of other debt,
events of bankruptcy, certain judgments against Alamosa and the occurrence of
any event of default pursuant to the affiliation agreements with Sprint PCS.
In October 1999, the Company entered into a commitment letter to amend its
Nortel financing which increased the facility from $123 million to $250 million
and increased the Company's commitment to purchase equipment from Nortel. As of
December 31, 1999, Alamosa had remaining commitments of $117.6 million to
purchase equipment and infrastructure under the amended agreement. 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 initial public
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
among other options, Alamosa raises an additional $75.0 million of capital and
uses the proceeds to prepay any loans under the Nortel facility prior to that
date. The exercise price for the warrants will be the price paid for the common
stock in the initial public offering. Subsequent to the closing of the amended
Nortel agreement, the interest rates charged by Nortel will increase on the base
rate loans from prime plus 2.5% to prime plus 2.75% and on the Eurodollar loans
from LIBOR plus 3.5% to LIBOR plus 3.75%. In addition, subsequent to the closing
of the amended Nortel agreement, Alamosa will no longer be required to pay a
premium on any equipment and services financed by Nortel.
F-19
<PAGE> 131
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Effective October 1, 1999, Alamosa entered into a three-year employment
agreement with David Sharbutt, Alamosa's chairman, who was named Chief Executive
Officer. In addition, Alamosa granted options to Mr. Sharbutt to acquire 242,500
common shares at an exercise price of $1.15 per share which vest immediately
upon completion of the initial public offering and 1,455,000 shares at an
exercise price equal to the initial public offering price which vest 25% per
year beginning September 1, 2000. The options expire December 9, 2009. Based on
the expected offering price, the Company will recognize compensation expense of
$3,116,125 related to the 242,500 options issued with an exercise price below
the initial public offering price over the options vesting period.
In October 1999, Alamosa amended the Chief Operating Officer's options,
described in Note 8, such that each of his three series of original options to
purchase 242,500 shares of common stock at exercise prices which increased by an
annual rate of 8%, 15% and 25%, compounded monthly beginning at the date of
grant and vested over three years will be exchanged for two options to acquire a
total of 1,697,500 shares of common stock. The first option to acquire 242,500
shares of common stock has a fixed exercise price of $1.15 per share and vests
immediately prior to completion of the initial public offering. The second
option to acquire 1,455,000 shares of common stock has an exercise price equal
to the initial public offering price and vests 25% per year beginning September
1, 2000. The expiration date of all of the Chief Operating Officer's options was
extended from January 5, 2008 to December 9, 2009. These amendments will result
in a new measurement date; and additional compensation will be incurred if the
actual initial public offering price is greater than the assumed initial
offering price which was used to calculate the intrinsic value as of September
30, 1999 determined under APB 25. Based on the intrinsic value at September 30,
1999, the change in the vesting period will result in the immediate recognition
of $924,959 of compensation expense at the initial public offering related to
the 242,500 options vesting at that time. The remaining unearned compensation
totaling $1,849,919 will be recognized over the period from the initial public
offering through September 1, 2003, the amended vesting period of the remaining
options.
In addition, in October 1999, Alamosa amended the Chief Technology
Officer's options, described in Note 8, such that his original options with
exercise prices which increased by an annual rate of 8%, 15%, or 25% (compounded
monthly beginning July 1, 2000) will be exchanged for options to purchase an
equivalent number of common shares at fixed exercise prices equal to $1.13,
$1.25 and $1.42 per share which will not increase over the term of the options.
In addition, the three-year vesting period will be amended such that one-third
of each option series will be fully vested and exercisable immediately prior to
completion of the initial public offering, and another one-third of each series
will vest on each of October 29, 2000 and October 29, 2001. These amendments
will result in a new measurement date; and additional compensation will be
incurred if the actual initial public offering price is greater than the assumed
initial offering price which was used to calculate the intrinsic value as of
September 30, 1999 determined under APB 25. Based on the intrinsic value at
September 30, 1999, the change in the vesting period will result in the
immediate recognition of $183,446 of compensation expense at the initial public
offering related to the 242,500 options vesting at that time. The remaining
unearned compensation totaling $366,892 will be recognized over the period from
the initial public offering through October 29, 2001, the proposed vesting
period of the remaining options.
Effective December 1, 1999, the Company entered into an employment
agreement with its Chief Financial Officer, Kendall W. Cowan, which has a
five-year term and includes options to purchase 1,455,000 shares at the initial
public offering price and that will expire December 9, 2009. There is no
compensation cost related to these options.
F-20
<PAGE> 132
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10,714,000 SHARES
ALAMOSA PCS HOLDINGS, INC.
COMMON STOCK
[ALAMOSA LOGO]
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PROSPECTUS
FEBRUARY 3, 2000
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SALOMON SMITH BARNEY LEHMAN BROTHERS
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CREDIT SUISSE FIRST BOSTON DEUTSCHE BANC ALEX. BROWN
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Until February 28, 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.
